CAPITAL AUTOMOTIVE REIT, S-3, 1999-05-11

CAPITAL AUTOMOTIVE REIT
S-3, 1999-05-11
REAL ESTATE INVESTMENT TRUSTS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1999
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
CAPITAL AUTOMOTIVE REIT
(Exact name of registrant as specified in its charter)

MARYLAND 6798 54-1870224
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
___________________________

1420 SPRING HILL ROAD, SUITE 525
MCLEAN, VIRGINIA 22102
(703) 288-3075

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

THOMAS D. ECKERT, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CAPITAL AUTOMOTIVE REIT
1420 SPRING HILL ROAD, SUITE 525
MCLEAN, VIRGINIA 22102
(703) 288-3075

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
___________________

With a copy to:
JOHN B. WATKINS, ESQUIRE
WILMER, CUTLER & PICKERING
2445 M STREET, N.W.
WASHINGTON, D.C. 20037
(202) 663-6000
___________________

Approximate date the registrant proposes to begin selling securities to the
public: From time to time after the effective date of this registration
statement.
____________________

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [X]

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

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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. [_]
<PAGE>

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
TITLE OF SECURITIES AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TO BE REGISTERED TO BE REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING AMOUNT OF
(1) PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest, par
value $.01 per share 796,135 $12.9375 $10,299,997 $2,863.40
====================================================================================================================
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low reported sales
prices for the registrant's common shares of beneficial interest, as reported on
The Nasdaq Stock Market National Market on May 7, 1999.

This registration statement relates to the possible offering and sale of
common shares of Capital Automotive REIT upon the redemption of units of limited
partnership interest in Capital Automotive L.P. 122,620 of these units were
issued in transactions that closed May 6, 1998 and become redeemable on May 6,
1999 and an aggregate of 673,515 of these units were issued in transactions
that closed May 22, 1998 and become redeemable on May 22, 1999.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
IS TO BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR
UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE ON THE DATE THE SEC, ACTING
UNDER SECTION 8(a), DETERMINES.
================================================================================
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SUBJECT TO COMPLETION, DATED MAY 11, 1999

- --------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. The
Company may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
- --------------------------------------------------------------------------------

PROSPECTUS

[LOGO] CAPITAL AUTOMOTIVE REIT

796,135 COMMON SHARES of BENEFICIAL INTEREST

The Company is offering 796,135 common shares upon redemption of certain
units of limited partnership interest of Capital Automotive L.P. 122,620 of the
units were issued in connection with acquisitions of properties that closed on
May 6, 1998 and 673,515 of the units were issued in connection with
acquisitions of properties that closed on May 22, 1998, as more fully described
in this prospectus. Generally, holders of units have the right to notify the
Partnership that they want their units redeemed. The Company has the right to
assume the obligations of the Partnership to redeem units. If a holder exercises
his right to have his units redeemed, the Company may issue common shares in
exchange for those units. If and when unitholders request redemption of units,
the registration of these common shares does not mean that the Company will
offer or sell the common shares to unitholders. The Partnership or the Company
may choose to pay cash in exchange for the units. The Company will not receive
any money from the offer and sale of these common shares to unitholders.

The Company is also registering the resale of these common shares by the
recipients. The Company will not receive any money from the offer and sale of
common shares by any selling shareholder. See "Use of Proceeds," "Selling
Shareholders" and "Plan of Distribution." The registration of the common shares
for possible resale does not mean that any person who receives common shares
from the Company for his units will offer and sell the shares.

The shares are quoted on the Nasdaq National Market under the symbol
"CARS." On May 7, 1999, the average high and low sales prices of the common
shares as reported on the Nasdaq National Market was $12.9375 per share.

To maintain the Company's qualification as a real estate investment trust,
the Company limits the transfer of common shares. No person may own more than
9.9% of the outstanding shares or 9.9% of the outstanding convertible preferred
shares, as determined under the attribution rules of the Internal Revenue Code,
subject to certain exceptions.

YOU SHOULD BE AWARE THAT AN INVESTMENT IN THE COMMON SHARES INVOLVES
VARIOUS RISKS. SEE "RISK FACTORS" ON PAGE 1 AND IN THE COMPANY'S CURRENT REPORT
ON FORM 8-K FILED ON FEBRUARY 26, 1999, WHICH IS INCORPORATED IN THIS PROSPECTUS
BY REFERENCE.

Holders of units should also realize that the redemption of a unit will
be treated as a taxable sale of the unit. As such, holders will recognize gain
or loss from the "sale" of the unit equal to the difference between the amount
considered realized for tax purposes and the holder's adjusted tax basis in the
unit.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this prospectus is _____________
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE No
<S> <C>
About this Prospectus.......................................... i
Risk Factors................................................... 1
Tax Consequences of Redemption of Units.................. 1
Potential Change in Investment Upon Redemption of Units.. 1
The Company.................................................... 2
Use of Proceeds................................................ 4
Market Price of Common Shares.................................. 4
Description of Shares of Beneficial Interest................... 5
Description of Partnership Agreement........................... 15
Redemption of Units............................................ 18
Comparison of the Company and the Partnership.................. 21
Federal Income Tax Consequences................................ 29
Plan of Distribution........................................... 56
Legal Matters.................................................. 56
Experts........................................................ 57
Where You Can Find More Information............................ 57
</TABLE>
<PAGE>

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that Capital Automotive
REIT (the "Company") filed with the Securities and Exchange Commission (the
"SEC") using a "shelf" registration process. Under this shelf process, the
Company may offer and sell common shares described in this prospectus on
redemption of units of limited partnership interest of Capital Automotive L.P.
in one or more offerings to persons who acquired their units on May 6, 1998 and
May 22, 1998. The persons who receive common shares from the Company may also
resell those shares. This prospectus provides you with a general description of
the common shares, which the Company may offer. The Company will deliver or
provide a prospectus supplement if and when it offers and sells any common
shares, and when a selling shareholder offers and resells any common shares that
will contain specific information about all of the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading
"Where You Can Find More Information."

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This prospectus, including the documents incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act. Also, documents subsequently filed by Capital Automotive REIT
with the SEC and incorporated by reference will contain forward-looking
statements. When the Company refers to forward-looking statements or
information, sometimes the Company uses words such as "may," "will," "could,"
"should," "plans," "intends," "expects," "believes," "estimates," "anticipates"
and "continues." In particular, the risk factors included or incorporated by
reference in this prospectus describe forward-looking information. The risk
factors are not all inclusive, particularly with respect to possible future
events. Other parts of, or documents incorporated by reference into, this
prospectus may also describe forward-looking information. Many things can
happen that can cause actual results to be very different than those described
by the Company. The Company makes no promise to update any of the Company's
forward-looking statements, or to publicly release the results if the Company
revises any of them.

Unless the context otherwise requires, the term the Company refers to
Capital Automotive REIT and the term the Partnership refers to Capital
Automotive L.P. The term Capital Automotive Group refers to the Company and the
Partnership and their subsidiaries. In this prospectus, the term "subsidiary"
of the Company or the Partnership means a corporation, partnership, limited
liability company or similar entity if the Company or the Partnership, alone or
together, directly or indirectly, own at least a majority of the equity
interests of the entity.

RISK FACTORS

You should carefully review the following risks and the risk factors
incorporated by reference from the Company's Form 8-K filed on February 26, 1999
as well as the other information in this prospectus or referred to in this
prospectus, before buying the Company's common shares.

TAX CONSEQUENCES OF REDEMPTION OF UNITS.

The redemption of units has tax consequences. If you redeem units for cash
or common shares, you will recognize gain or loss because the redemption and
exchange is treated as a sale and is taxable. Such a sale will be taxable to
you in an amount equal to the cash or the value of the common shares received on
redemption, plus the amount of the Partnership's nonrecourse liabilities that
are allocated to the redeemed units at the time of the redemption. The amount
of gain you recognize, or even the tax liability resulting from such gain, could
exceed the amount of cash or the value of the common shares you receive upon
redemption. Your tax liability may differ if you redeem only a portion of your
units and the Partnership uses its funds to redeem those units for cash. See
"Federal Income Tax Consequences--Redemption of Units--Tax Consequences of
Redemption." In addition, because the price of common shares fluctuates, the
price you receive when you sell your common shares may not equal the value of
your units at the time of redemption.

POTENTIAL CHANGE IN INVESTMENT UPON REDEMPTION OF UNITS.

If you exercise your unit redemption right, the Company will determine
whether you receive cash or common shares in exchange for your units. If you
receive common shares, you will become

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a shareholder of the Company rather than a holder of units in the Partnership.
Although an investment in common shares is substantially equivalent to an
investment in units in the Partnership, there are some differences between
ownership of units and ownership of common shares. These differences include the
form of organization, management structure, investor rights, marketability of
interests, liquidity and federal income tax consequences. These differences,
some of which may be material to you, are discussed in "Redemption of Units --
Comparison of Ownership of Units and Common Shares."

THE COMPANY

The Company is a Maryland real estate investment trust formed in October
1997. The Company owns its property interests through the Partnership and its
subsidiaries. The Company is the sole general partner of the Partnership. The
Company closed its initial public offering of common shares and began generating
rental income in February 1998.

Capital Automotive Group's primary business purpose is to own and lease
real estate properties (land, buildings and other improvements) to operators of
franchised automobile dealerships, motor vehicle service, repair or parts
businesses and related businesses. In this prospectus, Capital Automotive Group
uses the term "dealerships" to refer to these types of businesses that are
operated on its properties.

As of March 31, 1999, Capital Automotive Group owned 142 properties located
in 19 states, making up approximately 793 acres of land and containing
approximately 5.0 million square feet of buildings and improvements. Capital
Automotive Group's lessees operate 215 motor vehicle franchises on these
properties, representing 36 brands of motor vehicles, including Acura, Audi,
BMW, Buick, Cadillac, Chevrolet, Chrysler, Dodge, Dodge Trucks, Ford,
Freightliner, GMC, Honda, Hyundai, Infiniti, Isuzu, Jaguar, Jeep, Kia, Land
Rover, Lexus, Lincoln-Mercury, Mazda, Mercedes-Benz, Mitsubishi, Nissan,
Oldsmobile, Plymouth, Pontiac, Porsche, Saab, Saturn, Subaru, Toyota, Volkswagen
and Volvo.

Capital Automotive Group focuses on buying properties from third parties
that have a long history of operating multi-site, multi-franchised dealerships.
In this prospectus, Capital Automotive Group uses the term "dealer group" to
refer to a group of related persons and companies who sell properties to Capital
Automotive Group. Capital Automotive Group also uses the term "dealer group" or
the term "lessee" to refer to the related persons and companies that lease
properties owned by Capital Automotive Group.

As of March 31, 1999, Capital Automotive Group had invested approximately
$600 million in properties. Most of the properties have been leased to lessees
who are related to the sellers of such properties. In certain cases, Capital
Automotive Group may lease property to, or assume an existing lease with, a
lessee that is not related to the seller from whom the property was purchased.

Capital Automotive Group purchases properties in exchange for cash, units
of limited partnership interest in the Partnership ("units"), the assumption of
debt, or a combination of all three. Capital Automotive Group usually pays off
any assumed debt in full at closing. In certain

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cases, Capital Automotive Group assumes and does not pay off a dealer group's
loan under an existing mortgage as part of the purchase of real estate. At
times, Capital Automotive Group has agreed in advance to purchase property in
the future only after the dealership buildings have been constructed by the
seller.

Capital Automotive Group generally leases properties to established,
creditworthy lessees, for a period of ten to 20 years, with options to renew
upon the same terms and conditions for one or more additional periods of five to
ten years each, exercisable at the option of the lessee. The lessee typically
is required to pay all operating expenses of the property, including all real
estate taxes and assessments, utilities, insurance, repairs, maintenance and
other expenses. This type of lease is commonly known as a "triple-net" lease.

In evaluating dealer groups and potential properties for purchase, Capital
Automotive Group considers such factors as:

. the management and operating experience of the dealer group;

. the adequacy of a dealer group's historical, current and forecasted cash
flow to meet the operating needs of the business, expenses and lease
payments or debt service obligations;

. the type of franchises operated by the dealer group;

. the value of the land, buildings and other improvements as determined by
Capital Automotive Group and its consultants, but not by an independent MAI
appraisal;

. the construction quality, condition and design of the dealership buildings
and other improvements located on the property;

. the geographic area in which the property is located; and

. the environmental condition of the real estate.

Capital Automotive Group intends to acquire more properties. Those
transactions may be structured in ways that are similar or dissimilar to those
described above.

Capital Automotive Group has and will continue to borrow funds to buy
properties. As of March 31, 1999, Capital Automotive Group had mortgage
indebtedness totaling $162 million secured by 64 properties owned by
subsidiaries of the Partnership. As of March 31, 1999, Capital Automotive Group
had committments for short term, revolving credit, from financial institutions,
in the aggregate amount of $70.0 million, of which $20.0 million had been drawn
down. The Company intends to increase the capacity and term of the revolving
facility through the inclusion of additional financial institutions. During
April 1999, Capital Automotive Group entered into a committment letter for a
$100.0 million permanent loan to be secured by various properties owned by
subsidiaries of the Partnership. Capital Automotive Group may also issue debt
securities, including senior or subordinated notes. These notes may be secured
by properties or leases. Capital

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Automotive Group has adopted a policy to limit debt to approximately 50% of
assets. This policy may be changed by the Company's Board of Trustees at any
time without shareholder approval.

As a real estate investment trust, the Company acquires properties through
its direct and indirect subsidiaries, including the Partnership, and manages its
business in a manner that is intended to be consistent with the requirements of
the Internal Revenue Code (the "Code") and the regulations of the Internal
Revenue Service (the "IRS") that govern taxation of real estate investment
trusts. The Company has and expects to continue to pay regular cash dividends
to its shareholders; to provide its shareholders the opportunity for increased
dividends from increasing annual rental income; to preserve and protect the
investments of its shareholders; and to provide its shareholders with the
opportunity to increase the value of their investments.

The Company is self-administered and self-managed, meaning that its
trustees, officers and employees manage and administer Capital Automotive
Group's business. The Company's executive officers are Thomas D. Eckert,
President and Chief Executive Officer; Donald L. Keithley, Executive Vice
President of Business Development; David S. Kay, Vice President and Chief
Financial Officer; John M. Weaver, Vice President, Secretary and General
Counsel; and Peter C. Staaf, Vice President and Treasurer.

The Company's principal executive offices are located at 1420 Spring Hill
Road, Suite 525, McLean, Virginia 22102. The Company's telephone number is (703)
288-3075.

USE OF PROCEEDS

The Company will not receive any proceeds from common shares offered and
sold on redemption of units. The Company will not receive any proceeds from
common shares sold by selling shareholders.

MARKET PRICE OF COMMON SHARES

The common shares have been trading on the Nasdaq National Market under the
symbol "CARS" since February 13, 1998. The Company has listed below the high
and low sales prices of the common shares as reported on the Nasdaq National
Market and the distributions declared by the Company for the periods indicated.

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<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTION
-------- -------- ------------
<S> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1998

First fiscal quarter (from February 13, 1998) $ 19 3/4 $ 16 1/4 $0.076
Second fiscal quarter 19 3/8 13 1/8 0.210
Third fiscal quarter 15 3/4 10 7/8 0.270
Fourth fiscal quarter 14 7/8 8 13/16 0.320

FISCAL YEAR ENDING DECEMBER 31, 1999

First fiscal quarter $ 15 3/16 $ 11 1/4 $0.330

Second fiscal quarter (to May 7, 1999) 13 5/8 11 3/8 __
</TABLE>

On May 7, 1999, the last reported closing sales price on the Nasdaq
National Market was $12.9375 per share and there were approximately 34 holders
of record of the common shares of the Company.

DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

The Company is a Maryland real estate investment trust. Your rights as a
shareholder are governed by the Code of Maryland, including Title 8 of the
Corporations and Associations Article, the Company's Declaration of Trust and
the Company's Bylaws. The following summary of terms for the shares of
beneficial interest is not complete. You should read the Company's Declaration
of Trust and Bylaws for more complete information.

AUTHORIZED SHARES

The Company's Declaration of Trust allows it to issue up to 100 million
common shares of beneficial interest, par value $.01 per share, and 20 million
preferred shares of beneficial interest, par value $.01 per share. As of May 7,
1999, the Company had 21,607,415 common shares outstanding and no preferred
shares outstanding.

Authority of the Board of Trustees. The Company's Declaration of Trust
allows the Board of Trustees to take the following actions without approval by
you or other shareholders:

. classify or reclassify any unissued common shares or preferred shares
into one or more classes or series of shares of beneficial interest;

. set or change the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or distributions,
qualifications or terms or conditions of redemption of any class or
series of shares of beneficial interest; and

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. amend the Declaration of Trust to change the total number of shares of
beneficial interest or the number of shares of any class or series of
shares of beneficial interest.

However, if there are any laws or stock exchange rules which require the Company
to obtain shareholder approval in order for it to take these actions, the
Company will contact you and other shareholders to solicit that approval.

The Company believes that the power of the Board of Trustees to issue
additional shares of beneficial interest will provide it with greater
flexibility in structuring possible future financings and acquisitions and in
meeting other future needs. Although the Board of Trustees does not currently
intend to do so, it has the ability to issue a class or series of beneficial
share that 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 favorable to them.

Shareholder Liability. Under Maryland law, you will not be personally
liable for any obligation of the Company solely because you are a shareholder of
the Company. Under the Declaration of Trust the Company's shareholders are not
personally liable for the Company's debts or obligations and will not 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.

COMMON SHARES

All common shares offered through this prospectus will be duly authorized,
fully paid and nonassessable. As a shareholder, you will be entitled to receive
distributions on the shares you own if the Board of Trustees authorizes a
distribution out of the legally available assets of the Company. However, your
right to receive these distributions may be affected by the preferential rights
of any other class or series of shares of beneficial interest and the provisions
of the Company's Declaration of Trust regarding restrictions on the transfer of
shares of beneficial interest. For example, you may not receive distributions if
no funds are available for distribution after the Company pays dividends to
holders of preferred shares. You will also be entitled to receive distributions
based on the assets of the Company available for distribution to common
shareholders if we liquidate, dissolve or wind-up the Company. The amount you,
as an individual shareholder, would receive in the distribution would be
determined by your amount of beneficial ownership of the Company in comparison
with other beneficial owners. Assets will be available for distribution to
shareholders only after the Company has paid all known debts and liabilities of
the Company and paid the holders of any preferred shares the Company may issue.

Voting Rights. Each outstanding common share owned by a shareholder
entitles that holder to one vote on all matters submitted to a vote of
shareholders, including the election of trustees. The right to vote is subject
to the provisions of the Company's Declaration of Trust regarding the
restriction on the transfer of shares of beneficial interest, which we describe
under "Restrictions on Ownership and Transfer," below. There is no cumulative
voting in the election of trustees, which means that the holders of a majority
of the outstanding common shares can elect all of the trustees then standing for
election, and the holders of the remaining shares will not be able to elect any
trustees.

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As a holder of a common share, you will not have any right to:

. convert your shares into any other security;

. have any funds set aside for future payments;

. require the Company to repurchase your shares; or

. purchase any securities of the Company, if other securities are
offered for sale, other than as a member of the general public.

Subject to the terms of the Declaration of Trust regarding the restrictions on
transfer of shares of beneficial interest, each common share has the same
dividend, distribution, liquidation and other rights as any other common share.

According to the terms of the Company's Declaration of Trust, Bylaws, and
Maryland law, all matters submitted to the shareholders for approval, except for
those matters listed below, are approved if a majority of all the votes cast at
a meeting of shareholders duly called and at which a quorum is present are voted
in favor of approval. The following matters require approval other than by a
majority of all votes cast:

1. 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 outstanding and
entitled to vote on such a matter),

2. 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),

3. the removal of trustees (which requires the affirmative vote of the
holders of two-thirds of the number of common shares outstanding and
entitled to vote on such a matter),

4. 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 Company's Declaration of Trust that require the affirmative vote
of two-thirds of all the votes entitled to be cast on the matter),

5. the dissolution of the Company (which requires the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter), and

6. the merger or consolidation of the Company with another entity or sale
of all or substantially all of the property of the Company (which
requires the approval of the

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Board of Trustees and an affirmative vote of a majority of all the
votes entitled to be cast on the matter).

The Declaration of Trust permits 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 Maryland law without the approval of you or other
shareholders. The Declaration of Trust permits the Board of Trustees to amend
the Declaration of Trust to change the total number of shares of beneficial
interest or the number of shares of any class of shares of beneficial interest
that the Company has authority to issue without approval by you or other
shareholders.

The common shares are traded on the Nasdaq National Market System under the
trading symbol "CARS."

PREFERRED SHARES

General. Preferred shares may be offered and sold from time to time, in
one or more series, as authorized by the Board of Trustees. The Board of
Trustees is required by Maryland law and the Declaration of Trust to set for
each series the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms or
conditions of redemption. The Board of Trustees has the power to set
preferences, powers and rights, voting or other terms of preferred shares that
are senior to, or better than, the rights of holders of common shares or other
classes or series of preferred shares. The offer and sale 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 favorable to them.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

Restrictions on ownership and transfer of shares are important to ensure
that the Company meets certain conditions under the Code to qualify as a REIT.
For example, the Code contains the following requirements.

. No more than 50% in value of a REIT's shares may be owned, actually or
constructively (based on attribution rules in the Code), by 5 or fewer
individuals during the last half of a taxable year or a proportionate
part of a shorter taxable year (the "5/50 Rule"). The 5/50 Rule did
not apply to the Company's first year as a REIT, but applies for years
after 1998. Under the Code, individuals include certain tax-exempt
entities except that qualified domestic pension funds are not
generally treated as individuals.

. If a REIT, or an owner of 10% or more of a REIT, is treated as owning
10% or more of a lessee of the REIT's property, the rent received by
the REIT from the 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 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

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shorter taxable year. The 100 owner rule also did not apply to the
Company's first year as a REIT, but applies for years after 1998.

The Board of Trustees believes it is essential for the Company to continue to
qualify as a REIT. Therefore, 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, more than 9.9% of the
outstanding common shares, preferred shares or any other series of capital
shares. In this prospectus, the term "Ownership Limitation" is used to describe
this provision of the Declaration of Trust.

Any transfer of common or preferred shares will be null and void, and the
intended transferee will acquire no rights in such common shares or preferred
shares if the transfer:

. results in any person owning, directly or indirectly, common shares or
preferred shares in excess of the Ownership Limitation;

. results in the common shares and preferred shares being owned by fewer
than 100 persons (determined without reference to any rules of
attribution);

. results in the Company being "closely held" (within the meaning of
Section 856(h) of the Code); or

. causes the Company to own, directly or constructively, 10% or more of
the ownership interests in a tenant of the Company's or the
Partnership's real property (within the meaning of Section
856(d)(2)(B) of the Code).

Automatic Transfer of Shares to Trust. With certain exceptions described
below, the common shares or preferred shares will be designated as "Shares-in-
Trust" and transferred automatically to a trust (the "Share Trust") if any
purported transfer of common shares or preferred shares would violate any of the
four restrictions above which cause the transfer to be null and void. The
transfer to the Share Trust is effective as of the end of 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") must deliver those shares to the
Company for registration in the name of the Share Trust. The Company will
designate a Share Trustee who is not affiliated with the Company. The
beneficiary of the Share Trust (the "Beneficiary") will be one or more
charitable organizations named by the Company.

Any Shares-in-Trust remain issued and outstanding common shares or
preferred shares and are entitled to the same rights and privileges as all other
shares of the same class or series. The Share Trust receives all dividends and
distributions on the Shares-in-Trust and holds such dividends and distributions
in trust for the benefit of the Beneficiary. The Share Trustee votes all
Shares-in-Trust. The Share Trustee may also designate a permitted transferee of
the Shares-in-Trust. The permitted transferee must purchase the Shares-in-Trust
for valuable consideration and acquire the Shares-in-Trust without resulting in
the transfer being null and void.

9
<PAGE>

The Prohibited Owner with respect to Shares-in-Trust must pay the Share
Trust any dividends or distributions received by the Prohibited Owner (1) that
are attributable to any Shares-in-Trust and (2) 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:

. the price per share, if any, paid by the Prohibited Owner for the
common shares or preferred shares, or if no amount was paid for such
shares (e.g., if such shares were received through a gift or devise),
the price per share equal to the market price (which is calculated as
defined in the Declaration of Trust) on the date the shares were
received;

. 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 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 but in no case more than the price per
share paid by the Prohibited Owner or, in the case of a gift or devise, the
market price per share on the date such shares were received.

The Shares-in-Trust will be offered for sale to the Company, or its
designee, at a price per share equal to the lesser of (1) 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 (2) the
market price per share on the date that the Company, or its designee, accepts
such offer. The Company may accept such offer for a period of ninety days after
the later of (1) the date of the purported transfer which resulted in such
Shares-in-Trust or (2) the date the Company determines in good faith that a
transfer resulting in such Shares-in-Trust occurred.

Any person who acquires or attempts to acquire common shares or preferred
shares which would be null and void under the restrictions described above, or
any person who owned common shares or preferred shares that were transferred to
a Share Trust, must (1) give immediate written notice to the Company of such
event and (2) provide the Company such other information as requested in order
to determine the effect, if any, of such transfer on the Company's status as a
REIT.

If a shareholder owns more than 5% of the outstanding common shares and
preferred shares, then the shareholder must notify the Company of its share
ownership by January 30 of each year.

The Ownership Limitation generally does 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 may exempt a
person from the Ownership Limitation under certain circumstances and conditions.
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

10
<PAGE>

Company in excess of the Ownership Limit would result in the termination of the
Company's status as a REIT. The restrictions described above will continue to
apply until (1) 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 (2) 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 Limitation with respect to Friedman,
Billings, Ramsey Group, Inc. and related persons 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 preferred 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.

WARRANTS

Outstanding Warrants. As of May 7, 1999, the Company had warrants
outstanding to acquire a total of 3,141,952 common shares. Warrants for a total
of 2,691,952 common shares were exercisable by the holders on that date.
Warrants for a total of 400,000 common shares will become exercisable for 25% of
the common shares each year over a four year period beginning on January 5,
2000. The warrant for the remaining 50,000 common shares will become exercisable
beginning on January 31, 2000. The warrants have been issued under written
warrant agreements. The exercise price of each outstanding warrant is $15.00 per
common share. Warrants for a total of 2,741,952 common shares are for terms of 5
years. Warrants for a total of 400,000 common shares are for terms of 10 years.
Each warrant obligates the Company to file a registration statement after the
warrant has been exercised by the holder to register the common shares if the
holder so requests or if the Company files a registration statement for its own
shares.

REGISTRATION RIGHTS AGREEMENTS

Under various agreements, including the Partnership's Partnership
Agreement, the Company has agreed to file a registration statement that covers:

. the resale of common shares upon redemption of units that were issued
in private placements at the time of and since the Company's
formation;

. the resale of common shares held by FBR Asset Investment Corporation;
and

. the resale of common shares upon exercise of warrants.

The Company must use its best efforts to maintain the effectiveness of
these registration statements. The exchange of outstanding securities for common
shares will increase the number of outstanding common shares and will increase
the Company's percentage ownership interest in the Partnership.

11
<PAGE>

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

The following summary of certain provisions of the Maryland General
Corporation Law and the Company's Declaration of Trust and Bylaws is not
complete. You should read Maryland General Corporation Law and the Company's
Declaration of Trust and Bylaws for more complete information. The business
combination provisions and the control share acquisition provisions of Maryland
law, both of which are discussed below, could have the effect of delaying or
preventing a change in control of the Company. Also, the removal of trustees
provisions of the Declaration of Trust and the advance notice provisions of the
Bylaws could have the effect of delaying or preventing a transaction or a change
in control of the Company. These provisions could have the effect of
discouraging offers to acquire the Company and of increasing the difficulty of
consummating any such offer, even if the offer contains a premium price for
holders of common shares or otherwise benefits shareholders.

Business Combinations. Maryland General Corporation Law prohibits the
Company from entering into "business combinations" and other corporate
transactions unless special actions are taken. The business combinations that
require such special actions include a merger, consolidation, share exchange,
or, in certain circumstances, an asset transfer or issuance of equity securities
when the combination is between the Company and an "interested shareholder" (as
defined below). An interested shareholder is (1) any person who beneficially
owns 10% or more of the voting power of the Company's shares or (2) any
affiliate of the Company which beneficially owned 10% or more of the voting
power of the Company's shares within two years prior to the date in question. We
may not engage in a business combination with an interested shareholder or any
of its affiliates for five years after the interested shareholder becomes an
interested shareholder. This prohibition does not apply to business combinations
involving the Company that are exempted by the Board of Trustees before the
interested shareholder becomes an interested shareholder.

We may engage in business combinations with an interested shareholder if at
least five years have passed since the person became an interested shareholder,
but only if the transaction is:

1. recommended by the board of trustees; and

2. approved by at least

a. 80% of the Company's outstanding shares entitled to vote, and

b. two-thirds of the Company's outstanding shares entitled to vote
that are not held by the interested shareholder.

Shareholder approval will not be required if the Company's shareholders
receive a minimum price (as defined in the statute) for their shares and the
shareholders receive cash or the same form of consideration as the interested
shareholder paid for its shares.

Control Share Acquisitions. The Company's Declaration of Trust exempts
acquisitions of shares of beneficial interest by any person from "control share
acquisition" requirements discussed

12
<PAGE>

below. There is no assurance that such exemption will not be amended or
eliminated in the future. If the exemption was eliminated, "control share
acquisitions" would be subject to the following provisions.

The Maryland General Corporation Law provides that "control shares" of a
Maryland real estate investment trust acquired in a "control share acquisition"
have no voting rights unless two-thirds of the shareholders (excluding shares
owned by the acquirer, officers and trustees who are employees of the Company)
approve their voting rights.

"Control Shares" are shares that, if added with all other shares previously
acquired, would entitle that person to vote, in electing the trustees,

. 20% or more but less than one-third of such shares,

. one-third or more but less than a majority of such shares, or

. a majority of the outstanding shares.

Control shares do not include shares the acquiring person is entitled to
vote with shareholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.

If this provision becomes applicable to the Company, a person who has made
or proposes to make a control share acquisition could, under certain
circumstances, compel the Company's Board of Trustees to call a special meeting
of shareholders to consider the voting rights of the control shares. The Company
could also present the question at any shareholders meeting on its own.

If this provision becomes applicable to the Company, subject to certain
conditions and limitations, the Company would be able to redeem any or all
control shares. If voting rights for control shares were approved at a
shareholders meeting and the acquirer is entitled to vote a majority of the
shares entitled to vote, all other shareholders could exercise appraisal rights
and exchange their shares for a fair value as defined by statute.

Limitation of Liability of Trustees and Officers. The Company's Declaration
of Trust provides that, to the fullest extent that limitations on the liability
of trustees and officers are permitted by the Maryland General Corporation Law,
no trustee or officer will be liable to the Company or its shareholders for
money damages. The Maryland General Corporation Law provides that the Company
may restrict or limit the liability of trustees or officers for money damages
except

. to the extent anyone actually received an improper benefit or profit
in money, property or services, or

. a judgment or other final adjudication adverse to the person is
entered in a proceeding based on a finding that the person's action
was material to the cause of

<PAGE>

action adjudicated and the action or failure to act was the result of
bad faith or active and deliberate dishonesty.

Indemnification of Trustees and Officers. The Company's Declaration of
Trust and Bylaws permit the Company to indemnify any of its trustees, officers,
employees or agents. The Bylaws require the Company to indemnify each trustee or
officer who has been successful in defending any proceeding to which he or she
is made a party by reason of his or her service to the Company. The Company has
also entered into separate indemnification agreements with each of its trustees
and certain of its executive officers. The agreements require that the Company
indemnify its trustees and officers to the fullest extent permitted by Maryland
General Corporation Law. The agreements also require the Company to indemnify
and advance all expenses incurred by trustees and officers seeking to enforce
their indemnification agreements. The Company must also cover trustees and
officers under its trustees' and officers' liability insurance. Although the
form of indemnification agreement offers substantially the same scope of
coverage as the Company's Declaration of Trust and Bylaws, the agreements
provide greater assurance to the trustees and officers that indemnification will
be available because, as a contract, it cannot be modified unilaterally in the
future by the Board of Trustees or by the Company's shareholders.

The Maryland General Corporation Law provides that the Company may
indemnify trustees and officers unless

. the trustee actually received an improper benefit or profit in money
property or services,

. the act or omission of the trustee was material to the matter giving
rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty, or

. in a criminal proceeding, the trustee had reasonable cause to believe
that the act or omission was unlawful.

The Company's Bylaws require, as a condition to advancing expenses, (1) a
written affirmation by the trustee or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Company and
(2) a written affirmation to repay the amount paid by the Company if it is
determined that the trustee or officer was not entitled to indemnification.

Maryland Asset Requirements. To maintain the Company's qualification as a
Maryland real estate investment trust, the Company must 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 Company is also prohibited from using or applying land for farming,
agricultural, horticultural or similar purposes.

<PAGE>

Meetings of Shareholders. The Company's 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 by unanimous written consent without a
meeting. The written consent must, among other items, specify the action to be
taken and be signed by each shareholder entitled to vote on the matter.

TRANSFER AGENT AND REGISTRAR

The Company's transfer agent and registrar for the common shares is
American Stock Transfer & Trust Company.

DESCRIPTION OF THE PARTNERSHIP AGREEMENT

The following summary of the Partnership Agreement of Capital Automotive
L.P., as currently in effect, including the descriptions of certain provisions
described elsewhere in this prospectus, is qualified in its entirety by
reference to the Partnership Agreement. The Company has incorporated by
reference the Partnership Agreement as an exhibit to this Registration
Statement. You should read the Partnership Agreement for a complete description
of all the terms.

MANAGEMENT

The Partnership was formed as a Delaware limited partnership in October
1997. The Company is the sole general partner and the holder of a majority of
the units of the Partnership. Under the Partnership Agreement, the Company has
full, exclusive and complete responsibility and discretion in the management and
control of the Partnership, subject to certain limited exceptions. The limited
partners of the Partnership generally have no authority to participate in or
exercise control or management power over the business and affairs of the
Partnership.

INDEMNIFICATION

The Partnership provides for indemnification of the Company, as general
partner, its officers and trustees and such other persons the Company may
designate to the same extent indemnification is provided in the Declaration of
Trust. The liability of the Company and its officers and trustees to the
Partnership are limited to the same extent as under the Declaration of Trust.

TRANSFERABILITY OF INTERESTS

The Partnership Agreement generally provides that the Company may not
voluntarily withdraw from the Partnership, or transfer or assign its interest in
the Partnership. The limited

<PAGE>

partners, on the other hand, may transfer their units if the Partnership
consents and the transfer does not violate federal and state securities laws or
REIT qualification rules under the Code. The limited partners may also transfer
units to a qualified transferee as described in the Partnership Agreement. Both
the Company and the Partnership have a right of first refusal in the case of
transfers by the limited partners. No transferee may become a substituted
limited partner without the Partnership's consent.

EXTRAORDINARY TRANSACTIONS

Under the Partnership Agreement, the Company may not (1) engage in any
merger, consolidation or other combination, (2) sell all or substantially all of
its assets, or (3) reclassify, recapitalize or change its outstanding common
shares. These transactions will be referred to as business combinations. The
Company may not participate in a business combination unless the holders of
units will receive the same consideration per unit or preferred unit, if any, as
shareholders receive per common share or preferred share, and no more than 75%
of the equity securities of the acquiring person will be owned by the Company or
related persons. If there is an offer to purchase, tender or exchange common
shares, each holder of units will be able to exchange its units for the greatest
amount of cash, securities or property that a limited partner would have
received had he redeemed his units, and then accepted the sale, tender or
exchange offer for those shares.

The Company can merge into or consolidate with another person if
immediately after the merger or consolidation substantially all of the assets of
the successor person are contributed to the Partnership as a capital
contribution in exchange for units and the surviving person agrees to assume the
obligations of the general partner.

OFFERS AND SALES OF ADDITIONAL UNITS

The Partnership has and will continue to issue additional units. The
Partnership may also issue additional units representing general partnership
interests, common limited partnership interests or preferred limited partnership
interests of any class or series, with such rights, powers and preferences as
the general partner sets.

CAPITAL CONTRIBUTIONS AND ADDITIONAL FUNDS

If the Partnership requires additional funds at any time, then the Company,
to the extent consistent with its REIT status, may borrow such funds from a
lender and lend such funds to the Partnership on comparable loan terms. The
Company may also give the Partnership additional funds by making additional
capital contributions in return for units. If the Company sells additional
securities, the Company will contribute the net proceeds to the Partnership by
making additional capital contributions. If the Company contributes additional
capital to the Partnership, its limited partnership interest in the Partnership
will increase on a proportionate basis based upon the amount of the additional
capital. If the additional capital contribution arises from the sale of
securities, the Company will receive units of limited partnership interest with
rights comparable to the rights of the securities that were sold by the Company.
If the Company's limited partnership interest increases, the limited partnership
interests of the limited partners will decrease proportionately.

16
<PAGE>

LIMITED PARTNER REDEMPTION RIGHTS

Under the Partnership Agreement, each limited partner has the right to
require the Partnership to redeem part or all of his units for cash after a
specified holding period that is at least one year from the date such units were
first acquired by the limited partner. The Company may elect to assume the
obligations of the Partnership and may acquire the units for common shares on a
one-for-one basis. The Partnership can refuse or delay a redemption if it would
cause any person to violate any ownership limitation or provision of the
Declaration of Trust or otherwise jeopardize the Company's status as a REIT. See
"Description of Shares of Beneficial Interest--Restrictions on Ownership and
Transfer." The holders of units have been given registration rights requiring
the Company to register the re-sale of any common shares issued in exchange for
units.

TAX MATTERS

As provided in the Partnership Agreement, the Company is the tax matters
partner of the Partnership. Accordingly, the Company makes whatever tax
elections must be made under the Code. The net income or net loss of the
Partnership will generally be allocated to the Company and the limited partners
in accordance with priorities of distribution. See "Federal Income Tax
Consequences-Tax Aspects of the Company's Investments in the Partnership and
Subsidiary Partnerships."

DISTRIBUTIONS

Subject to the terms of any preferred units, the Partnership distributes
cash on a quarterly basis (or if the Company elects more frequently), to its
limited partners on a pro rata basis.

OPERATIONS

The Partnership Agreement requires that the Partnership be operated in a
manner that will enable the Company to satisfy the requirements for
classification as a real estate investment trust and to ensure that the
Partnership will not be classified as a publicly-traded partnership under the
Code. Under the Partnership Agreement, subject to certain exceptions, the
Partnership will also assume and pay when due, or reimburse the Company for
payment of, all costs and expenses relating to the ownership of interests in and
operation of the Partnership.

DUTIES AND CONFLICTS

The Partnership Agreement provides generally that all business activities
must be conducted through the Partnership.

TERM

The term of the Partnership continues until December 31, 2073, or until
sooner dissolved upon the occurrence of certain other events.

17
<PAGE>

REDEMPTION OF UNITS

TERMS OF REDEMPTION OF UNITS

On May 6, 1998 the Partnership closed the sale of 122,620 units, and on May
22, 1998 the Partnership closed the sale of an aggregate of 673,515 units, to
the prior owners of, or to persons related to the entities that owned, certain
properties as consideration for the contribution of these properties to the
Partnership. Information about the properties, date of contribution, the date
the units become exchangeable and the number of units that were sold by the
Partnership is set forth below:

<TABLE>
<CAPTION>
NUMBER
DATE FIRST OF
UNITHOLDER DEALERSHIP PROPERTY CONTRIBUTION DATE EXCHANGEABLE UNITS
- ---------- ---------- ------------- ----------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Roundtree Boise Properties, LLC
- -------------------------------

Roundtree Boise Properties,LLC Roundtree Chevrolet
Lincoln-Mercury Boise, Idaho May 6, 1998 May 6, 1999 122,620

Dixon
- -----

Kenneth O. Dixon Ken Dixon
Chevrolet-Buick, Inc. Waldorf, MD May 22, 1998 May 22, 1999 92,747

Andrew F. Dixon Ken Dixon
Chevrolet-Buick, Inc. Waldorf, MD May 22, 1998 May 22, 1999 108,850

Rincon Etal Investments, Inc.
- -----------------------------

Rincon Etal Investments, Inc. O'Rielly Chevrolet, Inc. Tucson, AZ May 22, 1998 May 22, 1999 471,918
</TABLE>

Beginning on May 6, 1999, the holder of 122,620 units, and, beginning on
May 22, 1999, the holders of an aggregate of 673,515 units, can cause the
Partnership to redeem the units for cash. The Company has the right to assume
the obligations of the Partnership to redeem units and may redeem the units for
cash or may issue common shares for units on a one-for-one basis, subject to
adjustment. The number of common shares that could be issued to holders of units
on redemption will be adjusted in the event of stock splits, stock dividends,
issuances of certain rights, certain extraordinary distributions and similar
events.

Common shares will only be issued if a holder decides to redeem his units
and if the Company decides to assume the Partnership's redemption obligation and
to offer and sell common shares. The Company is also now registering the resale
of such common shares for the recipients, if and when such shares are offered
and sold by the Company.

A holder of units must deliver a notice of redemption to the Partnership.
That holder will have the right to receive an amount of cash from the
Partnership equal to the Cash Amount, as defined in the Partnership Agreement.
The "Cash Amount" will be determined as of the date that the Partnership
receives the notice of redemption. If the common shares are then quoted on the
Nasdaq National Market or are listed on a national securities exchange, the
"Cash Amount" will be the average of the daily sales prices of common shares for
the 20 consecutive trading days

<PAGE>

immediately preceding the five trading days prior to the date that the
Partnership received the notice of redemption. If the Company elects to redeem
the units for common shares, the holder will have no right to receive cash.

Any common shares issued on redemption of units will be delivered as duly
authorized, validly issued, fully paid and nonassessable shares, free of any
pledge, lien, encumbrance or restriction, other than those provided in the
Declaration of Trust and Bylaws or under applicable state and federal securities
laws. The common shares will be subject to the terms of the registration rights
that relate to those shares.

CERTAIN CONDITIONS TO THE EXCHANGE

If the Company decides to assume the Partnership's obligation to redeem
units and to offer common shares in exchange for such units, we will issue such
common shares to a redeeming holder promptly upon receipt of a notice of
redemption unless:

* a redemption would cause a holder or any other person to violate the
Restrictions on Ownership and Transfer provisions of the Declaration
of Trust;

* a redemption is for less than 1,000 units, or if the redeeming holder
holds less than 1,000 units, the redemption is for less than all
units;

* the redeeming holder has delivered more than four notices of
redemption during a calendar year; or

* a redemption would cause the Partnership to be a "publicly traded
partnership" under Section 7704 of the Code.

The redeeming holder will have no right to receive any Partnership
distribution on any units that have been tendered for redemption if the record
date for such distribution is on or after a date that is 30 days after the date
of the notice of redemption to the Partnership.

Any attempted exchange in violation of any of the above conditions will
have no effect.

The Company will not issue common shares in exchange for units if the
issuance of the common shares would:

. result in any person owning, directly or indirectly, common
shares in excess of 9.9% of the outstanding common shares;

. result in common shares being owned by fewer than 100 persons
(determined without reference to any rules of attribution);

. result in the Company being "closely held" within the meaning of
Section 856(h) of the Code;

19
<PAGE>

. cause the Company to own, actually or constructively, 10% or more
of the ownership interests in a lessee of any property, within
the meaning of Section 856(d)(2)(B) of the Code;

. otherwise violate the Declaration of Trust or Bylaws of the
Company; or

. be "integrated" with any other distribution of shares of
beneficial interest for purposes of complying with the
registration provisions of the Securities Act of 1933, as
amended.

COMPARISON OF THE COMPANY AND THE PARTNERSHIP

Generally an investment in common shares is economically equivalent to an
investment in the units of the Partnership. Currently, only common shares of the
Company and units of the Partnership are outstanding. Holders of common shares
and holders of units receive similar distributions.

However, there are also differences between ownership of units and
ownership of common shares, some of which may be material to investors. The
information below highlights a number of the significant differences between the
Company and the Partnership including form of organization, management control,
voting rights, liquidity and federal income tax considerations. These
comparisons are intended to assist holders of units in understanding how their
investment will be changed if they receive common shares on redemption of their
units. This discussion is only a summary and does not constitute a complete
discussion of these matters. Holders of units should carefully review the
balance of this prospectus and the registration statement of which this
prospectus is a part for additional important information.

FORM OF ORGANIZATION AND ASSETS OWNED

The Partnership is organized as a Delaware limited partnership. The
Partnership owns interests in properties and its subsidiary partnerships and
limited liability companies. The Partnership's purpose is to conduct any
business that may be lawfully conducted by a limited partnership organized under
the Delaware Revised Uniform Limited Partnership Act. However, its business must
be conducted in a manner that permits the Company to qualify as a REIT unless
the Company otherwise ceases to qualify as a REIT.

The Company is a Maryland real estate investment trust. It intends to elect
to be taxed as a REIT under the Code, commencing with the taxable year ended
December 31, 1998. The Company intends to maintain its qualification as a REIT.
Its primary asset is its interest in the Partnership, the Partnership
subsidiaries and in the Company's direct subsidiaries, which gives it an
indirect investment in the properties and subsidiaries of the Partnership. Under
its Declaration of Trust, the Company may engage in any lawful activity
permitted under Maryland law. However, under the Partnership Agreement, the
Company, as general partner, may not conduct any business other than the
business of the Partnership.

20
<PAGE>

ADDITIONAL EQUITY

The Partnership may issue units (which are substantially equivalent to
common shares), preferred units and other partnership interests (including
partnership interests of different series or classes that may be senior to
units) in exchange for additional capital contributions as determined by the
Company as its sole general partner. In exchange for capital contributions, the
Partnership may issue units, preferred units and other partnership interests to
the Company, may issue units, preferred units and other partnership interests to
existing limited partners and others, and may admit third parties as additional
limited partners. As long as the Partnership is in existence, the proceeds of
all equity capital raised by the Company will be contributed to the Partnership
in exchange for units, preferred units or other partnership units whose terms
will mirror the terms of the securities sold by the Company to raise such
capital.

The Board of Trustees of the Company may, in its discretion, authorize the
offer and sale of additional common shares or preferred shares (including shares
of different series or classes that may be senior to common shares). The Board
may authorize such shares in any class and series and may set the terms,
preferences, rights and privileges of such shares. The Board or a committee may
also set the offering price for such shares. The Declaration of Trust also
permits the Board to increase the aggregate number of shares or the number of
shares of any class or series without any action by the shareholders.

The Company may also raise capital by selling debt securities or entering
into loan or financing arrangements with third parties. Properties of
Partnership subsidiaries have been pledged, and other properties and assets of
the Partnership or its subsidiaries may also be pledged, as security for such
debt. The Company will contribute any borrowed funds to the Partnership as a
loan, except in certain limited circumstances described in the Partnership
Agreement. The terms of the indebtedness of the Partnership will be equivalent
to the terms of the indebtedness of the Company.

MANAGEMENT CONTROL

All management powers over the business and affairs of the Partnership are
vested in the Company as the general partner. No limited partner of the
Partnership has any right to participate in or exercise control or management
power over the business and affairs of the Partnership. The Company may not be
removed as general partner by the holders of units with or without cause.

The Company's business and affairs are managed under the direction of the
Board of Trustees. The Company is required under its Declaration of Trust to
hold an annual meeting for the election of trustees. The Board of Trustees may
alter or eliminate business policies without a vote of the shareholders.
Accordingly, except for their vote in the election of trustees, shareholders
have no control over the Company's ordinary business policies.

VOTING RIGHTS

General. The Company may generally amend the Partnership Agreement as it
deems necessary, without the consent of limited partners. As a limited partner,
you will have the right to

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vote on the following amendments to the Partnership Agreement, which require the
consent of limited partners (other than the Company in its capacity as a limited
partner) holding at least two-thirds (2/3rds) of the equity ownership of the
Partnership:

* an amendment affecting the operation of the redemption right or
conversion formula for units except as provided in the Partnership
Agreement, in a manner adverse to the limited partners;

* an amendment that would adversely affect the rights of the limited
partners to receive the distributions payable to them other than with
respect to the issuance of additional units pursuant to Section 4.02 of
the Partnership Agreement;

* an amendment that would alter the Partnership's allocations of profit
and loss to the limited partners in a manner adverse to limited
partners, other than with respect to the issuance of additional units
pursuant to Section 4.02 of the Partnership Agreement;

* an amendment that would impose on the limited partners any obligation to
make additional capital contributions to the Partnership;

* an amendment to Section 8.07 of the Partnership Agreement providing for
certain registration rights, in a manner adverse to any limited partner;
and

* an amendment to Article XI of the Partnership Agreement relating to when
limited partner consent is required.

Each outstanding common share owned by a shareholder entitles that holder
to one vote on all matters submitted to a vote of shareholders, including the
election of trustees. The right to vote is subject to the provisions of the
Company's Declaration of Trust regarding the restrictions on transfer of shares
of beneficial interest, which are described under "Description of Shares of
Beneficial Ownership--Restrictions on Ownership and Transfer." 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.

Under the Declaration of Trust, Bylaws and Maryland law, all matters
submitted to the shareholders for approval, except for those matters listed
below, are approved if a majority of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present are voted in favor of
approval. The following matters require approval other than by a majority of
all votes cast:

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<PAGE>

2. 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),

3. the removal of trustees (which requires the affirmative vote of the
holders of two-thirds of the number of common shares outstanding and
entitled to vote on such a matter), and

4. 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 that require the affirmative vote of two-thirds of
all the votes entitled to be cast on the matter).

Vote Required to Dissolve the Company or the Partnership. Limited Partners
will have no right to vote to dissolve the Partnership. Under the Partnership
Agreement, the Partnership will dissolve upon the following events:

. the bankruptcy of the general partner;

. 90 days after the sale or disposition of all or substantially all of
the assets of the Partnership;

. the redemption of all limited partnership interests; or

. the election of the general partner.

Under the Declaration of Trust, the shareholders may elect to terminate the
Company upon the affirmative vote of two-thirds of all votes entitled to be cast
on the matter.

Vote Required to Sell Assets or Merge. Under the Partnership Agreement,
the disposition of all or substantially all of the Partnership's assets or
merger or consolidation of the Partnership requires the consent of limited
partners (including the Company in its capacity as a limited partner) holding at
least two-thirds of the equity ownership of the Partnership. The sale of less
than all or substantially all of the properties and assets of the Partnership
does not require the approval of the limited partners. The Company holds a
majority of limited partnership interests in the Partnership.

Under the Declaration of Trust, the sale of all or substantially all of the
Company's assets or a merger or consolidation of the Company requires the
approval of the Board of Trustees and the holders of a majority of all votes
entitled to be cast on the matter. The sale of less than 90% of the

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<PAGE>

total assets of the Company within a 12 month period does not require the
approval of the shareholders.

DUTIES OF GENERAL PARTNER AND TRUSTEES

Under Delaware law, the Company, as general partner, has a duty of care to
the Partnership and is accountable to the Partnership as a fiduciary.
Consequently, the Company is required to exercise good faith in all of its
dealings with respect to partnership affairs. However, under the Partnership
Agreement, the Company and its officers and trustees are not liable for monetary
damages for losses sustained or liabilities incurred by partners as a result of
errors of judgment or acts or omissions if the Company acted in good faith.

Under the Declaration of Trust, the trustees must perform their duties in
good faith. Any determination made in good faith by the Board concerning its
powers and authority will be conclusive.

MANAGEMENT LIABILITY AND INDEMNIFICATION

As a matter of Delaware law, the Company, as the general partner, has
liability for the payment of the obligations and debts of the Partnership unless
limitations upon such liability are stated in the document or instrument
evidencing the obligations. Under the Partnership Agreement, the Partnership
indemnifies the Company and its officers and trustees for any and all losses,
claims, damages, liabilities (joint or several), expenses (including reasonable
legal fees and expenses), judgments, fines, settlements, and other amounts
arising from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, that relate to the operations of the
Partnership, unless it is established that: (1) the act or omission of the
Company or the officer or trustee was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (2) the Company or the officer or trustee actually
received an improper personal benefit in money, property or services; or (3) in
the case of any criminal proceeding, the Company or the officer or trustee had
reasonable cause to believe that the act or omission was unlawful. Any
indemnification is payable only out of the assets of the Partnership.

The reasonable expenses incurred by an indemnitee may be reimbursed by the
Partnership before the final disposition of the proceeding. First, however, the
indemnitee must deliver to the Partnership an affirmation of his or her good
faith belief that the standard of conduct necessary for indemnification has been
met and an undertaking that the indemnitee shall repay the amount if it is
determined that such standard was not met.

The Declaration of Trust contains a provision which eliminates the
liability of Trustees and officers to the Company and its shareholders to the
fullest extent permitted by Maryland law in effect from time to time. The Bylaws
provide indemnification to Trustees and officers to the maximum extent permitted
by Maryland law in effect from time to time. Such indemnification is to the
same extent that the trustees and officers have indemnification rights under the
Partnership

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<PAGE>

Agreement (in their capacity as officers and trustees of the general partner of
the Partnership) as described above.

The Company and the Partnership may also indemnify costs and expenses of
shareholders, employees and agents to the maximum extent permitted by law and
authorized by the trustees.

ANTI-TAKEOVER PROVISIONS

Except in limited circumstances (see "-- Voting Rights"), the Company has
exclusive management power over the business and affairs of the Partnership.
The Company may not be removed as general partner by the limited partners with
or without cause. A limited partner may generally not transfer its units
without the consent of the Company unless:

* the transfer is a result of the exercise of a redemption right;

* the transfer is to an affiliate, subsidiary or successor-in-interest of
a limited partner organized as a corporation or other business entity;
or

* the transfer is for donative purposes to an immediate family member or
trust owned by the limited partner or his immediate family members.

The limited partners may pledge units as collateral for any borrowing from
an institutional lender with the consent of the Company.

The Declaration of Trust and Bylaws contain a number of provisions that may
delay or discourage an unsolicited proposal for an acquisition involving the
Company and may prevent or delay the removal of incumbent trustees or
management. These provisions include:

. authorized shares that may be issued as preferred shares in the
discretion of the Board of Trustees, with voting or other rights
superior to the common shares;

. a requirement that trustees be removed only for cause, only at a meeting
of shareholders and only by the affirmative vote of two-thirds of the
aggregate number of votes then outstanding and entitled to vote
generally in the election of trustees; and

. provisions designed to avoid concentration of share ownership in a
manner that would jeopardize the status of the Company as a REIT under
the Code. See "Description of Shares of Beneficial Interest--
Restrictions on Ownership and Transfer."

Maryland law also contains certain provisions which could delay, defer or
prevent a change of control or other transaction. See "Description of Shares of
Beneficial Interest--Certain Provisions of Maryland Law and the Declaration of
Trust and Bylaws."

<PAGE>

COMPENSATION, FEES AND DISTRIBUTIONS

The Company does not receive any compensation for its services as general
partner of the Partnership. As a partner in the Partnership, however, the
Company has the same right to receive pro rata allocations and distributions as
other partners of the Partnership. In addition, the Partnership generally will
reimburse the Company for all expenses incurred relating to its ongoing
operation and Partnership business and any offering of additional partnership
interests in the Partnership. The Partnership will also pay the compensation of
officers and employees providing services to the Partnership.

The Company's officers and outside trustees receive compensation for their
services.

LIABILITY OF LIMITED PARTNERS AND SHAREHOLDERS

Under the Partnership Agreement and applicable Delaware law, the liability
of the holders of common units and exchangeable preferred units for the
Partnership's debts and obligations is generally limited to the amount of their
investment in the Partnership.

Under the Declaration of Trust the Company's shareholders are not
personally liable for the Company's debts or obligations and will not 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.

LIQUIDITY

The Company may not transfer or assign any of its general partnership
interest or withdraw as a general partner except as a result of certain
extraordinary transactions such as a merger, consolidation or other combination
or sale of all or substantially all Partnership assets (which requires the
consent of limited partners). The Company may not transfer its units except to
a successor general partner with the consent of a majority in interest of the
limited partners. The Company has agreed that it will hold at least a 20%
ownership interest in the Partnership at all times.

A limited partner may generally not transfer its units without the consent
of the Company unless:

* the transfer is a result of the exercise of a redemption right;

* the transfer is to an affiliate, subsidiary or successor-in-interest of
a limited partner organized as a corporation or other business entity;
or

* the transfer is for donative purposes to an immediate family member or
trust owned by the limited partner or his immediate family members.

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<PAGE>

The limited partners may pledge units as collateral for any borrowings from
institutional lenders with the consent of the Company.

The common shares received by a unitholder on redemption will be freely
transferrable as registered securities under the Securities Act, subject to
prospectus delivery and other requirements for registered securities under
federal or state law.

TAXES

The Partnership is not subject to federal income taxes. Instead, each
holder of units includes his allocable share of the Partnership's taxable income
or loss in determining his individual federal income tax liability. The maximum
effective federal tax rate for individuals under current law is 39.6%.

Income and loss from the Partnership generally are subject to the "passive
activity" limitations. Under the "passive activity" rules, income and loss from
the Partnership that is considered "passive activity"generally can be offset
against income and loss from other investments that constitute "passive
activities," unless the Partnership is considered a "publicly traded
partnership," in which case income and loss from the Partnership can be offset
only against other income and loss from the Partnership.

Cash distributions from the Partnership are not taxable to a holder of
units except to the extent they exceed such holder's basis in his interest in
the Partnership, which includes such holder's allocable share of the
Partnership's debt.

Each year, holders of units receive a Schedule K-1 tax form containing
detailed tax information for inclusion in preparing their federal income tax
returns.

Holders of units are required, in some cases, to file state income tax
returns and/or pay state income taxes in the states in which the Partnership
owns property, even if they are not residents of those states.

The Company intends to elect to be taxed as a REIT. So long as it qualifies
as a REIT, the Company will be permitted to deduct distributions paid to its
shareholders, which effectively will reduce the "double taxation" that
typically results when a corporation earns income and distributes that income to
its shareholders in the form of dividends.

Distributions paid by the Company are treated as "portfolio" income and
cannot be offset with losses from "passive activities."

Distributions made by the Company to its taxable domestic shareholders out
of current or accumulated earnings and profits are taken into account by them as
ordinary income. Distributions in excess of current or accumulated earnings and
profits that are not designated as capital gain dividends are treated as a non-
taxable return of basis to the extent of a shareholder's adjusted basis in its
common shares, with the excess taxed as capital gain. Distributions that are
designated as

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<PAGE>

capital gain dividends generally are taxed as gains from the sale or exchange of
a capital asset held for more than one year, to the extent they do not exceed
the Company's actual net capital gain for the taxable year. The Company may
elect to require its shareholders to include the Company's undistributed net
capital gains in their income. If the Company so elects, shareholders would
include their proportionate share of such gains in their income and be deemed to
have paid their share of the tax paid by the Company on such gains. Each year,
shareholders will receive Form 1099 used by corporations to report dividends
paid to their shareholders. Shareholders who are individuals generally are not
required to file state income tax returns and/or pay state income taxes outside
of their state of residence with respect to the Company's operations and
distributions. The Company may be required to pay state income taxes in certain
states.

FEDERAL INCOME TAX CONSEQUENCES

The following sections summarize the federal income tax issues that you, as
a redeeming limited partner and shareholder, may consider relevant. Because
this section is a summary, it does not address all of the tax issues that may be
important to you. In addition, this section does not address the tax issues
that may be important to certain types of shareholders that are subject to
special treatment under the federal income tax laws, such as insurance
companies, tax-exempt organizations (except to the extent discussed in "--
Taxation of Tax-Exempt U.S. Shareholders" below), financial institutions and
broker-dealers, and non-U.S. individuals and foreign corporations (except to the
extent discussed in "--Taxation of Non-U.S. Shareholders" below).

The statements in this section are based on the current federal income tax
laws governing the Company's qualification as a REIT. The Company cannot assure
you that new laws, interpretations of laws or court decisions, any of which may
take effect retroactively, will not cause any statement in this section to be
inaccurate.

THE COMPANY URGES YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO YOU OF REDEEMING YOUR UNITS AND OF THE COMPANY'S
ELECTION TO BE TAXED AS A REIT. SPECIFICALLY, YOU SHOULD CONSULT YOUR OWN TAX
ADVISER REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH INVESTMENT AND ELECTION, AND REGARDING POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.

TAX CONSEQUENCES OF REDEMPTION

The following discussion summarizes certain federal income tax
considerations that may be relevant to a limited partner who exercises his right
to require the Partnership to redeem his units.

Tax Treatment of Redemption of Units. If the Company assumes the
redemption obligation and purchases units from a limited partner, the
Partnership Agreement provides that the redemption will be treated by the
Company, the Partnership, and the redeeming limited partner as a sale of units
by the limited partner to the Company. The sale will be fully taxable to the
limited partner, and he will realize for tax purposes an amount equal to the sum
of the cash or the value of the common shares received in exchange for the
units, plus the amount of any partnership liabilities allocable to the redeemed
units at the time of the purchase.

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<PAGE>

If the Company does not elect to assume the obligation to redeem a limited
partner's units, then the Partnership will redeem the units for cash. If the
Partnership redeems the units for cash contributed by the Company, the
redemption likely would be treated for tax purposes as a sale of such units in a
fully taxable transaction. In that event, the redeeming partner will realize an
amount equal to the sum of the cash received in connection with the redemption,
plus the amount of any partnership liabilities allocable to the redeemed units
at the time of the redemption. The determination of the amount of gain or loss
in the event of sale treatment is discussed more fully below.

If the Partnership redeems units for cash that is not contributed by the
Company to effect the redemption, the tax consequences would be the same as
described in the previous paragraph, except that if the Partnership redeems less
than all of the units owned by a limited partner, the limited partner would not
be permitted to recognize any loss occurring on the transaction. The limited
partner would recognize taxable gain only to the extent that the sum of the cash
and the amount of any partnership liabilities allocable to the redeemed units
exceeds his adjusted basis in all of his units immediately before the
redemption.

Tax Treatment of Disposition of Units by Limited Partner Generally. If a
unit is redeemed in a manner that is treated as a sale of the unit, or if a
limited partner otherwise disposes of a unit (other than in a transaction that
is treated as a redemption for tax purposes), the determination of gain or loss
from such sale or other disposition will be based on the difference between the
amount realized for tax purposes and the tax basis in such unit. See "--Basis
of Units."

Upon the sale of a unit, the "amount realized" will be measured by the sum
of the cash and fair market value of other property (e.g., common shares)
received, plus the amount of any partnership liabilities allocable to the unit
sold. To the extent that the amount realized exceeds the limited partner's basis
in the unit sold, the limited partner will recognize gain. The amount of gain
recognized, or the tax liability resulting from such gain, could exceed the
amount of cash and the value of any other property received during the sale.

Except as described below, any gain recognized upon a sale or other
disposition of units will be treated as gain attributable to the sale or
disposition of a capital asset. However, the excess of (A) the amount realized
upon the sale of a unit that is attributable to a limited partner's share of the
Partnership's "unrealized receivables" (as defined in Section 751 of the Code)
over (B) the basis attributable to those assets will be ordinary income.
Unrealized receivables include, to the extent not previously included in the
Partnership's income, any rights to payment for services rendered or to be
rendered. Unrealized receivables also include amounts that would be subject to
recapture as ordinary income if the Partnership had sold its assets at their
fair market value at the time of the transfer of a unit.

Basis of Units. In general, if a limited partner is treated as having
received units upon liquidation of a partnership, he will have an initial tax
basis in his units ("Initial Basis") equal to his basis in his interest in the
liquidated partnership. Similarly, in general, if a limited partner received
his units in exchange for a contribution of a partnership interest or other
property to Partnership, he will have an Initial Basis equal to his basis in the
contributed partnership interest or other property.

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<PAGE>

A limited partner's Initial Basis generally is increased by (1) his share
of the Partnership's income and (2) increases in his share of the Partnership's
liabilities (including any increase in his share of liabilities occurring in
connection with the transactions resulting in the issuance of the units).

Generally, a limited partner's basis in his units is decreased (but not
below zero) by (1) his share of the Partnership's distributions, (2) decreases
in his share of the Partnership's liabilities (including any decrease in his
share of liabilities occurring in connection with the transactions resulting in
the issuance of the units), (3) his share of the Partnership's losses and (4)
his share of the Partnership's nondeductible expenditures that are not
chargeable to capital.

Potential Application of Disguised Sale Regulations to a Redemption of
Units. There is a risk that a redemption of units may cause the limited
partner's original transfer of property to the Partnership in exchange for units
to be treated as a "disguised sale" of property.

The Code and the related Treasury Regulations (the "Disguised Sale
Regulations") generally provide that, unless an exception applies, if (A) a
partner contributes property to a partnership and (B) a partnership at the same
time or afterwards transfers money or other consideration (including the
assumption of or taking subject to a liability) to the partner, then the
transaction will be presumed to be a sale, in whole or in part, of the property
by the partner to the partnership.

The Disguised Sale Regulations provide generally that, in the absence of an
applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property to the partnership, the transactions will, when viewed together, be
presumed to be a sale of the contributed property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale.
The Disguised Sale Regulations also provide that, if two years have passed
between the contribution of property and the transfer of money or other
consideration from the partnership to a partner, the transactions will be
presumed not to be a sale unless the facts and circumstances clearly establish
that the transfers constitute a sale. A Disguised Sale may exist in cases in
which the transfers are not made simultaneously only if based on all the facts
and circumstances the later transfer is not dependent on the entrepreneurial
risks of partnership operations.

Accordingly, if the Partnership redeems a unit, the Internal Revenue
Service could argue that the Disguised Sale Regulations apply, because the
redeeming limited partner will receive cash or common shares after he has
contributed property to the Partnership. If the Internal Revenue Service were
to take such a position and sustain it in court, the original issuance of the
units could be taxable as a disguised sale under the Disguised Sale Regulations.
Any gain recognized thereby may be eligible for installment reporting under
Section 453 of the Code, subject to certain limitations.

TAXATION OF THE COMPANY

The Company will elect to be taxed as a REIT under the federal income tax
laws when it files its 1998 tax return. The Company has operated in a manner
intended to qualify as a REIT and

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<PAGE>

it intends to continue to operate in that manner. This section discusses the
laws governing the federal income tax treatment of a REIT and its shareholders.
These laws are highly technical and complex.

In the opinion of the Company's tax counsel, Wilmer, Cutler & Pickering,
(1) the Company will qualify as a REIT under section 856 through 859 of the Code
with respect to the Company's first taxable year ended December 31, 1998; and
(2) the Company is organized in conformity with the requirements for
qualification as a REIT under the Code and its current method of operation will
enable it to meet the requirements for qualification as a REIT for the current
taxable year and for future taxable years. With respect to its current and
future years, however, the Company's status as a REIT at any time is dependent,
among other things, upon its meeting certain requirements through out the year
as a whole. You should be aware that opinions of counsel are not binding on the
IRS or any court. Wilmer, Cutler & Pickering based this opinion on various
assumptions and factual representations made by the Company. The Company's
qualification as a REIT depends on its ability to meet, on a continuing basis,
certain qualification tests set forth in the federal tax laws. Those
qualification tests involve the percentage of income that the Company earns from
specified sources, the percentage of its assets that fall within certain
categories, the diversity of its share ownership, and the percentage of its
earnings that it distributes. We describe the REIT qualification tests in more
detail below. Wilmer, Cutler & Pickering will not monitor the Company's
compliance with the requirements for REIT qualification on an ongoing basis.
Accordingly, no assurance can be given that the Company's actual operating
results will satisfy the qualification tests. For a discussion of the tax
treatment of the Company and its shareholders if the Company fails to qualify as
a REIT, see "--Failure to Qualify."

If the Company qualifies as a REIT, it generally will not be subject to
federal income tax on the taxable income that it distributes to its
shareholders. The benefit of that tax treatment is that it avoids the "double
taxation" (i.e., at both the corporate and stockholder levels) that generally
results from owning stock in a corporation. However, the Company will be subject
to federal tax in the following circumstances:

. the Company will pay federal income tax on taxable income (including net
capital gain) that it does not distribute to its shareholders during, or
within a specified time period after, the calendar year in which the
income is earned;

. the Company may be subject to the "alternative minimum tax" on any items
of tax preference that it does not distribute or allocate to its
shareholders;

. the Company will pay income tax at the highest corporate rate on (i) net
income from the sale or other disposition of property acquired through
foreclosure ("foreclosure property") that it holds primarily for sale to
customers in the ordinary course of business and (ii) other non-
qualifying income from foreclosure property;

. the Company will pay a 100% tax on net income from certain sales or
other dispositions of property (other than foreclosure property) that it
holds primarily for sale to customers in the ordinary course of business
("prohibited transactions");

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<PAGE>

. if the Company fails to satisfy the 75% gross income test or the 95%
gross income test (as described below under "--Requirements for
Qualification --Income Tests"), and nonetheless continues to qualify as
a REIT because it meets certain other requirements, it will pay a 100%
tax on (i) the gross income attributable to the greater of the amounts
by which it fails the 75% and 95% gross income tests, multiplied by (ii)
a fraction intended to reflect its profitability;

. if the Company fails to distribute during a calendar year at least the
sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, it will pay a 4% excise
tax on the excess of such required distribution over the amount it
actually distributed;

. the Company may elect to retain and pay income tax on its net long-term
capital gain; or

. if the Company acquires any asset from a C corporation (i.e., a
corporation generally subject to full corporate-level tax) in a merger
or other transaction in which it acquires a "carryover" basis in the
asset (i.e., basis determined by reference to the C corporation"s basis
in the asset (or another asset)), it will pay tax at the highest regular
corporate rate applicable if it recognizes gain on the sale or
disposition of such asset during the 10-year period after it acquires
such asset. The amount of gain on which it will pay tax is the lesser of
(i) the amount of gain that it recognizes at the time of the sale or
disposition and (ii) the amount of gain that it would have recognized if
it had sold the asset at the time it acquired the asset. The rule
described in this paragraph will apply assuming that the Company makes
an election under IRS Notice 88-19 upon its acquisition of an asset from
a C corporation.

REQUIREMENTS FOR REIT QUALIFICATION

In order to qualify as a REIT, the Company must be a corporation, trust
or association that meets the following requirements:

1. it is managed by one or more trustees or directors;

2. its beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial interest;

3. it would be taxable as a domestic corporation, but for sections 856
through 860 of the Code;

4. it is neither a financial institution nor an insurance company
subject to certain provisions of the Code;

5. at least 100 persons are beneficial owners of its shares or
ownership certificates;

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<PAGE>

6. not more than 50% in value of its outstanding shares or ownership
certificates is owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during
the last half of any taxable year (the "5/50 Rule");

7. it elects to be a REIT (or has made such election for a previous
taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be met
to elect and maintain REIT status;

8. it uses a calendar year for federal income tax purposes and complies
with the record keeping requirements of the Code and the related
Treasury Regulations; and

9. it meets certain other qualification tests, described below, regarding
the nature of its income and assets.

The Company must meet requirements 1 through 4 during its entire taxable
year and must meet requirement 5 during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year of less than 12
months. The Company was not required to meet requirements 5 and 6 during 1998.
If the Company complies with all the requirements for ascertaining the ownership
of its outstanding shares in a taxable year and has no reason to know that it
violated the 5/50 Rule, it will be deemed to have satisfied the 5/50 Rule for
such taxable year. For purposes of determining share ownership under the 5/50
Rule, an "individual" generally includes a supplemental unemployment
compensation benefits plan, a private foundation, or a portion of a trust
permanently set aside or used exclusively for charitable purposes. An
"individual," however, generally does not include a trust that is a qualified
employee pension or profit sharing trust under Code section 401(a), and
beneficiaries of such a trust will be treated as holding shares of the Company
in proportion to their actuarial interests in the trust for purposes of the 5/50
Rule.

The Company believes it has issued sufficient common shares with sufficient
diversity of ownership to satisfy requirements 5 and 6 set forth above. In
addition, the Company's Declaration of Trust restricts the ownership and
transfer of the common shares so that the Company should continue to satisfy
requirements 5 and 6. The provisions of the Declaration of Trust restricting
the ownership and transfer of the common shares are described in "Description of
Shares of Beneficial Ownership--Restrictions on Ownership and Transfer."

The Company currently has several direct corporate subsidiaries and may
have additional corporate subsidiaries in the future. A corporation that is a
"qualified REIT subsidiary" is not treated as a corporation separate from its
parent REIT. All assets, liabilities, and items of income, deduction, and
credit of a "qualified REIT subsidiary" are treated as assets, liabilities, and
items of income, deduction, and credit of the REIT. A "qualified REIT
subsidiary" is a corporation, all of the capital stock of which is owned by the
REIT. Thus, in applying the requirements described herein, any "qualified REIT
subsidiary" of the Company will be ignored, and all assets, liabilities, and
items of income, deduction, and credit of such subsidiary will be treated as
assets, liabilities, and items of income, deduction, and credit of the Company.
The Company believes its direct corporate subsidiaries are qualified REIT
subsidiaries. Accordingly, they are not subject to federal corporate income
taxation, though they may be subject to state and local taxation.

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A REIT is treated as owning its proportionate share of the assets of any
partnership in which it is a partner and as earning its allocable share of the
gross income of the partnership for purposes of the applicable REIT
qualification tests. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Partnership and of any other partnership
(or limited liability company treated as a partnership) in which the Company has
acquired or will acquire an interest, directly or indirectly (a "Subsidiary
Partnership"), are treated as assets and gross income of the Company for
purposes of applying the various REIT qualification requirements.

INCOME TESTS

The Company must satisfy two gross income tests annually to maintain its
qualification as a REIT:

. At least 75% of its gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of defined types of income
that it derives, directly or indirectly, from investments relating to real
property or mortgages on real property or temporary investment income (the
"75% gross income test"). Qualifying income for purposes of the 75% gross
income test includes "rents from real property," interest on debt secured
by mortgages on real property or on interests in real property, and
dividends or other distributions on and gain from the sale of shares in
other REITs; and

. At least 95% of its gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of income that is
qualifying income for purposes of the 75% gross income test, dividends,
other types of interest, gain from the sale or disposition of stock or
securities, or any combination of the foregoing (the "95% gross income
test").

The following paragraphs discuss the specific application of these tests to the
Company.

Rental Income. The Partnership's primary source of income derives from
leasing properties to dealer groups. The leases generally are on a "triple-net"
basis, which 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.

Rents under the leases 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: (1) the intent of the parties; (2) the form of the
agreement; (3) 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); (4) 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 risks of increases in
operating

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expenses or the risk of damage to the property); and (5) the extent to which the
property owner retains the burdens and benefits of ownership of the property.

Capital Automotive Group believes that each lease will be treated as a true
lease for federal income tax purposes. Such belief is based, in part, on the
following facts:

1. Capital Automotive Group and the lessees intend for the relationship
with the Partnership to be that of a lessor and lessee and such
relationship will be documented by lease agreements;

2. the lessees will have the right to exclusive possession and use and
quiet enjoyment of the properties during the term of the leases;

3. 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;

4. the lessees will bear all of the costs and expenses of operating the
properties during the terms of the leases;

5. the lessees will benefit from any savings in the costs of operating
the properties during the terms of the leases;

6. the lessees will generally indemnify Capital Automotive Group against
all liabilities imposed on Capital Automotive Group 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;

7. the lessees are obligated to pay fixed rent for the period of use of
the properties;

8. the lessees stand to reap substantial gains (or incur substantial
losses) depending on how successfully they operate the properties;

9. the useful lives of the properties are significantly longer than the
terms of the leases; and

10. Capital Automotive Group will receive the benefit of increases in
value, and will bear the risk of decreases in value, of the properties
during the terms of the leases.

If the IRS were to challenge successfully the characterization of the
leases as true leases, the Partnership would not be treated as the owner of the
property in question for federal income tax purposes and the 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 "--Distribution Requirements."

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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 financing arrangements or partnership
agreements, rather than true leases, part or all of the payments that the
Partnership 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 REIT status.
Capital Automotive Group received an opinion of counsel at the time of its
initial public offering that the leases entered into at that time were true
leases. That opinion is not binding on the IRS. Capital Automotive Group 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 Partnership will be treated as the owner of the property in
question for federal income tax purposes and has generally entered into leases
substantially similar to those entered into at the time of the initial public
offering. The Company will not seek an advance ruling from the IRS and does not
intend to seek an opinion of counsel that it will be treated as the owner of any
other 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.

In addition, rent that the Partnership receives from real property that it
owns and leases to lessees will qualify as "rents from real property" (which is
qualifying income for purposes of the 75% and 95% gross income tests) only if
several conditions are met under the REIT tax rules:

. The rent must not be based, in whole or in part, on the income or profits
of any person although, generally, rent may be based on a fixed percentage
or percentages of receipts or sales. The Partnership has not entered into
any lease based in whole or part on the net income of any person and does
not anticipate entering into such arrangements.

. Neither the Company nor someone who owns 10% or more of the Company's
shares may own 10% or more of a lessee from whom the Partnership receives
rent. The ownership of the Company and a lessee is determined based on
direct, indirect and constructive ownership. 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 Partnership 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
Partnership 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. The Company believes that the
Partnership has not leased property to any Related Party Tenant.

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. The rent attributable to any personal property leased in connection with a
lease of property is no more than 15% of the total rent received under the
lease. In general, the Partnership has not leased personal property under
its current leases. If any incidental personal property has been leased,
Capital Automotive Group believes that rent from the personal property
would be less than 15% of total rent from that lease. If the Partnership
were to lease personal property in connection with a future lease, Capital
Automotive Group intends to satisfy the 15% test described above.

. Capital Automotive Group generally must not operate or manage its property
or furnish or render services to its lessees, other than through an
"independent contractor" who is adequately compensated and from whom
Capital Automotive Group does not derive revenue. Capital Automotive Group
may provide services directly, if the services are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are
not otherwise considered "rendered to the occupant." In addition, Capital
Automotive Group may render directly a de minimis amount of "non-customary"
services to the lessees of a property without disqualifying the income as
"rents from real property," as long as its income from the services does
not exceed 1% of its income from the related property. Capital Automotive
Group has not provided services to leased properties itself or through an
independent contractor. In the future, Capital Automotive Group intends
that any services provided will not cause rents to be disqualified as rents
from real property.

Based on the foregoing, the Company believes that rent from leases 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 IRS 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 to cause the
Partnership 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);

. 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 Lessee is not
material and will not jeopardize the Company's status as a REIT;

. 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

. 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

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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.

Interest Income. Capital Automotive Group may offer financing to dealer
groups for the development of property used by dealerships and earn interest
with respect to such financings. For purposes of the 75% and 95% gross income
tests, amounts received or accrued (directly or indirectly), which are based in
whole or in part on the income or profits of any person are generally not
treated as interest. An amount received or accrued will generally be treated as
interest even if it is based (1) on a fixed percentage or percentages of
receipts or sales or (2) 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, but only 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 tests. However, if Capital Automotive Group 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 the fair market value of the real property on the date
Capital Automotive Group acquired the loan, the interest income from the loan
will be apportioned between the real property and the other property. This
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 arrangement such that it will continue to qualify
as a REIT.

Tax on Income From Property Acquired in Foreclosure. 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 any real property (including interests
in real property) and any personal property incident to such real property:

. that is acquired by a REIT at a foreclosure sale, or having otherwise
become the owner or in possession of the property by agreement or process
of law, after a default (or imminent default) on a lease of such property
or on an indebtedness owed to the REIT secured by the property;

. for which the related loan was acquired by the REIT at a time when default
was not imminent or anticipated; and

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<PAGE>

. for which the REIT makes a proper election to treat the property as
foreclosure property.

A REIT will not be considered to have foreclosed on a property where it 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. Generally,
property acquired as described above ceases to be foreclosure property on the
earlier of:

. the last day of the third taxable year following the taxable year in which
the Partnership acquired the property (or longer if an extension is granted
by the Secretary of the Treasury);

. the first day 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;

. the first day 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

. the first day 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).

Tax on Prohibited Transactions. A REIT will incur a 100% tax on net income
derived from any "prohibited transaction." A "prohibited transaction" generally
is a sale or other disposition of property (other than foreclosure property)
that the REIT holds primarily for sale to customers in the ordinary course of a
trade or business. Capital Automotive Group believes that none of its assets is
held for sale to customers and that a sale of any such asset would not be in the
ordinary course of its business. Whether a REIT holds an asset "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. Capital Automotive Group will attempt to
comply with the terms of safe-harbor provisions in the Code prescribing when an
asset sale will not be characterized as a prohibited transaction if Capital
Automotive Group determines that an asset is held primarily for sale to
customers in the ordinary course of business. Capital Automotive Group may fail
to comply with such safe-harbor provisions or may own property that could be
characterized as property held "primarily for sale to customers in the ordinary
course of a trade or business."

Relief from Consequences of Failing to Meet Income Tests. If the Company
fails to satisfy one or both of the 75% and 95% gross income tests for any
taxable year, it nevertheless may qualify as a REIT for such year if it
qualifies for relief under certain provisions of the Code. Those relief
provisions generally will be available if the Company's failure to meet such
tests is due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its tax return, and any
incorrect information on the schedule was not due to fraud with

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<PAGE>

intent to evade tax. The Company may not qualify for the relief provisions in
all circumstances. In addition, as discussed above in "--Taxation of the
Company," even if the relief provisions apply, the Company would incur a 100%
tax on gross income to the extent it fails the 75% and 95% gross income tests
(whichever amount is greater), multiplied by a fraction intended to reflect its
profitability.

ASSET TESTS

To maintain its qualification as a REIT, the Company also must satisfy two
asset tests at the close of each quarter of each taxable year:

. At least 75% of the value of its total assets must consist of cash or cash
items (including certain receivables), government securities, "real estate
assets," or qualifying temporary investments (the "75% asset test").

* "Real estate assets" include interests in real property,
interests in mortgages on real property and stock in other
REITs. The Company believes that the properties qualify as real
estate assets.

* "Interests in real property" includes an interest in mortgage
loans or land and improvements thereon, such as buildings or
other inherently permanent structures (including items that are
structural components of such buildings or structures), a
leasehold of real property, and an option to acquire real
property (or a leasehold of real property).

* Qualifying temporary investments are investments in stock or debt
instruments during the one-year period following the Company's
receipt of new capital that it raises through equity or long-term
(at least five-year) debt offerings.

. For investments not included in the 75% asset test, (A) the value of its
interest in any one issuer's securities (which does not include its equity
ownership of other REITs, the Partnership or any qualified REIT subsidiary)
may not exceed 5% of the value of its total assets (the "5% asset test")
and (B) the Company may not own more than 10% of any one issuer's
outstanding voting securities which does not include its equity ownership
in other REITs, the Partnership or any qualified REIT subsidiary (the "10%
asset test").

The Company intends to select future investments so as to comply with the asset
tests.

If the Company failed to satisfy the asset tests at the end of a calendar
quarter, it would not lose its REIT status if (i) it satisfied the asset tests
at the close of the preceding calendar quarter and (ii) the discrepancy between
the value of its assets and the asset test requirements arose from changes in
the market values of its assets and was not wholly or partly caused by the
acquisition of one or more non-qualifying assets. If the Company did not
satisfy the condition described in clause

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(ii) of the preceding sentence, it still could avoid disqualification as a REIT
by eliminating any discrepancy within 30 days after the close of the calendar
quarter in which the discrepancy arose.

DISTRIBUTION REQUIREMENTS

Each taxable year, the Company must distribute dividends (other than
capital gain dividends and deemed distributions of retained capital gain) to its
shareholders as follows:

. an aggregate amount at least equal to (1) the sum of 95% of (A) its "REIT
taxable income" (computed without regard to the dividends paid deduction
and its net capital gain or loss) and (B) its net income (after tax), if
any, from foreclosure property, minus (2) certain items of non-cash income.
-----

. at least 95% of the built-in gain (after tax), if any, recognized on the
disposition of any asset acquired from a C corporation in a carryover basis
transaction during its Recognition Period (pursuant to Treasury regulations
which have not yet been promulgated).

The Company must pay such distributions in the taxable year to which they
relate, or in the following taxable year if it declares the distribution before
it timely files its federal income tax return for such year and pays the
distribution on or before the first regular dividend payment date after such
declaration.

The Company will pay federal income tax on taxable income (including net
capital gain) that it does not distribute to shareholders. Furthermore, it will
incur a 4% nondeductible excise tax if it fails to distribute during a calendar
year (or, in the case of distributions with declaration and record dates falling
in the last three months of the calendar year, by the end of January following
such calendar year) at least the sum of (1) 85% of its REIT ordinary income for
such year, (2) 95% of its REIT capital gain income for such year, and (3) any
undistributed taxable income from prior periods. The excise tax is on the excess
of such required distribution over the amounts it actually distributed. The
Company may elect to retain and pay income tax on the net long-term capital gain
it receives in a taxable year. See "--Taxation of Taxable U.S. Shareholders."
For purposes of the 4% excise tax, it will be treated as having distributed any
such retained amount. The Company has made, and the Company intends to continue
to make, timely distributions sufficient to satisfy the annual distribution
requirements.

It is possible that, from time to time, the Company may experience timing
differences between (1) the actual receipt of income and actual payment of
deductible expenses and (2) the inclusion of that income and deduction of such
expenses in arriving at its REIT taxable income. For example, the Company may
not deduct recognized capital losses from its "REIT taxable income." Further, it
is possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. As a result of the foregoing,
the Company may have less cash than is necessary to distribute all of its
taxable income and thereby avoid corporate income tax and the excise tax imposed
on certain undistributed income. In such a situation, it may need to borrow
funds or issue preferred shares or additional common shares.

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<PAGE>

The Company intends to calculate its "REIT taxable income" based upon the
conclusion that the 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 IRS 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 correct a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to its shareholders in a later year. The Company may include such deficiency
dividends in its deduction for dividends paid for the earlier year. Although
the Company may be able to avoid income tax on amounts distributed as deficiency
dividends, it will be required to pay interest to the IRS based upon the amount
of any deduction it takes 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 that authorizes the
IRS, in certain "abusive" transactions involving partnerships, to disregard the
form of the transaction and recast it for federal tax purposes as the IRS 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 shares (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 IRS. Based on the
foregoing, the Company believes 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

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<PAGE>

apply the Anti-Abuse Rule to the Company. If the conditions of the Anti-Abuse
Rule are met, the IRS is authorized to take appropriate enforcement action,
including disregarding the Partnership for federal tax purposes or treating one
or more of its partners as non-partners. Any such action potentially could
jeopardize the Company's status as a REIT.

RECORD KEEPING REQUIREMENTS

The Company must maintain certain records in order to qualify as a REIT. In
addition, to avoid a monetary penalty, it must request on an annual basis
certain information from its shareholders designed to disclose the actual
ownership of its outstanding stock. The Company has complied, and the Company
intends to continue to comply, with such requirements.

FAILURE TO QUALIFY

If the Company failed to qualify as a REIT in any taxable year, and no
relief provision applied, it would be subject to federal income tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. In calculating its taxable income in a year in which it failed
to qualify as a REIT, the Company would not be able to deduct amounts paid out
to shareholders. In fact, the Company would not be required to distribute any
amounts to shareholders in such year. In such event, to the extent of its
current and accumulated earnings and profits, all distributions to shareholders
would be taxable as ordinary income. Subject to certain limitations of the Code,
corporate shareholders might be eligible for the dividends received deduction.
Unless the Company qualified for relief under specific statutory provisions, it
also would be disqualified from taxation as a REIT for the four taxable years
following the year during which it ceased to qualify as a REIT. The Company
cannot predict whether in all circumstances it would qualify for such statutory
relief.

TAXATION OF TAXABLE U.S. SHAREHOLDERS

As long as the Company qualifies as a REIT, a taxable "U.S. shareholder"
must take into account distributions out of the Company's current or accumulated
earnings and profits (and that it does not designate as capital gain dividends
or retained long-term capital gain) as ordinary income. A U.S. shareholder will
not qualify for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. shareholder" means a holder of
common Shares that for U.S. federal income tax purposes is

. a citizen or resident of the United States,

. a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of a political subdivision thereof,

. an estate whose income is subject to U.S. federal income taxation
regardless of its source, or

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<PAGE>

. any trust with respect to which (A) a U.S. court is able to exercise
primary supervision over the administration of such trust and (B) one or
more U.S. persons have the authority to control all substantial decisions
of the trust.

A U.S. shareholder will recognize distributions that the Company designates
as capital gain dividends as long-term capital gain (to the extent they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the U.S. shareholder has held its common shares.
Subject to certain limitations, the Company will designate its capital gain
dividends as either 20% or 25% rate distributions. A corporate U.S.
shareholder, however, may be required to treat up to 20% of certain capital gain
dividends as ordinary income.

The Company may elect to retain and pay income tax on the net long-term
capital gain that it receives in a taxable year. In that case, a U.S.
shareholder would be taxed on its proportionate share of the Company's
undistributed long-term capital gain. The U.S. shareholder would receive a
credit or refund for its proportionate share of the tax the Company paid. The
U.S. shareholder would increase the basis in its stock by the amount of its
proportionate share of the Company's undistributed long-term capital gain, minus
its share of the tax the Company paid.

A U.S. shareholder will not incur tax on a distribution in excess of the
Company's current and accumulated earnings and profits if such distribution does
not exceed the adjusted basis of the U.S. shareholder's common shares. Instead,
such distribution will reduce the adjusted basis of such common shares. A U.S.
shareholder will recognize a distribution in excess of both the Company's
current and accumulated earnings and profits and the U.S. shareholder's adjusted
basis in its common shares as long-term capital gain (or short-term capital gain
if the common shares have been held for one year or less), assuming the common
shares are a capital asset in the hands of the U.S. shareholder. In addition,
if the Company declares a distribution in October, November, or December of any
year that is payable to a U.S. Stockholder of record on a specified date in any
such month, such distribution shall be treated as both paid by the Company and
received by the U.S. shareholder on December 31 of such year, provided that the
Company actually pays the distribution during January of the following calendar
year. The Company will notify U.S. shareholders after the close of its taxable
year as to the portions of the distributions attributable to that year that
constitute ordinary income or capital gain dividends.

Taxation of U.S. Shareholders on the Disposition of the Common Shares. In
general, a U.S. shareholder who is not a dealer in securities must treat any
gain or loss realized upon a taxable disposition of the common shares as long-
term capital gain or loss if the U.S. shareholder has held the common stock for
more than one year and otherwise as short-term capital gain or loss. However, a
U.S. shareholder must treat any loss upon a sale or exchange of common shares
held by such shareholder for six months or less (after applying certain holding
period rules) as a long-term capital loss to the extent of capital gain
dividends and other distributions from the Company that such U.S. shareholder
treats as long-term capital gain. All or a portion of any loss a U.S.
shareholder realizes upon a taxable disposition of the common shares may be
disallowed if the U.S. shareholder purchases additional common shares within 30
days before or after the disposition.

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<PAGE>

Capital Gains and Losses. A taxpayer generally must hold a capital asset
for more than one year for gain or loss derived from its sale or exchange to be
treated as long-term capital gain or loss. The highest marginal individual
income tax rate is 39.6%. The maximum tax rate on long-term capital gain
applicable to non-corporate taxpayers is 20% for sales and exchanges of assets
held for more than one year. The maximum tax rate on long-term capital gain
from the sale or exchange of "section 1250 property" (i.e., depreciable real
property) is 25% to the extent that such gain would have been treated as
ordinary income if the property were "section 1245 property." With respect to
distributions that the Company designates as capital gain dividends and any
retained capital gain that it is deemed to distribute, the Company may designate
(subject to certain limits) whether such a distribution is taxable to its non-
corporate shareholders at a 20% or 25% rate. Thus, the tax rate differential
between capital gain and ordinary income for non-corporate taxpayers may be
significant. A U.S. shareholder required to include retained long-term capital
gains in income 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 U.S. shareholder in respect of
such gains. In addition, the characterization of income as capital gain or
ordinary income may affect the deductibility of capital losses. A non-corporate
taxpayer may deduct capital losses not offset by capital gains against its
ordinary income only up to a maximum annual amount of $3,000. A non-corporate
taxpayer may carry forward unused capital losses indefinitely. A corporate
taxpayer must pay tax on its net capital gain at ordinary corporate rates. A
corporate taxpayer can deduct capital losses only to the extent of capital
gains, with unused losses being carried back three years and forward five years.

Information Reporting Requirements and Backup Withholding. The Company
will report to its shareholders and to the IRS the amount of distributions it
pays during each calendar year, and the amount of tax it withholds, if any.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions unless such holder
(1) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (2) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A shareholder who does not provide the Company with its correct taxpayer
identification number also may be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the 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. The Treasury Department has issued
final regulations regarding the backup withholding rules as applied to Non-U.S.
shareholders. Those regulations alter the current system of backup withholding
compliance and are effective for distributions made after December 31, 1999.
See "--Taxation of Non-U.S. Shareholders."

TAXATION OF TAX-EXEMPT U.S. SHAREHOLDERS

Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts and annuities ("Exempt
Organizations"), generally are exempt from

45
<PAGE>

federal income taxation. However, they are subject to taxation on their
unrelated business taxable income ("UBTI"). While many investments in real
estate generate UBTI, the IRS has issued a published ruling that dividend
distributions from a REIT to an exempt employee pension trust do not constitute
UBTI, provided that the exempt employee pension trust does not otherwise use the
shares of the REIT in an unrelated trade or business of the pension trust. Based
on that ruling, amounts that the Company distributes to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization were to
finance its acquisition of the common shares with debt, a portion of the income
that they receive from the Company would constitute UBTI pursuant to the "debt-
financed property" rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts and qualified group legal
services plans that are exempt from taxation under paragraphs (7), (9), (17),
and (20), respectively, of Code section 501(c) are subject to different UBTI
rules, which generally will require them to characterize distributions that they
receive from the Company as UBTI. Finally, in certain circumstances, a qualified
employee pension or profit sharing trust that owns more than 10% of the
Company's shares is required to treat a percentage of the dividends that it
receives from the Company as UBTI (the "UBTI Percentage"). The UBTI Percentage
is equal to the gross income the Company derives from an unrelated trade or
business (determined as if it were a pension trust) divided by its total gross
income for the year in which it pays the dividends. The UBTI rule applies to a
pension trust holding more than 10% of the Company's shares only if:

. the UBTI Percentage is at least 5%;

. the Company qualifies as a REIT by reason of the modification of the 5/50
Rule that allows the beneficiaries of the pension trust to be treated as
holding the Company's shares in proportion to their actuarial interests in
the pension trust; and

. the Company is a "pension-held REIT" (i.e., either (1) one pension trust
owns more than 25% of the value of its shares or (2) a group of pension
trusts individually holding more than 10% of the value of its shares
collectively owns more than 50% of the value of its shares).

Tax-exempt entities will be subject to the rules described above, under the
heading "--Taxation of Taxable 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.

TAXATION OF 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. This section
is only a summary of such rules. We urge Non-U.S. shareholders to consult their
own tax advisors to determine the impact of federal, state, and local income tax
laws on ownership of common shares, including any reporting requirements.

46
<PAGE>

Ordinary Dividends. A Non-U.S. shareholder that receives a distribution
that is not attributable to gain from the Company's sale or exchange of U.S.
real property interests (as defined below) and that the Company does not
designate as a capital gain dividend or retained capital gain will recognize
ordinary income to the extent that the Company pays such distribution out of its
current or accumulated earnings and profits. A withholding tax equal to 30% of
the gross amount of the distribution ordinarily will apply to such distribution
unless an applicable tax treaty reduces or eliminates the tax. However, if a
distribution 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 federal income tax on the distribution at graduated rates, in the
same manner as U.S. shareholders are taxed with respect to such distributions
(and also may be subject to the 30% branch profits tax in the case of a Non-U.S.
shareholder that is a non-U.S. corporation). The Company plans to withhold U.S.
income tax at the rate of 30% on the gross amount of any such distribution paid
to a Non-U.S. shareholder unless (i) a lower treaty rate applies and the Non-
U.S. shareholder files the required form evidencing eligibility for that reduced
rate with the Company or (ii) the Non-U.S. shareholder files an IRS Form 4224
with the Company claiming that the distribution is effectively connected income.
The U.S. Treasury Department has issued final regulations that modify the manner
in which the Company will comply with the withholding requirements. Those
regulations are effective for distributions made after December 31, 1999.

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. A Non-U.S. shareholder will not incur tax on a
distribution in excess of the Company's current and accumulated earnings and
profits if such distribution does not exceed the adjusted basis of its common
shares. Instead, such a distribution will reduce the adjusted basis of such
common shares. A Non-U.S. shareholder will be subject to tax on a distribution
that exceeds both the Company's current and accumulated earnings and profits and
the adjusted basis of its common shares, if the Non-U.S. shareholder otherwise
would be subject to tax on gain from the sale or disposition of its common
shares, as described below. Because the Company generally cannot determine at
the time it makes a distribution whether or not the distribution will exceed its
current and accumulated earnings and profits, it normally will withhold tax on
the entire amount of any distribution at the same rate as it would withhold on a
dividend. However, a Non-U.S. shareholder may obtain a refund of amounts that
the Company withholds if it later determines that a distribution in fact
exceeded its current and accumulated earnings and profits.

The Company must withhold 10% of any distribution that exceeds its current
and accumulated earnings and profits. Consequently, although it intends to
withhold at a rate of 30% on the entire amount of any distribution, to the
extent that it does not do so, it will withhold at a rate of 10% on any portion
of a distribution not subject to withholding at a rate of 30%.

Capital Gain Dividends. For any year in which the Company qualifies as a
REIT, a Non-U.S. shareholder will incur tax on distributions that are
attributable to gain from its sale or exchange of "U.S. real property interests"
under the provisions of the Foreign Investment in Real

47
<PAGE>

Property Tax Act of 1980 ("FIRPTA"). The term "U.S. real property interests"
includes certain interests in real property and stock in corporations at least
50% of whose assets consists of interests in real property, but excludes
mortgage loans and mortgage-backed securities. Under FIRPTA, a Non-U.S.
shareholder is taxed on distributions attributable to gain from sales of U.S.
real property interests as if such gain were effectively connected with a U.S.
business of the Non-U.S. shareholder. A Non-U.S. shareholder thus would be taxed
on such a distribution at the normal capital gain rates applicable to U.S.
shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of a nonresident alien individual). A non-
U.S. corporate shareholder not entitled to treaty relief or exemption also may
be subject to the 30% branch profits tax on distributions subject to FIRPTA. The
Company must withhold 35% of any distribution that it could designate as a
capital gain dividend. However, if the Company makes a distribution and later
designates it as a capital gain dividend, then (although such distribution may
be taxable to a Non-U.S. shareholder) it is not subject to withholding under
FIRPTA. Instead, the Company must make-up the 35% FIRPTA withholding from
distributions made after the designation, until the amount of distributions
withheld at 35% equals the amount of the distribution designated as a capital
gain dividend. A Non-U.S. shareholder may receive a credit against its FIRPTA
tax liability for the amount the Company withholds.

Sale of Shares. A Non-U.S. shareholder generally will not incur tax under
FIRPTA on gain from the sale of its common shares as long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period non-U.S. persons held,
directly or indirectly, less than 50% in value of the stock. The Company
anticipates that it will continue to be a "domestically controlled REIT."
However, a Non-U.S. shareholder will incur tax on gain not subject to FIRPTA if
(1) the gain is 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 (2) the Non-U.S.
shareholder is a nonresident alien individual who was present in the U.S. for
183 days or more during the taxable year and has a "tax home" in the United
States, in which case the Non-U.S. shareholder will incur a 30% tax on his
capital gains. Capital gains dividends not subject to FIRPTA will be subject to
similar rules. However, a Non-U.S. shareholder that owned, actually or
constructively, 5% or less of outstanding common shares at all times during a
specified testing period will not incur tax under FIRPTA if the common shares
are "regularly traded" on an established securities market. If the gain on the
sale of the common shares were taxed under FIRPTA, a Non-U.S. shareholder would
be taxed in the same manner as U.S. shareholders with respect to such gain
(subject to applicable alternative minimum tax, a special alternative minimum
tax in the case of nonresident alien individuals, and the possible application
of the 30% branch profits tax in the case of non-U.S. corporations).

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 (1) dividends subject to the 30% (or lower treaty rate) withholding
tax discussed above, (2) capital gains dividends, or (3) 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

48
<PAGE>

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, 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
U.S. 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. The Treasury Department
has issued final regulations regarding backup withholding rules. Those
regulations alter the current system of backup withholding compliance and are
effective for distributions made after December 31, 1999.

OTHER TAX CONSEQUENCES

State and Local Taxes. The Company and/or you may be subject to state and
local tax in various states and localities, including those states and
localities in which the Company or you transact business, own property or
reside. The state and local tax treatment in such jurisdictions may differ from
the federal income tax treatment described above. Consequently, you should
consult your own tax advisor regarding the effect of state and local tax laws
upon an investment in the Common Stock.

TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN THE PARTNERSHIP AND SUBSIDIARY
PARTNERSHIPS

The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investments in the
Partnership and its subsidiaries. The discussion does not cover state or local
tax laws or any federal tax laws other than income tax laws.

Classification as Partnerships. The Company is entitled to include in its
income its distributive share of the Partnership's income and to deduct its
distributive share of the Partnership's losses only if the Partnership is
classified for federal income tax purposes as a partnership rather than as a
corporation or association taxable as a corporation. An organization will be
classified as a partnership, rather than as a corporation, for federal income
tax purposes if it (1) is treated as a partnership under Treasury Regulations,
effective January 1, 1997, relating to entity classification (the "Check-the-Box
Regulations") and (2) is not a "publicly traded" partnership.

Under the Check-the-Box Regulations, an unincorporated entity with at least
two members may elect to be classified either as an association taxable as a
corporation or as a partnership. If such an entity fails to make an election, it
generally will be treated as a partnership for federal income tax purposes. The
Company believes that the Partnership and its subsidiaries are classified as
partnerships for federal income tax purposes.

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<PAGE>

A publicly traded partnership is a partnership whose interests are traded
on an established securities market or are 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 limited partners to dispose of their units. A publicly traded
partnership will not, however, be treated as a corporation for any taxable year
if 90% or more of the partnership's gross income for such year consists of
certain passive-type income, including (as may be relevant here) real property
rents, gains from the sale or other disposition of real property, interest, and
dividends (the "90% Passive Income Exception").

The U.S. Treasury has issued regulations (the "PTP Regulations") that
provide limited safe harbors from the definition of a publicly traded
partnership. Pursuant to one of those safe harbors (the "Private Placement
Exclusion"), 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 of 1933, as amended, 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, 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 (i)
substantially all of the value of the owner's interest in the flow-through
entity is attributable to the flow-through entity's interest (direct or
indirect) in the partnership and (ii) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the 100-partner
limitation. The Company believes that the Partnership qualified for the Private
Placement Exclusion in 1998 and intends to continue to qualify for the Private
Placement Exclusion unless it qualifies for another exception. It is possible
that in the future the Partnership might not qualify for the Private Placement
Exclusion.

If the Partnership is considered a publicly traded partnership under the
PTP Regulations because it is deemed to have more than 100 partners, such
Partnership would need to qualify under another safe harbor in the PTP
Regulations or for the 90% Passive Income Exception. Because of the substantial
ownership of the Partnership by certain partners who also own, directly or
indirectly, lessees, the Partnership would not currently be eligible for the 90%
Passive Income Exception, but it may so qualify in the future.

If, however, for any reason the Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company would
not be able to qualify as a REIT. See "--Requirements for Qualification --Income
Tests" and "--Requirements for Annual Qualification -- Asset Tests." In
addition, any change in the Partnership's status for tax purposes might be
treated as a taxable event, in which case the Company might incur tax liability
without any related cash distribution. See "--Requirements for Qualification --
Distribution Requirements." Further, items of income and deduction of the
Partnership would not pass through to its partners, and its partners would be
treated as shareholders for tax purposes. Consequently, the 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 such Partnership's taxable income.

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<PAGE>

Income Taxation of the Partnerships and their Partners. Partners, not the
Partnership, are subject to taxation. The Partnership is not a taxable entity
for federal income tax purposes. Rather, the Company is required to take into
account its allocable share of the Partnership's income, gains, losses,
deductions and credits for any taxable year of the Partnership ending during the
taxable year of the Company, without regard to whether the Company has received
or will receive any distribution from the Partnership.

Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of section 704(b) of the Code and the Treasury regulations promulgated
thereunder. If an allocation is not recognized for federal income tax purposes,
the item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The Partnership's allocations of
taxable income, gain 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 Contributed Properties. Pursuant to section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership 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
Partnership was formed by way of contributions of appreciated property and has
received contributions of appreciated property since the Company's formation.
Consequently, the Partnership Agreement requires such allocations to be made in
a manner consistent with section 704(c) of the Code.

In general, the partners who contribute property to the Partnership 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 contributing partners 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 the life of the 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 of the 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

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<PAGE>

Company's ability to comply with the REIT distribution requirements. See "--
Taxation of the Company -- 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 at their agreed values.

The U.S. Treasury has issued regulations requiring partnerships to use a
"reasonable method" for allocating items affected by section 704(c) of the Code
and outlining several reasonable allocation methods. The general partner of the
Partnership 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.
The Partnership generally has elected to use the "traditional method with
ceiling rule" for allocating Code section 704(c) items with respect to the
properties that it acquires in exchange for units. 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. If this occurred, a larger
portion of shareholder distributions would be taxable income as opposed to the
return of capital that might arise if another method were used. The Company has
not determined which method of accounting for Book-Tax Differences will be
elected for properties contributed to the Partnership in the future.

Basis in Partnership Interest. The Company's adjusted tax basis in its
partnership interest in the Partnership generally is equal to (1) the amount of
cash and the basis of any other property contributed to the Partnership by the
Company, (2) increased by (A) its allocable share of the Partnership's income
and (B) its allocable share of indebtedness of the Partnership, and (3) reduced,
but not below zero, by (A) the Company's allocable share of the Partnership's
loss, and (B) the amount of cash distributed to the Company, and (C)
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Partnership.

If the allocation of the Company's distributive share of the Partnership's
loss would reduce the adjusted tax basis of the Company's partnership interest
in the Partnership below zero, the recognition of such loss will be deferred
until such time as the recognition of such loss would not reduce the Company's
adjusted tax basis below zero. To the extent that the Partnership's
distributions, or any decrease in the Company's share of the indebtedness of the
Partnership (such decrease being considered a constructive cash distribution to
the partners), would reduce the Company's adjusted tax basis below zero, such
distributions (including such constructive distributions) would constitute
taxable income to the Company. Such distributions and constructive distributions
normally will be characterized as capital gain, and, if the Company's interest
in the 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.

Sale of a Partnership's Property. Generally, any gain realized by the
Partnership on the sale of property held by the Partnership for more than one
year will be long-term capital gain, except for any portion of such gain that is
treated as depreciation or cost recovery recapture. Any gain recognized by the
Partnership on the disposition of contributed properties will be allocated first
to

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<PAGE>

the partners of the Partnership under section 704(c) of the Code to the extent
of their "built-in gain" on those properties for federal income tax purposes.
The partners' "built-in gain" on the contributed properties sold will equal the
excess of the partners' proportionate share of the book value of those
properties over the partners' tax basis allocable to those properties at the
time of the sale. Any remaining gain recognized by the Partnership on the
disposition of the contributed properties, and any gain recognized by the
Partnership on the disposition of the other properties, will be allocated among
the partners in accordance with their respective percentage interests in the
Partnership.

The Company's share of any gain realized by the Partnership on the sale of
any property held by the Partnership as inventory or other property held
primarily for sale to customers in the ordinary course of the Partnership's
trade or business will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. Such prohibited transaction income also may
have an adverse effect upon the Company's ability to satisfy the income tests
for REIT status. See "--Requirements for Qualification -- Income Tests." The
Company, however, does not presently intend to allow the Partnership to acquire
or hold any property that represents inventory or other property held primarily
for sale to customers in the ordinary course of the Company's or the
Partnership's trade or business.

SELLING SHAREHOLDERS

The selling shareholders will have received any common shares they may
offer for sale under this prospectus by redeeming units received in connection
with the contribution of certain properties to the Partnership. Under the
Partnership Agreement, the holder of 122,620 units has the right to redeem its
units beginning on May 6, 1999 and the holders of an aggregate of 673,515 units
have the right to redeem their units beginning on May 22, 1999. If one or more
unitholders requests redemption by the Partnership, the Company may assume the
obligations of the Partnership and may elect to purchase the units with common
shares or with cash. The following table lists the selling shareholders and the
number of common shares which could be resold if the units they hold were
redeemed for common shares. The common shares are being registered under
registration rights granted to such holders in the Partnership Agreement.

<TABLE>
<CAPTION>
Selling Shareholder Shares(1)
- -------------------- ---------
<S> <C>
Roundtree Boise Properties, LLC (2) 122,620

Kenneth O. Dixon (3) 92,747

Andrew F. Dixon (3) 108,850

Rincon Etal Investments, Inc. (3) 471,918

All Selling Shareholders
as a Group (4 Persons) 796,135
</TABLE>

________________
(1) At the option of the Company, the units can be redeemed for common shares
on a one-for-one basis, as adjusted. The number of common shares that
could be issued to holders of units on redemption will be

53
<PAGE>

adjusted in the event of stock splits, stock dividends, issuance of certain
rights, certain extraordinary transactions and similar events.
(2) The units owned were issued on May 6, 1998 and such units first became
eligible for redemption on May 6, 1999.
(3) The units owned were issued on May 22, 1998 and such units first become
eligible for redemption on May 22, 1999.

PLAN OF DISTRIBUTION

This prospectus relates to the offering by the Company of up to 796,135
common shares if, and to the extent that, holders of up to 796,135 units tender
such units for redemption. We are registering the common shares to provide the
holders with freely tradeable securities, but the registration of these common
shares does not necessarily mean that any of these shares will be issued by the
Company, or, if issued, will be offered or sold by the holders.

We have paid for all expenses in connection with the registration
statement. No commissions or selling expenses will be paid by the Company in
connection with the offering and sale of these common shares or the resale of
such shares.

The Company will not receive any proceeds from the offering and sale of the
common shares to holders on redemption of their units. The Company will acquire
and own the units that are redeemed for shares.

The holders may resell any common shares on a negotiated or competitive bid
basis to or through one or more underwriters or dealers. Such shares may also be
sold directly to institutional investors or other purchasers or through agents.
To the extent required by law, any underwriter, dealer or agent involved in the
offer and sale of such shares, and any applicable commissions, discounts and
other items constituting compensation to such underwriters, dealers or agents,
will be identified in a prospectus supplement. Such common shares may be
distributed from time to time in one or more transactions at a fixed price or
prices (which may be changed) or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices.

LEGAL MATTERS

Certain legal matters in connection with any offering of securities made by
this prospectus will be passed upon for the Company by Wilmer, Cutler &
Pickering, Washington, D.C. 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 and schedules of the Company incorporated by
reference 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

54
<PAGE>

incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

The Company files annual, quarterly and special reports, proxy statements
and other information with the SEC. The Company's SEC filings are available to
the public over the SEC's website at http://www.sec.gov. You may also read and
copy any document the Company files at the SEC's public reference rooms at:

* Public Reference Section
Securities and Exchange Commission
Room 1024, Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549

* Midwest Regional Office:

Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511

* Northeast Regional Office:

7 World Trade Center
Suite 1300
New York, New York 10048

Please call the SEC at 1-800-SEC-0330 for further information on public
reference rooms.

The SEC allows the Company to "incorporate by reference" the information
the Company files with them, which means the Company can disclose important
information to you by referring you to those documents. The information that the
Company incorporates by reference is an important part of this prospectus, and
all information that the Company will later file with the SEC will automatically
update and supersede this information. The Company incorporates by reference the
documents listed below as well as any future filings made with the SEC under
Sections 13(a), 13(c), 12, or 15(d) of the Securities Exchange Act of 1934 until
the Company sells all of the securities.

. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (File No. 000-23733).

. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 (File No. 000-23733).

55
<PAGE>

. The description of the common shares contained in the Registration
Statement on Form 8-A filed with the SEC on February 5, 1998 (File No.
000-1049316).

. Current Reports on Form 8-K filed with the SEC on August 7, 1998,
December 3, 1998, December 7, 1998 and February 26, 1999 (File No.
000-23733).

You may request a copy of these filings at no cost, by writing or
telephoning the Company. Those copies will not include exhibits to those
documents unless the exhibits are specifically incorporated by reference in the
documents or unless you specifically request them. You may also request copies
of any exhibits to the Registration Statement. Please direct your request to:

Ms. Lisa M. Clements
Capital Automotive REIT
1420 Spring Hill Road, Suite 525
McLean, Virginia 22102
(703) 288-3075

The prospectus and any accompanying prospectus supplement do not contain
all of the information included in the registration statement. The Company has
omitted certain parts of the registration statement in accordance with the rules
and regulations of the SEC. For further information, the Company refers you to
the registration statement, including its exhibits and schedules. Statements
contained in this prospectus and any accompanying prospectus supplement about
the provisions or contents of any contract, agreement or any other document
referred to are not necessarily complete. Please refer to the actual exhibit for
a more complete description of the matters involved. You may get copies of the
exhibits by contacting the person named above.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT,
INCORPORATED BY REFERENCE OR PROVIDED IN A PROSPECTUS SUPPLEMENT.
THE COMPANY HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR
ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON
THE FRONT OF THESE DOCUMENTS. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

56
<PAGE>

CAPITAL AUTOMOTIVE REIT

796,135 COMMON SHARES OF BENEFICIAL INTEREST
($0.01 Par Value Per Share)

PROSPECTUS

The date of this Prospectus is __________
<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table itemizes the expenses incurred, or to be incurred, by
the Registrant in connection with the registration and issuance of the Shares
being registered hereunder. As indicated below, all amounts shown are estimates
except for the SEC registration fee.

Registration Fee -- Securities and Exchange
Commission................................. $ 2,863.40
Printing and Engraving Expenses.............. 10,000
Accounting Fees and Expenses................. 5,000
Legal Fees and Expenses...................... 25,000
Blue Sky Fees and Expenses................... 1,000
Miscellaneous (including listing fees)....... 20,000
--------

Total................................... $ 63,863.40

ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS

The Declaration of Trust and Bylaws authorize the Company to indemnify its
present and former trustees and officers and to pay or reimburse expenses for
such individuals in advance of the final disposition of a proceeding to the
maximum extent permitted from time to time under Maryland law. The Maryland
General Corporation Law, 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 incorporated by reference 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.

II-1
<PAGE>

ITEM 16. EXHIBITS

NUMBER DESCRIPTION

ITEM 16. EXHIBITS

NUMBER DESCRIPTION

3.1 Amended and Restated Declaration of Trust of Capital Automotive REIT
(previously filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-11 filed with the SEC on November 26, 1997, as
subsequently amended (File No. 333-41183) (the "Registration Statement
on Form S-11") and incorporated herein by reference)

3.2 Amended and Restated Bylaws of Capital Automotive REIT (previously
filed as Exhibit 3.2 to the Company's Registration Statement on Form
S-3 filed with the SEC on March 2, 1999 (File No. 333-73183) (the
"Unit Redemption Registration Statement") and incorporated herein by
reference)

3.3 First Amendment to Bylaws (previously filed as Exhibit 3.2 to the
Company's Unit Redemption Registration Statement on Form S-3 and
incorporated herein by reference)

3.4 Second Amendment to Bylaws (previously filed as Exhibit 3.4 to the
Company's Registration Statement on Form S-8 filed on May 11, 1999
and incorporated herein by reference)

4.1 Specimen of certificate representing common shares of beneficial
interest (previously filed as Exhibit 4.2 to the Registration
Statement on Form S-11 and incorporated herein by reference)

4.5 Form of Share Warrant (previously filed as Exhibit 3.2 to the
Company's Unit Redemption Registration Statement on Form S-3 and
incorporated herein by reference)

5.1* Opinion of Wilmer, Cutler & Pickering regarding the validity of the
Offered Securities being registered

8.1* Opinion of Wilmer, Cutler & Pickering regarding certain federal income
tax matters

10.43 Second Amended and Restated Partnership Agreement of Capital
Automotive L.P. (previously filed as Exhibit 3.2 to the Company's Unit
Redemption Registration Statement on Form S-3 and incorporated herein
by reference)

10.44 Amendment to Loan Agreement dated as of February 10, 1999 between
CARS-DBI, L.L.C. as Borrower and Global Alliance Finance Company,
L.L.C. (previously filed as Exhibit 10.44 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999 filed with
the SEC on May 11, 1999 and incorporated herein by reference.

10.45 Revolving Loan Agreement dated as of March 4, 1999 among Comerica Bank
and Capital Automotive L.P., et al. (previously filed as Exhibit 10.45
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 filed with the SEC on May 11, 1999 and incorporated
herein by reference)

10.46 Form of 1998 Equity Incentive Plan, as Amended (previously filed as
Exhibit 10.46 to the Company's Registration Statement on Form S-8 with
the SEC on May 11, 1999 and incorporated herein by reference)

23.1* Consent of Wilmer, Cutler & Pickering (included as part of Exhibits
5.1 and 8.1)

23.2* Consent of Arthur Andersen LLP

25 Power of Attorney (included on signature page)

_____________________
* Included with this filing.

II-2
<PAGE>

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrants hereby undertake:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the prospectus any acts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in
"Calculation of Registration Fee" table in the effective registration
statement; and

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
SEC by the undersigned registrant(s) pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

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

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the

II-3
<PAGE>

securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the provisions described under Item 15
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 respective registrant of expenses incurred or paid by a
director, officer, or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, such
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.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Fairfax, Commonwealth of Virginia, on May 7, 1999.

Capital Automotive REIT

By: /s/ Thomas D. Eckert
-------------------------------------
Thomas D. Eckert
President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below 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 securities 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 May 7, 1999
------------------------- Executive Officer and
Thomas D. Eckert Trustee (principal
executive officer)

II-5
<PAGE>

/s/ David S. Kay Vice President and Chief May 7, 1999
---------------------------- Financial Officer (principal
David S. Kay financial and accounting
officer)

/s/ Craig L. Fuller Trustee May 7, 1999
----------------------------
Craig L. Fuller

/s/ William E. Hoglund Trustee May 7, 1999
----------------------------
William E. Hoglund

/s/ R. Michael McCullough Trustee May 7, 1999
----------------------------
R. Michael McCullough

/s/ Lee P. Munder Trustee May 7, 1999
----------------------------
Lee P. Munder

/s/ John J. Pohanka Trustee May 7, 1999
----------------------------
John J. Pohanka

/s/ John E. Reilly Trustee May 7, 1999
----------------------------
John E. Reilly

/s/ Robert M. Rosenthal Trustee May 7, 1999
----------------------------
Robert M. Rosenthal

/s/ Vincent A. Sheehy Trustee May 7, 1999
----------------------------
Vincent A. Sheehy

II-6
<PAGE>

/s/ William R. Swanson Trustee May 7, 1999
------------------------
William R. Swanson

II-7

<PAGE>

EXHIBIT 5.1

WILMER, CUTLER & PICKERING Washington
2445 M Street, N.W. Baltimore
Washington, D.C. 20037-1420 New York
___ London
Telephone (202) 663-6000 Brussels
Facsimile (202) 663-6363 Berlin

May 7, 1999

Capital Automotive REIT
1420 Spring Hill Road, Suite 525
McLean, Virginia 22102

Re: Capital Automotive REIT Registration Statement on Form S-3
----------------------------------------------------------

Dear Ladies and Gentlemen:

We have acted as counsel to Capital Automotive REIT, a Maryland real estate
investment trust (the "Company"), in connection with a Registration Statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. The Registration
Statement relates to the offering of up to 796,135 common shares of beneficial
interest, par value $.01 per share (the "Shares"), of the Company, that may be
offered and sold from time to time if, and to the extent that, certain holders
of units of limited partnership interest ("Units") in Capital Automotive L.P., a
Delaware limited partnership (the "Partnership"), tender their Units to the
Partnership for redemption and the Company exercises its contractual right to
assume this obligation of the Partnership and decides to redeem the Units for
Shares in accordance with the terms of the Agreement of Limited Partnership (the
"Partnership Agreement"), as amended, restated or supplemented, of the
Partnership.

For the purposes of this opinion, we have examined copies of the following
documents:

1. The Registration Statement;

2. The Declaration of Trust of the Company (the "Declaration of Trust"),
as amended, restated or supplemented, as certified by Maryland State
Department of Assessments and Taxation on February 23, 1999;
<PAGE>

Capital Automative REIT
May 7, 1999
Page 2

3. The Bylaws of the Company (the "Bylaws"), as amended, restated or
supplemented, as of the date hereof;

4. The Partnership Agreement, as amended, restated or supplemented, as of
the date hereof;

5. The Resolutions of the Board of Trustees of the Company dated February
2, 1999; and

6. Such other documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary for the
purposes of rendering this opinion.

In our examination of the aforesaid documents, we have assumed the legal
capacity of all natural persons, the genuineness of all signatures, the
completeness and authenticity of all documents submitted to us as originals, and
the conformity to original documents of all documents submitted to us as
certified, telecopied, photostatic or reproduced copies.

In connection with the opinions expressed below, we have assumed that, at
and prior to the time of the sale and delivery of Shares pursuant to the
Registration Statement, (i) the Resolutions of the Board of Trustees authorizing
the offering and sale of the Shares have not have been amended, modified or
rescinded, (ii) the Registration Statement has been declared effective and no
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceedings with respect thereto have been commenced or
threatened, and (iii) there has not occurred any change in law materially
adversely affecting the power of the Company to offer and sell the Shares or the
validity of the Shares. We have also assumed that the offering, sale and
delivery of Shares will not at the time of such offering and sale violate or
conflict with (1) the Declaration of Trust, as then amended, restated and
supplemented, and Bylaws, as then amended, restated and supplemented, of the
Company (or the Partnership Agreement, as then amended, restated or
supplemented, of the Partnership), (2) any provision of any license, indenture,
instrument, mortgage, contract, document or agreement to which the Company (or
the Partnership) is a party or by which the Company (or the Partnership) is then
bound, or (3) any law or regulation or any decree, judgment or order applicable
to the Company (or the Partnership). We have further assumed that the number of
Shares to be offered and sold pursuant to the Registration Statement will not at
the time of such offering and sale exceed the amount of such class of capital
shares authorized in the Declaration of Trust, as then amended, restated or
supplemented, and unissued at such time.
<PAGE>

Capital Automotive REIT
May 7, 1999
Page 3

Based upon, subject to, and limited by the foregoing, we are of the opinion
that the Shares have been duly authorized and when sold and issued by the
Company, and paid for by delivery of the Units, pursuant to the Partnership
Agreement, the Shares will be validly issued, fully paid and nonassessable.

This opinion is limited to the laws of the United States and the General
Corporation Law of Maryland. We are members of the Bar of the State of Maryland
and do not hold ourselves out as being experts in the laws of any other
jurisdiction. Our opinion is rendered only with respect to the laws and the
rules, regulations and orders thereunder that are currently in effect. We assume
no obligation to advise you of any changes in the foregoing subsequent to the
delivery of this opinion. This opinion has been prepared solely for your use in
connection with the filing of the Registration Statement, and should not be
quoted in whole or in part or otherwise be referred to, nor otherwise be filed
with or furnished to any governmental agency or other person or entity, without
our express prior written consent.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein under the caption
"Legal Matters."

Very truly yours,

WILMER, CUTLER & PICKERING

By: /s/ JOHN B. WATKINS
------------------------------
John B. Watkins, a partner

<PAGE>

Exhibit 8.1

WILMER, CUTLER & PICKERING Washington
2445 M Street, N.W. Baltimore
Washington, D.C. 20037-1420 New York
___ London
Telephone (202) 663-6000 Brussels
Facsimile (202) 663-6363 Berlin

May 11, 1999

Capital Automotive REIT
1420 Spring Hill Road, Suite 525
McLean, Virginia 22102

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 ("Capital Automotive), in connection with the
preparation of a Form S-3 registration statement (the "Registration Statement")
filed with the Securities and Exchange Commission on May 11, 1999, with respect
to the offering of up to 796,135 common shares of beneficial interest, par value
$.01 per share ("Common Shares"), of Capital Automotive that may be offered and
sold from time to time if, and to the extent that, certain limited partners of
Capital Automotive L.P., a Delaware limited partnership (the "Partnership"),
seek to redeem their units of limited partnership interest ("Units") and the
Company exercises its contractual right to assume the Partnership's obligation
and redeems the Units for Common Shares. You have requested our opinion
regarding certain U.S. federal income tax matters in connection with the
Registration Statement. Unless specifically defined otherwise, all terms used
herein have the meaning set forth in the Registration Statement.

In giving this opinion letter, we have examined and relied on originals,
or copies certified or otherwise identified to our satisfaction, of the
following: (1) the Declaration of Trust of Capital Automotive, as amended,
restated and supplemented (the "Declaration of Trust"), as certified by the
Department of Assessments and Taxation of the State of Maryland on February 23,
1999; (2) the Bylaws of Capital Automotive, as amended, restated and
supplemented (the "Bylaws"), to the date hereof; (3) the Registration Statement,
including the prospectus contained as part of the Registration Statement (the
"Prospectus"); (4) the Agreement of Limited Partnership, as amended, restated
and supplemented (the "Partnership Agreement"), to the date hereof, among
Capital Automotive, in its capacity as general partner, and the limited partners
(the general partner and the limited partners are collectively referred to
herein as "Partners"); (5) the representations contained in a certificate dated
May 11, 1999 and executed by a duly appointed officer of Capital Automotive (the

<PAGE>

Capital Automotive REIT
May 11, 1999
Page 2

"Officer's Certificate) and (6) such other documents as we have deemed necessary
or appropriate for purposes of this opinion.

In connection with opinions rendered below, we have assumed, with your
consent, that: (i) each of the documents referred to above have 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;
(ii) Capital Automotive will elect REIT status in conformity with the
requirements of Treas. Reg. Section 1.856-2(b) in its federal income tax return
for 1998; (iii) during its taxable year ending December 31, 1998 and subsequent
taxable years, Capital Automotive operated and intends to continue to operate in
such manner that will make the representations contained in the Officer's
Certificate, true for such years; (iv) Capital Automotive does not intend to
make any amendments to the Declaration of Trust and Bylaws, the Partnership
Agreement or any other agreements, after the date of this opinion that would
affect its qualification as a real estate investment trust for U.S. federal
income tax purposes for any taxable year; and (v) no action will be taken by
Capital Automotive, the 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.

Unless facts material to the opinions herein are specifically stated to
have been independently established or verified by us, we have relied as to such
facts solely upon the correctness of the representations made by Capital
Automotive and the Partnership. 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 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) Capital Automotive will qualify as a REIT under sections
856 through 859 of the Internal Revenue Code of 1986, as amended (the
"Code") with respect to the Company's first taxable year ended
December 31, 1998, is organized in conformity with the requirements for
qualification as a REIT under the Code, and its current method of
operation will enable it to meet the requirements for qualification as a
REIT for the current taxable year and for future taxable years. With
respect to its current and future
<PAGE>
Capital Automotive REIT
May 11, 1999
Page 3

years, however, Capital Automotive's status as a REIT at any time is
dependent, among other things, upon its meeting certain requirements
throughout the year as a whole; and

(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.

We will not review on a continuing basis Capital Automotive'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 the actual results of Capital Automotive's
operations for any given taxable year will satisfy the requirements for
qualification and taxation as a REIT.

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 and 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 Capital Automotive from qualifying as a REIT 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.

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/ William J. Wilkins
--------------------------------
By William J. Wilkins, a Partner

<PAGE>

Exhibit 23.2

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated January 29, 1999
included in Capital Automotive REIT's Form 10-K for the year ended December 31,
1998 and to all references to our Firm included in this registration statement.

ARTHUR ANDERSEN LLP

Washington, D.C.
May 11, 1999