MACKLOWE PROPERTIES INC, S-11, 1998-05-14

MACKLOWE PROPERTIES INC
S-11, 1998-05-14

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1998

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

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

MACKLOWE PROPERTIES, INC.

(Exact Name of Registrant as Specified in its Governing Instruments)

142 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 265-5900
(Address of Principal Executive Offices)
------------------------------

HARRY MACKLOWE
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
MACKLOWE PROPERTIES, INC.
142 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 265-5900
(Name and Address of Agent for Service)
------------------------------

COPIES TO:

<TABLE>
<S> <C>
ALAN L. GOSULE, ESQ. J. WARREN GORRELL, JR., ESQ.
ROBERT E. KING, JR., ESQ. ALAN L. DYE, ESQ.
ROGERS & WELLS LLP HOGAN & HARTSON L.L.P.
200 PARK AVENUE 555 THIRTEENTH STREET, N.W.
NEW YORK, NEW YORK 10166 WASHINGTON, DC 20004-1109
</TABLE>

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

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

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO PRICE PER SHARE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED (1) PRICE (1) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share(2) 29,900,000(3) $20 $598,000,000 $176,410
Preferred Stock Purchase Right(2) None None None None
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(2) This Registration Statement also relates to Rights to purchase shares of
Series A Preferred Stock of the Registrant which will be attached to all
shares of Common Stock outstanding as of, and issued subsequent to, the
effective date of this Registration Statement pursuant to the terms of the
Registrant's Stockholder Rights Agreement dated , 1998. Until the
occurrence of certain prescribed events, the Rights are not exercisable, are
evidenced by the certificates for the Common Stock and will be transferred
with and only with such Common Stock.

(3) Includes 3,900,000 shares being registered in connection with an
over-allotment option being granted to the Underwriters.
------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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CROSS REFERENCE SHEET

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ITEM NUMBER AND CAPTION LOCATION OR HEADING IN PROSPECTUS
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1. Forepart of Registration Statement and Outside Front Forepart of Registration Statement and Outside Front
Cover Page of Prospectus Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; The Company; Risk Factors; Not
Earnings to Fixed Charges Applicable
4. Determination of Offering Price Outside Front Cover Page; Underwriting
5. Dilution Dilution
6. Selling Security Holders Not applicable
7. Plan of Distribution Outside Front Cover Page; Underwriting
8. Use of Proceeds Use of Proceeds
9. Selected Financial Data Selected Financial Information
10. Management's Discussion and Analysis of Financial Management's Discussion and Analysis of Financial
Condition and Results of Operations Condition and Results of Operations
11. General Information as to Registrant Outside Front Cover Page; Prospectus Summary; The
Company; Management; Structure and Formation of the
Company; Description of Securities
12. Policy with Respect to Certain Activities Prospectus Summary; The Company; Policies with
Respect to Certain Activities; Partnership Agreement;
Description of Securities; Additional
Information
13. Investment Policies of Registrant Prospectus Summary; The Company; Business and Growth
Strategies; Policies with Respect to Certain
Activities
14. Description of Real Estate Prospectus Summary; The Properties
15. Operating Data The Company; The Properties; Financial Statements
16. Tax Treatment of Registrant and its Security Holders Prospectus Summary; Federal Income Tax Considerations
17. Market Price of and Dividends on the Registrant's Risk Factors; The Company; Distributions Structure
Common Equity and Related Stockholder Matters and Formation of the Company
18. Description of Registrant's Securities Description of Securities
19. Legal Proceedings The Properties
20. Security Ownership of Certain Beneficial Owners and Principal Stockholders
Management
21. Directors and Executive Officers Management
22. Executive Compensation Management
23. Certain Relationships and Related Transactions The Company; Management; Structure and Formation of
the Company; Certain Relationships and Transactions
24. Selection, Management and Custody of Registrant's Outside Front Cover Page; Prospectus Summary; The
Investment Company; The Properties
25. Policies with Respect to Certain Transactions Policies with Respect to Certain Activities
26. Limitations of Liability The Company; Description of Securities; Management
27. Financial Statements and Information Prospectus Summary; Selected Financial Information;
Financial Statements
28. Interests of Named Experts and Counsel Experts; Legal Matters
29. Disclosure of Commission Position on Indemnification Management
for Securities Act Liabilities
</TABLE>
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE RELATED 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 AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 14, 1998
PROSPECTUS

26,000,000 SHARES [LOGO]

MACKLOWE PROPERTIES, INC.
COMMON STOCK
----------------

We have formed Macklowe Properties, Inc. to continue and expand the
commercial office and apartment real estate business of The Macklowe
Organization. For more than 35 years, we have been developing, acquiring,
redeveloping, owning, managing and leasing Manhattan office and apartment
properties. We are one of the largest developers, acquirors, redevelopers,
owners and managers of Manhattan office and apartment properties and we believe
we will be, after this Offering, the first publicly traded real estate
investment trust ("REIT") to own both Manhattan office and apartment properties.
We will operate as a fully integrated, self-administered and self-managed real
estate company and expect to qualify as a REIT for federal income tax purposes.

After this Offering, we will own interests in 12 stabilized commercial
properties, including eight office properties containing 2.9 million rentable
square feet located in midtown Manhattan and four upscale apartment properties
containing 506,000 rentable square feet and 608 apartment units located in
midtown Manhattan and Manhattan's Upper East Side and Upper West Side.
Additionally, we are currently developing a 293-unit apartment property, and
redeveloping an 89,000 square foot office property and a 36-unit apartment
property, all of which are located in Midtown Manhattan and are expected to be
completed during the fourth quarter of 1998. Further, we will own interests in
six development sites in midtown Manhattan, which will support the development
of up to 1.3 million rentable square feet of office space and up to 760,000
rentable square feet of apartment development. As of March 31, 1998, our
stabilized office and apartment properties were 91% and 96% leased,
respectively.

All of the shares of Common Stock offered with this Prospectus are being
sold by our Company. Upon completion of this Offering, our officers and
directors will beneficially own % of our equity, on a fully diluted basis.

Our shares are not currently traded on any securities exchange and there is
no current public market for them. We will make an application to list our
shares on the New York Stock Exchange under the symbol "MLO." We expect that the
initial public offering price will be between $19 and $21 per share. See
"Underwriting" on page 143 for a discussion of how the initial public offering
price will be determined.
---------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON STOCK BEING SOLD WITH THIS
PROSPECTUS, INCLUDING AMONG OTHERS:

- OUR PROPERTIES ARE ALL LOCATED IN MANHATTAN, SO WE DEPEND ON THIS
MARKET'S PERFORMANCE;
- WE INTEND TO DEVELOP PROPERTIES AND THE DEVELOPMENT BUSINESS HAS RISKS
THAT ARE DIFFERENT FROM OWNING CURRENTLY OPERATING PROPERTIES;
- OUR ESTIMATED INITIAL ANNUAL DISTRIBUTION REPRESENTS % OF OUR
ESTIMATED CASH AVAILABLE FOR DISTRIBUTION, RESULTING IN A LIKELIHOOD THAT
WE WILL BE REQUIRED TO FUND SUCH DISTRIBUTION FROM BORROWINGS OR WORKING
CAPITAL OR REDUCE SUCH DISTRIBUTION;
- WE MAY NOT BE PAYING FAIR MARKET VALUE FOR OUR PROPERTIES;
- WE HAVE AGREED NOT TO SELL, OR REFINANCE DEBT ON, SOME OF OUR PROPERTIES;
- STOCKHOLDERS' ABILITY TO CHANGE CONTROL IN OUR COMPANY IS LIMITED BY OUR
ORGANIZATIONAL DOCUMENTS AND MARYLAND LAW; AND
- IF WE FAIL TO QUALIFY AS A REIT, WE WILL BE TAXED AS A REGULAR
CORPORATION WHICH WILL REDUCE OUR DISTRIBUTIONS.
------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------

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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total(3)......................................... $ $ $
</TABLE>

(1) We have agreed to indemnify the Underwriters. See "Underwriting" on page
143.

(2) Before deducting our estimated expenses of this Offering of $ .

(3) We have given the Underwriters an option to purchase up to an additional
3,900,000 shares of our Common Stock to cover over-allotments. If the
Underwriters purchase all of these shares, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Public will be
$ , $ , and $ , respectively.

The Underwriters are offering the shares subject to various conditions and
may reject all or part of any order. It is expected that delivery of the shares
offered hereby will be made at the offices of Lehman Brothers Inc., in New York,
New York on or about , 1998.

LEHMAN BROTHERS PRUDENTIAL SECURITIES INCORPORATED

, 1998
<PAGE>
[MAP/PICTURES/ART WORK]

IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE SEC RULES PERMIT
UNDERWRITERS TO ENGAGE IN TRANSACTIONS THAT STABILIZE THE PRICE OF OUR COMMON
STOCK. THESE TRANSACTIONS MAY INCLUDE PURCHASES FOR THE PURPOSE OF FIXING OR
MAINTAINING THE PRICE OF OUR COMMON STOCK AT A LEVEL THAT IS HIGHER THAN THE
MARKET WOULD DICTATE IN THE ABSENCE OF SUCH TRANSACTIONS. SEE "UNDERWRITING" ON
PAGE 143.

ii
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IMPORTANT NOTE TO READERS
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Before you read any further, we want to tell you about our approach and some
of the conventions we used in writing this Prospectus.

- We wrote this Prospectus using the Securities and Exchange Commission's
(the "SEC") "Plain English" rule. This rule requires that we write without
the "legalese" typically found in most documents filed with the SEC in
order to provide you with a more meaningful and understandable document.
Although the tone and wording may differ from what you are familiar with,
we are not alone in adopting this progressive approach. Other well-known
companies have started preparing their documents using plain English. We
voluntarily followed the plain English initiative because we are committed
to providing you with useful and understandable information.

- For purposes of calculating "pro forma" information appearing throughout
this Prospectus, we have assumed we issued 26,000,000 shares of Common
Stock in this Offering at an offering price of $20 per share (the midpoint
of the range of initial public offering prices set forth on the cover page
of this Prospectus (the "Offering Price")) and that we received $473.1
million of net proceeds after paying underwriting discounts and offering
and formation expenses. The actual net proceeds may differ. The pro forma
information also assumes that we have completed all of the transactions
relating to our formation and that we owned and operated the 12 stabilized
office and apartment properties, the three development or redevelopment
projects, and the six development sites (collectively, the "Properties")
we will acquire as a result of these Formation Transactions, and had the
benefit of the revenues these properties generated, as of the beginning of
the period shown for the pro forma operating information, and on the date
of the balance sheet, for balance sheet information.

- Unless otherwise indicated, the information in this Prospectus assumes (i)
the Underwriter's over-allotment option to purchase 3,900,000 additional
shares of Common Stock is not exercised, and (ii) the transactions
relating to our formation described under "Structure and Formation of the
Company" on page 103 are consummated. Unless the context otherwise
requires, when we refer to "our Company," "we" or "us," we are referring
to the management of Macklowe Properties, Inc., a Maryland corporation and
its subsidiaries, including (i) Macklowe Properties, L.P. (the "Operating
Partnership"), a Delaware limited partnership of which we are the sole
general partner, (ii) the consolidated subsidiary partnerships,
corporations or limited liability companies (the "Subsidiaries") through
which the Operating Partnership will own interests in and operate the
Properties and (iii) where we refer to our historical activities, our
predecessor entity, The Macklowe Organization, and its affiliated
entities. Unless the context otherwise requires, all square footage,
apartment unit and percentage leased data are approximate. See the
"Glossary of Selected Terms" beginning on page 147 for the definition of
certain terms used in this Prospectus.

Our mailing address and telephone number are:

Macklowe Properties, Inc.

142 West 57th Street

New York, New York 10019

(212) 265-5900

CAUTIONARY STATEMENT

Information in this Prospectus includes "forward-looking statements" about,
among other things, future economic performance, plans and objectives of
management for future operations and projections of revenue and other financial
items, which can be identified where we use terms such as "may," "will,"
"should," "expect," "anticipate," "estimate" or "continue" or similar words. The
cautionary statements under the caption "Risk Factors" and other places in the
Prospectus identify important factors with respect to those forward-looking
statements, including certain risks and uncertainties that could cause our
actual results to differ materially from those in the forward-looking
statements.

iii
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY............................... 1
The Company.................................... 1
Risk Factors................................... 3
Market Opportunity............................. 4
Business and Growth Strategies................. 5
The Offering................................... 6
The Properties................................. 6
Structure and Formation of the Company......... 9
Benefits to Related Parties.................... 10
Distributions.................................. 11
Tax Status of the Company...................... 11
Summary Selected Financial Information......... 12
Summary Selected Combined Financial and
Operating Data............................... 12
RISK FACTORS..................................... 15
Lack of Geographic Diversity................... 15
We May Not Be Paying Fair Market Value for Our
Properties................................... 15
Limitations on Our Ability to Sell or Reduce
Our Mortgage Indebtedness on Certain
Properties................................... 15
Limitations on Change of Control............... 16
Real Estate Investment Risks................... 18
Tax Risks...................................... 20
Lack of Operating History and Inexperience of
Management in Operating a REIT............... 20
Conflicts of Interest.......................... 21
Possible Inability to Meet Expected Returns on
Acquired or Developed Properties............. 22
Financing Risks................................ 22
Regulatory Matters............................. 23
Purchasers of Our Common Stock Will Experience
Dilution..................................... 24
Risks of Common Stock Ownership................ 24
Dependence on Key Personnel.................... 25
Changes in Policies............................ 26
Liability Insurance Coverage................... 26
Estimated Initial Cash Available for
Distribution Will Not be Sufficient to Make
Distributions at Expected Levels............. 26
The Macklowe Organization Predecessor Has Had
Historical Accounting Losses and Has a
Deficit in Owner's Equity; We May Experience
Future Losses................................ 26
Reassessment of Real Property Taxes............ 27
Contingent or Undisclosed Liabilities Could
Adversely Affect Our Financial Condition..... 27

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PAGE
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<S> <C>
Risks Relating to Year 2000 Issue.............. 27
THE COMPANY...................................... 28
HISTORY.......................................... 29
General........................................ 29
Development Activities......................... 29
Redevelopment Activities....................... 31
Complex Transactions........................... 32
Opportunistic Purchases........................ 33
Recent Activities.............................. 33
BUSINESS AND GROWTH STRATEGIES................... 34
Business Strategy.............................. 34
Growth Strategies.............................. 34
USE OF PROCEEDS.................................. 40
DISTRIBUTIONS.................................... 41
CAPITALIZATION................................... 44
DILUTION......................................... 45
SELECTED FINANCIAL INFORMATION................... 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............ 50
Overview....................................... 50
Results of Operations.......................... 50
Pro Forma Operating Results.................... 52
Liquidity and Capital Resources................ 52
Cash Flows..................................... 53
Funds from Operations.......................... 53
Inflation...................................... 54
Prospective Accounting Standards............... 54
Year 2000...................................... 54
MARKET OVERVIEW.................................. 56
Summary........................................ 56
Economic Overview.............................. 56
Manhattan Office Market........................ 58
Manhattan Residential Market................... 62
THE PROPERTIES................................... 65
The Portfolio.................................. 65
Office Properties.............................. 68
Apartment Properties........................... 84
Development and Redevelopment Properties....... 87
Land Held For Development...................... 88
Mortgage Indebtedness.......................... 90
Credit Facility................................ 91
Environmental Matters.......................... 91
Third-Party Property Management................ 92
Property Management and Leasing Services....... 92
Construction Services.......................... 92
</TABLE>

iv
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Employees...................................... 93
Transfer of Properties......................... 93
Assets Not Being Transferred to the Company.... 93
Competition.................................... 94
Regulation..................................... 94
Insurance...................................... 95
Legal Proceedings.............................. 95
MANAGEMENT....................................... 96
Directors, Director Nominees and Executive
Officers..................................... 96
Committees of the Board of Directors........... 98
Compensation of Directors...................... 99
Executive Compensation......................... 99
Employment and Noncompetition Agreements....... 100
Stock Option and Incentive Plan................ 100
Incentive Compensation Plan.................... 101
401(k) Plan.................................... 101
Limitation of Liability and Indemnification.... 101
STRUCTURE AND FORMATION OF THE COMPANY........... 103
The Operating Entities of the Company.......... 103
Formation Transactions......................... 104
Consequences of the Offering and the Formation
Transactions................................. 105
Benefits to Related Parties.................... 105
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES...... 107
Investments.................................... 107
Dispositions................................... 108
Borrowings..................................... 108
Conflicts of Interest.......................... 109
Loans to Other Persons......................... 111
Other Activities............................... 111
CERTAIN RELATIONSHIPS AND TRANSACTIONS........... 112
Formation Transactions......................... 112
Operating Partnership Agreement................ 112
Registration Rights............................ 112
Related Party Transactions..................... 112
PARTNERSHIP AGREEMENT............................ 113
Operational Matters............................ 113
Liability and Indemnification.................. 116
Transfers of Interests......................... 116
Fiduciary Duty................................. 117
PRINCIPAL STOCKHOLDERS........................... 118
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PAGE
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DESCRIPTION OF SECURITIES........................ 119

General........................................ 119

Power to Issue Additional Shares of Common
Stock and Preferred Stock.................... 120

Restrictions on Transfer....................... 120

Stockholder Rights Plan........................ 121

Limitation of Liability Indemnification of
Directors and Officers....................... 123

Transfer Agent and Registrar................... 123

CERTAIN PROVISIONS OF MARYLAND LAW AND OUR
CHARTER AND BYLAWS............................. 124

Classification and Removal of Board of
Directors; Other Provisions.................. 124

Limited Liability and Indemnification of
Directors and Officers of the Company........ 125

Stockholder Rights Plan and Ownership
Limitations.................................. 125

Business Combination Statute................... 125

Control Share Acquisition Statute.............. 126

Amendments to the Charter and Other Charter
Provisions................................... 126

Amendments to Bylaws........................... 127

Advance Notice of Director Nominations and New
Business..................................... 127

Anti-takeover Effect of Certain Provisions of
Maryland Law and of the Charter and Bylaws... 127

Rights to Purchase Securities and Other
Property..................................... 127

SHARES AVAILABLE FOR FUTURE SALE................. 128

General........................................ 128

Registration Rights............................ 128

FEDERAL INCOME TAX CONSIDERATIONS................ 129

General........................................ 129

Taxation of the Company........................ 129

Taxation of Stockholders....................... 134

Other Tax Considerations....................... 139

ERISA AND CERTAIN OTHER CONSIDERATIONS........... 140

General........................................ 140

Status of the Company and the Operating
Partnership under ERISA...................... 140

UNDERWRITING..................................... 143

EXPERTS.......................................... 146

LEGAL MATTERS.................................... 146

ADDITIONAL INFORMATION........................... 146

GLOSSARY OF SELECTED TERMS....................... 147

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

v
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PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS SOME INFORMATION FROM THIS PROSPECTUS. IT MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU IN DECIDING WHETHER TO
INVEST IN OUR COMPANY. TO UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS AND THE FINANCIAL
STATEMENTS. UNLESS OTHERWISE INDICATED, INFORMATION CONTAINED HEREIN CONCERNING
THE NEW YORK CITY METROPOLITAN ECONOMY AND THE MANHATTAN OFFICE AND APARTMENT
MARKETS IS DERIVED FROM THE CUSHMAN & WAKEFIELD MARKET STUDY.

THE COMPANY

GENERAL

We have formed Macklowe Properties, Inc. (together with its subsidiaries,
the "Company") to continue and expand the office and apartment real estate
business of our predecessor, The Macklowe Organization. For more than 35 years,
we have been developing, acquiring, redeveloping, owning, managing and leasing
Manhattan office and apartment properties. We are one of the largest developers,
acquirors, redevelopers, owners and managers of Manhattan office and apartment
properties and we believe we will be, after this Offering, the first publicly
traded real estate investment trust ("REIT") to own both Manhattan office and
apartment properties. We will operate as a fully integrated, self-administered
and self-managed real estate company and expect to qualify as a REIT for federal
income tax purposes.

We developed two of our office properties containing 1.2 million rentable
square feet and two of our apartment properties containing 469,000 rentable
square feet and 469 apartment units. We are also currently developing a 293-unit
apartment property, and redeveloping an 89,000 square foot office property and a
36-unit apartment property, all of which are located in midtown Manhattan and
are expected to be completed by the fourth quarter of 1998. Additionally, we
will own six development sites in midtown Manhattan, which will support the
development of up to 1.3 million rentable square feet of office space and up to
760,000 rentable square feet of apartment space.

Harry Macklowe, our Chairman and Chief Executive Officer, has been one of
Manhattan's leading developers since the late 1960s. Warren Cole, our President,
has been involved in the Manhattan real estate business for over 18 years and
has been responsible for the acquisition and financing of our properties for the
past 10 years. Harry Macklowe and Warren Cole and our other eight executive
officers have been actively involved in the Manhattan real estate business for
an average of 17 years, including an average of over 11 years working together
for our Company. Over the past 35 years, we have been responsible for over 70
real estate transactions containing over 10 million square feet and valued in
excess of $2.5 billion. This total includes our construction of four office
properties containing 1.5 million rentable square feet and five apartment
properties containing 2.0 million rentable square feet and 1,400 apartment
units. Additionally, we have acquired and substantially redeveloped six office
properties containing 1.1 million rentable square feet and seven apartment
properties containing 390,000 rentable square feet and 365 apartment units. We
will enter into employment and noncompetition agreements with each of Harry
Macklowe and Warren Cole pursuant to which they will agree to serve in such
capacities and to conduct, during the term of such agreements, all commercial
office and rental apartment development, acquisition and management activities
through our Company. See "Management" on page 96. After this Offering, our
officers and directors will own % of the equity of our Company, on a fully
diluted basis.

1
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We believe that our management team and our collective Manhattan real estate
experience and knowledge create a significant competitive advantage. We are a
full-service real estate company, with substantial in-house expertise and
resources in development, acquisitions, redevelopment, financing, construction
management, property management, marketing, leasing, design, architecture,
accounting and legal services. We intend to use our experience and knowledge to
opportunistically pursue additional real estate investments in New York City as
they arise.

Over the past 35 years, we have created significant value for our Company
by:

- IDENTIFYING AND CAPITALIZING ON OPPORTUNITIES in Manhattan submarkets
ahead of other real estate developers;

- COMPLETING COMPLICATED SITE ASSEMBLAGES FOR NEW DEVELOPMENT by
utilizing our in-depth knowledge of New York City's complex
regulatory and zoning processes;

- CLOSING COMPLEX TRANSACTIONS that require significant "intellectual
capital" due to their complexities and, as a result, have not been
widely marketed and/or competitively bid;

- IDENTIFYING, REDEVELOPING AND REPOSITIONING UNDERPERFORMING ASSETS
through capital improvements and improved management; and

- CREATING AND MAINTAINING STRONG RELATIONSHIPS WITH TENANTS AND
BROKERS which have enabled us to maintain high occupancy rates and
efficiently re-lease vacant or newly acquired or developed space.

We believe we are well positioned for continued growth due to the following:

- STRONG FUNDAMENTALS IN THE MANHATTAN OFFICE AND APARTMENT MARKETS;

- OUR SUBSTANTIAL DEVELOPMENT PIPELINE as a result of our existing land
holdings in Midtown Manhattan, which are expected to support the
development of up to 1.3 million rentable square feet of office space
and up to 760,000 rentable square feet and 870 units of apartment
development;

- OUR SUPERIOR ACCESS TO POTENTIAL DEVELOPMENT AND ACQUISITION
OPPORTUNITIES by virtue of our long standing relationships with
owners, brokers and financial institutions which often enables us to
identify and privately negotiate for a property before it is
generally marketed;

- OUR ESTABLISHED TRACK RECORD of closing transactions;

- BARRIERS TO ENTRY by potential competitors in Manhattan real estate
markets due to the complexities inherent in these markets;

- OUR EXISTING PORTFOLIO OF HIGH QUALITY PROPERTIES which are located
in submarkets characterized by rising occupancy and rental rates;

- OUR ABILITY TO ATTRACT HIGH QUALITY TENANTS, such as Chase Manhattan
Bank, LeBoeuf, Lamb, Greene & MacRae L.L.P., National Bank of Canada,
Air France, Oracle and Callaway Golf, which are currently tenants at
our Properties;

- OUR IMPROVED ACCESS TO CAPITAL due to our status as a public company;
and

- OUR ABILITY TO EXECUTE TAX-DEFERRED TRANSACTIONS by offering limited
partnership units in our Operating Partnership ("Units"), which are
attractive to tax-sensitive sellers as well as to institutions or
individuals wishing to exchange their properties for equity in a
public company.

2
<PAGE>
CREDIT FACILITY

RISK FACTORS

Before you invest in our Common Stock, you should be aware that there are
various risk factors that you should consider. These risks include the following
and others discussed in this Prospectus:

- since all of our Properties are located in Manhattan, our operations are
dependent on the conditions of the New York City metropolitan economy
and real estate markets and a downturn in these markets could adversely
affect our profitability and ability to make distributions to you;

- our estimated initial annual distribution represents % of our
estimated cash available for distribution for the twelve months ended
December 31, 1998. If we are unable to pay such estimated initial annual
distribution out of cash available for distribution, we would be
required to fund such distribution from borrowings or working capital,
or to reduce such distribution;

- we intend to develop properties, and our return on such investments may
be lower than anticipated because such properties can cost more to
develop, take longer to develop or lease, or lease for lower rents than
anticipated;

- we may not be paying fair market value for our Properties since the
value of consideration we paid to The Macklowe Organization and certain
related parties in our formation was not based on arm's length
negotiations and no independent third-party appraisals were obtained to
value the Properties;

- we have agreed for certain periods not to sell five of our Properties or
pay down or refinance certain mortgage indebtedness on such properties
even if it is in your best interest for us to do so, and the possibility
exists that properties that we acquire in the future in exchange for
Units may contain similar restrictions;

- your ability to change control of us is limited by our organizational
documents, including a limit on ownership by any individual or entity to
9.0% of our outstanding shares, our stockholder rights plan and
provisions of Maryland law;

- if we fail to qualify as a REIT for federal income tax purposes, we will
be liable for additional federal, state and local income taxes, and the
distributions you receive will decrease;

- we expect to operate with a higher level of leverage on the development
portion of our portfolio than on the operating portion of our portfolio
resulting in a higher overall average leverage ratio than we would
otherwise have if we did not engage in development activities;

- we intend to acquire portfolios or individual properties and such
acquisitions may not achieve their intended return or be successfully
integrated into our portfolio;

- conflicts of interest exist in connection with our formation, including
the fact that our officers and directors will receive Common Stock
and/or Units with a value of approximately $ million (based on the
Offering Price) representing % of our equity, on a fully diluted
basis assuming the redemption of all Units;

- our officers and directors may have conflicts of interest in connection
with business decisions including decisions to sell properties or to
refinance or repay indebtedness on properties and decisions relating to
properties in which our officers and directors hold interests that may
compete with our Properties;

3
<PAGE>
- investors will experience immediate and substantial dilution in their
net tangible book value per share of the shares of Common Stock they
purchase in this Offering; and

- after depreciation and amortization, our predecessor has experienced
historical accounting losses for certain fiscal years and there can be
no assurances that we will not have similar losses in the future.

MARKET OPPORTUNITY

UNLESS OTHERWISE INDICATED, INFORMATION CONTAINED IN THIS PROSPECTUS
CONCERNING THE NEW YORK CITY METROPOLITAN ECONOMY AND THE MANHATTAN OFFICE AND
APARTMENT MARKETS IS DERIVED FROM A MARKET STUDY PREPARED BY CUSHMAN & WAKEFIELD
("CUSHMAN & WAKEFIELD"), A NATIONALLY RECOGNIZED REAL ESTATE CONSULTING FIRM
(THE "CUSHMAN & WAKEFIELD MARKET STUDY").

Manhattan is the largest office market in the United States and contains
more rentable square feet of space than the next six largest U.S. office markets
combined. Driven by its strong economy and surging popularity, New York City
private sector employment rose by 3.9% between 1995 and 1997, with more than 75%
of this growth occurring in Manhattan. This employment growth, coupled with
limited new construction of office space since 1992, has resulted in favorable
office market conditions. The Midtown vacancy rate for Class A office space fell
to 7.3% at March 31, 1998 from 16.0% at December 31, 1993. During this time,
average rents have risen to $41.50 per square foot from $34.28 per square foot,
a 21.1% increase. Cushman & Wakefield projects that these favorable conditions
will continue, with market rents rising to $48.55 per square foot and vacancy
rates falling to 5.1% through 2002. Significantly, the existing supply of office
space within Midtown Manhattan cannot fully satisfy the demand for large blocks
of contiguous space. Rental rates at the top tier of the Midtown Manhattan
office market have reached the level (approximately $50 per square foot)
required to economically justify new construction. In the past year, in excess
of 1.3 million square feet have been leased in Midtown at rents of $50 per
square foot or higher, including a 220,000 square foot lease recently signed at
9 West 57th Street at $60 per square foot.

Manhattan is also the largest apartment market in the United States. Current
vacancy rates for Manhattan apartments average 3% and average rents for
unregulated apartments have increased to $36.53 per square foot. Current rents
on luxury apartments have exceeded the level (approximately $42.00 per square
foot) required to economically justify new construction. Over 3,000 new rental
units have been developed since June 1996 and over 3,500 units are currently
under construction. Cushman & Wakefield projects that these favorable conditions
will continue, with average rents on unregulated apartments rising to $42.73 per
square foot and vacancy rates remaining relatively stable through 2002. See
"Market Overview" on page 56.

4
<PAGE>
BUSINESS AND GROWTH STRATEGIES

BUSINESS STRATEGY

Our primary business objective is to maximize total return to you through
appreciation in the value of our assets and growth in distributable cash flow.
We expect to accomplish these goals by continuing our historical operating
strategies focused on Manhattan real estate markets and capitalizing on
opportunistic development, acquisition, redevelopment and internal growth
opportunities described below.

GROWTH STRATEGIES

We believe that our development, acquisition and redevelopment experience
and the depth of our personnel position us to realize significant growth by
continuing to develop, acquire, redevelop, reposition and manage office and
apartment properties in Manhattan. Specifically, our growth will be enhanced by
the following opportunities:

INTERNAL GROWTH:

- DEVELOP EXISTING SITES. The development of our existing sites which
are expected to support up to 2.0 million rentable square feet of new
office and apartment construction including: 300 Madison Avenue
(office), 16-20 East 53rd Street (office), 777-791 Sixth Avenue
(apartment), 1000 Second Avenue (apartment), 20-30 West End Avenue
(apartment) and 250 East 60th Street (apartment), as well as the
completion and lease-up of a 217,000 rentable square feet, 293-unit
apartment development at 305 West 50th Street;

- REDEVELOP EXISTING PROPERTIES. The completion and lease-up of
redevelopment projects including 357,000 rentable square feet at 540
Madison Avenue (office), 140 West 57th Street (office) and 40 West 55th
Street (apartment);

- IMPROVE OCCUPANCY. The lease-up of vacant space at our recently
acquired and/or redeveloped properties, including 318,300 rentable
square feet of vacant space, as of March 31, 1998;

- INCREASE RENTS TO MARKET ON EXPIRING LEASES. Increasing rents to
market on expiring leases including 145,000, 401,000 and 283,000
rentable square feet in 1998, 1999 and 2000, respectively;

- CONTRACTUAL RENT INCREASES;

- CAPITALIZE ON ECONOMIES OF SCALE; and

- REDUCE OPERATING EXPENSES.

EXTERNAL GROWTH:

- ACQUIRE UNDERPERFORMING ASSETS. Continue our strategy of acquiring and
redeveloping underperforming properties;

- UNIT ACQUISITIONS. Acquire portfolios of assets or individual
properties from private investors and institutions through our ability
to offer tax-advantaged Units as currency in these transactions; and

- SITE ASSEMBLAGES. Continue our strategy of identifying and acquiring
properties for assemblage into larger development sites.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Securities offered........... 26,000,000 shares of our Common Stock.

Over-allotment option........ Up to 3,900,000 shares; if the over-allotment option is
exercised in full by the underwriters, the total price to
public, underwriting discounts, and proceeds to the Company
will be $ , $ and $ , respectively.

Shares to be outstanding
after the Offering......... shares of our Common Stock. This amount includes shares
of restricted Common Stock to be issued in the Formation
Transactions. This amount does not include a total of
shares of Common Stock issuable upon (a) redemption of
Units to be issued in the Formation Transactions, which are
exchangeable on a one-for-one basis for shares of Common
Stock, or, at our option, cash, subject to certain
exceptions and adjustments (see "Partnership Agreement" on
page 113)(1) and (b) exercise of options to be issued
upon completion of this Offering, under our stock option and
incentive plan. This amount also assumes that the
Underwriters do not exercise their over-allotment option.

NYSE Symbol.................. "MLO"

Use of Proceeds.............. $35.7 million to acquire interests in 150 Fifth Avenue,
771-791 Sixth Avenue and 342 Madison Avenue, $544.7 million
to repay mortgage debt on our Properties (including
prepayment penalties and other financing fees), $
million to repay intercompany debt, $14.4 million to pay
expenses incurred in forming the Company and in connection
with this Offering, and the remainder for working capital
and general corporate purposes. See "Use of Proceeds" on
page 40 and "Structure and Formation of the Company" on page
103.
</TABLE>

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

(1) Outstanding Units consist of (i) Common Units and (ii) 1,200,000 Class B
Units, which share equally in distributions with the Common Units and are
exchangable into Common Units ("Class B Units"). See "Partnership Agreement"
on page 113. The Class B Units are owned by non-affiliated continuing
investors.

THE PROPERTIES

After this Offering, we will own interests in 12 stabilized commercial
properties, including eight office properties containing 2.9 million rentable
square feet (including the commercial portion of Riverterrace), and four
apartment properties containing 506,000 rentable square feet and 608 apartment
units, all of which are located in Manhattan. Substantially all of our
Properties include rentable retail space on lower floors which accounts for 5%
of our total portfolio rentable square footage and 8% of Annualized Rents. As of
March 31, 1998 our stabilized office and apartment portfolios were 91% and 96%
leased, respectively. Additionally, we are currently developing a 293-unit
apartment property and redeveloping an 89,000 square foot office property and a
36-unit apartment property, all of which are located in Midtown Manhattan and
are expected to be completed by the fourth quarter of 1998. Further, we will own
interests in six sites held for future development which are expected to support
up to 1.3 million rentable square feet of office space and up to 760,000
rentable square feet and 870 units of apartment space. Although we intend to
develop these sites in the future, we cannot guarantee that we will actually do
so. See "The Properties--Development and Redevelopment Properties" and
"--Development Sites" on page 88, respectively. Upon completion of the Offering,
we expect to effectively own 100% of the economic interest in all of the
Properties.

6
<PAGE>
The following table sets forth certain information with respect to (i) our
12 stabilized office and apartment properties, (ii) our three development and
redevelopment projects and (iii) our six development sites, as of March 31, 1998
(collectively, the "Properties"):
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF TOTAL
RENTABLE OF PORTFOLIO
SQUARE TENANTS/ RENTABLE PERCENT ANNUALIZED
THE PROPERTIES SUBMARKET FEET UNITS SQUARE FEET LEASED RENT(1)
- ------------------------------- ------------------ --------- ----------- ------------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EXISTING OFFICE PROPERTIES:
Two Grand Central Tower(2)... Grand Central 617,000 13 18.0% 98.9% $ 25,530
369 Lexington Avenue......... Grand Central 133,000 32 3.9 96.6 4,114
Avenue of the Americas Rockefeller Center
Plaza(2)................... 545,000 12 15.9 100.0 26,029
Riverterrace Medical(2)(3)... Upper East 97,000 9 2.8 99.0 2,902
--------- ----- ----- ----- --------------
SUBTOTAL/WEIGHTED AVERAGE........................ 1,392,000 66 40.6% 99.1% $ 58,575

RECENTLY ACQUIRED AND/OR
REDEVELOPED OFFICE
PROPERTIES:
342 Madison Avenue(4)........ Grand Central 529,000 159 15.4% 84.2% $ 13,581
400 Madison Avenue........... Grand Central 145,000 76 4.2 90.0 5,243
150 Fifth Avenue(5).......... Flatiron 198,000 94 5.8 87.1 3,557
1412 Broadway(5)............. Fashion 386,000 70 11.2 80.6 10,088
540 Madison Avenue(6)(7)..... Plaza District 279,000 28 8.1 80.3(7) 10,000
--------- ----- ----- ----- --------------
SUBTOTAL/WEIGHTED AVERAGE........................ 1,537,000 427 44.7% 83.5% $ 42,469
--------- ----- ----- ----- --------------
OFFICE SUBTOTAL/WEIGHTED AVERAGE................. 2,929,000 493 85.3% 90.9% $ 101,044
--------- ----- ----- --------------
--------- ----- ----- --------------

APARTMENT PROPERTIES:
<S> <C> <C> <C> <C> <C> <C>
Riverterrace(2)(9)........... Upper East 331,000 10) 409(10) 9.6% 96.7% $ 13,886
30 East End Avenue........... Upper East 102,000 101 3.0 96.0 1,920
345 East 64th Street(2)...... Upper East 41,000 60 1.2 93.2 1,489
192 East 75th Street......... Upper East 32,000 38 0.9 91.0 726
--------- ----- ----- ----- --------------
APARTMENT SUBTOTAL/WEIGHTED AVERAGE.............. 506,000 608(11) 14.7% 95.9% $ 18,021
--------- ----- ----- ----- --------------
-----

TOTAL/WEIGHTED AVERAGE......................... 3,435,000 100% 91.7% $ 119,065
--------- ----- --------------
--------- ----- --------------

<CAPTION>
PERCENTAGE
OF TOTAL
PORTFOLIO ANNUALIZED RENT
ANNUALIZED PER LEASED RENTABLE
THE PROPERTIES RENT(1) SQUARE FOOT(1)
- ------------------------------- ------------- ----------------------------
OFFICE RETAIL
<S> <C> <C> <C>
EXISTING OFFICE PROPERTIES:
Two Grand Central Tower(2)... 21.4% $ 41.74 $ 61.97
369 Lexington Avenue......... 3.5 29.88 53.25
Avenue of the Americas
Plaza(2)................... 21.9 47.42 62.31
Riverterrace Medical(2)(3)... 2.4 30.15 N/A
----- ----------- -------
SUBTOTAL/WEIGHTED AVERAGE.... 49.2% $ 42.13 $ 58.44
RECENTLY ACQUIRED AND/OR
REDEVELOPED OFFICE
PROPERTIES:
342 Madison Avenue(4)........ 11.4% $ 26.60 $ 94.23
400 Madison Avenue........... 4.4 29.32 159.36
150 Fifth Avenue(5).......... 3.0 18.29 40.69
1412 Broadway(5)............. 8.5 31.71 40.63
540 Madison Avenue(6)(7)..... 8.4 42.91 54.69
----- ----------- -------
SUBTOTAL/WEIGHTED AVERAGE.... 35.7% $ 29.71 $ 71.05
----- ----------- -------
OFFICE SUBTOTAL/WEIGHTED AVER 84.9% $ 36.35 $ 68.84
-----
-----
APARTMENT PROPERTIES: RESIDENTIAL COMMERCIAL(8)
----------- ---------------
<S> <C> <C> <C>
Riverterrace(2)(9)........... 11.7% $ 42.00 N/A(10)
30 East End Avenue........... 1.6 19.31 $ 21.05
345 East 64th Street(2)...... 1.2 38.66 N/A
192 East 75th Street......... 0.6 24.61 27.92
----- ----------- -------
APARTMENT SUBTOTAL/WEIGHTED A 15.1% $ 36.79 $ 22.48
----- ----------- -------

TOTAL/WEIGHTED AVERAGE..... 100% $ 38.57 $ 64.76
-----
-----
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED RENTABLE ESTIMATED
DEVELOPMENT AND REDEVELOPMENT PROPERTIES: SUBMARKET SQUARE FEET APARTMENT UNITS
--------------------- ------------------- -----------------
<S> <C> <C> <C>
305 West 50th Street (apartment)........................ Midtown West 217,000 293
40 West 55th Street (apartment)......................... Rockefeller Center 51,000 36
140 West 57th Street (office)........................... Rockefeller Center 89,000 N/A

TOTAL........................................... 357,000

DEVELOPMENT SITES(12):
Office:
300 Madison Avenue(13).................................. Grand Central 600,000-1,000,000 N/A
16-20 East 53rd Street(14).............................. Plaza District 120,000-250,000 N/A
Apartment:
771-791 Sixth Avenue.................................... Chelsea 200,000-220,000 200-220
1000 Second Avenue(15).................................. Upper East 120,000-250,000 120-300
20-30 West End Avenue................................... Lincoln Center 150,000-250,000 250-300
250 East 60th Street(16)................................ Upper East 40,000 40-50
------------------- --------
TOTAL................................................. 1,230,000-2,010,000 610-870
------------------- --------
------------------- --------

<CAPTION>
ESTIMATED
DEVELOPMENT AND REDEVELOPMENT PROPERTIES: COMPLETION DATE
----------------
<S> <C>
305 West 50th Street (apartment)........................ 3Q-4Q 1998
40 West 55th Street (apartment)......................... 3Q-4Q 1998
140 West 57th Street (office)........................... 3Q-4Q 1998
TOTAL...........................................
DEVELOPMENT SITES(12):
Office:
300 Madison Avenue(13).................................. 3Q-4Q 2001
16-20 East 53rd Street(14).............................. 2Q-3Q 2001
Apartment:
771-791 Sixth Avenue.................................... 1Q-2Q 2001
1000 Second Avenue(15).................................. 1Q-2Q 2001
20-30 West End Avenue................................... N/A
250 East 60th Street(16)................................ N/A
TOTAL.................................................
</TABLE>

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

(1) As used throughout this Prospectus, Annualized Rent represents the monthly
contractual rent under existing leases as of March 31, 1998 multiplied by
12. This amount reflects total rent before any rent abatements and includes
expense reimbursements, which may be estimated as of such date. Total rent
abatements for leases in effect as of March 31, 1998 for the 12 months
ending March 31, 1998 are approximately $2.8 million.

(2) We developed this property.

(3) This office and garage space occupies the lower floors of Riverterrace, one
of our Apartment Properties.

(FOOTNOTES CONTINUED ON NEXT PAGE)

7
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)

(4) Through our ownership of a mortgage note, we effectively own 100% of the
economic interest in the property. We expect to obtain, and are currently
negotiating for a master lease with respect to this property. There can be
no assurance that this transaction will occur nor can the specific terms of
the transaction be ascertained. See "The Properties--Office Properties--342
Madison Avenue" on page 81.

(5) We will acquire these properties upon completion of the Offering.

(6) We have completed our redevelopment, and expect to complete our lease-up of
this property by the first quarter of 1999. See "The Properties--Office
Properties--540 Madison Avenue" on page 77.

(7) We hold a long-term leasehold interest in the land with respect to this
property. See "The Properties--Office Properties--540 Madison Avenue" on
page 77.

(8) Includes 20,000 rentable square feet office, retail and parking garages.

(9) We expect to acquire a long-term leasehold interest in the land and
improvements with respect to this property through the acquisition of the
non-affiliated 50% interest in the partnership which owns the fee interest
to this property in exchange for such fee interest. We are currently
negotiating this transaction. There can be no assurance that this
transaction will occur nor can the specific terms at the transaction be
ascertained. See "The Properties-- Apartment Properties--Riverterrace" on
page 85.

(10) Does not include the 97,270 rentable square foot of office space nor the
nine commercial tenants at this property.

(11) Excludes six commercial tenants.

(12) There are existing properties on certain of our development sites that we
intend to develop new structures upon. In the aggregate these properties
produce $3.9 million of Annualized Net Operating Income, as of March 31,
1998 (defined as Annualized Rent less annualized operating expenses and real
estate taxes after rent abatements).

(13) This site consists of several parcels, one of which we own in fee and the
remainder of which we own through our ownership of the property owning
entity and a mortgage. Through this ownership, we effectively own 100% of
the economic interest of this property. See "The Properties--Development
Sites-- 300 Madison Avenue" on page 89.

(14) This site consists of three parcels, 16/18 East 53rd Street in which we
have a fee interest and 20 East 53rd Street in which we hold an option for a
long-term leasehold interest in the land and improvements. See "The
Properties--Development Sites--16-20 East 53rd Street" on page 89.

(15) This site consists of six parcels, three of which we own in fee and the
other three of which we hold a long-term leasehold interest in the land and
improvements. See "The Properties--Development Sites--1000 Second Avenue" on
page 89.

(16) We hold a long-term leasehold interest in the land with respect to this
property. See "The Properties-- Development Sites--250 East 60th Street" on
page 90.

8
<PAGE>
STRUCTURE AND FORMATION OF THE COMPANY

The following diagram depicts our ownership structure upon completion of
this Offering and the Formation Transactions:

[CHART]

- ------------------------
(1) Our executive officers and directors and our stockholders would own %,
and %, respectively, assuming the redemption of all Units to be issued in
the Formation Transactions for shares of Common Stock.
(2) All of the interests in the Properties will be owned through the Operating
Partnership and its subsidiaries. See "The Properties" on page 65.
(3) Certain general partner and managing member entities of the Operating
Partnership's subsidiaries will be wholly owned qualified REIT subsidiaries.

9
<PAGE>
BENEFITS TO RELATED PARTIES

Certain of our officers and directors will realize certain material benefits
in connection with the Formation Transactions and this Offering, including the
following:

- Certain of our officers and directors (including Harry Macklowe, members
of his immediate family and Warren Cole) will receive shares of
restricted Common Stock and Units, with an aggregate value of
approximately $ million based on the Offering Price (representing
approximately % of our equity, on a fully diluted basis), in
consideration for their contribution of interests in the Properties,
management business and other assets. The interests in the Properties,
management business and other assets being contributed to us have a
negative book value of approximately $133.3 million as of December 31,
1997.

- Certain employees of The Macklowe Organization (Harry Macklowe and Warren
Cole) will become officers and/or directors of our Company. In addition,
we will enter into employment and noncompetition agreements with Harry
Macklowe and Warren Cole. See "Management--Employment and Noncompetition
Agreements" on page 100. Also, we will grant to certain of our directors,
officers and employees options to purchase an aggregate of shares of
Common Stock at the Offering Price under our stock option and incentive
plan, subject to certain vesting requirements ( of such options will
be granted to each of Harry Macklowe, Warren Cole and at the completion
of the Offering). See "Management" on page 96.

- Harry Macklowe will receive $ million of the net proceeds of the Offering
in repayment of certain loans made by him to The Macklowe Organization.

- The structure of the Formation Transactions will provide those receiving
Units (including Harry Macklowe, members of his immediate family and
Warren Cole) the opportunity to defer the income tax consequences arising
out of the contribution of their interest in the Properties, management
business and other assets.

- Pursuant to the Lock-out Provisions (as defined on page 15), we will be
restricted in our ability to sell Two Grand Central Tower, Avenue of the
Americas Plaza and 369 Lexington Avenue, for up to 12 years, Riverterrace
for up to five years, and 16-18 East 53rd Street for approximatley four
years, following the completion of the Offering in order to defer the
recognition of taxable income by certain Unitholders (including Harry
Macklowe, members of his immediate family and Warren Cole). In addition,
we have agreed to maintain certain minimum levels of indebtedness in the
Operating Partnership in order to assist such Unitholders in deferring the
tax consequences of their contributions.

- A to-be-formed limited liability company, wholly-owned by one of our
affiliates (the "Affiliated Company"), will operate and maintain the
health club operations at Riverterrace and 305 West 50th Street.

- Recipients of Units and Common Stock in the Formation Transactions will
have registration rights with respect to shares of Common Stock issued in
the Formation Transactions and in redemption of Units. See "Shares
Available for Future Sale" on page 128.

Additional information regarding the benefits to related parties is set
forth under "Structure and Formation of the Company" on page 103, "Management"
on page 96 and "Certain Relationships and Transactions" on page 112.

10
<PAGE>
DISTRIBUTIONS

We intend to make regular quarterly distributions to our stockholders and
unitholders. The initial distribution, covering a partial quarter commencing on
the date of closing of the Offering and ending on September 30, 1998, is
expected to be approximately $ per share, which represents a pro rata
distribution based on a full quarterly distribution of $ per share and an
annual distribution of $ per share (or an annual distribution rate of
approximately %, based upon the Offering Price). See "Distributions" on page
41.

We intend initially to distribute annually approximately % of estimated
cash available for distribution. Our estimate of cash available for distribution
after the Offering for the twelve months ended December 31, 1998 is based upon
estimated pro forma Funds from Operations (as defined below) for the 12-month
period ended December 31, 1997, with certain adjustments as described in
"Distributions" on page 41. The actual distributions will be determined by our
Board of Directors, in its sole discretion, and will be affected by a number of
factors, including the gross revenues received from the Properties, our
operating expenses, our interest expense incurred in borrowing, and other
unanticipated capital expenditures. Our estimates may not be accurate and we may
not be able to sustain our distributions at the rate we estimate. We anticipate
that distributions will exceed net income determined in accordance with
generally accepted accounting principles ("GAAP") due to non-cash expenses,
primarily depreciation and amortization.

We anticipate that our cash available for distribution will exceed earnings
and profits for federal income tax purposes due to non-cash expenses, primarily
depreciation and amortization, to be incurred by our Company. Our distributions
to the extent of our current and accumulated earnings and profits for federal
income tax purposes generally will be taxable to stockholders as ordinary
dividend income (except to the extent designated as "capital gain" dividends).
Distributions in excess of such earnings and profits generally will be treated
first as a non-taxable reduction of the stockholder's basis in the Common Stock
to the extent thereof (which may have the effect of increasing the gain or
decreasing the loss recognized on stockholder's sale of the Common Stock) and
thereafter as taxable gain. We anticipate that approximately % (or $ per
share) of the distributions we intend to pay for the 12-month period following
this Offering will represent a return of capital for federal income tax
purposes. See "Distributions" on page 41.

For a discussion of the annual distribution requirements applicable to
REITs, see "Federal Income Tax Considerations--Taxation of the Company--Annual
Distribution Requirements" on page 133. For a discussion of the tax treatment of
distributions to the holders of Common Stock, see "Federal Income Tax
Considerations--Taxation of Stockholders" on page 134.

TAX STATUS OF THE COMPANY

We intend to elect to be taxed as a REIT under federal income tax laws,
commencing with our taxable year ending December 31, 1998. We believe our
organization and proposed method of operation will enable us to meet the
requirements for qualification as a REIT. In order to maintain REIT status, we
must meet a number of organizational and operational requirements, including the
requirement that each year we distribute at least 95% of our taxable income. As
a REIT, we generally will not be subject to federal income tax on our net income
to the extent we distribute it to our stockholders. If we fail to qualify as a
REIT in any taxable year, we will be subject to federal income tax at regular
corporate rates. Even if we qualify for taxation as a REIT, we may be subject to
certain state and local taxes on our income and Properties and federal income
and excise taxes on our undistributed income. See "Federal Income Tax
Considerations" on page 129 and "Risk Factors--Tax Risks" on page 20.

11
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION

The following table sets forth summary selected financial and operating
information on a pro forma basis for the Company, and on a historical combined
basis for the Macklowe Organization Predecessor (the "Predecessor"). The
following financial information should be read in conjunction with all of the
financial statements and notes thereto included elsewhere in this Prospectus.
The combined historical balance sheet information as of December 31, 1997 and
1996 and the combined operating data for the years ended December 31, 1997, 1996
and 1995 of the Predecessor have been derived from the historical combined
financial statements audited by Ernst & Young LLP, independent auditors, whose
report with respect thereto is included elsewhere in this Prospectus. The
operating data for the years ended December 31, 1994 and 1993 and the balance
sheet data as of December 31, 1995, 1994 and 1993, have been derived from the
unaudited combined financial statements of the Predecessor. In the opinion of
management of the Predecessor, such unaudited data includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein.

Historical operating results may not be comparable to future operating
results. In addition, we believe that the book value of the Properties, which
reflects historical costs of such real estate assets less accumulated
depreciation, is not indicative of the fair value of the Properties.

Our unaudited pro forma financial and operating information as of and for
the year ended December 31, 1997 assumes completion of the Offering and the
Formation Transactions, including the acquisition of 150 Fifth Avenue, 400
Madison Avenue, 16-18 East 53rd Street, 1412 Broadway, 771-791 Sixth Avenue, the
mortgage on 342 Madison Avenue and the acquisition of the remaining 50% interest
in York 72 Associates, L.P. (and the corresponding leasehold transaction with
the former partner), and repayment of certain debt, as of the beginning of the
periods presented for the operating data and as of December 31, 1997 for the
balance sheet data. In management's opinion, all adjustments necessary to
present fairly the effects of these transactions have been made. The pro forma
financial information is not necessarily indicative of what our actual financial
position and results of operations would have been as of and for the period
indicated, nor does it purport to represent our future financial position and
results of operations.

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SUMMARY SELECTED COMBINED FINANCIAL AND OPERATING DATA
THE COMPANY (PRO FORMA) AND PREDECESSOR (HISTORICAL)
(IN THOUSANDS, EXCEPT FOR PER SHARE, SHARE AND PROPERTY DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
PRO FORMA HISTORICAL
----------- -----------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
OPERATING DATA:
Revenues:
Base commercial rents...................... $ 77,187 $ 52,146 $ 47,553 $ 43,891 $ 43,256 $ 42,375
Commercial tenant escalations and
reimbursements........................... 13,887 9,919 8,471 7,866 8,028 7,566
Residential rental revenue................. 16,482 3,123 1,884 1,720 1,760 1,668
Related party revenues..................... 1,725 1,725 2,060 1,586 -- --
Investment and other income................ 2,499 2,401 2,795 2,720 4,877 4,999
Total revenues......................... 111,780 69,314 62,763 57,783 57,921 56,608
Expenses:
Property operating expenses................ 21,952 12,060 9,497 8,696 8,631 7,828
Real estate taxes.......................... 22,361 13,763 11,727 9,894 8,872 9,136
Interest................................... 29,682 34,466 28,146 28,020 24,172 22,455
Depreciation and amortization.............. 14,975 11,172 9,651 8,948 9,068 9,267
Marketing, general and administrative...... 9,177 8,029 6,811 8,317 4,528 5,365
Total expenses......................... 98,147 79,490 65,832 63,875 55,271 54,051
Loss on investment in limited partnership.... -- (67) (215) (113) (442) (1,924)
Gain (loss) on marketable securities and
investment partnerships.................... 908 908 (55) (56) -- --
Gain on sale of real estate.................. -- -- -- -- 5,250 --
Income (loss) before minority interest and
extraordinary items........................ 14,541 (9,335) (3,339) (6,261) 7,458 633
Minority interest(1).........................
Income (loss) before extraordinary gain...... 14,541 (9,335) (3,339) (6,261) 7,458 633
Net income (loss) per share(2)
Basic......................................
Diluted....................................

<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Real estate, before accumulated
depreciation............................... 773,891 367,916 313,631 266,213 262,104 273,909
Real estate, after accumulated
depreciation............................... 708,653 302,678 254,848 215,868 217,747 234,636
Total assets................................. 874,353 472,856 332,556 435,656 289,580 281,318
Total indebtedness........................... 410,222 514,911 396,359 288,099 430,282 429,478
Minority interest............................ -- -- -- -- --
Owners' deficit.............................. 340,939 (133,318) (144,354) (147,607 ) (140,702 ) (148,160 )
OTHER DATA:
Net cash provided by (used in) operating
activities(3).............................. -- 1,905 7,862 (2,323 ) -- --
Net cash provided by financing
activities(3).............................. -- 120,979 37,551 6,842 -- --
Net cash used in investing activities(3)..... -- (122,655) (46,262) (6,622 ) -- --
Funds from operations(4)..................... 28,358 -- -- -- -- --
Weighted average shares outstanding..........
Weighted average shares and units
outstanding(5).............................
Office Properties (at period end)(7)......... 8 4 4 3 3 3
Office Square Footage (at period end)(7)..... 2,929,000 1,570,000 1,570,000 1,294,000 1,294,000 1,294,000
Office Percent Leased (at period end)(7)..... 90.9% 88.7% 92.9% 92.2% 94.7% 93.6%
Apartment Properties (at period end)(6)...... 4 3 2 2 2 2
Apartment Units (at period end)(6)........... 608 199 199 139 139 139
Apartment Square Footage (at period
end)(6).................................... 506,000 175,000 134,000 134,000 134,000 134,000
Apartment Percent Leased (at period
end)(6).................................... 95.9% 96.3% 93.6% 95.4% 99.0% 97.7%
</TABLE>

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

(1) Represents the % interest in the Operating Partnership that will be
owned by Harry Macklowe and other continuing investors.

(FOOTNOTES CONTINUED ON FOLLOWING PAGE)

13
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)

(2) Pro forma basic net income per share excludes any dilutive effect of options
outstanding. Pro forma dilutive net income per share includes the dilutive
effect of the outstanding options under the treasury stock method. As each
Common Unit is redeemable for one share of Common Stock, the calculation of
net income per share upon redemption of the outstanding Units will be
unaffected, as Unitholders and Common Stockholders receive equal
distributions on a per Unit and per share basis in the net income of the
Company.

(3) Pro forma information relating to cash flow from operating, financing and
investing activities has not been included because the Company believes that
this information would not be meaningful due to the number of assumptions
required in order to calculate this information.

(4) The White Paper on Funds from Operations ("FFO") approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with generally accepted accounting principles
("GAAP")), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. We believe
that FFO is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides investors with an
indication of our ability to incur and service debt, to make capital
expenditures and to fund other cash needs. We compute FFO in accordance with
standards established by NAREIT which may not be comparable to FFO reported
by other REITs that do not define the term in accordance with the current
NAREIT definition or that interpret the current NAREIT definition
differently than we do. FFO does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of our financial performance or to cash flow from operating
activities (determined in accordance with GAAP) as a measure of our
liquidity, nor is it indicative of funds available to fund our cash needs,
including our ability to make cash distributions. For a reconciliation of
net income and Funds from Operations, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Funds from
Operations" on page 50.

(5) Weighted Average Units outstanding include Common Units and 1,200,000
Class B Units, which share in distributions equally with common Units but
are exchangeable during a 14-day period beginning on the date which is six
months after the consummation of this Offering (the "Class B Exchange
Period"), for a number of Common Units having a value (based on the average
closing price of the Common Stock on the NYSE for the ten business day
period preceding the commencement of the Class B Exchange Period) equal to
the value of the Class B Units at the time of this Offering (based on the
Offering Price). The Class B Units are owned by non-affiliated continuing
investors. See "Partnership Agreement" on page 113.

(6) For historical periods, does not include the 409-unit, 428,000 square foot
Riverterrace apartment property because it is accounted for under the equity
method. For the pro forma periods, York 72 Associates, L.P. has been
accounted for under the consolidation method of accounting. See
"Riverterrace" on page 86.

(7) Office Properties amounts do not include three properties which are
currently being redeveloped or are being held as development sites. The
Historical and Pro Forma amounts presented above include the operating
results and balance sheet amounts for these properties, which are not
significant in relation to the Operating Data and Balance Sheet Data. The
operating results and balance sheet amounts for two of these properties,
20-30 West End Avenue and 140 West 57th Street, are included for the years
1993-1997 and pro forma 1997, and the remaining property 16-18 East 53rd
Street in the pro forma 1997.

14
<PAGE>
RISK FACTORS

BEFORE YOU INVEST IN SHARES OF OUR COMMON STOCK, YOU SHOULD BE AWARE THAT
YOUR INVESTMENT INVOLVES VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU
SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE SHARES OF
OUR COMMON STOCK. THIS SECTION INCLUDES OR REFERS TO CERTAIN FORWARD-LOOKING
STATEMENTS; YOU SHOULD REFER TO THE EXPLANATION OF THE QUALIFICATIONS AND LIMITS
ON SUCH STATEMENTS DISCUSSED ON PAGE III.

LACK OF GEOGRAPHIC DIVERSITY

All of our Properties are located in Manhattan. Adverse economic
developments affecting the Manhattan markets could adversely impact the
operation of our properties. The concentration of our properties in one market
will expose us to the risks of any adverse economic developments in the New York
City metropolitan market which will not be balanced by owning properties in more
markets. These adverse economic developments could include business layoffs or
downsizing, industry slowdowns, businesses or people moving out of Manhattan, or
other events which might reduce demand for office and apartment space or create
too large a supply of competing space. The occurrence of any of these events
could impact our profitability, revenues and value of our Properties and
therefore our ability to make distributions to you. In addition, we cannot
assure the continued growth of the New York City metropolitan market and,
therefore, we cannot assure our continued growth.

ESTIMATED INITIAL CASH AVAILABLE FOR DISTRIBUTION WILL NOT BE SUFFICIENT TO MAKE
DISTRIBUTIONS AT EXPECTED LEVELS

We expect our estimated initial annual distributions will represent % of
our estimated initial cash available for distribution for the twelve months
ending December 31, 1998. Accordingly, it is expected that initially we will be
unable to pay our estimated initial annual distribution to stockholders out of
cash available for distribution as calculated under "Distributions" on page 41.
This calculation, however, gives no effect to additional leasing of the
Properties after the date hereof, lease-up of development projects or other
potential sources of cash flow. If sufficient cash is not available for
distribution from our operations, we could be required to fund distributions
from working capital (expected to aggregate approximately $ million upon
completion of the Offering) or to draw down under the Credit Facility, if
available, to provide funds for such distribution, or to reduce the amount of
such distribution. In the event the Underwriters' over-allotment option is
exercised, pending investment of the proceeds therefrom, our ability to pay such
distribution out of cash available for distribution may be further adversely
affected.

WE MAY NOT BE PAYING FAIR MARKET VALUE FOR OUR PROPERTIES

The total consideration (including shares of Common Stock, Units and
assumption or repayment of debt) being paid to The Macklowe Organization and
certain related parties for the Properties and other assets we will acquire in
the Formation Transactions was not based on arm's length negotiations between us
and The Macklowe Organization or those other related parties including with
respect to the representations and warranties made by the contributors in the
Formation Transactions, or the indemnification provisions with respect to those
representations and warranties. See "Structure and Formation of the Company" on
page 103. We did not obtain any independent valuations or appraisals of the
Properties or other assets we acquired. Therefore, we do not know whether the
amount we paid for the Properties or assets is equal to their fair market
values.

The value of our Company was not based on the cost or historical value of
our properties. Instead, the value was set by The Macklowe Organization and the
Underwriters based on our projected revenue, estimated cash available for
distribution and funds from operations, the potential for growth and other
factors listed in "Underwriting" on page 143. Certain assumptions were made
about estimated revenues from the Properties in order to set the Offering Price.
See "Distributions" on page 41. We believe that our Company should be valued on
its earning potential and as an on-going business and not on the value of the

15
<PAGE>
Properties or other assets as if they were sold currently or on a
property-by-property basis. Further, the actual financial performance of the
Company could differ from the performance we assumed to estimate our
distributions payable to you and the price we paid for our interests in the
Properties and other assets. Therefore, the price we paid for the interests in
the Properties and other assets may exceed their fair market values. This may
mean that the market value of the shares of our Common Stock may exceed your
actual proportionate interest in the fair market value of the interests in the
Properties and the value of the other assets.

LIMITATIONS ON OUR ABILITY TO SELL CERTAIN PROPERTIES OR REDUCE OUR MORTGAGE
INDEBTEDNESS

In connection with our acquisition of five of our Properties (Riverterrace,
Two Grand Central Tower, 369 Lexington Avenue, Avenue of the Americas Plaza, and
16-18 East 53rd Street, collectively, the "Designated Properties"), we have
agreed to certain restrictions relating to sales with respect to these
Properties. Pursuant to these provisions (the "Lock-out Provisions"), we may not
sell our interest in (except in certain events, including certain transactions
which would not result in the recognition of gain for tax purposes), Two Grand
Central Tower, 369 Lexington Avenue and Avenue of the Americas Plaza for up to
12 years, Riverterrace for up to five years, or our interest in 16-18 East 53rd
Street for approximately 4 years (the "Lock-out Periods") unless we obtain the
consent of Harry Macklowe, as the representative of the contributors of these
properties, except with respect to 16-18 East 53rd Street where we would need
the consent of the representative of the original contributor. This consent
requirement does not apply to a sale of all or substantially all of the assets
of the Operating Partnership. In addition, we have agreed to maintain certain
minimum levels of indebtedness in the Operating Partnership in order to assist
certain Unitholders (including Harry Macklowe, members of his immediate family
and Warren Cole) in deferring the tax consequences of their contributions to the
Operating Partnership. The Lock-out Provisions materially restrict our ability
to sell or otherwise dispose of our interest in the Designated Properties
without obtaining such consents. These Lock-out Provisions also could prevent
the Operating Partnership (and thus us) from participating in certain major
transactions that could result in the sale of the Operating Partnership's assets
or a change of control of the Company that would result in gain to the affected
unitholders, even though such a sale or change of control might be in your best
interests. These Lock-out Provisions apply even if it would otherwise be in your
best interest for us to sell our interest in the Designated Properties or reduce
the outstanding indebtedness of the Operating Partnership and, therefore, may
have an adverse impact on the value of your shares. See "Partnership
Agreement--Operational Matters--Sales of Assets" on page 114.

We anticipate that with future acquisitions of property interests for which
we will issue Units as consideration, we may agree to limit our ability to sell
or reduce the amount of mortgage indebtedness on such acquired properties. This
may increase our leverage. Such limitations similarly may impair our ability to
reduce our indebtedness or take other actions that would otherwise be in your
best interests and, therefore, may have an adverse impact on the value of your
Common Stock.

LIMITATIONS ON CHANGE OF CONTROL

OWNERSHIP LIMIT. In order for us to qualify as a REIT, five or fewer
persons, applying broad attribution rules imposed under the Internal Revenue
Code of 1986, as amended (the "Code"), may not own more than 50.0% (by value) of
our shares of capital stock. This rule does not apply to our first year
operating as a REIT. To help us comply with this restriction, our Articles of
Incorporation (the "Charter") limit ownership, directly or by virtue of
attribution provisions of the Code, of our Common Stock by any single
stockholder to 9.0% (in value or number of shares, whichever is more
restrictive) and ownership of our capital stock by any single stockholder to
9.0% (in value) of the issued and outstanding shares of our capital stock (the
"Ownership Limits"). The Charter also prohibits anyone from buying shares if the
purchase would result in us losing our REIT status. See "Description of
Securities--Restrictions on Transfer" on page 120.

16
<PAGE>
Our Board of Directors may waive or modify the Ownership Limits with respect
to one or more persons if it is satisfied, based upon information required to be
provided by the person seeking the waiver, the advice of tax counsel or
otherwise, that ownership in excess of this limit will not jeopardize our status
as a REIT for federal income tax purposes. Our Board of Directors, pursuant to
our Charter has provided that each of Messrs. Harry and William Macklowe, along
with certain of their family members, may own up to 13.5% of the outstanding
shares of Common Stock and capital stock. Absent any such exemption or waiver,
Common Stock or capital stock acquired or held in violation of the Ownership
Limits will be transferred to a trust for the benefit of a designated charitable
beneficiary, with the person who acquired such Common Stock and/or capital stock
in violation of the Ownership Limits not entitled to receive any distributions
thereon, to vote such stock or to receive any proceeds from the subsequent sale
thereof in excess of the lesser of the price paid therefor or the amount
realized from such sale. A transfer of Common Stock and/or capital stock to a
person who, as a result of the transfer, violates the Ownership Limits may be
void under certain circumstances. See "Description of Securities--Restrictions
on Transfer" on page 120.

The 9.0% ownership limit discussed above may have the effect of delaying,
deferring or preventing someone from taking control of us, even though such a
change of control could involve a premium price for your shares of our Common
Stock or otherwise be in your best interest.

STAGGERED BOARD. Our Board of Directors is divided into three classes. The
initial terms of the three classes will expire in different years. The staggered
terms for directors may reduce the possibility of a tender offer or an attempt
to effect a change in control of our Company, even if such a tender offer or
change in control would be in your best interest.

STOCKHOLDER RIGHTS PLAN. We will adopt a Stockholder Rights Plan prior to
the completion of this Offering. Under the Stockholder Rights Plan, if a third
party purchases more than 15% of the outstanding shares of our Common Stock, all
of our other stockholders will have the right to purchase shares of preferred
stock at a price significantly below the fair market value of those shares which
would vote as a class with shares of Common Stock. This would have a significant
dilutive effect on the interest of the third-party purchaser. The Stockholder
Rights Plan could therefore delay or prevent a change of control which could
prevent you from receiving a price for your shares of Common Stock in excess of
their then fair market value. See "Description of Securities--Stockholder Rights
Plan" on page 121.

FUTURE ISSUANCES OF COMMON STOCK. Our Charter authorizes our Board of
Directors to issue additional shares of our common or preferred stock without
your approval. Such an issuance could have the effect of diluting your existing
interest in our Company and make it more difficult to complete a takeover
transaction or change of control.

MARYLAND BUSINESS COMBINATION STATUTE. The Maryland General Corporation Law
(the "MGCL") establishes special requirements for "business combinations"
between a Maryland corporation and "Interested Shareholders" unless exemptions
are applicable. An Interested Shareholder is any person who beneficially owns
ten percent or more of the voting power of our then-outstanding voting stock.
Among other things, the law prohibits for five years, mergers and other similar
transactions between us and an Interested Shareholder unless the Board approves
the transaction prior to the party becoming an Interested Shareholder. The five
year period runs from the most recent date on which the Interested Shareholder
became an Interested Shareholder. A Maryland corporation may adopt an amendment
to its charter electing not to be subject to the special voting requirements of
this legislation. That amendment would have to be approved by the affirmative
vote of at least:

- 80% of the votes entitled to be cast by holders of our outstanding voting
shares, and

- 66 2/3% of the votes entitled to be cast by holders of our outstanding
voting shares other than shares held by the Interested Shareholder.

17
<PAGE>
The business combination statute could have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in your best interests.

We have adopted such an amendment to our Charter, and an approval of
exemption of the Board of Directors is currently in effect as to Harry Macklowe,
his spouse, his descendants, any trust or estate for the benefit of the
foregoing, any of the associates or affiliates of the foregoing and any other
person acting in concert or as a group with any of the foregoing.

MARYLAND CONTROL SHARE ACQUISITION STATUTE. Maryland law provides that
"Control Shares" of a Maryland corporation acquired in a "Control Share
Acquisition" have no voting rights except to the extent approved by a
stockholder vote. Two-thirds of the shares eligible to vote must vote in favor
of granting the Control Shares voting rights. Control Shares are shares of stock
that, taken together with all other shares of stock the acquiror previously
acquired, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power: (a) 20% or more
but less than 33 1/3%; (b) 33 1/3% or more but less than a majority; or (c) a
majority of all voting power. Control Shares do not include shares of stock an
acquiring person is entitled to vote as a result of having previously obtained
stockholder approval. A control share acquisition means, subject to certain
exceptions, the acquisition of, ownership of or the power to direct the exercise
of voting power with respect to, Control Shares.

If a person who has made (or proposes to make) a Control Share Acquisition
satisfies certain conditions (including agreeing to pay expenses), he may compel
the Board of Directors to call a special meeting of stockholders to be held
within 50 days to consider the voting rights of the shares. If such a person
makes no request for a meeting, we have the option to present the question at
any stockholders' meeting.

If voting rights are not approved at a meeting of stockholders, then we may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value. We will determine the fair value
of the shares, without regard to voting rights, as of the date of either:

- the last Control Share Acquisition, or

- any meeting where stockholders considered and did not approve voting
rights of the control shares.

If voting rights for control shares are approved at a stockholder's meeting
and the acquiror becomes entitled to vote a majority of the shares of stock
entitled to vote, all other stockholders may exercise appraisal rights. This
means that you would be able to redeem your stock back to us for fair value.
Under Maryland law, the fair value may not be less than the highest price per
share paid in the Control Share Acquisition. Furthermore, certain limitations
otherwise applicable to the exercise of dissenters' rights would not apply in
the context of a control share acquisition.

The Control Share Acquisition statute does not apply to stock acquired in a
merger, consolidation or stock exchange if the corporation is a party to the
transaction, or to acquisitions previously approved or exempted by a provision
in the charter or bylaws of the corporation. There are such provisions in our
Bylaws excepting shares of our capital stock now or hereafter beneficially held
(during the period of such beneficial ownership) by Harry Macklowe, his spouse,
his descendants, any trust or estate for the benefit of the foregoing, any of
the associates or affiliates of the foregoing and any other person acting in
concert or as a group with any of the foregoing.

The control share acquisition statute could have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in your best interests.

18
<PAGE>
REAL ESTATE INVESTMENT RISKS

DEVELOPMENT, CONSTRUCTION AND ACQUISITION RISKS. We plan to continue
developing, acquiring, and redeveloping properties. See "Business and Growth
Strategies" on page 34. Our success in this area depends on many factors,
including the construction costs of a development project, the timely receipt of
zoning and other regulatory approvals (which are not assured), and delays in
construction and absorption of the new space. These activities are very capital
intensive and we primarily intend to use secured project level construction
financings to fund such future development. We may also use cash available from
operations, borrowings under the Credit Facility and other capital sources, as
well. Further, our failure to obtain any such project specific financing could
adversely impact our ability to begin or complete the development of any of our
sites. Accordingly, our development, acquisition and redevelopment activities
may have an adverse effect on our ability to access capital markets and on our
financial performance and ability to make distributions to you.

INCOME GENERATION RISKS. Our ability to make distributions to you depends
on our ability to generate cash available from operations in excess of scheduled
principal payments on debt and capital expenditure requirements. Our income from
operations and the value of our Properties may be adversely affected by a number
of factors beyond our control. Such factors include:

- the economic conditions of the real estate market, both nationally and
locally;

- competition from comparable properties;

- changes in governmental regulations, including zoning, housing and tax
laws, and the related costs of compliance;

- perceptions of tenants and prospective tenants concerning the
desirability of the Properties;

- changes in interest rate levels and the availability of financing;

- our inability to lease, or re-lease upon the expiration of leases, our
Properties on favorable economic terms;

- effects of insolvencies or bankruptcies of our major tenants which may
result in a failure or delay in their rent payments;

- increase in our operating costs (including real estate taxes) due to
inflation and other factors, which may not necessarily be offset by
increased rents;

- the relative illiquidity of real estate investments.

If any of the above occur, our ability to make expected distribution to
stockholders could be adversely affected.

RELIANCE ON OUR MAJOR TENANTS. We have four major tenants which as of March
31, 1998 accounted for more than 40.3% of our Annualized Rent as of March 31,
1998 and 31.6% of our rentable square footage. See "The Properties--Office
Properties--Tenant Diversification" on page 71. We could be adversely affected
by a bankruptcy, insolvency or downturn in the business of any of these major
tenants. Such events could result in their failure or delay in making timely
rental payments to us. We could also be adversely affected if any of these
tenants did not renew its lease with us upon lease expiration. In this
situation, we would be required to expend resources in attracting a new tenant
as well as incurring leasing costs and tenant improvement costs associated with
any retenanting. Further, we may not be able to enter into a new lease having
terms as favorable as our current lease with a tenant. Conde Nast, one of our
major tenants (106,778 rentable square feet), has informed us that it will not
renew its lease at Two Grand Central Tower, which expires in January 1999,
because it is consolidating its New York City locations into a new office
development in Times Square.

19
<PAGE>
COMPETITION. All of our Properties are located in highly developed areas of
Manhattan that include a large number of other office and apartment properties.
See "Market Overview" on page 56. We may therefore compete for properties and
tenants with other property owners, such as other REITs, leveraged buyout and
hedge funds and other types of real estate companies that have greater
resources. Accordingly, our funds from operations and the value of our
Properties may be adversely affected by the amount of competition we will
encounter in the Manhattan market.

NET OR OPERATING LEASE INVESTMENTS. As described herein, upon completion of
this Offering, with respect to five of our Properties (540 Madison Avenue,
Riverterrace, 250 East 60th Street, 994, 996 and 998 Second Avenue, three of the
parcels of our 1000 Second Avenue development site, and 20 East 53rd Street, one
of the parcels of our 16-20 East 53rd Street development site), we expect to
hold a long-term leasehold or operating lease interest in the land and the
improvements. We have certain purchase options with all of these leases, except
with respect to 540 Madison Avenue and 250 East 60th Street. Unless we can
purchase the subject real estate or extend the terms of these leases before
their expiration we may lose our interest in the improvements and land upon
expiration of the leases, the remaining terms of which, including lease renewal
options, exceed 69 years, including rights under existing renewal obligations in
the case of 540 Madison Avenue, 49 years in the case of Riverterrace, 108 years,
including rights under existing renewal obligations in the case of 250 East 60th
Street, 98 years in the case of each 994, 996 and 998 Second Avenue and 21 years
in the case of 20 East 53rd Street.

TAX RISKS

CONSEQUENCES OF THE FAILURE TO QUALIFY AS A REIT. We believe that we will
be organized and will operate in a manner that will enable us to meet the
requirements for qualification as a REIT for federal income tax purposes. We
have not requested, and we do not plan to request, a ruling from the Internal
Revenue Service ("IRS") regarding our qualification as a REIT. We have, however,
received an opinion from the law firm of Rogers & Wells LLP that, based on
certain assumptions and representations, we have been organized in such a manner
so as to qualify as a REIT under the Code and that our proposed method of
operation will enable us to continue to so qualify.

You should be aware that opinions of counsel are not binding on the IRS or
any court. Furthermore, the conclusions stated in the opinion are conditioned
on, and our continued qualification as a REIT will depend on, our meeting
various requirements (some on an annual or quarterly basis) imposed under highly
technical and complex provisions of the Code and the determination of various
factual matters and circumstances not entirely within our control. Since we have
no history of operating as a REIT, we cannot be sure that we will do so
successfully. Such requirements are discussed in more detail in "Federal Income
Tax Considerations--Taxation of the Company--Failure to Qualify" on page 134.

If we fail to qualify as a REIT, we would not be allowed a deduction for
distributions to stockholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates. We also could be
subject to the federal alternative minimum tax. Unless we are entitled to relief
under specific statutory provisions, we could not elect to be taxed as a REIT
for the four taxable years following the year during which we were disqualified.
Therefore, if we lose our REIT status, the funds available for distribution to
you would be substantially reduced for each of the years involved. In addition,
distributions to stockholders would no longer be required to be made.

EFFECT OF DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, we
generally must distribute 95% of our net taxable income. Such annual
distribution requirements limit the amount of cash we have available for other
business purposes, including amounts that would otherwise be spent on future
acquisitions, unanticipated capital expenditures or repayment of debt. In
addition, differences in timing between the actual receipt of income and actual
payment of such income and deduction of such expenses in arriving at our taxable
income could require us, directly or indirectly through the Operating
Partnership, to borrow funds on a short-term basis to meet the 95% distribution
requirement. If we fail to meet this distribution

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requirement, we may be disqualified as a REIT and subject to certain income and
excise taxes. See "Federal Income Tax Considerations--Taxation of the
Company--Annual Distribution Requirements" on page 133.

OTHER TAX LIABILITIES. Even if we qualify as a REIT, we may be subject to
certain federal, state and local taxes on our income and property that could
reduce operating cash flow.

LACK OF OPERATING HISTORY AND INEXPERIENCE OF MANAGEMENT IN OPERATING A REIT

The Company has been organized recently and has no operating history.
Although certain of our executive officers and directors have extensive
experience in the development, acquisition, redevelopment, management, leasing
and financing of office and apartment properties, none of the executive officers
or directors has prior experience in operating a business as a REIT or a public
company. We cannot be sure that our past experience will be sufficient to
successfully operate the Company as a REIT or a public company. Our failure to
maintain our REIT status would adversely affect our ability to make anticipated
distributions to you.

CONFLICTS OF INTEREST

MESSRS. HARRY AND WILLIAM MACKLOWE AND COLE WILL RECEIVE MATERIAL BENEFITS
IN THE FORMATION TRANSACTIONS. The primary contributors (including Harry
Macklowe (Chairman of the Board and Chief Executive Officer), Warren Cole
(President) and William Macklowe (Senior Vice President-Commercial Leasing))
will receive material benefits not received by other persons participating in
our formation. See "Structure and Formation of the Company" on page 103. Because
the primary contributors were our promoters, they were involved in structuring
our Formation Transactions and had the ability to influence the type and level
of the benefits they received, which might have been different if they had not
been involved in such structuring.

OUR UNITHOLDERS AND STOCKHOLDERS MAY BE AFFECTED DIFFERENTLY AS A RESULT OF
THE SALE OF OR REDUCTION OF OUR MORTGAGE DEBT ON ANY OF THE PROPERTIES. Our
unitholders may face different and more adverse tax consequences than will our
stockholders from our selling or reducing our mortgage debt on certain of our
Properties. In addition, in connection with the Formation Transactions, we have
agreed to maintain in the Operating Partnership certain limited levels of
indebtedness to assist certain Unitholders (including Harry Macklowe, members of
his immediate family and Warren Cole) in deferring the tax consequences of their
contributions to the Operating Partnership. Therefore, our unitholders may have
different objectives from our stockholders regarding the appropriate pricing,
timing or structure of any sale or reduction of our mortgage debt. Accordingly,
unitholders such as Harry Macklowe, Warren Cole and William Macklowe may have an
influence on our decision to sell certain Properties or to pay down certain
mortgage debt and on the timing thereof, even though such decision to sell or
pay down debt or the timing thereof may be advantageous to our stockholders or
may influence us to refinance Properties with a higher level of debt. See
"--Limitations on Our Ability to Sell or Reduce Our Mortgage Debt Could
Adversely Affect the Value of Our Common Stock" on page 15. To reduce this risk,
the Operating Partnership Agreement contains provisions that require our Board
of Directors to resolve conflicts of interest between their representation of
our stockholders and of the limited partners of the Operating Partnership, as
their general partner, in favor of our stockholders. See "Certain Relationships
and Transactions--Operating Partnership Agreement" on page 112.

WE MAY NOT ENFORCE THE TERMS OF CONTRIBUTION AND OTHER AGREEMENTS WE HAVE
WITH CERTAIN OF OUR OFFICERS. Certain entities owned or controlled by Harry
Macklowe, Warren Cole and William Macklowe own properties and assets that will
be contributed to our Company before the Offering. Under the agreements relating
to the contribution of these properties and assets, we have rights to
indemnification and damages if the contributing entities breach provisions of
those agreements. Further, Harry Macklowe and Warren Cole will enter into
employment and noncompetition agreements with us whereby they will agree, among

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other things, not to compete with the Company. See "Management--Employment and
Noncompetition Agreements" on page 100. We may decide not to enforce our rights
(or to enforce them less vigorously than we otherwise might) under the
contribution and related agreements and/or the employment or noncompetition
agreements because we would like to maintain our relationships with Harry
Macklowe and Warren Cole.

WE MAY DEAL WITH OUR AFFILIATES IN THE FUTURE. We have been, and continue
to be, involved in various transactions with a number of our affiliates,
including executive officers, directors, major stockholders and unitholders and
entities sharing common ownership with us. These transactions may include our
purchasing services from an affiliate including health club services. We believe
that we would pay a market rate for these services. See "Certain Relationships
and Transactions" on page 112. We have adopted certain policies to control such
conflicts of interest. For example, the Board of Directors has passed a
resolution which requires that all transactions involving an affiliate be
approved by a majority of the directors, excluding the director with whom we
have the potential conflict. Our policies, however, may not be entirely
successful in eliminating the negative impacts of such conflicts. Therefore, our
decision to deal with affiliates or officers may have an adverse effect on the
Company or the Common Stock. See "Policies with Respect to Certain
Activities--Conflicts of Interest" on page 109.

OUR OFFICERS AND DIRECTORS MAY OWN REAL PROPERTY INTERESTS OF THEIR
OWN. Certain of our officers and directors will continue to own commercial real
property interests outside our Company. Their interests in these other
properties could conflict with their responsibilities to us as officers and
directors. To reduce this risk, we will manage these commercial real property
interests. See "The Properties--Assets Not Being Transferred to the Company" on
page 93. We describe our policies on such conflicts in the "Policies with
Respect to Certain Activities--Conflicts of Interest Policies" section on page
109.

POSSIBLE INABILITY TO MEET EXPECTED RETURNS ON ACQUIRED OR DEVELOPED PROPERTIES

We are currently experiencing a period of rapid growth. Three of our
Properties have relatively short or no operating history under management of The
Macklowe Organization. Additionally, we are under contract to acquire two office
properties containing 584,000 rentable square feet and two development sites
which support the development of up to 470,000 rentable square feet of office
and apartment space. See "The Properties" on page 65. Historically we have not
controlled the operation of these properties and sites, which may have
characteristics or deficiencies unknown to us that may affect their valuation or
revenue potential. In addition, we expect to develop, acquire and redevelop
additional office and apartment properties. Our ability to continue this growth,
however, will depend on our ability to:

- successfully develop, integrate, lease and manage our recent property
developments and acquisitions;

- raise money to finance renovation and capital improvements on and to
develop or redevelop and manage the recent property developments and
acquisitions; and

- raise money to continue acquiring Manhattan properties and development
sites.

We can provide no assurance that we will be able to accomplish these items
necessary for the successful integration and management of any recent property
development or acquisition. Also, any equity or debt offerings used to raise
money could result in your interest in the Company being diluted.

FINANCING RISKS

RISKS ASSOCIATED WITH DEBT FINANCING. We have a significant level of debt.
We cannot guarantee that our cash flow will be sufficient to make the required
payments on our debt. Further, our payments of principal and interest on the
debt may leave us with insufficient cash to meet the operational requirements of
our Properties and to pay distributions required for us to maintain our
qualification as a REIT. A high level of debt also creates an increased risk
that we may default on our debt obligations. Since virtually all of our

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debt is secured by our Properties, our failure to meet debt obligations could
result in the foreclosures of our Properties.

Upon consummation of the Offering, we expect to have consolidated
indebtedness of $444.9 million, with maturities ranging from 1999 to 2008 and
our debt to total market capitalization ratio, on a pro forma basis as of
December 31, 1997, will be % (that is, the total consolidated debt of our
Company as a percentage of the market value of outstanding Common Stock and
Units plus total consolidated debt). None of our loans are cross-defaulted or
cross-collateralized, except that we expect the Credit Facility will be secured
by several of our Properties. Our organizational documents, however, do not
contain any limitations on the amount of debt we may incur. Therefore, any
increased amount of debt could adversely affect the cash available for
distributions to you and could increase our risk of default.

Our predecessor, like many other owners and developers in the Manhattan real
estate community, encountered financial difficulty during the recession of the
late 1980s and early 1990s. During this period, certain of our loans that
matured could not be refinanced. In these instances where financing and/or sales
were not attainable to allow for the repayment of such indebtedness, our
predecessor consented to the transfer of five properties to mortgage lenders in
full satisfaction of the indebtedness of those properties. In two of these
instances, at the request of the lender, our predecessor utilized pre-packaged
bankruptcy conveyances to facilitate transfers.

INTEREST RATE RISK. After the Offering, we will have approximately $193.8
million of debt that bears interest at a variable rate. We may incur additional
debt in the future that will bear interest at a variable rate. Such variable
rate debt creates higher debt service requirements if market interest rates
increase, which would adversely affect our cash flow and the amounts of cash
available for distributions to you.

RISKS ASSOCIATED WITH BALLOON PAYMENTS. After the Offering, all of our
Properties will be encumbered by mortgages or the Credit Facility. All of such
indebtedness will be subject to balloon payments, and subsequent to the Offering
we may acquire properties subject to mortgages with balloon payments. Such
mortgages and the Credit Facility involve greater risks than indebtedness with
principal amounts amortized over the term of the loan since our ability to repay
the outstanding principal amount at maturity may depend on obtaining an adequate
refinancing or sale of the property. The possibility of either option would
depend on economic conditions in general and the value of the underlying
properties in particular. We cannot guarantee that we could refinance or repay
any such mortgages or the Credit Facility at maturity. Further, a significant
decline in the value of the underlying property could result in a loss of the
property through foreclosure.

HIGHER LEVERAGE ON DEVELOPMENT PORTFOLIO. We expect to finance the
acquisition of our development sites primarily with project specific debt
secured by those sites. Since these sites will not produce cash flow while under
development, the leverage ratio on our development portfolio before such assets
have reached stabilization will be significantly higher than the leverage ratio
on our operating portfolio. Therefore, our overall average leverage ratio for
our entire portfolio will be higher than it would otherwise be if we did not
engage in development activities. This increased leverage ratio could increase
our risk of default and adversely affect our ability to make payments on our
debt and our ability to make anticipated cash distributions to you.

REGULATORY MATTERS

ENVIRONMENTAL MATTERS. Various Federal, state and local laws subject
property owners or operators to liability for the costs of investigating,
removing and remediating certain hazardous substances released on a property.
Such liability may include obligations to, or liens in favor of, a governmental
agency or to a third party for property damage or personal injuries that result
from any property contamination. Such laws often impose liability without regard
to whether the owner or operator knew of, or was responsible for, the release of
the hazardous substances. The cost of remediation and any liability are not
limited and, therefore, can exceed the value of the property. The presence of
hazardous substances, or our failure to

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properly remediate contamination, may adversely affect occupancy of any
contaminated property and our ability to sell, lease or borrow against such
contaminated properties. We cannot be sure that a prior owner, operator or
occupant, such as a tenant, did not create an environmental condition not known
to us or that future uses or conditions of the Properties will not subject us to
such environmental liability.

Among other things, Environmental Laws also govern the presence, maintenance
and removal of asbestos-containing building materials ("ACBM"). These laws
require that ACBM be properly managed and maintained, that those who may come
into contact with ACBM be adequately apprised or trained and that special
precautions, including removal or other abatement, be undertaken in the event
ACBM would be disturbed during renovation or demolition of a building. These
laws may impose fines and penalties on building owners or operators for failure
to comply with these requirements and may allow third parties to seek recovery
from owners or operators for personal injury or property damage associated with
exposure to asbestos fibers. ACBM has been detected through sampling in certain
of the Properties. Most of these buildings contain only minor amounts of ACBM in
good condition. We believe that ACBM is currently being properly managed and
maintained and other requirements relating to ACBM are being followed. The
presence of ACBM should not present a significant risk as long as compliance
with requirements continues.

Phase I environmental site assessments have been obtained on all of our
Properties and development sites. The purpose of Phase I environmental site
assessments is to identify potential sources of contamination for which a
company may be responsible and to assess the status of environmental regulatory
compliance. These environmental site assessments did not reveal any
environmental condition, liability or compliance concern that we believe would
have a material adverse effect on our business, assets or results of operations
that would represent a material environmental cost. Further, we are not aware of
any such condition, liability or concern by any other means. However, it is
possible that the environmental site assessment relating to any one of the
Properties did not reveal all environmental conditions, liabilities or
compliance concerns. It is also possible that there are material environmental
conditions, liabilities or compliance concerns that arose at a property after
the related review was completed. See "Properties-- Environmental Matters" on
page 91.

AMERICANS WITH DISABILITIES ACT COMPLIANCE. Under the Americans with
Disabilities Act of 1990 (the "ADA"), all public accommodations and commercial
facilities must meet certain Federal requirements related to access and use by
disabled persons. Compliance with the ADA requirements could require removal of
access barriers and non-compliance could result in the U.S. government imposing
fines or private litigants winning damages. We believe that our properties are
substantially in compliance with these requirements. We may, however, incur
additional costs of compliance in the future. Final regulations under the ADA
have not yet been promulgated and the ultimate amount of the compliance costs is
uncertain. Accordingly, if we were required to make unanticipated expenditures
to comply with the ADA, our cash flow and the amounts available for
distributions to you may be adversely affected.

OTHER LAWS. Our Properties are also subject to various Federal, state and
local regulatory requirements, such as state and local rent control, rent
stabilization and fire and life safety requirements. Failure to comply with
these requirements could result in the imposition of fines by governmental
authorities or awards of damages to private litigants. We believe that the
Properties are currently in compliance with all such regulatory requirements.
However, there can be no assurance that these requirements will not be changed
or that new requirements will not be imposed. If we were required to make
significant unanticipated expenditures to comply with these requirements, our
cash flow and amounts available for distributions to you may be adversely
affected.

PURCHASERS OF OUR COMMON STOCK WILL EXPERIENCE DILUTION

The pro forma net tangible book value per share of our assets after the
Offering will be substantially less than the initial public offering price per
share. Accordingly, purchasers of our Common Stock will

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experience immediate and substantial dilution of $ in net tangible book value
per share. See "Dilution" on page 45.

RISKS OF COMMON STOCK OWNERSHIP

NO PRIOR PUBLIC MARKET. Prior to this Offering, there has not been a public
market for our shares of Common Stock. We cannot assure you that any trading
market for shares of our Common Stock will exist following this Offering. The
initial offering price will be determined by an agreement between us and the
Underwriters and may not be indicative of the market price for our shares after
this Offering. The market value of the Common Stock could be substantially
affected by general market conditions, including changes in interest rates.
Moreover, numerous other factors, such as governmental regulatory action and
changes in tax laws, could have a significant impact on the future market price
of our Common Stock. Accordingly, investors in our Common Stock may not be able
to resell their shares at or above the Offering Price. See "Underwriting" on
page 143.

FUTURE SALES. Future sales of a substantial number of shares of our Common
Stock will occur by, for example, shares being issued pursuant to future equity
offerings, our employee benefit plans, as a result of option holders exercising
their rights to purchase our shares or by resale availability from registration
or exemptions from registration. Such sales could adversely affect the
prevailing market price of our Common Stock. To the extent any future growth of
our company is accompanied by the issuance of additional shares of Common Stock,
any such issuance could have the effect of diluting existing stockholders'
interests in our company.

MARKET RISK. The value of our Common Stock, like other publicly traded
securities, will depend on various market conditions which change from time to
time. Such conditions include:

- the extent to which a resale market for our Common Stock develops after
this Offering;

- the general reputation of REIT equity securities;

- the extent of institutional investor interest in our securities;

- our general financial performance; and

- the performance of the Manhattan real estate market.

Therefore, we cannot assure you that our Common Stock will trade above the
Offering Price.

REIT EQUITY SECURITIES. The market value of REIT equity securities is
generally believed to be based primarily upon the market's perception of a
REIT's growth potential and its current and potential future cash distributions.
REIT equity securities may therefore trade at a price that is higher or lower
than the net asset value per share. Accordingly, our failure to meet the
market's expectations about our future earnings and cash distributions could
adversely affect the market price for shares of our Common Stock.

INTEREST RATES. The market price of our Common Stock may be influenced by a
comparison of our dividend yield (dividends as a percentage of the price of our
Common Stock) to market interest rates. Therefore, higher market interest rates
may lead prospective purchasers to expect a higher dividend yield. If our
dividend yield does not meet that market expectation, the price of our Common
Stock may be adversely affected.

EXTERNAL FINANCING. In order to qualify as a REIT for federal income tax
purposes, we must generally distribute at least 95% of our net taxable income.
See "Federal Income Tax Considerations--Taxation of the Company--Annual
Distribution Requirements" on page 133. Because of these distributional
requirements, it is unlikely that we will be able to fund all of our future
capital needs, including development, acquisition and redevelopment capital
requirements from the cash retained from our operations. As a result, we will
have to rely on external third-party sources of capital which may not be
available on favorable terms or at all. Our ability to access other sources of
financing will depend on our growth

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potential, current and potential future cash distributions and the market price
of the shares of our Common Stock. Moreover, additional equity offerings may
result in substantial dilution of stockholders' interests in our Company, and
additional debt financing may substantially increase our leverage. See "Policies
with Respect to Certain Activities--Borrowing."

THE INFLUENCE OF OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS. After
this Offering, our directors and management personnel will beneficially own %
of the issued shares of our Common Stock and Units. See "Principal Stockholders"
section on page 118. Further, Harry Macklowe and Warren Cole are directors of
the Company. Accordingly, such individuals will have significant influence over
our operations. This influence may not always be consistent with your interests.
These stockholders and unitholders are in a position to exercise significant
influence over the affairs of the Company should they act together in the
future.

DEPENDENCE ON KEY PERSONNEL

We are dependent on the efforts of our executive officers, particularly
Harry Macklowe and Warren Cole. While we believe that we could find replacements
for these key personnel, if necessary, the loss of their services could have a
material adverse effect on our operations. As described in "The Properties--
Assets Not Being Transferred to the Company" on page 93, we will not buy certain
real estate assets in which Harry Macklowe, members of his immediate family and
Warren Cole will retain an interest. We expect, however, that Harry Macklowe
and/or Warren Cole will not devote a substantial amount of time to the
management or operation of these excluded properties. Harry Macklowe and Warren
Cole will enter into employment and noncompetition agreements with us. We tell
you more about these employment and noncompetition agreements in
"Management--Employment and Noncompetition Agreements" on page 100.

CHANGES IN POLICIES

Our investment, financing, borrowing, distribution, REIT qualification,
growth, debt, capitalization and operations policies are determined by our Board
of Directors. While there is no present intent to be so, our Board of Directors
could amend or revise such policies without a stockholders' vote. Such policy
changes could also adversely affect our financial condition, results from
operations and the market price of our Common Stock.

LIABILITY INSURANCE COVERAGE

We carry comprehensive liability, fire, flood, extended coverage and rental
loss policies (up to 12 months) on our properties with customary policy
specifications and insured limits. We cannot, however, assure you that we will
not be subject to liability which is beyond the limits of our policy coverage
and may have an adverse effect on our financial condition.

We do not anticipate that new owner's title insurance policies will be
obtained in connection with our formation for of our properties. Each of
these Properties is covered by existing title insurance policies which insure
the interest of the entity that owns the property, but which is less than the
current value of the property. If we experience a loss relating to a title
defect in excess of the amount of a policy, we risk losing both our capital
investment and the anticipated profits from that property.

THE MACKLOWE ORGANIZATION PREDECESSOR HAS HAD HISTORICAL ACCOUNTING LOSSES AND
HAS A DEFICIT IN OWNERS' EQUITY; WE MAY EXPERIENCE FUTURE LOSSES

The Macklowe Organization Predecessor had losses before extraordinary items
of approximately $9.3 million, $3.3 million and $6.3 million in the years ended
December 31, 1997, 1996 and 1995, respectively, and had a cumulative deficit in
owners' equity of approximately $133.3 million as of December 31, 1997. These
net losses reflect certain non-cash charges such as depreciation and
amortization. They also reflect

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the use of a substantially higher level of debt than the Company expects to have
following the Offering. These historical results are not indicative of future
results. Nonetheless, there can be no assurance that we will not incur net
losses in the future.

REASSESSMENT OF REAL PROPERTY TAXES

Certain local real property tax assessors may seek to reassess certain of
the properties as a result of the Formation Transactions. We would strongly
contest any reassessment of this type. Subject to current market conditions, our
current leases may permit us to pass through to our tenants a portion of such
real property tax reassessments. These increased real property taxes could
adversely affect our operating cash flow.

CONTINGENT OR UNDISCLOSED LIABILITIES COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION

As part of the Formation Transactions, we (through the Operating
Partnership) will acquire certain assets of the Macklowe Organization subject to
existing liabilities, some of which may be unknown at the time the Offering is
consummated. Unknown liabilities might include liabilities for cleanup or
remediation of undisclosed environmental conditions, claims of tenants, vendors
or other persons dealing with the entities prior to the Offering (that had not
been asserted prior to the Offering), and accrued but unpaid liabilities
incurred in the ordinary course of business. See "--Regulatory
Matters--Environmental Matters" on page 23 as to the possibility of undisclosed
environmental conditions potentially affecting the value of our Properties and
"The Properties--Legal Proceedings" on page 95 as to the possibility of certain
other potential liabilities.

RISKS RELATING TO YEAR 2000 ISSUE

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
systems that have date-sensitive software or microprocessors may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar business activities.

We have evaluated our systems and determined that the software currently in
use is substantially year 2000 compliant. The software vendor has agreed to make
minor modifications in the software to make it fully year 2000 compliant by
December 31, 1998 at no additional cost to us. We presently believe that with
these modifications, the Year 2000 issue will not have a material adverse impact
on our operations and financial condition. However, even if such modifications
are not timely completed, the Year 2000 issue is not expected to have a material
adverse impact on our operations, financial condition and cash flows.

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THE COMPANY

We have formed Macklowe Properties, Inc. to continue and expand the office
and apartment real estate business of our predecessor, The Macklowe
Organization. For more than 35 years, we have been acquiring, developing,
redeveloping, owning, managing and leasing Manhattan office and apartment
properties. We are one of the largest developers, acquirors, redevelopers,
owners and managers of Manhattan office and apartment properties and we believe
will be, after this Offering, the first publicly traded REIT to own both
Manhattan office and apartment properties. We will operate as a fully
integrated, self-administered and self-managed real estate company and expect to
qualify as a REIT for federal income tax purposes.

We have developed two of our office properties containing 1.2 million
rentable square feet and two of our apartment properties containing 469,000
rentable square feet and 469 apartment units. We are also currently developing a
293-unit apartment property, and redeveloping an 89,000 square foot office
property and a 36-unit apartment property, all of which are located in Midtown
Manhattan and are expected to be completed by the fourth quarter of 1998.
Additionally, we will own six development sites in Midtown Manhattan, which will
support the development of up to 1.3 million rentable square feet of office
space and up to 760,000 rentable square feet of apartment space.

Harry Macklowe, our Chairman and Chief Executive Officer, has been one of
Manhattan's leading developers since the late 1960's. Warren Cole, our
President, has been involved in the Manhattan real estate business for over 18
years. Harry Macklowe and Warren Cole and our eight other executive officers
have been actively involved in the Manhattan real estate business for an average
of 16.7 years, including an average of over 10.5 years working together for our
Company. Over the past 35 years, we have been responsible for over 70 real
estate transactions containing over 10 million square feet and valued in excess
of $2.5 billion. This total includes our construction of four office properties
containing 1.5 million rentable square feet and five apartment properties
containing 2.0 million rentable square feet and 1,400 apartment units.
Additionally, we have acquired and substantially redeveloped six office
properties containing 1.1 million rentable square feet and seven apartment
properties containing 390,000 rentable square feet and 365 apartment units. We
will enter into employment and noncompetition agreements with each of Harry
Macklowe and Warren Cole pursuant to which they will agree to serve in such
capacities and to conduct, during the term of such agreements, all commercial
office and rental apartment development, acquisition and management activities
through our Company. See "Management" on page 96. After this Offering, our
officers and directors will own % of the equity of our Company, on a fully
diluted basis.

We believe that our management team and our collective Manhattan real estate
experience and knowledge create a significant competitive advantage. We are a
full-service real estate company, with substantial in-house expertise and
resources in development, acquisitions, redevelopment, financing, construction
management, property management, marketing, leasing, design, architecture,
accounting and legal services. We intend to use our experience and knowledge to
opportunistically pursue additional real estate investments as they arise.

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HISTORY

GENERAL

Our Company was founded in the mid-1960s by Harry Macklowe. For the past 35
years, we have been active and profitable developers, acquirors, redevelopers,
owners and managers of various real estate investments that have covered almost
every sector of the property market and many property classes within those
sectors. Our investments have included office and apartment properties, land
assemblages, development of office and apartment buildings, and conversion of
industrial properties and loft buildings aggregating over 10 million square
feet. Our activities have ranged from Wall Street to Midtown to the Upper East
and West Sides, providing us with an intimate knowledge of the various and
constantly changing Manhattan submarkets.

Our diverse capabilities and proven success in closing transactions has
often made us a favored counterparty in transactions with financial
institutions, tenants, brokers and other property owners in the Manhattan real
estate markets. Such longstanding relationships have provided us access to
acquisition opportunities before they are widely marketed which results in lower
acquisition costs than would be the case if they were competitively bid. Our
ultimate objective has been and remains the creation of secure and highly
profitable investments that will sustain and grow through all business cycles.
Further, our diversified portfolio approach has enabled us to take advantage of
multiple and synergistic investment opportunities and to build a diversified
income stream which provides a stable foundation for growth through market
cycles.

Our investments have generally had one or more of the following common
themes:

- identifying and capitalizing on opportunities in Manhattan submarkets
ahead of other real estate developers;

- completing complicated site assemblages for new development by utilizing
our in-depth knowledge of New York City's complex regulatory and zoning
processes;

- closing complex transactions that require significant "intellectual
capital";

- identifying, redeveloping and repositioning underperforming assets
through capital improvements and improved management;

- creating and maintaining strong relationships with tenants and brokers
which have enabled us to maintain high occupancy rates and efficiently
re-lease vacant or newly acquired or developed space; and

- designing and constructing architecturally distinct and prominent
buildings.

The following highlights our historical activities in the Manhattan real
estate markets:

DEVELOPMENT ACTIVITIES

We have a successful and established track record as a Manhattan real estate
developer. Since 1969, we have developed nine office and apartment buildings
aggregating over 3.5 million square feet and 1,400 units. The development of
Manhattan real estate is widely known for its many complexities such as zoning
regulations, the myriad of New York state and local real estate ordinances,
constantly changing market dynamics, geographic constraints and fragmented and
complex ownership.

We believe that the key disciplines in developing a successful and
profitable Manhattan project include: (i) concept and design, (ii) site
assemblage, (iii) public process management, (iv) financing expertise, (v)
construction management, and (vi) marketing and leasing. We have developed
substantial in-

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house expertise, and have assembled a team of professionals, in all of these
disciplines. Most of our professional development staff have been with us for
over ten years.

In particular, site assemblage is an essential part of our development
activity as it has enabled us to acquire land at the lowest possible cost. This
is critical as land cost is one of the largest components of total project cost.
Site assemblage involves the purchase of adjoining parcels of real estate with
the intention of linking them together in order to assemble a development site
that can support a larger and more profitable structure than any of the
individual parcels could support on a stand-alone basis. This activity is
particularly complex in Manhattan due to fragmented and complicated ownership,
the tax sensitivity of the owners of these parcels who often have low or
negative tax bases in their properties and the existence of many local and state
regulations.

Additionally, we rely on our ability and proven track record to work with
community boards, city planning commissions and other city regulatory agencies
to rezone our site assemblages to commercial and residential uses. The actions
of these agencies can dramatically affect property values, land uses and
assessments. In addition to such site specific governmental interaction, we
constantly monitor pending policy changes and maintain discussions with various
governmental agencies. This allows us to have input and participate in the
decision shaping process. Therefore, a working knowledge of these intricacies
enables us to make intelligent judgments concerning our future development and
acquisition activities.

Our construction management expertise is another vital element of our
development activities. This includes properly budgeting and bidding-out
development costs and managing the construction process to control the timing,
costs and quality of the project. Our in-house construction staff has been
responsible for the development of over 3.5 million square feet of Manhattan
office and apartment buildings and 1,400 units, and has been successful in
quickly and efficiently completing our projects.

A few examples of our successful development activities include:

METROPOLITAN TOWER--Metropolitan Tower, a critically acclaimed architectural
achievement, was the pioneer development in the westward expansion of mixed-use
properties along the 57th Street east-west corridor. This building set new
standards in technological innovations, construction practices and luxury
amenities and services. As the result of a complex land assemblage of eight
separate sites and the acquisition of air rights from five other sites,
Metropolitan Tower achieved a height of 716 feet (78 stories). At its completion
in 1987, this 650,000 square foot property, including 243 condominium units and
225,000 square feet of office space, became the seventh tallest concrete
structure in the world and the tallest residential building in New York.

The successful sale of the condominium units, which achieved prices in
excess of $1,000 per square foot, was matched by the rapid absorption of the
office space in the commercial component of the building to tenants including
Ann Taylor, Air France and Ceridian Corporation. The building also serves as the
headquarters for our Company. The condominium sales generated gross proceeds of
approximately $170 million and the sale of the fee portion of the office
building generated approximately $60 million, resulting in aggregate profits in
excess of $74 million.

RIVERTERRACE--We completed Riverterrace in 1985. This 41-story, 409-unit
luxury rental apartment building overlooking New York's East River at 515 East
72nd Street contains 428,000 rentable square feet. Working closely with the New
York City Planning Commission, our assemblage of 12 industrial buildings was
rezoned primarily to residential use. As a result of this complex re-zoning
process, 97,000 square feet was earmarked for light manufacturing and medical
uses. Capitalizing on its prime location next to Cornell Medical Center, New
York Hospital and Memorial Sloan Kettering, Riverterrace has consistently
maintained close to 100% occupancy at its Class A medical office facilities. Our
construction management expertise enabled us to efficiently complete the project
within 18 months at a cost of $88 million. This

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project achieved a 10.8% stabilized return on cost(1) after an approximate
24-month stabilization period, including the lease-up of the commercial portions
of the property. Riverterrace's architectural design and finishes, quality of
construction, sweeping views of Manhattan and many amenities, which include one
of New York City's most extensive resident health clubs and a half-acre private
landscaped sculpture garden, have contributed to its stable 97% occupancy. See
"The Properties--Apartment Properties--Riverterrace" on page 85.

TWO GRAND CENTRAL TOWER--One block from Grand Central Terminal, Two Grand
Central Tower's 616,000 square foot construction in 1981 marked the end of the
long dormancy of new office development in Manhattan. The development included
the purchase of air rights from the adjacent low rise buildings on both the East
and West Sides of the plot. This allowed us to increase our floor area and build
a larger, taller and more distinctive office building. In a 12-month period, we
completed the tower and substantially leased the building to Manufacturer's
Hanover Trust Company. The building served as a technological forerunner in the
areas of energy efficiencies and tenant climate control. Since its completion,
the building has maintained occupancy rates in excess of 95%. Our activities
resulted in a stabilized return on cost of 15.9% within 24 months of completion.
See "The Properties--Office Properties--Two Grand Central Tower" on page 76.

REDEVELOPMENT ACTIVITIES

We have enjoyed substantial success as redevelopers of Manhattan office and
apartment real estate. Over the last 35 years, we have acquired and
substantially redeveloped over 1.5 million rentable square feet of office and
apartment space. Our redevelopments have generally taken the form of either
upgrades (E.G., a conversion of an office property from Class B to Class A) or a
change of use (E.G.,conversion from a loft or industrial building to an office
or apartment building). An important component of this strategy is our full
service real estate capabilities, including our construction management
expertise. These capabilities enable us to successfully reposition and renovate
properties involving significant capital investment in a cost effective and
timely manner. Additionally, these activities allow us to create value by
significantly increasing occupancy and rental rates. Several representative
projects are described below.

540 MADISON AVENUE--In September 1996, we acquired this 39-story, 279,000
rentable square foot office building located in the heart of Manhattan's Plaza
District on the southwest corner of 55th Street and Madison Avenue for $35
million. We initiated an $11 million full-scale renovation and infrastructure
improvement of the property. By purchasing air rights we were able to expand the
retail component in the base of the building and create a new building image and
identity. The original lobby entrance was relocated from Madison Avenue to 55th
Street to create 255 linear feet of continuous, uninterrupted retail frontage in
one of the most populous and highest rent shopping districts in Manhattan.
Subsequently, we successfully leased the entire 32,000 square foot retail
component to the Callaway Golf Company. In addition to Callaway Golf Company,
new tenants include Oracle Corporation and Honda North America. The
transformation of 540 Madison Avenue has resulted in an increase in the achieved
rents per square foot from $35 at the time of our acquisition in September 1996
to $55 as of March 31, 1998. The NOI yield upon acquisition(2) was 2.8%. As a
result of our redevelopment efforts, we have increased the current NOI yield(3)
to 8.5% (based on the property being 80.3% leased) at March 31, 1998. See "The
Properties-- Office Properties--540 Madison Avenue" on page 77.

- ------------------------
(1) As used in this Prospectus, "stabilized return on cost" is calculated as the
annualized net operating income of the project at the time of stabilization
(before any rent abatements) divided by the capitalized cost of development
(as determined in accordance with GAAP).

(2) The NOI yield is computed by dividing the net operating income from this
property for the 12 months following the acquisition (before any rent
abatements) at September 30, 1996 ($980,000) by our acquisition cost ($35.3
million).

(3) The current NOI yield is computed by dividing the annualized net operating
income of this property before any rent abatements as of March 31, 1998
($4.9 million) by our costs of acquisition and capital investment through
March 31, 1998 ($57.3 million).

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CHELSEA ATELIER (245 SEVENTH AVENUE)--In 1997, we purchased a defaulted
mortgage secured by this 12-story, 70,000 square foot light manufacturing loft
building which was being foreclosed by a local bank. We immediately recognized
the potential of the Seventh Avenue and 24th Street property, with 12-foot-
ceilings, open floor plates, large windows and distinctive architecture, as a
residential conversion in the rapidly appreciating Chelsea residential market.

Upon completing the foreclosure and terminating the remaining tenancies in
the building, we commenced a complete gut rehabilitation of the property.
Utilizing designs by the architecture firm Schuman Lichtenstein Claman Efron, we
developed 33 loft style apartments. We were able to complete the construction
and sell the condominium units within an 18-month period. The entire project
sold out in under eight months from the start of our marketing effort, resulting
in net proceeds of $18.5 million on a project cost of $12 million. Additionally,
we retained title to the retail component of this building which generated
$200,000 of current annualized net operating income as of March 31, 1998, and we
are currently marketing it for sale. See "The Properties--Assets Not Being
Transferred to the Company" on page 93.

COMPLEX TRANSACTIONS

We have been successful in acquiring properties that due to legal, tax,
financing and other complexities required significant "intellectual capital" to
complete the acquisition. Our ability to bring such "intellectual capital" to
bear on the complexities of these transactions significantly limits our
competition. These situations often involve bankruptcies, foreclosures or
litigation, where we have gained control of a property over competing parties by
confirming plans of reorganization, negotiating settlements and workout plans or
otherwise settling a foreclosure proceeding or complex litigation. Examples of
this type of transaction include:

300 MADISON AVENUE--This development site consists of a group of older
commercial structures comprising the entire 200 foot westerly blockfront between
41st and 42nd Streets on Madison Avenue. Certain of these buildings were
acquired by outbidding a competing office REIT to purchase a defaulted mortgage
and note securing such assets and acquiring ownership through the use of the
bankruptcy courts. Two New York City developers attempted, but failed, to gain
control of this site through a competing bankruptcy plan. We completed the
assemblage by successfully negotiating for the acquisition of the remainder of
the site. As a result, we have a site which could potentially support the
development of up to 1.0 million square feet of Class A office space in a
premier location on Madison Avenue next to Grand Central Terminal. See "The
Properties--Development Sites--300 Madison Avenue" on page 89.

40 WEST 55TH STREET--Recently, we acquired control of this redevelopment
opportunity to convert an underperforming and undermanaged office property into
an apartment building. The property was the subject of a foreclosure judgment
and was days away from a foreclosure auction sale. We first attempted to
purchase the judgment in order to gain control through the auction process.
However, the judgment was sold to a competitive developer who was also
attempting to gain control of the site. We therefore pursued control by
assembling and purchasing the various limited and general partner interests of
the property-owning entity. Once we obtained sufficient ownership, we filed a
bankruptcy plan on behalf of the debtor. The bankruptcy court sent the case to
arbitration. We succeeded in gaining control of the site through arbitration and
are in the process of converting this property into a luxury 36-unit apartment
building. See "The Properties--Development and Redevelopment Properties--40 West
55th Street" on page 88.

Other similar situations in which we bought an underlying mortgage or equity
interest involving a bankruptcy or foreclosure include 400 Madison Avenue and
342 Madison Avenue. See "The Properties-- Office Properties--342 Madison Avenue"
and"--400 Madison Avenue" on page 81.

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OPPORTUNISTIC PURCHASES

Over our 35 year history, we have opportunistically found ways to create
value which have resulted in substantial profits to our Company.

MILLER PORTFOLIO--In December 1986, we acquired 15 Manhattan office
buildings comprising 2.5 million square feet of space for $238 million.
Recognizing the value of these assets, and the degree of neglect and
undermanagement, we moved quickly and within a thirty-day period went to
contract, financed and acquired this portfolio. Benefitting from our hands-on
value-added management, we sold the portfolio for $345 million in October 1987,
recognizing a $96 million gain, after deducting transaction expenses.

465 PARK AVENUE--In February 1996, we entered into a long-term contract for
the purchase of a 40,000 square foot commercial condominium interest in a
residential property located at the intersection of Park Avenue and 57th Street.
We immediately recognized the value of this location and its potential. During
the course of the contract, we created value by making two significant changes
to the asset. First, we enhanced the financeability of the asset by
renegotiating the terms of the ground lease under which we were a co-tenant with
the condominium association of the residential space. Next, we negotiated a
long-term lease with Borders Books to occupy this vacant space. Finally, to
minimize our transaction costs and maximize our return on investment, we entered
into a forward sale agreement resulting in the simultaneous closing of (i) the
acquisition, (ii) the Borders Books lease, (iii) the ground lease modification
and (iv) the resale of the property. This transaction was accomplished without
our Company expending significant capital and resulted in a profit in excess of
$3 million.

RECENT ACTIVITIES

In the last two years, we have:

- ACQUIRED UNDERPERFORMING OFFICE PROPERTIES located at 1412 Broadway, 400
Madison Avenue, 342 Madison Avenue and 150 Fifth Avenue, aggregating
1.25 million square feet;

- ASSEMBLED SITES THAT WE INTEND TO DEVELOP at 300 Madison Avenue
(office), 16-20 East 53rd Street (office), 771-791 Sixth Avenue
(apartment) and 1000 Second Avenue (apartment);

- ASSEMBLED A SITE ON WHICH WE ARE CURRENTLY DEVELOPING a 217,000 square
foot, 293-unit apartment building at 305 West 50th Street;

- DEVELOPED a 41,000 square foot, 60-unit apartment building at 345 East
64th Street; and

- BEGUN REDEVELOPING a 51,000 square foot, 36-unit apartment property at
40 West 55th Street, an 89,000 square foot office property at 140 West
57th Street and a 279,000 square foot office property at 540 Madison
Avenue.

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BUSINESS AND GROWTH STRATEGIES

BUSINESS STRATEGY

Our primary business objective is to maximize total return to you through
appreciation in the value of our assets and growth in distributable cash flow.
We plan to accomplish these goals by continuing our historical operating
strategies focused on Manhattan real estate markets and capitalizing on
opportunistic acquisition, strategic development and redevelopment and internal
growth opportunities described below. Unless indicated otherwise, information
presented in this section concerning the New York City metropolitan economy and
the Manhattan office and apartment markets is derived from the Cushman &
Wakefield Market Study.

GROWTH STRATEGIES

We believe that our development and acquisition experience and the depth of
our personnel position us to realize significant growth by continuing to
develop, acquire, redevelop and reposition office and apartment properties in
Manhattan.

INTERNAL GROWTH

We will seek to capitalize on the following significant development,
redevelopment and repositioning opportunities in implementing our internal
growth strategy:

DEVELOP EXISTING SITES. We believe that long-term investment returns
resulting from developing properties under favorable market conditions generally
will exceed those from other types of investments. Therefore, we believe our
assemblage and development experience and expertise will be the distinguishing
characteristics that will enable us to achieve superior long-term growth. We
have positioned ourselves for new development by securing in excess of 2.0
million square feet of estimated rentable office and apartment space.

Based upon the accomplished rents within our office portfolio, we believe
that market conditions justify new construction. Our observations are further
supported by the research contained in the Cushman & Wakefield Market Study
which cites the following points with respect to the Manhattan office market as
of March 31, 1998: increasing rents, decreasing vacancies, declining
availability of large blocks of contiguous office space, reduced concession
packages and increasing employment in the New York City metropolitan economy.
Cushman & Wakefield projects that these favorable conditions will continue
through 2002. See "Market Overview" on page 56. Our office development sites
include 300 Madison Avenue and 16-20 East 53rd Street. The following is a brief
description of each of our office development sites:

- 300 MADISON AVENUE--Located on the entire westerly blockfront between
41st and 42nd Streets on Madison Avenue, we believe this is the premier
office development site in midtown Manhattan. We plan to construct a
Class A office building which will support up to 1.0 million rentable
square feet. In addition to its strategic location one block from Grand
Central Terminal, this office building, when completed, is expected to
provide base floors of 40,000 rentable square feet and column-free tower
floors in excess of 30,000 rentable square feet. Additionally, 300
Madison Avenue will have a significant retail component located on the
blockfront of Madison Avenue and 42nd Street. We currently envision
incorporating a sky lobby in order to maximize our prime retail space and
to develop blocks of unencumbered space on the base floors which will
support trading facilities. Construction is expected to be completed by
the fourth quarter of 2001 and our development costs are expected to be
financed with project specific construction financing. When completed, we
believe 300 Madison Avenue will be one of the most distinguished and
technologically advanced office buildings in midtown Manhattan and it
will be the first major office building development in the Grand Central
submarket of the Manhattan office market in the past decade. See "The
Properties--Development Sites--300 Madison Avenue" on page 89.

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[LOGO]

Source: Study of proposed 300 Madison Avenue building
by the architecture firm, Skidmore, Owings &
Merrill.

- 16-20 EAST 53RD STREET--We have assembled this site, located on 53rd
Street between Madison and Fifth Avenue in the Plaza District, which will
support the development of a Class A office building containing up to
250,000 square feet. This site represents a rare opportunity to construct
a new building in the premier Plaza submarket. This submarket has
historically achieved one of the lowest vacancy rates and among the
highest office and retail rental rates in the Manhattan office market.
The site is located just one block from 540 Madison Avenue, a
redevelopment project which we have recently completed and where we are
attaining rents in excess of $55 per square foot. There are existing
income producing buildings on this site which are leased on an interim
basis to offset the carrying costs of the site. All leases with respect
thereto have demolition clauses. We project that the new building will be
completed by the second quarter of 2001. See "The Properties--Development
Sites--16-20 East 53rd Street" on page 89.

Based upon the accomplished rents within our apartment portfolio, we believe
that market conditions currently justify new construction. Our observations are
further supported by the research contained in the Cushman & Wakefield Market
Study which cites the following points with respect to the Manhattan apartment
market as of March 31, 1998: increasing market rates, stable occupancy rates,
rapid absorption of new inventory and increasing private sector employment in
the New York City metropolitan economy. Cushman & Wakefield projects that these
favorable conditions will continue through 2002. See "Market Overview" on page
56. Our apartment development sites include 305 West 50th Street, 771-791 Sixth
Avenue, 1000 Second Avenue, 20-30 West End Avenue and 250 East 60th Street. The
following is a brief description of each of these sites:

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- 305 WEST 50TH STREET (LONGACRE HOUSE)--We are currently developing a
217,000 rentable square foot apartment building with a blockfront retail
component on Eighth Avenue between 50th and 51st Streets in Manhattan's
Midtown West submarket. This 26-story, ground-up development, called
Longacre House, will consist of 293 luxury rental apartments, including
82 studio apartments, 187 one-bedroom apartments and 24 two-bedroom
apartments, and will offer amenities such as terraces, concierge service,
housekeeping, a private garden, internet access, pre-wired fiber optics,
satellite television capabilities and a private health club. Further, the
attractiveness of this project is enhanced by its proximity to Times
Square, the midtown office district, Lincoln Center and Central Park.
Construction began in August 1997 and is anticipated to be completed by
the end of the third quarter 1998 at a total project cost of
approximately $58 million. We have pre-leased a portion of the retail
space to Rite Aid and will commence the residential rental program in the
third quarter of 1998. See "The Properties--Development and Redevelopment
Properties--305 West 50th Street" on page 87.

- 771-791 SIXTH AVENUE--Contemporaneous with this Offering, we will
purchase this site located on the westerly blockfront along Sixth Avenue
between 26th and 27th Streets in Manhattan's Chelsea district. The site
has a buildable area of approximately 220,000 rentable square feet which
is expected to result in the development of approximately 220 residential
units, 35,000 square feet of retail space and 11,000 square feet of
garage space. We estimate completion of this project during the second
quarter of 2000. We believe that this development provides an attractive
opportunity to take advantage of the strong demand for residential space
in the Chelsea marketplace supported by a shortage of private rental
property and a recent influx of national retailers including Bed, Bath &
Beyond, T.J. Maxx, Barnes & Noble and Old Navy and large corporations
including Credit Suisse First Boston, Ziff Davis and The Gap corporate
offices. There are existing income producing buildings on this site which
are leased on an interim basis to offset the carrying costs of the site.
All of these leases have demolition clauses. See "The
Properties--Development Sites-- 771-791 Sixth Avenue" on page 90.

- 1000 SECOND AVENUE--We have assembled an apartment development site on
Second Avenue between 52nd and 53rd Streets in Manhattan's East Side that
currently consists of a 9,500 square foot vacant site and several
tenements. The site is located two blocks from the exclusive Sutton Place
district and is within walking distance of the midtown office market. We
have retained the architecture firm Schuman Lichtenstein Claman Efron to
design the building. The new building, which we expect to complete in the
second quarter of 2001, is expected to contain approximately 250
apartments and 8,000 square feet of prime retail space. See "The
Properties--Development Sites--1000 Second Avenue" on page 89.

- 20-30 WEST END AVENUE--This 20,000 square foot development site is
located on the westerly blockfront of West End Avenue between 60th and
61st Streets just west of Lincoln Center. The site, which is being held
for future development, is expected to support the development of
approximately 300 apartment units with a significant ground floor retail
component. The site currently consists of two buildings which are leased
on an interim basis in order to offset the carrying costs of the site.
All of these leases have demolition clauses. Across the street from the
site, to the west, The Brodsky Organization has just successfully
completed an 1,100-unit residential development and is across the street
from Donald Trump's master-planned Riverside South development. See "The
Properties--Development Sites--20-30 West End Avenue" on page 89.

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- 250 EAST 60TH STREET--This residential development site is located at the
southwest corner of Second Avenue and 60th Street in Manhattan's Upper
East Side one block from Bloomingdale's. The site currently consists of a
one-story structure for interim retail use. We have filed an application
before the New York City Board of Standards and Appeals to demolish the
structure and to redevelop the site as a nine-story, 42-unit apartment
building with a ground floor retail component. See "The
Properties--Development Sites--250 East 60th Street" on page 90.

REDEVELOP EXISTING PROPERTIES. The following are buildings that we are
currently redeveloping and leasing:

- 540 MADISON AVENUE, a 39-story, 279,000 rentable square foot office
building located in the heart of Manhattan's Plaza District on the
southwest corner of 55th Street and Madison Avenue. We completed an $11
million full scale renovation and repositioning of this Property in the
first quarter of 1998. We expect to stabilize this property by the end of
1999. See "The Properties-- Office Properties--540 Madison Avenue" on
page 77.

- 140 WEST 57TH STREET, a 14-story, 89,000 rentable square foot Class A
mixed-use building located on 57th Street between Sixth and Seventh
Avenues in Manhattan's Rockefeller Center submarket. The office component
of the building, containing approximately 74,000 feet, has been held
substantially vacant. We have commenced the renovation of the office
component to prepare the space to be marketed as high-end commercial
suites. The target market for this type of space is dominated by
entertainment, law and fashion tenants. We expect the renovation to be
complete by the fourth quarter of 1998 at a cost of approximately $4.5
million. We believe the space will achieve premium rents due, in part, to
its unique architectural features such as 20-foot ceilings, 20-foot high
bay windows, and duplex balcony spaces within certain suites. The
renovation program that we have undertaken will result in a completely
modernized building, including the addition of an elevator, the
automating of an existing elevator, a complete upgrade of electrical,
plumbing, heating and air conditioning systems, new energy-efficient
windows and new interior finishes, fiber-optic wiring and video intercom
security. The suites, which will range from 1,000 square feet to 5,000
square feet, will be marketed as completed turnkey spaces. The retail
component of this building is leased to the original and flagship Planet
Hollywood. See "Properties--Development and Redevelopment Properties--140
West 57th Street" on page 87.

- 40 WEST 55TH STREET, a 36-unit luxury apartment building located between
Fifth Avenue and Avenue of the Americas on 55th Street, in Manhattan's
Rockefeller Center submarket. The building was constructed in 1924 and
was designed by Rosario Candela, one of Manhattan's preeminent
residential architects of the time. This property had been converted by
its prior owners to a commercial property and was leased primarily to
apparel showrooms, including Ralph Lauren's original "Polo" offices. We
plan to reconvert the property to an apartment house. We have commenced a
complete renovation of the apartments to restore them to their original
grandeur. In addition to the residential floors, we plan a significant
lobby renovation. We expect the renovations to be completed by the end of
this year at a cost of approximately $3.5 million, at which time we
anticipate the building's 36 units will be quickly absorbed. The
apartments were originally designed with large living rooms, formal
dining rooms, maid rooms, and fireplaces. See "The
Properties--Development and Redevelopment Properties--40 West 55th
Street" on page 88.

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MANAGE OUR EXISTING PORTFOLIO. We believe that significant opportunities exist
to increase our cash flow from our existing properties since they are high
quality buildings, located in attractive submarkets that are experiencing rising
rental rates and increased demand for office and apartment space. Additionally,
our Properties are located in submarkets where (i) supply of currently available
space is limited and (ii) available development sites are limited and (iii) the
process of receiving necessary approvals for development is both long and
complicated. We intend to:

IMPROVE OCCUPANCY. We will aggressively market any vacant, newly
acquired or redeveloped space within our portfolio and will utilize our
relationships with an extensive network of brokers and tenants to lease
additional space as quickly as possible. As of March 31, 1998, we have
approximately 253,500 rentable square feet of vacant space at our recently
acquired and/or redeveloped properties;

INCREASE RENTS TO MARKET ON EXPIRING LEASES. We believe that as the
Manhattan real estate market continues to improve, there will be increasing
demand for office and apartment space and decreasing vacancies which should,
over time, result in increased market rents. During the 33-month period
ending December 31, 2000, leases representing 829,000 square feet at our
Office Properties will expire, representing 24.1% of our office portfolio
square footage. The weighted average expiring Annualized Rent for these
properties is $31.94 per square foot and weighted average asking rents of
expiring leases as of March 31, 1998 for office space in the Midtown
Markets, as identified in the Lease Expirations--Property by Property table
on page 70, is $38.08 per square foot.

CONTRACTUAL RENT INCREASES. We expect to achieve increased cash flows
through leases which contain provisions for fixed contractual rental
increases, increases which are tied to certain consumer price percentage
and/or inflation indices and reimbursements. During the 33-month period
ending December 31, 2000, we expect income to increase by $4.4 million
through fixed contractual rental increases.

CAPITALIZE ON ECONOMIES OF SCALE. We believe we can capitalize on
economies of scale arising from the size of our portfolio which will spread
administrative and other costs over all of our Properties and reduce such
costs on a per rentable square foot basis.

REDUCE OPERATING EXPENSES AT THE PROPERTIES. We also seek to enhance
the property cash flow and value of underperforming assets through the
reduction of operating expenses. We constantly evaluate, monitor and manage
staffing levels and payroll, vendor contract services and cost, and
aggressively represent and monitor our tax assessments through certiori
proceedings. Further we periodically prepare detailed property maintenance
assessments to maintain operating efficiencies.

EXTERNAL GROWTH

ACQUIRE UNDERPERFORMING ASSETS. We believe we are well positioned to
acquire additional office and apartment properties, that, while generating
income, are underperforming due to under capitalization and/ or mismanagement.
Given our success in acquisitions of and improvement to underperforming assets,
as well as our longstanding relationships with the brokerage and private and
institutional ownership communities, we believe that we can obtain significant
growth through acquisitions of properties of this type. We believe we can obtain
significant value from these assets through (i) effective marketing and leasing
strategies, (ii) responsive property management services, (iii) intensive large
scale renovations and/or (iv) smaller scale repositionings of properties which
will benefit from cosmetic renovations and correction of deferred maintenance.
See "History--Redevelopment Activities" on page 31.

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UNIT ACQUISITIONS. We believe that due to our size, management strength and
reputation, we will be in an advantageous position to acquire portfolios of
assets or individual properties from private investors and domestic and/or
foreign institutions seeking to convert their ownership on a property level
basis to the ownership of equity in a diversified real estate operating company
that offers tax deferral and liquidity through access to the public equity
markets. In addition, we may pursue mergers with and acquisitions of compatible
real estate firms.

We believe that our ability to offer Units as consideration to sellers is of
particular value to us. Most real estate assets in Manhattan are held by
long-time owners and, therefore have low or negative tax bases. Historically the
tax impact of a cash sale has discouraged potential sellers from selling and has
in essence "locked-up" a significant portion of the Manhattan real estate
market. This is the case not only for large asset sales, but also small,
disparate holdings which we commonly acquire through our assemblage activities
for future development.

ACQUISITION OF DEVELOPMENT SITES. We intend to selectively assemble and
acquire development sites which in our opinion are economically viable given
current market conditions.

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USE OF PROCEEDS

Our net cash proceeds from this Offering, after deducting the estimated
underwriting discounts and commissions, are estimated to be approximately $487.5
million (approximately $560.6 million if the Underwriters' over-allotment option
is exercised in full) assuming an initial public offering price of $20 per share
(the midpoint of the range shown on the cover of this Prospectus). Further, we
will borrow $140.0 million through a new mortgage financing simultaneously with
the consummation of this Offering.

We will contribute the net cash proceeds of this Offering to the Operating
Partnership in exchange for 26,000,000 Units which represents a % interest in
the Operating Partnership after this Offering. The Operating Partnership will
use such proceeds and the new mortgage financings as follows: (i) approximately
$544.7 million to repay mortgage indebtedness encumbering our Properties,
including approximately $12.4 million in prepayment penalties and other
expenses, (ii) approximately $35.7 million to acquire interests in 150 Fifth
Avenue, 771-791 Sixth Avenue and 342 Madison Avenue, (iii) $ million to repay
intercompany debt, (iv) approximately $10.5 million to pay certain expenses
incurred with respect to the Formation Transactions for legal, accounting,
financing fees and real estate transfer tax expenses, and Offering expenses, (v)
$3.9 million to pay a financial advisory fee to Lehman Brothers Inc., one of our
Underwriters, and (vi) $ million to fund capital expenditures and general
working capital needs.

If the Underwriters' over-allotment option to purchase 3,900,000 additional
shares of Common Stock is exercised in full, we expect to use the additional net
proceeds, (which will be approximately $72.5 million after payment of the
underwriting discounts and commissions and financial advisory fee) to develop
and/or acquire additional properties and/or for working capital.

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

The mortgages and other indebtedness to be repaid upon the completion of the
Offering had a weighted average interest rate of approximately 8.73% and an
average remaining term to maturity of 2.2 years as of March 31, 1998. The
mortgages on Avenue of the Americas Plaza (two mortgages), 342 Madison Avenue,
400 Madison Avenue, 40 West 55th Street, 140 West 57th Street and 300 Madison
Avenue were incurred within the 12-month period preceding the date of this
Prospectus. Borrowings under these loans bear interest at LIBOR(1) 2.25%, LIBOR
+ 4.00%, LIBOR + 2.25%, LIBOR + 2.25%, 9.75%, LIBOR + 2.50% and LIBOR + 4.00%,
respectively, and have terms to maturity of nine months, nine months, 22 months,
22 months, 69 months, six months and nine months, respectively. The proceeds of
such financings were used for redevelopment activities to acquire certain
interests in such properties and to refinance indebtedness on certain of our
Properties. See "Structure and Formation of the Company" on page 103.

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

(1) As used in this Prospectus, LIBOR means the 30-day London InterBank Offering
Rate.

40
<PAGE>
DISTRIBUTIONS

Subsequent to the completion of the Offering, we intend to make regular
quarterly distributions to our stockholders. The initial distribution, covering
a partial quarter commencing on the date of completion of this Offering and
ending on September 30, 1998 is expected to be $ per share, which represents a
pro rata distribution based on a full quarterly distribution of $ per
share and an annual distribution of $ per share (or an annual distribution
rate of approximately % based on the midpoint of the estimated initial public
offering prices shown on the cover page of this Prospectus). The actual
distributions made by the Company will be determined by our Board of Directors,
in its sole discretion, and will be affected by a number of factors, including
the gross revenues received from the Properties, our operating expenses, the
interest expense incurred in borrowing, the ability of tenants to meet their
obligations and unanticipated capital expenditures. No assurance can be given
that our estimate will prove accurate or that any level of distribution will be
made or sustained. We anticipate that distributions will exceed net income
determined in accordance with generally accepted accounting principles ("GAAP")
due to non-cash expenses, primarily depreciation and amortization. We do not
intend to reduce the expected distribution per share if the Underwriters'
over-allotment option is exercised. The following discussion and the information
set forth in the table and footnotes below should be read in conjunction with
the financial statements and notes thereto, the pro forma financial information
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" on page
52.

We initially intend to distribute annually approximately % of estimated
cash available for distribution. The estimate of cash available for distribution
for the 12 months ending December 31, 1998 is based upon pro forma Funds from
Operations for the 12 months ended December 31, 1997, adjusted for (i) certain
known events and/or contractual commitments that either occurred subsequent to
December 31, 1997 or during the 12 months ended December 31, 1997, but were not
effective for the full 12 months or will not recur, and (ii) for certain
non-GAAP adjustments consisting of (A) revisions to historical rent from a
straight line GAAP basis to amounts currently being paid or due from tenants
based on contractual rents, (B) pro forma amortization of financing costs, and
(C) an estimate of amounts anticipated for recurring capitalized tenant
improvements, leasing commissions and capital expenditures. No effect was given
to any changes in working capital resulting from changes in current assets and
current liabilities (which changes are not anticipated to be material) or the
amount of cash estimated to be used for investing activities for development,
acquisition, tenant improvement and leasing costs (other than a reserve for
capital expenditures, tenant improvements for renewing space and working
capital). We anticipate that, except as reflected in the table below and the
notes thereto, investing activities will not have a material effect on estimated
cash available for distribution. Our estimated pro forma Funds from Operations,
as adjusted as reflected in clause (A) above, is substantially equivalent to our
estimated pro forma cash flows from operating activities determined in
accordance with GAAP. The estimate of Cash Available for Distribution is being
made solely for the purpose of setting the initial distribution and is not
intended to be a projection or forecast of our results of operations or our
liquidity, nor is the methodology upon which such adjustments were made
necessarily intended to be a basis for determining future distributions.

We anticipate that our distributions will exceed earnings and profits for
Federal income tax reporting purposes due to non-cash expenses (primarily
depreciation and amortization) we will incur. Therefore, we expect that
approximately % (or $ per share) of our anticipated distributions for
the 12-month period following the completion of this Offering will represent a
return of capital for federal income tax purposes and in such event will not be
subject to federal income tax under current law to the extent such distributions
do not exceed a stockholder's basis in the Common Stock. The nontaxable
distributions will reduce the stockholder's tax basis in the Common Stock and,
therefore, the gain (or loss) recognized on the sale of such Common Stock or
upon our liquidation will be increased (or decreased) accordingly. The
percentage of stockholder distributions that represents a nontaxable return of
capital may vary substantially from year to year. See "Federal Income Tax
Considerations--Taxation of Stockholders" on page 134.

41
<PAGE>
The Code generally requires that a REIT distribute annually at least 95% of
its net taxable income (excluding any net capital gain). See "Federal Income Tax
Considerations--Taxation of the Company-- Annual Distribution Requirements" on
page 133. The estimated cash available for distribution is anticipated to be in
excess of the annual distribution requirements applicable to REITs under the
Code. Under certain circumstances, we may be required to make distributions in
excess of Cash Available for Distribution in order to meet such distribution
requirements. For a discussion of the tax treatment of distributions to our
stockholders, see "Federal Income Tax Considerations--Taxation of Stockholders"
on page 134.

We intend to maintain our initial distribution rate for the 12-month period
following the completion of the Offering unless actual results of operations,
economic conditions or other factors differ materially from the assumptions used
in our estimate. Our actual results of operations will be affected by a number
of factors, including the revenue received from our properties, our operating
expenses, our interest expense, the ability of our tenants to meet their
financial obligations and unanticipated capital expenditures. Variations in the
net proceeds from the Offering as a result of a change in the initial public
offering price or the exercise of the Underwriters' over-allotment option may
affect Cash Available for Distribution, the payout ratio based on cash available
for distribution and available reserves. No assurance can be given that our
estimate will prove accurate. Actual results may vary substantially from the
estimate.

The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended December 31, 1997 and the adjustments to pro
forma Funds from Operations for the 12 months ended December 31, 1997 in
estimating initial cash available for distribution for the 12 months following
the Offering and establishing our estimated initial annual distribution. The
table below gives no effect to additional leasing at the Properties after the
date hereof, lease-up of development projects or other potential sources of cash
flow.

<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS,
EXCEPT PER
SHARE DATA)
-----------
<S> <C>
Pro forma net income before minority interest and extraordinary item for the year ended December 31,
1997................................................................................................ 14,541
Plus: Pro forma real estate depreciation for the 12 months ended December 31, 1997.................. 12,977
Plus: Pro forma amortization (excluding financing costs) for the 12 months ended December 31,
1997.............................................................................................. 840
Pro forma Funds from Operations for the 12 months ended December 31, 1997(1).......................... 28,358
Adjustments:
Net increases in rental income(2)................................................................... 9,198
Inclusion for 1412 Broadway(3)...................................................................... 4,700
Provision for lease expirations, assuming no renewals(4)............................................ (1,529)
Interest adjustment(5).............................................................................. 58
Estimated adjusted pro forma Funds from Operations for the 12 months ending December 31, 1998......... 40,785
Net effect of straight-line rents(6)................................................................ (788)
Pro forma amortization of financing costs for the 12 months ending December 31, 1997(7)............. 931
Non-real estate depreciation and amortization....................................................... 227
Estimated pro forma Cash Flow from Operating Activities for the 12 months ending December 31, 1998.... 41,155
Investment Activities:
Estimated recurring capitalized tenant improvements and leasing commissions(8)...................... (6,309)
Estimated recurring capital expenditures(9)......................................................... (1,476)
Estimated cash to be used in investing activities................................................... (7,785)
Estimated Cash Available for Distribution for the 12 months ending December 31, 1998.................. 33,370
The Company's share of estimated Cash Available for Distribution....................................
Minority interest's share of estimated Cash Available for Distribution(10)..........................
Total estimated initial annual cash distributions.....................................................
Estimated initial annual distribution per share(11).................................................
Payout ratio based on estimated Cash Available for Distribution(12).................................
</TABLE>

(FOOTNOTES CONTINUED ON FOLLOWING PAGE)

42
<PAGE>

(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)

(1) The White Paper on Funds from Operations ("FFO") approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. We believe that FFO is helpful to investors as a measure of
the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, it
provides investors with an indication of our ability to incur and service
debt, to make capital expenditures and to fund other cash needs. We compute
FFO in accordance with standards established by NAREIT which may not be
comparable to FFO reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than we do. FFO does not represent cash
generated from operating activities in accordance with GAAP and should not
be considered as an alternative to net income (determined in accordance with
GAAP) as an indication of our financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
our liquidity, nor is it indicative of funds available to fund our cash
needs, including our ability to make cash distributions. For a
reconciliation of net income and Funds from Operations, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Funds from Operations" on page 53.
(2) Represents the net increase in contractual rental income from (a) new leases
and renewals that were not in effect for the entire 12 months ended December
31, 1997 and (b) new leases and renewals that went into effect between
January 1, 1998 and May 14, 1998.
(3) Adjustment for estimated income before depreciation for the property was
omitted from pro forma income statement pending completion of the pro forma
property financial statements.
(4) Assumes no lease renewals or new leases for leases expiring after December
31, 1997 unless a new or renewal lease has been entered into between January
1, 1998 and May 14, 1998.
(5) The amount represents a reduction in interest expense due to amortization of
the related mortgages over the 12 months ended December 31, 1998.
(6) Represents the effect of adjusting straight-line rental revenue included in
pro forma net income from the straight-line accrual basis to amounts
currently being paid or due from tenants. Total rent abatements for leases
in effect as of December 31, 1997 for the 12 months ending December 31, 1998
are approximately $2.8 million.
(7) Financing costs are based on principal mortgage indebtedness outstanding of
$444.9 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" on
page 52.
(8)

ESTIMATED RECURRING CAPITALIZED TENANT IMPROVEMENTS AND LEASING COMMISSIONS

<TABLE>
<CAPTION>
WEIGHTED
CLASS A CLASS B AVERAGE(A)
----------- ----------- -----------
<S> <C> <C> <C> <C>
RE-TENANTED SPACE:
Tenant Improvement Costs ("TI") per square
foot(b)......................................... $ 35.00 $ 20.00 $ 27.95
Leasing Commission Costs ("LC") per square
foot(b)......................................... $ 17.34 $ 10.39 $ 14.07
----------- ----------- -----------
Total Renewal TI and LC per square foot........... $ 52.34 $ 30.39 $ 42.02

RENEWAL SPACE:
TI per square foot(b)............................. $ 17.50 $ 5.00 $ 11.63
LC per square foot(b)............................. $ 6.94 $ 4.15 $ 5.63
----------- ----------- -----------
Total Re-tenanted TI and LC per square foot....... $ 24.44 $ 9.15 $ 17.26
</TABLE>
<TABLE>
<CAPTION>
ANNUAL AVERAGE
SQUARE FOOTAGE RATE OF
WEIGHTED AVERAGE EXPIRING IN RENEWALS/
TI AND LC PER SQUARE FOOT 1998-2000 RETENANTED(B)
------------------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Re-tenanted Space......... $ 42.02 x 243,371 x 35% =
Renewal Space............. $ 17.26 x 243,371 x 65% =

TOTAL
COST
---------
<S> <C>
Re-tenanted Space......... $3,579,257
Renewal Space............. $2,730,379
---------
$6,309,636
---------
---------
</TABLE>

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

(a) Weighted by the Company's existing percentage of Class A (53%) and Class
B (47%) office space square footage.

(b) Based on market information reported by Cushman & Wakefield because no
significant rollover has occurred in our office properties since the end
of 1994. Therefore historical lease renewal rates, TI and LC information
is not a meaningful indicator of what future activity will be at our
office properties. We believe that we have made reasonable assumptions
based on market information reported by Cushman & Wakefield and our
knowledge of our Properties and the Midtown Manhattan office market.

(9) Estimated recurring capital expenditures has been calculated for our office
properties by multiplying an estimated recurring capital expenditure per
square foot of $0.40 by 2,929,000, the aggregate square footage of the
office properties, and for apartment properties by multiplying an estimated
recurring capital expenditure per apartment unit of $500 by our 608 units.
These estimates are based on market information reported by Cushman &
Wakefield and our knowledge of our Properties and the luxury Manhattan
apartment market.

(10) Based on the Company's % interest in the Operating Partnership.

(11) Based on a total of shares of Common Stock to be outstanding after the
Offering (26,000,000 to be sold in the Offering, assuming no exercise of the
Underwriter's over-allotment option, and shares to be issued in the
Formation Transactions).

(12) Calculated as estimated initial annual cash distributions to our
stockholders divided by our share of estimated cash available for
distribution for the 12 months ended December 31, 1998. The payout ratio
based on estimated adjusted pro forma Funds from Operations is %.

43
<PAGE>
CAPITALIZATION

The following table sets forth our combined historical capitalization as of
December 31, 1997 and on a pro forma basis giving effect to (i) the Offering and
use of the estimated net proceeds from the Offering as set forth under "Use of
Proceeds" on page 40, (ii) borrowings through new mortgage financings, and (iii)
the Formation Transactions, including the acquisition of 150 Fifth Avenue, 400
Madison Avenue, 16 and 18 East 53rd Street, 1412 Broadway, the mortgage on 342
Madison Avenue and the acquisition of the remaining 50% interest in York 72
Associates, L.P. (and the corresponding leasehold transaction with the former
partner), and the repayment of certain debt. The information set forth in the
table should be read in conjunction with the financial statements and notes
thereto, the pro forma financial information and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" on page 52.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
COMBINED
HISTORICAL PRO FORMA
---------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage debt............................................................................. $ 514,911 $ 410,222
Credit Facility........................................................................... --
Minority interest in Operating Partnership................................................ --
Stockholders' equity:
Preferred Stock, $.001 par value; shares authorized; none issued and
outstanding on a historical and pro forma basis.....................................
Common Stock, $.001 par value; shares authorized; none issued and
outstanding; and issued and outstanding on a
pro forma basis (1)................................................................. --
Additional paid-in capital............................................................ --
Owners' equity (deficit).............................................................. (133,318)
---------- -----------
Total owners' (deficit)/stockholders' equity.......................................... (133,318)
---------- -----------
Total capitalization.............................................................. $ 381,593 $
---------- -----------
---------- -----------
</TABLE>

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

(1) Includes shares of Common Stock to be issued in the Formation
Transactions and the Offering. Does not include (i) shares of Common Stock
that may be issued upon redemption of Units issued in connection with the
Formation Transactions beginning one year following the completion of the
Offering (or earlier in certain circumstances), (ii) shares of Common Stock
subject to options being granted concurrently with the offering under our
stock option and incentive plan or (iii) 3,900,000 shares of Common Stock
that are issuable upon exercise of the Underwriters' over-allotment option.

44
<PAGE>
DILUTION

At December 31, 1997, we had a deficiency in net tangible book value
attributable to continuing investors of approximately $166.1 million. After
giving effect to (i) the sale of the shares of Common Stock offered hereby and
our receipt of approximately $480.1 million in estimated net proceeds from the
Offering (based upon an assumed initial public offering price of $20.00 per
share), after deducting the Underwriters' discounts and commissions, the
financial advisory fee payable to Lehman Brothers Inc. and other estimated
expenses of the Offering and the Formation Transactions, (ii) the repayment
and/or forgiveness of approximately $532.3 million of mortgage indebtedness
secured by certain of the Properties, and (iii) other estimated formation
expenses, the pro forma net tangible book value at December 31, 1997 would have
been approximately $362.4 million, or $ per share of Common Stock. This amount
represents an immediate increase in net tangible book value of $ per share to
the continuing investors and an immediate and substantial dilution in pro forma
net tangible book value of $ per share of Common Stock to new investors. The
following table illustrates this dilution:

<TABLE>
<S> <C>
Assumed initial public offering price per share(1)................................ $ 20.00
Deficiency in net tangible book value per share prior to the Offering
attributable to continuing investors(2)......................................... $
Increase in net tangible book value per share attributable to the Offering(3)..... $
Pro forma net tangible book value after the Offering(4)........................... $
---------
Dilution in net tangible book value per share of Common Stock to new
investors(5).................................................................... $
---------
---------
</TABLE>

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

(1) Before deducting underwriters' discount and estimated expenses of the
Offering and the Formation Transactions.

(2) Deficiency in net tangible book value per share prior to the Offering
attributable to continuing investors is determined by dividing net tangible
book value attributable to continuing investors (based on the December 31,
1997 net book value of the tangible assets (consisting of total assets less
intangible assets consisting of deferred lease fees and loan costs and after
the Formation Transactions, net of liabilities to be assumed)) by the sum of
the number of shares of Common Stock (i) issued and outstanding and (ii)
issuable (upon redemption of all Units to be issued) to continuing investors
in the Formation Transactions.

(3) After deducting underwriters' discounts and commissions and estimated
expenses of the Offering and the Formation Transactions.

(4) Based on total pro forma net tangible book value of $362.4 million divided
by the total number of shares of Common Stock outstanding after the
completion of the Offering ( shares, including shares issuable upon
redemption of Units issued to continuing investors), and excluding shares
that may be issuable upon exercise of stock options. There is no impact on
dilution attributable to the issuance of Common Stock in redemption for
Units to be issued to the continuing investors in the Formation Transactions
because such Units would be redeemed for Common Stock on a one-for-one
basis.

(5) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offering from the assumed initial public offering
price of $20.00.

45
<PAGE>
The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of shares of Common Stock we
are selling in the Offering and the number of shares of Common Stock and Units
to be issued to the continuing investors in the Formation Transactions, the
deficiency in the net tangible book value as of December 31, 1997 of the assets
contributed by the continuing investors in the Formation Transactions and the
net tangible book value of the average contribution per share based on total
contributions.

<TABLE>
<CAPTION>
PURCHASE
PRICE(1)
COMMON STOCK/ ---------------
UNITS ISSUED BOOK VALUE OF BOOK VALUE OF
------------------------ CONTRIBUTION AVERAGE
SHARES/ ---------------------- CONTRIBUTIONS
UNITS PERCENT $ PERCENT PER SHARE/UNIT
----------- ----------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PERCENTAGES)
New investors in the Offering.............................. 26,000 % $ 480,100 132.5% $ 20.00(1)
Common Stock issued to continuing investors................ % $ % $ (2)
Units issued to continuing investors....................... % $ % $ (2)
----------- ----- --------- ----- ------
Total.................................................. 100.0% $ 362,362 100.0%
----------- ----- --------- ----- ------
----------- ----- --------- ----- ------
</TABLE>

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

(1) Before deducting underwriters' discounts and commissions, the financial
advisory fee payable to Lehman Brothers Inc. and other estimated expenses of
the Offering and the Formation Transactions.

(2) Based on the December 31, 1997 net book value of the assets, less net book
value of deferred financing and leasing cost to be contributed in connection
with the Formation Transactions, net of liabilities to be assumed.

46
<PAGE>
SELECTED FINANCIAL INFORMATION

The following table sets forth selected financial and operating information
on a pro forma basis for the Company, and on a historical combined basis for the
Predecessor. The following financial information should be read in conjunction
with all of the financial statements and notes thereto included elsewhere in
this Prospectus. The combined historical balance sheet information as of
December 31, 1997 and 1996 and the combined operating data for the years ended
December 31, 1997, 1996 and 1995 of the Predecessor have been derived from the
historical combined financial statements audited by Ernst & Young LLP,
independent auditors, whose report with respect thereto is included elsewhere in
this Prospectus. The operating data for the years ended December 31, 1994 and
1993 and the balance sheet data as of December 31, 1995, 1994 and 1993, have
been derived from the unaudited combined financial statements of the
Predecessor. In the opinion of management of the Predecessor, such unaudited
data includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein.

Our unaudited pro forma financial and operating information as of and for
the year ended December 31, 1997 assumes completion of the Offering and the
Formation Transactions, including the acquisition of 150 Fifth Avenue, 400
Madison Avenue, 16-18 East 53rd Street, 1412 Broadway, 771-791 Sixth Avenue, the
mortgage on 342 Madison Avenue and the acquisition of the remaining 50% interest
in York 72 Associates, L.P. (and the corresponding leasehold transaction with
the former partner), and repayment of certain debt as of the beginning of the
periods presented for the operating data and as of December 31, 1997 for the
balance sheet data. In management's opinion, all adjustments necessary to
present fairly the effects of these transactions have been made. The pro forma
financial information is not necessarily indicative of what our actual financial
position and results of operations would have been as of and for the period
indicated, nor does it purport to represent our future financial position and
results of operations.

47
<PAGE>
SUMMARY SELECTED COMBINED FINANCIAL AND OPERATING DATA
THE COMPANY (PRO FORMA) AND PREDECESSOR (HISTORICAL)
(IN THOUSANDS, EXCEPT FOR PER SHARE, SHARE AND PROPERTY DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
PRO FORMA HISTORICAL
----------- -----------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
OPERATING DATA:
Revenues:
Base commercial rents...................... $ 77,187 $ 52,146 $ 47,553 $ 43,891 $ 43,256 $ 42,375
Commercial tenant escalations and
reimbursements........................... 13,887 9,919 8,471 7,866 8,028 7,566
Residential rental revenue................. 16,482 3,123 1,884 1,720 1,760 1,668
Related party revenues..................... 1,725 1,725 2,060 1,586 -- --
Investment and other income................ 2,499 2,401 2,795 2,720 4,877 4,999
Total revenues......................... 111,780 69,314 62,763 57,783 57,921 56,608
Expenses:
Property operating expenses................ 21,952 12,060 9,497 8,696 8,631 7,828
Real estate taxes.......................... 22,361 13,763 11,727 9,894 8,872 9,136
Interest................................... 29,682 34,466 28,146 28,020 24,172 22,455
Depreciation and amortization.............. 14,975 11,172 9,651 8,948 9,068 9,267
Marketing, general and administrative...... 9,177 8,029 6,811 8,317 4,528 5,365
Total expenses......................... 98,147 79,490 65,832 63,875 55,271 54,051
Loss on investment in limited partnership.... -- (67) (215) (113) (442) (1,924)
Gain (loss) on marketable securities and
investment partnerships.................... 908 908 (55) (56) -- --
Gain on sale of real estate.................. -- -- -- -- 5,250 --
Income (loss) before minority interest and
extraordinary items........................ 14,541 (9,335) (3,339) (6,261) 7,458 633
Minority interest(1).........................
Income (loss) before extraordinary gain...... 14,541 (9,335) (3,339) (6,261) 7,458 633
Net income (loss) per share(2)
Basic......................................
Diluted....................................

<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Real estate, before accumulated
depreciation............................... 773,891 367,916 313,631 266,213 262,104 273,909
Real estate, after accumulated
depreciation............................... 708,653 302,678 254,848 215,868 217,747 234,636
Total assets................................. 874,353 472,856 332,566 288,099 289,580 281,318
Total indebtedness........................... 410,222 514,911 396,359 435,656 430,282 429,478
Minority interest............................ -- -- -- -- --
Owners' deficit.............................. 340,939 (133,318) (144,354) (147,607 ) (140,702 ) (148,160 )
OTHER DATA:
Net cash provided by (used in) operating
activities(3).............................. -- (1,905) 7,862 (2,323 ) -- --
Net cash provided by financing
activities(3).............................. -- (120,979) 37,551 6,842 -- --
Net cash used in investing activities(3)..... -- (122,655) (46,262) (6,622 ) -- --
Funds from operations(4)..................... 28,358 -- -- -- -- --
Weighted average shares outstanding..........
Weighted average shares and units
outstanding(5).............................
Office Properties (at period end)............ 8 4 4 3 3 3
Office Square Footage (at period end)........ 2,929,000 1,570,000 1,570,000 1,294,000 1,294,000 1,294,000
Office Percent Leased (at period end)........ 90.9% 89.3% 93.2% 92.7% 95.1% 94.0%
Apartment Properties (at period end)(6)...... 4 3 2 2 2 2
Apartment Units (at period end)(6)........... 608 205 205 144 144 144
Apartment Square Footage (at period
end)(6).................................... 506,000 175,000 134,000 134,000 134,000 134,000
Apartment Percent Leased (at period
end)(6).................................... 96.1% 95.9% 96.2% 96.9% 98.6% 97.3%
</TABLE>

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

(1) Represents the % interest in the Operating Partnership that will be
owned by Harry Macklowe and other continuing investors.

(FOOTNOTES CONTINUED ON FOLLOWING PAGE)

48
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)

(5) Weighted Average Units outstanding include Common Units and 1,200,000
Class B Units, which share in distributions equally with common Units but
are exchangeable during a 14-day period beginning on the date which is six
months after the consummation of this Offering (the "Class B Exchange
Period"), for a number of Common Units having a value (based on the average
closing price of the Common Stock on the NYSE for the ten business day
period preceding the commencement of the Class B Exchange Period) equal to
the value of the Class B Units at the time of this Offering (based on the
Offering Price). The Class B and Class C Units are owned by non-affiliated
continuing investors. See "Partnership Agreement" on page 113.

(6) For historical periods, does not include the 409-unit, 428,000 square foot
Riverterrace apartment property because it is accounted for under the equity
method. For the pro forma period, York 72 Associates, L.P. has been
accounted for under the consolidation method of accounting. See
"Riverterrace" on page 86.

49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

OVERVIEW

The following discussion should be read in conjunction with the Selected
Financial Information, the Historical Combined Financial Statements and the Pro
Forma Combined Balance Sheet and Pro Forma Combined Statements of Income of our
Company contained in this Prospectus.

The Combined Financial Statements of The Macklowe Organization Predecessor
include 100% of the net assets and results of operations of 13 properties (Two
Grand Central Tower, Avenue of the Americas Plaza, 369 Lexington Avenue, 30 East
End Avenue, 345 East 64th Street, 540 Madison Avenue, 192 East 75th Street,
20/30 West End Avenue, 140 West 57th Street, 40 West 55th Street, 305 West 50th
Street, 250 East 60th Street, 1000 Second Avenue), a portion of the 300 Madison
Avenue development site, equity interests in one other property
(Riverterrace--which interests are accounted for under the equity method), and
an investment in a mortgage note providing effective ownership of the remaining
portion of the 300 Madison Avenue development site. 100% of the net assets and
results of operations of Manhattan Pacific Management Co., Inc. and McGraw
Hudson Construction Corp; and

Due to the size of our existing portfolio (21 properties, including 9
development and redevelopment properties), the inclusion of additional
properties during any period can result in significant increases in total
revenue and other financial data over prior periods. For the foregoing reason,
we believe that our historical year to year and quarter to quarter financial
data are not comparable, and that percentage growth may not be maintained at the
current rate.

RESULTS OF OPERATIONS

COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996

Rental revenue increased $4,593, or 10%, to $52,146 from $47,553 for the
year ended December 31, 1997 compared to the year ended December 31, 1996. The
increase was primarily due to the inclusion of an additional $2,791 from 540
Madison Avenue in 1997 as compared to 1996, reflecting the property's first full
year of operations subsequent to our acquisition thereof in September 1996.
Approximately $1,178 of the increase was attributable to the expiration of
certain lease takeover obligations at Avenue of the Americas Plaza during 1997,
and an additional $391 was due primarily to the completion of leases at Two
Grand Central Tower during 1996 and 1997.

Commercial tenant escalations and reimbursements increased by $1,448, or
17%, to $9,919 from $8,471 for the year ended December 31, 1997 compared to the
year ended December 31, 1996. The increase was primarily due to the inclusion of
an additional $465 for a full year of operations of 540 Madison in 1997; an
increase in real estate tax escalations of $334 at Avenue of the Americas Plaza;
and increases in operating expense recoveries at Avenue of the Americas Plaza
and Two Grand Central Tower of $287 and $215, respectively as a result of
operating expense increases and average occupancy increases.

Residential rental revenues increased $1,239, or 66%, to $3,123 from $1,884
for the year ended December 31, 1997 compared to the year ended December 31,
1996. The increase was primarily due to the opening of 345 East 64th Street upon
the completion of construction in March 1997, which resulted in 1997 rental
revenues of $1,060. In addition, the rental revenues at 30 East End Avenue
increased by $151, as a result of increases in market rental rates and the
rental of newly renovated apartments at higher rental rates than the unrenovated
units.

Related party revenues decreased $335, or 16%, to $1,725 from $2,060 for the
year ended December 31, 1997 compared to the year ended December 31, 1996. This
decrease resulted from a reduction in commissions due to greater leasing
activity in 1996 as compared to 1997.

50
<PAGE>
Investment and other income decreased $394, or 14%, to $2,401 from $2,795
for the year ended December 31, 1997 compared to the year ended December 31,
1996. This decrease resulted primarily from the receipt of certain non-recurring
income from tenants in 1996.

Property operating expenses increased $2,563, or 27%, to $12,060 from $9,497
for the year ended December 31, 1997 compared to the year ended December 31,
1996. The increase was primarily due to the inclusion of a full year of
operations of 540 Madison Avenue in 1997, which resulted in an increase of
$1,991; and the opening of 345 East 64th Street in March 1997, which increased
operating expenses by $347.

Real estate taxes increased $2,036, or 17%, to $13,763 from $11,727 for the
year ended December 31, 1997 compared to the year ended December 31, 1996. This
increase was primarily due to ownership of 540 Madison Avenue for the full year
in 1997 which resulted in an increase of $1,344; and an increase in the taxes at
Avenue of the Americas Plaza of $614 which resulted from the phase out of the
deferral on the increase in assessed value which resulted from the development
of the project.

Interest expense increased $6,320, or 22%, to $34,466 from $28,146 for the
year ended December 31, 1997 compared to the year ended December 31, 1996. This
increase was primarily due to the inclusion of 540 Madison Avenue for the full
year in 1997 which resulted in an increase of $2,932; and the acquisition of 300
Madison Avenue in the third quarter of 1997, which resulted in an increase of
$2,987.

Depreciation and amortization increased by $1,521, or 16%, to $11,172 from
$9,651 for the year ended December 31, 1997 compared to the year ended December
31, 1996. Approximately $1,447 of this increase resulted from the inclusion of
540 Madison Avenue for the full year in 1997.

Marketing, general and administrative expenses increased by $1,218, or 18%,
to $8,029 from $6,811 for the year ended December 31, 1997 compared to the year
ended December 31, 1996. This increase was primarily due to compensation expense
in 1997 of $963, equal to the earnings on the investments held in trust under a
deferred compensation agreement between a senior executive and the Company.

The investments in marketable securities and investment partnerships
increased by $963 to $908 from a loss of $55 for the year ended December 31,
1997 compared to the year ended December 31, 1996. The earnings on these
investments accrue to the benefit of a senior executive under the deferred
compensation agreement noted above.

Extraordinary gains on forgiveness of debt of $9,932 were recognized in
1997, including $9,000 on a mortgage note with Mitsubishi Bank and $1,216 on a
note with National Bank of Canada, and financing cost write-offs of $284.

COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995

Base commercial rents increased by $3,662, or 8%, to $47,553 from $43,891
for the year ended December 31, 1996 compared to the year ended December 31,
1995. This increase was primarily due to the acquisition of 540 Madison Avenue
in September 1996 and inclusion of its operations for approximately four months
in 1996, which resulted in additional rents of $2,384; the expiration of certain
lease takeover obligations at Avenue of the Americas Plaza, which resulted in
additional rents of $465; and the completion of new leases at 369 Lexington
Avenue, which resulted in additional rents of $487.

Commercial tenant escalations and reimbursements increased by $605, or 8% to
$8,471 from $7,866 for the year ended December 31, 1996 compared to the year
ended December 1995. Approximately $360 of this increase was due to the
inclusion of 540 Madison Avenue's results for four months in 1996.

Residential rental revenue increased by $164, or 10%, to $1,884 from $1,720
for the year ended December 31, 1996 compared to the year ended December 31,
1995. This increase was primarily due to the increases in market rental rates
and a higher level of apartment turnover and re-rental in 1996.

51
<PAGE>
Related party revenues increased by $474, or 30%, to $2,060 from $1,586 for
the year ended December 31, 1996 compared to the year ended December 31, 1995.
This increase was primarily due to a non-recurring commission in 1996 related to
a lease extension at a third party owned property.

Property operating expenses increased by $801, or 9%, to $9,497 from $8,696
for the year ended December 31, 1996 compared to the year ended December 31,
1995. This increase was primarily due to the inclusion of $565 for the four
months of operations of 540 Madison Avenue in 1996.

Real estate taxes increased by $1,833, or 19%, to $11,727 from $9,894 for
the year ended December 31, 1996 compared to the year ended December 31, 1995.
This increase was primarily due to the expiration of the real estate tax
deferral benefits described above at Avenue of the Americas Plaza, which
increased taxes by $848; the inclusion of four months of operations of 540
Madison Avenue in 1996, which increased taxes by $609; and an increase in the
tax assessment of Two Grand Central Tower, which increased taxes by $296.

Depreciation and amortization increased by $703, or 8% to $9,651 from $8,948
for the year ended December 31, 1996 compared to the year ended December 31,
1995. This increase resulted primarily from the inclusion of $413 for 540
Madison Avenue's results of operation for four months in 1996.

Marketing, general and administrative expenses decreased by $1,506, or 18%,
to $6,811 from $8,317 for the year ended December 31, 1996 compared to the year
ended December 31, 1995. This decrease was primarily due to the inclusion of the
initial expense of $2,500 in 1995 related to the formation of the deferred
compensation trust with the senior executive as described above, offset by $697
in 1996 for additional staff and other expenses necessitated by increased
business and an increase of $241 in leasing expenses due to the leasing of
vacant space.

PRO FORMA OPERATING RESULTS

YEAR ENDED DECEMBER 31, 1997

On a pro forma basis, after giving effect to the Offering, income before
minority interest and extraordinary items would have been $14,541 for the year
ended December 31, 1997, representing an increase of $23,876 over the historical
combined loss before minority interest and extraordinary gains on forgiveness of
debt. The increase is accounted for as follows:

<TABLE>
<S> <C>
INCREASES TO INCOME:
Decrease in interest expense due to a net decrease in mortgage loans.............. $ 12,967
Additional income due to acquisition properties................................... 10,006
Decrease in amortization of deferred financing costs due to repayment of loans.... 3,056
---------
26,029

DECREASES TO INCOME:
Additional general and administrative expenses associated with a public company... (928)
To reflect York 72 Associates at December 31, 1997 on a consolidated basis, based
on the Company's purchase of the remaining 50% interest in the entity........... (952)
Eliminate cleaning and health club income not allowed under the REIT rules........ (273)
---------
(2,153)
---------
$ 23,876
---------
---------
</TABLE>

As indicated above, inclusion of certain recent properties acquired or to be
acquired after December 31, 1997 increased income, on a pro forma basis, by
approximately $10.006. Further information regarding the effects of the
acquisition of such properties on our financial position and results of
operations is set forth in the historical financial statements of these acquired
or to be acquired properties and our pro forma financial statements contained in
this Prospectus.

52
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Upon completion of the Offering and the Formation Transactions, including
the borrowing of $140.0 million through a new mortgage financing simultaneously
with the completion of the Offering, we expect to have reduced our total
indebtedness from $789.2 million to $444.9 million, all of which will be secured
by our interests in certain of the Properties. The new mortgage facility is
anticipated to bear interest at a fixed rate of 7%, and the weighted average
interest rate on all of our fixed rate loans (totalling $251.1 million) will be
approximately 7.06%. There will be a total of $1.5 million of scheduled loan
principal repayments due during the year ending December 31, 1998. The Company's
debt to market capitalization ratio (i.e., the ratio of the Company's total
indebtedness to the sum of its total indebtedness and the value of its
outstanding Common Stock and Units based on the Offering Price) will be %.

We are currently negotiating a secured revolving line of credit (the "Credit
Facility") in the approximate amount of $250 million to facilitate its
anticipated development, acquisition, redevelopment and construction activities.
While we expect to have the Credit Facility in place on or before the completion
of the Offering, there can be no assurance that this will be the case. Upon
completion of the Offering and Formation Transactions, we expect to have
approximately $ million of working capital.

We believe that the Offering and the Formation Transactions will improve our
financial performance, primarily as a result of the substantial reduction in our
total indebtedness and our debt to equity ratio. We anticipate that as a result
of our significant development pipeline, our cash available for distribution
will be insufficient in the near term to pay our initial estimated annual
distribution. In that event, we expect to make our distributions from working
capital and/or borrowings in addition to income derived from operations.

We expect to meet our short-term liquidity needs, including recurring
capital expenditures, generally through our initial working capital of
approximately $ million and through income derived from operations, principally
from lease revenues from the Properties. These sources will be used to fund
periodic tenant-related capital expenditures and other capital improvements.

The Company expects to meet its long-term liquidity requirements for the
funding of property acquisitions, property development and other non-recurring
capital improvements through long-term secured and unsecured indebtedness and
through future issuances of debt or equity securities, including issuances of
Units in exchange for properties. We expect that a portion of the cost of future
development and acquisition activity will be funded through borrowings under the
Credit Facility or mortgage financing secured by acquired properties.

CASH FLOWS

COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996

Net cash provided by operating activities decreased $5,957 to $1,905 from
$7,862 for the year ended December 31, 1997 as compared to the year ended
December 31, 1996. This decrease was due to an increase in prepaid real estate
taxes, deferred costs and other assets of $2,945 due to the timing of real
estate tax payments and increases in loan escrow deposits; a decrease in net
income (excluding depreciation and amortization and extraordinary gains) of
$4,475 due primarily to an increase in interest expense of $6,320; and a
decrease in restricted cash of $2,058.

Net cash used in investing activities increased by $76,393 to ($122,655)
from ($46,262) for the year ended December 31, 1997 as compared to the year
ended December 31, 1996. The increase was due primarily to the acquisition of
the mortgage note receivable on the 300 Madison Avenue development site for
approximately $68,287; the acquisitions of the development sites at 305 West
50th Street and 1000 Second Avenue and the redevelopment project at 40 West 55th
Street which totaled $24,799; and the costs incurred in the
redevelopment/construction of 540 Madison Avenue and 345 East 64th Street
totaling

53
<PAGE>
$16,196, all of which occurred in 1997. These increases were partially offset by
the acquisition of 540 Madison Avenue in 1996 for approximately $35,000.

Net cash provided by financing activities increased by $83,428 to $120,979
from $37,551 for the year ended December 31, 1997 as compared to the year ended
December 31, 1996. This increase was primarily due to the net loan proceeds
received in connection with the purchase of the mortgage note on 300 Madison
Avenue of approximately $66,219; and the additional loan proceeds drawn in
connection with the renovation and re-tenanting of 540 Madison Avenue of
$23,418.

FUNDS FROM OPERATIONS

The White Paper on Funds from Operations ("FFO") approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. We believe that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of our ability to incur and service debt, to make capital
expenditures and to fund other cash needs. We compute FFO in accordance with
standards established by NAREIT which may not be comparable to FFO reported by
other REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than we
do. FFO does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of our financial
performance or to cash flow from operating activities (determined in accordance
with GAAP) as a measure of our liquidity, nor is it indicative of funds
available to fund our cash needs, including our ability to make cash
distributions. For a reconciliation of net income and Funds from Operations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Funds from Operations" on page 53.

On a pro forma basis after giving effect to the Offering, pro forma Funds
from Operations for the year ended December 31, 1997 are as follows:

<TABLE>
<CAPTION>
PRO FORMA
------------
<S> <C>
YEAR ENDED
DECEMBER 31,
1997
------------
Net income before minority interest and extraordinary item.......................................... $ 14,541
Add:
Depreciation and amortization..................................................................... $ 14,975
Less:
Amortization of deferred financing costs and depreciation of non-rental real estate assets........ $ (1,158)
------------
Funds from Operations............................................................................... $ 28,358
------------
------------
</TABLE>

INFLATION

Substantially all of the office leases provide for separate real estate
taxes and operating expense escalations over a base amount. In addition, many of
the leases provide for fixed base rent increases or indexed escalations. The
Company believes that inflationary increases may be at least partially offset by
the contractual rent increases described above.

54
<PAGE>
PROSPECTIVE ACCOUNTING STANDARDS

In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) Nos. 130, "Reporting Comprehensive
Income," and 131, "Disclosures About Segments of an Enterprise and Related
Information." Both statements are effective for the Company beginning January 1,
1998. The statements, both of which are disclosure-related only, are not
expected to materially impact the Company's financial reporting disclosures.

At its March 1998 meeting, the Emerging Issues Task Force of the FASB
reached a consensus ("EITF 97-11") that internal pre-acquisition costs of
operating properties should be expensed as incurred. We have determined that
adopting EITF 97-11 will not have a material impact on our future operating
results.

In May 1997, Statement of Position 97-1 ("SOP") was issued that establishes
the borrower's accounting for a participating mortgage loan if the lender
participates in increases in the market value of the mortgaged real estate
project, the results of operations of that mortgaged real estate project, or
both. The SOP requires that the borrower recognize, at origination, a
participation liability based on the fair value of the participation feature
(with a corresponding debit to a debt discount account). The debt discount is to
be amortized prospectively using the interest method. The amortization is to be
included in interest expense. At the end of each reporting period, the balances
of the participation feature is to be adjusted to equal the fair value of the
participation feature at that time. The SOP is effective for financial
statements for fiscal years beginning after June 30, 1997. The effect of initial
application of the provisions of the SOP is reported as a cumulative effect of a
change in accounting principle. We are currently negotiating with our lenders,
who hold participating mortgages, and cannot assess the overall effect of this
accounting pronouncement.

YEAR 2000

We have evaluated its systems and determined that the software currently in
use is substantially year 2000 compliant. The software vendor has agreed to make
minor modifications in the software to make it fully year 2000 compliant by
December 31, 1998 at no additional cost to us. We presently believe that with
these modifications, the Year 2000 issue will not have a material adverse impact
on our operations and financial condition. However, even if such modifications
are not timely completed, the Year 2000 issue is not expected to have a material
adverse impact on our operations, financial condition and cash flows.

55
<PAGE>
MARKET OVERVIEW

SUMMARY

UNLESS OTHERWISE INDICATED, INFORMATION CONTAINED IN THIS PROSPECTUS
CONCERNING THE NEW YORK CITY ECONOMY AND THE MANHATTAN OFFICE AND APARTMENT
MARKETS IS DERIVED FROM THE CUSHMAN & WAKEFIELD MARKET STUDY.

We believe that the strength of the New York City metropolitan economy and
the current supply/ demand fundamentals in the Manhattan office and apartment
markets provide an attractive environment for developing, acquiring, owning and
operating office and apartment properties. The lack of appreciable new office
and apartment building construction combined with increasing New York City
employment has created a favorable atmosphere for the development of both office
and apartment properties.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
TOTAL NEW YORK CITY EMPLOYMENT 1989-1997
<S> <C>
(in thousands)
1989 3,608
1990 3,566
1991 3,375
1992 3,281
1993 3,283
1994 3,310
1995 3,323
1996 3,355
1997 3,411
</TABLE>

Since 1992 new office construction in Manhattan has been virtually
non-existent. There was no new construction in 1995, 1996 and 1997 and there
will be no completions of office development in 1998. Only one building will be
completed in 1999. These statistics combined with the vacancy and rental rate
projections described under "--Manhattan Office Market" below, support our
belief that demand for office space, fueled by increasing employment, will drive
continued net absorption of office space over the next several years.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
NEW OFFICE CONSTRUCTION
1989-1997

<S> <C>
Square Feet Constructed
(millions)
1989 4
1990 4.2
1991 1.1
1992 2.3
1993 0.2
1994 0.2
1995 -
1996 -
1997 -
</TABLE>

Similarly, new apartment construction since 1990 has been limited. New
apartment construction permits averaged 11,500 units annually throughout the
1980s. However, new construction permit issuance in the 1990s has decreased to
5,000 units per year. This diminished construction activity resulted in an
absence of new supply from 1990 through 1995 of 39,000 units, which had the
effect of exerting upward pressure on rents. Since June 30, 1996 in excess of
3,000 new rental units have come to market and approximately 3,500 units are
presently under development.

56
<PAGE>
ECONOMIC OVERVIEW

INTRODUCTION. New York City is the world's leading financial and cultural
capital. It is a favored North American base for many multinational headquarters
as well as home to the United Nations and numerous foreign missions. New York
City's concentration of business activity and its highly educated work force
make it the location of choice for financial, legal, accounting, advertising,
publishing, entertainment, telecommunications, fashion and retail industries.

New York City's strong economy led to a budget surplus in 1996 of $856
million and a projected surplus of $2.0 billion in 1997. The fiscal
responsibility of New York City, combined with the vibrant economy have served
to create additional revenue and provide opportunities for tax reduction. Over
the past four years, the Governor of the State of New York, George Pataki, and
New York City Mayor Rudolph Giuliani have enacted several tax reduction measures
which have benefitted businesses:

- Property taxes on commercial and residential income property have declined
in New York City; assessed valuations have dropped by 10% from 20% since
the 1994/1995 tax year and commercial tax rates have dropped 5% since the
1993/1994 tax year;

- The New York State Real Property Gains Tax, which amounted to 10% of the
gain on the sale of a property in excess of $1 million, was repealed; and

- The New York City occupancy tax, which was a 6% surcharge on base rent
payable by commercial tenants, has been significantly reduced and is
expected to be completely eliminated within the next five years.

Finally, over the last four years, crime has decreased by more than 43% in
New York City.

Job growth in New York City has surged as the national economy has markedly
improved. In 1997, 56,000 new jobs were added, the largest increase in 13 years.
Driven by a strong economy and surging popularity, between 1995 and 1997 New
York City's private sector employment rose by 3.9%, or 107,000 jobs. Over 75% of
the net job growth occurred in Manhattan, which experienced strong job growth of
3.1% over the two year period. Moreover, growth of private sector employment for
New York City has continued through the last several months of 1998 and is
conservatively expected to continue to grow through the year 2002 by
approximately 1.1% per year. In November 1997, Fortune magazine rated New York
City as the best city in America in which to do business based on business
climate, cost of living, and quality of life.

THE SERVICES SECTOR is the single fastest growing employment sector in terms
of jobs added in the New York City metropolitan economy. Fueling the growth in
the services sector are the advertising industry, the increased demand for
computer programmers and the trend towards hiring temporary workers as a way to
maintain corporate flexibility.

THE TRADE SECTOR is the second largest and fastest growing segment of the
city's economy. Approximately 17% of New York City's total employment is
generated by the trade sector. Retail sales in Manhattan rose to their highest
level ever in 1996 totaling $21.3 billion. Retail trade has increased
significantly in the past year adding 11,700 new jobs in 1997, a 3.1% gain over
the prior year.

THE SECURITIES INDUSTRY currently represents approximately 5% of the overall
employment base in New York City. As a result, major securities firms based in
Manhattan continue to expand their employment base and their physical presence
in New York City. There are numerous examples of the securities industry's
continued commitment to New York City: Morgan Stanley Dean Witter purchased both
1585 Broadway and 750 Seventh Avenue in 1993 for their own occupancy; Credit
Suisse First Boston signed a 20 plus year lease at 11 Madison Avenue in 1996;
Paine Webber renewed their lease for a 15 plus year term at 1285 Avenue of
Americas in 1996; Donaldson Lufkin & Jenrette relocated to Midtown in 1996,
occupying 277 Park Avenue for a 20 year term. In 1997, Bankers Trust expanded
its office occupancy by leasing 275,000 square feet at 2 World Trade Center and
Goldman Sachs expanded by leasing 400,000 square feet at 10 Hanover Square. Most
recently, Bear Stearns announced plans to construct their own 1.0 million

57
<PAGE>
square foot tower at 383 Madison Avenue. Lastly, San Francisco based Montgomery
Securities recently expanded their occupancy by 150,000 square feet at 9 West
57th Street. The securities industry remains very strong and the recent
acceleration of investment banking activities should lead to additional growth
in this industry and in New York City's position as an international center of
finance.

MANHATTAN OFFICE MARKET

OVERVIEW. Manhattan contains over 380 million square feet of Class A, Class
B and Class C office space and is comprised of three markets: Midtown, Midtown
South and Downtown. The Midtown market is identified as that area north of 32nd
Street and south of 70th Street and includes such diverse industries as legal
services, financial institutions, insurance, media, advertising and accounting.
The Midtown South market is identified as that area north of Canal Street and
south of 32nd Street and is dominated by Class B and Class C buildings which are
generally occupied by local service firms. The Downtown market is identified as
that area south of Canal Street to Battery Park and is significantly linked to
the financial services industry and the New York City government.

The Manhattan office market is larger than the next six largest U.S. central
business districts combined:

COMPARATIVE OFFICE STOCK AS OF 3/31/98

<TABLE>
<CAPTION>
STOCK SQUARE
RANK CBD FEET
- ----------- -------------------------- ----------------
<C> <S> <C>
1......... New York, NY(1) 389,200,000
2......... Chicago, IL 112,100,000
3......... Washington, DC 81,000,000
4......... Boston, MA 51,600,000
5......... San Francisco, CA 42,000,000
6......... Philadelphia, PA 38,900,000
7 Houston, TX 34,350,000
8 Dallas, TX 29,870,000
9 Los Angeles, CA 29,600,000
10 Seattle, WA 24,700,000
</TABLE>

- ------------------------
(1) Refers to commercial office buildings south of 70th Street in Manhattan.

The following table sets forth the relative sizes of the Class A and Class B
office markets and the rents and vacancy rates as of March 31, 1998 existing in
such markets:

MANHATTAN OFFICE MARKET OVERVIEW
<TABLE>
<CAPTION>
1ST QUARTER 1998 VACANCY RATE 1ST QUARTER 1998 RENT/
CLASS A AND CLASS B STOCK(1) SQUARE FOOT
----------------------------------- ------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL CLASS A CLASS B
----------- ----------- --------- ------------- ----------- --------- ----------- -----------
Midtown................... 168.0 39.6 207.6 7.3% 10.9% 8.0% $ 41.50 $ 25.19
Midtown South............. 10.1 27.1 37.2 0.8% 9.9% 7.2% $ 29.07 $ 24.12
Downtown.................. 55.6 35.5 91.1 8.0% 18.1% 12.0% $ 33.36 $ 26.38
Total/Weighted
Average............... 233.7(1) 102.2 335.9 7.2% 13.1% 9.0% $ 39.03 $ 25.32

<S> <C>
TOTAL
---------
Midtown................... $ 37.23
Midtown South............. $ 24.27
Downtown.................. $ 29.25
Total/Weighted
Average............... $ 34.86
</TABLE>

- ------------------------
(1) Represents amount of total Class A stock and Class B square footage in the
Manhattan office market (square footage is presented in millions).

STRONG DEMAND FOR SPACE IN MIDTOWN MANHATTAN MARKET. The Midtown vacancy
rate for Class A and B Space fell to 8.0% at March 31, 1998 from 11.1% at
year-end 1996 due to the increased demand for office space. As of March 31,
1998, the Class A vacancy rate was 7.3%, as compared to 10.0% at year end 1996,
while the Class B vacancy rate was 10.9% as compared to 15.5% at year-end 1996.
During 1997, net absorption of Class A and Class B office space was
approximately 4.1 million square feet. Midtown's average Class A asking rents
increased to $41.50 per square foot at March 31, 1998, a 16.1% increase over
year-end 1996 levels of $35.74 per square foot and Midtown's average Class B
asking rents increased to

58
<PAGE>
$25.19 per square foot, a 9.6% increase from $22.99 per square foot during the
same time period. Additionally, landlord concessions at Class A properties for
free rent and tenant improvement allowances have decreased and are expected to
decrease 10% to 15% over the next 12 months. Less than 13% of tenants currently
in the market indicate that they are contemplating locations outside of New York
City. The New York City metropolitan area's suburbs of New Jersey, Fairfield
County, Westchester County and Long Island are also experiencing a resurgence in
the Class A market, with rental rates in some markets increasing over 35%.

The following chart sets forth Midtown Class A and Class B historical
vacancy rates and asking rents for the period commencing with the year ended
December 31, 1990 and ending March 31, 1998.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
CLASS A AND CLASS B MIDTOWN VACANCY
<S> <C>
Rates and Asking Rates
Combined Asking Rent
1990 $ 38.07
1991 $ 35.14
1992 $ 32.04
1993 $ 31.20
1994 $ 31.17
1995 $ 31.59
1996 $ 32.01
1997 $ 35.20
1Q'98 $ 36.69
Combined Overall Vacancy Rate
1990 17.1%
1991 17.1%
1992 17.2%
1993 16.3%
1994 13.5%
1995 12.7%
1996 11%
1997 8.7%
1Q'98 7.96%
</TABLE>

The following table sets forth the projected Midtown Class A and Class B
vacancy rates and asking rents for each of the next five years:

MIDTOWN CLASS A AND CLASS B VACANCY RATE AND ASKING RENTAL RATE FORECAST

<TABLE>
<CAPTION>
VACANCY RATE ASKING RENTS
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL
----------- ----------- --------- ----------- ----------- ---------
1998.................................................. 7.0% 11.2% 9.2% $ 41.50 $ 25.19 $ 37.23
1999.................................................. 6.5% 9.9% 8.2% $ 43.16 $ 26.20 $ 38.69
2000.................................................. 4.4% 8.7% 6.7% $ 44.89 $ 27.24 $ 39.24
2001.................................................. 3.7% 7.6% 5.7% $ 46.68 $ 28.33 $ 40.67
2002.................................................. 5.1% 6.4% 5.7% $ 48.55 $ 29.46 $ 44.41
</TABLE>

NEW DEVELOPMENT IN MIDTOWN. New office construction in Manhattan over the
past few years has been almost non-existent, with just nine (primarily
owner-occupied) buildings, aggregating 2.8 million square feet, completed since
1992. The existing supply of office space in Midtown cannot fully satisfy the
demand for large blocks of contiguous space. As of March 31, 1998, the
availability of such space was limited to:

- 10 blocks of 250,000 square feet or more;

- 15 blocks between 100,000 and 250,000 square feet; and

- 30 blocks between 50,000 and 100,000 square feet.

59
<PAGE>
Moreover, there were at least a dozen large users seeking 250,000 square
feet or more of contiguous office space. The age and location of available space
vary considerably, further limiting the choices available to tenants seeking
space in newer, well located buildings. Assuming development costs of
approximately $377 per square foot (as estimated by Cushman & Wakefield), a
market rent of $50 per square foot is needed to justify new construction. These
rents are currently being achieved in Class A office buildings in Midtown. Over
the past year, in excess of 1.3 million square feet of office space was leased
at rents of $50 per square foot or higher. For example:

- McGraw Hill renewed 297,000 square feet at 1221 Avenue of the Americas at
$56.50 per square foot;

- Montgomery Securities leased 220,000 square feet at 9 West 57th Street at
$60 per square foot;

- Banco Santander leased 200,000 square feet at 1251 Avenue of the Americas
at $55 per square foot;

- Nomura Asset Capital leased 17,000 square feet on East 50th Street for $66
per square foot;

- PaineWebber leased 29,000 square feet at 1285 Avenue of the Americas at
$57 per square foot;

- CIC Group leased 44,800 square feet at 520 Madison Avenue for $50 per
square foot;

- Merrill Lynch leased 28,000 square feet on Lexington Avenue at $54 per
square foot;

- Bassini Play Fair leased 16,000 square feet in Rockefeller Center at $50
per square foot; and

- Ton Yang Securities leased 14,500 square feet at 590 Madison Avenue for
$50 per square foot.

If every project planned is completed, new construction of office space over
the next five years is expected to total only 9.2 million square feet. These
possible projects are described below.

MIDTOWN OFFICE BUILDING PROJECTS -- PROPOSED AND UNDER CONSTRUCTION

<TABLE>
<CAPTION>
RENTABLE
NO. PROPERTY STATUS OFFICE SF DESCRIPTION
- ----------- -------------------------------------- ------------------ -------------- --------------------------------------
<C> <S> <C> <C> <C>
1. 4 TIMES SQUARE -- NE TOWER Under Construction 1,600,000 Conde Nast and Skadden, Arps have
1480 Broadway committed to 80% of available space.
Forecasted completion in 1999.
2. 300 MADISON AVENUE Proposed up to The Macklowe Organization is in the
From 41st St. through 42nd St. 1,000,000 preliminary stages of development
plans.
3. PARK AVENUE PLACE Proposed 1,100,000 Bear Stearns & Co. world headquarters.
383 Madison Avenue Forecasted completion in 2002.
4. 3 TIMES SQUARE Proposed 855,000 Owner/user -- Reuter's Headquarters.
NW Corner of 42nd St. and Seventh Ave. Developer-Rudin Organization.
Forecasted completion in 2001.
5. ONE ROCKEFELLER PLAZA WEST Proposed 1,460,000 Anchor tenants will likely be secured
745 Seventh Avenue prior to construction. Forecasted
completion in 2002.
6. 1 TIMES SQUARE Proposed 865,000 Zuckerman/Klein Office/retail.
SW Corner of 42nd St. and Seventh Ave. Forecasted completion in 2002.
7. 2 TIMES SQUARE Proposed 985,000 Zuckerman/Klein Office/retail.
Southside Corner of 42nd St. Forecasted completion in 2002.
8. COLUMBUS CENTER Developer to be 1,340,000 Mixed Use -- Office, retail and
Columbus Circle & 59th Street announced residential. Forecasted completion in
2003.
</TABLE>

These projects, if completed, will increase the existing inventory of office
space in Midtown by only 4%. This additional space is not expected to satisfy
the growing demand for space. 41,210 new employees were added to the Manhattan
workforce in 1997. Assuming each new employee requires 200 square feet of office
space (an industry benchmark), this growth implies utilization of 8.2 million
square feet of new office space in 1997 alone. When projected employment growth
is considered, absorption of office space supports new office development.

60
<PAGE>
300 MADISON AVENUE

300 Madison Avenue is a prime development site located on the southwest
corner of Madison Avenue and West 42nd Street adjacent to Grand Central Terminal
Manhattan's most inportant transportation nexus. The only comparable development
site in Manhattan for which construction plans are imminent is 383 Madison
Avenue, located five blocks north. This site, however, is not direct competition
for 300 Madison Avenue since it will be 100% occupied by Bear Stearns & Company
as their headquarters.

The property is located in the Grand Central submarket which contains few
new office buildings which will directly compete with 300 Madison Avenue. The
most recent construction in this submarket, after 1980, includes 450 Lexington
Avenue, a 900,000 square foot, 40-story tower located at East 45th Street. This
building is 100% leased. The other newer building is 425 Lexington Avenue, a
675,000 square foot, 31-story tower located at East 43rd Street. This building
is 100% leased. There are two other buildings which were constructed post 1980;
120 Park Avenue, a 600,000 square foot tower which is owned and occupied by
Phillip Morris Companies and 101 Park Avenue, a 1.3 million square foot,
49-story tower located at East 41st Street. This building is also 100% leased.

In summary, there are only four Class A buildings which currently would
compete with 300 Madison Avenue in terms of their proximity to Grand Central
Terminal, which were constructed after 1980 containing large floor plates and
blockfront orientation. These four buildings are fully rented and are anchored
by major tenants whose leases will not expire for another five to ten years. The
only Class A building in the Grand Central submarket with sizable vacant space
is 335 Madison Avenue, a 1983 rehabilitation of a pre-war building located at
43rd Street. The building is 73% occupied. Asking rents for available space
start at $50 per square foot for a building which is inferior to 300 Madison
Avenue. We fully expect that average rents for office space within 300 Madison
Avenue will exceed $50 per square foot while retail rents will average in excess
of $100 per square foot.

MANHATTAN RESIDENTIAL MARKET

OVERVIEW. The New York City residential market, the largest residential
market in the United States, is composed of a complex and diverse group of
properties, from single family residences and townhouses, low rise walk-up
buildings and luxury high rise towers to renovated office buildings for
multi-tenant use. The majority of the market consists of rental units,
approximately 56% of which are governed by rent regulations at state and city
levels which have had the effect of limiting supply. Tax abatement and incentive
plans play a large role in shaping New York City's residential housing
development, as do zoning laws and designations of historic preservation
districts.

Overall, the Manhattan residential market is extremely tight, with low
overall vacancy, sharply increasing rents and rapid absorption of new inventory
brought to the market. The residential market is widely expected to continue to
grow through the foreseeable future, particularly in the luxury rental and
condominium sectors. The overall occupancy rate for Manhattan housing is
approximately 97%. This rate has remained fairly constant over the last fifteen
years, averaging between 96% and 98%. Demand for both rental and for sale
apartments is very strong and is directly related to job growth, particularly
among upper income employees of the securities and legal services industries.
Many new residential construction projects have reached completion and
stabilization, while numerous additional projects are in progress or are
proposed for the near future. These indicators of activity in Manhattan's
residential market form a solid base for continued growth and expansion.

RENT CONTROL AND STABILIZATION. Rent control regulations were first
introduced by the federal government during World War II. New York State chose
to continue this legislation in 1947 to temporarily prevent dramatically
increasing rents following the war. The laws were modified and replaced in 1969
by rent stabilization regulations. Over the past decades the regulations have
been revised and extended numerous times.

61
<PAGE>
Both rent control and rent stabilization guidelines establish the amount of
increase in rent that can be charged for a vacant apartment and for a lease that
is renewed by the same tenant. In general, these laws affect apartment buildings
with more than six apartments which receive New York City-sponsored real estate
tax abatements and/or tax exemptions. In the early 1990s, approximately 70% of
the rental apartments in New York City were subject to the rent control or rent
stabilization laws. However, as a result of the recently enacted Rent Regulation
Reform Act of 1997 (the "Reform Act"), 56% of the rental apartments in New York
City are currently subject to such laws and regulations. Of the approximately
1.9 million New York City Renter-Occupied Apartments, approximately 70,000, or
3.7% are rent controlled, while approximately 1.0 million, or 52.6%, are rent
stabilized.

MARKET RATE RENTAL APARTMENTS. The market rate rental segment of
Manhattan's housing market suffered significantly during the 1989-91 recession,
with unregulated rents dropping 15.0% between 1988 and 1992. This has been
followed by significant rent increases over the past few years. For example,
rental rates for unregulated apartments increased by more than 5% in certain
areas during 1993. Between 1993 and 1994 rents increased 6.8%, followed by a
6.9% increase from 1994 to 1995 and a 9.1% increase from 1995 to 1996. Driven by
a robust economy and a limited supply of new apartments, at December 31, 1997,
prices for all sized apartments on the Upper East and Upper West Sides had
increased by 8.2% from 1996. Overall, rents have increased approximately 8.0%
per year over the past five years.

The following table sets forth the average unregulated residential rental
rates per square foot for all sized apartments on the Upper East and West Sides
from 1991 through 1997.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
AVERAGE MARKET RATE RESIDENTIAL RENTAL RATES (PER SQUARE
FOOT)

The New York metropolitan economy has grown at an increasingly rapid rate
which is heightening the demand for quality housing. Furthermore, residential
experts believe that pent-up demand in the housing market is great enough to
prevent any noticeable declines in market rate rents which would otherwise be
caused by the increase in new residential development projects.

Recent evidence of the strength of the Manhattan residential market may be
found in an analysis of recently completed projects which are achieving average
rents of $ 42.00 per square foot. One Columbus Place, a 721-unit "80/20" (as
described below) rental apartment complex on Ninth Avenue and West 59th Street,
completed construction in July 1997. The low income units were immediately
leased and the market

62
<PAGE>
rate units were leased within a four month period. Another "80/20" project,
located at 189 West 89th Street, containing 267 units, completed construction in
February 1998 and is leasing apartments at a brisk pace with a forecast lease-up
period of no more than four months. The luxury for sale condominium market is
equally strong as evidenced by 610 Park Avenue, a 70-unit conversion of the
former Mayfair House Hotel. Although construction will not be completed until
the fourth quarter of 1998, 95% of the apartments are currently under contract
at prices exceeding $1,000 per square foot.

NEW AND PROPOSED CONSTRUCTION. There are currently 33 new residential
projects under construction or in the planning stages in Manhattan. Many of the
new residential projects will be rentals, as developers are evidencing a
willingness to take advantage of the resurgence of the market rate rental
market. Although many new projects will be luxury rentals, a substantial number
will seek to take advantage of financing and tax incentives provided by New York
City in exchange for reserving 20% of their units for affordable housing (an
"80/20" building). "Mixed-Use" projects also characterize the new and proposed
residential construction. Mixed-Use projects typically involve the blending of
retail and residential space in the same building. Retail space invariably
occupies the lower floors of a project, while the residential apartments are
located on the quieter upper floors with better views.

Assuming development costs of approximately $268 per square foot (as
estimated by Cushman & Wakefield), a market rent of $36 per square foot is
needed to justify new apartment construction. Current market rents on luxury
apartments have reached this level.

305 WEST 50TH STREET

We are currently building a 293-unit luxury apartment building on Eighth
Avenue between West 50th and 51st Streets. The West 50th Street project is part
of the resurgence of Midtown West, the area of Manhattan located west of Sixth
Avenue between 40th and 57th Streets. Notable developments in this district
include the Times Square Redevelopment and the trend toward construction of
"walk to work" residential apartment buildings. Across Eighth Avenue from 305
West 50th Street is 250 West 50th Street, a 550 unit rental building being
constructed by Jack Resnick & Sons. This project is being developed as an
"80/20" building. The market rate units are expected to achieve average rents of
$45 per square foot per year. Existing apartment buildings in the area include
Symphony House at 235 West 56th Street. This 480-unit building achieved market
rents in excess of $45 per square foot and is 99% occupied; Ritz Plaza at 235
West 48th Street is a 479-unit building which achieved market rents in excess of
$35 per square foot and is also 99% occupied. Lastly, The Ellington at 260 West
52nd Street achieved market rents in excess of $35 per square foot and is also
99% occupied.

The West 50th Street development is expected to be superior to 250 West 50th
Street since it will not reserve 20% of its units for low income tenants and
will also be superior to both Ritz Plaza and The Ellington which are older
buildings. In all likelihood, Symphony House the best indicator of market rent
for the Macklowe project, although Symphony House is an older construction.
Based upon the competing buildings in the immediate area, we expect 305 West
50th Street will achieve market rents exceeding $45 per square foot for
residential apartments upon completion of construction.

CONCLUSION. Under the assumption that the 33 projects under construction or
planned are completed within the next five years, sufficient demand will result
in continued high occupancy rates and increasing rental rates. The following
table sets forth the projected Class A vacancy rate and rental forecasts for
Class A new apartment buildings for the next five years.

63
<PAGE>
EAST SIDE AND WEST SIDE VACANCY RATE AND RENTAL RATE FORECAST
CLASS A NEW CONSTRUCTION APARTMENTS

<TABLE>
<CAPTION>
NEW
VACANCY RATE CLASS A CONSTRUCTION
----------------- ----------- -------------
<S> <C> <C> <C>
1998........................................................................ 3% $ 36.53 $ 42.00
1999........................................................................ 3% $ 37.44 $ 43.68
2000........................................................................ 3% $ 39.51 $ 45.43
2001........................................................................ 3% $ 41.09 $ 47.24
2002........................................................................ 3% $ 42.73 $ 49.13
</TABLE>

Overall, the Manhattan residential market is extremely tight, with low
current vacancy, sharply increasing rents and rapid absorption of new inventory
brought to the market.

64
<PAGE>
THE PROPERTIES

THE PORTFOLIO

After this Offering, we will own interests in 12 stabilized commercial
properties, including eight office properties containing 2.9 million rentable
square feet, and four apartment properties containing 506,000 rentable square
feet and 608 apartment units, all of which are located in Manhattan.
Substantially all of our properties include rentable retail space on lower
floors which accounts for 5% of our total portfolio rentable square footage and
8% of Annualized Rents. As of March 31, 1998 our stabilized office and
stabilized apartment portfolios were 91% and 96% leased, respectively.
Additionally, we are currently developing a 293-unit apartment property, and
redeveloping an 89,000 square foot office property and a 36-unit apartment
property, all of which are located in midtown Manhattan and are expected to be
completed by the fourth quarter of 1998. Further, upon completion of the
Offering, we will own interests in six sites held for future development, which
are expected to support up to 1.3 million rentable square feet of office space
and up to 760,000 rentable square feet and 870 units of apartment space.
Although we intend to develop these sites in the future, we cannot guarantee
that we will actually do so. See
"--Development and Redevelopment Properties" and "--Development Sites" on pages
87 and 88, respectively. Upon completion of the Offering, we will effectively
own 100% of the economic interest in all of the Properties.

65
<PAGE>
The following table sets forth certain information with respect to (i) our
12 stabilized office and apartment properties, (ii) our three development and
redevelopment projects and (iii) our six development sites as of March 31, 1998:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF TOTAL OF TOTAL
RENTABLE OF PORTFOLIO PORTFOLIO
SQUARE TENANTS/ RENTABLE PERCENT ANNUALIZED ANNUALIZED
THE PROPERTIES SUBMARKET FEET UNITS SQUARE FEET LEASED RENT(1) RENT(1)
- --------------------------- ------------------ --------- ----------- ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
EXISTING OFFICE PROPERTIES:
Two Grand Central Grand Central
Tower(2)............... 617,000 13 18.0% 98.9% $ 25,530 21.4%
369 Lexington Avenue..... Grand Central 133,000 32 3.9 96.6 4,114 3.5
Avenue of the Americas Rockefeller Center
Plaza(2)............... 545,000 12 15.9 100.0 26,029 21.9
Riverterrace Upper East
Medical(2)(3).......... 97,000 9 2.8 99.0 2,902 2.4
------------------ --------- ----- ----- ----- -------------- -----
SUBTOTAL/WEIGHTED AVERAGE.................... 1,392,000 66 40.6% 99.1% $ 58,575 49.2%

RECENTLY ACQUIRED AND/OR
REDEVELOPED OFFICE
PROPERTIES:
342 Madison Avenue(4).... Grand Central 529,000 159 15.4% 84.2% $ 13,581 11.4%
400 Madison Avenue....... Grand Central 145,000 76 4.2 90.0 5,243 4.4
150 Fifth Avenue(5)...... Flatiron 198,000 94 5.8 87.1 3,557 3.0
1412 Broadway(5)......... Fashion 386,000 70 11.2 80.6 10,088 8.5
540 Madison Plaza District
Avenue(6)(7)........... 279,000 28 8.1 80.3(7) 10,000 8.4
--------- ----- ----- ----- -------------- -----
SUBTOTAL/WEIGHTED AVERAGE.................... 1,537,000 427 44.7% 83.5% $ 42,469 35.7%
--------- ----- ----- -------------- -----
--------- ----- ----- -------------- -----
OFFICE SUBTOTAL/WEIGHTED AVERAGE............. 2,929,000 493 85.3% 90.9% $ 101,044 84.9%
--------- ----- ----- -------------- -----
--------- ----- ----- -------------- -----

<CAPTION>
APARTMENT PROPERTIES:
<S> <C> <C> <C> <C> <C> <C> <C>
Riverterrace(2)(9)....... Upper East 331,000 10) 409(10) 9.6% 96.7% $ 13,886 11.7%
30 East End Avenue....... Upper East 102,000 101 3.0 96.0 1,920 1.6
345 East 64th Street(2).. Upper East 41,000 60 1.2 93.2 1,489 1.2
192 East 75th Street..... Upper East 32,000 38 0.9 91.0 726 0.6
--------- ----- ----- ----- -------------- -----
APARTMENT SUBTOTAL/WEIGHTED AVERAGE.......... 506,000 608(11) 14.7% 95.9% $ 18,021 15.1%
--------- ----- ----- ----- -------------- -----

TOTAL/WEIGHTED AVERAGE..................... 3,435,000 100% 91.7% $ 119,065 100%
--------- ----- -------------- -----
--------- ----- -------------- -----

<CAPTION>
NET
EFFECTIVE
RENT PER
LEASED
ANNUALIZED RENT RENTABLE
PER LEASED RENTABLE SQURE
THE PROPERTIES SQUARE FOOT(1) FOOT(12)
- --------------------------- ---------------------------- -----------
<S> <C> <C> <C>
OFFICE RETAIL
EXISTING OFFICE PROPERTIES:
Two Grand Central
Tower(2)............... $ 41.74 $ 61.97 $ 33.84
369 Lexington Avenue..... 29.88 53.25 26.82
Avenue of the Americas
Plaza(2)............... 47.42 62.31 35.62
Riverterrace
Medical(2)(3).......... 30.15 N/A 25.16
----------- --------------- -----------
SUBTOTAL/WEIGHTED AVERAGE $ 42.13 $ 58.44 N/A
RECENTLY ACQUIRED AND/OR
REDEVELOPED OFFICE
PROPERTIES:
342 Madison Avenue(4).... $ 26.60 $ 94.23 $ 23.15
400 Madison Avenue....... 29.32 159.36 34.72
150 Fifth Avenue(5)...... 18.29 40.69 17.33
1412 Broadway(5)......... 31.71 40.63 24.49
540 Madison
Avenue(6)(7)........... 42.91 54.69 45.26
-----------
SUBTOTAL/WEIGHTED AVERAGE $ 29.71 $ 71.05 N/A
OFFICE SUBTOTAL/WEIGHTED $ 36.35 $ 68.84 N/A
APARTMENT PROPERTIES: RESIDENTIAL COMMERCIAL(8)
----------- ---------------
<S> <C> <C> <C>
Riverterrace(2)(9)....... $ 42.00 N/A(10) N/A
30 East End Avenue....... 19.31 $ 21.05 N/A
345 East 64th Street(2).. 38.66 N/A N/A
192 East 75th Street..... 24.61 27.92 N/A
----------- --------------- -----------
APARTMENT SUBTOTAL/WEIGHT $ 36.79 $ 22.48 N/A
----------- --------------- -----------
TOTAL/WEIGHTED AVERAGE. $ 38.57 $ 64.76 N/A
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED RENTABLE ESTIMATED
SUBMARKET SQUARE FEET APARTMENT UNITS
------------------------ ------------------- ----------------
<S> <C> <C> <C>
DEVELOPMENT AND REDEVELOPMENT PROPERTIES:
305 West 50th Street (apartment).......................... Midtown West 217,000 293
40 West 55th Street (apartment)........................... Rockefeller Center 51,000 36
140 West 57th Street (office)............................. Rockefeller Center 89,000 N/A
-------

TOTAL................................................... 357,000
-------
-------
DEVELOPMENT SITES(12):
Office:
300 Madison Avenue(13).................................... Grand Central 600,000-1,000,000 N/A
16-20 East 53rd Street(14)................................ Plaza District 120,000-250,000 N/A
Apartment:
771-791 Sixth Avenue...................................... Chelsea 200,000-220,000 200-220
1000 Second Avenue(15).................................... Upper East 120,000-250,000 120-300
20-30 West End Avenue..................................... Lincoln Center 150,000-250,000 250-300
250 East 60th Street(16).................................. Upper East 40,000 40-50
------------------- ----------------
TOTAL................................................... 1,230,000-2,010,000 610-870
------------------- ----------------
------------------- ----------------

<CAPTION>
ESTIMATED
COMPLETION DATE
-----------------
<S> <C>
DEVELOPMENT AND REDEVELOPMENT PROPERTIES:
305 West 50th Street (apartment).......................... 3Q-4Q 1998
40 West 55th Street (apartment)........................... 3Q-4Q 1998
140 West 57th Street (office)............................. 3Q-4Q 1998
TOTAL...................................................
DEVELOPMENT SITES(12):
Office:
300 Madison Avenue(13).................................... 3Q-4Q 2001
16-20 East 53rd Street(14)................................ 2Q-3Q 2001
Apartment:
771-791 Sixth Avenue...................................... 1Q-2Q 2001
1000 Second Avenue(15).................................... 1Q-2Q 2001
20-30 West End Avenue..................................... N/A
250 East 60th Street(16).................................. N/A
TOTAL...................................................
</TABLE>

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

(2) We developed this Property.

(3) This office and garage space occupies the lower floors of Riverterrace, one
of our apartment properties.

(FOOTNOTES CONTINUED ON NEXT PAGE)

66
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)

(4) Through our ownership of a mortgage note, we effectively own 100% of the
economic interest in the Property. We expect to obtain, and are currently
negotiating for a masterlease with respect to this property. There can be no
assurance that this transaction will occur nor can the specific terms of the
transaction be ascertained. See "The Properties--Office Properties--342
Madison Avenue" on page 81.

(5) We will acquire three properties upon completion of the Offering.

(6) We have completed our redevelopment, and expect to complete our lease-up of
this property by the first quarter of 1999. See "The Properties--Office
Properties--540 Madison Avenue" on page 77.

(7) We hold a long-term leasehold interest in the land and improvements with
respect to this Property. See "The Properties--Office Properties--540
Madison Avenue" on page 77.

(8) Includes 20,000 rentable square feet office, retail and parking garages.

(9) We expect to acquire a long-term leasehold interest in the land and
improvements with respect to this Property through the acquisition of the
non-afiliated 50% interest in the partnership which owns the fee interest to
this Property in exchange for such fee interest. We are currently
negotiating the transaction. There can be no assurance that this transaction
will occur or what the terms of the transaction will be. See "The
Properties--Apartment Properties--Riverterrace" on page 85.

(10) Does not include the 97,270 rentable square foot of office space nor the
nine commercial tenants at this Property.

(11) Excludes six commercial tenants.

(13) This site consists of several parcels, one of which we own in fee and the
remainder of which we own through our ownership of the Property owning
entity and a mortgage. Through this ownership, we effectively own 100% of
the economic interests of this Property. See "The Properties--Development
Sites--300 Madison Avenue" on page 89.

(15) This site consists of six parcels, three of which we own in fee and the
other three in which we hold a long-term leasehold interest in the land and
improvements. See "The Properties--Development Sites--1000 Second Avenue" on
page 89.

(16) We hold a long-term leasehold interest in the land and improvements with
respect to this Property. See "The Properties--Development Sites--250 East
60th Street" on page 90.

67
<PAGE>
OFFICE PROPERTIES

HISTORICAL OCCUPANCY

The Office Properties in our portfolio, including the commercial portion of
Riverterrace, owned by our predecessor during the historical periods shown have
achieved consistently higher percentage leased rates in comparison to the
overall Class A Midtown Markets, as shown in the following table:

<TABLE>
<CAPTION>
PERCENT
LEASED AT OCCUPANCY RATE OF CLASS A
THE OFFICE PROPERTIES IN THE
PORTFOLIO PROPERTIES(1) MIDTOWN MARKETS(2)
- ------------------------------------------------------------------------- ------------ ---------------------------
<S> <C> <C>
March 31, 1998........................................................... 90.9% 92.7 %
December 31, 1997........................................................ 89.3 91.8
December 31, 1996........................................................ 93.2 (3) 90.0
December 31, 1995........................................................ 92.7 87.9
December 31, 1994........................................................ 95.1 87.2
December 31, 1993........................................................ 94.0 84.0
</TABLE>

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

(1) Includes space for leases that were executed as of the relevant date in
Office Properties owned by our predecessor as of that date.

(2) Includes vacant space available for direct lease, but does not include
vacant space available for sublease; including vacant space available for
sublease would reduce the occupancy rate as of each date shown. Source:
Cushman & Wakefield.

(3) The percentage leased at 540 Madison Avenue declined from 82.4% at December
31, 1996 to 58.1% at December 31, 1997 as a result of our redevelopment
activities at this property. As of March 31, 1998, 540 Madison Avenue was
80.3% leased.

LEASE EXPIRATIONS

The following table shows annual lease expirations at the Office Properties,
including the commercial portion of Riverterrace, with respect to leases in
place as of March 31, 1998 for each of the next ten years and thereafter
(assuming that no tenants exercise renewal or cancellation options and that
there are no tenant bankruptcies or other tenant defaults and excluding an
aggregate of 329,000 square feet of unleased office and retail space):

<TABLE>
<CAPTION>
SQUARE PERCENTAGE ANNUALIZED
NUMBER FOOTAGE OF ANNUALIZED RENT RENT PER
OF OF TOTAL LEASED OF LEASED SQUARE
EXPIRING EXPIRING OFFICE EXPIRING FOOT OF EXPIRING
YEAR OF LEASE EXPIRATION LEASES LEASES SQUARE FEET(1) LEASES(2) LEASES(3)
- ----------------------------------------- --------- ----------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
March 31, through December 31, 1998...... 70 144,483 5.4% $ 4,072,527 $ 28.19
1999..................................... 105 401,426 14.9 14,349,766 35.75
2000..................................... 88 283,220 10.5 8,062,656 28.47
2001..................................... 63 187,914 7.0 6,161,927 32.79
2002..................................... 47 138,968 5.2 3,956,097 28.47
2003..................................... 39 521,592 19.4 21,515,904 41.25
2004..................................... 20 73,189 2.7 1,807,066 24.69
2005..................................... 11 36,770 1.4 1,938,580 52.72
2006..................................... 15 183,652 6.8 6,359,173 34.63
2007..................................... 8 71,363 2.7 2,856,766 40.03
2008 and beyond.......................... 29 642,596 23.9 31,602,693 49.18
--------- ----------- ----- --------------- ------
Totals:.................................. 495 2,685,172 100.0% $ 102,683,154 $ 38.24
--------- ----------- ----- --------------- ------
--------- ----------- ----- --------------- ------
</TABLE>

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

(1) Represents Percentage of Total Leased Square Feet at the Office Properties,
including the commercial portion of Riverterrace.

(2) Annualized Rent of Expiring Leases, as used throughout this Prospectus,
represents the monthly contractual rent under existing leases as of March
31, 1998 multiplied by 12. This amount reflects total rent before any rent
abatements and includes expense reimbursements, which may be estimated as of
such date. Total rent abatements for leases in effect as of March 31, 1998
for the 12 months ending March 31, 1999 are approximately $2.8 million.

(3) The Annualized Rent Per Leased Square Foot of Expiring Leases includes the
effect of retail rental rates at the Office Properties, including the
commercial portion of Riverterrace, which are generally higher than office
rental rates. Excluding rental payments attributable to retail space at such
Properties, the Weighted Average Annualized Rent Per Leased Square Foot of
Expiring Leases would be $36.40.

68
<PAGE>
LEASE EXPIRATIONS -- PROPERTY BY PROPERTY

The following table sets forth detailed lease expiration information for
each of the Office Properties, including the commercial portion of Riverterrace,
for leases in place as of March 31, 1998, for each of 10 years beginning March
31, 1998, assuming that none of the tenants exercise renewal options or
termination rights, if any, at or prior to the scheduled expirations and
excluding an aggregate of 330,000 rentable square feet of unleased office and
retail space. As of March 31, 1998, the weighted average remaining lease term
(based on square footage) for the portfolio was 6.8 years:
<TABLE>
<CAPTION>
3/31--12/31
1998 1999 2000 2001 2002 2003
----------- --------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
TWO GRAND CENTRAL TOWER
Square Footage of Expiring Leases.................. -- 153,284 3,058 26,491 -- 410,055
Percentage of Office Leased Sq. Ft................. 0.0% 5.1% 0.1% 0.9% 0.0% 13.6%
Annualized Rent of Expiring Leases(1).............. $ -- 6,153,323 91,006 744,505 3,000 18,009,847
Percentage of Office Annualized Rent(1)............ 0.00% 5.99% 0.09% 0.73% 0.00% 17.54%
Number of Leases Expiring.......................... -- 5 1 3 -- 1
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ $ -- 40.14 29.76 28.10 -- 43.92
Company Quoted Rental Rate Per Sq. Ft.(2).......... $ 48.00 -- -- -- -- --

342 MADISON AVENUE
Square Footage of Expiring Leases.................. 47,002 42,133 151,782 57,870 24,528 50,946
Percentage of Office Leased Sq. Ft................. 1.6% 1.4% 5.0% 1.9% 0.8% 1.7%
Annualized Rent of Expiring Leases(1).............. $1,144,031 $1,171,011 $4,438,901 $1,912,821 $ 623,682 $1,563,230
Percentage of Office Annualized Rent(1)............ 1.11% 1.14% 4.32% 1.86% 0.61% 1.52%
Number of Leases Expiring.......................... 21 26 30 23 15 19
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ $ 24.34 27.79 29.25 33.05 25.43 30.68
Company Quoted Rental Rate Per Sq. Ft.(2)(5)....... $ 33.00 -- -- -- -- --

400 MADISON AVENUE
Square Footage of Expiring Leases.................. 17,522 41,480 29,254 10,060 5,009 6,323
Percentage of Office Leased Sq. Ft................. 0.6% 1.4% 1.0% 0.3% 0.2% 0.2%
Annualized Rent of Expiring Leases(1).............. $ 493,808 $2,150,628 $ 901,807 $ 259,302 $ 142,466 $ 391,932
Percentage of Office Annualized Rent(1)............ 0.48% 2.09% 0.88% 0.25% 0.14% 0.38%
Number of Leases Expiring.......................... 13 24 12 7 4 5
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ $ 28.18 51.85 30.83 25.78 28.44 61.99
Company Quoted Rental Rate Per Sq. Ft.(2)(5)....... $ 38.00 -- -- -- -- --

369 LEXINGTON AVENUE
Square Footage of Expiring Leases.................. 14,594 20,150 18,211 6,818 3,990 10,554
Percentage of Office Leased Sq. Ft................. 0.5% 0.7% 0.6% 0.2% 0.1% 0.3%
Annualized Rent of Expiring Leases(1).............. $ 527,091 $ 690,347 $ 532,158 $ 195,059 $ 101,409 $ 280,550
Percentage of Office Annualized Rent(1)............ 0.51% 0.67% 0.52% 0.19% 0.10% 0.27%
Number of Leases Expiring.......................... 5 6 5 2 2 2
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ $ 36.12 34.26 29.22 28.61 25.42 26.58
Company Quoted Rental Rate Per Sq. Ft.(2).......... $ 32.00 -- -- -- -- --

AVENUE OF THE AMERICAS PLAZA
Square Footage of Expiring Leases.................. -- -- -- 18,569 -- --
Percentage of Office Leased Sq. Ft................. 0.0% 0.0% 0.0% 0.6% 0.0% 0.0%
Annualized Rent of Expiring Leases(1).............. ($ 57,234) $ 0 $ 0 $ 652,046 $ 3,000 $ 0
Percentage of Office Annualized Rent(1)............ -0.06% 0.00% 0.00% 0.64% 0.00% 0.00%
Number of Leases Expiring.......................... -- -- -- 3 -- --
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ $ -- -- -- 35.11 -- --
Company Quoted Rental Rate Per Sq. Ft.(2).......... $ 45.00 -- -- -- -- --

<CAPTION>
2008 AND
2004 2005 2006 2007 BEYOND TOTAL
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
TWO GRAND CENTRAL TOWER
Square Footage of Expiring Leases.................. 4,228 -- 10,170 -- 2,609 609,894
Percentage of Office Leased Sq. Ft................. 0.1% 0.0% 0.3% 0.0% 0.1% 20.2%
Annualized Rent of Expiring Leases(1).............. 133,510 -- 274,945 -- 119,782 $25,529,918
Percentage of Office Annualized Rent(1)............ 0.13% 0.00% 0.27% 0.00% 0.12% 24.86%
Number of Leases Expiring.......................... 1 -- 1 -- 1 13
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ 31.57 -- 27.04 -- 45.91 $ 41.86
Company Quoted Rental Rate Per Sq. Ft.(2).......... -- -- -- -- -- --
342 MADISON AVENUE
Square Footage of Expiring Leases.................. 32,230 12,313 7,733 3,300 15,278 445,115
Percentage of Office Leased Sq. Ft................. 1.1% 0.4% 0.3% 0.1% 0.5% 14.7%
Annualized Rent of Expiring Leases(1).............. $ 905,419 $ 678,536 $ 380,670 $ 160,096 $ 603,043 $13,581,439
Percentage of Office Annualized Rent(1)............ 0.88% 0.66% 0.37% 0.16% 0.59% 13.23%
Number of Leases Expiring.......................... 10 3 3 1 8 159
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ 28.09 55.11 49.23 48.51 39.47 $ 30.51
Company Quoted Rental Rate Per Sq. Ft.(2)(5)....... -- -- -- -- -- --
400 MADISON AVENUE
Square Footage of Expiring Leases.................. 5,871 10,788 911 1,604 1,650 130,472
Percentage of Office Leased Sq. Ft................. 0.2% 0.4% 0.0% 0.1% 0.1% 4.3%
Annualized Rent of Expiring Leases(1).............. $ 164,056 $ 419,788 $ 26,873 $ 47,158 $ 244,723 $5,242,541
Percentage of Office Annualized Rent(1)............ 0.16% 0.41% 0.03% 0.05% 0.24% 5.11%
Number of Leases Expiring.......................... 3 5 1 1 1 76
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ 27.94 38.91 29.50 29.40 148.32 $ 40.18
Company Quoted Rental Rate Per Sq. Ft.(2)(5)....... -- -- -- -- -- --
369 LEXINGTON AVENUE
Square Footage of Expiring Leases.................. 19,621 -- 22,762 8,875 3,050 128,625
Percentage of Office Leased Sq. Ft................. 0.7% 0.0% 0.8% 0.3% 0.1% 4.3%
Annualized Rent of Expiring Leases(1).............. $ 804,619 $ 0 $ 626,004 $ 220,934 $ 135,603 $4,113,773
Percentage of Office Annualized Rent(1)............ 0.78% 0.00% 0.61% 0.22% 0.13% 4.01%
Number of Leases Expiring.......................... 4 -- 4 1 1 32
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ 41.01 -- 27.50 24.89 44.46 31.98
Company Quoted Rental Rate Per Sq. Ft.(2).......... -- -- -- -- -- --
AVENUE OF THE AMERICAS PLAZA
Square Footage of Expiring Leases.................. -- 1,860 37,814 -- 486,855 545,098
Percentage of Office Leased Sq. Ft................. 0.0% 0.1% 1.3% 0.0% 16.1% 18.1%
Annualized Rent of Expiring Leases(1).............. $($557,595) $ 89,218 $1,775,385 $ 0 $24,124,177 $26,028,996
Percentage of Office Annualized Rent(1)............ (0.54%) 0.09% 1.73% 0.00% 23.49% 25.35%
Number of Leases Expiring.......................... -- 1 1 -- 7 12
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)........................................ -- 47.97 46.95 -- 49.55 $ 47.75
Company Quoted Rental Rate Per Sq. Ft.(2).......... -- -- -- -- -- --
</TABLE>

69
<PAGE>
<TABLE>
<CAPTION>
3/31--12/31
1998 1999 2000 2001 2002 2003 2004
----------- ---------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>

140 WEST 57TH STREET(3)
Square Footage of Expiring Leases......... -- -- -- -- -- -- --
Percentage of Office Leased Sq. Ft........ 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Annualized Rent of Expiring Leases(1)..... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Percentage of Office Annualized Rent(1)... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Number of Leases Expiring................. -- -- -- -- -- -- --
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... -- -- -- -- -- -- --
Company Quoted Rental Rate Per Sq.
Ft.(2).................................. $ 37.00 -- -- -- -- -- --

150 FIFTH AVENUE
Square Footage of Expiring Leases......... 18,742 40,005 44,073 12,470 24,185 18,086 --
Percentage of Office Leased Sq. Ft........ 0.6% 1.3% 1.5% 0.4% 0.8% 0.6% 0.0%
Annualized Rent of Expiring Leases(1)..... $ 369,387 $ 733,485 $ 794,351 $ 232,672 $ 428,645 $ 351,854 $ 0
Percentage of Office Annualized Rent(1)... 0.36% 0.71% 0.77% 0.23% 0.42% 0.34% 0.00%
Number of Leases Expiring................. 16 25 26 8 12 4 --
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... 19.71 18.33 18.02 18.66 17.72 19.45 --
Company Quoted Rental Rate Per Sq.
Ft.(2)(5)............................... $ 29.75 -- -- -- -- -- --

1412 BROADWAY
Square Footage of Expiring Leases......... 33,623 27,375 30,342 29,992 61,756 11,095 4,739
Percentage of Office Leased Sq. Ft........ 1.1% 0.9% 1.0% 1.0% 2.0% 0.4% 0.2%
Annualized Rent of Expiring Leases(1)..... $1,113,843 $ 741,225 $1,028,357 $1,063,087 $1,772,395 $ 332,634 $ 165,532
Percentage of Office Annualized Rent(1)... 1.08% 0.72% 1.00% 1.04% 1.73% 0.32% 0.16%
Number of Leases Expiring................. 13 9 13 11 11 6 1
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... $ 33.13 27.08 33.89 35.45 28.70 29.98 34.93
Company Quoted Rental Rate Per Sq.
Ft.(2)(5)............................... $ 28.00 -- -- -- -- -- --

540 MADISON AVENUE
Square Footage of Expiring Leases......... 13,000 36,270 6,500 18,459 19,500 13,000 6,500
Percentage of Office Leased Sq. Ft........ 0.4% 1.2% 0.2% 0.6% 0.6% 0.4% 0.2%
Annualized Rent of Expiring Leases(1)..... $ 481,601 $1,608,412 $ 276,077 $ 763,189 $ 881,501 $ 494,075 $ 191,525
Percentage of Office Annualized Rent(1)... 0.47% 1.57% 0.27% 0.74% 0.86% 0.48% 0.19%
Number of Leases Expiring................. 2 7 1 4 3 1 1
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... 37.05 44.35 42.47 41.35 45.21 38.01 29.47
Company Quoted Rental Rate Per Sq.
Ft.(2).................................. $ 55.00 -- -- -- -- -- --

RIVERTERRACE
Square Footage of Expiring Leases......... -- 40,729 -- 7,185 -- 1,533 --
Percentage of Office Leased Sq. Ft........ 0.0% 1.3% 0.0% 0.2% 0.0% 0.1% 0.0%
Annualized Rent of Expiring Leases(1)..... $ 0 $1,101,336 $ 0 $ 339,246 $ 0 $ 91,782 $ 0
Percentage of Office Annualized Rent(1)... 0.00% 1.07% 0.00% 0.33% 0.00% 0.09% 0.00%
Number of Leases Expiring................. -- 3 -- 2 -- 1 --
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... $ -- 27.04 -- 47.22 -- 59.87 --
Company Quoted Rental Rate Per Sq.
Ft.(2).................................. $ 35.00 -- -- -- -- -- --

TOTAL OFFICE PORTFOLIO
Square Footage of Expiring Leases......... 144,483 401,426 283,220 187,914 138,968 521,592 73,189
Percentage of Office Leased Sq. Ft........ 5.4% 14.9% 10.5% 7.0% 5.2% 19.4% 2.7%
Annualized Rent of Expiring Leases(1)..... $4,072,527 $14,349,766 $8,062,656 $6,161,927 $3,956,097 $21,515,904 $1,807,066
Percentage of Office Annualized Rent(1)... 3.97% 13.97% 7.85% 6.00% 3.85% 20.95% 1.76%
Number of Leases Expiring................. 70 105 88 63 47 39 20
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... 28.19 35.75 28.47 32.79 28.47 41.25 24.69
Company Quoted Rental Rate Per Sq.
Ft.(4).................................. $ 38.08(4) $ 39.10(4) $ 39.84(4) -- -- -- --

<CAPTION>
2008 AND
2005 2006 2007 BEYOND TOTAL
--------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
140 WEST 57TH STREET(3)
Square Footage of Expiring Leases......... -- -- -- 21,958 21,958
Percentage of Office Leased Sq. Ft........ 0.0% 0.0% 0.0% 0.7% 0.7%
Annualized Rent of Expiring Leases(1)..... $ 0 $ 0 $ 0 $1,639,250 $ 1,639,250
Percentage of Office Annualized Rent(1)... 0.00% 0.00% 0.00% 1.60% 1.60%
Number of Leases Expiring................. -- -- -- 2 2
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... -- -- -- 74.65 $ 74.65
Company Quoted Rental Rate Per Sq.
Ft.(2).................................. -- -- -- -- --
150 FIFTH AVENUE
Square Footage of Expiring Leases......... -- 12,500 2,000 -- 172,061
Percentage of Office Leased Sq. Ft........ 0.0% 0.4% 0.1% 0.0% 5.7%
Annualized Rent of Expiring Leases(1)..... $ 0 $ 447,000 $ 199,548 $ 0 $ 3,556,941
Percentage of Office Annualized Rent(1)... 0.00% 0.44% 0.19% 0.00% 3.46%
Number of Leases Expiring................. -- 2 1 -- 94
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... -- 35.76 99.77 $ 20.67
Company Quoted Rental Rate Per Sq.
Ft.(2)(5)............................... -- -- -- -- --
1412 BROADWAY
Square Footage of Expiring Leases......... -- 56,762 4,782 50,975 311,441
Percentage of Office Leased Sq. Ft........ 0.0% 1.9% 0.2% 1.7% 10.3%
Annualized Rent of Expiring Leases(1)..... $ 0 $2,209,473 $ 192,050 $1,469,500 $10,088,096
Percentage of Office Annualized Rent(1)... 0.00% 2.15% 0.19% 1.43% 9.82%
Number of Leases Expiring................. -- 2 1 3 70
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... -- 38.93 40.16 $ 28.83 $ 32.39
Company Quoted Rental Rate Per Sq.
Ft.(2)(5)............................... -- -- -- -- --
540 MADISON AVENUE
Square Footage of Expiring Leases......... -- -- 50,802 60,221 224,252
Percentage of Office Leased Sq. Ft........ 0.0% 0.0% 1.7% 2.0% 7.4%
Annualized Rent of Expiring Leases(1)..... $ 0 $ 0 $2,036,980 $3,266,615 $ 9,999,974
Percentage of Office Annualized Rent(1)... 0.00% 0.00% 1.98% 3.18% 9.74%
Number of Leases Expiring................. -- -- 3 6 28
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... -- -- 40.10 54.24 44.59
Company Quoted Rental Rate Per Sq.
Ft.(2).................................. -- -- -- -- --
RIVERTERRACE
Square Footage of Expiring Leases......... 11,809 35,000 -- -- 96,256
Percentage of Office Leased Sq. Ft........ 0.4% 1.2% 0.0% 0.0% 3.2%
Annualized Rent of Expiring Leases(1)..... $ 751,038 $ 618,823 $ 0 $ 0 $ 2,902,225
Percentage of Office Annualized Rent(1)... 0.73% 0.60% 0.00% 0.00% 2.83%
Number of Leases Expiring................. 2 1 -- -- 9
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... 63.60 17.68 -- $ 30.15
Company Quoted Rental Rate Per Sq.
Ft.(2).................................. -- -- -- -- --
TOTAL OFFICE PORTFOLIO
Square Footage of Expiring Leases......... 36,770 183,652 71,363 642,596 2,685,172
Percentage of Office Leased Sq. Ft........ 1.4% 6.8% 2.7% 23.9% 100.00%
Annualized Rent of Expiring Leases(1)..... $1,938,580 $6,359,173 $2,856,766 $31,602,693 $102,683,154
Percentage of Office Annualized Rent(1)... 1.89% 6.19% 2.78% 30.78% 100.00%
Number of Leases Expiring................. 11 15 8 29 495
Annualized Rent Per Sq. Ft. of Expiring
Leases(1)............................... 52.72 34.63 40.03 49.18 $ 38.24
Company Quoted Rental Rate Per Sq.
Ft.(4).................................. -- -- -- -- --
</TABLE>

- ------------------------
(1) Represents Annualized Rent as of March 31, 1998.
(2) Represents average rental rates per square foot quoted by our Company at the
Property as of March 31, 1998, including electric charges or what the market
rate is for 1412 Broadway, 150 Fifth Avenue, 342 Madison Avenue and 400
Madison Avenue.
(3) This property is currently being redeveloped and is in the lease-up phase.
Only two leases are in place as of March 31, 1998.
(4) This amount for the Total Office Portfolio represents the weighted average
Company Quoted Rental Rates Per Square Foot weighted for the leases expiring
during each of the years ended 1998, 1999 and 2000 using the March 31, 1998
Company Quoted Rental Rates Per Square Foot.
(5) Represents Company's estimate of market renatl rates for the properties to
be acquired or recently acquired.

70
<PAGE>
TENANT DIVERSIFICATION

The Office Properties currently are leased to over 580 tenants which are
engaged in a variety of businesses, including banking and financial services,
legal services and communications. The following table sets forth information
regarding the leases with respect to the 20 largest tenants at the Office
Properties, based on the amount of square footage leased by such tenants as of
March 31, 1998:
<TABLE>
<CAPTION>
PERCENTAGE
OF PERCENTAGE
AGGREGATE OF
TOTAL AGGREGATE
TOTAL OFFICE TOTAL
REMAINING LEASED LEASED OFFICE
LEASE TERM SQUARE SQUARE ANNUALIZED ANNUALIZED
TENANT(1) PROPERTY IN MONTHS(2) FEET(3) FEET(3)(4) RENT(5) RENT(5)
- ------------------------ --------------------------- --------------- --------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Chase Manhattan
Bank(6)............... 2 Grand Central Tower 66 447,970 16.7% 18,009,847 17.5%
LeBoeuf, Lamb, Greene & Avenue of the Americas
MacRae L.L.P.......... Plaza 173 223,597 8.3% 9,333,316 9.1%
Avenue of the Americas
Katz Communications..... Plaza 171 175,897 6.5% $8,748,840 8.5%
Conde Nast.............. 2 Grand Central Tower 9 106,778 3.9% 5,259,712 5.0%
Escada (USA) Inc........ 1412 Broadway 107 49,038 1.8% $1,804,038 1.8%
National Bank of Avenue of the Americas
Canada................ Plaza 149 46,000 1.7% $3,059,326 3.0%
Advance................. 342 Madison Avenue 29 42,636 1.6% $ 895,894 0.9%
Kasper.................. 1412 Broadway 122 40,666 1.5% $1,173,486 1.1%
Leslie Fay.............. 1412 Broadway 50 40,666 1.5% $1,008,496 1.0%
Speed Graphic........... 342 Madison Avenue 105 39,581 1.5% $1,396,679 1.4%
Avenue of the Americas
Kredietbank, N.V........ Plaza 106 37,814 1.4% $1,775,385 1.7%
East River Garage....... Riverterrace 95 35,000 1.3% $ 618,823 0.6%
Callaway Golf........... 540 Madison Avenue 182 32,000 1.2% $1,750,000 1.7%
Oracle Corporation...... 540 Madison Avenue 118 31,050 1.2% $1,148,850 1.1%
Avenue of the Americas
Air France.............. Plaza 169 30,311 1.1% $2,209,092 2.2%
HSS Properties.......... Riverterrace 10 28,348 1.1% $ 659,651 0.6%
Planet Hollywood........ 140 West 57th Street 103 17,941 0.7% 1,522,264 1.5%
SAC Capital Management.. 540 Madison Avenue 116 16,052 0.6% $ 684,630 0.7%
Pavilion Suites......... 1412 Broadway 14 15,580 0.6% 326,797 0.3%
Bank of America......... 2 Grand Central Tower 17 15,428 0.6% 657,744 0.6%
--------- --- ---------- ---
TOTAL/WEIGHTED AVERAGE(7)........................ 1,472,393 48.7% $62,042,870 60.3%
--------- --- ---------- ---
--------- --- ---------- ---

PERCENTAGE
OF
TOTAL
PORTFOLIO
ANNUALIZED
TENANT(1) RENT(3)(5)
- ------------------------ ---------------
<S> <C>
Chase Manhattan
Bank(6)............... 14.9%
LeBoeuf, Lamb, Greene &
MacRae L.L.P.......... 7.7%

Katz Communications..... 7.3%
Conde Nast.............. 4.3%
Escada (USA) Inc........ 1.5%
National Bank of
Canada................ 2.5%
Advance................. 0.7%
Kasper.................. 1.0%
Leslie Fay.............. 0.8%
Speed Graphic........... 1.2%

Kredietbank, N.V........ 1.5%
East River Garage....... 0.5%
Callaway Golf........... 1.4%
Oracle Corporation...... 1.0%

Air France.............. 1.8%
HSS Properties.......... 0.5%
Planet Hollywood........ 1.3%
SAC Capital Management.. 0.6%
Pavilion Suites......... 0.3%
Bank of America......... 0.5%
---
TOTAL/WEIGHTED AVERA 51.3%
---
---
</TABLE>

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

(1) This list is not intended to be representative of the Company's tenants as a
whole.

(2) Does not reflect unexercised lease renewal options.

(3) Includes the commercial portion of Riverterrace.

(4) Includes the square footage of our Office redevelopment project, 140 West
57th Street.

(5) Represents Annualized Rent as of March 31, 1998.

(6) This tenant has two separate leases.

(7) Weighted Average calculation based on total rentable square footage leased
by each tenant.

71
<PAGE>
LEASE DISTRIBUTION

The following table sets forth information relating to the distribution of
leases at the Office Properties, including the commercial portion of
Riverterrace, based on rentable square feet under lease, as of March 31, 1998:

<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF
TOTAL OF AGGREGATE
PERCENT OF LEASED AGGREGATE OFFICE
SQUARE FEET NUMBER OF ALL OFFICE SQUARE OFFICE LEASED ANNUALIZED ANNUALIZED
UNDER LEASE LEASES LEASES(1) FEET(1) SQUARE FEET(1) RENT(2) RENT(1)(2)
- -------------------------------------- ------------- ----------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
2,500 or less......................... 301 60.8% 385,465 14.4% $ 11,471,648 11.2%
2,501-5,000........................... 115 23.2% 401,957 15.0% $ 13,229,475 12.9%
5,001-7,500........................... 38 7.7% 236,681 8.8% $ 9,249,802 9.0%
7,501-10,000.......................... 11 2.2% 93,332 3.5% $ 3,181,629 3.1%
10,001-20,000......................... 14 2.8% 176,448 6.6% $ 6,790,035 6.6%
20,001-39,999......................... 7 1.4% 234,104 8.7% $ 9,558,480 9.3%
40,000+............................... 9 1.8% 1,157,185 43.1% $ 49,202,085 47.9%
--- ----- ------------- ----- -------------- -----
Total............................. 495 100.0% 2,685,172 100.0% $ 102,683,154 100.0%
--- ----- ------------- ----- -------------- -----
--- ----- ------------- ----- -------------- -----
</TABLE>

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

(1) Includes the commercial portion of Riverterrace.

(2) Represents Annualized Rent as of March 31, 1998.

TENANT RETENTION AND HISTORICAL LEASE RENEWALS

Since the end of 1994, leases representing 9.1 of the total square footage
at our Office Properties owned during such period, including the commercial
portion of Riverterrace, have expired. Our office portfolio during such period
primarily consisted of Two Grand Central Tower, Avenue of the America Plaza, 369
Lexington Avenue and the commercial portion of Riverterrace. We developed and
substantially leased both Two Grand Central Tower and Avenue of the Americas
Plaza in the 1990s to several tenants who occupy a substantial portion of the
square footage at these properties under long term leases. These two properties
represented, on a weighted average basis, 83% of our office portfolio during the
period January 1, 1995 through March 31, 1998. As a result, no significant
rollover has occurred since 1994. Therefore, our historical tenant retention and
historical lease renewal information is not a meaningful indicator of what
future retention and renewal activity will be at our Office Properties.

72
<PAGE>
HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS

The following table sets forth certain historical information regarding
tenant improvement and leasing commission costs for tenants at the Office
Properties, including the commercial portion of Riverterrace, for the years 1995
through 1997 and for the first three months of 1998. The tenant improvement and
leasing commission costs set forth below are presented on an aggregate basis and
are not necessarily indicative of future tenant improvement and leasing
commission costs:

<TABLE>
<CAPTION>
TOTAL/
WEIGHTED
THREE AVERAGE
MONTHS JANUARY 1,
ENDED 1995-
MARCH 31, MARCH 31,
1995 1996 1997 1998 1998
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RENEWALS
Number of leases..................................... 0 1 2 2 2
Square feet.......................................... 0 1,651 16,679 4,758 7,104
Tenant improvement costs per square foot............. $ 0 $ 0 $ 0 $ 0 $ --
Leasing commission costs per square foot............. $ 0 $ 2.03 $ 4.35 $ 0 $ 3.28
--------- --------- --------- ----- -----------
Total tenant improvement and leasing commission
costs per square foot.......................... $ 0 $ 2.03 $ 4.35 $ 0 $ $3.28
--------- --------- --------- ----- -----------
--------- --------- --------- ----- -----------
RE-TENANTED OR NEWLY TENANTED SPACE
Number of leases..................................... 7 11 6 0 7
Square feet.......................................... 22,211 57,280 23,918 0 31,818
Tenant improvement costs per square foot............. $ 17 $ 19.42 $ 15.99 $ 0 $ 18.11
Leasing commission costs per square foot............. $ 6.75 $ 13.53 $ 10.46 $ 0 $ 11.36
--------- --------- --------- ----- -----------
Total tenant improvement and leasing commission
costs per square foot.......................... $ 23.75 $ 32.95 $ 26.45 $ 0.00 $ 29.47
--------- --------- --------- ----- -----------
--------- --------- --------- ----- -----------
TOTAL
Number of leases..................................... 7 12 8 2 9
Square feet.......................................... 22,211 58,931 40,597 4,758 38,922
Tenant improvement costs per square foot............. $ 17 $ 18.88 $ 9.53 $ 0 $ 14.80
Leasing commission costs per square foot............. $ 6.75 $ 13.21 $ 7.95 $ 0 $ 9.89
--------- --------- --------- ----- -----------
Total tenant improvement and leasing commission
costs per square foot.......................... $ 23.75 $ 32.09 $ 17.37 $ 0 $ 24.69
--------- --------- --------- ----- -----------
--------- --------- --------- ----- -----------
</TABLE>

73
<PAGE>
HISTORICAL CAPITAL EXPENDITURES

Each Office Property within our portfolio has been substantially renovated
or developed, or upon acquisition, will be substantially renovated. Within the
next 21 months we anticipate spending $11.5 million in capital improvements at
the Properties, of which approximately $6.4 million is designated for completing
the redevelopments of 540 Madison Avenue and 140 West 57th Street. These costs
are expected to be paid from remaining net proceeds from the Offering after
completion of the Formation Transactions (estimated to be $ million),
borrowings under credit facilities, and/or from operating cash flows. See "Use
of Proceeds" on page 40.

Prior to acquisition each property under consideration is evaluated to
determine an initial capital budget. The extent of these improvements is
predicated on the physical condition and vacancy at the property, and the
anticipated target market rent. Ongoing capital budgets are determined annually
and are geared toward addressing tenant rollover and changing target market
rent.

The following table sets forth information relating to the historical
capital expenditures, including both general recurring capital expenditures and
major capital improvements such as lobby, elevator and roof renovations and
mechanical equipment improvements at the Office Properties, including the
commercial portion of Riverterrace, owned by us during the periods presented:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1995 1996 1997 1998
---------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
Number of Properties(1).................................. 5 6 6 6
Number of Square Feet.................................... 1,428,794 1,708,044 1,708,044 1,708,044
Capital Expenditures Incurred............................ $ 157,461 $ 130,005 $ 236,323 $ -0-
Capital Expenditures Incurred per square foot............ $ .11 $ .08 $ .14 $ .00
Three and One-Third Year Weighted Average per square
foot................................................... $ .08
</TABLE>

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

(1) Represents the actual number of Office Properties, including the commercial
portion of Riverterrace.

(2) This amount does not reflect the $1.4 million and $12.4 million expended for
the redevelopments of 540 Madison Avenue and 140 West 57th Street for the
three months ended March 31, 1998 and twelve months ended December 31, 1997
respectively.

74
<PAGE>
AVENUE OF THE AMERICAS PLAZA (125 WEST 55TH STREET)

Avenue of the Americas Plaza is a 23-story office building located between
Avenue of the Americas and Seventh Avenue, on the north side of West 55th
Street, in the Plaza district submarket of the Manhattan office market. The
building's public space is a central rotunda and north/south through-block
gallery from West 56th to West 55th Streets. We developed this building in 1989
using designs completed by the architecture firm, Edward Larrabee Barnes &
Associates. The building is a classic modern structure clad in a four-sided
structurally glazed silicone curtain wall, which results in a continuous facade
of monolithic glass. The building was constructed utilizing reinforced concrete
waffle slab technology in order to develop large column-free floorplates in
excess of 25,000 square feet. Notably, we were able to complete the shell and
core of the building in just twelve months at a cost of $108 per square foot,
which was substantially faster and less expensive than many of our competitors
at that time. Upon completion of the Formation Transactions, 100% of the
interest in the limited liability company which owns the fee simple interest in
this Property will be contributed to our Company.

The Property contains approximately 545,000 rentable square feet (including
533,000 square feet of Class A office space and approximately 12,000 square feet
of retail space including the concourse level), with floor plates ranging from
23,000 square feet to 29,000 square feet. As of March 31, 1998, approximately
100% of the rentable square footage was leased (including space for leases that
were executed as of March 31, 1998). The following table sets forth certain
information with respect to the Property:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- ----------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 100.00% $ 47.75 $ 35.62
1997.................................................................... 100.00% $ 45.87 $ 31.05
1996.................................................................... 100.00% $ 37.77 $ 34.99
1995.................................................................... 99.00% $ 34.50 $ 35.28
1994.................................................................... 98.00% $ 30.82 $ 35.09
1993.................................................................... 98.00% $ 26.57 $ 34.25
</TABLE>

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

(1) Information is as of March 31, 1998.

As of March 31, 1998, Avenue of the Americas Plaza was leased to 12 tenants
operating in various industries, including banking, legal, financial services
and communications, two of which occupied 10% or more of the rentable square
footage at the Property. Katz Communications occupied approximately 175,897
square feet (approximately 32% of the Property) under a lease expiring on April
30, 2012 that provides for an aggregate annualized base rent of approximately
$8,748,840 (approximately $49.46 per square foot) and periodic rent increases
over the term of the lease. In addition to annualized base rent, this tenant
pays a percentage of the operating expenses incurred by us in connection with
this Property.

In addition, LeBoeuf, Lamb, Greene & MacRae L.L.P. ("LeBoeuf") occupied
approximately 223,597 square feet (approximately 41% of the property) under a
lease expiring on June 30, 2012 that provides for an aggregate annualized base
rent as of March 31, 1998 of approximately $9,333,316 (approximately $41.74 per
square foot) and periodic rent increases over the term of the lease. LeBoeuf has
the option to renew its lease for one ten-year period. In addition to annualized
base rent, this tenant pays a percentage of the operating expenses incurred by
us in connection with the Property. Other prominent tenants in the building
include Air France(1) and National Bank of Canada.

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

(1) Pursuant to a lease takeover agreement entered into between our Company and
Air France, we are obligated to pay the remaining rental obligations
pertaining to a lease at a former premises occupied by Air France (the
"Takeover Obligation"). If we default in the payment of the 'Takeover
Obligation,' then Air France is entitled to a rent offset at the premises in
the same amount. The risk of a default on the Takeover Obligation has been
mitigated by the subletting of the former premises to the Soros Foundation
and DEI Management. Therefore, the net takeover obligation is equal to $4
million on an aggregate basis throughout the remaining term.

75
<PAGE>
The aggregate undepreciated tax basis of depreciable real property at Avenue
of the Americas Plaza for federal income tax purposes was approximately
$75,820,000 as of March 31, 1998. Depreciation and amortization are computed on
the straight-line method over 31 1/2 years.

The current real estate tax rate for all Manhattan office properties is
$10.164 per $100 of assessed value. At this rate the total annual tax for Avenue
of the Americas Plaza for the 1998-99 tax year is $4,665,276 (at an assessed
value of $45,900,000). In addition to the current annual tax on assessed value,
Avenue of the Americas Plaza received the benefit of a tax deferral on the
increase in assessed value which resulted from the development of the project.
This deferral, which totaled approximately $13,173,000, will be repaid over a
ten year period beginning with the 1998-99 tax year.

TWO GRAND CENTRAL TOWER

One block from Grand Central Station, Two Grand Central Tower's construction
in 1981 marked the end of the long dormancy of new office development in
Manhattan. The development included the purchase of air rights from the adjacent
low rise buildings on both the east and west sides of the plot. This allowed us
to increase the floor area ratio and build a larger, taller and more distinctive
office building. In a 12-month period, we constructed the tower and
substantially leased the building to Manufacturer's Hanover Trust Company. The
building served as a technological forerunner in the areas of energy
efficiencies and tenant climate control. Since its completion, the building has
maintained occupancy rates in excess of 95%. Over the next 21 months, we intend
to invest approximately $5 million in capital improvements at this property for
general renovation purposes, including an upgrade of the elevator cabs, lobby
renovation and an upgrade of the security system.

Two Grand Central Tower is located at 140 East 45th Street in the Grand
Central submarket of Manhattan's office market. Upon completion of the Formation
Transactions, this fee simple interest will be contributed to the Company.

The Property contains approximately 617,000 rentable square feet (including
612,000 square feet of Class A office space and 4,000 square feet of retail
space including the basement), with floor plates ranging from 7,500 square feet
to 14,800 square feet. As of March 31, 1998, approximately 99% of the rentable
square footage was leased (including space for leases that were executed as of
March 31, 1998). The office space was 99% leased and the retail space was 100%
leased. The following table sets forth certain information with respect to the
Property:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- --------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 98.90% $ 41.78 $ 33.78
1997.................................................................... 99.10% 41.83 $ 33.26
1996.................................................................... 98.38% 41.60 $ 33.70
1995.................................................................... 94.87% 41.76 $ 33.99
1994.................................................................... 99.85% 41.65 $ 32.69
1993.................................................................... 99.85% 42.76 $ 32.68
</TABLE>

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

(1) Information is as of March 31, 1998.

As of March 31, 1998, Two Grand Central Tower was leased to 13 tenants
operating in various industries, including banking, publishing, financial
services and insurance, two of which occupied 10% or more of the rentable square
footage at the Property. Chase Manhattan Bank occupied approximately 447,970
square feet (approximately 72.5% of the Property) under two leases, each
expiring on August 31, 2003, that provide for an aggregate annualized base rent
as of March 31, 1998 of $18,009,847 (approximately $40.20 per square foot) and
periodic rent increases over the term of the lease. In addition to annualized
base rent, this tenant pays a percentage of the operating expenses incurred by
us in connection

76
<PAGE>
with the Property. The Chase Manhattan Bank leases provide the tenant with two
options to extend its tenancies for 10 years, each with applicable rent to be
based upon fair market value.

Conde Nast occupied approximately 106,778 square feet (approximately 17.1%
of the Property) under two leases, each expiring on January 7, 1999, that
provide for an aggregate annualized base rent as of March 31, 1998 of $5,259,712
(approximately $48.63 per square foot). In addition to annualized base rent,
this tenant pays a percentage of the operating expenses incurred by us in
connection with the Property.

The aggregate undepreciated tax basis of depreciable real property at Two
Grand Central Tower for federal income tax purposes was approximately
$45,222,000 as of March 31, 1998. Depreciation and amortization are computed on
the straight-line method over 15 to 18 years.

The current real estate tax rate for all Manhattan office properties is
$10.164 per $100 of assessed value. At this rate, the total annual tax for Two
Grand Central Tower for the 1998-99 tax year is $6,009,973 (at an assessed value
of $59,130,000).

540 MADISON AVENUE

In September 1996, we acquired this 39-story office building located in the
heart of the Plaza District submarket of Manhattan's office market on the
southwest corner of 55th Street and Madison Avenue for $35 million. We initiated
a full-scale renovation and infrastructure improvement of the property. By
purchasing air rights, we were able to expand the retail component in the base
of the building and create a new building image and identity. The original lobby
entrance was relocated from Madison Avenue to 55th Street to create 255 linear
feet of continuous, uninterrupted retail frontage in one of the most populous
and highest rent shopping districts in Manhattan. We subsequently leased the
entire 32,000 square foot retail component to the Callaway Golf Company, which
plans to use the space as a state-of-the-art golf training center. In addition
to Callaway Golf Company, tenants in the building include Oracle Corporation and
Honda North America.

Improvements to the office component of the building include a new lobby of
Italian marble and Japanese ash, the installation of an advanced
tenant-controlled security system, the addition of supplemental air conditioning
capabilities, the addition of windows in the southern facade, new elevator cabs
and new bathrooms. New technology was added to the building including T-1 and
T-3 telephone and data lines, fiber optics, telecommunications disaster
redundancy, cable television, Internet access and satellite access on the roof.
Upon completion of the Formation Transactions, 100% of the interest in the
limited liability company which owns the ground lease to this property will be
contributed to our company.

The Property contains 279,000 rentable square feet (including 247,000 square
feet of Class A office space and 32,000 square feet of retail space including
the basement), with floor plates ranging from 3,000 to 14,000 square feet. As of
March 31 1998, approximately 80.3% of the rentable square footage was leased
(including space for leases that were executed as of March 31, 1998). The office
space was 77.8% leased and the retail space was 100% leased. The following table
sets forth certain information with respect to the Property:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- ----------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 80.30% $ 44.59 $ 45.26
1997.................................................................... 58.10%(2) $ 42.44 $ 38.86
1996.................................................................... 82.40% $ 36.06 $ 36.39
1995.................................................................... N/A N/A N/A
1994.................................................................... N/A N/A N/A
1993.................................................................... N/A N/A N/A
</TABLE>

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

(1) Information is as of March 31, 1998.

(2) Property was being redeveloped during this period.

77
<PAGE>
As of March 31, 1998, 540 Madison Avenue was leased to 28 tenants operating
in various industries, including sporting goods, banking, financial services,
and entertainment, two of which occupied 10% or more of the rentable square
footage at the Property. Oracle occupied approximately 31,050 square feet
(approximately 11% of the Property) under a lease expiring on November 30, 2007,
that provides for an aggregate annualized base rent as of March 31, 1998 of
approximately $1,148,850 (approximately $37 per square foot) and periodic rent
increases over the term of the lease. Oracle has the option of renewing its
tenancy for two additional terms of 5 years each.

Callaway Golf Company occupies approximately 32,000 square feet
(approximately 11.5% of the Property) under a lease expiring February 28, 2013,
that provides for an annualized base rent as of March 31, 1998 of approximately
$1,750,000 (approximately $54.69 per square foot) and periodic rent increases
over the term of the lease. Callaway Golf Company has the option of renewing its
tenancy for one additional five year period. Both tenants pay a proportional
share of the real estate taxes and operating expenses.

The aggregate undepreciated tax basis of depreciable real property at 540
Madison Avenue for federal income tax purposes was approximately $47,610,000 as
of March 31, 1998. Depreciation and amortization are computed on the
straight-line method over 39 years.

The current real estate tax rate for all Manhattan office properties is
$10.164 per $100 of assessed value. At this rate, the total annual tax for 540
Madison Avenue for the 1998-99 tax year is $1,834,602 (at an assessed value of
$18,050,000).

369 LEXINGTON AVENUE

369 Lexington Avenue is a 28-story blockfront office building located on the
southeast corner of Lexington Avenue and East 41st Street, just a
block-and-a-half from Grand Central Terminal, in the heart of the prime Grand
Central submarket of Manhattan's office market. The site resulted from an
assemblage of three existing buildings. By renovating and upgrading the base
building's mechanical systems and common elements and creating a new attended
lobby, we repositioned a tired Class C office building to a fully occupied Class
B building. The notable features of this building are the small tower floors
ranging in size from 2,000 to 7,000 square feet. Such dimensions appeal to the
smaller space user seeking a full-floor presence and identity while being close
to Grand Central Terminal. Consequently, this building has been able to maintain
a high occupancy rate as well as premium rents. Additionally, the retail
component occupies a dominant and highly-trafficked corner resulting in high
rents and stable occupancy.

The building's medium to smaller size floor plates provide smaller tenants
the ability to take advantage of a full floor presence and identity, while
having a close proximity to all forms of public transportation. The tremendous
volume of foot traffic generated by Grand Central Terminal results in a retail
component that maintains a consistently high occupancy. Upon completion of the
Formation Transactions, 100% of the interest in the limited partnership which
owns the fee simple interest in this Property will be contributed to our
Company.

The Property contains 133,000 rentable square feet (including 122,000 square
feet of Class B office space and 11,000 square feet of retail space including
the basement), with floor plates ranging from 2,000 to 12,000 square feet. As of
March 31, 1998, approximately 96.6% of the rentable square footage was leased
(including space for leases that were executed as of March 31, 1998). The office
space was 96.3%

78
<PAGE>
leased and the retail space was 100.0% leased. The following table sets forth
certain information with respect to the Property:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- ----------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 96.62% $ 31.98 $ 26.82
1997.................................................................... 96.62% $ 31.20 $ 27.79
1996.................................................................... 98.06% $ 31.45 $ 28.25
1995.................................................................... 90.50% $ 32.18 $ 28.41
1994.................................................................... 95.47% $ 30.36 $ 29.47
1993.................................................................... 86.46% $ 30.23 $ 29.51
</TABLE>

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

(1) Information is as of March 31, 1998.

As of March 31, 1998, 369 Lexington Avenue was leased to 32 tenants
operating in various industries, including financial services, clothing
manufacturing, communications and computers. None of the tenants occupy 10% or
more of the rentable square footage of this Property.

150 FIFTH AVENUE

Originally developed by the Methodist Book Company in 1878, 150 Fifth Avenue
is a commanding 11-story landmark office building of white limestone and brick,
located on the southwest corner of Fifth Avenue and 20th Street in the desirable
Flatiron District of Manhattan's office market. The building is particularly
attractive as a result of its numerous arched windows and design details. Its
20-foot ceilings on the ground floor add value for retailers, while the 12-foot
ceilings enjoyed by the office floors add to its open, generous feeling.

The property has historically been marketed to, and is currently occupied
by, small tenants, which we believe has limited the property's value. The
Flatiron District is quickly evolving into a market driven by large floorplate
users, primarily in the creative, advertising, software and technology
industries. We consequently intend to focus our leasing efforts to recruit
larger space users. The building's current tenancies have lease expirations that
come due over the next 12 to 24 months and will allow us to recapture a
significant portion of the existing space. We will reposition the building into
larger, contiguous blocks of 20,000 square foot floors. We believe that this
program will result in a significant increase in income and will provide more
stable occupancy rates through larger, more creditworthy tenants. Upon
completion of the Formation Transactions, the contract for purchase for this
Property will be contributed to our Company and we will acquire the fee simple
interest to this Property at a cost of $26.0 million.

The Property contains 198,000 rentable square feet (including 172,000 square
feet of Class B office space and 26,000 square feet of retail space including
the basement), with floor plates ranging from 5,600 to 18,300 square feet.

79
<PAGE>
As of March 31, 1998, approximately 87.1% of the rentable square footage was
leased (including space for leases that were executed as of March 31, 1998). The
office space was 89.5% leased and the retail space was 70.9% leased. The
following table sets forth certain information with respect to the Property:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- ----------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 87.08% $ 20.67 $ 15.23
1997.................................................................... N/A N/A N/A
1996.................................................................... N/A N/A N/A
1995.................................................................... N/A N/A N/A
1994.................................................................... N/A N/A N/A
1993.................................................................... N/A N/A N/A
</TABLE>

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

(1) Information is as of March 31, 1998.

As of March 31, 1998, 150 Fifth Avenue was leased to 94 tenants operating in
various industries, including eyewear, fashion, and communications, none of
which occupied 10% or more of the rentable square footage at the Property.

80
<PAGE>
400 MADISON AVENUE

400 Madison Avenue is a 22-story terra cotta office building located on the
entire westerly blockfront of Madison Avenue between 47th and 48th Streets in
the Grand Central submarket of the Manhattan office market. We acquired this
building in 1998 by first purchasing the note and mortgage for $35.5 million
while the ownership of the property was in bankruptcy. Because of the financial
condition of the previous ownership, the property has suffered from
mismanagement and is not performing to its income potential.

We believe that with a modest capital improvements plan and an aggressive
leasing program, we will be able to release space as it rolls at substantially
higher rents than those achieved by previous ownership for the following
reasons: the resurgence of demand for office and retail space along Madison
Avenue; the imminent development of the new world headquarters for Bear Stearns
& Company which will be constructed across the street; the substantial amount of
capital being invested to improve the neighboring properties including 350
Madison Avenue; and the new entrance and exit to Grand Central Terminal which is
currently being constructed directly across the street. Demand for the building
is driven by the small space user seeking modern, turnkey office space ready for
instant occupancy. Upon completion of the Formation Transactions, 100% of the
interest of the limited liability company holding the Property will be
contributed to our Company.

The Property contains approximately 145,000 rentable square feet (including
134,000 square feet of Class B office space and 11,000 square feet of retail
space including the basement). Floorplates in the building range from 2,200 to
8,500 square feet. As of March 31, 1998, approximately 90.0% of the rentable
square footage was leased (including space for leases that were executed as of
March 31, 1998). The office space was 89% leased and the retail space was 100%
leased. The following table sets forth certain information with respect to the
Property:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- ----------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 90.03% $ 40.18 $ 34.72
1997.................................................................... N/A N/A N/A
1996.................................................................... N/A N/A N/A
1995.................................................................... N/A N/A N/A
1994.................................................................... N/A N/A N/A
1993.................................................................... N/A N/A N/A
</TABLE>

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

(1) Information is as of February, 1998.

As of March 31, 1998, 400 Madison Avenue was leased to 76 tenants operating
in various industries, including software, law and financial services. No tenant
occupied more than 10% of the rentable square feet.

342 MADISON AVENUE

342 Madison Avenue is a 23-story blockfront office building situated on the
west side of Madison Avenue between 43rd and 44th Streets in the Grand Central
submarket of the Manhattan office market. The building caters to smaller space
users seeking office space in close proximity to Grand Central Terminal. The
financial limitations of the previous owners resulted in a building that was
mismanaged and underperforming. Through proper management and aggressive
leasing, we believe we will be able to capture the escalating market rents at
this location for both office and retail space. Over the next 21 months we plan
to invest about $1 million on a general building upgrade that will include an
upgrade of the electrical distribution system.

81
<PAGE>
Upon completion of the Formation Transactions, mortgage indebtedness,
aggregating $80 million, securing this property will be contributed to our
Company. This indebtedness matures March 2000 and contains a redemption
provision which require the debtor to pay the noteholder the face value of the
note and an amount equal to 100% of the fair market value of the property in
excess of the note. In addition to interest payments, the note provides that all
excess cash from the property is to be paid to the noteholder pursuant to a
lock-box agreement. Also, the deed to the property is held in escrow pursuant to
a bankruptcy court's order which provides that, upon the occurrence of an event
of a default, the deed is immediately released to the noteholder, thereby
mitigating any risk of our foreclosing on these instruments. We are currently
negotiating with the property-owning entity to masterlease this property and
extend the term of the mortgage. However, there can be no assurance that this
transaction will occur or that the specific terms of the transaction be
ascertained.

The Property contains 529,000 rentable square feet (including 503,000 square
feet of Class B office space and 26,000 square feet of retail space including
the basement), with floor plates ranging from 18,000 square feet to 26,000
square feet.

As of March 31, 1998, approximately 84.2% of the rentable square footage was
leased (including space for leases that were executed as of March 31, 1998). The
office space was 83.4% leased and the retail space was 100% leased. The
following table sets forth certain information with respect to the Property:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- ----------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 84.20% $ 30.51 $ 23.15
1997.................................................................... N/A N/A N/A
1996.................................................................... N/A N/A N/A
1995.................................................................... N/A N/A N/A
1994.................................................................... N/A N/A N/A
1993.................................................................... N/A N/A N/A
</TABLE>

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

(1) Information is as of February, 1998.

As of March 31, 342 Madison Avenue was leased to 159 tenants operating in
various industries, including consulting, publishing and finance. No tenant
occupied more than 10% of the rentable square feet.

The current real estate tax rate for all Manhattan office properties is
$10.164 per $100 of assessed value. At this rate the total annual tax for 342
Madison Avenue for the 1998-99 tax year, is $2,910,868 (at an assessed value of
$28,639,000).

1412 BROADWAY

1412 Broadway is one of the premier showroom buildings in Manhattan's famed
Fashion District submarket of the Manhattan office market. Situated on the
northeast corner of 39th Street and Broadway, this striking building was
constructed in the 1920's Chicago movement architectural style . Catering to the
specific needs of the bustling garment industry, the building's amenities
include seven computer-controlled passenger elevators, three staff-attended
freight elevators and a tenant-controlled central air-conditioning system. Upon
completion of the Formation Transactions, the fee simple interest in this
property will be acquired by the Company from an unaffiliated owner for
1,200,000 Class B Units.

The property contains 386,000 rentable square feet including 362,000
rentable square feet of office space and 24,000 rentable square feet of retail
space. The floor plates range in size from 17,500 to 25,000 square feet, thereby
accommodating space and size requirements for a broad range of clients.

82
<PAGE>
As of March 31, 1998, approximately 80.6% of the rentable square footage was
leased (including space for leases that were executed as of March 31, 1998). The
office space was 79.3% leased and the retail space was 100.0% leased. The
following table sets forth certain information with respect to the Property:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- ----------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 80.59% $ 32.39 $ 24.49
1997.................................................................... N/A N/A N/A
1996.................................................................... N/A N/A N/A
1995.................................................................... N/A N/A N/A
1994.................................................................... N/A N/A N/A
1993.................................................................... N/A N/A N/A
</TABLE>

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

(1) Information is as of February, 1998.

As of March 31, 1998, 1412 Broadway was leased to 70 tenants operating in
various industries, including fashion and cosmetics of which three occupied 10%
or more of the rentable square footage at the Property. The Leslie Fay Company
occupies approximately 40,666 square feet (approximately 10.5% of the Property)
under a lease expiring on April 30, 2002 that provides for an annualized base
rent as of March 31, 1998 of approximately $1,008,496 (approximately $24.80 per
square foot) and periodic rent increases over the term of the lease. In addition
to annualized base rent, this tenant pays a percentage of the operating expenses
incurred by us in connection with the Property.

Escada (USA) Inc. occupies approximately 49,038 square feet (approximately
12.7% of the Property) under two leases expiring on August 31, 2006 and December
31, 2006 that provide for an aggregate annualized base rent as of March 31, 1998
of approximately $1,804,038 (approximately $36.79 per square foot) and periodic
rent increases over the term of the lease. In addition to annualized base rent,
this tenant pays a percentage of the operating expenses incurred by us in
connection with the Property.

Kasper occupies approximately 40,666 square feet (approximately 10.5% of the
Property) under a lease expiring on February 3, 2008 that provides for an
annualized base rent as of March 31, 1998 of approximately $1,173,486
(approximately $28.86 per square foot) and periodic rent increases over the term
of the lease. In addition to annualized base rent, this tenant pays a percentage
of the operating expenses incurred by us in connection with the Property.

The aggregate undepreciated tax basis of depreciable real property at 1412
Broadway for federal income tax purposes was $ as of March 31, 1998.

The current real estate tax rate for all Manhattan office properties is
$10.164 per $100 of assessed value. At this rate the total annual tax for 1412
Broadway for the 1998-98 tax year, is $1,710,601 (at an assessed value of
$16,830,000).

83
<PAGE>
APARTMENT PROPERTIES

We own interests in four stabilized apartment properties containing 506,000
rentable square feet and 614 apartment units, all of which are located in
Manhattan. The apartment units in the buildings are almost all leased to tenants
for terms of one or two years.

HISTORICAL OCCUPANCY

The Apartment Properties in our portfolio, not including the commercial
portion of Riverterrace, owned by our predecessor during the periods shown,
historically have achieved consistently higher percentage leased rates
comparable to the overall Manhattan Apartment Market of 96% to 98% over the past
five years, as shown in the following table:

<TABLE>
<CAPTION>
PERCENT
LEASED AT THE
PORTFOLIO PROPERTIES(1)
- ---------------------------------------------------------------------------------------------------- ---------------
<S> <C>
March 31, 1998...................................................................................... 96.08%
December 31, 1997................................................................................... 95.92%
December 31, 1996................................................................................... 96.23%
December 31, 1995................................................................................... 96.90%
December 31, 1994................................................................................... 98.55%
December 31, 1993................................................................................... 97.29%
</TABLE>

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

(1) Includes space for leases that were executed as of the relevant date in
Apartment Properties owned by our predecessor as of that date.

HISTORICAL CAPITAL EXPENDITURES

Each Apartment Property within our portfolio has been substantially
renovated. Within the next 21 months we anticipate spending $6.4 million in
capital improvements at or Apartment Properties, of which approximately $3.5
million is designated for completing the redevelopment of 40 West 55th Street.
These costs are expected to be paid from remaining net proceeds from the
Offering after completion of the Formation Transactions (estimated to be $
million), borrowings under credit facilities and/or from operating cash flows.
See "Use of Proceeds" on page 40.

The following table sets forth information relating to the historical
capital expenditures, including both general recurring capital expenditures and
major capital improvements such as lobby, elevator and roof renovations and
mechanical equipment improvements at the Apartment Properties, excluding the
commercial portion of Riverterrace, owned by us during the periods presented:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
1995 1996 1997 MARCH 31, 1998
---------- ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Number of Properties(1)............................... 3 3 3 4
Number of Units....................................... 548 548 548 608
Recurring Capital Expenditures Incurred(2)............ $ 108,768 $ 1,202,659 $ 836,903 $326,435
Weighted Average Recurring Capital Expenditures per
Unit................................................ $ 198 $ 2,195 $ 1,527 $537
---------- ------------ ---------- --------
Three and One-Third Year Weighted Average per Unit.... -- -- -- $1,242
</TABLE>

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

(1) Represents the actual number of Properties for which capital expenditures
were incurred during the year.

(2) The Recurring, Capital Expenditures in 1996 include the renovation of the
Riverterrace Health Club and pool which totaled approximately $500,000. In
addition, the 1996 and 1997 Expenditures include the initial renovations of
the Riverterrace apartments.

84
<PAGE>
RIVERTERRACE

We completed Riverterrace in 1985. Riverterrace is a 41-story, 409 unit
luxury rental apartment building overlooking New York's East River at 515 East
72nd Street. Working closely with the New York City Planning Commission, our
assemblage of 12 industrial buildings was rezoned to residential use. As a
result of the complex re-zoning process, approximately 100,000 square feet of
developable area was earmarked for light manufacturing and medical uses.
Capitalizing on its prime location next to such institutional hospitals as
Cornell Medical Center, New York Hospital and Memorial Sloan Kettering,
Riverterrace has consistently maintained 100% occupancy of its Class A medical
office facilities.

Among the many amenities incorporated into the development of Riverterrace
is a half-acre private, landscaped sculpture garden, a health club with a
20-yard pool, an outdoor paddle tennis court, squash courts, a full complement
of aerobic and weight-training equipment, a cash machine, a multi-lingual
concierge service, on-site valet parking, housekeeping services, a rooftop
sundeck, and a party room on the 41st floor of the building, available
exclusively to Riverterrace tenants. Riverterrace's architectural design and
finishes, quality of construction, sweeping views of Manhattan and its many
amenities have contributed to a stable 97% occupancy in the building, as of
March 31, 1998.

Riverterrace is located in the Upper East Side submarket of the Manhattan
apartment market. The property has approximately 428,000 square feet of luxury
residential space, 30,000 square feet of office space, 50,000 square feet of
medical manufacturing space, and 17,000 square feet of garage space. As of March
31, 1998, the residential space was 96.7% leased and approximately 100% of the
rentable commercial square footage in Riverterrace was leased (including space
for leases that were executed as of March 31, 1998). As of March 31, 1998,
Riverterrace was leased to 9 commercial tenants, most of which operated in the
medical industry and none of which occupied 10% or more of the rentable square
footage at the Property. The following table sets forth certain information with
respect to the commercial portion of the Property.

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- ----------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 98.96% $ 30.15 $ 25.16
1997.................................................................... 100.00% $ 30.23 $ 25.46
1996.................................................................... 100.00% $ 29.32 $ 25.46
1995.................................................................... 98.74% $ 28.87 $ 23.79
1994.................................................................... 100.00% $ 27.61 $ 23.37
1993.................................................................... 100.00% $ 29.61 $ 23.30
</TABLE>

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

(1) Information is as of March 31, 1998.

Upon completion of the Formation Transactions, the 50% general partner
interest in the property-owning partnership will be contributed to our Company.
We expect to acquire a long-term leasehold interest in the land and improvements
with respect to this Property through the acquisition of the non-affiliate 50%
interest in the partnership which owns the fee interest to this property in
exchange for such fee interest. We are currently negotiating this transaction.
There can be no assurance that this transaction will occur, nor can the specific
terms of this transaction be ascertained.

The aggregate undepreciated tax basis of depreciable real property at
Riverterrace for federal income tax purposes was $60,696,898 as of March 31,
1998. Depreciation and amortization are computed on the straight-line method
over 15 to 27 1/2 years.

The current real estate tax rate for all Manhattan apartment properties is
$11.046 per $100 of assessed value. At this rate the total annual tax for
Riverterrace for the 1998-99 tax year, is $3,815,509 (at an assessed value of
$34,542,000).

85
<PAGE>
30 EAST END AVENUE

Located on the southwest corner of 81st Street and East End Avenue, 30 East
End Avenue is a six-story, 101-unit apartment building developed circa 1950. We
acquired the building in 1980. 30 East End Avenue, in addition to residential
income, benefits from strong commercial income from medical tenancies and a long
term lease on a parking garage. Amenities in the building include 24-hour
doorman and attended lobby. We have renovated this building and reinvested in
improvements on a continuing basis. The capital investment in the property
includes a new boiler, new windows, improved mechanical systems, and new
kitchens and baths as apartments become vacated. The capital investment over the
next 21 months is expected to be around $1 million for [the relocation of the
lobby, which will result in the creation of retail space on East End Avenue]. 30
East End Avenue is located in the Gracie Mansion neighborhood on the East End
Avenue corridor on the Upper East Side submarket of the Manhattan apartment
market and enjoys views of the East River and proximity to many public schools
and public playgrounds such as Carl Schurz Park, John Jay Park, at the East
River Esplanade.

Upon completion of the Formation Transactions, this fee simple interest will
be contributed to our Company. The Property also contains approximately 87,000
rentable square feet of residential space and 15,000 rentable square feet of
commercial space, with a floor plate of 14,000 square feet. As of March 31,
1998, approximately 98% of the residential units were leased and approximately
86% of the retail rentable square footage in 30 East End Avenue was leased
(including space for leases that were executed as of March, 1998).

192 EAST 75TH STREET

In 1980, we acquired a 100% fee simple interest in 192 East 75th Street, a
ten-story prewar apartment building located on the south side of 75th Street
between Third and Lexington Avenues in the Upper East Side submarket of the
Manhattan apartment market. This apartment building consistently enjoys high
occupancy rates resulting from its Upper East Side location and close proximity
to all forms of public transportation including the Lexington Avenue subway
line. 192 East 75th Street has 38 apartments including 20 one-bedrooms and 18
two-bedrooms. As of March 31, 1998, 192 East 75th Street was leased to 38
residential tenants and one doctor's office. The ground floor is comprised of
3,495 rentable square feet which is under a long term lease to a medical tenant.
Renovations and improvements in the property include a new boiler, new windows
and new kitchens and bathrooms in every apartment upon vacancy. Over the next 21
months we expect to invest $125,000 on renovations. Upon completion of the
Formation Transactions, this fee simple interest will be contributed to the
Company.

345 EAST 64TH STREET

345 East 64th Street, is located on the northwest corner of 64th Street and
First Avenue in Manhattan's Upper East Side, on a site previously occupied by
the legendary New York restaurant and nightclub Maxwell's Plum. The area is
predominantly residential with a variety of retail shops, restaurants and movie
theaters located along the avenue. We purchased the site in 1997, razed the
existing structure and constructed a 60-unit rental apartment building. The
building was designed by the architecture firm, Schuman, Lichenstein, Claman
Efron, as an apartment mix of 22 studios, 33 one-bedroom and 5 two-bedroom
apartments. The attended lobby's intimate design is enhanced with a custom
mosaic tile floor. The 12-story building was completed in 11 months and all of
the apartments were absorbed in a three-week period.

345 East 64th Street was conventionally financed and developed without any
tax abatements or incentives and, as a result, is not subject to any of
Manhattan's rent regulations and is at free market rent. Today, average rents at
the property are $38.60 per square foot. In addition to its 60 units, 345 East
64th Street has 2,800 rentable square feet of prime retail space. As of March
31, 1998, approximately 100% of the residential units and 0% of the retail
rentable square footage were leased.

Upon completion of the Formation Transactions, 100% of the interest in the
limited liability company which owns the fee simple interest in this Property
will be contributed to the Company.

86
<PAGE>
DEVELOPMENT AND REDEVELOPMENT PROPERTIES

We are currently developing the three Properties described below:

305 WEST 50TH STREET (LONGACRE HOUSE)

We are currently developing a 217,000 rentable square foot apartment
building with a blockfront retail component on Eighth Avenue between 50th and
51st Streets in the Midtown West submarket of Manhattan's apartment market. This
26-story, ground-up development, called Longacre House, will consist of 293
luxury rental apartments, including 82 studio apartments, 187 one-bedroom
apartments and 24 two-bedroom apartments and will offer amenities such as
terraces, concierge service, housekeeping, a private garden, internet access,
pre-wired fiber optics, satellite television capabilities and a private health
club. Further, the attractiveness of this project is enhanced by its proximity
to Times Square, the midtown office district, Lincoln Center and Central Park.
Construction began in August 1997 and is anticipated to be completed by the end
of the third quarter of 1998 at a total project cost of approximately $58
million. We have pre-leased a portion of the retail space to Rite Aid and will
commence the residential rental program in the third quarter of 1998. Upon
completion of the Formation Transactions, 100% of the interest in the limited
liability company which owns the fee simple interest in this property will be
contributed to the Company.

140 WEST 57TH STREET

140 West 57th Street is a 14-story mixed-use retail and office building
located on the south side of West 57th Street between Avenue of the Americas and
Seventh Avenue, in the heart of the Plaza District submarket of Manhattan's
office market. Originally constructed in 1902 as an apartment house and
renovated in 1998, 140 West 57th Street is home to the original and flagship
Planet Hollywood restaurant which is under lease through 2010.

The office component of the building, containing approximately 71,000 feet,
has been held substantially vacant. We have commenced the renovation of the
office component to prepare the space to be marketed as high-end commercial
suites. The target market for this type of space consists of entertainment, law
and fashion tenants. We expect the renovation to be complete by the fourth
quarter of 1998, at a cost of approximately $4.5 million. We believe the space
will achieve premium rents due, in part, to its unique architectural features
which include 20-foot ceilings, 20 foot high bay windows and duplex balcony
spaces within certain suites. The renovation program that we have undertaken
will result in a completely modernized building, including the addition of an
elevator, the automating of an existing elevator, a complete upgrade of
electrical, plumbing, heating, ventilation and air conditioning systems, new
energy efficient windows and new interior finishes. In addition, this building
will offer fiber optic communications and video intercom security. The suites,
which will range from 1,000 to 5,000 square feet, will be marketed as completed
turnkey spaces. Over the next five to eight months, we plan to invest an
additional $4.5 million on the renovation program.

The property now contains 89,000 rentable square feet, of which 22,000
square feet is occupied by Planet Hollywood. The remaining 67,000 rentable
square feet comprises the office portion of the building. Upon completion of the
Formation Transactions, this fee simple interest will be contributed to our
Company.

87
<PAGE>
The building floor plates range from 2,900 to 7,800 square feet. As of March
31, 1998, approximately 24.7% of the rentable square footage was leased
(including space for leases that were executed as of March 31, 1998). The office
space was held vacant for future redevelopment, which is currently underway, and
the retail space was 100% leased. The following table sets forth certain
information with respect to the Property:

<TABLE>
<CAPTION>
ANNUAL NET
ANNUALIZED EFFECTIVE RENT
PERCENT RENT PER LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------------ ----------- ----------------- ---------------
<S> <C> <C> <C>
1998(1)................................................................. 100.00% $ 74.65 $ 80.94
1997(2)................................................................. 100.00% $ 74.99 $ 80.94
1996(2)................................................................. 100.00% $ 72.05 $ 80.94
1995(2)................................................................. 100.00% $ 64.61 $ 80.94
1994(2)................................................................. 100.00% $ 62.67 $ 80.94
1993(2)................................................................. 100.00% $ 58.62 $ 80.94
</TABLE>

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

(1) Information is as of March 31, 1998.

(2) Reflects retail space only.

As of March 31, 1998, 140 West 57th Street was leased to Planet Hollywood
which occupied over 10% of the rentable square footage at the Property. This
Property is also the site of Planet Hollywood's corporate headquarters. The
restaurant occupies approximately 17,941 square feet (approximately 20.2% of the
Property) under two leases each expiring on February 28, 2010 that provide for
an aggregate annualized base rent as of March 31, 1998 of approximately
$1,522,264 (approximately $84.85 per square foot) and periodic rent increases
over the term of the lease. In addition to annualized base rent, this tenant
pays a percentage of the operating expenses incurred by us in connection with
the Property.

40 WEST 55TH STREET

40 West 55th Street is a 12-story pre-war apartment building located on the
south side of West 55th Street between the Avenue of the Americas and Fifth
Avenue in the Rockefeller Center submarket of the Manhattan apartment market.
The building was designed in 1924 by Rosario Candela, one of Manhattan's
preeminent residential architects of the time. The apartments were originally
designed with large living, formal dining and maids rooms and fireplaces. This
property was converted by its prior owners to a commercial office building that
was leased mainly to apparel showrooms and was the former headquarters for Ralph
Lauren Polo. After acquiring the building in August 1997, we negotiated the
termination of all the commercial leases in the building. Achieving possession
of the upper floors, we have commenced a complete renovation of the apartments.
We expect to convert the property back to an apartment house with a total of 36
luxury units, 4 units per floor. In addition to the residential floors, we plan
to undertake a significant lobby renovation. We expect the renovations to be
completed by the end of 1998 at a cost of approximately $3.5 million, at which
time we anticipate the building's 36 units will be rapidly absorbed. Further,
the attractiveness of this project is enhanced by its proximity to Times Square,
the midtown office district, Lincoln Center and Central Park.

Upon completion of the Formation Transactions, 100% of the interest in the
limited liability company which owns the fee simple interest in this Property
will be contributed to the Company. The Property contains approximately 36
two-bedroom, two bath apartments and 4,250 square feet at grade level/lobby
retail space with floor plates ranging from 2,140 square feet to 5,702 square
feet.

LAND HELD FOR DEVELOPMENT

We currently have six sites being held for future development. Certain of
the six future sites have existing income producing properties which aggregate
0.7 million rentable square feet and are 74.5% leased. We intend to remove the
existing structures and construct new buildings upon these sites which we
expected will support up to 1.4 million rentable square feet of office space and
up to 760,000 rentable square feet and 870 units of apartment space.

88
<PAGE>
300 MADISON AVENUE

300 MADISON AVENUE--Located on the entire westerly blockfront between 41st
and 42nd Streets on Madison Avenue, we believe this is the premier office
development site in midtown Manhattan. We plan to construct a Class A office
building which will support up to 1.0 million rentable square feet. In addition
to its strategic location one block from Grand Central Terminal, this office
building, when completed, is expected to provide base floors of 40,000 rentable
square feet and column-free tower floors in excess of 30,000 rentable square
feet. Additionally, 300 Madison Avenue will have a significant retail component
located on the blockfront of Madison Avenue and 42nd Street. We currently
envision incorporating a sky lobby in order to maximize our prime retail space
and to develop a block of unencumbered floor space which will support trading
facilities. Construction is expected to be completed by the fourth quarter of
2001 and our development costs will be financed with project specific
construction financing. When completed, we believe 300 Madison Avenue will be
one of the most distinguished and technologically advanced office buildings in
midtown Manhattan and it will be the first major office building development in
the Grand Central submarket of the Manhattan office market in the past decade.
Upon completion of the Formation Transactions and pursuant to a plan of
reorganization and approval by a bankruptcy court, we will, through ownership of
interests in the property owning entity and the entity which holds the mortgage
on this development site, receive operational control of, and 100% of the
economic interest in this development site.

16-20 EAST 53RD STREET

16-20 EAST 53RD STREET--We have assembled this site, located on 53rd Street
between Madison and Fifth Avenue in the Plaza District, which will support the
development of a Class A office building containing up to 250,000 square feet.
This site represents a rare opportunity to construct a new building in the
premier Plaza submarket. This submarket has historically achieved one of the
lowest vacancy rates and among the highest office and retail rental rates in the
Manhattan office market. The site is located just one block from 540 Madison
Avenue, a redevelopment project which we have recently completed and where we
are attaining rents in excess of $55 per square foot. There are existing income
producing buildings on this site which are leased on an interim basis to offset
the carrying costs of the site. We project that the new building will be
completed by the second quarter of 2001. Upon completion of the Formation
Transactions, the contract to purchase the fee interest in 16-18 East 53rd
Street will be contributed to our Company and we will acquire this fee interest
for 1,000,000 Units. Additionally, we option contract for a long-term leasehold
interest in 20 East 53rd Street.

20-30 WEST END AVENUE

20-30 West End Avenue is a 20,000 square foot development site located on
the westerly blockfront of West End Avenue between 60th and 61st Street just
west of Lincoln Center. The site, which is being held for future development, is
expected to support the development of up to 300 apartment units with a
significant ground floor retail component. The site currently consists of two
buildings which are leased on an interim basis to offset the carrying costs of
the site. All leases with respect thereto have demolition clauses. Across the
street from the site, to the west, The Brodsky Organization has just
successfully completed an 1,100-unit residential development. Also across the
street is the well-publicized Riverside South Project undertaken by The Trump
Organization. Upon completion of the Formation Transactions, 100% of the
interest in the limited liability companies which own the fee simple interest to
this site will be contributed to the Company.

1000 SECOND AVENUE

We have assembled an apartment development site on Second Avenue between
52nd and 53rd Streets in Manhattan's Upper East Side that currently consists of
a 9,500 square foot vacant site and several tenements. We have retained the
architecture firm Schuman Lichtenstein Claman Efron to design the building. The
new building, which we expect to complete in the first quarter of 2001, is
expected to support up to 250 apartments and 8,000 square feet of prime retail
space. Upon completion of the Formation

89
<PAGE>
Transactions, 100% of the interest in the limited liability companies which own
the fee simple interest in three of the parcels of this site and the leasehold
interest in the land and improvements with respect to three other parcels of
this site will be contributed to the Company.

771-791 SIXTH AVENUE

Contemporaneous with this Offering, we will purchase this site located
between 26th and 27th Streets along the westerly blockfront of Sixth Avenue in
Manhattan's Chelsea district. The development site has a buildable area of
approximately 220,000 square feet which is expected to result in the development
of approximately 220 residential units, 35,000 square feet of retail space and
11,000 square feet of garage space. We estimate completion of this project
during the second quarter of 2000. We believe that this development provides an
attractive opportunity to take advantage of the strong demand for residential
space in the Chelsea marketplace supported by a shortage of private rental
property and a recent influx of national retailers including Bed, Bath & Beyond,
T.J. Maxx, Barnes & Noble and Old Navy and large corporations including Credit
Suisse First Boston, Ziff Davis and The Gap corporate offices. There are
existing income producing buildings on this site which are leased on an interim
basis to offset the carrying costs of the site. All leases with respect thereto
have demolition clauses. Upon completion of the Formation Transactions, we will
acquire the stock of the corporation which owns the fee simple interest to two
of the three parcels of this development site for $7 million, and the third
parcel will be contributed to our Company.

250 EAST 60TH STREET

This 4,000 square foot residential development site is located at the
southwest corner of Second Avenue and 60th Street in Manhattan's Upper East
Side, one block from Bloomingdale's. The site currently consists of a one-story
structure for interim retail use. We have filed an application before the New
York City Board of Standards and Appeals to demolish the structure and to
redevelop the site as a nine-story, 42-unit apartment building with a ground
floor retail component. We believe that the apartments will be quickly absorbed
due to the site's proximity to a major retail and commercial corridor and to the
numerous corporate businesses situated in the Third Avenue office towers located
below 57th Street. Upon completion of the Formation Transactions, 100% of the
interest in the limited liability company which owns the leasehold interest in
this development site will be contributed to the Company.

MORTGAGE INDEBTEDNESS

Upon completion of the Offering, we expect to have outstanding approximately
$[444.9] million of mortgage indebtedness secured by eight of the Properties and
one of our development sites. The remainder of our properties and sites will
serve the Credit Facility. None of the existing loans comprising the mortgage
debt is cross-defaulted to, or cross-collateralized with, any other. This
indebtedness will represent approximately % of our Total Market
Capitalization at the closing of the Offering. The amount of mortgage debt
includes $140.0 million of mortgage loans which we intend to obtain prior to
completion of the Offering.

We are currently negotiating with each of our lenders (and the
Property-owning entities are negotiating with each of their lenders) regarding
the terms of the indebtedness that will be outstanding after the Offering. The
following table sets forth the mortgage debt we expect to be outstanding after
completion of the Offering and the Formation Transactions and our best estimate
of the expected terms of such indebtedness.

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MORTGAGE INDEBTEDNESS TO BE OUTSTANDING AFTER THE COMPLETION OF THE OFFERING

<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED EXPECTED ANNUAL ESTIMATED ESTIMATED
INTEREST PRINCIPAL DEBT MATURITY BALANCE AT
PROPERTY RATE(1)(2) BALANCE(3) SERVICE(5) DATE MATURITY
- ----------------------------------------------------- ------------- ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
369 Lexington Avenue(4).............................. 8.94% $13,630,000 $ 1,320,522 03/01/07 $12,746,000
Two Grand Central Tower(4)(5)(6)..................... 9.20 126,225,000 11,898,139 03/01/99 126,225,000
345 East 64th Street(4).............................. 8.10 8,945,000 800,016 08/13/07 8,285,000
Avenue of the Americas Plaza(7)...................... 7.00 140,000,000 11,875,000 07/15/05 121,335,000
305 West 50th Street(4).............................. 8.20 49,098,000 4,026,036(8) 01/24/99 60,000,000(8)
192 East 75th Street(4)(9)........................... 7.70 6,500,000 500,500 03/31/00 6,500,000
30 East End Avenue(4)(9)............................. 7.70 12,000,000 924,000 03/31/00 12,000,000
Riverterrace(7)...................................... 6.75 88,500,000 6,888,000 07/15/08 75,491,000
----------- -------------- -----------
Total/Weighted Average........................... 7.82 $444,898,000 $ 38,232,213 $422,582,000
----------- -------------- -----------
----------- -------------- -----------
</TABLE>

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

(1) As of March 27, 1998.

(2) The interest rates on the outstanding mortgage indebtedness are expected to:
369 Lexington Avenue--fixed rate; Two Grand Central Tower --LIBOR + 3.5%;
345 East 64th Street--fixed rate; 192 East 75th Street--LIBOR + 2%; 30 East
End Avenue--LIBOR + 2%; Riverterrace--fixed rate; Avenue of the Americas
Plaza--fixed rate; and 305 West 50th Street-- LIBOR + 2.5%.

(3) As of June 30, 1998.

(4) Subject to prepayment penalties.

(5) Estimated annual debt service reflects only interest payments; additionally,
cash flow after expenses is applied as amortization.

(6) Subject to a 1% exit fee upon maturity and/or prepayment.

(7) These loans are currently being negotiated and reflect management's
reasonable estimates of the terms of those financings.

(8) Interest on this construction mortgage accrues to the principal amount and
the estimated balance at maturity includes such interest advances as well as
other expected drawdowns prior to maturity.

(9) These loans were refinanced in February 1998 in an amount greater than the
then principal amounts of the previous mortgages. This excess amount ($11.9
million) was distributed to the property owning entities.

CREDIT FACILITY

Concurrently with the completion of this Offering, we expect to enter into a
secured revolving line of credit (the "Credit Facility") with a financial
institution to facilitate our development and acquisition activities and for
working capital purposes. Immediately following this Offering, we expect to have
a debt to market capitalization ratio (defined as the outstanding market value
of outstanding shares of Common Stock and Units plus our total indebtedness) of
% ( % if the underwriters' overallotment option is exercised in full). We
do not have a specific policy regarding the amount of debt that we can have
outstanding, either in the aggregate or on a particular property.

ENVIRONMENTAL MATTERS

We have engaged independent environmental consulting firms to perform Phase
I environmental site assessments on the Properties and the development sites, in
order to assess existing environmental conditions. All of the Phase I
assessments have been conducted since March 31, 1997. All of the Phase I
assessments met the requirements of the American Society for testing and
materials ("ASTM") Standard Practice for Phase V Environmental Site Assessments
(the "ASTM Standard"). Under the ASTM Standard, a Phase I environmental site
assessment consists of a site visit, a historical record review, a review of
regulatory agency data bases and records, interviews, and a report, with the
purpose of identifying potential environmental concerns associated with real
estate. The Phase I assessments conducted at the Properties and the development
sites also addressed certain issues that are not covered by the ASTM Standard,
including asbestos, radon, lead-based paint and lead in drinking water. These
environmental site assessments did not reveal any known environmental liability
that we believe will have a material adverse effect on our financial condition
or results of operations or would represent a material environmental cost, nor
are we aware of any.

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Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous substances released at a property,
and may be held liable to a governmental entity or to third parties for property
damage or personal injuries and for investigation and clean-up costs incurred by
the parties in connection with the contamination. Such laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous substances. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral. See "Risk Factors--Regulatory Matters--Environmental Matters" on
page 23.

THIRD-PARTY PROPERTY MANAGEMENT

The Company provides property management services for nine properties owned
by third parties, including the assets owned by Harry Macklowe, members of his
immediate family and/or Warren Cole that are not being contributed to our
Company. All of these properties are located in New York City. The Company does
not presently intend to actively expand its third-party management business,
although it will evaluate property management engagements as opportunities
arise.

PROPERTY MANAGEMENT AND LEASING SERVICES

Through Macklowe Management, LLC, a Delaware limited liability company,
which is a wholly owned subsidiary of the Operating Partnership ("Management
LLC") we will conduct our management and leasing business largely in the same
manner as it currently is conducted by The Macklowe Organization. The Macklowe
Organization currently provides management and leasing services for our
Properties and will provide management and leasing services for the commercial
real estate interests of Harry Macklowe, members of his immediate family and/or
Warren Cole that are not contributed to our company.

Our management and leasing business is an established office property
management and leasing business with extensive experience. We have been managing
and leasing Manhattan office and apartment properties for over 35 years. Our
comprehensive tenant service program and property amenities have been designed
to maximize tenant satisfaction and retention as well as to establish long-term
relationships with our tenant and apartment base.

We believe that our fully integrated management structure enhances our
ability to respond to tenant needs and permits us to maintain control over
certain costs associated with the management and renovation of our properties.
We maintain a staff of 14 professionals experienced in the management of
Manhattan office and apartment properties. This management team has developed a
comprehensive knowledge of the office and apartment Manhattan market, an
extensive network of local tenant and other business relationships and is
experienced in repositioning newly acquired or developed office and apartment
properties through intensive full service management and leasing efforts.

In addition, we seek to capitalize on our market position and relationships
with an extensive network of brokers and tenants to implement a proactive
leasing program. We believe that our extensive knowledge of the Manhattan office
and apartment market enhances our ability to monitor, understand and anticipate
the current and future space needs of tenants in our submarkets.

CONSTRUCTION SERVICES

Through Macklowe Construction, LLC, a Delaware limited liability company
which is a wholly owned subsidiary of the Operating Partnership ("Construction
LLC"), we will continue to conduct our construction management business largely
in the same manner as it is currently conducted by The Macklowe Organization.
The Macklowe Organization currently provides construction management services
with respect to our development and capital improvement activities.

These services are comprised of (i) preconstruction scope of work
development and preliminary cost estimating for the leasing department in
connection with potential leasing transactions, plan review and approval of
proposed tenant installation plans; coordination with property management with
respect to

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tenant installation construction as it related to building systems; and
coordination and supervision of tenant's architects, engineers and contractors
in managed properties from the beginning of lease workletter negotiations
through construction of the tenant's build-out to move-in and (ii) capital
improvements programs, including major building renovations, system upgrades,
local law compliance requirements and completion of deferred maintenance items
requiring replacement (rather than repair).

EMPLOYEES

We initially intend to employ approximately 310 persons. Of such employees,
approximately 60 will be "home office" executive and administrative personnel
and approximately 208 will be on-site management and administrative personnel.
After completion of the Offering and the Formation Transactions, 83 of our
employees will be represented by a labor union pursuant to a collective
bargaining agreement.

TRANSFER OF PROPERTIES

We will acquire interests in our existing Properties (through the Operating
Partnership) pursuant to agreements for contribution of interests (each a
"Contribution Agreement"). The acquisitions are subject to all of the terms and
conditions of such agreements. The holders of interests in the Property-owning
entities (which own partial or complete interests in the individual Properties)
will transfer their interests to entities controlled by our Company or fee
interests in the Property for shares of restricted Common Stock and/or Units. We
will assume all the rights, obligations and responsibilities of the contributors
of interests. The transfer of ownership interests in each Property is subject to
the completion of the Offering.

The Contribution Agreements generally contain representations only with
respect to the ownership of the interests by the holders thereof and certain
other limited matters. Pursuant to a Supplemental Representations and Warranties
Agreement (the "Supplemental Agreement"), will agree to indemnify us against
certain breaches of representations and warranties made by with respect to
the Properties being contributed to us for a period of following the
completion of the Offering. The maximum aggregate liability of under the
Supplemental Agreement is limited to $ million of the Units and/or Common Stock
received by in the Formation Transactions, with no liability being assumed until
the aggregate liability exceeds $ . Recourse for any liabilities under the
Supplemental Agreement will be limited to Units and/or Common Stock received by
in the Formation Transactions. will pledge an aggregate of $ million
of Units and/or Common Stock (based on the initial public offering price of
shares of Common Stock) to secure indemnification obligations under the
Supplemental Agreement.

ASSETS NOT BEING TRANSFERRED TO THE COMPANY

In addition to the interests in the Properties which are being acquired by
our Company, Harry Macklowe and certain family trusts own interests in certain
other properties which we will not acquire at the time of the completion of the
Offering and the Formation Transactions. These interests include the direct and
indirect control of 50% of the interest in Rivertower, a 320-unit luxury
apartment building located in Manhattan's Upper East Side. Mr. Macklowe's
interest in the property includes all of the General Partner interest and,
combined with the family trusts' interest, all of the Class B Limited Partner
interest. The Class A limited partner interest is held by persons unaffiliated
with Mr. Macklowe. The partnership agreement governing the limited partnership
that owns Rivertower requires the General Partner to obtain the consent of the
representative of the Class A limited partner interest in order to transfer the
partnership property, transfer any or all of its General Partner interests, or
transfer its limited partnership interest to a non-family member. The
Representative has indicated that it will not give such consent. Consequently,
Mr. Macklowe and the family trusts cannot contribute Rivertower or any interest
therein to the Company. However, Rivertower will be managed by our Company
pursuant to a management agreement.

Mr. Macklowe also directly or indirectly owns interests in 800 Madison
Avenue, a 55-unit apartment property, 130 East 40th Street, a 72,265 commercial
property, 31 East 28th Street, a 48,000 square foot

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apartment property, 865 First Avenue, a 82-unit apartment property, 3 East 66th
Street, a 27-unit apartment property, 1018 Lexington Avenue, a 4-unit apartment
property, and 5,926 square feet of retail space at 245 Seventh Avenue. 130 East
40th Street, 31 East 28th Street and the retail space at 245 Seventh Avenue are
currently being marketed for sale and management expects that these properties
will be sold before the consummation of this Offering. 800 Madison Avenue, 865
First Avenue and 3 East 66th Street will not be contributed to our company
because our management believes that these properties are inconsistent with our
investment strategies and objectives. Further, Mr. Cole owns an interest in 800
Madison Avenue and 3 East 66th Street, as well as in the project described
below.

Harry Macklowe is also currently developing a 21-unit luxury condominium
project at the northeast corner of East 76th Street and Lexington Avenue.
Demolition of the building previously occupying the site began in April 1998 and
completion of this project is expected by March 1999. We anticipate that 100% of
the condominium units will be sold prior to completion of construction. This
property is not being contributed to our company because the proceeds of the
sale of condominium units would provide our Company with nonqualifying income
and gain and would impact our status as a REIT for federal income tax purposes.

Mr. Macklowe, and Mr. Cole, will devote substantially all of their business
time and attention to the day-to-day operations of our Company. They are not
expected to devote any significant part of their business time to the continued
operations of Rivertower, 865 First Avenue, 800 Madison Avenue, 1018 Lexington
Avenue or 3 East 66th Street. Further, all of such properties will be managed by
our Company pursuant to management agreements to be entered into by the relevant
property-owning entity that will provide for the payment of a market rate
property management fee, as well as applicable leasing commissions.

COMPETITION

We may compete with other owners and developers that have greater resources
and more experience than our Company. Additionally, the number of competitive
properties in our markets could have a material adverse effect on both our
ability to lease space at the Properties or any newly acquired property and on
rents charged at the Properties. We believe that our major competitors are local
real estate companies in our market that specialize in the redevelopment and
development of office and apartment buildings. We believe that the Offering, the
Credit Facility, and our access as a public company to the capital markets to
raise funds during periods when conventional financing sources may be
unavailable or prohibitively expensive will provide us with a substantial
competitive advantage. Further, we believe that the number of real estate
developers has decreased as a result of the recessionary market conditions and
tight credit markets during the early 1990s as well as the reluctance on the
part of more conventional financing sources to fund development and acquisition
projects.

REGULATION

GENERAL. Office and apartment properties in Manhattan are subject to
various laws, ordinances and regulations, including regulations relating to
common areas. We believe that each Property has the necessary permits and
approvals to operate its business.

AMERICANS WITH DISABILITIES ACT. Our properties must comply with Title III
of the ADA to the extent that such properties are "public accommodations" as
defined by the ADA. The ADA may require removal of structural barriers to access
by persons with disabilities in certain public areas of our Properties where
such removal is readily achievable. We believe that the Properties are in
substantial compliance with the ADA and that we will not be required to make
substantial capital expenditures with respect to the Properties to comply with
the requirements of the ADA. However, noncompliance with the ADA could result in
the imposition of fines or an award of damages to private litigants. The
obligation to make readily accessable accommodations is an ongoing one, and we
will continue to assess the Properties and make alterations as appropriate in
this respect.

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INSURANCE

The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which we believe are adequate and appropriate
under the circumstances. There are, however, certain types of losses that are
not generally insured because they are either uninsurable or not economically
feasible to insure. Should an uninsured loss or a loss in excess of insured
limits occur, the Operating Partnership could lose its capital invested in the
property, as well as the anticipated future revenues from the property and, in
the case of debt which is with recourse to the Operating Partnership, would
remain obligated for any mortgage debt or other financial obligations related to
the property. Any such loss would adversely affect us. Moreover, as a general
partner of the Operating Partnership, we will generally be liable for any
unsatisfied obligations other than non-recourse obligations. We believe that the
Properties will be adequately insured; however no assurance can be given that
material losses in excess of insurance proceeds will not occur in the future.

LEGAL PROCEEDINGS

Other than as described below, we currently are not a party to any legal
proceedings. Certain of our subsidiary entities are parties to a variety of
legal proceedings relating to their ownership of the Properties and the
development sites and our activities with regard to construction, management and
leasing businesses arising in the ordinary course of business. Because we may be
acquiring certain of the Properties and the development sites subject to
associated liabilities, it may therefore become a successor party-in-interest to
certain of these proceedings as a result of the Formation Transactions. We
believe that substantially all of this liability is covered by insurance. All of
these matters, taken together, are not expected to have a material adverse
effect on our Company.

In December 1997, one of our properties, 540 Madison Avenue, suffered a
casualty whereby portions of the brick facade of the building separated and fell
onto certain adjoining structures. A complaint was filed in the Supreme Court of
the State of New York, New York County against The Macklowe Organization and the
fee owner seeking compensatory and punitive damages against us and them. We
believe that the faulty facade was a result of a pre-existing condition at the
time of acquisition of the leasehold interest in the building. Therefore, if
damages were awarded against us, we believe that (i) substantially all of such
possible liability would be covered by our insurance policies and (ii) that we
have available counterclaims and actions against third-parties for any such
liability. Therefore, we do not believe that this action would have a material
adverse effect to our company.

In 1985, the City of New York imposed a moratorium on the demolition of
buildings classified as single room occupancy hotels ("SROs"). Shortly before
the moratorium was imposed, West 45th Street Macklowe Corp. ("West 45th Corp."),
a former affiliate of The Macklowe Organization, retained an independent
contractor to demolish certain buildings it controlled in Times Square,
including buildings classified as SROs. The independent contractor demolished
the buildings without adequately cordoning off the surrounding pedestrian area
and without assuring that the utility services to the buildings had been turned
off. Subsequently, West 45th Corp. and its employee responsible for the
demolition pleaded guilty to a charge of reckless endangerment and the
independent contractor was convicted after a trial. Neither Harry Macklowe nor
any current employee of our Company was charged with any criminal conduct in
connection with the incident. Harry Macklowe paid $2 million to settle a civil
action brought by the City of New York based on West 45th Corp.'s failure to
obtain certain permits relating to the demolition which had been applied for,
but which had not been issued at the time of the demolition. The City later
revised the moratorium to permit owners of SROs to demolish their buildings upon
making a payment to a special fund established by New York City. The Macklowe
Organization paid $3 million to the fund in order to develop the Times Square
site. This payment was later refunded with interest and repayment of legal fees
when the United States Supreme Court ruled that the law requiring the payment
was unconstitutional.

The Company is engaged in a dispute with the City of New York over
commercial rent taxes owed on a lease takeover for a tenant of Avenue of the
Americas Plaza. The Company has accrued an amount it believes will be paid in
settlement of this dispute.

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MANAGEMENT

DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS

Our Board of Directors will be expanded immediately following the completion
of the Offering to include the director nominees named below, each of whom has
been nominated for election and has consented to serve. A majority of our
director nominees will be independent. Pursuant to our Charter, the Board of
Directors is divided into three classes of directors. The initial terms of the
first, second and third classes will expire in 1999, 2000 and 2001,
respectively. Beginning in 1998, directors of each class will be chosen for
three-year terms upon the expiration of their current terms and each year one
class of directors will be elected by the stockholders. We believe that
classification of the Board of Directors will help to assure the continuity and
stability of our business strategies and policies as determined by the Board of
Directors. Stockholders will have no right to cumulative voting in the election
of directors. Consequently, at each annual meeting of stockholders, the holders
of a majority of the shares of Common Stock will be able to elect all of the
successors of the class of directors whose terms expire at that meeting.

The following table sets forth certain information with respect to our
directors, director nominees and executive officers immediately following the
completion of the Offering:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- --------- ----------------------------------------------------
<S> <C> <C>

Harry Macklowe...................................... 60 Chairman of the Board and Chief Executive Officer
(term will expire in 2001)

Warren D. Cole...................................... 39 President and Director (term will expire in 2000)

Kevin E. Neuner..................................... 40 Executive Vice President -- Finance and Operations

William S. Macklowe................................. 30 Senior Vice President -- Commercial Leasing

William I. Unger.................................... 42 Vice President -- Construction

Timothy E. Case..................................... 37 Vice President -- Property Management Services

Roger H. Kahn....................................... 42 Senior Vice President -- Commercial Leasing

Sheldon F. Werdiger................................. 43 Vice President -- Development

Jessica E. Schick................................... 32 Vice President -- Residential Leasing

Edward R. Ackerman.................................. 37 Vice President -- Finance

Jay Chiat........................................... 66 Director Nominee (term will expire in 2001)
[Independent Director].............................. Director Nominee (term will expire in 2000)
[Independent Director].............................. Director Nominee (term will expire in 1999)
</TABLE>

The following is a biographical summary of the experience of the
above-mentioned persons:

HARRY MACKLOWE serves as our Chairman of the Board and Chief Executive
Officer. For the past 35 years, Mr. Macklowe was the owner and Chief Executive
Officer of The Macklowe Organization. As our Chairman of the Board and Chief
Executive Officer, he coordinates and directs all of the Company's primary
functions including acquisitions, developments, leasing and property management
as well as establishing policy for our Company. Mr. Macklowe is a licensed real
estate broker in the State of New York.

WARREN D. COLE serves as our President and as a Director. Mr. Cole served as
President of The Macklowe Organization and was with the organization since 1988.
He was and will remain responsible for

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acquisition and financing activities. Mr. Cole also was and will continue to
focus on corporate and legal strategies. Prior to joining the company, Mr. Cole
was an executive in the Real Estate Finance Group at Chase Manhattan Bank,
focusing on the Manhattan market. Mr. Cole earned his BA degree in economics
from Brandeis University where he was awarded Phi Beta Kappa honors.

KEVIN E. NEUNER serves as our Executive Vice President -- Finance and
Operations. Mr. Neuner was Senior Vice President of The Macklowe Organization
and was with the organization since December 1995. He was and will continue to
be responsible for the supervision of all company and property operations,
including asset and property management, residential leasing, accounting and
finance. Prior to joining the company, Mr. Neuner was a Vice President of the
east coast region of Hines Interests Limited Partnership, a Vice President of
Shearson Lehman Brothers and a Senior Manager with Ernst & Whinney in the Real
Estate and Emerging Business Group. He earned his BS degree in accounting from
the State University of New York at Albany and his MBA in finance from New York
University School of Business. He is also a licensed New York State Certified
Public Accountant.

WILLIAM S. MACKLOWE serves as our Senior Vice President -- Commercial
Leasing. Mr. Macklowe was the Vice President of Commercial Leasing of The
Macklowe Organization and has been with the organization since January 1993. He
was and will continue to be responsible for the redevelopment and implementation
of marketing and leasing programs for all commercial buildings in the portfolio,
as well as the commercial and professional components of the residential
buildings. Prior to joining the company, Mr. Macklowe worked for Manufacturers
Hanover Trust Company in the Real Estate Finance Department. He earned his BA
degree from New York University in December of 1990 and is also a licensed real
estate broker, Co-Chair of the New Leadership Cabinet, State of Israel
Development Corp., Real Estate Division and is a member of the Real Estate Board
of New York.

WILLIAM I. UNGER serves as our Vice President -- Construction. Mr. Unger was
the Vice President and Director of Construction and joined The Macklowe
Organization in March 1983. Mr. Unger was and will continue to be responsible
for the organization and supervision of all construction activities including
new construction, renovation of existing properties, analysis of development
sites, surveys and analysis of building purchases and tenant build-out projects.
Mr. Unger also will continue to assist in design, development and product
selection. Prior to joining the company, Mr. Unger was employed by Morse/ Diesel
Construction Corp. as a project accountant in charge of commercial and
residential projects valued at $150,000,000. Prior to that position, Mr. Unger
was Controller for Infinite Electric Corp. and the Director of Capital Budgets
for Presbyterian Hospital. He earned his BS degree in accounting from Fairleigh
Dickinson University and completed 60 credit hours towards a BS degree in Civil
Engineering from the New Jersey Institute of Technology.

TIMOTHY E. CASE serves as our Vice President -- Property Management
Services. Mr. Case was the Vice President and Director of Property Management
Services for The Macklowe Organization. He was with the company since 1986 in
the Property Management Division. Mr. Case was and will continue to be
responsible for the day-to-day property management operations of the existing
portfolio as well as the start-up management of all acquisition and development
properties. Prior to joining The Macklowe Organization, Mr. Case worked for the
Trump Organization and the World Trade Center in their operations divisions. Mr.
Case is a graduate of M.E.B.A. Merchant Marine Engineering College of Baltimore,
Maryland.

ROGER H. KAHN serves as our Senior Vice President -- Commercial Leasing. Mr.
Kahn was the Senior Vice President and Director of Commercial Leasing for The
Macklowe Organization, and will continue in such capacity, developing and
supervising leasing and marketing programs for our commercial properties and
retail spaces. Mr. Kahn was with The Macklowe Organization since May 1997. Prior
to joining the company, Mr. Kahn was a Senior Managing Director at Edward S.
Gordon Co., Inc. where he directed the Commercial Property Management
Department. Prior to his position at Edward S. Gordon Co., Inc., Mr. Kahn was a
Senior Vice President at Balcor Company, a subsidiary of American Express where
he was

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responsible for directing the leasing and management of the commercial property
portfolio in the Northeast United States. Mr. Kahn earned his BS degree in
economics from the Wharton School at the University of Pennsylvania and his MBA
in finance from the New York University School of Business.

SHELDON F. WERDIGER serves as our Vice President -- Development. Mr.
Werdiger was the Vice President of Development and Marketing and was with The
Macklowe Organization from 1983 to 1992 and re-joined the company in January
1998. His responsibilities were and will continue to include space and lease
management, public process coordination and all aspects of development and
marketing. Prior to joining The Macklowe Organization, Mr. Werdiger worked at
Skidmore, Owings & Merrill Architects. He earned his B. Arch. degree from
Syracuse University School of Architecture and his MBA in finance and real
estate from Columbia University Graduate School of Business. Mr Werdiger is a
licensed architect in the states of New York and New Jersey.

JESSICA E. SCHICK serves as our Vice President and Director -- Residential
Leasing. Ms. Schick was the Vice President and Director of Residential Leasing
and Sales was with The Macklowe Organization since November 1989. She was and
will continue to be responsible for the development of marketing plans, the
coordination of sales and leasing for new projects and the administration of
leasing programs at existing buildings. Ms. Schick earned her BA degree from New
York University in June 1987.

EDWARD R. ACKERMAN serves as Vice President -- Finance. Mr Ackerman was the
Vice President of Finance and joined The Macklowe Organization in April 1998.
Prior to joining the company, Mr. Ackerman was manager of Real Estate Evaluation
Services, Inc., where he was responsible for the financial analysis of real
estate properties supporting mortgage-backed securities and assembled pooled
debt portfolio sales transactions. Mr. Ackerman also worked as Controller of The
Metropolis Group and Assistant Controller of Carol Management Corporation.
Previously, Mr. Ackerman was in the Real Estate Audit Group of Touche, Ross &
Company. He earned his BS degree in accounting from the State University of New
York at Albany. Mr. Ackerman is a licensed New York State Certified Public
Accountant.

JAY CHIAT serves as one of the Directors of the Company. Mr. Chiat is the
Managing Partner of the consulting firm of Strategie Ltd., and has been
associated with such firm since 1997. Previously, Mr. Chiat served as
Chairman/CEO of Chiat/Day Advertising Inc. He served as a Director of the
Interactive Connection, an internet company, since 1994, and CyberGold, Inc.
since 1995. He hold a BS degree from Rutgers University and is a graduate of the
UCLA Graduate School of Business Executive Program.

COMMITTEES OF THE BOARD OF DIRECTORS

EXECUTIVE COMMITTEE. Promptly following the completion of the Offering, the
Board of Directors will establish an Executive Committee. Subject to our
conflict of interest policies, the Executive Committee will be granted the
authority, within certain parameters, to acquire and dispose of real estate and
the power to authorize, on behalf of the full Board of Directors, the execution
of certain contracts and agreements, including those related to the borrowing of
money and the issuance of Common Stock, except as limited by law, and/or Units
(and, consistent with the Partnership Agreement of the Operating Partnership, to
cause the Operating Partnership to take such actions). The Executive Committee
will generally exercise all other powers of the Board of Directors, except as
prohibited by law. The Executive Committee will consist of Harry Macklowe and at
least two additional directors.

AUDIT COMMITTEE. Promptly following the completion of the Offering, the
Board of Directors will establish an Audit Committee. The Audit Committee will
make recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the scope and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of our internal accounting controls. The Audit Committee will
consist of two or more independent directors.

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COMPENSATION COMMITTEE. Promptly following the completion of the Offering,
the Board of Directors will establish a Compensation Committee consisting of at
least two independent directors to establish remuneration levels for our
executive officers and to implement and administer our stock option plans and
any other incentive programs.

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

COMPENSATION OF DIRECTORS

We intend to pay our non-employee Directors annual compensation of $ for
their services. In addition, non-employee directors will receive a fee of $ for
each Board of Directors meeting attended (in person or by telephone).
Non-employee directors will receive an additional fee of $ for each committee
meeting attended (in person or by telephone), unless the committee meeting is
held on the day of a meeting of the Board of Directors. Non-employee directors
also will be reimbursed for reasonable expenses incurred to attend director and
committee meetings. Compensation and fees may be paid to non-employee directors
in the form of cash or Common Stock, at the election of each such director. Our
officers who are directors will not be paid any director's compensation or fees.
Pursuant to our stock option plan, non-employee directors will receive, upon
initial election to the Board of Directors, options to purchase shares of
Common Stock (at the Offering Price or, if elected following the completion of
the Offering, at the prevailing market price) which will vest after one year.

EXECUTIVE COMPENSATION

The following table sets forth the annual base salary rates and other
compensation expected to be paid in 1998 to our Chief Executive Officer and each
of our other four most highly compensated executive officers (the "Named
Executive Officers"). Information for 1997 is not presented because the Company
had no operations during such period and the Named Executive Officers were
employed by other affiliated entities, as well as the Macklowe Organization.

<TABLE>
<CAPTION>
1998 BASE SALARY OPTIONS
NAME TITLE RATE(1) ALLOCATED(2)
- --------------------------------- --------------------------------- ----------------------- -------------------
<S> <C> <C> <C>

Harry Macklowe................... Chairman of the Board and Chief $
Executive Officer

Warren D. Cole................... President $

Kevin E. Neuner.................. Executive Vice President -- $
Finance and Operations

William I. Unger................. Senior Vice President -- $
Construction

Timothy E. Case.................. Senior Vice President -- Property $
Management Services
</TABLE>

- ------------------------
(1) Does not include bonuses that may be paid to the above individuals. See
"--Incentive Compensation Plan" below.
(2) Upon the effective date of the Offering, options to purchase a total of
shares of Common Stock at a price equal to the Offering Price will be
granted to officers and other employees under our stock option plan. See
"--Stock Option and Incentive Plan" below.

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OPTIONS GRANTS IN FISCAL YEAR 1998

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF SHARE PRICE
TOTAL OPTIONS APPRECIATION FOR
OPTIONS TO BE GRANTED EXERCISE OPTION TERM
TO BE TO EMPLOYEES PRICE EXPIRATION --------------------
GRANTED(1) IN FISCAL YEAR PER SHARE(2) DATE 5% 10%
----------- --------------- ------------ ------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>

Harry Macklowe........................ % $ $ $

Warren D. Cole........................ % $ $ $

Kevin E. Neuner....................... % $ $ $

William I. Unger...................... % $ $ $

Timothy E. Case....................... % $ $ $
</TABLE>

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

(1) The options for one-third of the covered shares (disregarding fractional
shares, if any) will become exercisable on each of the first, second and
third anniversaries of the date of the grant.

(2) Based on the assumed initial public offering price. The exercise price per
share will be the initial public offering price.

EMPLOYMENT AND NONCOMPETITION AGREEMENTS

We will enter into an employment and non-competition agreement with both
Harry Macklowe and Warren Cole which will be effective as of the completion of
the Offering. Each agreement will have a term of three years, which will be
automatically renewed for successive one-year periods unless otherwise
terminated. The agreements will provide for base annual compensation (as set
forth in "--Executive Compensation" above) and incentive compensation to be
determined by the Compensation Committee (within the terms described in
"--Incentive Compensation Plan" below). Each of the employment agreements
provides for certain severance payments in the event of disability or
termination by the Company without cause or by the employee with good reason.

The employment agreements will, subject to certain exceptions, prohibit each
of the employees from engaging, directly or indirectly, during the term of his
employment, in any activity which, directly or indirectly, competes with the
Company within the New York City metropolitan area from time to time (the
"Competitive Activities"). The exceptions include the Excluded Interests and any
investments in publicly traded real estate entities representing less than %
of the equity ownership of such entity. Pursuant to the agreements, each of the
employees will devote substantially all of his business time to the Company.

STOCK OPTION AND INCENTIVE PLAN

Prior to the Offering, the Board of Directors will adopt, and the
stockholders will approve, the 1998 Stock Option and Incentive Plan (the "Stock
Option Plan") for the purposes of (i) attracting and retaining employees,
directors and other service providers, (ii) providing incentives to those
individuals we deem important to our success and (iii) aligning the interests of
these individuals with our interests and those of our stockholders. On and after
the closing of the Offering, the Stock Option Plan will be administered by the
Compensation Committee of the Board of Directors. Our officers and certain other
of our employees generally will be eligible to participate in the Stock Option
Plan. Our non-employee Directors are eligible to receive stock options under the
Stock Option Plan on a limited basis. See "--Compensation of Directors" on page
99.

The following summary of the Stock Option Plan is qualified in its entirety
by reference to the full text of the Stock Option Plan, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.

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The Stock Option Plan authorizes (i) the grant of stock options that qualify
as incentive stock options under Section 422 of the Code ("ISOs"), (ii) the
grant of stock options that do not so qualify ("NQSOs"), (iii) the grant of
stock options in lieu of cash Directors' fees and employee bonuses, (iv) grants
of shares of Common Stock, in lieu of cash compensation and (v) the making of
loans to acquire shares of Common Stock, in lieu of compensation. The exercise
price of stock options will be determined by the Compensation Committee, but may
not be less than 100% of the fair market value of the shares of Common Stock on
the date of grant in the case of ISOs; provided that, in the case of grants of
NQSOs granted in lieu of cash Directors' fees and employee bonuses, the exercise
price may not be less than 50% of the fair market value of the shares of Common
Stock on the date of grant. We have reserved shares of Common Stock for
issuance under the Stock Option Plan. The Stock Option Plan will permit
participants to transfer NQSOs to certain family members or trusts for the
benefit of family members, provided the participant will not receive any
consideration for such transfer. Awards granted to officers under the Stock
Option Plan will be qualified under Rule 16b-3 under the Exchange Act.

INCENTIVE COMPENSATION PLAN

Prior to the completion of the Offering, we intend to establish an incentive
compensation plan for our key officers. This plan will provide for payment of
annual cash bonuses to participating officers after an evaluation of the
officer's performance and our overall performance for the year has been
completed. The Chief Executive Officer will make recommendations to the
Compensation Committee of the Board of Directors, which will make the final
determination for the award of bonuses in its sole discretion. The Compensation
Committee will determine the amount of such bonuses, if any, for the Chief
Executive Officer in its sole discretion.

401(K) PLAN

Effective upon the completion of the Offering, we intend to maintain a
401(k) Savings/Retirement Plan (the "401(k) Plan") to cover our eligible
employees and any designated affiliate.

The 401(k) Plan will permit our eligible employees to defer up to 15% of
their annual compensation, subject to certain limitations imposed by the Code.
The employees' elective deferrals are immediately vested and non-forfeitable
upon contribution to the 401(k) Plan.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE
COMPANY

As permitted by the MGCL, we have Charter provisions limiting the personal
liability of directors and officers for money damages to the fullest extent
permitted by Maryland law except that such Charter provisions do not limit
liability (a) for, and to the extent of, actual receipt of an improper benefit
in money, property, or services or (b) in respect of any adjudication based upon
a finding of active and deliberate dishonesty which was material to the cause of
action adjudicated. Our Charter provisions do not affect potential liability of
directors and officers to third parties, such as our creditors.

As permitted by the MGCL, our Charter obligates us to indemnify our
directors 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
by Maryland law. Our Bylaws also contain procedures that implement these
indemnification provisions of the Charter. The MGCL permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements, and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities, unless it is established that (a)
the act or omission of the director or officer was material to the matter giving
rise to such proceeding and (i) was committed in bad faith or (ii) was the
result of active deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services, or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the action or omission was unlawful.

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The Partnership Agreement also provides for indemnification and advance of
our officers' and directors' expenses to the same extent indemnification and
advance of expenses is provided to our officers and directors in the Charter and
Bylaws, and limits our officers' and directors' liability to the Operating
Partnership and its partners to the same extent liability of our officers and
directors to the Company and its stockholders is limited under the Charter. See
"Partnership Agreement--Liability and Indemnification" on page 116.

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STRUCTURE AND FORMATION OF THE COMPANY

THE OPERATING ENTITIES OF THE COMPANY

Following the completion of the Offering and the Formation Transactions, our
operations will be carried on through the Operating Partnership and its
subsidiaries. The Formation Transactions were designed to (i) acquire the
Properties, (ii) repay certain mortgage debt relating thereto, (iii) fund
capital expenditures and working capital, (iv) provide a vehicle for future
acquisitions, (v) enable us to comply with certain requirements under the Code
and the regulations promulgated by the IRS thereunder (the "Treasury
Regulations") relating to our qualification as a REIT, and (vi) defer the
recognition of taxable income by certain participants in the Formation
Transactions.

THE OPERATING PARTNERSHIP. Following the completion of the Offering and the
Formation Transactions, substantially all of our assets will be held by, and our
operations conducted through, the Operating Partnership and its subsidiaries and
affiliates. We are the sole general partner of the Operating Partnership and
will have the exclusive power under the Partnership Agreement to manage and
conduct the business of the Operating Partnership. Except with respect to the
Lock-out Provisions, limited partners generally will have only limited consent
rights. See "Partnership Agreement" on page 113. Our Board of Directors will
manage our affairs by directing the affairs of the Operating Partnership. The
Operating Partnership will continue until December 31, 2048, unless sooner
dissolved or terminated. The Operating Partnership cannot be dissolved for a
period of 50 years without the consent of the limited partners, except in
connection with a sale of all or substantially all of its assets, which also
requires the consent of the limited partners. See "Partnership Agreement" on
page 113. Our limited and general partner interests in the Operating Partnership
will entitle us to share in cash distributions from, and in the profits and
losses of, the Operating Partnership in proportion to our percentage interest
therein and will entitle us to vote on substantially all matters requiring a
vote of the limited partners.

Following the completion of the Offering and the Formation Transactions, we
will initially own an approximate % interest in the Operating Partnership.
Certain participants in the Formation Transactions, including Harry Macklowe,
will own the remaining Units. The Operating Partnership anticipates that it will
acquire additional properties in exchange for Units in the future, in which case
partners in the partnerships that own such properties will become limited
partners of the Operating Partnership.

After the completion of the Offering and the Formation Transactions, the
Operating Partnership expects to make regular quarterly cash distributions to
its partners (including us) in proportion to their percentage interests in the
Operating Partnership. We, in turn, will pay cash dividends to our stockholders
in an amount per share of Common Stock equal to the amount distributed by the
Operating Partnership per Unit. In addition, after a holding period of up to one
year following the completion of the Offering, subject to certain exceptions,
and at any time thereafter (for as long as the Operating Partnership is in
existence and subject to compliance with the securities laws and the ownership
limits of our organizational documents), limited partners in the Operating
Partnership will be able to have their Units redeemed by the Operating
Partnership. In the event that we elect to acquire Units in exchange for shares
of Common Stock upon the exercise of a redemption right by a limited partner,
each such acquisition will increase our percentage ownership interest in the
Operating Partnership and will decrease the aggregate percentage ownership
interest of the limited partners (other than the Company) in the Operating
Partnership.

THE MANAGEMENT LLC. All of the management and leasing operations with
respect to our Properties, certain third-party properties and properties we will
acquire, as well as leasing operations with respect to a portion of the
properties not owned by us, will be conducted through the Management LLC. The
Operating Partnership will own a 100% interest in the Management LLC.

THE CONSTRUCTION LLC. All of the construction management for our Properties
and development sites will be conducted through the Construction LLC. The
Operating Partnership will own a 100% interest in the Construction LLC.

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FORMATION TRANSACTIONS

Upon the completion of the Offering, we will have completed the transactions
described below (the "Formation Transactions"), which are designed to
consolidate the ownership of the Properties and other assets of The Macklowe
Organization into our Company, the Operating Partnership or our other
subsidiaries, to facilitate the Offering and to enable us to qualify as a REIT
for federal income tax purposes beginning with our taxable year ending December
31, 1998.

- We were organized as a Maryland corporation and the Operating Partnership
was organized as a Delaware limited partnership in March 1998. In
connection with our formation, certain of our officers and directors
(Harry Macklowe and Warren Cole) were issued an aggregate of 1000 shares
of restricted Common Stock for a subscription receivable of $1,000.

- We organized the Management LLC and the Construction LLC as New York
limited liability companies in April 1998.

- Pursuant to one or more merger or contribution agreements, certain
contributors which own direct or indirect interests in the Properties, the
management and leasing business and other assets of The Macklowe
Organization will contribute those interests to the Operating Partnership
in exchange for Units and shares of restricted Common Stock (having
an aggregate value of approximately $ million based on the Offering
Price) and our assumption of approximately $444.9 million of indebtedness.
The Company will contribute any assets it receives pursuant to these
transfers to the Operating Partnership in exchange for Units. The
Operating Partnership will transfer the assets of the management and
leasing business to Management LLC in exchange for its ownership interest
therein.

- Pursuant to a bankruptcy plan, the Operating Partnership will acquire its
interest in 300 Madison Avenue prior to completion of this Offering.

- We will acquire interests in 1412 Broadway and 150 Fifth Avenue for an
aggregate purchase price of approximately $98.2 million, including the
issuance of 1,200,000 Class B Units (having an aggregate value of
approximately $24.0 million based on the Offering Price), and the
assumption of $48.0 million of indebtedness. In addition, we will acquire
an interest in 16-18 East 53rd Street for a purchase price of 1,000,000
Units (having an aggregate value of $20 million based on the Offering
Price). Further, Harry Macklowe will be reimbursed $7.1 million of escrow
deposits he advanced in connection with the acquisition of these
properties.

- We will sell 26,000,000 shares of Common Stock in the Offering and will
contribute the net proceeds therefrom to the Operating Partnership in
exchange for 26,000,000 Units (which will represent an approximately %
economic interest in the Operating Partnership after the Offering).

- We will use approximately $532.3 million of the net proceeds from this
Offering to repay mortgage debt encumbering our Properties.

- In connection with the casualty suffered in connection with the renovation
of 540 Madison Avenue, any insurance payments received as a result of such
casualties will, first, be distributed to us to the extent of our
expenditures with respect thereto, and, thereafter, to Harry Macklowe in
reimbursement of certain amounts he advanced to the property-owning
entity.

- We have not obtained any independent third-party appraisals, valuations or
fairness opinions in connection with these Formation Transactions.
Accordingly, we cannot assure you that the value of the Units and other
consideration we paid in the Formation Transactions equals their fair
market value.

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CONSEQUENCES OF THE OFFERING AND THE FORMATION TRANSACTIONS

The Offering and the Formation Transactions will have the following
consequences:

- The Operating Partnership, directly or indirectly, will own 100% of the
economic interests in the Properties and leasing and other assets being
contributed.

- The purchasers of the Common Stock offered in this Offering will own
approximately % of the outstanding Common Stock.

- We will be the general partner of, and will own approximately % of the
ownership interests in, the Operating Partnership.

If all limited partners in the Operating Partnership were to exchange their
Units for Common Stock immediately after the completion of the Offering
(notwithstanding the provision of the Partnership Agreement which prohibits such
exchange for up to one year following the completion of the Offering), but
subject to the Ownership Limit, then the participants in the Formation
Transactions would beneficially own approximately % of the outstanding shares
of Common Stock.

See "Risk Factors--Conflicts of Interest in the Formation Transactions and
the Business of the Company Could Adversely Affect the Company" on page and
"Principal Stockholders" on page .

BENEFITS TO RELATED PARTIES

Certain of our officers and directors will realize certain material benefits
in connection with the Formation Transactions and this Offering, including the
following:

- Certain of our officers and directors (including Harry Macklowe, members
of his immediate family and Warren Cole) will receive shares of
restricted Common Stock and Units with an aggregate value of
approximately $ million based on the Offering Price (representing
approximately % of our equity, on a fully diluted basis), in
consideration for their contribution of interests in the Properties,
management and leasing business and other assets. The interests in the
Properties, management and leasing business and other assets being
contributed to us have a negative book value of approximately $133.3
million.

- Certain employees of The Macklowe Organization (Harry Macklowe, Warren
Cole and William Macklowe) will become officers and/or directors of our
Company. In addition, we will enter into employment and noncompetition
agreements with Harry Macklowe and Warren Cole. See
"Management--Employment and Noncompetition Agreements" on page 100. Also,
we will grant to certain of our directors, officers and employees options
to purchase an aggregate of shares of Common Stock at the Offering
Price under our stock option and incentive plan, subject to certain
vesting requirements ( of such options will be granted to each of Harry
Macklowe, Warren Cole and at the completion of the Offering). See
"Management" on page 96.

- Harry Macklowe will receive $ million of the net proceeds of the Offering
in repayment of certain loans made by him to The Macklowe Organization.

- The structure of the Formation Transactions will provide those receiving
Units (including Harry Macklowe, members of his immediate family and
Warren Cole) the opportunity to defer the recognition of taxable gain
associated with their contribution to us of their interests in the
Properties, management business and other assets.

- Pursuant to the Lock-out Provisions, we will be restricted in our ability
to sell Two Grand Central Tower, Avenue of the Americas Plaza and 369
Lexington Avenue for up to 12 years, Riverterrace for up to 5 years and
16-18 East 53rd Street for approximately four years following the
completion of the Offering in order to defer the recognition of taxable
income by certain Unitholders (including Harry Macklowe, members of his
immediate family and Warren Cole). In addition, we

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have agreed to maintain certain minimum levels of indebtedness in the
Operating Partnership in order to assist such Unitholders in deferring the
tax consequences of the contributions.

- A to-be-formed limited liability company wholly-owned by one of our
affiliates will operate and maintain the health club operations at
Riverterrace and 305 West 50th Street.

- Recipients of Units and Common Stock in the Formation Transaction will
have registration rights with respect to shares of Common Stock issued in
the Formation Transactions in redemption of Units. See "Shares Available
for Future Sale" on page 128.

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<PAGE>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of certain of our investment, financing and
other policies. Except in certain circumstances indicated below, we may change
these policies without stockholder approval. We intend to conduct our investment
activities in a manner (a) consistent to maintain our status as a REIT and (b)
that will not cause us to be treated as an investment company under federal
securities laws which may subject us, among other things, to additional
reporting requirements.

INVESTMENTS

INVESTMENTS IN REAL ESTATE

We expect to pursue our business objectives, which we describe under the
headings "The Company" and "Our Business and Growth Strategies," primarily
through the ownership by the Operating Partnership of the Properties and other
acquired assets. We may also acquire properties through subsidiaries other than
the Operating Partnership. We expect to invest in or develop primarily office
and apartment properties in Manhattan. However, we will not have any limit on
the amount or percentage of our assets that may be invested in any one property,
type of property or geographic area.

We expect that we will expand and improve our current Properties as well as
properties we acquire in the future, as circumstances warrant. We may also
participate with third parties to purchase interests in properties, through
joint ventures or other types of co-ownership, provided such investment is
consistent with our investment strategies set forth herein.

Our investments may be subject to existing mortgage financing or other
indebtedness or such financing or indebtedness may be incurred in connection
with acquiring or financing these investments. Debt service on such financing or
indebtedness will have a priority over any distributions with respect to our
Common Stock.

We have engaged in and intend to engage in the issuance of securities in
exchange for real property. These securities may be Common Stock, preferred
stock, Units, preferred Units or options to purchase capital stock or Units. As
described under the heading "Structure and Formation of the Company" on page
103, we issued Units and Common Stock in exchange for the Properties and other
assets during our formation. Additionally, we anticipate we will issue Units for
future property acquisitions. We tell you more about this on page 34 under the
heading "Business and Growth Strategies."

INVESTMENTS IN REAL ESTATE MORTGAGES

Although we do not presently intend to emphasize investments in mortgages or
deeds of trust, we may invest in non-performing, participating or convertible
mortgages on an opportunistic basis in order to acquire an equity interest in
the underlying property if we conclude that it would be in our best interest to
do so. We currently hold mortgage interests in 300 Madison Avenue and 342
Madison Avenue which will provide us with substantially all control over, and
economic interest derived from, such properties.

INVESTMENTS IN OTHER REAL ESTATE ENTITIES

As we have discussed earlier, we formed our business as an UPREIT. In doing
so, the Operating Partnership acquired interests in the Properties. We will be
the general partner of the Operating Partnership and contribute the proceeds of
this and future offerings to the Operating Partnership in exchange for Units.
See the discussion under "Structure and Formation of the Company" on page 103.

We have no other ownership interests in entities primarily engaged in real
estate activities. We have no immediate plans to make any such investments,
other than investments in wholly owned subsidiaries of the Operating Partnership
(which will not elect to be taxed as Corporations), which may own certain of our
properties or other assets. If economically attractive opportunities arise, we
may also invest in joint venture

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<PAGE>
or "DownREIT" partnerships or other entities in order to acquire interests in
specific properties. Such investments may permit us to own interests in large
assets without making a large investment thereby maintaining diversity and
flexibility in our portfolio.

SHORT-TERM INVESTMENTS

Prior to making any acquisitions and subject to the income and asset
requirements imposed on REITs, pursuant to the Code we will invest our liquid
assets in certain short-term investments during the periods between the receipt
of revenues and their distribution to you. These may include:

- interest-bearing bank accounts;

- certificates of deposit;

- short-term money-market securities;

- short-term government securities;

- mortgage-backed securities guaranteed by the Government National Mortgage
Association;

- mortgages insured by the Federal Housing Administration or guaranteed by
the Veterans Administration; or

- mortgage loan participations purchased from banks or other financial
institutions.

We may also invest in other similar types of instruments. While we reserve
the right to invest in these types of securities, we have no immediate plans to
do so. The yield on such interim investments may be higher or lower than the
yield we receive on our real estate properties.

DISPOSITIONS

We do not currently intend to dispose of any of our properties, although we
may, based upon a periodic review of our portfolio, if we determine that it
would be in our best interest. Any decision to dispose of a property must be
approved by a majority of our Board of Directors. In addition, the partnership
agreement of the Operating Partnership generally prohibits us from selling the
Designated Properties. We describe these restrictions in more detail under the
heading "Partnership Agreement-- Operational Matters--Sales of Assets" on page
114. The Lock-out Provisions apply even if it would be in the best interest of
the stockholders for the Company to sell one or more of the Properties.

BORROWINGS

We have the authority to negotiate lines of credit and arrange for other
short-term or long-term borrowings from commercial lenders. In addition, we may
also:

- obtain credit through the public issuance of debt;

- obtain credit through the private placement of debt securities with
institutional investors;

- incur mortgage indebtedness on real estate which we acquire;

- invest in properties subject to existing secured loans;

- obtain other mortgage financing for unleveraged properties in our
portfolio; and

- refinance properties acquired on a leveraged basis.

There is no limitation on the number of mortgages which may be placed on any one
property.

Our governing documents do not contain any limitation on the total amount of
indebtedness we may incur. However, we intend not to let our debt ratio exceed
%. After this Offering our debt ratio will be

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%. For these purposes, our debt ratio is calculated as total debt to total
market capitalization. We have chosen to use total market capitalization rather
than book value (which is frequently used) because we believe book value to a
large extent only reflects the depreciated value of our properties. Therefore,
book value does not accurately reflect the fair value of our assets. On the
other hand, total market capitalization does not necessarily reflect the fair
market value of our properties and is subject to greater fluctuations than book
value. However, we believe that total market capitalization more accurately
reflects the value of our assets and therefore our ability to borrow and meet
debt service requirements. Furthermore, we will consider additional factors when
deciding whether to incur additional debt such as the purchase price of
properties to be acquired with debt financing, the estimated market value of
properties upon refinancing and the ability of particular properties and our
assets as a whole to generate sufficient cash flow to cover payments on our
debt.

Our Board of Directors will consider a number of factors when evaluating our
debt level and when making decisions regarding the incurrence of debt, including
the purchase price of properties to be acquired with debt financing, the
estimated market value of our properties upon refinancing and our ability to
service such debt. See "Risk Factors--Financing Risks" on page 22 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 50.

CONFLICTS OF INTEREST

Our officers and directors owe a fiduciary duty to stockholders to act in
their best interests. They also owe a fiduciary duty to act in the best
interests of Unitholders since we are the general partner of the Operating
Partnership. However, the Unitholders' interests may conflict with the interests
of stockholders. For instance, certain Unitholders, including certain of our
officers and directors such as Harry Macklowe and Warren Cole, will incur
adverse tax consequences upon the sale of certain of the Properties acquired in
our formation and on the repayment or refinancing of indebtedness on these
Properties which are different from our tax consequences and those of our
stockholders. Consequently, such holders may have different objectives regarding
the appropriate pricing and timing of any such sale or repayment of
indebtedness. In addition, pursuant to the "lock-out provisions" which we
describe under the heading "Partnership Agreement--Operational Matters--Sale of
Assets" on page 114, the Operating Partnership may not sell Two Grand Central
Tower, Avenue of the Americas Plaza and 369 Lexington Avenue for up to 12 years,
Riverterrace for up to five years and 16-18 East 53rd Street for up to four
years following completion of this Offering, even if such sale or reduction in
mortgage indebtedness would be in the best interests of our stockholders. To
resolve any such conflicts arising in the future, the holders of Units have
agreed that in the event of a conflict in the fiduciary duties owed by our
officers and directors to stockholders and to Unitholders, our officers and
directors will fulfill their fiduciary duties by acting in the best interest of
the stockholders. This agreement by such Unitholders is contained in the
partnership agreement of the Operating Partnership and we further described it
under "Partnership Agreement -- Fiduciary Duty" on page 117.

In addition to the foregoing, we have agreed to maintain in the Operating
Partnership certain minimum levels of indebtedness in order to assist certain
Unitholders (including Harry Macklowe, members of his immediate family and
Warren Cole) defer the tax consequences of their contributions to the Operating
Partnership.

It is possible that our officers and directors may pursue businesses and
interests outside of their duties with us. In order to prevent officers and
directors from pursuing businesses and interests that may compete with or be
detrimental to us, we have entered into noncompetition agreements with certain
officers and directors which prohibit them from engaging in such activities. We
describe the provisions of such agreements in greater detail under the heading
"Management--Employment and Noncompetition Agreements" on page 100. In addition,
Maryland law obligates each director to offer to us any business opportunity
(with certain limited exceptions) that comes to him or her and that we could
reasonably have an interest in pursuing.

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Maryland law contains restrictions on a director's or officer's ability to
transact business with us. However, our Bylaw provisions are more restrictive.
Under Maryland law:

- a contract or other transaction between us and a director or between us
and any other corporation or other entity in which a director is a
director or has a material financial interest is not void or voidable
solely on the grounds of such common directorship or interest, the
presence of the director at the meeting at which the contract or
transaction is authorized, approved or ratified or the counting of the
director's vote in favor thereof if (i) the transaction or contract is
authorized, approved or ratified by the board of directors or a committee
of the board, after disclosure of the common directorship or interest by
the affirmative vote of a majority of disinterested directors, even if the
disinterested directors constitute less than a quorum, or by a majority of
the votes cast by disinterested stockholders, or (ii) the transaction or
contract is fair and reasonable to us.

- each director is obligated to offer to us any business opportunity (with
certain limited exceptions) that comes to him or her and that we
reasonably could be expected to have an interest in pursuing. After the
Formation Transactions, Harry Macklowe and Warren Cole will continue to
own interests in certain other properties as well as entities that will
provide cleaning (and related) services to office properties and security
services to offices properties, including the Properties. We will not have
any interest in these properties or businesses. See "The
Properties--Assets Not Being Transferred to the Company" on page 93.

In addition, our Board of Directors is subject to certain provisions of
Maryland law, which are designed to eliminate or minimize certain potential
conflicts of interest. There can be no assurance, however, that these policies
and provisions or these agreements always will be successful in eliminating the
influence of such conflicts, and if they are not successful, decisions could be
made that may fail to reflect fully the interests of all stockholders. See "Risk
Factors--Conflicts of Interest" on page 21.

LOANS TO OTHER PERSONS

We have not made any loans to third parties.

OTHER ACTIVITIES

We have authority to issue additional shares of Common Stock or preferred
stock and we may do so in the future. We may also repurchase or otherwise
acquire our Common Stock or Units or other securities in the open market or
otherwise although we have no present intention to do so. We do not intend to
engage in trading, underwriting or agency distribution or sale of securities of
other issuers or to invest in the securities of other issuers for the purposes
of exercising control except in connection with investing in properties as we
have already described to you above. See "--Investments--Investments in Other
Real Estate Entities" on page 107. We intend to, but are not obligated to, issue
Common Stock to Unitholders upon exercise of their redemption rights.

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CERTAIN RELATIONSHIPS AND TRANSACTIONS

FORMATION TRANSACTIONS

The terms of the acquisitions of interests in the Properties by the
Operating Partnership and the benefits to the related parties are described in
"Structure and Formation of the Company--Formation Transactions" on page 103.

OPERATING PARTNERSHIP AGREEMENT

For a description of the rights of recipients of Units to exchange their
Units for Common Stock, see "Partnership Agreement."

REGISTRATION RIGHTS

For a description of certain registration rights held by related parties,
see "Shares Available for Future Sale."

RELATED PARTY TRANSACTIONS

One of our affiliates will be the sole member of a limited liability company
which will operate and maintain the healthclubs at Riverterrace and 305 West
50th Street at market rents.

Under the terms of a deferred compensation agreement between a senior
executive officer and the Company, certain funds were set aside in 1995 in a
Rabbi Trust. Such employee will receive the funds upon the earlier to occur of
January 1, 2006 or his departure from the Company or certain other events as
contained in the agreement. All earnings of the Rabbi Trust accrue to the
benefit of such employee.

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PARTNERSHIP AGREEMENT

THE FOLLOWING DISCUSSION OF THE AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF THE OPERATING PARTNERSHIP (THE "PARTNERSHIP AGREEMENT") IS A
SUMMARY OF ALL THE MATERIAL TERMS OF THE PARTNERSHIP AGREEMENT BUT DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
PARTNERSHIP AGREEMENT WHICH IS FILED WITH THE SEC AS AN EXHIBIT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. IN THIS SECTION THE
"COMPANY" REFERS TO MACKLOWE PROPERTIES, INC.

OPERATIONAL MATTERS

GENERAL. The Operating Partnership was organized as a Delaware limited
partnership on March 25, 1998. We are the sole general partner of, and will hold
approximately % of the economic interests in, the Operating Partnership. We
will hold a 1% general partner interest in the Operating Partnership and the
balance will be held as a limited partner interest. We will conduct
substantially all of our business through the Operating Partnership and its
subsidiaries. Unitholders will hold limited partnership interests in the
Operating Partnership. The Company, both as general partner and a limited
partner, and all Unitholders will be entitled to share in any cash distributions
from, and in the profits and losses of, the Operating Partnership. Each Unit
generally will receive distributions equal to the amount paid on each share of
Common Stock. See "Distributions" on page 41.

The issued and outstanding Units consist of two separate classes: (i)
Common Units and (ii) 1,200,000 Class B Units, which share in distributions
equally with Common Units but are exchangeable during a 14-day period beginning
on the date which is six months after the consummation of this Offering (the
"Exchange Period"), for a number of common Units having a value (based on the
average closing price of the Common Stock on the NYSE for the ten business day
period preceding the commencement of the Exchange Period) equal to the value of
the Class B Units at the time of this Offering (based on the Offering Price).

Unitholders will have the rights to which limited partners are entitled
under the Partnership Agreement and, to the extent not limited by the
Partnership Agreement, the Delaware Revised Uniform Limited Partnership Act (the
"Act"). We have not and do not expect to register the Units pursuant to any
federal or state securities laws or to have them listed on any exchange or
quoted on any national market system. The Partnership Agreement imposes certain
restrictions on the transfer of Units, as we describe below.

PURPOSES, BUSINESS AND MANAGEMENT. The purpose of the Operating Partnership
includes the conduct of any business that may be lawfully conducted by a limited
partnership formed under the Act, except that the Partnership Agreement requires
the business of the Operating Partnership to be conducted in such a manner that
will permit us to be classified as a REIT under federal tax laws. However, if
the Company ceases to qualify as a REIT for reasons other than the conduct of
the business of the Operating Partnership, we may conduct the business of the
Operating Partnership in any manner permitted under Delaware law. Subject to the
foregoing limitations, the Operating Partnership may enter into partnerships,
joint ventures or similar arrangements and may own interests directly or
indirectly in any other entity, provided that such interests are held in a
manner that will enable us to qualify as a REIT.

The Company, as the general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership including the ability to cause the Operating Partnership to enter
into certain major transactions, such as acquisitions, developments and
dispositions of properties and refinancings of existing indebtedness. The
consent of the limited partners will be required in certain limited
circumstances which we discuss below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a Unitholder. Certain restrictions apply to our ability to
engage in a Business Combination, as described more fully below.

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We may not conduct any business other than the business of the Operating
Partnership without the consent of the holders of a majority of the limited
partnership interests (including the limited partnership interests held by us in
our capacity as a limited partner in the Operating Partnership).

DISTRIBUTIONS. The Partnership Agreement provides for the quarterly
distribution of cash in an amount determined by us in our sole discretion to the
Company and Unitholders in proportion to their percentage interests in the
Operating Partnership. Neither the Company nor the limited partners are entitled
to any preferential or disproportionate distributions of available cash.

BORROWING BY THE OPERATING PARTNERSHIP. We are authorized to cause the
Operating Partnership to borrow money and to issue and guarantee debt as we deem
necessary for the conduct of the activities of the Operating Partnership. Such
debt may be secured by mortgages, deeds of trust, liens or encumbrances on
properties of the Operating Partnership. We also may cause the Operating
Partnership to borrow money to enable the Operating Partnership to make
distributions, including distributions in an amount sufficient to permit the
Company, as long as it qualifies as a REIT, to avoid the payment of any federal
income tax.

REIMBURSEMENT OF THE COMPANY; TRANSACTIONS WITH THE COMPANY AND ITS
AFFILIATES. The Company will not receive any compensation for its services as
general partner of the Operating Partnership. The Company, however, as a holder
of Units and as a general partner, has the same right to allocations and
distributions as other partners in the Operating Partnership. In addition, the
Operating Partnership will reimburse the Company for substantially all expenses
it incurs relating to the Operating Partnership's ongoing operation and
offerings of Units or shares of Common Stock (or rights, options, warrants or
convertible or exchangeable securities).

Except as expressly permitted by the Partnership Agreement, our affiliates
will not sell, transfer or convey any property to, or purchase any property
from, the Operating Partnership except on terms that are fair and reasonable.

SALES OF ASSETS. Under the Partnership Agreement, we generally have the
exclusive authority to determine whether, when and on what terms the assets of
the Operating Partnership (including the Properties) will be sold, subject to
the Lock-out Provisions contained in one or more contribution agreements. A sale
of all or substantially all of the assets of the Operating Partnership (or a
merger of the Operating Partnership with another entity) generally requires an
affirmative vote of the holders of a majority of the outstanding Units
(including Units held by the Company), but also is subject to the Lock-out
Provisions.

Under the Lock-out Provisions, the Operating Partnership may not sell or
otherwise dispose of Riverterrace, Avenue of the Americas Plaza, Two Grand
Central Tower and 369 Lexington Avenue (the "Designated Properties") (or any
direct or indirect interest therein) (except in certain transactions, including
a "Section 1031 like-kind exchange" under federal tax laws, that would not
result in the recognition of any gain for tax purposes by the holders of Units
issued in the Formation Transactions with respect to these Properties), for a
period of five years with respect to Riverterrace, four years with respect to
16-18 East 53rd Street and 12 years with respect to 369 Lexington Avenue, Avenue
of the Americas Plaza and Two Grand Central Tower (the "Lockout Period") unless
we obtain the consent of Harry Macklowe, as the representative of the
contributors of these properties, except with respect to 16-18 East 53rd Street
where the consent of the representative of the contributors of this property is
required. This consent requirement does not apply to a sale of all or
substantially all of the assets of the Operating Partnership. The Lock-out
Provisions materially restrict our ability to sell or otherwise dispose of our
interest in, the Designated Properties without obtaining such consents. These
Lock-out Provisions also could prevent the Operating Partnership (and thus us)
from participating in certain major transactions that could result in the sale
of the Operating Partnership's assets or a change of control of the Company that
would result in gain to the affected unitholders, even though such a sale or
change of control might be in

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your best interests. These Lock-out Provisions apply even if it would otherwise
be in your best interest for us to sell our interest in the Designated
Properties or reduce the outstanding indebtedness of the Operating Partnership.

NO REMOVAL OF THE GENERAL PARTNER. The Partnership Agreement provides that
the limited partners may not remove the Company as general partner of the
Operating Partnership with or without cause.

ISSUANCE OF LIMITED PARTNERSHIP INTERESTS. We are authorized, without the
consent of the limited partners, to cause the Operating Partnership to issue
Units to the Company, to the limited partners or to other persons for such
consideration and upon such terms and conditions as we deem appropriate. The
Operating Partnership also may issue partnership interests in different series
or classes, which may be senior to the Units. If Units are issued to the
Company, then the Company must (i) issue shares of Common Stock and must
contribute to the Operating Partnership the proceeds received by the Company
from such issuance or (ii) cause the Operating Partnership to issue additional
Units to all partners in proportion to their respective interests in the
Operating Partnership. In addition, we may cause the Operating Partnership to
issue to the Company partnership interests in different series or classes of
equity securities, which may be senior to the Units, in connection with an
offering of the Company's securities having substantially similar rights upon
the contribution of the proceeds therefrom to the Operating Partnership.
Consideration for partnership interests may be cash or any property or other
assets permitted by Delaware law. No limited partner has preemptive,
preferential or similar rights with respect to capital contributions to the
Operating Partnership or the issuance or sale of any partnership interests
therein.

AMENDMENT OF THE PARTNERSHIP AGREEMENT. Amendments to the Partnership
Agreement may be proposed by the Company or limited partners (other than the
Company) holding 20% or more of the Units. Generally, the Partnership Agreement
may be amended with the Company's approval, as general partner, and limited
partners (including the Company) holding a majority of the Units.
Notwithstanding the foregoing, the Company, as general partner, has the power,
without the consent of the limited partners, to amend the Partnership Agreement
in certain circumstances. Certain amendments that would affect the fundamental
rights of a limited partner must be approved by the Company and each limited
partner that would be adversely affected by such amendment.

DISSOLUTION, WINDING UP AND TERMINATION. The Operating Partnership will
continue until December 31, 2048, unless sooner dissolved and terminated. The
Operating Partnership will be dissolved prior to the expiration of its term, and
its affairs wound up upon the occurrence of the earliest of: (i) the Company's
withdrawal as general partner without the permitted transfer of our interest to
a successor general partner (except in certain limited circumstances); (ii) the
sale of all or substantially all of the Operating Partnership's assets and
properties; (iii) the entry of a decree of judicial dissolution of the Operating
Partnership pursuant to the provisions of Delaware law; (iv) the entry of a
final non-appealable order for relief in a bankruptcy proceeding of the Company,
or the entry of a final non-appealable judgment ruling that the Company is
bankrupt or insolvent (except that, in either such case, in certain
circumstances all remaining partners may vote to continue the Operating
Partnership and substitute a new general partner in place of the Company); (v)
on or after January 1, 2049, at our option, in our sole and absolute discretion.
Upon dissolution, the Company, as general partner, or any liquidator will
proceed to liquidate the assets of the Operating Partnership and apply the
proceeds therefrom in the order of priority set forth in the Partnership
Agreement.

LIABILITY AND INDEMNIFICATION

LIABILITY OF THE COMPANY AND LIMITED PARTNERS. The Company, as general
partner of the Operating Partnership, is liable for all general recourse
obligations of the Operating Partnership to the extent not paid by the Operating
Partnership. The Company is not liable for the nonrecourse obligations of the
Operating Partnership. Assuming that a limited partner does not take part in the
control of the business of the Operating Partnership and otherwise acts in
conformity with the provisions of the Partnership

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Agreement and Delaware law, the liability of a limited partner for obligations
of the Operating Partnership under the Partnership Agreement and Delaware law
will be limited, subject to certain exceptions, generally to the loss of such
limited partner's investment in the Operating Partnership represented by his
Units. The Operating Partnership will operate in a manner that we deem
reasonable, necessary or appropriate to preserve the limited liability of the
limited partners.

EXCULPATION AND INDEMNIFICATION OF THE COMPANY. The Partnership Agreement
generally provides that the Company, as general partner of the Operating
Partnership, will incur no liability to the Operating Partnership or any limited
partner for losses sustained, liabilities incurred or benefits not derived as a
result of errors in judgment or mistakes of fact or law or of any act or
omission, if the Company carries out its duties in good faith. In addition, the
Company is not responsible for any misconduct or negligence on the part of its
agents, provided it appointed such agents in good faith.

The Partnership Agreement also provides for indemnification (including, in
certain circumstances, the advancement of expenses) of the Company, its
directors and officers and such other persons as we may from time to time
designate against any judgments, fines, settlements and expenses (including,
without limitation, attorney's fees and expenses) arising from claims or
proceedings that relate to the operations of the Operating Partnership or the
Company, unless it is established that: (i) the act or omission of the
indemnified person was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the indemnified person actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the indemnified person had reasonable cause to believe that the act
or omission was unlawful.

TRANSFERS OF INTERESTS

RESTRICTIONS ON TRANSFER OF OUR INTEREST AND CERTAIN OTHER
TRANSACTIONS. The Company may not transfer any of its interests as general or
limited partner in the Operating Partnership, engage in a merger or other
combination with another entity, sell or exchange substantially all of its
assets or exchange in an issuance of securities in exchange for assets (except
an issuance of securities for cash or pursuant to an employee benefit plan) or
certain other extraordinary transactions except in connection with such
transactions, in which (i) the limited partners in the Operating Partnership
either will receive, or will have the right to receive, substantially the same
consideration as the holder of one share of Common Stock who receives the
greatest amount of cash or other property in consideration of such share of
Common Stock, (ii) such transaction has been approved by the holders of a
majority of the limited partner interests in the Operating Partnership
(including interests held by the Company) or (iii) the limited partners (A)
retain an interest in a surviving limited partnership (or limited liability
company) which owns substantially all the assets, directly or indirectly, of the
surviving entity and such interest is based on the relative fair market value of
the net assets of the Operating Partnership and the other net assets of the
surviving limited partnership (or limited liability company) and (B) the rights
and privileges of limited partners in the surviving entity are at least as
favorable as those applicable to the limited partners immediately prior to the
transaction and as those applicable to the other limited partners (or
nonmanaging members) of the surviving entity including the right to exchange
their interests for either an amount equal to the amount for which limited
partners may exchange their Units pursuant to the Partnership Agreement or a
number of publicly traded common equity securities of the surviving entity using
an exchange ratio based on the relative fair market value of such securities
compared to the fair market value of our Common Stock. The Lock-out Provisions
do not apply to the Company's sale or other transfer of its interests as a
partner in the Operating Partnership, but they would apply to transfers of
assets of the Operating Partnership undertaken during the Lock-out Period in
connection with or as part of any such transaction by the Company. See
"--Operational Matters--Sales of Assets" above.

RESTRICTIONS ON TRANSFERS OF UNITS BY LIMITED PARTNERS. For up to one year
after the completion of this Offering, a limited partner may not transfer any of
his rights as a limited partner without our consent, which consent we may
withhold in our sole discretion. Any attempted transfer in violation of this

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restriction will be void AB INITIO and without any force or effect. Beginning
one year after the completion of this Offering, limited partners (other than us)
will be permitted to transfer all or any portion of their Units without
restriction as long as they satisfy certain requirements set forth in the
Partnership Agreement. In addition, limited partners will be permitted to
dispose of their Units following the expiration of up to a one-year period
following the completion of the Offering by exercising the redemption right
described below. See "--Redemption of Units" below.

The right of any permitted transferee of Units to become a substituted
limited partner is subject to our consent, which consent we may withhold in our
sole and absolute discretion. If we do not consent to the admission of a
transferee of Units as a substituted limited partner, then the transferee will
succeed to all economic rights and benefits attributable to such Units
(including the redemption right described below), but will not become a limited
partner or possess any other rights of limited partners (including the right to
vote).

REDEMPTION OF UNITS. Subject to certain limitations and exceptions, holders
of Units (other than the Company) have the right to have each of their Units
redeemed by the Operating Partnership at any time beginning (a) 12 months after
the completion of this Offering in the case of holders of Common Units and (b)
six months after the completion of this Offering in the case of holders of Class
B Units. Unless the Operating Partnership directs the Company to and the Company
elects to assume and perform the Operating Partnership's obligation with respect
to the redemption right, as described below, the limited partner will receive
cash from the Operating Partnership in an amount equal to the market value of
the Units to be redeemed. The market value of a Unit for this purpose will be
equal to the average of the closing trading price of a share of Common Stock on
the NYSE for the ten trading days before the day on which the redemption notice
was given to the Operating Partnership of exercise of the redemption right. In
lieu of the Operating Partnership's acquiring the Units for cash, the Company
will have the right (except as described below, if the Common Stock is not
publicly traded) to elect, at the direction of the Operating Partnership to
purchase the Units directly from a limited partner exercising the redemption
right, in exchange for either cash or shares of Common Stock, and, upon such
purchase, the Company will become the owner of such Units. The redemption
generally will occur on the tenth business day after the notice to the Operating
Partnership. However, no redemption or exchange can occur if delivery of shares
of Common Stock would be prohibited either under certain provisions of the
Company's Charter which are designed primarily to protect the Company's
qualification as a REIT or under applicable federal or state securities laws.
See "Description of Securities--Restrictions on Transfer" on page 120.

In the event that the Common Stock is not publicly traded, the redemption
right will be based upon the prices reported by a reliable quotation source
designated by the Company. In the event that there are no bid and ask prices
reported during the ten trading days prior to the date the notice of redemption
was given to the Operating Partnership, the redemption right will be based on
the determination of the market value of the Units by the Company acting in good
faith on the basis of such quotations and other information as it considers, in
its reasonable judgment, appropriate.

FIDUCIARY DUTY

The limited partners have agreed that in the event of a conflict in the
fiduciary duties owed by the Company to its stockholders and by the Company as
general partner of the Operating Partnership to limited partners, the Company
will fulfill its fiduciary duties by acting in the best interests of its
stockholders without violating its fiduciary duties to such limited partners or
being liable for any resulting breach of its duties to such limited partners
provided that the Company has acted in good faith.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock (or Common Stock for which Units are redeemable) by
(i) each of our directors (and director nominees), (ii) each of our executive
officers, (iii) all of our directors (including director nominees) and our
executive officers as a group, and (iv) each person or entity which is expected
to be the beneficial owner of 5% or more of the outstanding shares of Common
Stock immediately following the completion of the Offering. Except as indicated
below, all of such Common Stock is owned directly, and the indicated person or
entity has sole voting and investment power. The extent to which a person will
hold shares of Common Stock as opposed to Units is set forth in the footnotes
below. The address of each person listed below is c/o Macklowe Properties, Inc.,
142 West 57th Street, New York, New York 10019.

<TABLE>
<CAPTION>
NUMBER OF
SHARES AND UNITS PERCENT OF PERCENT OF
BENEFICIALLY ALL ALL SHARES
NAME OF ADDRESS OF BENEFICIAL OWNER OWNED SHARES(1) AND UNITS(2)
- ------------------------------------------------------------------------- ----------------- ------------ ------------
<C> <S> <C> <C> <C>

1) Harry Macklowe................................................

2) Warren D. Cole................................................

3) William S. Macklowe...........................................

4) Linda Macklowe................................................
</TABLE>

- ------------------------
(1) Assumes shares of Common Stock outstanding immediately following the
Offering. Assumes that all Units held by the person (and no other person)
are redeemed for shares of Common Stock. The total number of shares of
Common Stock outstanding used in calculating this percentage assumes that
none of the Units held by other persons are redeemed for shares of Common
Stock.

(2) Assumes a total of shares of Common Stock and Units outstanding
immediately following the Offering ( shares of Common Stock and
Units, which may be redeemed for cash or shares of Common Stock under
certain circumstances). Assumes that all Units held by the person are
redeemed for shares of Common Stock. The total number of shares of Common
Stock outstanding used in calculating this percentage assumes that all of
the Units held by other persons are redeemed for shares of Common Stock.

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DESCRIPTION OF SECURITIES

GENERAL

The following paragraphs summarize certain provisions of Maryland General
Corporation Law ("MGCL") and our Charter and Bylaws as they relate to the Common
Stock of the Company. The summary does not purport to be complete and is subject
to and qualified in its entirety by reference to MGCL and to our Charter and
Bylaws for complete information.

CAPITAL STOCK

The total number of shares of stock of all classes which the Company has
authority to issue is 200,000,000 shares of capital stock (par value $.001 per
share), amounting in aggregate par value to $200,000. A total of of
such shares are currently classified as Common Stock (the "Common Stock") and a
total of of such shares are currently classified as Series A Junior
Participating Preferred Stock (the "Series A Preferred Stock"). The Board of
Directors may classify and reclassify any unissued shares of capital stock into
other classes or series of capital stock (including Preferred Stock) by setting
or changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of such shares of capital
stock.

COMMON STOCK

A holder of Common Stock has one vote for each share held by him on all
matters submitted to a vote of stockholders and, subject to the voting rights,
if any, of the holders of Preferred Stock, if any, the exclusive voting power
for all purposes is vested in the holders of the Common Stock. Holders of Common
Stock do not have the right of cumulative voting in the election of directors.
The Common Stock has no conversion rights and is not subject to redemption. A
stockholder of the Company has no preemptive rights to subscribe for additional
shares of stock or other securities of the Company except as may be granted by
the Board of Directors.

Subject to the rights of the holders of Preferred Stock, the holders of
Common Stock of the Company are entitled to receive, pro rata, dividends when,
as, and if declared by the Board of Directors from funds legally available
therefor. The ability of the Company to pay dividends to its stockholders is
limited primarily by the ability of the Company's primary subsidiaries,
including the Operating Partnership, to pay dividends or make distributions to
the Company. In the event of any liquidation, dissolution or winding upon of the
Company, after payment or providing for the payment of all liabilities and
amounts due the holders of Preferred Stock, if any, the holders of Common Stock
are entitled to share ratably in all the remaining assets.

SERIES A PREFERRED STOCK

Our Board has authorized, but has not issued, pursuant to the Rights Plan,
the Series A Preferred Stock. The right to purchase a share of such series shall
attach to each share of Common Stock offered hereby; however, such rights are
not initially excercisable. See "--Stockholder Rights Plan" on page 120.

BOARD OF DIRECTORS

The Company's Charter provides that the number of directors of the Company
shall be five and thereafter may be increased or decreased pursuant to the
Bylaws of the Company, but shall never be less than the minimum number
(generally three directors) permitted by the MGCL. The Charter of the Company
has classified the Board of Directors into three classes of roughly equal size
which serve for three year terms, with one class being elected each year.
Subject to the rights of the holders of Preferred Stock, if any, the
stockholders may elect a successor to fill a vacancy of the Board of Directors.
A director

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elected by the stockholders to fill a vacancy serves for the balance of the term
then remaining and until his successor is elected and qualifies. A majority of
the remaining directors, whether or not sufficient to constitute a quorum, may
fill a vacancy on the Board of Directors which results from any cause except an
increase in the number of directors, and a majority of the entire Board of
Directors may fill a vacancy which results from an increase in the number of
directors. A director elected by the Board of Directors to fill a vacancy serves
until the next annual meeting of stockholders and until his successor is elected
and qualifies.

POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK

We believe that the power of our Board of Directors to issue additional
authorized but unissued shares of Common Stock and to classify or reclassify
unissued shares of Common Stock or Preferred Stock and thereafter to cause us to
issue such classified or reclassified shares of stock will provide us with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other needs which might arise. The additional classes or series,
as well as the Common Stock, will be available for issuance without further
action by our stockholders, unless such action is required by applicable law or
the rules of any stock exchange or automated quotation system on which our
securities may be listed or traded. Although the Board of Directors has no
intention at the present time of doing so, it could authorize us to issue a
class or series that could, depending upon the terms of such class or series,
delay, defer or prevent a transaction or a change of control of our Company that
might involve a premium price for holders of Common Stock or otherwise be in
their best interest.

RESTRICTIONS ON TRANSFER

For us to qualify as a REIT under the Code, among other things, not more
than 50% in value of our outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include certain
entities) during the last half of a taxable year (other than our first taxable
year) (the "Five or Fewer Requirement"), and such shares of capital stock must
be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (other than our first taxable year) or during a
proportionate part of a shorter taxable year. In order to protect us against the
risk of losing our status as a REIT due to a concentration of ownership among
our stockholders, our Charter, subject to certain exceptions, provides that no
stockholder (other than any person approved by the Directors, at their option
and in their discretion, provided that such approval will not result in the
termination of our status as a REIT) may own, directly or by virtue of
attribution provisions of the Code, more than 9.0% (in value or number of
shares, whichever is more restrictive) (the "Ownership Limit") of the issued and
outstanding shares of our Common Stock or more than 9.0% (in value) of our
outstanding capital stock. Any direct or indirect transfer of shares of stock
that would result in our capital stock being owned by fewer than 100 persons
shall be null and void, and the intended transferee will acquire no rights to
the shares of capital stock. The foregoing restrictions on transferability and
ownership continue to apply even if the Board of Directors determines that it is
no longer in our best interests to attempt to qualify, or to continue to
qualify, as a REIT.

If any transfer of shares occurs which, if effected, would (i) create a
direct or indirect ownership of shares in excess of the Ownership Limit, (ii)
result in our being "closely held" within the meaning of Section 856(h) of the
Code, or (iii) result in our owning 10% or more of the ownership interests in
one of our tenants or would otherwise result in our failing to qualify as a
REIT, then the excess capital stock being transferred that would cause one or
more of the restrictions on ownership or transfer to be violated will be
automatically transferred to a trust for the benefit of a charitable beneficiary
designated by us. The purported transferee of such shares shall have no right to
receive dividends or other distributions with respect to such shares and shall
have no right to vote such shares. Any dividends or other distributions paid to
such purported transferee prior to our discovery that the shares have been
transferred to a trust shall be paid upon demand to the trustee of the trust.
The trustee of the trust will have all rights to dividends and

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voting with respect to the shares of capital stock held in trust, which rights
will be exercised for the exclusive benefit of the charitable beneficiary. Any
dividends or distributions paid over to the trustee will be held in trust for
the charitable beneficiary. The trustee shall designate a transferee of such
stock so long as such ownership of shares of stock would not violate the
ownership limitations in the hands of such designated transferee. Upon the sale
of such shares, the purported transferee shall receive the lesser of (A)(i) the
price per share such purported transferee paid for the capital stock in the
purported transfer that resulted in the transfer of shares of capital stock to
the trust, or (ii) if the transfer or other event that resulted in the transfer
of shares of capital stock to the trust was not a transaction in which the
purported record transferee of shares of capital stock gave full value for such
shares, a price per share equal to the market price on the date of the purported
transfer or other event that resulted in the transfer of the shares to the
trust, or (B) the price per share received by the trustee from the sale or
disposition of the shares held in the trust. Any net sales proceeds in excess of
the amount paid to the purported transferee shall be paid to the charitable
beneficiary.

All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.

All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% of our outstanding Common Stock (or such lower percentage
as may be required by the Code or Treasury Regulations) must file an affidavit
with us containing the information specified in the Charter within 30 days after
January 1 of each year. In addition, each stockholder shall upon demand be
required to disclose to us in writing such information with respect to the
direct, indirect and constructive ownership of shares as the Board of Directors
deems necessary to determine our status as a REIT and to insure compliance with
the Ownership Limit and the requirements of any taxing or governmental
authority.

These ownership limitations may have the effect of precluding acquisitions
of control of our Company unless the Board of Directors determines that
maintenance of REIT status is no longer in our best interests.

STOCKHOLDER RIGHTS PLAN

Our Board of Directors has adopted a Stockholder Rights Plan (the "Rights
Plan"). The adoption of the Rights Plan could make it more difficult for a third
party to acquire, or could discourage a third party from acquiring a large block
of our Common Stock.

Pursuant to the terms of the Rights Plan, the Board of Directors declared a
dividend distribution of one Preferred Stock Purchase Right (a "Right") for each
outstanding share of Common Stock to stockholders of record as of a day prior to
effectiveness of the Registration Statement of which this Prospectus is a part
(the "Record Date"). In addition, one Right will automatically attach to each
share of Common Stock issued between the Record Date and the Distribution Date
(as hereinafter defined). Each Right entitles the registered-holder to purchase
from us a unit consisting of one one-thousandth of a share (a "Unit") of Series
A Junior Participating Cumulative Preferred Stock, par value $.001 per share
(the "Series A Preferred Stock") at a cash exercise price of $ per Unit (the
"Exercise Price"), subject to adjustment. Each Share offered hereby will be
entitled to a Right when distributed.

Initially, the Rights are not exercisable and are attached to and trade with
the outstanding shares of Common Stock. The Rights will separate from the Common
Stock and will become exercisable upon the earliest of (i) the close of business
on the tenth business day following the first public announcement that a person
or group of affiliated or associated persons (an "Acquiring Person") has
acquired beneficial ownership of more than 15% of the sum of the outstanding
shares of Common Stock ("Common Shares") (the date of said announcement being
referred to as the "Stock Acquisition Date"), or (ii) the close of business on
the tenth business day (or such other calendar day as the Board of Directors may
determine) following the commencement of a tender offer or exchange offer that
would result upon its consummation in a person or group becoming the beneficial
owner of more than 15% of the outstanding Common Shares

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(the earlier of such dates being herein referred to as the "Distribution Date").
For these purposes, a person will not be deemed to beneficially own shares of
Common Stock which may be issued in exchange for Units. In addition, no person
who is a partner of the Operating Partnership as of the closing of the Offering
will be an Acquiring Person unless such person acquires beneficial ownership of
(i) more than 15% of the outstanding Common Shares and (ii) a greater percentage
of the then outstanding Common Shares and Units (excluding Units held by us)
than that percentage of the total number of shares of Common Stock and Units
(excluding Units held by us) that such partner held at the conclusion of the
Offering. Furthermore, no "group" of which a Related Party is a member will be
deemed to beneficially own the Common Shares beneficially owned by such Related
Party.

Until the Distribution Date (or earlier redemption, exchange or expiration
of the Rights), (a) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (b) new Common Stock certificates issued after the Record Date
will contain a notation incorporating the Stockholder Rights Plan by reference,
and (c) the surrender for transfer of any certificates for Common Stock will
also constitute the transfer of the Rights associated with the Common Stock
represented by such Certificate.

The Rights are not exercisable until the Distribution Date and will expire
in , 2008 unless previously redeemed or exchanged by us as
described below.

As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of Common Stock as of the close of business on
the Distribution Date and, thereafter, the separate Rights Certificates alone
will represent the Rights. Except as otherwise determined by the Board of
Directors, only shares of Common Stock issued prior to the Distribution Date
will be issued with Rights.

In the event that a Stock Acquisition Date occurs, proper provision will be
made so that each holder of a Right (other than an Acquiring Person or its
associates or affiliates, whose Rights shall become null and void) will
thereafter have the right to receive upon exercise that number of our Units of
Series A Preferred Stock having a market value of two times the exercise price
of the Right (such right being referred to as the "Subscription Right"). In the
event that, at any time following the Stock Acquisition Date, (i) we consolidate
with, or merge with and into, any other person, and we are not the continuing or
surviving corporation, (ii) any person consolidates with us, or merges with and
into us and we are the continuing or surviving corporation of such merger and,
in connection with such merger, all or part of the shares of Common Stock are
changed into or exchanged for stock or other securities of any other person or
cash or any other property, or (iii) 50% or more of our assets or earning power
is sold, mortgaged or otherwise transferred, each holder of a Right shall
thereafter have the right to receive, upon exercise, Common Stock of the
acquiring company having a market value equal to two times the exercise price of
the Right (such right being referred to as the "Merger Right"). The holder of a
Right will continue to have the Merger Right whether or not such holder has
exercised the Subscription Right. Rights that are or were beneficially owned by
an Acquiring Person may under certain circumstances specified in the Rights Plan
become null and void.

At any time after the Stock Acquisition Date, the Board of Directors may, at
its option, exchange all or any part of the then outstanding and exercisable
Rights for shares of Common Stock or Units of Series A Preferred Stock at an
exchange ratio of one share of Common Stock or one Unit of Series A Preferred
Stock per Right. Notwithstanding the foregoing, the Board of Directors generally
will not be empowered to effect such exchange at any time after any person
becomes the beneficial owner of 50% or more of our Common Stock.

The Exercise Price payable, and the number of Units of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) if holders of the Series A Preferred Stock are
granted certain rights or warrants to subscribe for Series A Preferred Stock or
convertible securities at less than the current market

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price of the Series A Preferred Stock, or (iii) upon the distribution to holders
of the Series A Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).

With certain exceptions, no adjustment in the Exercise Price will be
required until cumulative adjustments amount to at least 1% of the Exercise
Price, determined on a per Right basis. We are not obligated to issue fractional
Units. If we elect not to issue fractional Units, in lieu thereof an adjustment
in cash will be made based on the fair market value of the Series A Preferred
Stock on the last trading date prior to the date of exercise. Any of the
provisions of the Rights Plan may be amended by the Board of Directors at any
time prior to the Distribution Date.

The Rights may be redeemed in whole, but not in part, at a price of $0.001
per Right (payable in cash, Common Stock or other consideration deemed
appropriate by the Board of Directors) by the Board of Directors only until the
earlier of (i) the close of business on the tenth calendar day after the Stock
Acquisition Date, or (ii) the expiration date of the Rights Plan. Immediately
upon the action of the Board of Directors ordering redemption of the Rights, the
Rights will Terminate and thereafter the only right of the holders of Rights
will be to receive the redemption price.

The Rights Plan may be amended by the Board of Directors in its sole
discretion until the Distribution Date. After the Distribution Date, the Board
of Directors may, subject to certain limitations set forth in the Rights Plan,
amend the Rights Plan only to cure any ambiguity, defect or inconsistency, to
shorten or lengthen any time period, or to make changes that do not adversely
affect the interests of the Rights holders (excluding the interests of an
Acquiring Person or its associates or affiliates).

Until a Right is exercised, the holder will have no rights as a stockholder
of the Company (beyond those as an existing stockholder), including the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to us, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Units, other of our securities, other consideration or for
Common Stock of an acquiring company.

A copy of the Rights Plan will be filed with the SEC as an exhibit to the
Registration Statement of which this Prospectus is a part. A copy of the Rights
Plan is also available from the Company upon written request. The foregoing
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Plan, which is incorporated herein by
reference.

REPORTS

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

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is .

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CERTAIN PROVISIONS OF MARYLAND LAW AND
OUR CHARTER AND BYLAWS

THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR
CHARTER AND BYLAWS DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND OUR CHARTER AND
BYLAWS, COPIES OF WHICH ARE EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART.

Our Charter and Bylaws contain certain provisions that could make more
difficult an acquisition or change in control of the Company by means of a
tender offer, a proxy contest or otherwise. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of the Company to
negotiate first with the Board of Directors. We believe that the benefits of
these provisions outweigh the potential disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals might
result in an improvement of their terms. The description set forth below is
intended as a summary only and is qualified in its entirety by reference to the
Charter and the Bylaws, which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. See also "Description of
Securities--Restrictions on Transfer" on page 120.

CLASSIFICATION AND REMOVAL OF BOARD OF DIRECTORS

Our Charter provides for the Board of Directors to be divided into three
classes of directors, with each class to consist as nearly as possible of an
equal number of directors. The term of office of the first class of directors
will expire at the 1999 annual meeting of stockholders; the term of the second
class of directors will expire at the 2000 annual meeting of stockholders; and
the term of the third class will expire at the 2001 annual meeting of
stockholders. At each annual meeting of stockholders, the class of directors to
be elected at such meeting will be elected for a three-year term and the
directors in the other two classes will continue in office. The stockholders
have no right to cumulative voting for the election of directors. The holders of
a plurality of the shares of Common Stock will have the ability to elect all of
the successors to the class of directors whose term expires at that meeting.

Our Charter also provides that, except for any directors who may be elected
by holders of a class or series of capital stock other than the Common Stock,
directors may be removed only for cause and only by the affirmative vote of
stockholders holding at least 80% of all the votes entitled to be cast for the
election of directors. Vacancies on the Board of Directors for any cause other
than an increase in the number of directors shall be filled by the affirmative
vote of a majority of the remaining directors and, in the case of a vacancy
resulting from an increase in the number of directors, may be filled by an
affirmative vote of the entire Board of Directors.

ISSUANCE OF STOCK

Our Board will have the power to issue additional shares of stock of any
class or series without a stockholder vote. In connection with such power, our
Board may establish the preferences and rights of additional series of capital
stock without stockholder vote, and our Board may afford the holders of any
series of senior capital stock preferences, powers and rights, voting or
otherwise, senior to the rights of holders of shares of Common Stock. The
issuance of any such senior capital stock could have the effect of delaying or
preventing a change in control of the Company. Our Board, however, currently
does not contemplate the issuance of any series of capital stock other than
shares of Common Stock; provided, however, Series A Preferred Stock may be
issued pursuant to the Rights Plan.

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LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY

See "Management--Directors, Director Nominees and Executive Officers" for a
description of the limitations on liability of our directors and the provisions
for indemnification of directors and officers provided for under applicable
Maryland law and our Charter and Bylaws.

STOCKHOLDER RIGHTS PLAN AND OWNERSHIP LIMITATIONS

We have adopted a Stockholder Rights Plan prior to the completion of the
Offering. In addition, the Rights Certificate contains provisions that limit the
ownership by any person of shares of any class or series of our capital stock.
See "Description of Securities--Stockholder Rights Plan" on page 120.

BUSINESS COMBINATION STATUTE

The MGCL prohibits certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and an "Interested Stockholder." Interested Stockholders are all
persons (a) who beneficially own 10% or more of the voting power of the
corporation's shares or (b) an affiliate or associate of the corporation who, at
any time within the two-year period prior to the date in question, was an
Interested Stockholder or an affiliate or an associate thereof. Such business
combinations are prohibited for five years after the most recent date on which
the Interested Stockholder became an Interested Stockholder. Thereafter, any
such business combination must be recommended by the board of directors of such
corporation and approved by the affirmation vote of at least (a) 80% of the
votes entitled to be cast by all holders of voting shares of the corporation,
and (b) 66 2/3% of the votes entitled to be cast by all holders of voting shares
of the corporation other than voting shares held by the Interested Stockholder
or an affiliate or associate of the Interested Stockholder, with whom the
business combination is to be effected, unless, among other things, the
corporation's stockholders receive a minimum price (as defined in the MGCL) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interest Stockholder for its shares. These provisions of
Maryland law do not apply, however, to business combinations that are approved
or exempted by the Board of Directors of the corporation prior to the time that
the Interest Stockholder becomes an Interest Stockholder. A Maryland corporation
may adopt an amendment to its charter electing not to be subject to the special
voting requirements of the forgoing legislation. Any such amendment would have
to be approved by the affirmative vote of at least 80% of the votes entitled to
be cast by all holders of outstanding shares of voting stock and 66 2/3% of the
votes entitled to be cast by holders of outstanding shares of voting stock who
are not Interested Stockholders. We have not adopted such an amendment to our
Charter; however, an approval of exemption of the Board of Directors is
currently in effect as to Harry Macklowe, his spouse, his descendants, any trust
or estate for the benefit of the foregoing, any of the associates or affiliates
of the foregoing and any other person acting in concert or as a group with any
of the foregoing.

CONTROL SHARE ACQUISITION STATUTE

The MGCL provides that the "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be case on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. Control shares are shares of
voting stock which, if aggregated with all other shares of stock previously
acquired by such a person, would entitle the acquiror to exercise voting power
in electing directors within one of the following ranges of voting power: (a)
20% or more but less than 33 1/3%; (b) 33 1/3% or more but less than a majority;
or (c) a majority of all voting power. Control Shares do not include shares of
stock an acquiring person is entitled to vote as a result of having previously
obtained stockholder approval. A control share acquisition means, subject to
certain exceptions, the

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acquisition of, ownership of or the power to direct the exercise of voting power
with respect to, control shares.

A person who has made or proposes to make a "control share acquisition,"
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand therefore to consider the
voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders' meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as permitted by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to voting
right, as of the date of the last control share acquisition or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for "control shares" are approved at a stockholders'
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the stock as determined for purposes of such appraisal rights may not
be less than the highest price per share paid in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a "control share acquisition."

The control share acquisition statue does not apply to stock acquired in a
merger, consolidation or stock exchange if the corporation is a party to the
transaction, or to acquisitions previously approved or exempted by a provision
in the charter or bylaws of the corporation. Our Bylaws contain such provisions
applicable to shares of our capital stock now or hereafter beneficially held
(during the period of such beneficial ownership) by Harry Macklowe, his spouse,
his descendants, any trust or estate for the benefit of the foregoing, any of
the associates or affiliates of the foregoing and any other person acting in
concert or as a group with any of the foregoing.

AMENDMENTS TO THE CHARTER AND OTHER CHARTER PROVISIONS

Our Charter may be amended by the affirmative vote of the holders of not
less than a majority of all of the votes entitled to be case on the matter,
except an 80% vote is required to amend the Charter (a) to make fundamental
changes relating to the Board of Directors, (b) to amend the provisions relating
to a change in control of the Company (described below), (c) to amend the
provisions relating to amendment of the Charter, and (d) to amend the provisions
relating to indemnification and limitation of liability of Directors and
officers of the Company. Our Charter provisions relating to limitation of
liability and indemnification may only be amended prospectively.

Our Charter directs the Board of Directors, in connection with the exercise
of its business judgment when evaluating a transaction which may involve a
change in control of the Company, to give consideration to all relevant factors,
including the long-term economic effects on the Company and our stockholders;
the social and economic effects on our employees and other constituents; our
historical and current operating results or financial condition; whether a more
favorable price could be obtained in the future; the reputation and business
practices of the other party; an estimate of values of our future sales of our
securities; and any antitrust or other legal or regulatory issues raised by the
transaction. Our Charter authorizes the Board of Directors to employ a broad
range of defensive measures to defeat an offer they believe should be opposed.

AMENDMENTS TO BYLAWS

Our Bylaws may be amended by the stockholders by the affirmative vote of the
holders of not less than 80% of the outstanding shares of capital stock entitled
to vote generally in the election of directors or by a vote of two-thirds of the
Board of Directors.

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ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

Our Bylaws provide that (i) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only (A)
pursuant to our notice of the meeting, (B) by the Board of Directors or (C) by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in the Bylaws and (ii) with respect to
special meetings of the stockholders, only the business specified in our notice
of meeting may be brought before the meeting of stockholders and nominations of
persons for election to the Board of Directors may be made only (A) pursuant to
our notice of the meeting, (B) by the Board of Directors or (C) provided that
the Board of Directors has determined that directors shall be elected at such
meeting, by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice provisions set forth in the Bylaws.

RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY

The Charter authorizes the Board of Directors to create and issue rights
entitling the holders thereof to purchase from the Company shares of capital
stock or other securities or property. The times at which and terms upon which
such rights are to be issued would be determined by our Board of Directors and
set forth in the contracts or instruments that evidence such rights. This
provision is intended to confirm our Board of Directors' authority to issue
share purchase rights, which might have terms that could impede a merger, tender
offer or other takeover attempt, or other rights to purchase our shares or
securities or any other corporation.

ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER
AND BYLAWS

The statutory, Charter and Bylaw provisions mentioned above may make it more
difficult and time consuming to change a majority of our Board of Directors or
otherwise gain control of the Company and thus reduce our vulnerability to an
unsolicited proposal for the takeover of the Company. In some circumstances,
certain stockholders may consider these provisions to have disadvantageous
effects. Takeover offers are frequently made at prices above the market price of
the target company's stock. In addition, acquisitions of stock by persons
attempting to acquire control through market purchases may cause the market
price of the target company's stock to reach levels that are higher than would
otherwise be the case. Our Charter and Bylaw provisions, as well as the
statutory and regulatory provisions mentioned above, may discourage any such
acquisitions, even though such acquisitions might be beneficial to the Company
or its stockholders. Accordingly, stockholders could be deprived of the
opportunity to sell their stock at prices in excess of current market prices
which often prevail as the result of such occurrences.

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SHARES AVAILABLE FOR FUTURE SALE

GENERAL

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

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

We have established a stock option plan for the purpose of attracting and
retaining highly qualified directors, executive officers and other key
employees. See "Management--Stock Option and Incentive Plan" and "--Compensation
of Directors" on pages 100 and 99, respectively. We intend to issue options to
purchase approximately shares of Common Stock to directors, officers and
certain key employees prior to the completion of the Offering and has reserved
additional shares for future issuance under the plan. On or prior to the
expiration of the initial 12-month period following the completion of the
Offering, we expect to file a registration statement with the Commission with
respect to the shares of Common Stock issuable under these plans, which shares
may be resold without restriction, unless held by affiliates.

Prior to the Offering, there has been no public market for the Common Stock.
Trading of the Common Stock on the New York Stock Exchange is expected to
commence immediately following the completion of the Offering. No prediction can
be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of options), or the perception that such sales
could occur, could adversely affect prevailing market prices of the Common
Stock. See "Risk Factors--Risks of Common Stock Ownership" and "Partnership
Agreement--Transfers of Interests" on pages 24 and 116, respectively.

REGISTRATION RIGHTS

We have granted the participants in the Formation Transactions who received
Units in the Formation Transactions certain registration rights with respect to
the shares of Common Stock owned by them or acquired by them in connection with
the exercise of the redemption right under the Partnership Agreement. These
registration rights require us to register all such shares of Common Stock upon
request. We will bear expenses incident to its registration requirements under
the registration rights, except that such expenses shall not include any
underwriting discounts or commissions or transfer taxes, if any, relating to
such shares.

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FEDERAL INCOME TAX CONSIDERATIONS

GENERAL

The following discussion summarizes the material federal income tax
considerations that may be relevant to a U.S. person who holds Common Stock, is
based on current law, and is not intended and should not be construed as tax
advice. The following discussion, which is not exhaustive of all possible tax
considerations, does not include a detailed discussion of any state, local or
foreign tax considerations. In addition, this discussion is intended to address
only those federal income tax considerations that are generally applicable to
all prospective U.S. stockholders and does not discuss all of the aspects of
federal income taxation that may be relevant to a prospective U.S. stockholder
in light of his or her particular circumstances or to certain types of
stockholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the federal income tax laws.

The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not affect the accuracy of any statements in this Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes. In addition, we have not requested and do not plan to request any
rulings from the IRS concerning our tax treatment or the tax treatment of the
Operating Partnership. Accordingly, no assurance can be given that the
statements set forth herein (which do not bind the IRS or the courts) will not
be challenged by the IRS or sustained by the courts if so challenged.

THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED
AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY

GENERAL. We will elect to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with our taxable year ending December 31, 1998. We
believe that we will be organized and will operate in a manner so as to qualify
for taxation as a REIT under the Code, and we intend to continue to operate in
such a manner. No assurance, however, can be given that we will operate in a
manner so as to qualify or remain qualified as a REIT. Qualification and
taxation as a REIT depends upon our ability to meet, on a continuing basis,
through periodic operating results, distribution levels, diversity of stock
ownership and other qualification tests imposed under the Code on REITs, some of
which are summarized below. While we intend to operate so as to qualify as a
REIT, given the highly complex nature of the rules governing REITs, the ongoing
importance of factual determinations and the possibility of future changes in
our circumstances, no assurance can be given that we will so qualify for any
particular year. See "--Failure to Qualify" on page 134.

In the opinion of Rogers & Wells LLP, our counsel ("Counsel"), commencing
with our taxable year ending December 31, 1998, we will be organized in
conformity with the requirements for qualification as a REIT under the Code and
our proposed method of operation and that of the Operating Partnership will
enable us to meet the requirements for qualification as a REIT. Counsel's
opinion is based on various assumptions and is conditioned upon certain of our
representations and the representations of the Operating Partnership as to
factual matters. In addition, Counsel's opinion is based upon our factual
representations concerning our business and properties, and the business and
properties of the Operating

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Partnership. Unlike a tax ruling, an opinion of counsel is not binding upon the
IRS and no assurance can be given that the IRS will not challenge our status.
Moreover, such qualification and taxation as a REIT depends upon our ability to
meet, through actual annual operating results, distribution levels, diversity of
stock ownership and various other qualification tests imposed under the Code.
Counsel will not review our compliance with the various REIT qualification tests
on a periodic or continuing basis. Accordingly, no assurance can be given that
the actual results of our operation for any one taxable year will satisfy such
requirements. See "--Failure to Qualify" on page 134.

The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its stockholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof, all of which are subject to
change, possibly with retroactive effect.

So long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income tax on our net income that we distribute
currently to our stockholders. This treatment substantially eliminates the
"double taxation" (taxation at both the corporate and stockholder levels) that
generally results from an investment in a corporation. If we do not qualify as a
REIT, we would be taxed at rates applicable to corporations on all of our
income, whether or not distributed to our stockholders. Even if we qualify as a
REIT, we will be subject to federal income or excise tax as follows: (i) we will
be taxed at regular corporate rates on any undistributed REIT taxable income and
undistributed net capital gains other than retained capital gains as discussed
below; (ii) under certain circumstances, we may be subject to the "alternative
minimum tax" on our items of tax preference, if any; (iii) if we have (1) net
income from the sale or other disposition of "foreclosure property" (generally,
property acquired by reason of a foreclosure or otherwise on default of a loan
secured by the property) that is held primarily for sale to customers in the
ordinary course of business or (2) other nonqualifying net income from
foreclosure property, we will be subject to tax at the highest corporate rate on
such income; (iv) if we have net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property (other than
dispositions of foreclosure property and dispositions of property that occur due
to involuntary conversion) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax; (v) if we should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), and nonetheless maintain our qualification as a REIT because
certain other requirements are met, we will be subject to a 100% tax on the net
income attributable to the greater of the amount by which we fail the 75% or 95%
test, multiplied by a fraction intended to reflect our profitability; (vi) if we
should fail to distribute with respect to each calendar year at least the sum of
(1) 85% of our REIT ordinary income for such year, (2) 95% of our REIT capital
gain net income for such year, and (3) any undistributed taxable income from
prior years, we would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed; (vii) if we acquire
any asset from a C corporation (I.E., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation and we subsequently recognize gain
on the disposition of such asset during the 10-year period (the "Recognition
Period") beginning on the date on which we acquired the asset (or we first
qualified as a REIT), then pursuant to guidelines issued by the IRS, the excess
of (1) the fair market value of the asset as of the beginning of the applicable
Recognition Period, over (2) our adjusted basis in such asset as of the
beginning of such Recognition Period (the "Built-In Gain") will be subject to
tax at the highest regular corporate rate (the "Built-In Gain Rule").

REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) that has the calendar

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year as its taxable year; (vi) the beneficial ownership of which is held by 100
or more persons; (vii) during the last half of each taxable year not more than
50% in value of the outstanding stock of which is owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities); and (viii) that meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (i)
through (v), inclusive, must be met during the entire taxable year and that
condition (vi) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (vi) and (vii), however, will not apply until after the first taxable
year for which an election is made to be taxed as a REIT.

We anticipate issuing sufficient shares of Common Stock in the Offering with
sufficient diversity of ownership to allow us to satisfy conditions (vi) and
(vii) immediately following the Offering. In addition, our Charter includes
restrictions regarding the transfer of our Common Stock that are intended to
assist us in continuing to satisfy the share ownership requirements described in
(vi) and (vii) above. See "Description of Securities--Restrictions on Transfer"
on page 120. In rendering its opinion that we are organized in conformity with
the requirements for qualification as a REIT, Counsel is relying on our
representation that ownership of our stock satisfies condition (vii) and Counsel
expresses no opinion as to whether the ownership restrictions contained in the
Charter preclude us from failing to satisfy condition (vii) above. In addition,
we intend to continue to comply with the Treasury Regulations requiring us to
ascertain and maintain records which disclose the actual ownership of our
shares. Although a failure to ascertain the actual ownership of our shares will
not cause our disqualification as a REIT, a monetary fine may result.

We may have one or more "qualified REIT subsidiaries." A corporation that is
a "qualified REIT subsidiary" is not treated as a separate corporation for
federal income tax purposes, and all assets, liabilities and items of income,
deduction and credit of a "qualified REIT subsidiary" are treated as assets,
liabilities and items of the REIT. In applying the requirements described
herein, any "qualified REIT subsidiary" of ours will be ignored, and all assets,
liabilities and items of income, deduction and credit of such subsidiary will be
treated as our assets, liabilities and items of income, deduction and credit.
Any "qualified REIT subsidiary" of ours will therefore not be subject to federal
corporate income taxation, although such "qualified REIT subsidiary" may be
subject to state or local taxation.

In the case of a REIT that is a partner in a partnership, the REIT is deemed
to own its proportionate share of the assets of the partnership and is deemed to
receive the income of the partnership attributable to such share. In addition,
the character of the assets and gross income of the partnership shall retain the
same character in the hands of the REIT. Accordingly, our proportionate share of
the assets, liabilities and items of income of the Operating Partnership are
treated as assets, liabilities and items of income of ours for purposes of
applying the requirements described herein, provided that the Operating
Partnership is treated as a partnership for federal income tax purposes. See
"--Other Tax Considerations--Effect of Tax Status of the Operating Partnership
on REIT Qualification" on page 139. We have direct control of the Operating
Partnership and intend to operate it in a manner that is consistent with the
requirements for qualification as a REIT.

INCOME TESTS. In order to qualify as a REIT, a company must satisfy two
gross income requirements on an annual basis. First, at least 75% of its gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of its gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived from the
same items which qualify under the 75% gross income test, and from dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing.

Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued

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generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of gross receipts
or sales. Second, rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the REIT, or a direct or
indirect owner of 10% or more of the REIT, directly or constructively, owns 10%
or more of such tenant (a "Related Party Tenant"). Third, if rent attributable
to personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, in order for rents received with respect to a property to
qualify as "rents from real property," the REIT generally must not operate or
manage the property or furnish or render services to tenants, except through an
"independent contractor" who is adequately compensated and from whom the REIT
derives no income. The "independent contractor" requirement, however, does not
apply to the extent the services provided by the REIT are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant." However, a DE
MINIMIS rule may apply to certain non-customary services provided by a REIT.
Specifically, if the value of the non-customary service income with respect to a
property (valued at no less than 150% of the direct costs of performing such
services) is 1% or less of the total income derived from the property, then all
rental income except the non-customary service income will qualify as "rents
from real property."

We do not anticipate charging rent that is based in whole or in part on the
income or profits of any person (except by reason of being based on a fixed
percentage or percentages of gross receipts or sales consistent with the rules
described above). We do not anticipate receiving rents from any Related Party
Tenant. We do not anticipate receiving rent attributable to personal property
leased in connection with real property that will exceed 15% of the total rents
received with respect to such property.

We will provide certain services with respect to our Properties through the
Operating Partnership, which is not an "independent contractor." However, we
believe (and have represented to Counsel) that all of such services will be
considered "usually or customarily rendered" in connection with the rental of
space for occupancy only so that the provision of such services will not
jeopardize the qualification of rent from the Properties as "rents from real
property" based upon our experience in the New York office and residential
markets. In rendering its opinion on our ability to qualify as a REIT, Counsel
is relying on such representations. In the case of any services that are not
"usual and customary" under the foregoing rules, we will employ an "independent
contractor" to provide such services.

The Operating Partnership may receive certain types of income that will not
qualify under the 75% or 95% gross income tests. In particular, fees from the
management of properties owned by third parties will not qualify under the 75%
or 95% gross income tests. We believe, and have represented to Counsel, however,
that the aggregate amount of such items and other non-qualifying income in any
taxable year will not cause us to exceed the limits on non-qualifying income
under the 75% and 95% gross income tests.

If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet any such tests was
due to reasonable cause and not due to willful neglect, we attach a schedule of
the sources and nature of our income to our federal income tax return and any
incorrect information on the schedule was not due to fraud with the intent to
evade tax. It is not possible, however, to state whether in all circumstances we
would be entitled to the benefit of these relief provisions. As discussed above,
even if these relief provisions were to apply, a tax would be imposed on certain
excess net income.

ASSET TESTS. At the close of each quarter of its taxable year, a REIT must
also satisfy three tests relating to the nature of its assets: (i) at least 75%
of the value of its total assets must be represented by real estate assets
(including (1) its allocable share of real estate assets held by partnerships in
which it has an interest and (2) stock or debt instruments purchased with the
proceeds of a stock offering on long-term (at least five years) debt offering of
the REIT and held for not more than one year following the receipt of

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such proceeds), cash, cash items and government securities; (ii) not more than
25% of its total assets may be represented by securities other than those in the
75% asset class; and (iii) of the investments included in the 25% asset class,
the value of any one issuer's securities (other than an interest in a
partnership or shares of a "qualified REIT subsidiary" or another REIT) owned by
a REIT may not exceed 5% of the value of its total assets, and it may not own
more than 10% of any one issuer's outstanding voting securities (other than an
interest in a partnership or securities of a "qualified REIT subsidiary" or
another REIT).

After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If a failure to
satisfy the asset tests results from an acquisition of securities or other
property during a quarter (including, for example, as a result of increasing our
interest in the Operating Partnership as a result of a merger, the exercise of
Redemption Rights or an additional capital contribution of proceeds of an
offering of shares of our stock), such failure may be cured by a disposition of
sufficient nonqualifying assets within 30 days following the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests and plan to take such other action within
30 days following the close of any quarter as may be required to cure any
noncompliance. However, there can be no assurance that such action will always
be successful.

ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, a company
is required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (i) the sum of (1) 95% of its "REIT
taxable income" (computed without regard to the dividends paid deduction and net
capital gain) and (2) 95% of its net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income. In
addition, if a REIT disposes of any asset subject to the Built-In Gain Rule
during its Recognition Period, it is required to distribute at least 95% of the
Built-In Gain (after payment of a corporate level tax), if any, recognized on
the disposition. Such distributions must be paid during the taxable year to
which they relate (or during the following taxable year, if declared before the
REIT timely files its tax return for the preceding year and paid on or before
the first regular dividend payment after such declaration). To the extent that a
REIT does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax on the undistributed amount at regular corporate capital gains
rates and ordinary corporate tax rates. Furthermore, if a REIT fails to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain income for such
year and (iii) any undistributed taxable income from prior periods, it will be
subject to a 4% excise tax on the excess of such amounts over the amounts
actually distributed.

We intend to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, it is expected that our REIT taxable
income will be less than our cash flow due to the allowance of depreciation and
other noncash charges in our computation of REIT taxable income. Moreover, the
Partnership Agreement of the Operating Partnership authorizes us, as general
partner, to take such steps as may be necessary to cause the Operating
Partnership to make distributions to our partners of amounts sufficient to
permit us to meet these distribution requirements. It is possible, however,
that, from time to time, we may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement due to timing differences between the
actual receipt of income and the actual payment of deductible expenses and the
inclusion of such income and deduction of such expenses in arriving at our REIT
taxable income, or due to any cash expenditures or nondeductible expenses such
as principal amortization or capital expenditures. In the event that such
circumstances do occur, we may cause the Operating Partnership to arrange for
short-term, or possibly long-term, borrowings to permit the payment of dividends
to meet the 95% distribution requirement.

Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may be able to avoid being taxed on amounts

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distributed as deficiency dividends. However, we would be required to pay to the
IRS interest based upon the amount of any deduction taken for deficiency
dividends.

FAILURE TO QUALIFY. If we fail to qualify for taxation as a REIT in any
taxable year and special relief provisions do not apply, we will be subject to
tax (including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to qualify as a REIT will not be deductible, nor will they be required to
be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to our stockholders will be taxable as ordinary
income and, subject to certain limitations in the Code, corporate distributees
may be eligible for the "dividends received deduction." In addition, our failure
to qualify as a REIT would also substantially reduce the cash available for
distributions to stockholders. Unless entitled to relief under specific
statutory provisions, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.

PARTNERSHIP ANTI-ABUSE RULE. Treasury Regulations have been promulgated
under the partnership provisions of the Code that permit the IRS to
recharacterize transactions involving partnerships that purport to create tax
advantages that are inconsistent with the intent of the partnership provisions
of the Code. The scope and intended application of these Treasury Regulations
are unclear. Nonetheless, although the matter is not free from doubt, Rogers &
Wells LLP believes that these Treasury Regulations do not adversely affect our
ability to qualify as a REIT.

TAXATION OF STOCKHOLDERS

TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as we qualify as a REIT,
distributions made to our taxable domestic stockholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable as ordinary income, and corporate stockholders
will not be eligible for the dividends received deduction as to such amounts.

Distributions that are designated as capital gain dividends will be taxed as
gains from the sale or exchange of a capital asset (to the extent they do not
exceed our actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. In the event we designate
any portion of a dividend as a capital gain dividend, a stockholder's share of
such capital gain dividend would be an amount which bears the same ratio to the
total amount of dividends paid to such stockholder for the taxable year as the
total amount of capital gain dividends bears to the total amount of all
dividends paid on all classes of stock for the taxable year. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. We may elect to retain and pay income tax on any
net long-term capital gain, in which case our domestic stockholders would
include in their income as long-term capital gain their proportionate share of
such undistributed net long-term capital gain. A domestic stockholder would also
receive a refundable tax credit for such stockholder's proportionate share of
the tax paid by us on such retained capital gains and an increase in its basis
in our stock in an amount equal to the difference between the undistributed
long-term capital gains and the amount of tax paid by us. See "--Capital Gains
and Losses" on page 135.

Distributions in excess of current and accumulated earnings and profits will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's Common Stock, but rather will reduce the
adjusted basis of such Common Stock. To the extent that such distributions
exceed the adjusted basis of a stockholder's Common Stock, they will be included
in income as short-term or long-term capital gain (depending on the length of
time the shares have been held), assuming the Common Stock is a capital asset in
the hands of the stockholder. In addition, any dividend declared by us in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by us and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by us during January of the following calendar year.

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Domestic stockholders may not include in their individual income tax returns
any of our net operating losses or capital losses. Instead, such losses would be
carried over by us for potential offset against future income (subject to
certain limitations). Distributions made by us and gain arising from the sale or
exchange by stockholders of shares will not be treated as passive activity
income, and, as a result, stockholders generally will not be able to apply any
"passive losses" against such income and gain. In addition, taxable
distributions from us generally will be treated as investment income. Capital
gain dividends and capital gains from the disposition of stock (including
distributions treated as such), however, will be treated as investment income
only if the stockholder so elects, in which case such capital gains will be
taxed at ordinary income rates. We will notify stockholders after the close of
our taxable year as to the portions of distributions attributable to that year
that constitute ordinary income, return of capital and capital gain.

In general, a domestic stockholder will realize capital gain or loss on the
disposition of Common Stock equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the stockholder's adjusted basis of such Common Stock. Such gain or loss
generally will constitute short-term capital gain or loss if the stockholder has
not held such shares for more than one year and long-term capital gain or loss
if the stockholder has held such shares for more than one year. See "--Capital
Gains and Losses" below. Loss upon a sale or exchange of Common Stock by a
stockholder who has held such Common Stock for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss to the extent of distributions from us required to be treated by such
stockholder as long-term capital gain.

CAPITAL GAINS AND LOSSES. The maximum marginal individual income tax rate
is 39.6%. The maximum tax rate on net capital gains applicable to individuals,
trusts and estates from the sale or exchange of capital assets held for more
than 18 months is 20%, and the maximum rate is reduced to 18% for assets
acquired after December 31, 2000 and held for more than five years. For
individuals, trusts and estates who would be subject to a maximum tax rate of
15%, the rate on net capital gains is reduced to 10%, and, effective for taxable
years commencing after December 31, 2000, the rate is reduced to 8% for assets
held for more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than 18
months is 25% to the extent of the deductions for depreciation (other than
certain depreciation recapture taxable as ordinary income) with respect to such
property. The maximum rate of capital gains tax for capital assets held more
than one year but not more than 18 months is 28%. Accordingly, the tax rate
differential between capital gain and ordinary income for noncorporate taxpayers
may be significant. In addition, the characterization of income as capital or
ordinary may affect the deductibility of capital losses. Capital losses not
offset by capital gains may be deducted against a noncorporate taxpayer's
ordinary income only up to a maximum annual amount of $3,000. Unused capital
losses may be carried forward. All net capital gain of a corporate taxpayer is
subject to tax at ordinary corporate rates. A corporate taxpayer can deduct
capital losses only to the extent of capital gains, with unused losses being
carried back three years and forward five years.

IRS Notice 97-64 provides temporary guidance with respect to the taxation of
distributions by REITs that are designated as capital gain dividends. Pursuant
to Notice 97-64, forthcoming Temporary Regulations will provide that capital
gains allocated to a stockholder by us may be designated as a 20% rate gain
distribution, a 25% rate gain distribution, or a 28% rate gain distribution. In
determining the amounts which may be designated as each class of capital gains
dividends, a REIT must calculate its net capital gains as if it were an
individual subject to a marginal tax rate of 28%. Unless specifically designated
otherwise by us, a distribution designated as a capital gain distribution is
presumed to be a 28% rate gain distribution. If we elect to retain any net
long-term capital gain, as discussed above, the undistributed long-term capital
gains are considered to be designated as capital gain dividends for purposes of
Notice 97-64. Furthermore, Notice 97-64 provides that designations of capital
gain dividends made by us will only be effective to the extent that the
distributions with respect to our different classes of stock are composed
proportionately of ordinary and capital gain dividends.

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BACKUP WITHHOLDING. We will report to our domestic stockholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption and otherwise complies with the applicable requirements of the backup
withholdings rules. Any amount paid as backup withholding will be creditable
against the stockholder's income tax liability. The United States Treasury has
recently issued final regulations (the "Final Regulations") regarding the
withholding and information reporting rules discussed above. In general, the
Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. The Final Regulations are generally
effective for payments made on or after January 1, 2000, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of Common Stock.

In addition, we may be required to withhold a portion of capital gain
distributions made to any stockholders which fail to certify their non-foreign
status to us. See "--Taxation of Foreign Stockholders" below.

TAXATION OF TAX-EXEMPT STOCKHOLDERS. The IRS has ruled that amounts
distributed as dividends by a REIT generally do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on
that ruling, dividend income from the Common Stock will not be UBTI to a tax-
exempt stockholder, provided that the tax-exempt stockholder has not held its
shares of Common Stock as "debt financed property" within the meaning of the
Code and such shares are not otherwise used in a trade or business. Similarly,
income from the sale of Common Stock will not constitute UBTI unless such tax-
exempt stockholder has held such shares as "debt financed property" within the
meaning of the Code or has used the shares in a trade or business.

Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401(a) of the Code, is tax-exempt under Section 501(a) of the Code (a
"qualified trust") and which holds more than 10% (by value) of the interests in
the REIT. A REIT is a "pension held REIT" if (i) it would not have qualified as
a REIT but for the application of a "look-through" exception to the "Five or
Fewer Requirement" applicable to qualified trusts, and (ii) either (1) at least
one such qualified trust holds more than 25% (by value) of the interests in the
REIT, or (2) one or more such qualified trusts, each of which owns more than 10%
(by value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend treated
as UBTI is equal to the ratio of (i) the gross income (less direct expenses
related thereto) of the REIT from unrelated trades or businesses (determined as
if the REIT were a qualified trust) to (ii) the total gross income (less direct
expenses related thereto) of the REIT. A DE MINIMIS exception applies where this
percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the "Five or Fewer Requirement" without relying upon the
"look-through" exception with respect to qualified trusts. As a result of
certain limitations on transfer and ownership of Common Stock contained in the
Charter, we do not expect to be classified as a "pension held REIT."

TAXATION OF FOREIGN STOCKHOLDERS. The rules governing the United States
federal income taxation of the ownership and disposition of Common Stock by
persons that are, for purposes of such taxation, nonresident alien individuals,
foreign corporations, foreign partnerships and other foreign stockholders
(collectively, "Non-U.S. Stockholders") are complex and no attempt will be made
herein to provide more than a summary of such rules. PROSPECTIVE NON-U.S.
STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE IMPACT
OF FEDERAL, STATE, AND LOCAL

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INCOME TAX LAWS WITH REGARD TO AN INVESTMENT IN SHARES, INCLUDING ANY REPORTING
REQUIREMENTS, AS WELL AS THE TAX TREATMENT OF SUCH AN INVESTMENT UNDER THEIR
HOME COUNTRY LAWS.

In general, Non-U.S. Stockholders will be subject to regular United States
federal income taxation with respect to their investment in shares of Common
Stock in the same manner as a U.S. Stockholder (I.E., at graduated rates on a
net basis, after allowance of deductions) if such investment is "effectively
connected" with the conduct by such Non-U.S. Stockholder of a trade or business
in the United States. A Non-U.S. Stockholder that is a corporation and that
receives income with respect to its investment in shares of Common Stock that is
(or is treated as) "effectively connected" with the conduct of a trade or
business in the United States may also be subject to the 30% branch profits tax
imposed under Section 884 of the Code, which is payable in addition to the
regular United States corporate income tax. The following discussion addresses
only the federal income taxation of Non-U.S. Stockholders whose investment in
shares of Common Stock is not "effectively connected" with the conduct of a
trade or business in the United States. Prospective investors whose investment
in shares of Common Stock may be "effectively connected" with the conduct of a
United States trade or business should consult their own tax advisors as to the
tax consequences thereof.

Distributions that are not attributable to gain from sales or exchanges of
United States real property interests and that are not designated by us as
capital gains dividends will be treated as dividends of ordinary income to the
extent that they are made out of our current or accumulated earnings and
profits. Such distributions ordinarily will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces or eliminates that tax. Pursuant to the Final Regulations,
dividends paid to an address in a country outside the United States will no
longer be presumed to be paid to a resident of such country for purposes of
determining the applicability of withholding discussed above and the
availability of a reduced tax treaty rate. A Non-U.S. Stockholder who wishes to
claim the benefit of an applicable treaty rate will now be required to satisfy
certain certification and other requirements. Distributions that we make in
excess of our current and accumulated earnings and profits will not be taxable
to a Non-U.S. Stockholder to the extent they do not exceed the adjusted basis of
such Non-U.S. Stockholder's shares, but rather will reduce the adjusted basis of
such shares (but not below zero). To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Stockholder's shares, they will give rise to
tax liability if such Non-U.S. Stockholder would otherwise be subject to tax on
any gain from the sale or disposition of shares, as described below.

For withholding tax purposes, we are currently required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Stockholder. Under the
Final Regulations (discussed below), generally effective for distributions on or
after January 1, 2000, we would not be required to withhold at the 30% rate on
distributions we reasonably estimate to be in excess of our current and
accumulated earnings and profits. If it cannot be determined at the time a
distribution is made whether such distribution will be in excess of current and
accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to ordinary dividends. However, a Non-U.S.
Stockholder may seek a refund of such amounts from the IRS if it is subsequently
determined that such distribution was, in fact, in excess of our current or
accumulated earnings and profits, and the amount withheld exceeded the Non-U.S.
Stockholder's United States tax liability, if any, with respect to the
distribution.

For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of United States real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with the conduct of a United States trade or business.
Non-U.S. Stockholders would thus be taxed at the normal capital gain rates
applicable to domestic stockholders (subject to applicable alternative minimum
tax and

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special alternative minimum tax in the case of nonresident alien individuals),
without regard as to whether such distributions are designated by us as capital
gain dividends. Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a foreign corporate stockholder not entitled
to treaty exemption. We are required by Treasury Regulations to withhold 35% of
any distribution to a Non-U.S. Stockholder that could be designated by us as a
capital gain dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be subject to United States taxation unless such shares constitute a
"United States real property interest" within the meaning of FIRPTA. The Common
Stock will not constitute a "United States real property interest" so long as we
are a "domestically controlled REIT." A "domestically controlled REIT" is
generally a REIT in which at all times during a specified testing period less
than 50% in value of its stock was held directly or indirectly by Non-U.S.
Stockholders. We believe that we will be a "domestically controlled REIT" and
therefore, the sale of Common Stock will not be subject to taxation under
FIRPTA. However, because the Common Stock will be publicly traded, no assurance
can be given that we will continue to be a "domestically controlled REIT."
Notwithstanding the foregoing, gain from the sale or exchange of our shares of
stock not otherwise subject to FIRPTA generally will be taxable to a Non-U.S.
Stockholder if the Non-U.S. Stockholder is a nonresident alien individual who is
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States. In such case, the nonresident alien
individual will be subject to a 30% United States withholding tax on the amount
of such individual's gain.

If we do not qualify as or cease to be a "domestically controlled REIT,"
whether gain arising from the sale or exchange by a Non-U.S. Stockholder of
shares of Common Stock would be subject to U.S. taxation under FIRPTA will
depend on whether the shares are "regularly traded" (as defined in applicable
Treasury Regulations) on an established securities market (such as the New York
Stock Exchange on which the Common Stock will be traded) and on the size of the
selling Non-U.S. Stockholder's interest in the Company. If the gain on the sale
of Common Stock were to be subject to tax under FIRPTA, the Non-U.S. Stockholder
would be subject to the same treatment as a domestic stockholder with respect to
such gain (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the Common Stock would be required to
withhold and remit to the IRS 10% of the purchase price. In addition, if we are
not a "domestically controlled REIT," distributions in excess of our current and
accumulated earnings and profits would be subject to withholding at a rate of
10%.

Dividends paid in the United States with respect to Common Stock, and
proceeds from the sale of Common Stock through a United States broker (or
certain brokers having significant connections with the United States) may be
subject to the information reporting requirements of the Code. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% unless such stockholder (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact, or (ii)
provides a taxpayer identification number and certifies as to no loss of
exemption, and otherwise complies with the applicable requirements of the backup
withholding rules. Non-U.S. Stockholders are generally exempt from information
reporting and backup withholding, but may be required to provide a properly
completed Form W-8 or otherwise comply with applicable certification and
identification procedures in order to prove their exemption. Any amount paid as
backup withholding will be creditable against the Non-U.S. Stockholder's United
States income tax liability.

The Final Regulations, issued by the United States Treasury on October 6,
1997, affect the rules applicable to payments to foreign persons. In general,
the Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and modify
reliance standards. In addition, the Final Regulations also address certain
issues relating to intermediary certification procedures designed to simplify
compliance by withholding agents. The Final Regulations are

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generally effective for payments made on or after January 1, 2000, subject to
certain transition rules. Prospective investors should consult their own tax
advisors concerning the adoption of the Final Regulations and the potential
effect on their ownership of Common Stock.

OTHER TAX CONSIDERATIONS

EFFECT OF TAX STATUS OF THE OPERATING PARTNERSHIP ON REIT
QUALIFICATION. All of our investments are through the Operating Partnership. We
believe that the Operating Partnership is properly treated as a partnership for
tax purposes (and not as an association taxable as a corporation). If, however,
the Operating Partnership were to be treated as an association taxable as a
corporation, we would cease to qualify as a REIT. Furthermore, in such a
situation, the Operating Partnership would be subject to corporate income taxes
and we would not be able to deduct our share of any losses generated by the
Operating Partnership in computing our taxable income.

TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties). When property is contributed to a partnership in exchange for
an interest in the partnership, the partnership generally takes a carryover
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a "Book-Tax Difference"). The partnership agreement of the
Operating Partnership requires allocations of income, gain, loss and deduction
with respect to contributed Property to be made in a manner consistent with the
special rules in Section 704(c) of the Code, and the regulations thereunder,
which tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the depreciable lives of the contributed property. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may 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 Properties in the hands of the
Operating Partnership could cause us to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to us
if all Properties were to have a tax basis equal to their fair market value at
the time of acquisition. The foregoing principles also apply in determining our
earnings and profits 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 we purchased our interests in the Properties at their agreed value.

Treasury Regulations under Section 704(c) of the Code allow partnerships to
use any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the property. The Operating Partnership has determined
to use the "traditional method" (which is specifically approved in the Treasury
Regulations) for accounting for Book-Tax Differences with respect to the
Contributed Properties.

STATE AND LOCAL TAXES. We and our stockholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
we or they transact business or reside. The state and local tax treatment of us
and our stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult with
their own tax advisors regarding the effect of state, local and other tax laws
of any investment in our Common Stock.

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ERISA AND CERTAIN OTHER CONSIDERATIONS

GENERAL

Each fiduciary of an employee benefit plan subject to ERISA (an "ERISA
Plan") should carefully consider whether an investment in the Common Stock is
consistent with its fiduciary responsibilities under ERISA. In particular, the
fiduciary requirements of Part 4 of Title I of ERISA require an ERISA Plan's
investment, inter alia, to be (i) prudent and solely in the interests of the
participants and beneficiaries of the ERISA Plan, (ii) diversified in order to
minimize the risk of large losses, unless it is clearly prudent not to do so,
and (iii) authorized under the terms of the governing documents of the ERISA
Plan. In determining whether an investment in the Common Stock is prudent for
purposes of ERISA, the appropriate fiduciary of an ERISA Plan should consider,
among other things, all of an ERISA Plan's investment portfolio for which the
fiduciary has responsibility, to meet the objectives of the ERISA Plan, taking
into consideration the risk of loss and opportunity for gain (or other return)
from the investment, the diversification, cash flow and funding requirements of
the ERISA Plan, and the liquidity and current return of the ERISA Plan's
investment portfolio. Examples of other considerations a fiduciary should take
into account include the nature of our business, the length of our operating
history, the terms of the management agreements, the fact that certain
investment properties may not have been identified yet, other matters described
under "Risk Factors" and the possibility of UBTI (defined below). See "Federal
Income Tax Considerations." In addition, fiduciaries of ERISA Plans or of
individual retirement accounts or employee benefit plans which are subject to
Section 4975 of the Code but which are not subject to ERISA ("Non-ERISA Plans,"
and, together with ERISA Plans, "Plans") should not cause or permit such Plan to
enter into transactions prohibited under Section 406 of ERISA or Section 4975 of
the Code, as applicable. Additional legal considerations may apply to Non-ERISA
Plans and to other employee benefit plans and arrangements not subject to ERISA.

STATUS OF THE COMPANY AND THE OPERATING PARTNERSHIP UNDER ERISA

The following section discusses certain principles that apply in determining
whether the fiduciary requirements of ERISA and the prohibited transaction
provisions of ERISA and the Code apply to an entity because one or more
investors in the entity's equity interests is a Plan. An ERISA Plan fiduciary
should also consider the relevance of these principles to ERISA's prohibition on
improper delegation of control over or responsibility for Plan assets and
ERISA's imposition of co-fiduciary liability on a fiduciary who participates in,
permits (by action or inaction) the occurrence of, or fails to remedy a known
breach by another fiduciary.

If our underlying assets are deemed to be assets of a Plan ("Plan Assets"),
(i) the prudence standards and other provisions of Part 4 of Title I of ERISA
and the prohibited transaction provisions of ERISA and the Code, as applicable,
would be applicable to any transactions involving our assets and (ii) persons
who exercise any authority or control over our assets, or who provide investment
advice for a fee or other compensation to us, would generally be deemed to be
(for the purposes of ERISA and the Code) fiduciaries of Plans that acquire
Common Stock. The United States Department of Labor (the "DOL"), which has
certain administrative responsibility over Plans, has issued a regulation
defining Plan Assets for certain purposes (the "DOL Regulation"). The DOL
Regulation generally provides that when a Plan acquires a security that is an
equity interest in an entity and that security is neither a "publicly offered
security" nor a security issued by an investment company registered under the
1940 Act, the assets of the Plan include both the equity interest and an
undivided interest in each of the underlying assets of the entity, unless it is
established either that the entity is an "operating company" (as defined in the
DOL Regulation) or that equity participation in the entity by "benefit plan
investors" is not significant.

The DOL Regulation defines a "publicly offered security" as a security that
is "widely held," "freely transferable" and either part of a class of securities
registered under the Exchange Act, or sold pursuant to an effective registration
statement under the Securities Act (provided the securities are registered under

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the Exchange Act within 120 days, or such later time as may be allowed by the
Commission (the "registration period"), after the end of the fiscal year of the
issuer during which the offering occurred). The Common Stock is being sold in an
offering registered under the Securities Act and we intend to register the
Common Stock under the Exchange Act within the registration period.

The DOL Regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely held"
because the number of independent investors falls below 100 subsequent to the
initial public offering as a result of events beyond the issuer's control.

The DOL Regulation provides that whether a security is "freely transferable"
is a factual question to be determined on the basis of all relevant facts and
circumstances. The DOL Regulation further provides that, where a security is
part of an offering in which the minimum investment is $10,000 or less, certain
restrictions ordinarily will not, alone or in combination, affect a finding that
such securities are "freely transferable." The restrictions on transfer
enumerated in the DOL Regulation as ordinarily not affecting a finding that the
securities are "freely transferable" include: (i) any restriction on or
prohibition against any transfer or assignment that would result in our
termination or reclassification for federal or state tax purposes, or that would
otherwise violate any state or federal law or court order, (ii) any requirement
that advance notice of a transfer or assignment be given to us, (iii) any
requirement that either the transferor or transferee, or both, execute
documentation setting forth representations as to compliance with any
restrictions on transfer that are among those enumerated in the DOL Regulation
as not affecting free transferability, (iv) any administrative procedure that
establishes an effective date, or an event (such as completion of the Offering)
prior to which a transfer of assignment will not be effective, (v) any
prohibition against transfer or assignment to an ineligible or unsuitable
investor, and (vi) any limitation or restriction on transfer or assignment that
is not imposed by the issuer or a person acting for or on behalf of the issuer.
The Offering will not impose a minimum investment requirement, and we believe
that the restrictions on transfer imposed under the Declaration of Trust on the
transfer of Common Stock are of the type of restrictions on transfer generally
permitted under the DOL Regulation or are not otherwise material and should not
result in the failure of the Common Stock to be "freely transferable" within the
meaning of the DOL Regulation. See "Description of Securities--Restrictions on
Transfer" on page 120. We also believe that certain restrictions on transfer
that derive from the securities laws, from contractual arrangements with the
Underwriters in connection with the Offering and from certain other provisions
should not result in the failure of the Common Stock to be "freely
transferable." See "Underwriting" on page 143. Furthermore, we are not aware of
any other facts or circumstances limiting the transferability of the Common
Stock that are not included among those enumerated as not affecting their free
transferability under the DOL Regulation, and we do not expect to impose in the
future (or to permit any person to impose on its behalf) any other limitations
or restrictions on transfer that would not be among the enumerated permissible
limitations or restrictions. However, the DOL Regulation only establishes, in
effect, a presumption of free transferability, and, therefore, no assurances can
be given that the DOL, the IRS or a court would not reach a contrary conclusion
with respect to the Common Stock.

Assuming that the Common Stock is "widely held" and "freely transferable,"
we believe that, under the DOL Regulation, the Common Stock should be considered
"publicly offered securities" and that, therefore, our underlying assets should
not be deemed to be Plan Assets of any Plan that invests in the Common Stock.

The DOL Regulation will also apply in determining whether the underlying
assets of the Operating Partnership will be deemed to be Plan Assets. The
partnership interests in the Operating Partnership will not be publicly offered
securities. Nevertheless, if the Common Stock constitutes publicly offered
securities, we believe that the indirect investment in the Operating Partnership
by Plans through their ownership of the Common Stock will not cause the assets
of the Operating Partnership to be treated as Plan Assets.

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PRIOR TO MAKING AN INVESTMENT IN THE COMMON STOCK, PROSPECTIVE INVESTORS
WHICH ARE "PLANS" (AS DEFINED ABOVE) OR WHICH OTHERWISE ARE OR ARE ACTING ON
BEHALF OF EMPLOYEE BENEFIT PLANS (WHETHER OR NOT SUBJECT TO ERISA OR SECTION
4975 OF THE CODE) SHOULD CONSULT WITH THEIR LEGAL AND OTHER ADVISORS CONCERNING
THE IMPACT OF ERISA AND THE CODE (AND, PARTICULARLY IN THE CASE OF PLANS AND
ARRANGEMENTS NOT SUBJECT TO ERISA, ANY ADDITIONAL STATE, LOCAL AND FOREIGN LAW
CONSIDERATIONS), AS APPLICABLE, AND THE POTENTIAL CONSEQUENCES IN THEIR SPECIFIC
CIRCUMSTANCES OF AN INVESTMENT IN THE COMMON STOCK.

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UNDERWRITING

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

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc...............................................................
Prudential Securities Incorporated................................................
----------
26,000,000
</TABLE>

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

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

We have granted to the Underwriters an option to purchase up to an
additional 3,900,000 shares of Common Stock at the initial public offering price
less the aggregate underwriting discounts and commissions shown on the cover
page of this Prospectus, solely to cover over-allotments, if any. Such option
may be exercised at any time within days after the date of the Underwriting
Agreement. To the extent that such option is exercised, each Underwriter will be
committed, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table.

We have agreed that we will not, without the prior written consent of Lehman
Brothers Inc., on behalf of the Underwriters, offer for sale, contract to sell,
sell or otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any person at
any time in the future of), directly or indirectly, any shares of Common Stock
or securities convertible into or exercisable or exchangeable for Common Stock
(other than shares offered hereby, shares issued pursuant to the Stock Option
Plan and any Units or shares of Common Stock that may be issued in connection
with any acquisition of a property), or sell or grant options, rights or
warrants with respect to any shares of Common Stock (other than the grant of
options pursuant to the Stock Option Plan), for a period of days after the
date of this Prospectus.

In addition, the Company, the Operating Partnership and certain of our
officers have agreed that they will not, without our prior written consent and
Lehman Brothers Inc., subject to certain exceptions, offer for sale, contract to
sell, sell or otherwise dispose of (or enter into any transaction or device
which is designed to, or could be expected to, result in the disposition by any
person at any time in the future of), directly or indirectly, any shares of
Common Stock or Units received by them in connection with the Formation
Transactions or the Offering, for an initial period of one year after the date
of this Prospectus, after which time one-third of such Common Stock or Units
held by each such entity or person shall no longer be subject to such
restrictions and an additional one-third thereof shall be released from such
restrictions on each of the second and third anniversaries of the date of this
Prospectus.

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We have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to the payments they may be required to make in respect thereto.

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

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

Application will be made to list the shares of Common Stock on the NYSE
under the symbol "MLO."

Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.

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

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

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

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

Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment banking
and other services for us, for which customary compensation has been, and will
be, received. We will pay an advisory fee equal to 0.75% of the gross proceeds
of the Offering (including any exercise of the Underwriters' over-allotment
option) to Lehman Brothers for advisory services in connection with the
evaluation, analysis and structuring of our formation

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as a REIT. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
on pages 40 and 52, respectively.

The Underwriters have reserved for sale at the public offering price up to
1,300,000 shares of Common Stock to our directors, officers, employees and
consultants, their business affiliates and related parties who have expressed an
interest in purchasing shares. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase the reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same basis as the others have been offered hereby.

144
<PAGE>
EXPERTS

The balance sheet of Macklowe Properties, Inc. as of March 31, 1998, the
combined financial statements of the Macklowe Organization Predecessor as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, and the statement of revenues and certain expenses for the
properties at 342 Madison Avenue, 400 Madison Avenue, 150 Fifth Avenue and 16
and 18 East 53rd Street in the Borough of Manhattan for the year ended December
31, 1997, all appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in these
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.

The Cushman & Wakefield Study was prepared for us by Cushman & Wakefield,
which is a real estate consulting firm with significant expertise relating to
the New York metropolitan area economy and the Manhattan office and residential
markets and the various submarkets therein. Information relating to the New York
economy and the Manhattan office and apartment markets set forth in "Market
Overview" on page 58 is derived from the Cushman & Wakefield Market Study and is
included in reliance on the Cushman & Wakefield authority as experts on such
matters.

LEGAL MATTERS

The validity of the shares of Common Stock and certain tax matters will be
passed upon for us by Rogers & Wells LLP, New York, New York. In addition, the
description of federal income tax consequences under the heading "Federal Income
Tax Considerations" is based upon the opinion of Rogers & Wells LLP. Certain
legal matters will be passed upon for the Underwriters by Hogan & Hartson
L.L.P., Washington, D.C. Rogers & Wells LLP and Hogan & Hartson L.L.P. may rely
on the opinion of Piper & Marbury L.L.P., Baltimore, Maryland, as to certain
matters of Maryland law.

ADDITIONAL INFORMATION

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

We intend to furnish our stockholders with annual reports containing audited
combined financial statements and a report thereon by independent certified
public accountants.

145
<PAGE>
GLOSSARY OF SELECTED TERMS

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

"ACBM" means asbestos-containing building materials.

"ADA" means the Americans with Disabilities Act, as amended.

"BOOK-TAX DIFFERENCE" means the difference between the fair market value of
a contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution.

"BYLAWS" means our bylaws, as supplemented or amended.

"CHARTER" means our Articles of Incorporation, as supplemented or amended.

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

"CLASS B UNITS" means Class B units of limited partnership interest in the
Operating Partnership.

"COMMON STOCK" means shares of our Common Stock, $.001 par value per share.

"Common Units" means common units of limited partnership interest in the
Operating Partnership.

"COMPANY" means Macklowe Properties, Inc., a Maryland corporation, and one
or more of its subsidiaries (including the Operating Partnership), and the
predecessors thereof or, as the context may require, Macklowe Properties, Inc.
only or the Operating Partnership only.

"CREDIT FACILITY" means the revolving credit facility which we expect to
establish in order to facilitate development and acquisitions of properties and
for working capital purposes.

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

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

"FORMATION TRANSACTIONS" means the transactions described in "Structure and
Formation of the Company--Formation Transactions."

"401(K) PLAN" means our Section 401(k) Savings/Retirement Plan.

"FUNDS FROM OPERATIONS" means net income (loss) (computed in accordance with
GAAP) excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.

"GAAP" means generally accepted accounting principles.

"INTERESTED STOCKHOLDER" means, with respect to the business combination
provisions of the MGCL, any person who beneficially owns 10% or more of the
voting power of a corporation's shares or an affiliate or associate of the
corporation who, at any time with the two-year period prior to the date in
question, was an Interested Stockholder or an affiliate or an associate thereof.

"IRA" means an individual retirement account or annuity.

"IRS" means the United States Internal Revenue Service.

"LOCK-OUT PERIOD" means a period of 12 years with respect to Two Grand
Central Tower, 369 Lexington Avenue and Avenue of the Americas Plaza, a period
of five years with respect to Riverterrace, and a period of approximately four
years with respect to 16-18 East 53rd Street following the completion of the
Offering, during which the Lock-out Provisions will be in effect.

"LOCK-OUT PROVISIONS" means our inability to sell, except in certain
circumstances, Two Grand Central Tower, 369 Lexington Avenue and Avenue of the
Americas Plaza, for a period of 12 years, Riverterrace for

146
<PAGE>
a period of 5 years and 16-18 East 53rd Street for a period of approximately
four years during the Lock-out Periods, except under certain circumstances.

"MACKLOWE CONSTRUCTION, LLC" means the limited liability company to which
The Macklowe Organization has transferred its construction management business
with respect to the Properties owned by us.

"MACKLOWE MANAGEMENT, LLC" means the limited liability company to which The
Macklowe Organization has transferred its management and leasing business with
respect to the Properties owned by us.

"MGCL" means the Maryland General Corporation Law.

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

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

"NON-U.S. STOCKHOLDERS" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign stockholders.

"OFFERING" means this offering of shares of Common Stock of the Company
pursuant to and as described in this Prospectus.

"OPERATING PARTNERSHIP" means Macklowe Properties, L.P., a Delaware limited
partnership.

"OWNERSHIP LIMIT" means the restriction contained in our Charter providing
that, subject to certain exceptions, no holder may own, or be deemed to own by
virtue of the attribution provision of the Code, more than 9.0% of the aggregate
number or value of shares of our Common Stock.

"PARENT ENTITY" means an entity whose stock is publicly traded and which
owns more than 50% of our capital stock.

"PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, as amended from time to time.

"PCBS" means polychlorinated biphenyls.

"PREFERRED STOCK" means one or more classes of our Preferred Stock as
designated and issued by the Board of Directors from time to time.

"PROPERTIES" means the 14 office and apartment properties located in
Manhattan in which we will own interests upon completion of the Offering.

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

"RELATED PARTY TENANT" means, for purposes of determining whether rents
received by us will qualify as "rents from real property" for satisfying the
gross income requirements for a REIT, a tenant in which the Company, or an owner
of 10% or more of the Company, directly or constructively has at least a 10%
ownership interest.

"RESTRICTED SHARES" means the shares of Common Stock received by the
participants in the Formation Transactions or acquired by any participant in the
Formation Transactions as a result of the redemption of Units.

"RIGHTS PLAN" means the Stockholder Rights Plan of the Company.

"SEC" means the Securities and Exchange Commission.

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

"STOCK OPTION PLAN" means the 1998 Stock Option and Incentive Plan.

"TREASURY REGULATIONS" means the regulations promulgated by the IRS under
the Code.

147
<PAGE>
"UBTI" means unrelated business taxable income.

"UNDERWRITERS" means the underwriters of the Offering, for whom Lehman
Brothers Inc., and Prudential Securities Incorporated are acting as
representatives.

"UNITS" means Common Units and Class B Units in the Operating Partnership.

"UPREIT" means a REIT conducting business through a partnership.

148
<PAGE>
Index to Financial Statements

<TABLE>
<CAPTION>
MACKLOWE PROPERTIES, INC.

<S> <C>
Pro Forma Combined Financial Statements (unaudited).................................. F-2
Pro Forma Combined Balance Sheet as of December 31, 1997........................... F-3
Notes to Pro Forma Combined Balance Sheet.......................................... F-4
Pro Forma Combined Income Statement for the Year Ended December 31, 1997........... F-6
Notes to Pro Forma Combined Income Statement....................................... F-7
Historical
Report of Independent Auditors..................................................... F-10
Balance Sheet as of March 31, 1998................................................. F-11
Notes to Balance Sheet............................................................. F-12

MACKLOWE ORGANIZATION PREDECESSOR

Combined Financial Statements
Report of Independent Auditors..................................................... F-15
Combined Balance Sheets as of December 31, 1997 and 1996........................... F-15
Combined Statements of Operations for the Years Ended December 31, 1997, 1996 and
1995............................................................................. F-16
Combined Statements of Owners' Deficit for the Years Ended December 31, 1997, 1996
and 1995......................................................................... F-17
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995............................................................................. F-18
Notes to the Combined Financial Statements......................................... F-19
Schedule III
Real Estate and Accumulated Depreciation as of December 31, 1997................... F-32

150 FIFTH AVENUE
Report of Independent Auditors..................................................... F-34
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997.... F-35
Notes to Statement of Revenues and Certain Expenses................................ F-36

342 MADISON AVENUE

Report of Independent Auditors..................................................... F-38
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997.... F-39
Notes to Statement of Revenues and Certain Expenses................................ F-40

400 MADISON AVENUE
Report of Independent Auditors..................................................... F-42
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997.... F-43
Notes to Statement of Revenues and Certain Expenses................................ F-44

16 AND 18 EAST 53RD STREET

Report of Independent Auditors..................................................... F-46
Combined Statement of Revenues and Certain Expenses for the Year Ended December 31,
1997............................................................................. F-47
Notes to Combined Statement of Revenues and Certain Expenses....................... F-48
</TABLE>

F-1
<PAGE>
Macklowe Properties, Inc.

Pro Forma Combined Financial Statements

(Unaudited)

The pro forma balance sheet of the Company as of December 31, 1997 has been
prepared as if the Offering and Formation Transactions had been consummated on
December 31, 1997. The pro forma income statement for the year ended December
31, 1997 is presented as if the completion of the Offering and the Formation
Transactions occurred at January 1, 1997.

The pro forma financial statements do not purport to represent what the
Company's financial position or results of operations would have been assuming
the completion of the Formation Transactions and the Offering on such date or at
the beginning of the period indicated, nor do they purport to project the
Company's financial position or results of operations at any future date or for
any future period. The pro forma combined financial statements should be read in
conjunction with the historical combined financial statements of Macklowe
Organization Predecessor included elsewhere herein.

F-2
<PAGE>
Macklowe Properties, Inc.

Pro Forma Combined Balance Sheet

As of December 31, 1997
(Unaudited)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MACKLOWE
ORGANIZATION ACQUISITION YORK 72 FINANCING PRO FORMA
PREDECESSOR THE OFFERING PROPERTIES ASSOC. TRANSACTIONS ADJUSTMENTS COMPANY
(A) (B) (C) (D) (E) (F) PRO FORMA
------------ ------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate assets--net....... $ 302,678 $ -- $ 240,328 $ 89,212 $ $ 74,287(3) $ 706,505
Mortgage note receivable...... 68,287 -- -- -- (68,287)(3) --
Cash.......................... 371 480,100(1)(3) (84,157) -- (310,752) (6,000)(3) 79,562
Restricted cash............... 14,081 -- -- 1,379 (11,893) -- 3,567
Due to affiliates............. 2,843 -- -- -- -- 2,843
Deferred rent receivable...... 29,806 -- -- 559 -- 30,365
Deferred cost, net............ 32,770 -- 2,148 147 (8,988) -- 26,077
Other assets.................. 22,020 -- -- 3,414 -- 25,434
------------ ------------ ----------- ----------- ------------ ----------- -----------
Total Assets.................. $ 472,856 $ 480,100 $ 158,319 $ 94,711 $ (331,633) $ -- $ 874,353
------------ ------------ ----------- ----------- ------------ ----------- -----------
------------ ------------ ----------- ----------- ------------ ----------- -----------
LIABILITIES
Mortgage notes payable........ $ 514,911 $ -- $ 110,819 $ 110,282 $ (325,790) $ -- $ 410,222
Excess of distributions and
share of losses over
investments in limited
partnership................. 17,856 -- -- (17,856) -- -- --
Due to affiliates............. 45,548 (1) -- 198 -- -- 45,746
Other liabilities............. 27,859 -- -- 2,087 -- -- 29,946
------------ ------------ ----------- ----------- ------------ ----------- -----------
Total liabilities............. 606,174 -- 110,819 94,711 (325,790) -- 485,914

Limited partners' minority
interest in operating
partnership................. -- -- 47,500 -- -- (2) 47,500

Common stock.................. -- 26( (3) -- -- -- -- 26
Additional paid in capital.... -- 480,074( (3) -- -- -- (139,161)(1) 340,913
Owners' equity................ (133,318) -- -- -- (5,843) 139,161(1) --
------------ ------------ ----------- ----------- ------------ ----------- -----------
Total equity.................. (133,318) 480,100 -- -- (5,843) -- 340,939
------------ ------------ ----------- ----------- ------------ ----------- -----------
Total liabilities and owners'
deficit..................... $ 472,856 $ 480,100 $ 158,319 $ 94,711 $ (331,633) $ -- $ 874,353
------------ ------------ ----------- ----------- ------------ ----------- -----------
------------ ------------ ----------- ----------- ------------ ----------- -----------
</TABLE>

See accompanying notes

F-3
<PAGE>
Macklowe Properties, Inc.

Notes to Pro Forma Combined Balance Sheet
(IN THOUSANDS EXCEPT PER SHARE)

ADJUSTMENTS TO THE PROFORMA COMBINED BALANCE SHEET

(A) To reflect the Macklowe Organization Predecessor, (the "Company") historical
combined balance sheet as of December 31, 1997. The Company is not a legal
entity but rather a combination of real estate properties and affiliated
real estate management, construction and leasing entities under common
control and management of Harry Macklowe.

(B) To reflect the following:

1. Repayment of the $ of loans made by officer from proceeds of the
initial public offering (the "Offering") and the contribution to capital
of the remaining loans.

2. In connection with the Formation Transaction certain officers will
receive units and shares of restricted common stock.
Contributions made by the sponsors are recorded at historical value. To
reflect the par value of common stock issued to the sponsor group for
contribution made.

3. Issuance of 26,000 shares of common stock at an assumed price of $20 per
share which is reduced by the underwriting discount of $32,500, an
advisory fee of $3,900 payable to Lehman Brothers Inc. and estimated
other costs of the Offering of $3,500.

(C) To reflect the acquisition of the respective properties and mortgages at
cost from third parties which represents the purchase price plus estimated
closing cost as follows:

<TABLE>
<CAPTION>
TOTAL
150 FIFTH 1412 400 MADISON 342 MADISON 777-791 16/18 EAST ACQUISITION
AVENUE BROADWAY AVENUE AVENUE SIXTH AVENUE 53RD STREET PROPERTIES
--------- -------------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS ACQUIRED
Land........................ $ 3,900 $ 10,800 $ 5,430 $ 11,322 $ 10,500 $ 3,000 $ 44,952
Building.................... 22,250 61,200 30,767 64,159 -- 17,000 195,376
Deferred cost, net.......... -- -- 808 1,340 -- -- 2,148
--------- ------- ------------ ------------ ------------ ----------- -----------
Net Property.............. $ 26,150 $ 72,000 $ 37,005 $ 76,821 $ 10,500 $ 20,000 $ 242,476
--------- ------- ------------ ------------ ------------ ----------- -----------
--------- ------- ------------ ------------ ------------ ----------- -----------
SOURCES OF FUNDS
Cash........................ $ 26,150 $ 48,000 $ 172 $ 2,835 $ 7,000 $ -- $ 84,157
Operating partnership
units..................... -- 24,000 -- -- $ 3,500 20,000 47,500
Mortgage notes payable...... -- -- 36,833 73,986 -- -- 110,819
--------- ------- ------------ ------------ ------------ ----------- -----------
$ 26,150 $ 72,000 $ 37,005 $ 76,821 $ 10,500 $ 20,000 $ 242,476
--------- ------- ------------ ------------ ------------ ----------- -----------
--------- ------- ------------ ------------ ------------ ----------- -----------
</TABLE>

(D) To reflect York 72 Associates L.P. at December 31, 1997 on a consolidated
basis, based on the Company's acquisition of the remaining 50% interest.
York 72 Associates expects to exchange the land underlying its property for
the non-promoter partner's 50% interest. Such partner will also assume $44
million of the remaining mortgage debt and will enter into a ground lease
with the Company providing for an annual rental of $500, subject to
adjustment, plus an amount equal to the interest due under the $44 million
of debt assumed. The Company will have certain options or rights of first
refusal for the property. In accordance with Statement of Financial
Accounting Standard No. 98, the Company is deemed to have continuing
involvement and the land and mortgage debt remain in their financial
statements. Further, the present value ($8,000) of the $500 portion of the
rental payments has been recorded as the purchase price of the partnership
interest and a corresponding increase in debt.

F-4
<PAGE>
Macklowe Properties, Inc.

Notes to Pro Forma Combined Balance Sheet (continued)
(IN THOUSANDS EXCEPT PER SHARE)

ADJUSTMENTS TO THE PROFORMA COMBINED BALANCE SHEET (CONTINUED)

<TABLE>
<CAPTION>
TO REFLECT
ELIMINATE AS A PURCHASE
HISTORICAL CONSOLIDATED PRICE PROFORMA
AMOUNTS ENTITY ADJUSTMENT ADJUSTMENTS
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Real estate.................................................. $ -- $ 63,460 $ 25,752 $ 89,212
Restricted cash.............................................. -- 1,379 -- 1,379
Deferred rent receivable..................................... -- 1,119 (560) 559
Deferred costs, net.......................................... -- 294 (147) 147
Other assets................................................. -- 3,414 -- 3,414
---------- ------------ ----------- -----------
$ $ 69,666 $ 25,045 $ 94,711
---------- ------------ ----------- -----------
---------- ------------ ----------- -----------
Mortgage notes payable....................................... $ -- $ 102,282 $ 8,000 $ 110,282
Investment in limited partnership............................ (17,856) -- -- (17,856)
Due to affiliates............................................ -- 198 -- 198
Other liabilities............................................ -- 2,087 -- 2,087
Minority interest............................................ -- -- -- --
Owners equity................................................ 17,856 (34,901) 17,045 --
---------- ------------ ----------- -----------
$ -- $ 69,666 $ 25,045 $ 94,711
---------- ------------ ----------- -----------
---------- ------------ ----------- -----------
</TABLE>

(E) To reflect the following financing transactions:

<TABLE>
<CAPTION>
MORTGAGE
RESTRICTED DEFERRED NOTES OWNERS
CASH CASH COSTS PAYABLE EQUITY
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
To reflect repayment of mortgage notes paid off at a
discount and release of restricted cash, net of new
mortgage financing of $140,000........................... $ (297,397) $ (11,893) $ -- $ (325,790) $ 16,500
Write off of deferred financing costs...................... -- -- (9,988) -- (9,988)
Payment of prepayment penalties............................ (12,355) -- -- -- (12,355)
Payment of finance fees for credit facility................ (1,000) -- 1,000 -- --
----------- ---------- ---------- ----------- ----------
$ (310,752) $ (11,893) $ (8,988) $ (325,790) $ (5,843)
----------- ---------- ---------- ----------- ----------
----------- ---------- ---------- ----------- ----------
</TABLE>

(F) To reflect the following adjustments:

(1) Reflects the elimination of accumulated deficit against additional paid in
capital.

(2) Reflect the adjustment of limited partners' interest ( %) in the
Operating Partnership as follows:

<TABLE>
<S> <C>
Total owners' equity and minority interest.......................................... $
Limited partner's percentage ownership interest in the Operating Partnership........
---------
Limited partners' interest in the Operating Partnership.............................
Less: Limited partners interest issued to acquire properties (see C above).......... 47,500
---------
$
---------
---------
</TABLE>

(3) Reflect the conversion of the mortgage in the amount of $68,287 on 300
Madison into land and building, based on the transfer by the property owner
to the Company in 1998 of a 95% interest in the property owning limited
partnership at no cost which entitles the Company to 100% of the economics

F-5
<PAGE>
Macklowe Properties, Inc.

Notes to Pro Forma Combined Balance Sheet (continued)
(IN THOUSANDS EXCEPT PER SHARE)

ADJUSTMENTS TO THE PROFORMA COMBINED BALANCE SHEET (CONTINUED)
of the property, which is currently under development and the payment of
transfer taxes on the contribution of the predecessors properties. Increase
in real estate assets -- net as follows:

<TABLE>
<S> <C>
Conversion of mortgage receivable to land and building............. $ 68,287
Transfer taxes..................................................... 6,000
---------
Increase in real estate, net....................................... $ 74,287
---------
---------
</TABLE>

F-6
<PAGE>
Macklowe Properties, Inc.
Pro Forma Combined Income Statement
For the Year Ended December 31, 1997
(Unaudited)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MACKLOWE
ORGANIZATION ACQUISITION YORK 72 PRO FORMA
PREDECESSOR PROPERTIES ASSOC. ADJUSTMENTS COMPANY
(A) (B) (C) (D) PRO FORMA
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Base commercial rents.............................. $ 52,146 $ 22,451 $ 2,590 $ -- $ 77,187
Commercial tenant escalations and reimbursements... 9,919 3,365 603 -- 13,887
Residential rental revenue......................... 3,123 -- 13,249 110 16,482
Related party revenues............................. 1,725 -- -- -- 1,725
Investment and other income........................ 2,401 231 300 (433) 2,499
------------- ----------- ----------- ----------- -----------
Total revenues....................................... 69,314 26,047 16,742 (323) 111,780
Expenses:
Property operating expenses........................ 12,060 7,019 3,084 (211) 21,952
Real estate taxes.................................. 13,763 5,190 3,408 -- 22,361
Interest........................................... 34,466 -- 8,183 (12,967) 29,682
Depreciation and amortization...................... 11,172 3,832 2,187 (2,216) 14,975
Marketing, general and administrative.............. 8,029 -- 246 902 9,177
------------- ----------- ----------- ----------- -----------
Total expenses....................................... 79,490 16,041 17,108 (14,492) 98,147
Loss on investment in limited partnership............ (67) -- -- 67 --
Gain on investment partnership....................... 429 -- -- -- 429
Gain on marketable securities........................ 479 -- -- -- 479
------------- ----------- ----------- ----------- -----------
Loss before minority interest and extraordinary
items.............................................. (9,335) 10,006 (366) 14,236 14,541
Minority interest in operating partnership (E)....... -- -- -- -- --
------------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary gains............. $ (9,335) $ 10,006 $ (366) $ 14,236 $ 14,541
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------

Income per common share--basic (F) $
-----------
-----------

Income per common share--diluted (F) $
-----------
-----------
</TABLE>

See accompanying notes

F-7
<PAGE>
Macklowe Properties, Inc.

Notes to Pro Forma Combined Income Statement
(IN THOUSANDS EXCEPT PER SHARE)

ADJUSTMENTS TO PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER
31, 1997

(A) To reflect the Macklowe Organization Predecessor historical combined
statement of operations for the year ended December 31, 1997.

(B) To reflect the operations of 150 Fifth Avenue, 1412 Broadway, 400
Madison Avenue, 342 Madison Avenue and 16 and 18 E. 53rd Street for the year
ended December 31, 1997. Historical rental was adjusted for straight line rents
as of the acquisition date, historical operating expenses were reduced for third
party management fees that are not continuing. Depreciation and amortization are
based on cost. The operations of 342 Madison Avenue reflect the Company's master
lease on the Property which give it 100% of the economics. 771-791 Sixth Avenue
is a development project.

<TABLE>
<CAPTION>
342 MADISON AVENUE 16/18 E. 53RD STREET 400 MADISON
------------------------ -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS
----------- ----------- ----------- ------------- ----------- -------------
Revenues:
Rental revenue............................... $ 11,804 $ 231 $ 1,937 $ 107 $ 4,773 $ 101
Tenant reimbursements........................ 2,054 -- 596 -- 696 --
Other Income................................. 218 -- -- -- 13 --
----------- ----------- ----------- ----- ----------- -----
Total revenue................................ 14,076 231 2,533 107 5,482 101
Expenses:
Property operating expenses.................. 3,738 -- 797 -- 1,389 --
Management fees.............................. 150 (150) -- -- 80 (80)
Depreciation and amortization................ -- 1,794 -- 500 -- 888
Real estate taxes............................ 3,026 -- 475 -- 1,119 --
----------- ----------- ----------- ----- ----------- -----
Total expenses................................. 6,914 1,644 1,272 500 2,588 808
----------- ----------- ----------- ----- ----------- -----
Income before minority interest................ $ 7,162 $ (1,413) $ 1,261 $ (393) $ 2,894 $ (707)
----------- ----------- ----------- ----- ----------- -----
----------- ----------- ----------- ----- ----------- -----
</TABLE>

<TABLE>
<CAPTION>
1412 BROADWAY* 150 FIFTH AVENUE
---------------------------- -------------------------- TOTAL PRO
HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS FORMA
----------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental revenue.................................... $ $ $ 3,463 $ 35 $ 22,451
Tenant reimbursements............................. 19 -- 3,365
Other income...................................... -- -- 231
----------- --- ----------- ----- -----------
Total revenue..................................... 3,482 35 26,047
Expenses:
Property operating expenses....................... 1,095 -- 7,019
Management fees................................... 78 (78) --
Depreciation and amortization..................... -- 650 3,832
Real estate taxes................................. 570 -- 5,190
----------- --- ----------- ----- -----------
Total expenses...................................... 1,743 572 16,041
----------- --- ----------- ----- -----------
Income before minority interest..................... $ $ $ 1,739 $ (537) $ 10,006
----------- --- ----------- ----- -----------
----------- --- ----------- ----- -----------
</TABLE>

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

* Information currently not available; to be filed by amendment.

F-8
<PAGE>
Macklowe Properties, Inc.

Notes to Pro Forma Combined Income Statement (continued)
(IN THOUSANDS EXCEPT PER SHARE)

ADJUSTMENTS TO PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER
31, 1997 (CONTINUED)
(C) To reflect York 72 Associates at December 31, 1997 on a consolidated
basis, based on the Company's purchase of the remaining 50% interest in the
entity.

(D) Based on the Formation Transaction, the following adjustments have
resulted:

(1) To reflect increased depreciation in the amount of $840 and adjustment
of straight line rent income related to the purchase of a 50% interest in
York 72 Associates L.P. also to eliminate management fees ($281) and
other charges ($26) from the predecessor to York 72nd and eliminate loss
on investment in limited partnership ($67).

(2) To eliminate interest expense and amortization of deferred financing
costs related to mortgage loans paid off or forgiven, and to record
interest expense and amortization of deferred finance costs related to
the new mortgage and credit line as follows:

<TABLE>
<S> <C>
Interest expense on REIT loans, including interest portion of
payment on York 72 Associates LP (see Note (D) to the Pro Forma
Combined Balance Sheet)......................................... $ 29,573
Interest expense related to Macklowe Organization Predecessor
loans........................................................... (42,540)
---------
Decrease in interest expense...................................... $ (12,967)
---------
---------
Decrease in amortization related to repayment of loans............ $ (3,256)
Amortization of deferred finance costs related to new loan........ 200
---------
Decrease in amortization.......................................... $ (3,056)
---------
---------
</TABLE>

(3) To reflect the net increase in marketing, general and administrative
expenses related to operations of a public company as follows:

The additional marketing, general and administrative expenses consist of the
following:

<TABLE>
<S> <C>
Officers' compensation and related costs............................. $ 250
Professional fees.................................................... 200
Directors' fees and insurance........................................ 260
Printing and distribution costs...................................... 125
Other................................................................ 93
---------
$ 928
---------
---------
</TABLE>

F-9
<PAGE>
Macklowe Properties, Inc.

Notes to Pro Forma Combined Income Statement (continued)
(IN THOUSANDS EXCEPT PER SHARE)

ADJUSTMENTS TO PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER
31, 1997 (CONTINUED)
The additional officers' compensation and related costs are attributable
primarily to employment agreements with the officers as further described under
the caption "Employment and Non-Competition Agreement."

(4) To reflect the elimination of cleaning and health club operations which
will not be consolidated into the REIT.

<TABLE>
<CAPTION>
(2)
(1) INCREASE IN G&A (3)
CHANGES IN YORK AND AMORTIZATION INTEREST EXPENSE (4)
72 RELATED TO RELATED TO AND AMORTIZATION ELIMINATE CLEANING
PURCHASE OF A 50% OPERATIONS OF A OF DEFERRED AND HEALTH CLUB
INTEREST PUBLIC ENTITY FINANCING COSTS INCOME
------------------- ------------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
Revenues:................
Base commercial
rents................ $ 110 $ -- $ -- $ -- $ 110
Investment and other
income............... (230) -- -- (203) (433)
----- ----- -------- ----- ---------------
Total revenues........... (120) -- -- (203) (323)
Expenses:
Property operating
expenses............. (281) -- -- 70 (211)
Interest............... -- -- (12,967) -- (12,967)
Depreciation and
amortization......... 840 -- (3,056) -- (2,216)
Marketing, general and
administrative....... (26) 928 -- -- 902
----- ----- -------- ----- ---------------
Total expenses........... 533 928 (16,023) 70 (14,492)
Loss on investment in
limited liability
partnership............ 67 -- -- -- 67
----- ----- -------- ----- ---------------
Income (loss)............ $ (586) $ (928) $ 16,023 $ (273) $ 14,236
----- ----- -------- ----- ---------------
----- ----- -------- ----- ---------------
</TABLE>

(E) Represents the ___% minority interest in the Operating Partnership.

(F) Pro Forma net income per common share is based upon shares of common
stock expected to be outstanding after the Offering. Pro Forma net income
per common share--diluted includes the effect of the conversion of shares
under the Company's stock option plan. As each Operating Partnership unit is
redeemable for cash, or at the Company's election, for one share of common
stock, or at the Company's election, cash, the calculation of earnings per
share upon redemption will be unaffected as unitholders and stockholders
share equally on a per unit and per share basis in the net income of the
Company.

F-10
<PAGE>
Report of Independent Auditors

The Board of Directors
Macklowe Properties, Inc.

We have audited the balance sheet of Macklowe Properties, Inc. as of March
31, 1998. This balance sheet is the responsibility of the management of Macklowe
Properties, Inc. Our responsibility is to express an opinion on the balance
sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet presents fairly, in all material respects,
the financial position of Macklowe Properties, Inc. as of March 31, 1998 in
conformity with generally accepted accounting principles.

Ernst & Young LLP

May 11, 1998

F-11
<PAGE>
Macklowe Properties, Inc.

Balance Sheet
As of March 31, 1998

<TABLE>
<S> <C>
STOCKHOLDER'S EQUITY
Commitments and contingencies (NOTE 2)

Common stock, $.001 par value, 200,000,000 shares authorized, 1,000 shares issued
and outstanding (NOTE 1 AND 2)................................................... $ 1
Additional paid in capital......................................................... 999
Subscriptions receivable........................................................... (1,000)
Retained earnings.................................................................. --
---------
Total stockholder's equity......................................................... $ --
---------
---------
</TABLE>

See accompanying notes.

F-12
<PAGE>
Macklowe Properties, Inc.

Notes to Balance Sheet
March 31, 1998

1. ORGANIZATION AND FORMATION TRANSACTIONS

FORMATION AND INITIAL PUBLIC OFFERING

Macklowe Properties, Inc. (the "Company"), a Maryland corporation, and
Macklowe Properties L.P. (the "Operating Partnership"), were formed in March
1998 for the purpose of combining the commercial real estate business of The
Macklowe Organization ("Macklowe"). Neither the Company nor the Operating
Partnership were engaged in any operations through March 31, 1998. The Operating
Partnership will receive a contribution of interests in the real estate
properties in exchange for interests in the Operating Partnership. The Company
will be the sole managing general of the Operating Partnership. In addition, the
Company expects to issue restricted shares for the management company of
Macklowe and certain real estate properties of Macklowe. The Company expects to
qualify as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended; and will operate as a fully integrated, self-
administered, self-managed REIT. A REIT is a legal entity that holds real estate
interests and, will generally not be subject to federal income taxation on that
portion of its income that qualifies as REIT taxable income to the extent that
it distributes at least 95% of its taxable income to its shareholders and comply
with certain requirements.

The Formation Transactions are designed to (i) acquire certain real estate
properties (ii) repay certain mortgage debt thereto, (iii) fund costs, capital
expenditures and working capital, (iv) provide a vehicle for future
acquisitions, (v) enable the REIT to comply with certain requirements under the
Federal income tax laws and regulations relating to real estate investment
trusts, and (vi) preserve certain tax advantages for certain tax advantages to
the Formation Transactions.

The Company has authorized the issuance of up to 200 million shares of
Common Stock, $.001 par value per share. In connection with the formation of the
Company, the Company issued 850 shares of common stock to Harry Macklowe, and
150 shares to Warren Cole for subscriptions receivable of $1,000. The Company
expects to issue approximately 26,000,000 shares of its Common Stock to the
public through a public offering (the "Offering").

MANAGEMENT

The Company through limited liability companies ("LLC's") which are wholly
owned by the Operating Partnership will conduct the management and construction
operations of the REIT. These LLC's will also perform deminimis management and
construction work for non-REIT and third parties properties.

PARTNERSHIP AGREEMENT

In accordance with the partnership agreement of the Operating Partnership
(the "Operating Partnership Agreement"), all allocations of distributions and
profits and losses are to be made in proportion to the percentage ownership
interests of their respective partners. As the managing general partner of the
Operating Partnership, the Company will be required to take such reasonable
efforts, as determined by it in its sole discretion, to cause the Operating
Partnership to distribute sufficient amounts to enable the payment of sufficient
distributions by the Company to avoid any federal income or excise tax at the
Company level.

F-13
<PAGE>
Macklowe Properties, Inc.

Notes to Balance Sheet
March 31, 1998 (continued)

1. ORGANIZATION AND FORMATION TRANSACTIONS (CONTINUED)
Under the Operating Partnership Agreement, each limited partner will have
the right to redeem their limited partnership interests after certain specified
holding periods, for shares of common stock or at the option of the Company, for
cash.

INITIAL PUBLIC OFFERING AND USE OF PROCEEDS

The net cash proceeds to be received by the Company from the Offering (after
deducting underwriting discounts and certain fees to be paid to Lehman Brothers,
Inc.) will be used to repay certain mortgage indebtedness encumbering the
properties, prepayment penalties and other financing fees and expenses, to repay
certain loans made by an officer and for acquisitions and other corporate needs.

2. COMMITMENTS AND CONTINGENCIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.

STOCK OPTION PLAN

The Company intends to adopt a stock option plan designed to attract, retain
and motivate executive officers of the Company and other key employees and the
plan will authorize the issuance of shares of common stock pursuant to options
granted under the plan, as described further under the caption "Stock Option
Plan."

EMPLOYMENT AGREEMENTS

The Company will enter into employment and non-competition agreements with
certain executive officers as described under the caption "Employment and
Noncompetition Agreements".

CREDIT FACILITY

Concurrently with the Offering, the Company expects to enter into a secured
revolving line of credit with a financial institution to facilitate the
development and acquisition activities and for working capital purposes. The
Company does not have a specific policy regarding the amount of debt that it can
have outstanding, either in the aggregate or on a particular property.

F-14
<PAGE>
Report of Independent Auditors

The Partners and Stockholders
Macklowe Organization Predecessor

We have audited the accompanying combined balance sheets of Macklowe
Organization Predecessor as of December 31, 1997 and 1996, and the related
combined statements of operations, owners' deficit, and cash flows for each of
the three years in the period ended December 31, 1997. We have also audited the
financial statement schedule listed on the Index to Financial Statements
included in the Prospectus. These financial statements and financial statement
schedule are the responsibility of the Macklowe Organization Predecessor
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Macklowe
Organization Predecessor as of December 31, 1997 and 1996, and the combined
results of operations and cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

ERNST & YOUNG LLP

New York, New York
May 1, 1998

F-15
<PAGE>
Macklowe Organization Predecessor

Combined Balance Sheets

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
ASSETS
Real estate properties, at cost (NOTES 7 AND 8)
Operating properties:
Land.................................................................................... $ 72,043 $ 67,223
Buildings and improvements.............................................................. 207,381 181,375
Developments in progress:
Land.................................................................................... 21,265 2,728
Development costs....................................................................... 12,627 8,526
Tenant improvements....................................................................... 52,933 52,445
Furniture, fixtures and equipment......................................................... 1,667 1,334
---------- ----------
367,916 313,631
Less accumulated depreciation and amortization............................................ (65,238) (58,783)
---------- ----------
302,678 254,848
Investments in investment partnerships (NOTE 1)........................................... 2,029 1,600
Mortgage notes receivable (NOTE 2)........................................................ 68,287 --
Cash...................................................................................... 371 142
Restricted cash (NOTE 1).................................................................. 14,081 9,220
Marketable securities (NOTE 1)............................................................ 1,720 1,158
Security deposits......................................................................... 2,375 1,573
Tenant receivables (net of allowance of $1,360 and $1,403, respectively).................. 2,122 941
Due from affiliates (NOTE 9).............................................................. 2,843 2,127
Deferred rents receivable................................................................. 29,806 29,479
Prepaid expenses and other assets......................................................... 6,724 5,060
Prepaid real estate taxes................................................................. 7,050 4,789
Deferred costs, net (NOTE 3).............................................................. 32,770 21,629
---------- ----------
Total assets.............................................................................. $ 472,856 $ 332,566
---------- ----------
---------- ----------
LIABILITIES AND OWNERS' DEFICIT
Mortgage notes payable (NOTE 4)........................................................... 514,911 396,359
Excess of distributions and share of losses over investment in limited partnership (NOTE
10)..................................................................................... 17,856 17,635
Security deposits payable................................................................. 2,375 1,573
Accrued expenses and other liabilities (includes accrued interest on mortgage note payable
of $2,650 and $6,483, respectively) (NOTE 4)............................................ 25,484 19,522
Due to affiliates (NOTE 9)................................................................ 45,548 41,831
---------- ----------
Total liabilities......................................................................... 606,174 476,920
Commitments, contingencies and other comments (Notes 6, 7, 11, 12 and 13)
Owners' deficit........................................................................... (133,318) (144,354)
---------- ----------
Total liabilities and owners' deficit..................................................... $ 472,856 $ 332,566
---------- ----------
---------- ----------
</TABLE>

See accompanying notes.

F-16
<PAGE>
Macklowe Organization Predecessor

Combined Statements of Operations

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Revenues:
Base commercial rents.......................................................... $ 52,146 $ 47,553 $ 43,891
Commercial tenant escalations and reimbursements............................... 9,919 8,471 7,866
Residential rental revenue..................................................... 3,123 1,884 1,720
Related party service revenues................................................. 1,725 2,060 1,586
Investment and other income.................................................... 2,401 2,795 2,720
--------- --------- ---------
Total revenues................................................................... 69,314 62,763 57,783

Expenses:
Property operating expenses.................................................... 12,060 9,497 8,696
Real estate taxes.............................................................. 13,763 11,727 9,894
Interest....................................................................... 34,466 28,146 28,020
Depreciation and amortization.................................................. 11,172 9,651 8,948
Marketing, general and administrative.......................................... 8,029 6,811 8,317
--------- --------- ---------
Total expenses................................................................... 79,490 65,832 63,875

Loss on investment in limited partnership........................................ (67) (215) (113)
Gain on investment partnerships.................................................. 429 100 --
Gain (loss) on marketable securities............................................. 479 (155) (56)
--------- --------- ---------
Loss before extraordinary items.................................................. (9,335) (3,339) (6,261)
Extraordinary gains on forgiveness of debt -- net (NOTE 4)....................... 9,932 -- --
--------- --------- ---------

Net income (loss)................................................................ $ 597 $ (3,339) $ (6,261)
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying notes.

F-17
<PAGE>
Macklowe Organization Predecessor

Combined Statement of Owners' Deficit

(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C>
Balance as of December 31, 1994.................................................. $(140,702)
Distributions.................................................................. (1,345)
Contributions.................................................................. 701
Net loss for the year ended December 31, 1995.................................. (6,261)
---------
Balance as of December 31, 1995.................................................. (147,607)

Distributions.................................................................. (5,871)
Contributions.................................................................. 12,463
Net loss for the year ended December 31, 1996.................................. (3,339)
---------
Balance as of December 31, 1996.................................................. (144,354)

Distributions.................................................................. (18,142)
Contributions.................................................................. 28,581
Net income for the year ended December 31, 1997................................ 597
---------

Balance as of December 31, 1997.................................................. $(133,318)
---------
---------
</TABLE>

SEE ACCOMPANYING NOTES.

F-18
<PAGE>
Macklowe Organization Predecessor

Combined Statements of Cash Flows

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
OPERATING ACTIVITIES
Net income (loss)............................................................. $ 597 $ (3,339) $ (6,261)
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:.......................................................
Loss from investment in limited partnership................................. 67 215 113
Depreciation and amortization............................................... 11,172 9,651 8,948
(Reduction) increase in allowance for accounts receivable................... (43) (174) 694
Extraordinary gain on forgiveness of debt................................... (9,932) -- --
Deferred rents receivable................................................... (327) (2,482) (3,235)
(Gain) on investment partnerships........................................... (429) (100) --
(Gain) loss on marketable securities........................................ (479) 155 56
Changes in operating assets and liabilities:
Security deposits........................................................... (802) (290) (160)
Investment in partnership................................................... 154 144 145
Restricted cash............................................................. 2,920 862 708
Tenant receivables.......................................................... (1,138) (492) 1,207
Due from affiliates......................................................... (716) (1,478) 367
Due to affiliates........................................................... (154) (73) (432)
Prepaid real estate taxes................................................... (2,261) (1,175) (3,491)
Security deposits payable................................................... 802 290 160
Prepaid expenses and other assets........................................... (1,664) 2,191 (996)
Accrued expenses and other liabilities...................................... 5,962 7,900 (2,142)
Deferred costs.............................................................. (1,824) (3,943) 1,996
--------- --------- ---------
Net cash provided by (used in) operating activities........................... 1,905 7,862 (2,323)

INVESTING ACTIVITIES
Purchases of land, building and improvements................................ (53,952) (46,084) (4,109)
Purchases of furniture, fixtures and equipment.............................. (333) (14) 192
Purchases of marketable securities.......................................... (3,792) (6,331) (6,567)
Purchases of mortgage notes receivable...................................... (68,287) -- --
Sales of marketable securities.............................................. 3,709 7,667 3,862
Purchase of investments in investment partnerships.......................... -- (1,500) --
--------- --------- ---------
Net cash used in investing activities......................................... (122,655) (46,262) (6,622)

FINANCING ACTIVITIES
Contributions............................................................... 28,581 12,463 701
Distributions............................................................... (18,142) (5,871) (1,345)
Proceeds from borrowings.................................................... 265,566 36,903 2,100
Principal payments on borrowings............................................ (144,580) (990) (947)
Payment of mortgage costs................................................... (14,317) (1,595) (76)
Proceeds from loans and advances from officers.............................. 3,871 (3,359) 6,409
--------- --------- ---------
Net cash provided by financing activities..................................... 120,979 37,551 6,842
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.......................... 229 (849) (2,103)
Cash and cash equivalents at beginning of period.............................. 142 991 3,094
--------- --------- ---------
Cash and cash equivalents at end of period.................................... $ 371 $ 142 $ 991
--------- --------- ---------
--------- --------- ---------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest exclusive of interest capitalized.... $ 33,639 $ 33,354 $ 23,954
--------- --------- ---------
--------- --------- ---------
</TABLE>

SEE ACCOMPANYING NOTES.

F-19
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements
(DOLLARS IN THOUSANDS)

December 31, 1997

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

The Macklowe Organization Predecessor, (the "Company") is engaged in the
business of developing, redeveloping, owning, managing, leasing, and acquiring
office, retail and residential development properties in Manhattan, New York.
Their portfolio consists of six commercial properties, three residential
properties and four development properties. The Company is one of the largest
owners and developers of Manhattan office and apartment properties.

PROPOSED TRANSACTIONS

Concurrently with the consummation of an initial public offering of Macklowe
Properties Inc., (the "REIT") Common Stock (the "Offering"), which is expected
to be completed in 1998, the REIT and a newly formed limited partnership,
Macklowe Properties, LP (the "Operating Partnership"), together with the
partners and members of the affiliated partnerships of the Macklowe Organization
Predecessor (the "Participants"), will engage in certain formation transactions
(the "Formation Transactions"). The Formation Transactions are designed to (i)
acquire certain properties, (ii) repay certain mortgage debt relating thereto,
(iii) fund costs, capital expenditures, and working capital, (iv) provide a
vehicle for future acquisitions, (v) enable the REIT to comply with certain
requirements under the Federal income tax laws and regulations relating to real
estate investment trusts, and (vi) preserve certain tax advantages for certain
participants, in the Formation Transactions.

The operations of the REIT will be carried on primarily through the
Operating Partnership in order to assist the REIT and the Participants in
forming the REIT under the Internal Revenue Code of 1986 as amended by the
(code). The REIT will be the sole general partner in the Operating Partnership.
The Operating Partnership and the REIT will receive a contribution of interests
in the real estate properties, in exchange for units of limited partnership
interests in the Operating Partnership, unregistered common stock and/or cash.
The REIT will be fully integrated, self-administered and self-managed.

PRINCIPLES OF COMBINATION

The Macklowe Organization Predecessor is not a legal entity but rather a
combination of real estate properties and affiliated real estate management,
construction and leasing entities under common control and management of Harry
Macklowe. The entities included in this financial statement have been combined
for only the periods that they were under common control and management. All
significant intercompany transactions and balances have been eliminated in
combination. The Company has a fifty percent interest in a limited liability
partnership which it does not control, and therefore accounts for under the
equity method.

Capital contributions, distributions and profits and losses are allocated in
accordance with the terms of the applicable agreements.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130 "Reporting Comprehensive Income" ("SFAS 130") which is effective
for fiscal years beginning after December 15, 1997. SFAS 130 establishes
standards for reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS 130 requires that all components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The adoption of this standard
will not have an impact on the Company's financial position or results of
operations.

F-20
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)
(DOLLARS IN THOUSANDS)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") which is effective for fiscal
years beginning after December 15, 1997. SFAS 131 establishes standards for
reporting information about operating segments in annual financial statements
and in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of this standard will not have an impact on the Company's financial
position or results of operations.

In May 1997, Statement of Position 97-1 ("SOP") was issued that establishes
the borrower's accounting for a participating mortgage loan if the lender
participates in increases in the market value of the mortgaged real estate
project, the results of operations of that mortgaged real estate project, or
both. The SOP requires that the borrower recognize, at origination, a
participation liability based on the fair value of the participation feature
(with a corresponding debit to a debt discount account). The debt discount is to
be amortized prospectively using the interest method. The amortization is to be
included in interest expense. At the end of each reporting period, the balance
of the participation feature is to be adjusted to equal the fair value of the
participation feature at that time. The SOP is effective for financial
statements for fiscal years beginning after June 30, 1997. The effect of initial
application of the provisions of the SOP is to be reported as a cumulative
effect of a change in accounting principle. The Company is currently negotiating
with its lenders, who hold participating mortgages, and cannot assess the
overall effect of this accounting pronouncement.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

REAL ESTATE

SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Macklowe Organization Predecessor, adopted SFAS No. 121 effective January 1,
1996. Through December 31, 1997 no indicators of impairment were present and no
impairment losses have been recorded in any of the periods presented.

F-21
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)
(DOLLARS IN THOUSANDS)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS

Depreciation and amortization is computed on the straight-line method over
as follows.

<TABLE>
<CAPTION>
CATEGORY TERM
- ------------------------------------------ ------------------------------------------
<S> <C>
Building 40 years
Building improvements remaining life of the building
Furniture and fixtures seven years
Tenant improvements remaining life of the lease
</TABLE>

Construction interest and taxes capitalized to real estate properties during
1997, 1996 and 1995 amounted to $3,524, $215 and $0 respectively.

CASH AND CASH EQUIVALENTS

The Macklowe Organization Predecessor considers highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.

RESTRICTED CASH

Restricted cash consists of cash escrows which are pledged as collateral for
certain mortgage loans.

MARKETABLE SECURITIES

The Company classifies their marketable securities as trading securities.
According to Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investment in Debt and Equity Securities", securities that are
classified as trading imply that the securities were bought and held principally
for the purpose of selling them in the near term (thus held for only a short
period of time). Designating securities as trading generally reflects active and
frequent buying and selling, and trading securities are generally used with the
objective of generating profits on short-term differences in price. The
marketable securities are measured at fair value in the statement of financial
position and any realized or unrealized gains are recognized as income in the
combined statements of operations.

The unrealized gains (losses) which are included in the gain (loss) on
marketable securities is $421, ($139) and ($230) for the years ended December
31, 1997, 1996 and 1995, respectively.

INVESTMENT IN INVESTMENT PARTNERSHIPS

The unrealized gains (losses) which are included in the gain (loss) on
investment partnerships, which hold trading securities, is $123, $33 and $0 for
the years ended December 31, 1997, 1996 and 1995, respectively.

REVENUE RECOGNITION

Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheets. Contractually due but unpaid rents are
included in tenant receivables on the accompanying combined balance sheets.

F-22
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)
(DOLLARS IN THOUSANDS)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company records interest income on investments in mortgage notes and
notes receivable on an accrual basis of accounting. The Company does not accrue
interest on impaired loans where, in the judgement of management, collection of
interest according to the contractual terms is considered doubtful. Among the
factors the Company considers in making an evaluation of the collectibility of
interest are, the status of the loan, the value of the underlying collateral,
the financial condition of the borrower and anticipated future events. Loan
discounts are amortized over the life of the real estate using the constant
interest method.

DEFERRED LEASE COSTS

Deferred lease costs consist of fees and direct costs incurred to initiate
and renew operating leases and are amortized on a straight-line basis over the
initial lease term or renewal period as appropriate.

DEFERRED FINANCING COSTS

Deferred financing costs are amortized over the terms of the respective
agreements. Unamortized deferred financing costs are expensed when the
associated debt is refinanced before maturity.

INCOME TAXES

The partnerships and S Corporations in the Macklowe Organization Predecessor
are not taxpaying entities for Federal income tax purposes, and accordingly, no
provisions or credit has been made in the accompanying combined financial
statements for Federal income taxes. Owners' allocable shares of taxable income
or loss are reportable on their income tax returns.

CREDIT RISK

Management of the Macklowe Organization Predecessor performs on going credit
evaluation of its tenants and requires certain tenants to provide security
deposits and, or letter of credits.

2. INVESTMENT IN MORTGAGE NOTE RECEIVABLE

Macklowe Organization Predecessor purchased a mortgage note in the amount of
$68,287 during 1997 on a real estate property located at 300 Madison. The
mortgage note has an interest rate of LIBOR plus 4% (9.72% as of December 31,
1997). Interest on the note is due monthly and the note matures on December 31,
1998. Currently the mortgage note is in default and the Company has begun legal
proceedings to foreclose on the property. There is no assurance that the Company
will be successful. Therefore, no interest has been accrued.

F-23
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)
(DOLLARS IN THOUSANDS)

3. DEFERRED COSTS

Deferred costs consist of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred mortgage costs, net............................................ $ 14,753 $ 5,827
Deferred leasing, net................................................... 18,017 15,802
--------- ---------
$ 32,770 $ 21,629
--------- ---------
--------- ---------
</TABLE>

4. MORTGAGE NOTES PAYABLE

The mortgage notes payable collateralized by the respective properties and
assignment of leases at December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
MORTGAGE NOTES WITH FIXED MORTGAGE ACCRUED MORTGAGE ACCRUED
PROPERTY INTEREST PAYABLE INTEREST PAYABLE INTEREST
- --------------------- ------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
30 East End Avenue First mortgage note with interest payable at
8.5% (rate increases to 9.0% for the period from
January 1, 1998 to December 31, 1998 and to
Prime + 1.0% for the period from January 1, 1999
to the maturity date, January 1, 2004), $ 3,594 $ 25 $ 3,623 $ 24

192 East 75th Street First mortgage note with interest payable at
8.75% (rate increases to 9.25% for the period
from January 1, 1998 to December 31, 1998 and to
Prime + 1.0% for the period from January 1, 1999
to the maturity date, January 1, 2004) 1,962 14 1,976 14

369 Lexington Avenue First mortgage note with interest payable at
8.56%, due May 31, 1998 -- -- 5,037 14

369 Lexington Avenue First mortgage note with interest payable at
8.94%, due March 1, 2007 13,679 102 -- --

Two Grand Central First mortgage notes with interest payable at
Tower 8.94%, due April 15, 1997(A) -- -- 50,000 2,103

Two Grand Central First mortgage note with interest payable at
Tower 9.34%, due April 15, 1997(A) -- -- 85,000 3,575

30 West End Avenue First mortgage note with interest payable at
10.875%, due December 1, 2000 to a related party -- -- 2,100 363

345 East 64th Street First mortgage note with interest payable at
8.1%, due August 1, 2007 8,982 61 -- --

1000 Second Avenue First mortgage note with interest payable at
8.75% through February 1, 1999 and Prime + 1.0%
through February 1, 2000 3,000 22 -- --

40 West 55th Street First mortgage note with interest payable at
7.65% (interest accrues at the difference
between 9.75% and 7.65% and is payable at the
date of maturity, December 31, 2003) 10,156 -- -- --

250 East 60th Street First mortgage note with interest payable at
11.5% on March 6, 1997 -- -- 134 --
</TABLE>

F-24
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)
(DOLLARS IN THOUSANDS)

4. MORTGAGE NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
MORTGAGE NOTES WITH FIXED MORTGAGE ACCRUED MORTGAGE ACCRUED
PROPERTY INTEREST PAYABLE INTEREST PAYABLE INTEREST
- --------------------- ------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
140 West 57th Street First mortgage note with interest payable at
8.5% through November 31, 1999 and 2 year
Treasury Bill + 2.5% through the date of
maturity, December 1, 2006 8,861 64 9,000 64

140 West 57th Street Second mortgage note with interest payable at
8.5% through November 31, 2002 and 2 year
Treasury Bill + 2.5% through the date of
maturity, December 1, 2006 956 -- -- --
----------- ----------- ----------- -----------

Total fixed rate
notes 51,190 288 156,870 6,157
----------- ----------- ----------- -----------

Avenue of the First mortgage note with interest payable based
Americas Plaza on LIBOR + 0.6% (6.32% as of December 31, 1997),
due October 2, 1999 185,925 70 190,000 34

369 Lexington Avenue First mortgage note with interest payable based
on the Eurodollar Rate + 2.75% or Prime + 1.0%
and an additional margin of 0.5% to 1.5% (8.94%
as of December 31, 1997), due May 31, 1998 -- -- 8,129 22

Two Grand Central First mortgage note with interest payable based
Tower on LIBOR + 3.5% (9.22% as of December 31, 1997),
due September 1, 2000 126,500 1,001 -- --

540 Madison Avenue First mortgage note with interest payable based
on LIBOR + 4.25% (9.97% as of December 31,
1997), due March 5, 2000 28,000 240 28,000 231

540 Madison Avenue First mortgage note with interest payable based
on LIBOR + 3.75 (9.47% as of December 31, 1997),
due March 5, 2000 23,572 194 154 --

20 West End Avenue First mortgage note with interest payable based
on LIBOR + 2.0% or United States Base Rate (as
defined in the agreement) + 0.75% (7.72% as of
December 31, 1997), due August 14, 1998 (B) -- -- 7,000 39

20 West End Avenue First mortgage note with interest payable based
on LIBOR + 3.25% (8.97% as of December 31,
1997), due May 1, 2000 3,900 88 -- --

30 West End Avenue First mortgage note with interest payable based
on LIBOR + 3.25% (8.97% as of December 31,
1997), due May 1, 2000 2,600 20 -- --

345 East 64th Street First mortgage note with interest payable based
on LIBOR + 2.15% (7.87% as of December 31,
1997), due February 1, 1998 -- -- 6,206 --

30 West 50th Street First mortgage note with interest payable based
on LIBOR + 2.5% (8.22% as of December 31, 1997),
due January 1, 1999 19,224 132 -- --
</TABLE>

F-25
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)
(DOLLARS IN THOUSANDS)

4. MORTGAGE NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
MORTGAGE NOTES WITH FIXED MORTGAGE ACCRUED MORTGAGE ACCRUED
PROPERTY INTEREST PAYABLE INTEREST PAYABLE INTEREST
- --------------------- ------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
300 Madison Avenue First mortgage note with interest payable based
on LIBOR + 4.0% (9.72% as of December 31, 1997),
due March 1, 1999 74,000 617 -- --
----------- ----------- ----------- -----------

Total Variable Rate Notes 463,721 2,362 239,489 326
----------- ----------- ----------- -----------

$ 514,911 $ 2,650 $ 396,359 $ 6,483
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

PRINCIPAL MATURITIES

(A) In 1997, the Company refinanced Two Grand Central Tower with Credit
Suisse First Boston Mortgage Capital LLC for $126,500 which proceeds was used to
settle the outstanding mortgage note with Mitsubishi Bank. The remaining $9,000
on the note has been forgiven and is reflected as an extraordinary item on the
income statement.

(B) In 1997, the Company refinanced 20 West End Avenue with GMAC Commercial
Mortgage Corporation and used the proceeds to settle the outstanding mortgage
note with National Bank of Canada. As a result, the remaining $1,216 has been
forgiven and is being shown as an extraordinary item on the income statement.

Additionally, financing costs aggregating $284, related to mortgages
refinanced at par, were written off as extraordinary items.

Combined aggregate principal maturities of mortgages and notes payable as of
December 31, 1997 are as follows:

<TABLE>
<S> <C>
1998.............................................................. $ 10,494
1999.............................................................. 93,578
2000.............................................................. 61,446
2001.............................................................. 397
2002.............................................................. 422
Thereafter........................................................ 348,574
---------
$ 514,911
---------
---------
</TABLE>

Certain of the above loans contain provisions for additional interest based
on the subsequent values of certain properties.

F-26
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)

(DOLLARS IN THOUSANDS)

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Macklowe Organization Predecessor
could realize on disposition of the financial instruments. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.

Cash equivalents, marketable securities and mortgage receivable are carried
at amounts which reasonably approximate their fair values. The fair value of
mortgages payable at December 31, 1997 and 1996 is $517,802 and $399,324,
respectively.

Estimated fair value is based on anticipated settlements in connection with
the REIT formation, interest rates and other related factors currently available
to the Macklowe Organization Predecessor for issuance of debt with similar terms
and remaining maturities. The fair value for each mortgage receivable and
payable approximates its carrying amount.

Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1997. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.

6. DEFERRED COMPENSATION

Under the terms of a deferred compensation agreement between a senior
executive ("Employee") and the Company, certain funds were set aside in 1995 in
a Rabbi Trust. The Employee will receive the funds upon the earlier to occur of
January 1, 2006 or the Employee's departure from the Company or certain other
events as contained in the agreement. All earnings of the Rabbi Trust accrue to
the benefit of the Employee. The $2,500 was charged to expense in 1995.

7. LAND LEASES

The Company leases, pursuant to noncancellable operating leases, the land on
which three of its properties (540 Madison Avenue, a portion of the 1000 Second
Avenue and 250 East 60th Street) are located. The leases, which contain renewal
options, expire between December 31, 2004 and December 31, 2096. The lease on
540 Madison Avenue contains provisions for percentage rent payments based on the

F-27
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)

(DOLLARS IN THOUSANDS)

7. LAND LEASES (CONTINUED)
buildings rents subject to certain adjustments. Future minimum lease commitments
relating to the land leases as of December 31, 1997 are as follows:

<TABLE>
<S> <C>
1998............................................................... $ 614
1999............................................................... 614
2000............................................................... 634
2001............................................................... 634
2002............................................................... 634
Thereafter......................................................... 83,640
---------
$ 86,770
---------
---------
</TABLE>

8. RENTAL INCOME

The commercial properties are being leased to commercial tenants under
operating leases with expiration dates ranging from 1998 to 2017. The minimum
rental amounts due under the leases are generally either subject to scheduled
fixed increases or adjustments. The leases generally also require that the
tenants reimburse the Macklowe Organization Predecessor for increases in certain
operating costs, the consumer price index or porter wage and also real estate
taxes, each for increases above their base year amounts.

Approximate future minimum rents to be received over the next five years and
thereafter for leases in effect at December 31, 1997 are as follows:

<TABLE>
<S> <C>
1998.............................................................. $ 54,565
1999.............................................................. 50,596
2000.............................................................. 48,507
2001.............................................................. 46,922
2002.............................................................. 47,157
Thereafter........................................................ 236,097
---------
$ 483,844
---------
---------
</TABLE>

Residential properties are leased to tenants with generally one to two year
terms.

F-28
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)

(DOLLARS IN THOUSANDS)

9. RELATED PARTY TRANSACTIONS

There are several business relationships with related parties (which are not
part of the Company) and entities owned by Harry Macklowe, which involve
management, leasing, advertising, legal and construction fee revenues.
Transactions include the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Management revenues.............................................. $ 914 $ 965 $ 1,039
Leasing commission revenues...................................... 44 659 129
Advertising revenues............................................. 150 165 143
Construction fees................................................ 481 97 70
Legal fees....................................................... 136 174 205
--------- --------- ---------
$ 1,725 $ 2,060 $ 1,586
--------- --------- ---------
--------- --------- ---------
</TABLE>

Amounts due to affiliates consist of:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Officers............................................................. $ 45,544 $ 41,673
Other................................................................ 4 158
--------- ---------
$ 45,548 $ 41,831
--------- ---------
--------- ---------
</TABLE>

Amounts due from affiliates not in the combined group amounted to $2,843 and
$2,127 for the years ended December 31, 1997 and 1996 respectively.

Amounts due to officers include loans and advances which are due upon
demand.

10. INVESTMENT IN LIMITED PARTNERSHIP

Macklowe Organization Predecessor owns a fifty percent general partnership
interest in a limited partnership. The partnership owns and operates an upscale
residential building. All of the partners

F-29
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)

(DOLLARS IN THOUSANDS)

10. INVESTMENT IN LIMITED PARTNERSHIP (CONTINUED)
participate in the management of the building, which is under the general
management of the company. Summary information is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Real estate properties, net................................................... $ 63,075 $ 64,379 $ 65,439
Other assets.................................................................. 6,634 5,756 5,697
---------- ---------- ----------
Total assets................................................................ 69,709 70,135 71,136
Mortgage Payable.............................................................. 102,282 102,282 102,282
Other liabilities............................................................. 2,328 2,023 1,941
---------- ---------- ----------
Total liabilities........................................................... 104,610 104,305 104,223
---------- ---------- ----------
Partner's Deficit............................................................. (17,856) (17,635) (17,276)
Partner's Deficit--Other...................................................... (17,045) (16,535) (15,811)
---------- ---------- ----------
Total partner's deficit..................................................... $ (34,901) $ (34,170) $ (33,087)
---------- ---------- ----------
---------- ---------- ----------
Base rental income............................................................ $ 15,839 $ 14,891 $ 14,624
Other income.................................................................. 902 1,025 869
---------- ---------- ----------
Total income................................................................ 16,741 15,916 15,493
Mortgage interest............................................................. 8,183 8,183 8,182
Real estate taxes............................................................. 3,408 3,035 2,575
Depreciation and amortization................................................. 2,187 2,156 2,037
Other expenses................................................................ 3,329 3,259 3,215
---------- ---------- ----------
17,107 16,633 16,009
---------- ---------- ----------
Net loss...................................................................... $ (366) $ (717) $ (516)
---------- ---------- ----------
---------- ---------- ----------
Less other partner's share.................................................... $ (183) $ (359) $ (258)
Company's interest............................................................ $ (183) $ (358) $ (258)
Eliminated intercompany expense............................................. $ 116 $ 143 $ 145
---------- ---------- ----------
---------- ---------- ----------
Share of net loss........................................................... $ 67 $ 215 $ 113
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

11. MULTIEMPLOYER PENSION PLAN

Contributions are made, along with many other employers, to union-sponsored
multiemployer pension plans, based on the number of hours worked by employees
covered under union contracts. The Multiemployer Pension Plan Amendments Act of
1980 imposes certain liabilities upon employers associated with multiemployer
pension plans who withdraw from such a plan or upon termination of said plan.
The Company has not received information from the Plan's administrators to
determine its share of unfunded vested benefits, if any. The Company has not
undertaken to terminate, withdraw or partially withdraw from the Plan.

Amounts charged to operations for contributions to multiemployer pension
plans for the years ended December 31, 1997, 1996, and 1995 amounted to
approximately $157, $127, and $112 respectively.

F-30
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)

(DOLLARS IN THOUSANDS)

11. MULTIEMPLOYER PENSION PLAN (CONTINUED)
The Company participated in a defined contribution plan for the benefit of
its employees. The contribution that each employee makes to the plan is fully
vested. During 1997 the Company began matching 50% of employees' contributions.
The Plan can be terminated at the employers' discretion.

12. CONTINGENCIES

Macklowe Organization Predecessor is party to a variety of legal proceeding
relating to the ownership of the properties and it's activities with regard to
its construction, management and leasing business, arising in the ordinary
course of business. Macklowe Organization Predecessor's management believes that
substantially all of these liabilities are covered by insurance. All of these
matters, taken, together, are not expected to have a material adverse impact on
the Macklowe Organization Predecessor financial position, results of operations
or cash flows.

In December 1997, one of our properties, 540 Madison Avenue, suffered a
casualty whereby portions of the brick facade of this building collapsed and
fell onto certain adjoining structures. In connection therewith, a complaint was
filed in the Supreme Court of the State of New York, New York County against our
Company and the fee owner seeking compensatory and punitive damages against both
parties. Therefore, if damages were awarded against the Company, Management
believes that (i) substantially all possible liability would be covered by
insurance policies and (ii) that the Company has available counterclaims and
actions against third-parties for any such liability. Therefore, Management does
not believe that this action would result in any material adverse effect to our
Company.

13. ENVIRONMENTAL MATTERS

The management of Macklowe Organization Predecessor believes that the
properties are in compliance in all material respects with applicable federal,
state and local ordinances and regulations regarding environmental issues.
Management is not aware of any environmental liability that management believes
would have a material adverse impact on Macklowe Organization Predecessor's
financial position, results of operations or cash flows. Management is unaware
of any instances in which it would incur significant environmental costs if any
of the properties were sold.

14. SUBSEQUENT EVENTS

The following mortgage notes were refinanced by the Company subsequent to
year end:

During January 1998, the Company refinanced its first mortgage note
collateralized by 1000 Second Avenue at its current balance of $3,000 without
increasing the loan balance. The interest rate was changed to 8.75% until
February 1, 1999 and then Prime plus 1% thereafter and the maturity date was
extended to June 1, 2006.

During February 1998, the Company refinanced its first mortgage note
collateralized by 125 West 55th Street, and paid off the remaining balance of
$185,925 at a discount resulting in a gain of $16,500. The new

F-31
<PAGE>
Macklowe Organization Predecessor

Notes to Combined Financial Statements (continued)

(DOLLARS IN THOUSANDS)

14. SUBSEQUENT EVENTS (CONTINUED)
loan balance is $170,000 and a mezzanine level loan of $25,000 with interest
charged at LIBOR plus 2.25% and LIBOR plus 4%, respectively and maturing on
February 29, 1999.

During March 1998, the Company refinanced its first mortgage note payable
collateralized by 192 East 75th Street, paying off the remaining balance of
$1,959 at par and increasing the loan balance to $6,500, changing the interest
rate to LIBOR plus 2% and shortening the maturity date to March 31, 2000.

During March 1998, the Company refinanced its first mortgage note payable
collateralized by 30 East End Avenue, paying off the remaining balance of $3,590
at par and increasing the loan balance to $12,000, changing the interest rate to
LIBOR plus 2% and shortening the maturity date to March 31, 2000.

Subsequent to year end, the Company is in the process of acquiring the
following properties:

During April 1998, the Company acquired the first mortgage and promissory
note obligation of 342 Madison Avenue of $70,000 and $8,730, respectively for a
purchase price of $71,750 plus additional closing costs. The notes call for the
receipt of interest at LIBOR plus 1% and principal and interest at the General
Electric Capital Corporation's rate plus 3.25%, respectively. It is the
Company's intention to foreclose on this property and include it in its
operating properties portfolio.

During March 1998, the Company entered into a purchase contract agreement to
acquire the $36,000 first mortgage note obligation of 400 Madison Avenue for a
purchase price of $35,500 plus additional closing costs. The Company expects to
foreclose on its first mortgage position and acquire the property.

During March 1998, the Company entered into a purchase contract agreement to
acquire 150 Fifth Avenue for a purchase price of $26,000. This acquisition is
anticipated to be completed with the public offering, with the proceeds, and/or
credit line that will be estabished.

During March 1998, the Company entered into a purchase contract agreement to
acquire 1412 Broadway for a purchase price of $72,000. This acquisition is
anticipated to be completed concurrent with the public offering. The purchase
price is to be funded in part by $24,000 of OP Units of the to-be-formed REIT
and the remainder with proceeds from the public offering and credit line that
will be established.

15. CONCENTRATION OF REVENUE

Approximately 66%, 73% and 79% of Macklowe Organization Predecessor's base
rental revenue for the years ended December 31, 1997, 1996 and 1995,
respectively was derived from five commercial tenants.

F-32
<PAGE>
Macklowe Organization Predecessor
Schedule III -- Real Estate and Accumulated Depreciation
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN D
------------------------- COLUMN E
-------------------------
COLUMN C COST CAPITALIZED
------------------------- GROSS AMOUNT AT WHICH
SUBSEQUENT TO CARRIED AT CLOSE OF
INITIAL COSTS ACQUISITION PERIOD
COLUMN A COLUMN B ------------------------- ------------------------- -------------------------
- --------------- ---------------------- BUILDINGS AND BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------- ---------------------- ---------- ------------- ----- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Avenue of the $185,995) $48,109 $76,872 $-- $-- $48,109 $76,872
Americas (1 mortgage loan
Plaza
Two Grand 127,501) 10,156 56,019 -- -- 10,156 56,019
Central Tower (1 mortgage loan
540 Madison 52,006) 2,091 46,874 -- -- 2,091 46,874
Avenue (2 mortgage loan
305 West 50th 19,356) 12,094 6,665 -- -- 12,094 6,665
Street (1 mortgage loan
345 East 64th 9,043) 2,729 8,965 -- -- 2,729 8,965
Street (1 mortgage loan
40 West 55th 10,156) 5,661 5,962 -- -- 5,661 5,962
Street (1 mortgage loan
20 West End 3,988) 4,842 2,536 -- -- 4,842 2,536
Avenue (1 mortgage loan
30 East End 3,620) 1,493 2,382 -- 366 1,493 2,748
Avenue (1 mortgage loan
369 Lexington 13,781) 975 3,014 -- 18 975 3,032
Avenue (1 mortgage loan
140 West 57th 9,881) 762 5,271 -- 1,397 762 6,668
Street (2 mortgages
1000 Second 3,022) 3,510 645 -- -- 3,510 645
Avenue (1 mortgage loan
30 West End 2,620) 408 1,633 -- 9 408 1,642
Avenue (1 mortgage loan
192 East 75th 1,976) 181 1,006 -- 262 181 1,268
Street (1 mortgage loan
250 East 60th -- 297 112 -- -- 297 112
Street
---------------------- ---------- ------------- ----- ------------- ---------- -------------
$442,944 $93,308 $217,956 $-- $2,052 $93,308 $220,008
---------------------- ---------- ------------- ----- ------------- ---------- -------------
---------------------- ---------- ------------- ----- ------------- ---------- -------------

COLUMN G
--------------
COLUMN F COLUMN G LIFE ON WHICH
COLUMN A ------------ ------------ COLUMN H DEPRECIATION
- --------------- ACCUMULATED DATE OF ------------- IS
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION DATE ACQUIRED COMPUTED
- --------------- ----------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Avenue of the $124,981 $15,443 1/90 6/87 Various
Americas
Plaza
Two Grand 66,175 19,542 7/82 1/81 Various
Central Tower
540 Madison 48,965 1,286 9/96 9/96 Various
Avenue
305 West 50th 18,759 -- 3/97 3/97
Street
345 East 64th 11,694 173 1/96 1/96 Various
Street
40 West 55th 11,623 -- 4/97 4/97
Street
20 West End 7,378 602 12/88 7/88 Various
Avenue
30 East End 4,241 906 3/80 3/80 Various
Avenue
369 Lexington 4,007 1,382 12/82 3/78 Various
Avenue
140 West 57th 7,430 557 2/84 2/84 Various
Street
1000 Second 4,155 -- 4/97 4/97
Avenue
30 West End 2,050 112 4/95 4/95 Various
Avenue
192 East 75th 1,449 461 8/80 8/80 Various
Street
250 East 60th 409 -- 12/94 12/94
Street
----------- ------------
$313,316 $40,464
----------- ------------
----------- ------------
</TABLE>

F-33
<PAGE>
Schedule III -- Real Estate and Accumulated
Depreciation (continued)
(DOLLARS IN THOUSANDS)

The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1997 was approximately $210,730.

The changes in real estate for the three years ended December 31, 1997 are
as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period........................... $ 259,852 $ 215,030 $ 212,378
Improvements............................................. 19,810 1,244 611
Acquisitions............................................. 33,654 43,578 2,041
---------- ---------- ----------
Balance at end of period................................. $ 313,316 $ 259,852 $ 215,030
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 1997 are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period............................... $ 37,611 $ 33,695 $ 30,053
Depreciation for period...................................... 2,853 3,916 3,642
--------- --------- ---------
Balance at end of period..................................... $ 40,464 $ 37,611 $ 33,695
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-34
<PAGE>
Report of Independent Auditors

Board of Directors and Stockholders
Macklowe Properties, Inc.

We have audited the statement of revenues and certain expenses of the
property located at 150 Fifth Avenue, New York, New York, for the year ended
December 31, 1997. The financial statement is the responsibility of 150 Fifth
Avenue's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of Macklowe Properties, Inc. and
is not intended to be a complete presentation of the 150 Fifth Avenue's revenues
and expenses.

In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the 150 Fifth
Avenue as described in Note 1 for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
April 22, 1998

F-35
<PAGE>
150 Fifth Avenue

Statement of Revenues and Certain Expenses

(Note 1)

For the Year Ended December 31, 1997

<TABLE>
<S> <C>
Revenues: (NOTES 2 AND 6)
Base rents.................................................................... $3,145,181
Tenant reimbursements......................................................... 336,571
---------
Total revenues 3,481,752
---------
Certain expenses:
Real estate taxes............................................................. 570,404
Management fees (NOTE 3)...................................................... 77,602
Property operating expenses (NOTE 4).......................................... 1,094,954
---------
Total certain expenses.......................................................... 1,742,960
---------
Revenues in excess of certain expenses.......................................... $1,738,792
---------
---------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENT.

F-36
<PAGE>
150 Fifth Avenue

Notes to Statement of Revenues and Certain Expenses

For the Year Ended December 31, 1997

1. BASIS OF PRESENTATION

Presented herein is the statement of revenues and certain expenses related
to the operation of an office building located at 150 Fifth Avenue, New York,
New York.

The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate property. Accordingly, the financial
statement excludes certain expenses that may not be comparable to those expected
to be incurred by Macklowe Properties Inc. in the proposed future operations of
the aforementioned property. Items excluded consist of interest, depreciation
and general and administrative expenses not directly related to the future
operations.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.

2. LEASE AND REVENUE RECOGNITION

150 Fifth Avenue is being leased to tenants under operating leases. Minimum
rental income is generally recognized on a straight-line basis over the term of
the lease. The excess of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $69,500 for the year ended December
31, 1997. The lease agreements generally contain provisions for reimbursement of
real estate taxes and operating expenses over base year amounts, as well as
fixed increases in rent.

150 Fifth Avenue is a multi-tenant office building whose leases expire at
various dates over the next 10 years.

3. MANAGEMENT AND LEASING AGREEMENTS

150 Fifth Avenue is managed and leased by an outside managing agent. The
managing company provides property management services to 150 Fifth Avenue for
1 1/2% of the monthly collections. In addition, a monthly management fee of
$2,250 is paid to a related party of 150 Estates, LLC. The services provided by
the outside management company are terminable upon 30-day notice.

4. PROPERTY OPERATING EXPENSES

Property operating expenses for the year ended December 31, 1997 consist of
approximately $68,963 for insurance, $367,224 for utilities, $416,087 in repair
and maintenance costs and $242,680 in contract services.

5. SIGNIFICANT TENANTS

The five largest tenants constitute 33% of the revenue.

F-37
<PAGE>
150 Fifth Avenue

Notes to Statement of Revenues and Certain Expenses (continued)

For the Year Ended December 31, 1997

6. FUTURE MINIMUM RENTS SCHEDULE

Future minimum lease payments to be received by 150 Fifth Avenue as of
December 31, 1997 under non-cancelable operating leases are as follows:

<TABLE>
<S> <C>
1998........................................................... $2,879,370
1999........................................................... 2,446,200
2000........................................................... 1,948,420
2001........................................................... 1,428,320
2002........................................................... 1,168,846
Thereafter..................................................... 3,306,186
----------
$13,177,342
----------
----------
</TABLE>

F-38
<PAGE>
Report of Independent Auditors

Board of Directors and Stockholders
Macklowe Properties, Inc.

We have audited the statement of revenues and certain expenses of the
property located at 342 Madison Avenue, New York, New York for the year ended
December 31, 1997. The financial statement is the responsibility of 342 Madison
Avenue's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of Macklowe Properties, Inc., and
is not intended to be a complete presentation of the 342 Madison Avenue's
revenues and expenses.

In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 342 Madison
Avenue, as described in Note 1 for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
March 17, 1998

F-39
<PAGE>
342 Madison Avenue

Statement of Revenues and Certain Expenses
(Note 1)
For the Year Ended December 31, 1997

<TABLE>
<S> <C>
Revenues: (NOTES 2 AND 6)
Base rents................................................................... $11,803,902
Tenant reimbursements........................................................ 2,054,117
Other........................................................................ 217,552
----------
Total revenues................................................................. 14,075,571
----------
Certain expenses:
Real estate taxes............................................................ 3,026,207
Management fees (NOTE 3)..................................................... 150,000
Property operating expenses (NOTE 4)......................................... 3,737,437
----------
Total certain expenses......................................................... 6,913,644
----------
Revenues in excess of certain expenses......................................... $7,161,927
----------
----------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENT.

F-40
<PAGE>
342 Madison Avenue

Notes to Statement of Revenues and Certain Expenses

For the Year Ended December 31, 1997

1. BASIS OF PRESENTATION

Presented herein is the statement of revenues and certain expenses related
to the operation of an office building located at 342 Madison Avenue, New York,
New York.

Macklowe Properties Inc., ("Macklowe") has purchased the mortgage note from
342 Mad Equities LLC. The intent of Macklowe is to foreclose on the property and
control the building.

The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate property. Accordingly, the financial
statement excludes certain expenses that may not be comparable to those expected
to be incurred by Macklowe Properties, Inc., in the proposed future operations
of the aforementioned property. Items excluded consist of interest, depreciation
and general and administrative expenses not directly related to the future
operations.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.

2. LEASE AND REVENUE RECOGNITION

342 Madison Avenue is being leased to tenants under operating leases.
Minimum rental income is generally recognized on a straight-line basis over the
term of the lease. The excess of amounts so recognized over amounts due pursuant
to the underlying leases amounted to approximately $(45,379) for the year ended
December 31, 1997. The lease agreements generally contain provisions for
reimbursement of real estate taxes and operating expenses over base year
amounts, as well as fixed increases in rent.

342 Madison Avenue is a multi-tenant office building whose leases expire at
various dates over the next 21 years.

3. MANAGEMENT AND LEASING AGREEMENTS

342 Madison Avenue is managed and leased by an outside managing agent. The
outside management company provides property management services to 342 Madison
Avenue for the amount of $12,500 per month. The services provided by the outside
management company are terminable upon 30 day notice.

4. PROPERTY OPERATING EXPENSES

Property operating expenses for the year ended December 31, 1997 include
approximately $57,067 for insurance, $1,174,231 for utilities, $2,129,876 in
repair and maintenance costs and $376,263 in contract services.

F-41
<PAGE>
342 Madison Avenue

Notes to Statement of Revenues and Certain Expenses (continued)

5. SIGNIFICANT TENANTS

There are five significant tenants which constitute approximately 25% of the
total revenue.

6. FUTURE MINIMUM RENTS SCHEDULE

Future minimum lease payments to be received by 342 Madison Avenue as of
December 31, 1997 under non-cancelable operating leases are as follows:

<TABLE>
<S> <C>
1998........................................................... $10,563,049
1999........................................................... 9,264,586
2000........................................................... 8,089,345
2001........................................................... 5,158,331
2002........................................................... 3,982,824
Thereafter..................................................... 8,120,661
----------
$45,178,796
----------
----------
</TABLE>

F-42
<PAGE>
Report of Independent Auditors

Board of Directors and Stockholders
Macklowe Properties, Inc.

We have audited the statement of revenues and certain expenses of the
property located at 400 Madison Avenue, New York, New York, for the year ended
December 31, 1997. The financial statement is the responsibility of 400 Madison
Avenue's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of Macklowe Properties, Inc., and
is not intended to be a complete presentation of 400 Madison Avenue's revenues
and expenses.

In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 400 Madison
Avenue, as described in Note 1, for the year ended December 31, 1997, in
conformity with generally accepted accounting principle.

ERNST & YOUNG LLP

New York, New York
April 2, 1998

F-43
<PAGE>
400 Madison Avenue

Statement of Revenues and Certain Expenses
(Note 1)

For the Year Ended December 31, 1997

<TABLE>
<S> <C>
Revenues: (NOTES 2 AND 6)
Base rents.................................................................... $4,772,750
Tenant reimbursements......................................................... 696,270
Other......................................................................... 13,241
---------
Total revenues.................................................................. 5,482,261
---------

Certain expenses:
Real estate taxes............................................................. 1,118,773
Management fees (NOTE 3)...................................................... 80,451
Property operating expenses (NOTE 4).......................................... 1,388,522
---------
Total certain expenses.......................................................... 2,587,746
---------
Revenues in excess of certain expenses.......................................... $2,894,515
---------
---------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENT.

F-44
<PAGE>
400 Madison Avenue

Notes to Statement of Revenues and Certain Expenses

For the Year Ended December 31, 1997

1. BASIS OF PRESENTATION

Presented herein is the statement of revenues and certain expenses related
to the operation of an office building located at 400 Madison Avenue, New York,
New York owned by 400 Madison Avenue Limited Partnership.

Macklowe Properties Inc., ("Macklowe") purchased the mortgage note thereon
from Madison 47-48 Madison Equities LLC with the intent to foreclose on the
property and take control of the building.

The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate property. Accordingly, the financial
statement excludes certain expenses that may not be comparable to those expected
to be incurred by Macklowe Properties, Inc., in the proposed future operations
of the aforementioned property. Items excluded consist of interest, depreciation
and general and administrative expenses not directly related to the future
operations.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.

2. LEASE AND REVENUE RECOGNITION

400 Madison Avenue is being leased to tenants under operating leases.
Minimum rental income is generally recognized on a straight-line basis over the
term of the lease. The excess of amounts so recognized over amounts due pursuant
to the underlying leases amounted to approximately ($177) for the year ended
December 31, 1997. The lease agreements generally contain provisions for
reimbursement of real estate taxes and operating expenses over base year
amounts, as well as fixed increases in rent.

400 Madison Avenue is a multi-tenant office building whose leases expire at
various dates over the next 15 years.

3. MANAGEMENT AND LEASING AGREEMENTS

400 Madison Avenue is managed and leased by an outside managing agent. The
outside managing agent provides property management services to 400 Madison
Avenue for the amount of 1 1/2% of the total proceeds collected per month. The
services provided by the outside management company are terminable upon 30-day
notice.

4. PROPERTY OPERATING EXPENSES

Property operating expenses for the year ended December 31, 1997 include
approximately $42,999 for insurance, $461,616 for utilities, $297,202 in repair
and maintenance costs $32,162 for administrative and $554,543 in payroll
(maintenance).

5. SIGNIFICANT TENANTS

The four most significant tenants constitute 31% of rental income.

F-45
<PAGE>
400 Madison Avenue

Notes to Statement of Revenues and Certain Expenses (continued)

For the Year Ended December 31, 1997

6. FUTURE MINIMUM RENTS SCHEDULE

Future minimum lease payments to be received by 400 Madison Avenue as of
December 31, 1997 under non-cancelable operating leases, are as follows:

<TABLE>
<S> <C>
1998........................................................... $4,530,363
1999........................................................... 3,742,574
2000........................................................... 2,132,993
2001........................................................... 1,521,278
2002........................................................... 1,403,898
Thereafter..................................................... 4,629,035
----------
Total........................................................ $17,960,141
----------
----------
</TABLE>

F-46
<PAGE>
Report of Independent Auditors

Board of Directors and Stockholders
Macklowe Properties, Inc.

We have audited the combined statement of revenues and certain expenses of the
property ("16 and 18 East 53rd Street") as described in Note 1, for the year
ended December 31, 1997. The financial statement is the responsibility of 16 and
18 East 53rd Street's management. Our responsibility is to express an opinion on
this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

The accompanying combined statement of revenues and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in Form S-11 of Macklowe
Properties, Inc. and is not intended to be a complete presentation of the 16 and
18 East 53rd Street's revenues and expenses.

In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the combined revenues and certain expenses of
16 and 18 East 53rd Street as described in Note 1 for the year ended December
31, 1997, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
May 6, 1998

F-47
<PAGE>
16 and 18 East 53rd Street

Combined Statement of Revenues and Certain Expenses
(Note 1)

For the Year Ended December 31, 1997

<TABLE>
<S> <C>
Revenues: (NOTES 2 AND 4)
Base rents.................................................................... $1,936,860
Tenant reimbursements......................................................... 595,881
---------
Total revenues.................................................................. 2,532,741
---------
Certain expenses:
Real estate taxes............................................................. 475,103
Property operating expenses (NOTE 3).......................................... 797,308
---------
Total certain expenses.......................................................... 1,272,411
---------
Revenues in excess of certain expenses........................................ $1,260,330
---------
---------
</TABLE>

See accompanying notes to financial statement.

F-48
<PAGE>
16 and 18 East 53rd Street

Notes to Combined Statement of Revenues and Certain Expenses

For the Year Ended December 31, 1997

1. BASIS OF PRESENTATION

Presented herein is the combined statement of revenues and certain expenses
related to the operation of two office buildings, located at 16 and 18 East 53rd
Street (the "Property"), owned by East River LLC. The Property is located in
Manhattan, New York.

The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate property. Accordingly, the financial
statement excludes certain expenses that may not be comparable to those expected
to be incurred by Macklowe Properties, Inc. in the proposed future operations of
the aforementioned Property. Items excluded consist of interest, depreciation
and general and administrative expenses not directly related to the future
operations.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.

2. LEASE AND REVENUE RECOGNITION

The Property is being leased to tenants under operating leases. Minimum
rental income is generally recognized on a straight-line basis over the term of
the lease. The excess of amounts due pursuant to the underlying leases so
recognized over amounts due pursuant to the underlying leases amounted to
approximately $103,000 the year ended December 31, 1997. The lease agreements
generally contain provisions for reimbursement of real estate taxes and
operating expenses over base year amounts, as well as fixed increases in rent.

The Property consists of two multi-tenant office buildings whose tenant
leases expire at various dates over the next six years.

3. PROPERTY OPERATING EXPENSES

Property operating expenses for the year ended December 31, 1997 include
approximately $24,680 for insurance, $259,450 for utilities, $182,546 in repair
and maintenance costs $125,536 in administrative costs and $205,096 in payroll
(maintenance).

4. SIGNIFICANT TENANTS

The five largest tenants constitute approximately 57% of the revenue.

F-49
<PAGE>
16 and 18 East 53rd Street

Notes to Combined Statement of Revenues and Certain Expenses (continued)

For the Year Ended December 31, 1997

5. FUTURE MINIMUM RENTS SCHEDULE

Future minimum lease payments to be received by the Property as of December
31 1997 under non-cancelable operation leases are as follows:

<TABLE>
<S> <C>
1998............................................................ $1,795,207
1999............................................................ 1,137,698
2000............................................................ 728,929
2001............................................................ 602,704
2002............................................................ 508,306
Thereafter...................................................... 236,555
---------
$5,009,399
---------
---------
</TABLE>

F-50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Important Note to Readers........................ iii
Prospectus Summary............................... 1
Risk Factors..................................... 15
The Company...................................... 28
History.......................................... 29
Business and Growth Strategies................... 34
Use of Proceeds.................................. 39
Distributions.................................... 40
Capitalization................................... 44
Dilution......................................... 45
Selected Financial Information................... 47
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 50
Market Overview.................................. 57
The Properties................................... 66
Management....................................... 97
Structure and Formation of the Company........... 104
Policies with Respect to Certain Activities...... 108
Certain Relationships and Transactions........... 113
Partnership Agreement............................ 114
Principal Stockholders........................... 119
Description of Securities........................ 120
Certain Provisions of Maryland Law and Our
Charter and Bylaws............................. 125
Shares Available for Future Sale................. 129
Federal Income Tax Considerations................ 130
ERISA and Certain Other Considerations........... 141
Underwriting..................................... 144
Experts.......................................... 147
Legal Matters.................................... 147
Additional Information........................... 147
Glossary of Selected Terms....................... 148
Index to Financial Statements.................... F-1
</TABLE>

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

Until , 1998 (25 days after the commencement of this Offering), all
dealers effecting transactions in the securities offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

26,000,000 SHARES

MACKLOWE PROPERTIES, INC.

COMMON STOCK

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

PROSPECTUS
, 1998

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

LEHMAN BROTHERS
PRUDENTIALSECURITIES

INCORPORATED

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:

<TABLE>
<CAPTION>
<S> <C>
Registration fee -- Securities and Exchange Commission............................ $ 176,410
Filing fee -- NASD................................................................ 30,500
Listing fee -- NYSE............................................................... *
Blue Sky fees and expenses (including legal fees)................................. *
Accounting fees and expenses...................................................... *
Legal fees and expenses........................................................... *
Printing.......................................................................... *
Transfer Agent's and Registrar's fees............................................. *
Miscellaneous..................................................................... *
----------
Total............................................................................. $ *
----------
----------
</TABLE>

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

* To be completed by Amendment

ITEM 32. SALES TO SPECIAL PARTIES

See Item 33.

ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES

Upon formation of the Registrant, Harry Macklowe and Warren Cole were issued
an aggregate of 1,000 shares of Common Stock for total aggregate consideration
of a subscription receivable of $1,000 in order to provide the initial
capitalization of the Registrant. The issuance of the securities described in
this Item 32 were made in reliance upon the exemption from registration provided
by Section 4(2) under the Securities Act of 1933.

ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by the MGCL, Article VI, Section 3 of our Charter provides for
indemnification of our directors and officers, as follows:

The Company shall indemnify (A) its directors and officers, whether
serving the Company or at its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures
and to the full extent permitted by law and (B) other employees and agents
to such extent as shall be authorized by the Board of Directors or the
Company's Bylaws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take
such action as is necessary to carry out these indemnification provisions
and is expressly empowered to adopt, approve and amend from time to time
such Bylaws, resolutions or contracts implementing such provisions or such
further indemnification arrangements as may be permitted by law. No
amendment of our Charter or repeal of any of its provisions shall limit or
eliminate the right to indemnification provided hereunder with respect to
acts or omissions occurring prior to such amendment or repeal.

Our Bylaws contain indemnification procedures that implement those of our
Charter. We have entered into Indemnification Agreements with each of our
Directors and with certain of our executive officers which contain
indemnification procedures that implement those of our Charter. The MGCL permits
a corporation to indemnify its directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities, unless it is
established that (a) the act or omission of the director or officer was material
to the matter giving rise to

II-1
<PAGE>
such proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually received
an improper personal benefit in money, property or services, or (c) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the action or omission was unlawful.

As permitted by the MGCL, Article VI, Section 4 of our Charter provides for
limitation of liability of our directors and officers, as follows:

To the fullest extent permitted by Maryland statutory or decisional law,
as amended or interpreted, no director or officer of the Company shall be
personally liable to the Company or its stockholders for money damages. No
amendment of the Charter of the Company or repeal of any of its provisions
shall limit or eliminate the limitation on liability provided to directors
and officers hereunder with respect to any act or omission occurring prior
to such amendment or repeal.

The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(i) the person actually received an improper benefit or profit in money,
property or services or (ii) a judgment or other final adjudication is entered
in a proceeding based on a finding that the person's action, or failure to act,
was the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding.

As permitted under Section 2-418(k) of the MGCL, we have purchased and
maintain insurance on behalf of our directors and officers against any liability
asserted against such directors and officers in their capacities as such,
whether or not we would have the power to indemnify such persons under the
provisions of Maryland law governing indemnification.

The partnership agreement of Macklowe Properties, L.P. also provides for
indemnification of the Company and its officers and directors against any and
all losses, claims, damages, liabilities, joint or several, expenses (including,
without limitation, attorney's fees and other 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 Macklowe Properties, L.P. or
the Company as set forth in the partnership agreement of Macklowe Properties,
L.P. in which any indemnitee may be involved, or is threatened to be involved,
as a party or otherwise, unless it is established that (i) the act or omission
of the indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the indemnitee actually received an improper personal benefit
in money, property or services, or (iii) in the case of a criminal proceeding,
the indemnitee had cause to believe that the act or omission was unlawful.
Without limitation, the foregoing indemnity shall extend to any liability of any
indemnitee, pursuant to a loan guaranty (except a guaranty by a limited partner
of nonrecourse indebtedness of Macklowe Properties, L.P. or as otherwise
provided in any such loan guaranty) or otherwise for any indebtedness of
Macklowe Properties, L.P. or any subsidiary of the Macklowe Properties, L.P.
(including without limitation, any indebtedness which Macklowe Properties, L.P.
or any subsidiary of Macklowe Properties, L.P. has assumed or taken subject to),
and the Company is authorized and empowered, on behalf of Macklowe Properties,
L.P., to enter into one or more indemnity agreements consistent with the
provisions of this paragraph in favor of any indemnitee having or potentially
having liability for any such indebtedness. The termination of any proceeding by
conviction of an indemnitee or upon a plea of nolo contendere or its equivalent
by an indemnitee, or an entry of an order of probation against an indemnitee
prior to judgment creates a rebuttable presumption that the indemnitee acted in
a manner contrary to that specified in the indemnification section of the
partnership agreement of Macklowe Properties, L.P. Any indemnification pursuant
to the partnership agreement of Macklowe Properties, L.P. may only be made out
of the assets of Macklowe Properties, L.P. and neither the Company nor any
limited partner shall have any obligation to contribute to the capital of
Macklowe Properties, L.P., or otherwise provide funds, to enable Macklowe
Properties, L.P. to fund its obligations under the provisions of the partnership
agreement described in this paragraph.

II-2
<PAGE>
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED

Not applicable.

ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS

The following financial statements and schedule are included in the
prospectus included in this registration statement.

Index to Financial Statements

<TABLE>
<CAPTION>
MACKLOWE PROPERTIES, INC.
<S> <C>
Pro Forma Combined Financial Statements (unaudited).................................. F-2
Pro Forma Combined Balance Sheet as of December 31, 1997........................... F-3
Notes to Pro Forma Combined Balance Sheet.......................................... F-4
Pro Forma Combined Income Statement for the Year Ended December 31, 1997........... F-6
Notes to Pro Forma Combined Income Statement....................................... F-7
Historical
Report of Independent Auditors..................................................... F-10
Balance Sheet as of March 31, 1998................................................. F-11
Notes to Balance Sheet............................................................. F-12

MACKLOWE ORGANIZATION PREDECESSOR

342 MADISON AVENUE

16 AND 18 EAST 53RD STREET

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -----------
<C> <S> <C> <C>
1 --
3 --
a) --
b) --
4 a) --
b) --
5 --
a) --
b) --
8 --
10 --
a) --
b) --
c) --
d) --
e) --
f) --
g) --
h) --
21 --
23 --
a) --
b) --
c) --
d) --
24 --
27 --
99 --
a) --
b) --
c) --
d) --

<CAPTION>
EXHIBIT
NO. DESCRIPTION

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

<C> <C>
1 Form of Underwriting Agreement among Lehman Brothers Inc. and Prudential Securities Incorporated, as

representatives of the several Underwriters, the Company and the Operating Partnership.*

3 Organizational Documents

Form of Amended and Restated Articles of Incorporation of Macklowe Properties, Inc.

Form of Bylaws of Macklowe Properties, Inc.

4 Specimen Common Stock Certificate*

Form of Articles Supplementary Classifying and Designating the Series A Preferred Stock*

5 Opinions re Legality*

Opinion of Rogers & Wells LLP*

Opinion of Piper & Marbury L.L.P.*

8 Opinion of Rogers & Wells LLP Regarding Tax Matters*

10 Material Contracts

Form of Omnibus Contribution Agreement

Supplemental Representations and Warranty Agreement among the Company, the Operating Partnership and

Harry Macklowe*

Pledge Agreement among the Company, the Operating Partnership and Harry Macklowe*

Form of Registration Rights Agreement between the Company and the persons named therein*

Form of Agreement of Limited Partnership of Macklowe Properties, L.P.

Articles of Organization and Form of Operating Agreement of Macklowe Management LLC

Articles of Organization and Form of Operating Agreement of Macklowe Construction LLC

Form of Employment and Noncompetition Agreement among the Company and the Executive Officers*

21 List of Subsidiaries of Macklowe Properties, Inc.

23 Consents of Experts and Counsel

Consent of Rogers & Wells LLP (counsel) (included as part of Exhibits 5 and 8)

Consent of Piper & Marbury L.L.P. (counsel) (included as part of Exhibit 5)

Consent of Ernst & Young LLP (accountants)

Consent of Cushman & Wakefield

24 Powers of Attorney (included on signature pages of Registration Statement on page II-5)

27 Financial Data Schedule

99 Additional Exhibits

Consent of Jay Chiat to be named as a proposed director

Consent of to be named*

Cushman and Wakefield Market Study

</TABLE>

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

* To be filed by Amendment

ITEM 37. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide the Underwriters, at
the closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the

II-4
<PAGE>
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

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

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

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on May 14, 1998.

<TABLE>
<S> <C> <C>
MACKLOWE PROPERTIES, INC.

By: /s/ HARRY MACKLOWE
-----------------------------------------
Harry Macklowe
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
</TABLE>

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Harry Macklowe and Warren D. Cole (each
with full power to act alone), his true and lawful attorney-in-fact and agent
with full power of substitution, in the name and on behalf of the undersigned,
to do any and all acts and things and to execute any and all instruments which
said attorney and agent, may deem necessary or advisable to enable Macklowe
Properties, Inc. (the "Registrant") to comply with the Securities Act of 1933,
as amended (the "Securities Act"), and with the Securities Exchange Act of 1934,
as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof in connection with (i) the registration
under the Securities Act of shares of Common Stock, par value $.001 per share
(the "Common Stock"), of the Registrant and (ii) any and all amendments thereto
or reports that the Registrant is required to file pursuant to the requirements
of federal or state securities laws or any rules or regulations thereunder. The
authority granted under this Power of Attorney shall include, but not be limited
to, the power and authority to sign the name of the undersigned in the capacity
or capacities set forth below to a Registration Statement on Form S-11 to be
filed with the Securities and Exchange Commission in respect of the Common
Stock, to any and all amendments (including post-effective amendments) to that
Registration Statement in respect of the same, to any and all instruments filed
as a part of or in connection with that Registration Statement; and the
undersigned hereby ratify and confirm all that the attorney-in-fact and agent,
shall lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

Director and Chief
/s/ HARRY MACKLOWE Executive Officer
- ------------------------------ (Principal Executive May 14, 1998
Harry Macklowe Officer)

/s/ WARREN D. COLE
- ------------------------------ Director and President May 14, 1998
Warren D. Cole

/s/ KEVIN E. NEUNER Executive Vice President
- ------------------------------ -- Finance and May 14, 1998
Kevin E. Neuner Operations

/s/ EDWARD R.ACKERMAN Vice President-Finance
- ------------------------------ (Principal Accounting May 14, 1998
Edward R. Ackerman Officer)

II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S> <C> <C>
1 -- Form of Underwriting Agreement among Lehman Brothers Inc. and Prudential
Securities Incorporated, as representatives of the several Underwriters, the
Company and the Operating Partnership.*
3 -- Organizational Documents
a) -- Form of Amended and Restated Articles of Incorporation of Macklowe Properties,
Inc.
b) -- Form of Bylaws of Macklowe Properties, Inc.
4 a) -- Specimen Common Stock Certificate*
b) -- Form of Articles Supplementary Classifying and Designating the Series A Preferred
Stock*
5 -- Opinions re Legality*
a) -- Opinion of Rogers & Wells LLP*
b) -- Opinion of Piper & Marbury L.L.P.*
8 -- Opinion of Rogers & Wells LLP Regarding Tax Matters*
10 -- Material Contracts
a) -- Form of Omnibus Contribution Agreement
b) -- Supplemental Representations and Warranty Agreement among the Company, the
Operating Partnership and Harry Macklowe*
c) -- Pledge Agreement among the Company, the Operating Partnership and Harry Macklowe*
d) -- Form of Registration Rights Agreement between the Company and the persons named
therein*
e) -- Form of Agreement of Limited Partnership of Macklowe Properties, L.P.
f) -- Articles of Organization and Form of Operating Agreement of Macklowe Management
LLC
g) -- Articles of Organization and Form of Operating Agreement of Macklowe Construction
LLC
h) -- Form of Employment and Noncompetition Agreement among the Company and the
Executive Officers*
21 -- List of Subsidiaries of Macklowe Properties, Inc.
23 -- Consents of Experts and Counsel
a) -- Consent of Rogers & Wells LLP (counsel) (included as part of Exhibits 5 and 8)
b) -- Consent of Piper & Marbury L.L.P. (counsel) (included as part of Exhibit 5)
c) -- Consent of Ernst & Young LLP (accountants)
d) -- Consent of Cushman & Wakefield
24 -- Powers of Attorney (included on signature pages of Registration Statement on page
II-5)
27 -- Financial Data Schedule
99 -- Additional Exhibits
a) -- Consent of Jay Chiat to be named as a proposed director
b) -- Consent of to be named*
c) -- Consent of to be named*
d) -- Cushman and Wakefield Market Study

<CAPTION>
SEQUENTIAL PAGE
EXHIBITS NUMBER
- ----------- -------------------
<C> <C>
1
3
4
5
8
10
21
23
24
27
99
</TABLE>

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

* To be filed by Amendment

<PAGE>

Exhibit 3(a)

MACKLOWE PROPERTIES, INC.

ARTICLES OF AMENDMENT AND RESTATEMENT

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

MACKLOWE PROPERTIES, INC., a Maryland corporation, having its principal
office in Baltimore City, Maryland (the "Company"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:

FIRST: The Company desires to amend and restate its charter as currently
in effect.

SECOND: The provisions hereinafter set forth in this Amended and Restated
Article of Incorporation are all the provisions of the charter of the Company as
currently in effect.

THIRD: The Charter of the Company is hereby amended and restated to read
in its entirety as follows:

* * * * *

MACKLOWE PROPERTIES, INC.

ARTICLES OF INCORPORATION

ARTICLE I

STATEMENT

(a) The name of the incorporator is Mark E. DeAngelis.

(b) The said incorporator's address, including the street and
number, if any, including the county or municipal area, and including the state
or country, is c/o Rogers & Wells LLP, 200 Park Avenue, New York, New York
10166.

(d) The said incorporator is forming the corporation named in these
Articles of Incorporation under the general laws of the State of Maryland, to
wit, the Maryland General Company Law.
<PAGE>

ARTICLE II

NAME

The name of the corporation is: Macklowe Properties, Inc.

ARTICLE III

PURPOSE

(a) The purposes for which the Company is formed and the business
and objects to be carried on and promoted by it are to engage in any lawful act
or activity (including, without limitation or obligation, engaging in business
as a real estate investment trust under the Code for which corporations may be
organized under the general laws of the State of Maryland as now or hereafter in
force.

(b) The foregoing enumerated purposes and objects shall be in no way
limited or restricted by reference to, or inference from, the terms of any other
clause of this or any other Article of the Charter of the Company, and each
shall be regarded as independent; and they are intended to be and shall be
construed as powers as well as purposes and objects of the Company and shall be
in addition to and not in limitation of the general powers of corporations under
the General Laws of the State of Maryland.

ARTICLE IV

PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT

The address of the principal office of the Company in the State of
Maryland is c/o CSC-Lawyers Incorporating Service Company, 11 East Chase Street,
Baltimore City, Maryland 21202. The name of the resident agent of the Company in
the State of Maryland is CSC-Lawyers Incorporating Service Company, whose post
address is 11 East Chase Street, Baltimore City, Maryland 21202. The resident
agent is a corporation of and resident of the State of Maryland.

ARTICLE V

BOARD OF DIRECTORS

(a) The number of directors of the Company shall be five, which
number may be increased or decreased by resolution of the Board of Directors
approved by at least two-thirds of the directors then in office pursuant to the
By-Laws of the Company, but shall never be less than the minimum number
permitted by the General Laws of the State of Maryland now or hereafter

2
<PAGE>

in force.

(b) Subject to the rights of the holders of any class of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office, or other cause shall be filled by the required vote of the stockholders
or the directors then in office. A director so chosen by the stockholders shall
hold office for the balance of the term then remaining. A director so chosen by
the remaining directors shall hold office until the next annual meeting of
stockholders, at which time the stockholders shall elect a director to hold
office for the balance of the term then remaining. No decrease in the number of
directors constituting the Board of Directors shall affect the tenure of office
of any director.

(c) Whenever the holders of any one or more series of Preferred
Stock of the Company shall have the right, voting separately as a class, to
elect one or more directors of the Company, the Board of Directors shall consist
of said directors so elected in addition to the number of directors fixed as
provided in paragraph (a) of this Article V. Notwithstanding the foregoing, and
except as otherwise may be required by law, whenever the holders of any one or
more series of Preferred Stock of the Company shall have the right, voting
separately as a class, to elect one or more directors of the Company, the terms
of the director or directors elected by such holders shall expire at the next
succeeding annual meeting of stockholders.

(d) Subject to the rights of the holders of any class separately
entitled to elect one or more directors, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and then
only by the affirmative vote of the holders of at least 80% of the combined
voting power of all classes of shares of capital stock entitled to vote in the
election for directors voting together as a single class.

(e) The directors shall be divided into three classes as follows:

(1) the term of office of Class I shall be until the 1998
annual meeting of stockholders and until their successors shall be
elected and have qualified and thereafter shall be for three years
and until their successors shall be elected and have qualified;

(2) the term of office of Class II shall be until the 1999
annual meeting of stockholders and until their successors shall be
elected and have qualified an thereafter shall be for three years
and until their successors shall be elected and have qualified; and

(3) the term of office of Class III shall be until the 2000
annual meeting of stockholders and until their successors shall be
elected and have qualified and thereafter shall be for three years
and until their successors shall be elected and have qualified.

3
<PAGE>

(f) The names of the individuals who now serve as directors of the
Company and until their successors are elected and qualify are as follows:

(1) The following person shall serve as Class I director:

[INDEPENDENT DIRECTOR TO BE NAMED]

(2) The following persons shall serve as Class II directors:

[INDEPENDENT DIRECTOR TO BE NAMED]
Jay Chiat

(3) The following persons shall serve as Class III directors:

Warren D. Cole
Harry Macklowe

ARTICLE VI

PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
COMPANY AND OF THE STOCKHOLDERS AND DIRECTORS

Section 1. AUTHORIZATION BY BOARD OF STOCK ISSUANCE. The Board of
Directors may authorize the issuance from time to time of shares of capital
stock of the Company of any class or series, whether now or hereafter
authorized, or securities or rights convertible into shares of its stock of any
class or series, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable and without any action by the
stockholders.

Section 2. PREEMPTIVE RIGHTS. No holder of any stock or any other
securities of the Company, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any other securities
of the Company other than such, if any, as the Board of Directors, in its sole
discretion, may determine and at such price or prices and upon such other terms
as the Board of Directors, in its sole discretion, may fix; and any stock or
other securities which the Board of Directors may determine to offer for
subscription may, as the Board of Directors in its sole discretion shall
determine, be offered to the holders of any class, series or type of stock or
other securities at the time outstanding to the exclusion of the holders of any
or all other classes, series or types of stock or other securities at the time
outstanding.

Section 3. INDEMNIFICATION. The Company shall indemnify (A) its
directors and officers, whether serving the Company or at its request any other
entity, to the full extent required or permitted by the General Laws of the
State of Maryland now or hereafter in

4
<PAGE>

force, including the advance of expenses under the procedures and to the full
extent permitted by law and (B) other employees and agents to such extent as
shall be authorized by the Board of Directors or the Company's By-Laws and be
permitted by law. The foregoing rights of indemnification shall not be exclusive
of any other rights to which those seeking indemnification may be entitled. The
Board of Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such By-Laws, resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be permitted by
law. No amendment of the Charter of the Company or repeal of any of its
provisions shall limit or eliminate the right to indemnification provided
hereunder with respect to acts or omissions occurring prior to such amendment or
repeal.

Section 4. PERSONAL LIABILITY. To the fullest extent permitted by
Maryland statutory or decisional law, as amended or interpreted, no director or
officer of the Company shall be personally liable to the Company or its
stockholders for money damages. No amendment of the Charter of the Company or
repeal of any of its provisions shall limit or eliminate the limitation on
liability provided to directors and officers hereunder with respect to any act
or omission occurring prior to such amendment or repeal.

Section 5. DETERMINATIONS BY BOARD. The determination as to any of
the following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the charter and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive and
shall be binding upon the Company and every holder of shares of its stock: the
amount of the net income of the Company for any period and the amount of assets
at any time legally available for the payment of dividends, redemption of its
stock or the payment of other distributions on its stock; the amount of paid-in
surplus, net assets, other surplus, annual or other net profit, net assets in
excess of capital, undivided profits or excess of profits over losses on sales
of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); the fair value, or
any sale, bid or asked price to be applied in determining the fair value, of any
asset owned or held by the Company; any matters relating to the acquisition,
holding and disposition of any assets by the Company; and to determine whether
and to what extent and at what times and places and under what conditions and
regulations the books, accounts and documents of the Company, or any of them,
shall be open to the inspection of stockholders, except as otherwise provided by
statute or by the By-Laws, and, except as so provided, no stockholder shall have
any right to inspect any book, account or document of the Company unless
authorized to do so by resolution of the Board of Directors.

Section 6. REIT QUALIFICATION. If the Company elects to qualify for
Federal income tax treatment as a REIT, the Board of Directors shall use its
reasonable best efforts to take such actions as are necessary or appropriate to
preserve the status of the Company as a REIT; however, if the Board of Directors
determines that it is no longer in the best interests of the Company to continue
to be qualified as a REIT, the Board of Directors may revoke or

5
<PAGE>

otherwise terminate the Company's REIT election pursuant to Section 856(g) of
the Code.

Section 7. CHANGE OF CONTROL. The Board of Directors shall, in
connection with the exercise of its business judgment involving a Business
Combination (as defined in Section 3-601 of the Corporations and Associations
Article of the Annotated Code of Maryland) or any actual or proposed transaction
which would or may involve a change in control of the Company (whether by
purchases of shares of stock or any other securities of the Company in the open
market, or otherwise, tender offer, merger, consolidation, dissolution,
liquidation, sale of all or substantially all of the assets of the Company,
proxy solicitation or otherwise) in determining what is in the best interest of
the Company and its stockholders and in making any recommendation to its
stockholders, give due consideration to all relevant factors, including, but not
limited to (A) the economic effect, both immediate and long-term, upon the
Company's stockholders, including stockholders, if any, who do not participate
in the transaction; (B) the social and economic effect on the employees and
customers of, and others dealing with, the Company and its subsidiaries and on
the communities in which the Company and its subsidiaries operate or are
located; (C) whether the proposal is acceptable based on the historical and
current operating results or financial condition of the Company; (D) whether a
more favorable price could be obtained for the Company's stock or other
securities in the future; (E) the reputation and business practices of the
offeror and its management and affiliates as they would affect the employees of
the Company and its subsidiaries; (F) the future value of the stock or any other
securities of the Company; (G) any antitrust or other legal and regulatory
issues that are raised by the proposal; and (H) the business and financial
condition and earnings prospects of the acquiring person or entity, including,
but not limited to, debt service and other existing financial obligations,
financial obligations to be incurred in connection with the acquisition, and
other likely financial obligations of the acquiring person or entity. If the
Board of Directors determines that any proposed Business Combination (as defined
in Section 3-601 of the Corporations and Associations Article of the Annotated
Code of Maryland) or actual or proposed transaction which would or many involve
a change in control of the Company should be rejected, it may take any lawful
action to defeat such transaction, including, but not limited to, any or all of
the following: advising stockholders not to accept the proposal; instituting
litigation against the party making the proposal; filing complaints with
governmental and regulatory authorities; acquiring the stock or any of the
securities of the Company; selling or otherwise issuing authorized but unissued
stock, other securities, or granting options or rights with respect thereto;
acquiring a company to create an antitrust or other regulatory problem for the
party making the proposal; and obtaining a more favorable offer from another
individual or entity.

Section 8. VOTE REQUIRED. Notwithstanding any provision of law
requiring the authorization of any action by a greater proportion than a
majority of the total number of shares of all classes of capital stock or of the
total number of shares of any class of capital stock, such action shall be valid
and effective if authorized by the affirmative vote of the holders of a majority
of the total number of shares of all classes outstanding and entitled to vote
thereon, except as otherwise provided in the Charter.

<PAGE>

ARTICLE VII

STOCK

Section 1. AUTHORIZED SHARES. (a) The total number of shares of
capital stock of all classes which the Company has authority to issue is
200,000,000 shares of capital stock (par value $.001 per share), amounting in
aggregate par value to $200,000. All of such shares are initially classified as
"Common Stock" (par value $.001 per share). Subject to the provisions of Article
VIII, the Board of Directors may classify and reclassify any unissued shares of
capital stock by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares of capital stock.

(b) Subject to the provisions of Article VIII, the following is a
description of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of a redemption of the Common Stock of the Company.

(1) Each share of Common Stock shall have one vote, and, except as
otherwise provided in respect of any class of stock hereafter classified
or reclassified, the exclusive voting power for all purposes shall be
vested in the holders of the Common Stock. Shares of Common Stock shall
not have cumulative voting rights.

(2) Subject to the provisions of law and any preferences of any
class of stock hereafter classified or reclassified, dividends, including
dividends payable in shares of another class of the Company's stock, may
be paid ratably on the Common Stock at such time and in such amounts as
the Board of Directors may deem advisable.

(3) In the event of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, the holders of the Common
Stock shall be entitled, together with the holders of any other class of
stock hereafter classified or reclassified not having a preference on
distributions in the liquidation, dissolution or winding up of the
Company, to share ratably in the net assets of the Company remaining,
after payment or provision for payment of the debts and other liabilities
of the Company and the amount to which the holders of any class of stock
hereafter classified or reclassified having a preference on distributions
in the liquidation, dissolution or winding up of the Company

6
<PAGE>

shall be entitled.

(c) Subject to the foregoing, the power of the Board of Directors to
classify and reclassify any of the shares of capital stock shall include,
without limitation, subject to the provisions of the Charter, authority to
classify or reclassify any unissued shares of such stock into a class or classes
of preferred stock, preference stock, special stock or other stock, and to
divide and classify shares of any class into one or more series of such class,
by determining, fixing, or altering one or more of the following:

(1) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided that, unless
otherwise prohibited by the terms of such or any other class or series,
the number of shares of any class or series may be decreased by the Board
of Directors in connection with any classification or reclassification of
unissued shares and the number of shares of such class or series may be
increased by the Board of Directors in connection with any such
classification or reclassification, and any shares of any class or series
which have been redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall become part of
the authorized capital stock and be subject to classification and
reclassification as provided in this sub-paragraph.

(2) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on
shares of such class or series, whether any such dividends shall rank
senior or junior to or on a parity with the dividends payable on any other
class or series of stock, and the status of any such dividends as
cumulative, cumulative to a limited extent or non-cumulative and as
participating or non-participating.

(3) Whether or not shares of such class or series shall have voting
rights in addition to any voting rights provided by law, and, if so, the
terms of such voting rights.

(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provision for adjustment of the conversion or exchange
rate in such events or at such times as the Board of Directors shall
determine.

(5) Whether or not shares of such class or series shall be subject
to redemption and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates; and
whether or not there shall be any sinking fund or purchase account in
respect thereof, and if so, the terms thereof.

(6) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Company, which rights may vary
depending upon whether such liquidation,

7
<PAGE>

dissolution or winding up is voluntary or involuntary and, if voluntary,
may vary at different dates, and whether such rights shall rank senior or
junior to or on a parity with such rights of any other class or series of
stock.

(7) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of
dividends or making of distributions on, or the acquisition of, or the use
of moneys for purchase or redemption of, any stock of the Company, or upon
any other action of the Company, including action under this
sub-paragraph, and, if so, the terms and conditions thereof.

(8) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the Charter of the Company.

(d) For the purposes hereof and of any articles supplementary to the
Charter providing for the classification or reclassification of any shares of
capital stock or of any other Charter document of the Company (unless otherwise
provided in any such articles or document), any class or series of stock of the
Company shall be deemed to rank:

(1) prior to another class or series either as to dividends or upon
liquidation, if the holders of such class or series shall be entitled to
the receipt of dividends or of amounts distributable on liquidation,
dissolution or winding up, as the case may be, in preference or priority
to holders of such other class or series;

(2) on a parity with another class or series either as to dividends
or upon liquidation, whether or not the dividend rates, dividend payment
dates or redemption or liquidation price per share thereof be different
from those of such others, if the holders of such class or series of stock
shall be entitled to receipt of dividends or amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion
to their respective dividend rates or redemption or liquidation prices,
without preference or priority over the holders of such other class or
series; and

(3) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or series shall be
subject or subordinate to the rights of the holders of such other class or
series in respect of the receipt of dividends or the amounts distributable
upon liquidation, dissolution or winding up, as the case may be.

Section 2. CHARTER AND BYLAWS. All persons who shall acquire stock
in the Company shall acquire such stock subject to the provisions of the Charter
and the Bylaws.

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ARTICLE VIII

RESTRICTION ON TRANSFER,
ACQUISITION AND REDEMPTION OF SHARES

Section 1. OWNERSHIP LIMITATION. (a) Subject to Section 10 of this
Article VIII, during the period commencing on the Initial Date and prior to the
Restriction Termination Date:

(1) (A) No Person, other than an Excepted Holder, shall
Beneficially Own or Constructively Own shares of Capital Stock in
excess of the Aggregate Stock Ownership Limit, no Person, other than
an Excepted Holder, shall Beneficially Own or Constructively Own
shares of Common Stock in excess of the Common Stock Ownership
Limit, and no Excepted Holder shall Beneficially Own or
Constructively Own shares of Capital Stock in excess of the Excepted
Holder Limit for such Excepted Holder.

(B) No Person shall Beneficially or Constructively Own shares
of Capital Stock to the extent that such Beneficial or Constructive
Ownership of Capital Stock would result in the Company being
"closely held" within the meaning of Section 856(h) of the Code
(without regard to whether the ownership interest is held during the
last half of a taxable year), or otherwise failing to qualify as a
REIT (including, but not limited to, Beneficial or Constructive
Ownership that would result in the Company owning (actually or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Company from
such tenant would cause the Company to fail to satisfy any of the
gross income requirements of Section 856(c) of the Code).

(C) Notwithstanding any other provisions contained herein, any
Transfer of shares of Capital Stock, that, if effective, would
result in the Capital Stock being Beneficially Owned by less than
100 persons (determined under the principles of Section 856(a)(5) of
the Code) shall be void ab initio, and the intended transferee shall
acquire no rights in such shares of Capital Stock.

(2) If any Transfer of shares of Capital Stock or change in
capital structure or other event occurs which, if effective, would result
in any Person Beneficially Owning or Constructively Owning shares of
Capital Stock in violation of Section 1(a)(1)(A) or (B) of this Article
VIII.

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<PAGE>

(A) then that number of shares of the Capital Stock the
Beneficial or Constructive Ownership of which otherwise would cause
such Person to violate Section 1(a)(1)(A) or (B) of this Article
VIII (rounded to the nearest whole shares) shall be automatically
transferred to a Trust for the benefit of a Charitable Beneficiary,
as described in Section 11 of this Article VIII, effective on the
close of business on the Business Day prior to the date of such
Transfer, and such Person shall acquire no rights in such shares; or

(B) if the transfer to the Trust described in clause (A) of
this sentence would not be effective for any reason to prevent the
violation of Section 1(a)(1)(A) or (B) of this Article VIII, then
the Transfer of that number of shares of Capital Stock that
otherwise would cause any Person to violate Section 1(a)(1)(A) or
(B) of this Article VIII shall be void ab initio, and the intended
transferee shall acquire no rights in such shares of Capital Stock.

Section 2. PREVENTION OF TRANSFER. If the Board of Directors of the
the Company or any duly authorized committee thereof shall at any time determine
in good faith that a Transfer or change in capital structure or other event has
taken place that results in a violation of Section 1(a) of this Article VIII or
that a Person intends to acquire or has attempted to acquire Beneficial or
Constructive Ownership of any shares of Capital Stock in violate of Section 1(a)
of this Article VIII (whether or not such violation is intended), the Board of
Directors or a committee thereof shall take such action as it deems advisable to
refuse to give effect to or to prevent such Transfer or change in capital
structure or other event, including without limitation, causing the Company to
redeem shares, refusing to give effect to such Transfer on the books of the
Company or instituting proceedings to enjoin such Transfer or other event;
provided, however, that any Transfers or attempted Transfers or changes in
capital structure or other events in violation of Section 1(a) of this Article
VIII shall automatically result in the transfer to the Trust described above in
Section 1(a)(2)(A), and, where applicable, such Transfer (or other event) shall
be void ab initio as provided above irrespective of any action (or non-action)
by the Board of Directors of committee thereof.

Section 3. NOTICE TO THE COMPANY. Any Person who acquires or
attempts or intends to acquire Beneficial Ownership or Constructive Ownership of
shares of Capital Stock that will or may violate Section 1(a)(1) of this Article
VIII, or any Person who would have owned shares of Capital Stock that resulted
in a transfer to the Trust pursuant to the provisions of Section 1 (a)(2) of
this Article VIII shall immediately give written notice to the Company of such
event, or in the case of such proposed or attempted transaction, give at least
15 days prior written notice, and shall provide to the Company such other
information as the Company may request in order to determine the effect, if any,
of such Transfer on the Company's status as a REIT.

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<PAGE>

Section 4. INFORMATION FOR THE COMPANY. From the Initial Date and
prior to the Restriction Termination Date:

(a) every owner of more than 5% (or such lower percentage as
required by the Code or the Treasury Regulations promulgated thereunder)
of the outstanding shares of Capital Stock, within 30 days after the end
of each taxable year, shall give written notice to the Company stating the
name and address of such owner, the number of shares of Capital Stock
Beneficially Owned and a description of the manner in which such shares
are held. Each such owner shall provide to the Company such additional
information as the Company may request in order to determine the effect,
if any, of such Beneficial Ownership on the Company's status as a REIT and
ensure compliance with the Aggregate Stock Ownership Limit.

(b) each Person who is a Beneficial or Constructive Owner of
Capital Stock and each Person (including the stockholder of record) who is
holding Capital Stock for a Beneficial or Constructive Owner shall provide
to the Company such information as the Company may request, in good faith,
in order to determine the Company's status as a REIT and to comply with
requirements of any taxing authority or governmental authority or to
determine such compliance.

Section 5. OTHER ACTION BY BOARD. Nothing contained in Sections 1
through 4 of this Article VIII shall limit the authority of the Board of
Directors of the Company to take such other action as it deems necessary or
advisable to protect the Company and the interests of its stockholders in
preserving the Company's status as a REIT or to ensure compliance with the
Aggregate Stock Ownership Limit, the Common Stock Ownership Limit and the
Excepted Holder Ownership Limit.

Section 6. AMBIGUITIES. In the case of an ambiguity in the
application of any of the provisions of this Article VIII or any definition
contained in Article X, the Board of Directors of the Company shall have the
power to determine the application of the provisions of this Article VIII or any
definition contained in Article X with respect to any situation based on the
facts known to it. In the event this Article VIII requires an action by the
Board of Directors and the Charter fails to provide specific guidance with
respect to such action, the Board of Directors shall have the power to determine
the action to be taken so long as such action is not contrary to the provisions
of this Article VIII or any definition contained in Article X.

Section 7. INCREASE IN OWNERSHIP LIMIT; EXEMPTIONS. (a) Subject to
Section 1(a)(1)(B) of this Article VIII, the Board of Directors of the Company,
in its sole discretion, may exempt a Person from the Aggregate Stock Ownership
Limit and the Common Stock Ownership Limit, as the case may be, and may
establish or increase an Excepted Holder Ownership Limit for such Person, if:

(1) the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain
that no individual's Beneficial or

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<PAGE>

Constructive Ownership of such shares of Capital Stock will violate
Section 1(a)(i)(B) of this Article VIII;

(2) such Person does not and represents that it will not own,
actually or Constructively, an interest in a tenant of the Company (or a
tenant of any entity owned or controlled by the Company) that would cause
the Company to own, actually or Constructively, more than a 9.8% interest
(as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the
Board of Directors obtains such representations and undertakings from such
Person as are reasonably necessary to ascertain this fact (for this
purpose, a tenant shall not be treated as a tenant of the Company if the
Company (or an entity owned or controlled by the Company) derives (and is
expected to continue to derive) a sufficiently small amount of revenue
from the tenant such that, as is reasonably determined by the Board of
Directors of the Company, the Company's ability to qualify as a REIT is
not impaired); and

(3) such Person agrees that any violation or attempted violation of
such representations or undertakings (or other action which is contrary to
the restrictions contained in Section 1 through 6 of this Article VIII)
will result in such shares of Capital Stock being automatically
transferred to a Trust in accordance with Section 1 (a)(2) and Section 10
of this Article VIII.

(b) Prior to granting any exception pursuant to Section 7 of this Article
VIII, the Board of Directors of the Company may require a ruling from the
Internal Revenue Service or an opinion of counsel or other evidence, in each
case in form and substance satisfactory to the Board of Directors in its sole
discretion, as it may deem necessary or advisable in order to determine or
ensure the Company's status as a REIT. Notwithstanding the receipt of any ruling
or opinion or other evidence, the Board of Directors may impose such conditions
or restrictions as it deems appropriate in connection with granting such
exception.

(c) Subject to Section 1(a)(1)(B) of this Article VIII, an underwriter
which participates in a public offering or a private placement of Capital Stock
(or securities convertible into or exchangeable for Capital Stock) may
Beneficially Own or Constructively Own shares of Capital Stock (or securities
convertible into or exchangeable for Capital Stock) in excess of the Aggregate
Stock Ownership Limit, the Common Stock Ownership Limit or both such limits, but
only to the extent necessary to facilitate such public offering or private
placement.

(d) The Board of Directors may only reduce the Excepted Ownership Holder
Limit for an Excepted Holder: (i) with the written consent of such Excepted
Holder at any time or (ii) pursuant to the terms and conditions of the
agreements and understandings entered into with such Excepted Holder in
connection with the establishment of the Excepted Ownership Holder Limit for
that Excepted Holder. No Excepted Holder Limit shall be reduced to a
percentage that is less than the Common Stock Ownership Limit.

Section 8. CHANGES IN OWNERSHIP LIMIT. The Board of Directors may
from time to time increase or decrease the Common Stock Ownership Limit and the

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<PAGE>

Aggregate Stock Ownership Limit; provided, however,

(a) Any decrease may be made only prospectively as to subsequent
holders (other than a decrease as a result of a retroactive change in
existing law, in which case such decrease shall be effective immediately);

(b) Neither ownership limitation may be increased if, after giving
effect to such increase, five Persons could Beneficially Own or
Constructively Own, in the aggregate, more than 50.0% in value of the
shares of Capital Stock then outstanding; and

(c) Prior to the modification of either of the ownership
limitations, the Board of Directors of the Company may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Company's
status as REIT.

Section 9. LEGEND. Each certificate for shares of Capital Stock or
securities exercisable or exchangeable for or convertible into shares of Capital
Stock shall bear the following legend:

The securities represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and Transfer
for the purpose of the Company's maintenance of its status as a Real
Estate Investment Trust under the Internal Revenue Code of 1986, as
amended (the "Code"). Subject to certain further restrictions and
except as expressly provided in the Company's Charter, (i) no Person
may Beneficially or Constructively Own shares of the Company's
Common Stock in excess of 9.0% (in value or number of shares) of the
outstanding shares of Common Stock of the Company unless such Person
is an Excepted Holder (in which case the Excepted Holder Limit shall
be applicable); (ii) no Person may Beneficially or Constructively
Own shares of Capital Stock of the Company in excess of 9.0% of the
value of the total outstanding shares of Capital Stock of the
Company, unless such Person is an Excepted Holder (in which case the
Excepted Holder Limit shall be applicable); (iii) no Person may
Beneficially or Constructively Own Capital Stock that would result
in the Company being "closely held" under Section 856(h) of the Code
or otherwise cause the Company to fail to qualify as a REIT; and
(iv) no Person may Transfer shares of Capital Stock if such Transfer
would result in the Capital Stock of the Company being owned by
fewer than 100 Persons. Any Person who Beneficially or
Constructively Owns or attempts to Beneficially or Constructively
Own shares of Capital Stock which causes or will cause a Person to
Beneficially or Constructively Own shares of Capital Stock in excess
or in violation of the above limitations must

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<PAGE>

immediately notify the Company. If any of the restrictions on
transfer or ownership are violated, the shares of Capital Stock
represented hereby may be automatically transferred to a Trustee of
a Trust for the benefit or one or more Charitable Beneficiaries. In
addition, upon the occurrence of certain events, attempted Transfers
in violation of the restrictions described above may be void ab
initio. All capitalized terms in this legend have the meanings
defined in the Charter of the Company, as the same may be amended
from time to time, a copy of which, including the restrictions on
transfer and ownership, will be furnished to each holder of Capital
Stock of the Company on request and without charge.

Section 10. SEVERABILITY. If any of the restrictions on transfer of
Capital Stock contained in this Article VIII are determined to be void, invalid
or unenforceable by any court of competent jurisdiction, then the Prohibited
Owner may be deemed, at the option of the Company, to have acted as an agent of
the Company in acquiring such Capital Stock and to hold such Capital Stock on
behalf of the Company.

Section 11. TRUST FOR TRANSFERRED STOCK. (a) Upon any purported
Transfer or other event described in Section 1(a)(2) of this Article VIII that
would result in a transfer of shares of Capital Stock to a Trust, such shares of
Capital Stock shall be deemed to have been transferred to the Trustee as trustee
of a Trust for the exclusive benefit of one or more Charitable Beneficiaries.
Such transfer to the Trustee shall be deemed to be effective as of the close of
business on the Business Day prior to the purported Transfer or change in
capital structure or other event that results in the transfer to the Trust
pursuant to Section 1(a)(2) of this Article VIII. The Trustee shall be appointed
by the Company and shall be a Person unaffiliated with the Company and any
Prohibited Owner. Each Charitable Beneficiary shall be designated by the Company
as provided in Section 15 of this Article VIII.

(b) Shares of Capital Stock held by the Trustee shall be issued and
outstanding shares of Capital Stock of the Company. The Prohibited Owner shall
have no rights in the shares held by the Trustee except as provided in Sections
11, 12 and 14 of this Article VIII. The Prohibited Owner shall not benefit
economically from ownership of any shares held in trust by the Trustee, shall
have no rights to dividends and shall not possess any rights to vote or other
rights attributable to the shares held in the Trust.

Section 12. VOTING RIGHTS; DIVIDENDS AND DISTRIBUTIONS ON
TRANSFERRED STOCK; NOTICE. (a) The Trustee shall have all voting rights and
rights to dividends or other distributions with respect to shares of Capital
Stock held in the Trust, which rights shall be exercised for the exclusive
benefit of the Charitable Beneficiary. Any dividend or other distribution paid
prior to the discovery by the Company that the shares of Capital Stock have been
transferred to the Trustee shall be paid with respect to such shares of Capital
Stock to the Trustee upon demand and any dividend or other distribution
authorized but unpaid shall be paid when due to the Trustee. Any dividends or
distributions so paid over to the Trustee shall be

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<PAGE>

held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares held in the Trust and, subject to Maryland
law, effective as of the date that the shares of Capital Stock have been
transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited
Owner prior to the discovery by the Company that the shares of Capital Stock
have been transferred to the Trustee and (ii) to recast such vote in accordance
with the desires of the Trustee acting for the benefit of the Charitable
Beneficiary. Notwithstanding the provisions of this Article VIII, until the
Company has received notification that shares of Capital Stock have been
transferred into a Trust, the Company shall be entitled to rely on its share
transfer and other stockholder records for purposes of preparing lists of
stockholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of stockholders.

(b) Within 20 days of receiving notice from the Company that shares of
Capital Stock have been transferred to the Trust, the Trustee of the Trust shall
sell the shares held in the Trust to a Person, designated by the Trustee, whose
ownership of the shares will not violate the ownership limitations set forth in
Section 1(a)(1) of this Article VIII. Upon such sale, the interest of the
Charitable Beneficiary in the shares sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Prohibited Owner and to the
Charitable Beneficiary as provided in this Section 12(b) of this Article VIII.
The Prohibited Owner shall receive the lesser of (i) the price paid by the
Prohibited Owner for the shares or, if the Prohibited Owner did not give value
for the shares in connection with the event causing the shares to be held in the
Trust (e.g., in the case of a gift, devise or other such transaction), the
Market Price of the shares on the day of the event causing the shares to be held
in the Trust and (ii) the price per share received by the Trustee from the sale
or other disposition of the shares held in the Trust. Any net sales proceeds in
excess of the amount payable to the Prohibited Owner shall be immediately paid
to the Charitable Beneficiary. Each Prohibited Owner and Charitable Beneficiary
waive any and all claims that they may have against the Trustee and the Trust
arising out of the disposition of any shares of Capital Stock transferred to the
Trust, except for claims arising out of the gross negligence or willful
misconduct of, or any failure to make payments in accordance with this Section
12(b) of this Article VIII by, the Trustee or the Company. If, prior to the
discovery by the Company that shares of Capital Stock have been transferred to
the Trustee, such shares are sold by a Prohibited Owner, then (i) such shares
shall be deemed to have been sold on behalf of the Trust and (ii) to the extent
that the Prohibited Owner received an amount for such shares that exceeds the
amount that such Prohibited Owner was entitled to receive pursuant to this
Section 12(b) of this Article VIII, such excess shall be paid to the Trustee
upon demand. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of, or any distribution of assets of, the Company,
prior to the sale of the shares held in the Trust, the Prohibited Owner shall
receive the lesser of (i) the price paid by the Prohibited Owner for the shares
or, if the Prohibited owner did not give value for the shares in connection with
the event causing the shares to be held in the Trust (e.g., in the case of gift,
devise or other such transaction), the Market Price of the shares on the day of
the event causing the shares to be held in the Trust and (ii) the amount of
assets received in respect of the shares in any liquidation, dissolution or
winding up of, or any distribution of the assets of, the Company. Any assets
received in excess of the amount payable to the Prohibited Owner shall be
immediately paid to the Charitable Beneficiary.

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<PAGE>

Section 13. NYSE TRANSACTIONS. Nothing contained in this Article
VIII or in any provision hereof shall preclude the settlement of any transaction
entered into through the facilities of the NYSE or any other national securities
exchange or automated inter-dealer quotation system. Although settlement of any
transaction is permitted, any transferee in such transaction shall be subject to
all the provisions and limitations set forth in this Article VIII.

Section 14. CALL BY THE COMPANY ON TRANSFERRED STOCK. Shares of
Capital Stock transferred to the Trustee shall be deemed to have been offered
for sale to the Company, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in such
transfer to the Trust (or, in the case of a devise or gift, the Market Price at
the time of such devise or gift) and (ii) the Market Price on the date the
Company, or its designee, accepts such offer. The Company shall have the right
to accept such offer until the Trustee has sold the shares held in the Trust
pursuant to Section 12(b) of this Article VIII. Upon such sale to the Company,
the interest of the Charitable Beneficiary in the shares sold shall terminate
and the Trustee shall distribute the net proceeds of the sale to the Prohibited
Owner.

Section 15. CHARITABLE BENEFICIARY. By written notice to the
Trustee, the Company shall designate one or more nonprofit organization to be
the Charitable Beneficiary of the interest in the Trust such that (i) the shares
of Capital Stock held in the Trust would not violate the restrictions set forth
in Section 1(a)(1) of this Article VIII in the hands of such Charitable
Beneficiary and (ii) each such organization must be described in Section
501(c)(3) of the Code and contributions to each such organization must be
eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the
Code.

Section 16. ENFORCEMENT. The Company is authorized specifically to
seek equitable relief, including injunctive relief, to enforce the provisions of
this Article VIII.

Section 17. NON-WAIVER. No delay or failure on the part of the
Company or the Board of Directors in exercising any right under the Charter
shall operate as a waiver of any right of the Company or the Board of Directors,
as the case may be, except to the extent specifically waived in writing.

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<PAGE>

ARTICLE IX

AMENDMENTS

The Company reserves the right from time to time to make any
amendments of the Charter which may now or hereafter be authorized by law,
including any amendments changing the terms or contract rights, as expressly set
forth in the Charter, of any of its outstanding stock by classification,
reclassification or otherwise, but no such amendment which changes such terms or
contract rights of any of its outstanding stock shall be valid unless such
amendment shall have been authorized by not less than a majority of the
aggregate number of the votes entitled to be cast thereon, by a vote at a
meeting or in writing with or without a meeting; provided, however, that any
amendment to, repeal of or adoption of any provision inconsistent with Article V
or Sections 3, 4 and 7 of Article VI or this Article IX shall have been
authorized by not less than 80% of the aggregate votes entitled to be case
thereon (considered for this purpose as a single class), by vote at a meeting or
in writing with or without a meeting.

ARTICLE X

DEFINITIONS

For purposes of the Charter, the following terms shall have the
following meanings:

"Aggregate Stock Ownership Limit" shall mean not more than 9.0% in
value of the aggregate of the outstanding shares of Capital Stock. The value of
the outstanding shares of Capital Stock shall be determined by the Board of
Directors of the Company in good faith, which determination shall be conclusive
for all purposes hereof.

"Beneficial Ownership" shall mean ownership of Capital Stock by a
Person, whether the interest in the shares of Capital Stock is held directly or
indirectly (including by a nominee), and shall include interests that would be
treated as owned through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner," "Beneficially
Owns," and "Beneficially Owned" shall have the correlative meanings.

"Business Day" shall mean any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which banking institutions in New
York City are authorized or required by law, regulation or executive order to
close.

"Capital Stock" shall mean all class and series of stock which the
Company shall have authority to issue. The term "Capital Stock" shall include
Common Stock, preferred stock, preference stock, special stock or other stock.

"Charitable Beneficiary" shall mean one or more beneficiaries of the
Trust as determined pursuant to Section 15 of Article VIII, provided that each
such organization must be

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<PAGE>

described in Section 501(c)(3) of the Code and contributions to each such
organization must be eligible for deduction under each Sections 170(b)(1)(A),
2055 and 2522 of the Code.

"Charter" shall mean the Articles of Incorporation of the Company
and all amendments and supplements thereto.

"Closing Price" on any date shall mean the last sale price for such
Capital Stock, regular way, or in any case, no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, for such
Capital Stock, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if such Capital Stock is not listed or admitted to
trading on the NYSE, as reported on the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such Capital Stock is listed or admitted to trading
or, if such Capital Stock is not listed or admitted to trading on any national
securities exchange, the last quoted price, or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the NASDAQ National Market, or, if such automated quotation system is no longer
in use, the principal other automated quotation system that may then be in use
or, if such Capital Stock is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in such Capital Stock selected by the Board of Directors of the
Company or, in the event that no trading price is available for such Capital
Stock, the fair market value of the Capital Stock, as determined in good faith
by the Board of Directors of the Company.

"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor statute.

"Common Stock Ownership Limit" shall mean not more than 9.0% (in
value or in number of shares, whichever is more restrictive) of the aggregate of
the outstanding shares of Common Stock of the Company. The number and value of
outstanding shares of Common Stock of the Company shall be determined by the
Board of Directors of the Company in good faith, which determination shall be
conclusive for all purposes hereof.

"Constructive Ownership" shall mean ownership of Capital Stock by a
Person, whether the interest in the shares of Capital Stock is held directly or
indirectly (including by a nominee), and shall include interests that would be
treated as owned through the application of Section 318(a) of the Code, as
modified by Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Owns," and "Constructively Owned" shall have the correlative
meanings.

"Company" shall have the meaning ascribed to it in the forepart.

"Equity Stock" shall mean stock that is either Common Stock or
Preferred Stock.

"Excepted Holder" shall mean a stockholder of the Company for whom
an

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<PAGE>

Excepted Holder Limit is created by the Charter or by the Board of Directors
pursuant to Section 7 of Article VIII, including, but not limited to, Harry and
William Macklowe who, in the aggregate, shall have an Excepted Holder Limit of
13.5%.

"Excepted Holder Ownership Limit" shall mean, provided that the
affected Excepted Holder agrees to comply with the requirements established by
the Board of Directors pursuant to Section 7 of Article VIII, the percentage
limit established by the Board of Directors pursuant to Section 7 of Article
VIII.

"Initial Date" shall mean the date as of which the Company's
registration statement on Form S-11 (File No. 333- ) is declared effective by
the Securities and Exchange Commission.

"Market Price" as to any date shall mean the average of the last
sales price reported on the New York Stock Exchange, Inc. ("NYSE") of Common
Stock or Preferred Stock, as the case may be, on the ten trading days
immediately preceding the relevant date, or if not then traded on the New York
Stock Exchange, the average of the last reported sales price of the Common Stock
or Preferred Stock, as the case may be, on the ten trading days immediately
preceding the relevant date as reported on any exchange or quotation system over
which the Common Stock or Preferred Stock, as the case may be, may be traded, or
if not then traded over any exchange or quotation system, then the market price
of the Common Stock or Preferred Stock, as the case may be, on the relevant date
as determined in good faith by the Board of Directors.

"Person" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under Section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be used exclusively
for the purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity and also includes a group as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended; but does
not include an underwriter which participated in a public offering of the Common
Stock and/or Preferred Stock for a period of 30 days following the purchase by
such underwriter of shares of the Common Stock and/or Preferred Stock.

"Prohibited Owner" shall mean, with respect to any purported
Transfer, any Person who, but for the provisions of Section 1(a) of Article
VIII, would Beneficially Own or Constructively Own shares of Capital Stock, and,
if appropriate in the context, shall also mean any Person who would have been
the record owner of the shares that the Prohibited Owner would have so owned.

"REIT" shall mean a real estate investment trust under Sections 856
through 860 of the Code.

"Restriction Termination Date" shall mean the first day after the
Initial Date on which the Board of Directors of the Company determines that it
is no longer in the best interests of the Company to attempt to, or continue to,
qualify as a REIT or that compliance with the

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<PAGE>

restriction and limitations on Beneficial Ownership, Constructive Ownership and
Transfers of shares of Capital Stock set forth herein is no longer required in
order for the corporation to qualify as a REIT.

"Transfer" shall mean any issuance, sale, transfer, gift,
assignment, devise or other disposition of Equity Stock (including (i) the
granting of any option or entering into any agreement for the sale, transfer or
other disposition of Equity Stock or (ii) the sale, transfer, assignment or
other disposition of any securities or rights convertible into or exchangeable
for Equity Stock), whether voluntary or involuntary, whether of record or
beneficially and whether by operation of law or otherwise. The terms "Transfers"
and "Transferred" shall have the correlative meanings.

"Trust" shall mean the trust created pursuant to Section 11 of
Article VIII.

"Trustee" shall mean the Person that is appointed by the Company
pursuant to Section 11 of this Article VIII to serve as trustee of the Trust,
and any successor thereto.

ARTICLE XI

DURATION

The duration of the Company shall be perpetual.

IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.

Dated: 3/25/98

/s/ Mark E. DeAngelis
---------------------
Mark E. DeAngelis
Incorporator
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166

* * * * *

FOURTH: The foregoing amendment to the Charter of the Company has been
approved by a majority of the entire Board of Directors. No stock entitled to be
voted on the matter was outstanding or subscribed for at the time of approval by
the Board of Directors.

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<PAGE>

FIFTH: (a) As of immediately before the amendment and restatement the
total number of shares of capital stock of all classes which the Company has
authority to issue is 100,000,000 shares, of which 100,000,000 shares are Common
Stock (par value $.001 per share).

(b) As amended the total number of shares of capital stock of all
classes which the Company has authority to issue is 200,000,000 shares, of which
200,000,000 shares are Common Stock (par value $.001 per share).

(d) The shares of capital stock of the Company are or may be divided
into classes, and description, as amended, of each class, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption is set forth in Article THIRD.

IN WITNESS WHEREOF, MACKLOWE PROPERTIES, INC. has caused these presents to
be signed in its name and on its behalf by its President and witnessed by its
Secretary on the __ day of May, 1998.

------------------
Name: Harry Macklowe
Title: Chief Executive Officer

Witness:

- -----------------
Name:
Title: Secretary

THE UNDERSIGNED, the President of MACKLOWE PROPERTIES, INC., who executed
on behalf of the Company the foregoing Articles of Amendment and Restatement of
which this certificate is made a part hereby acknowledges in the name and on
behalf of said Company the foregoing Articles of Amendment and Restatement to be
the corporate act of said Company and hereby certifies that to the best of his
knowledge, information and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.

------------------
Name: Harry Macklowe
Title: Chief Executive Officer

<PAGE>

Exhibit 3b

MACKLOWE PROPERTIES, INC

BYLAWS

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

ARTICLE I

OFFICES

Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of Macklowe Properties, Inc. (the "Company") shall be located at such
place or places as the Board of Directors may designate.

Section 2. ADDITIONAL OFFICES. The Company may have additional
offices at such places as the Board of Directors may from time to time determine
or the business of the Company may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Company or at such other place within the United States
as shall be stated in the notice of the meeting.

Section 2. ANNUAL MEETING. An annual meeting of the stockholders for
the election of directors and the transaction of any business within the powers
of the Company shall be held either at [__:__] a.m. on the [____] of May in each
year if not a holiday or at such other time on such other day falling on or
before the 30th day thereafter as shall be set by the Board of Directors. Except
as the Articles of Incorporation of the Company, as amended, (the "Charter") or
statute provides otherwise, any business may be considered at an annual meeting
without the purpose of the meeting having been specified in the notice. Failure
to hold an annual meeting does not invalidate the Company's existence or affect
any otherwise valid corporate acts.

Section 3. SPECIAL MEETINGS. The president, chief executive officer
or Board of Directors may call special meetings of the stockholders. Special
meetings of stockholders shall also be called by the secretary of the Company
upon the written request of the holders of shares entitled to cast not less than
a majority of all the votes entitled to be cast at such meeting. Such request
shall state the purpose of such meeting and the matters proposed
to be acted on at such meeting. The secretary shall inform such stockholders of
the reasonably

<PAGE>

estimated cost of preparing and mailing notice of the meeting and, upon payment
to the Company by such stockholders of such costs, the secretary shall give
notice to each stockholder entitled to notice of the meeting.

Section 4. NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to him
or her, left at his or her residence or usual place of business, or mailed to
him or her at his or her address as it appears on the records of the Company.
Notwithstanding the foregoing provisions, each person who is entitled to notice
waives notice if he or she before or after the meeting signs a waiver of the
notice which is filed with the records of stockholders' meetings, or is present
at the meeting in person or by proxy.

Section 5. ORGANIZATION. At every meeting of stockholders, the
Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the President, the Vice Presidents
in their order of rank and seniority, or a Chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
secretary of the Company, or, in his absence, an assistant secretary of the
Company, or in the absence of both the Secretary and assistant secretaries, a
person appointed by the Chairman shall act as Secretary.

Section 6. QUORUM; ADJOURNMENTS. At any meeting of stockholders, the
presence in person or by proxy of stockholders entitled to cast a majority of
all the votes entitled to be cast at such meeting shall constitute a quorum; but
this section shall not affect any requirement under any statute or the Charter
of the Company for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the stockholders,
the stockholders entitled to vote at such meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time to time to a date
not more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.

Section 7. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of

2
<PAGE>

stockholders duly called and at which a quorum is present shall be sufficient to
approve any other matter which may properly come before the meeting, unless more
than a majority of the votes cast is required by statute or by the Charter.
Unless otherwise provided in the Charter, each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of stockholders.

Section 8. PROXIES. A stockholder may authorize another person to
act as proxy by transmitting, or authorizing the transmission of, a telegram,
cablegram, datagram, or other means of electronic transmission to the person
authorized to act as proxy or to a proxy solicitation firm, proxy support
service organization, or other person authorized by the person who will act as
proxy to receive the transmission. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date. A proxy is revocable by a stockholder
at any time without condition or qualification unless the proxy states that it
is irrevocable and the proxy is coupled with an interest. A proxy may be made
irrevocable for so long as it is coupled with an interest. The interest with
which a proxy may be coupled includes an interest in the stock to be voted under
the proxy or another general interest in the Company or its assets or
liabilities.

Section 9. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Company
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.

Shares of stock of the Company directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.

The Board of Directors may adopt by resolution a procedure by which
a stockholder may certify in writing to the Company that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Company; and any other provisions with respect to the procedure which the
Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.

3
<PAGE>

Section 10. INSPECTORS. At any meeting of stockholders, the chairman
of the meeting may, or upon the request of any stockholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the stockholders.

Each report of an inspector shall be in writing and signed by him or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.

Section 11. NOMINATIONS AND STOCKHOLDER BUSINESS

(a) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for
election to the Board of Directors and the proposal of business to be considered
by the stockholders (except for stockholder proposals included in the proxy
materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) may be made at an annual meeting of stockholders
(i) pursuant to the Company's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) by any stockholder of the Company who was a
stockholder of record at the time of giving of notice provided for in this
Section 11(a), who is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section 11(a).

(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of paragraph
(a)(1) of this Section 11, the stockholder must have given timely notice thereof
in writing to the secretary of the Company. To be timely, a stockholder's notice
shall be delivered to the secretary of the Company at the principal executive
offices of the Company not less than 75 days nor more than 180 days prior to the
first anniversary of the preceding year's annual meeting or special meeting in
lieu thereof (for the purposes of the 1998 annual meeting, the prior year's
annual meeting shall be deemed to have occurred on May [__], 1997); provided,
however, that in the event that the date of the annual meeting is advanced by
more than 7 calendar days or delayed by more than 60 days from such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier
than the 180th day prior to such annual meeting and not later than the close of
business on the later of the 75th day prior to such annual meeting or the
twentieth day following the earlier of the day on which public announcement of
the date of such meeting is first made or notice of the meeting is mailed to
stockholders. Such stockholder's notice shall set forth (i) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (ii) as to any other
business that the

4
<PAGE>

stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such stockholder, as they appear on the Company's books, and of
such beneficial owner and (y) the number of shares of each class of stock of the
Company which are owned beneficially and of record by such stockholder and such
beneficial owner.

(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 11 to the contrary, in the event that the
number of directors to be elected to the Board of Directors is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the Company at
least 85 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 11(a) shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive offices of the Company not later than the close of business
on the tenth day following the day on which such public announcement is first
made by the Company.

(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Company's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected (i) pursuant to the Company's
notice of meeting, (ii) by or at the direction of the Board of Directors or
(iii) provided that the Board of Directors has determined that directors shall
be elected at such special meeting, by any stockholder of the Company who is a
stockholder of record at the time of giving of notice provided for in this
Section 11(b), who is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section 11(b). In the event the Company
calls a special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be) for election to such position as specified in
the Company's notice of meeting, if the stockholder's notice containing the
information required by paragraph (a)(2) of this Section 11 shall be delivered
to the secretary at the principal executive offices of the Company not earlier
than the 180th day prior to such special meeting and not later than the close of
business on the later of the 75th day prior to such special meeting or the tenth
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.

(c) GENERAL. (1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 11 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 11. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth

5
<PAGE>

in this Section 11 and, if any proposed nomination or business is not in
compliance with this Section 11, to declare that such defective nomination or
proposal be disregarded.

(2) For purposes of this Section 11, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Company with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.

(3) Notwithstanding the foregoing provisions of this Section
11, a stockholder shall also comply with all applicable requirements of state
law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 11. Nothing in this Section 11
shall be deemed to affect any rights of stockholders to request inclusion of
proposals in the Company's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.

Section 12. VOTING BY BALLOT. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
stockholder shall demand that voting be by ballot.

Section 13. LIST OF STOCKHOLDERS. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the secretary of the Company, shall be
furnished by the secretary of the Company.

Section 14. INFORMAL ACTION BY STOCKHOLDERS. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meting but not entitled to
vote at it.

Section 15. MEETING BY CONFERENCE TELEPHONE. Stockholders may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.

ARTICLE III

DIRECTORS

Section 1. GENERAL POWERS; QUALIFICATIONS. The business and affairs
of the Company shall be managed under the direction of its Board of Directors.
All powers of the Company may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.

6
<PAGE>

Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting
or at any special meeting called for that purpose, a majority of the entire
Board of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the Maryland General Corporation Law, nor more than 15, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors. The directors shall be divided into three
classes as nearly equal in number as possible. At each successive annual meeting
of stockholders, the holders of stock present in person or by proxy at such
meeting and entitled to vote thereat shall elect members of such successive
class to serve for three year terms and until their successors are elected and
qualify. If the number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any class
shall, subject to Section 10, hold office for a term that shall coincide with
the remaining term of that class, but in no case shall a decrease in the number
of directors shorten the term of any incumbent director.

Section 3. RESIGNATION. Any director may resign at any time by
sending a written notice of such resignation to the principal executive office
of the Company addressed to the Chairman of the Board or the President. Unless
otherwise specified therein such resignation shall take effect upon receipt
thereof by the Chairman of the Board or the President.

Section 4. REMOVAL OF DIRECTOR. Any director or the entire Board of
Directors may be removed only in accordance with the provisions of the Charter.

Section 5. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Board of Directors shall be held immediately after and at the same place as the
annual meeting of stockholders, no notice other than this Bylaw being necessary.
The Board of Directors may provide, by resolution, the time and place, either
within or without the State of Maryland, for the holding of regular meetings of
the Board of Directors without other notice than such resolution.

Section 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the chairman of the board (or
any co-chairman of the board if more than one), president or by a majority of
the directors then in office. The person or persons authorized to call special
meetings of the Board of Directors may fix any place, either within or without
the State of Maryland, as the place for holding any special meeting of the Board
of Directors called by them.

Section 7. NOTICE. Except as provided in Sections 5 and 6, the
Secretary shall give notice to each director of each regular and special meeting
of the Board of Directors. The notice shall state the time and place of the
meeting. Notice is given to a director when it is delivered personally to him or
her, left at his or her residence or usual place of business, or sent by
telegraph, facsimile transmission or telephone, at least 24 hours before the
time of the meeting or, in the alternative by mail to his or her address as it
shall appear on the records of the Company, at least 72 hours before the time of
the meeting. Unless these By-Laws or a resolution of the Board of Directors
provides otherwise, the notice need not state the business to

7
<PAGE>

be transacted at or the purposes of any regular or special meeting of the Board
of Directors. No notice of any meeting of the Board of Directors need be given
to any director who attends except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened, or to any director who, in writing
executed and filed with the records of the meeting either before or after the
holding thereof, waives such notice. Any meeting of the Board of Directors,
regular or special, may adjourn from time to time to reconvene at the same or
some other place, and no notice need be given of any such adjourned meeting
other than by announcement.

Section 8. QUORUM. A majority of the directors shall constitute a
quorum for transaction of business at any meeting of the Board of Directors,
provided that, if less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
Charter of the Company or these Bylaws, the vote of a majority of a particular
group of directors is required for action, a quorum must also include a majority
of such group.

The Board of Directors present at a meeting which has been duly
called and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.

Section 9. VOTING. The action of the majority of the directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute.

Section 10. PRESUMPTION OF ASSENT. A director of the Company who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the Company
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who votes in favor of such action.

Section 11. TELEPHONE MEETINGS. Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.

Section 12. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.

Section 13. VACANCIES. If for any reason any or all the directors
cease to be directors, such event shall not terminate the Company or affect
these Bylaws or the powers of the

8
<PAGE>

remaining directors hereunder (even if fewer than three directors remain).
Any vacancy on the Board of Directors for any cause other than an increase in
the number of directors shall be filled by a majority of the remaining
directors, although such majority is less than a quorum. Any vacancy in the
number of directors created by an increase in the number of directors may be
filled by a majority vote of the entire Board of Directors. Any individual so
elected as director shall hold office for the unexpired term of the director he
is replacing.

Section 14. COMPENSATION. Directors shall not receive any stated
salary for their services as directors but, by resolution of the Board of
Directors, may receive fixed sums per year and/or per meeting and/or per visit
to real property owned or to be acquired by the Company and for any service or
activity they performed or engaged in as directors. Directors may be reimbursed
for expenses of attendance, if any, at each annual, regular or special meeting
of the Board of Directors or of any committee thereof and for their expenses, if
any, in connection with each property visit and any other service or activity
they performed or engaged in as directors; but nothing herein contained shall be
construed to preclude any directors from serving the Company in any other
capacity and receiving compensation therefor.

Section 15. LOSS OF DEPOSITS. No director shall be liable for any
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or stock
have been deposited.

Section 16. SURETY BONDS. Unless required by law, no director shall
be obligated to give any bond or surety or other security for the performance of
any of his duties.

Section 17. RELIANCE. Each director, officer, employee and agent of
the Company shall, in the performance of his duties with respect to the Company,
be fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the
Company, upon an opinion of counsel or upon reports made to the Company by any
of its officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Board of Directors or officers of the
Company, regardless of whether such counsel or expert may also be a director.

Section 18. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The directors shall have no responsibility to devote their full time to
the affairs of the Company. Any director or officer, employee or agent of the
Company, in his personal capacity or in a capacity as an affiliate, employee, or
agent of any other person, or otherwise, may have business interests and engage
in business activities similar to or in addition to or in competition with those
of or relating to the Company.

ARTICLE IV

COMMITTEES

Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of

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<PAGE>

Directors may appoint from among its members an Executive Committee, an Audit
Committee, a Compensation Committee and other committees, composed of one or
more directors, to serve at the pleasure of the Board of Directors; provided,
however, that the Audit Committee shall consist only of independent directors
and the Compensation Committee shall consist of two or more Independent
Directors. For purposes of this section, an "Independent Director" shall mean
any person if, in the opinion of the Board of Directors such person will
exercise independent judgement and will materially assist in the function of the
committee, except that such person shall not be an officer or employee of the
Company, or a Director who represents a close relative of a person who would
not qualify as an Independent Director.

Section 2. POWERS. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except the power to authorize dividends on stock, elect directors,
issue stock other than as provided in the next sentence, recommend to the
stockholders any action which requires stockholder approval, amend these
By-Laws, or approve any merger or share exchange which does not require
stockholder approval. If the Board of Directors has given general authorization
for the issuance of stock providing for or establishing a method or procedure
for determining the maximum number or shares to be issued, a committee of the
Board of Directors, in accordance with that general authorization or any stock
option or other plan or program adopted by the Board of Directors, may authorize
or fix the terms of stock subject to classification or reclassification and the
terms on which any stock may be issued, including all terms and conditions
required or permitted to be established or authorized by the Board of Directors.

Section 3. MEETINGS. Notice of committee meetings shall be given in
the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee, and
such chairman or any two members of any committee may fix the time and place of
its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.

Section 4. TELEPHONE MEETINGS. Members of a committee of the Board
of Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.

Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.

Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.

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<PAGE>

ARTICLE V

OFFICERS

Section 1. GENERAL PROVISIONS. The officers of the Company shall
include a chief executive officer, a president, a secretary and a chief
financial officer and may include a chairman of the board (or one or more
co-chairmen of the board), a vice chairman of the board, one or more executive
vice presidents, one or more senior vice presidents, one or more vice
presidents, a chief operating officer, a treasurer, one or more assistant
secretaries and one or more assistant treasurers. In addition, the Board of
Directors may from time to time appoint such other officers with such powers and
duties as they shall deem necessary or desirable or authorize any committee or
officer to appoint assistant or subordinate officers. The officers of the
Company shall be elected annually by the Board of Directors at the first meeting
of the Board of Directors held after each annual meeting of stockholders, except
that the chief executive officer may appoint one or more vice presidents,
assistant secretaries and assistant treasurers. If the election of officers
shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office at the pleasure
of the Board of Directors or until his death, resignation or removal in the
manner hereinafter provided. Any two or more offices except president and vice
president may be held by the same person. In its discretion, the Board of
Directors may leave unfilled any office except that of president, treasurer and
secretary. Election of an officer or agent shall not of itself create contract
rights between the Company and such officer or agent.

Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Company may be removed by the Board of Directors if in its judgment the best
interests of the Company would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Company may resign at any time by giving written notice of his
resignation to the Board of Directors, the chairman of the board (or any
co-chairman of the board if more than one), the president or the secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless otherwise stated in the resignation. Such
resignation shall be without prejudice to the contract rights, if any, of the
Company.

Section 3. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate a chief executive officer. In the absence of such designation, the
chairman of the board (or, if more than one, the co-chairmen of the board in the
order designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall be the chief executive
officer of the Company. The chief executive officer shall have general
responsibility for implementation of the policies of the Company, as determined
by the Board of Directors, and for the management of the business and affairs of
the Company.

Section 4. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer. The chief operating officer shall have the
responsibilities and

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duties as set forth by the Board of Directors or the chief executive officer.

Section 5. CHIEF FINANCIAL OFFICER. The Board of Directors may
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.

Section 6. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate a chairman of the board (or one or more co-chairmen of the board). The
chairman of the board shall preside over the meetings of the Board of Directors
and of the stockholders at which he shall be present. If there be more than one,
the co-chairmen designated by the Board of Directors will perform such duties.
The chairman of the board shall perform such other duties as may be assigned to
him or them by the Board of Directors.

Section 7. CHAIRMAN OF THE BOARD EMERITUS. The directors may elect
by a majority vote, from time to time, a chairman of the board emeritus (or one
or more co- chairmen of the board emeritus). The chairman of the board emeritus
shall be an honorary position and shall have no vote on any matter considered by
the directors. The chairman of the board emeritus shall serve for such term as
determined by the Board of Directors and may be removed by a majority role of
directors with or without cause.

Section 8. PRESIDENT. The president or chief executive officer, as
the case may be, shall in general supervise and control all of the business and
affairs of the Company. In the absence of a designation of a chief operating
officer by the Board of Directors, the president shall be the chief operating
officer. He may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Board of Directors or by these Bylaws to some other officer or agent of the
Company or shall be required by law to be otherwise executed; and in general
shall perform all duties incident to the office of president and such other
duties as may be prescribed by the Board of Directors from time to time.

Section 9. VICE PRESIDENTS. In the absence of the president or in
the event of a vacancy in such office, the vice president (or in the event there
be more than one vice president, the vice presidents in the order designated at
the time of their election or, in the absence of any designation, then in the
order of their election) shall perform the duties of the president and when so
acting shall have all the powers of and be subject to all the restrictions upon
the president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Board of Directors. The Board of
Directors may designate one or more vice presidents as executive vice president
or as vice president for particular areas of responsibility.

Section 10. SECRETARY. The secretary shall (a) keep the minutes of
the proceedings of the stockholders, the Board of Directors and committees of
the Board of Directors in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be custodian of the corporate records and of
the seal of the Company; (d) keep a register of the post office address

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of each stockholder which shall be furnished to the secretary by such
stockholder; (e) have general charge of the share transfer books of the Company;
and (f) in general perform such other duties as from time to time may be
assigned to him by the chief executive officer, the president or by the Board of
Directors.

Section 11. TREASURER. The treasurer shall have the custody of the
funds and securities of the Company and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board of Directors. In
the absence of a designation of a chief financial officer by the Board of
Directors, the treasurer shall be the chief financial officer of the Company.

The treasurer shall disburse the funds of the Company as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transactions as treasurer and of the financial condition of
the Company.

If required by the Board of Directors, the treasurer shall give the
Company a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Company, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Company.

Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Board of Directors. The assistant treasurers shall,
if required by the Board of Directors, give bonds for the faithful performance
of their duties in such sums and with such surety or sureties as shall be
satisfactory to the Board of Directors.

Section 13. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.

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ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. CONTRACTS. The Board of Directors may authorize any
officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Company and such authority may be
general or confined to specific instances. Any agreement, deed, mortgage, lease
or other document executed by one or more of the directors or by an authorized
person shall be valid and binding upon the Board of Directors and upon the
Company when authorized or ratified by action of the Board of Directors.

Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Company shall be signed by such officer or agent of the Company in
such manner as shall from time to time be determined by the Board of Directors.

Section 3. DEPOSITS. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the Company in such banks,
trust companies or other depositories as the Board of Directors may designate.

ARTICLE VII

STOCK

Section 1. CERTIFICATES. The Board of Directors may determine to
issue certificated or uncertificated shares of capital stock and other
securities of the Company. For certificated stock, each stockholder is entitled
to certificates which represent and certify the shares of stock he or she holds
in the Company. Each stock certificate shall include on its face the name of the
Company, the name of the stockholder or other person to whom it is issued, and
the class of stock and number of shares it represents. It shall also include on
its face or back (a) a statement of any restrictions on transferability and (b)
a statement which provides in substance that the Company will furnish to any
stockholder on request and without charge a full statement of the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of the stock of each class which the Company is authorized to issue,
of the differences in the relative rights and preferences between the shares of
each series of a preferred or special class in series which the Company is
authorized to issue, to the extent they have been set, and of the authority of
the Board of Directors to set the relative rights and preferences of subsequent
series of a preferred or special class of stock and any restrictions on
transferability. Such request may be made to the Secretary or to its transfer
agent. Upon the issuance of uncertificated shares of capital stock, the Company
shall send the stockholder a written statement of the same information required
above on the certificate and by the Maryland Uniform Commercial Code -
Investment Securities. It shall be in such form, not inconsistent with law or
with the Charter, as shall be approved by the Board of Directors or any officer
or officers designated for such purpose by resolution of the

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<PAGE>

Board of Directors. Each stock certificate shall be signed by the Chairman of
the Board, the President, or a Vice-President, and countersigned by the
Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate may be sealed with the actual corporate seal or a facsimile of
it or in any other form and the signatures may be either manual or facsimile
signatures. A certificate is valid and may be issued whether or not an officer
who signed it is still an officer when it is issued. A certificate may not be
issued until the stock represented by it is fully paid.

Section 2. TRANSFERS. Upon surrender to the Company or the transfer
agent of the Company of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the Company
shall issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.

The Company shall be entitled to treat the holder of record of any
share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.

Notwithstanding the foregoing, transfers of shares of any class of
stock will be subject in all respects to the Charter of the Company and all of
the terms and conditions contained therein.

Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
Board of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing the issuance
of a new certificate, an officer designated by the Board of Directors may, in
his discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he shall require and/or
to give bond, with sufficient surety, to the Company to indemnify it against any
loss or claim which may arise as a result of the issuance of a new certificate.

Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.

In lieu of fixing a record date, the Board of Directors may provide
that the stock

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<PAGE>

transfer books shall be closed for a stated period but not longer than 20 days.
If the stock transfer books are closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten days before the date of such meeting.

If no record date is fixed and the stock transfer books are not
closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.

When a determination of stockholders entitled to vote at any meeting
of stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.

Section 5. STOCK LEDGER. The Company shall maintain at its principal
executive office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.

Section 6. CERTIFICATION OF BENEFICIAL OWNERS. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Company may certify in writing to the Company that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may certify; the purpose for which the certification
may be made; the form of certification and the information to be contained in
it; if the certification is with respect to a record date or closing of the
stock transfer books, the time after the record date or closing of the stock
transfer books within which the certification must be received by the Company;
and any other provisions with respect to the procedure which the Board of
Directors considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board of Directors in accordance with
this Section, the person specified in the certification is, for the purpose set
forth in the certification, the holder of record of the specified stock in place
of the stockholder who makes the certification.

Section 7. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of
Directors may issue fractional stock or provide for the issuance of scrip, all
on such terms and under such conditions as they may determine. Notwithstanding
any other provision of the Charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Company. Any security
issued in a unit shall have the same characteristics as any

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<PAGE>

identical securities issued by the Company, except that the Board of Directors
may provide that for a specified period securities of the Company issued in such
unit may be transferred on the books of the Company only in such unit.

Section 8. EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE. The
provisions of Sections 3-701 to 3-709 of the Corporations and Associations
Article of the Annotated Code of Maryland shall not apply to any share of the
capital stock of the Company now or hereafter beneficially held (during the
period of such beneficial ownership) by Harry Macklowe, his spouse, his
descendants, any trust or estate for the benefit of the foregoing, any of the
associates or affiliates of the foregoing and any other person acting in concert
or as a group with any of the foregoing. Such shares of capital stock are
exempted from such Sections to the fullest extent permitted by Maryland law.

ARTICLE VIII

ACCOUNTING YEAR

The Board of Directors shall have the power, from time to time, to
fix the fiscal year of the Company by a duly adopted resolution.

ARTICLE IX

DISTRIBUTIONS

Section 1. AUTHORIZATION. Dividends and other distributions upon the
stock of the Company may be authorized and declared by the Board of Directors,
subject to the provisions of law and the Charter of the Company. Dividends and
other distributions may be paid in cash, property or stock of the Company,
subject to the provisions of law and the Charter.

Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any assets of the Company available
for dividends or other distributions such sum or sums as the Board of Directors
may from time to time, in its absolute discretion, think proper as a reserve
fund for contingencies, for equalizing dividends or other distributions, for
repairing or maintaining any property of the Company or for such other purpose
as the Board of Directors shall determine to be in the best interest of the
Company, and the Board of Directors may modify or abolish any such reserve in
the manner in which it was created.

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ARTICLE X

INVESTMENT POLICY

Subject to the provisions of the Charter of the Company, the Board
of Directors may from time to time adopt, amend, revise or terminate any policy
or policies with respect to investments by the Company as it shall deem
appropriate in its sole discretion.

ARTICLE XI

SEAL

Section 1. SEAL. The Board of Directors may authorize the adoption
of a seal by the Company. The seal shall contain the name of the Company and the
year of its incorporation. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof.

Section 2. AFFIXING SEAL. Whenever the Company is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Company.

ARTICLE XII

INDEMNIFICATION AND ADVANCES FOR EXPENSES

Section 1. PROCEDURE. Any indemnification, or payment of expenses in
advance of the final disposition of any proceeding, shall be made promptly, and
in any event within 60 days, upon the written request of the director or officer
entitled to seek indemnification (the "Indemnified Party"). The right to
indemnification and advances hereunder shall be enforceable by the Indemnified
Party in any court of competent jurisdiction, if (i) the Company denies such
request, in whole or in part, or (ii) no disposition thereof is made within 60
days. The Indemnified Party's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be reimbursed by the Company. It shall be a
defense to any action for advance for expenses that (a) a determination has been
made that the facts then known to those making the determination would preclude
indemnification or (b) the Company has not received both (i) an undertaking as
required by law to repay such advance sin the event it shall ultimately be
determined that the standard of conduct has not been met and (ii) a written
affirmation by the Indemnified Party of such Indemnified Party's good faith
belief that the standard of conduct necessary for indemnification by the Company
has been met.

Section 2. EXCLUSIVITY, ETC. The indemnification and advance of
expenses

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provided by the Charter and these By-Laws shall not be deemed exclusive of any
other rights to which a person seeking indemnification or advance of expenses
may be entitled under any law (common or statutory), or any agreement, vote of
stockholders or disinterested directors or other provision that is consistent
with law, both as to action in his or her official capacity and as to action in
another capacity while holding office or while employed by or acting as agent
for the Company, shall continue in respect of all events occurring while a
person was as director or officer after such person has ceased to be a director
or officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of such person. The Company shall not be liable for any payment
under this By-Law in connection with a claim made by a director or officer to
the extent such director or officer has otherwise actually received payment
under insurance policy, agreement, vote or otherwise, of the amounts otherwise
indemnifiable hereunder. All rights to indemnification and advance of expenses
under the Charter of the Company and hereunder shall be deemed to be a contract
between the Company and each director or officer of the Company who serves or
served in such capacity at any time while this By-Law is in effect. Nothing
herein shall prevent the amendment of this By-Law, provided that no such
amendment shall diminish the rights of any person hereunder with respect to
events occurring or claims made before its adoption or as to claims made after
its adoption in respect of events occurring before its adoption. Any repeal or
modification of this By-Law shall not in any way diminish any rights to
indemnification or advance of expenses of such director or officer or the
obligations of the Company arising hereunder with respect to events occurring,
or claims made, while this By-Law or any provision hereof is in force.

Section 3. SEVERABILITY; DEFINITIONS. The invalidity or
unenforceability of any provision of this Article XII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article XII means this Article XII in its entirety.

ARTICLE XIII

WAIVER OF NOTICE

Whenever any notice is required to be given pursuant to the Charter
of the Company or these Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.

ARTICLE XIV

AMENDMENT OF BYLAWS

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In accordance with the Charter, these By-Laws may be repealed,
altered, amended or rescinded (a) by the stockholders of the Company but only by
the affirmative vote of not less than 80% of all the votes entitled to be cast
by the outstanding shares of capital stock of the Company entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting) or (b) by affirmative vote of not less
than two-thirds of the Board of Directors at a meeting held in accordance with
the provisions of these By-Laws.

ARTICLE XV

MISCELLANEOUS

Section 1. BOOKS AND RECORDS. The Company shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of the Company may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of these By-laws
shall be kept at the principal office of the Company.

Section 2. VOTING STOCK IN OTHER COMPANIES. Stock of other
corporations or associations, registered in the name of the Company, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.

Section 3. MAIL. Any notice or other document which is required by
these By- Laws to be mailed shall be deposited in the United States mails,
postage prepaid.

Section 4. EXECUTION OF DOCUMENTS. A person who holds more than one
office in the Company may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.

<PAGE>

Exhibit 10(a)

FORM OF

OMNIBUS CONTRIBUTION AGREEMENT

BY AND AMONG

MACKLOWE PROPERTIES, L.P.,

MACKLOWE PROPERTIES, INC.,

AND THE

CONTRIBUTORS NAMED HEREIN

Dated as of May 14, 1998

<PAGE>

TABLE OF CONTENTS

PAGE
ARTICLE I.

CONTRIBUTION TERMS AND CLOSING PROCEDURES. . . . . . . . . . . . . . . . . . 2
1.1 CONTRIBUTION OF INTERESTS. . . . . . . . . . . . . . . . . . . . . . 2
1.2 TERM OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 MINIMUM CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 CLOSING; CONDITION TO OBLIGATIONS. . . . . . . . . . . . . . . . . . 3
1.5 DOCUMENTS TO BE DELIVERED AT CLOSING . . . . . . . . . . . . . . . . 4
1.6 CESSATION OF IPO . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 CLOSING COSTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.8 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.9 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE II.

REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS. . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 TITLE TO INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 NO OTHER AGREEMENTS TO SELL. . . . . . . . . . . . . . . . . . . . . 8
2.5 NO BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.6 INVESTMENT REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . 9
2.7 FIRPTA REPRESENTATION. . . . . . . . . . . . . . . . . . . . . . . . 11
2.8 COVENANT TO REMEDY BREACHES. . . . . . . . . . . . . . . . . . . . . 11
2.9 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.10 COVENANT TO OPERATE IN THE ORDINARY COURSE . . . . . . . . . . . . . 12
2.11 NASD AFFILIATION . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE III.

REPRESENTATIONS, WARRANTIES AND
COVENANTS OF OPERATING PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . 12
3.1 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 NO BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

<PAGE>

ARTICLE IV.

CLOSING ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 ASSET ENTITY'S RETAINED ITEMS. . . . . . . . . . . . . . . . . . . . 15
4.3 ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 SECURITY DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 TIMING OF CALCULATIONS; COOPERATION. . . . . . . . . . . . . . . . . 16
4.6 ALLOCATION OF ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE V.

POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1 GRANT OF POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . 16
5.2 LIMITATION ON LIABILITY. . . . . . . . . . . . . . . . . . . . . . . 18
5.3 RATIFICATION; THIRD PARTY RELIANCE . . . . . . . . . . . . . . . . . 18

ARTICLE VI.

RESTRICTIONS ON SALES
OF PROPERTIES/TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 RESTRICTIONS ON TRANSFER.. . . . . . . . . . . . . . . . . . . . . . 19
6.2 MAINTENANCE OF INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . 19

ARTICLE VII.

DIRECT CONTRIBUTIONS,
MERGERS AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW . . . . . . . . . . . 20
7.3 ASSIGNABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 TITLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.5 THIRD PARTY BENEFICIARY. . . . . . . . . . . . . . . . . . . . . . . 20
7.6 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.7 EQUITABLE REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.8 ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.9 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.10 DIRECT CONTRIBUTIONS AND MERGERS . . . . . . . . . . . . . . . . . . 22
7.11 WAIVER OF RIGHTS; CONSENTS WITH RESPECT TO PARTNERSHIP INTERESTS . . 22
7.12 LEGENDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.13 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.14 COMPUTATION OF TIME. . . . . . . . . . . . . . . . . . . . . . . . . 25
7.15 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

<PAGE>

7.16 TIME OF THE ESSENCE. . . . . . . . . . . . . . . . . . . . . . . . . 25

EXHIBIT A: Contributors
EXHIBIT B: Properties
EXHIBIT C: Excluded Interests
EXHIBIT D: Asset Entities
EXHIBIT E: Permitted Encumbrances
EXHIBIT F: Agreement of Limited Partnership of the Operating Partnership
EXHIBIT G: Investor Questionnaire
EXHIBIT H: Registration Rights Agreement
EXHIBIT I: Designated Properties

iii

<PAGE>

FORM OF
OMNIBUS CONTRIBUTION AGREEMENT

This Omnibus Contribution Agreement, including all exhibits hereto
(the "Omnibus Contribution Agreement"), is executed as of the 14th day of May,
1998 by Macklowe Properties, L.P., a Delaware limited partnership (the
"Operating Partnership"), Macklowe Properties, Inc., a Maryland corporation,
(the "REIT"), and the Contributors whose names are set forth in EXHIBIT A hereto
(each, a "Contributor" and, collectively, the "Contributors").

RECITALS

A. The Macklowe Organization and its affiliates "Macklowe", in
connection with the consolidation of its commercial real estate business, have
formed the REIT as a Maryland corporation that will be the sole general partner
of the Operating Partnership and intends to effect an initial public offering
(the "IPO") of the REIT's shares of common stock ("Common Stock");

B. It is intended that the Operating Partnership, upon consummation
of the IPO, will acquire, among other things, interests in the assets, interests
or other properties listed on EXHIBIT B hereto;

C. It is understood that the Operating Partnership may acquire
interests in additional properties with the proceeds of the IPO;

D. Each Contributor owns interests in the partnerships and/or other
entities or properties described in the supplemental exhibit dated the date
hereof and delivered by or on behalf of such Contributor to the Operating
Partnership (such exhibit being hereinafter referred to as such Contributor's
"Supplemental Acquisition Exhibit");

E. The Operating Partnership desires to acquire from each
Contributor, and each Contributor desires to convey to the Operating Partnership
under the terms and conditions set forth herein, the assets, interests or other
properties owned by such Contributor described in its Supplemental Acquisition
Exhibit and (except for the Excluded Interests set forth in EXHIBIT C) (each
such asset or property and all personal property related thereto or to the
operation thereof is hereinafter referred to as an "Asset" and each direct or
indirect interest of a Contributor in the partnership or other entities listed
on EXHIBIT D (the "Asset Entities") or (in the case of Contributors which are
themselves Asset Entities) in an Asset, including without limitation, such
Contributor's interests set forth in its Supplemental Acquisition Exhibit, is
referred to individually as an "Interest" and collectively, as such
Contributor's "Interests"); and

<PAGE>

F. Each Contributor acknowledges that the REIT and the Operating
Partnership may decide that, rather than acquiring all of the direct and
indirect interests in the entity that owns a certain Asset or acquiring an Asset
by direct purchase, it is more desirable for the REIT or the Operating
Partnership to acquire a Contributor's or an Asset Entity's Interests by a
direct contribution of the Asset from the Asset Entity that owns such Asset (a
"Direct Contribution"), or by a merger of the Contributor or Asset Entity with
and into the REIT, the Operating Partnership or an affiliate of either of them
(a "Merger"); and whereas each Contributor, desiring to give the REIT and the
Operating Partnership the right, in the REIT's and the Operating Partnership's
sole discretion, to engage in any Direct Contribution or Merger on the terms and
conditions described herein without the need to seek any further consent or
action of the Contributor, will give hereby an irrevocable consent and related
power of attorney as set forth in Article V hereof.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Operating
Partnership, the REIT, and the Contributors agree as follows:

ARTICLE I.

CONTRIBUTION TERMS AND CLOSING PROCEDURES

1.1 CONTRIBUTION OF INTERESTS. At the Final Closing (defined
below), each Contributor shall, subject to Section 1.4 hereof, assign, transfer,
convey, contribute and deliver to the Operating Partnership and the Operating
Partnership shall (i) acquire and accept from such Contributor, all right, title
and interest of such Contributor in such Contributor's Interests, free and clear
of all Encumbrances (as defined in Section 2.1 hereof) except Permitted
Encumbrances (as defined in Section 2.1 hereof), and (ii) deliver to such
Contributor such Contributor's Consideration (defined below), both in accordance
with this Omnibus Contribution Agreement.

1.2 TERM OF AGREEMENT. If the Final Closing does not occur by
December 31, 1998 (the "Termination Date"), this Omnibus Contribution Agreement
shall be deemed terminated and shall be of no further force and effect and none
of the REIT, the Operating Partnership nor the Contributors shall have any
further obligations hereunder except as specifically set forth herein.

1.3 MINIMUM CONSIDERATION. The minimum consideration for each
Contributor's Interests (such consideration with respect to such Contributor is
hereinafter referred to as such Contributor's "Consideration") shall be set
forth in the Contributor's Supplemental Acquisition Exhibit, subject to the
terms and provisions of Article IV hereof providing for

<PAGE>

adjustments to each Contributor's Consideration based on closing adjustments.
The Consideration will be paid to each Contributor at the Final Closing in cash,
a number of shares of Common Stock (which will be valued based on the IPO price
of the Common Stock) and/or a number of units of limited partnership in the
Operating Partnership ("Units") (which will be valued based on the IPO price of
the Common Stock).

1.4 CLOSING; CONDITION TO OBLIGATIONS. In connection with the
acquisition of the Contributors' Interests, the Operating Partnership will
notify the Contributors of a closing date, which date will be no later than the
Termination Date, for the initial closing (the "Initial Closing") of the
acquisition contemplated by this Omnibus Contribution Agreement. At or before
such Initial Closing, which shall be held at the offices of Rogers & Wells LLP,
200 Park Avenue, New York, New York 10166 or such other place as is determined
by the Operating Partnership in its sole discretion, at a time specified by the
Operating Partnership in its sole discretion, the Operating Partnership and the
Contributors will execute all closing documents (the "Closing Documents")
required by the Operating Partnership in accordance with Section 1.5 hereof and
deposit the same in escrow with Rogers & Wells LLP, as escrow agent of the
Operating Partnership (the "Closing Agent").

The transactions contemplated by this Omnibus Contribution Agreement
and by the Closing Documents executed and deposited in connection with such
exercise will be consummated at the Final Closing (as defined below) only if the
closing of the IPO (the "IPO Closing") is consummated by the Termination Date.
If the IPO Closing occurs by such date:

(a) the Operating Partnership shall cause to be delivered
to the Closing Agent with respect to each Contributor such Contributor's
Consideration, as adjusted pursuant to Article IV hereof and each
Contributor that receives Units will be admitted as a limited partner of
the Operating Partnership;

(b) upon receipt of the Consideration set forth in clause
(a) above, the Closing Agent will release the Closing Documents to the
Operating Partnership and deliver to the Contributor the Consideration; and

(c) the transactions described or otherwise contemplated
herein or in the Closing Documents will thereupon be deemed to have been
consummated simultaneously with the IPO Closing (such consummation, the
"Final Closing").

Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of all or any portion of the
Interests of any Contributor. The election of the Operating Partnership to not
acquire all or any portion of the Interests of a particular Contributor shall
not affect the obligations of any other Contributor hereunder.

Insurance on the transferred assets shall be assigned to the Operating
Partnership at the Final Closing. The risk of loss to an Asset Entity's Assets
prior to the Final Closing shall

<PAGE>

be borne by such Asset Entity. If, prior to the Final Closing, any of an Asset
Entity's Assets shall be destroyed or damaged by fire or other casualty, then
this Omnibus Contribution Agreement may, at the option of the Operating
Partnership, be terminated with respect to the Asset Entity, the Assets of which
have been destroyed or damaged. If, after the occurrence of any such casualty
affecting an Asset Entity's Assets, this Omnibus Contribution Agreement is not
so terminated relative to such Asset Entity, the Operating Partnership may elect
to (a) purchase the given Contributors' interests in such Asset Entity or
Assets, as the case may be, and (b) direct such Contributors to pay or cause to
be paid to the Operating Partnership any sums collected under any policies of
insurance because of damage due to such casualty and otherwise assign to the
Operating Partnership all rights to collect such sums as may then be
uncollected; PROVIDED, HOWEVER, that the Contributor shall not adjust or settle
any insurance claim without the Operating Partnership's prior written consent,
not to be unreasonably withheld or delayed. Under such circumstances, the
Consideration payable upon such purchase shall be reduced by the amount of any
deductibles under the applicable insurance policies.

If the IPO Closing does not occur by the Termination Date, then,
except as set forth in Section 1.8 hereof, neither party shall have any
obligations under the Closing Documents or under any agreements or instruments
executed in connection with the transactions contemplated hereunder or
thereunder (such other agreements or instruments, collectively, "Ancillary
Agreements"), and this Omnibus Contribution Agreement, the Closing Documents and
the Ancillary Agreements shall be deemed null and void AB INITIO and the Closing
Agent will be, and is hereby, directed to destroy the Closing Documents and any
Ancillary Agreement it holds and return to the Operating Partnership the
Consideration, if any, delivered by the Operating Partnership to the Closing
Agent.

1.5 DOCUMENTS TO BE DELIVERED AT CLOSING. At the Initial Closing,
each Contributor shall, directly or through the attorney-in-fact appointed
pursuant to Article V hereof, execute, acknowledge where deemed desirable or
necessary by the Operating Partnership, and deliver to the Closing Agent, in
addition to any other documents mentioned elsewhere herein, the following:

(a) A Certificate which shall either (i) reaffirm the
accuracy of all representations and warranties and the satisfaction of all
covenants made by such Contributor in Article II hereof or (ii) if such
reaffirmation cannot be made, identify those representations, warranties
and covenants of Article II hereof (other than Section 2.5 hereof) with
respect to which circumstances have changed, represent that such
Contributor has used all reasonable efforts within its control to prevent
and remedy such breach, and reaffirm the accuracy of all other
representations and warranties and the satisfaction of all other covenants
made by such Contributor in Article II hereof.

(b) All books and records, title insurance policies,
leases, lease files, contracts, stock certificates, original promissory
notes, and other indicia of ownership with

<PAGE>

respect to such Contributor's Interests which are in each Contributor's
possession or which can be obtained through each Contributors reasonable
efforts.

(c) Any other documents reasonably requested by the
Operating Partnership or reasonably necessary or desirable to assign,
transfer, convey, contribute and deliver such Contributor's Interests and
effectuate the transactions contemplated hereby, including, without
limitation, bargain and sale deeds, assignments of ground leases and space
leases (as applicable), such documents as may be necessary to enable a
title insurance company (acceptable to the Operating Partnership in its
sole discretion) to issue to the Operating Partnership an owner's title
insurance policy and such endorsements as the Operating Partnership may
reasonably request, insuring fee simple and/or leasehold title to all real
property and improvements comprising all or any part of the Assets to the
Operating Partnership as the Operating Partnership may designate, subject
only to the Permitted Encumbrances (as defined in Section 2.1), all state
and local transfer tax returns and any filings with any applicable
governmental jurisdiction in which the Operating Partnership is required to
file its partnership documentation or the recording of the Assignment or
deed or other Asset transfer documents is required.

1.6 CESSATION OF IPO. If at any time the Operating Partnership or
the underwriter or underwriters determine in good faith to abandon the formation
of the REIT or the IPO (the date of such determination being referred to as the
"Cessation Date"), the Operating Partnership will so advise each Contributor in
writing and thereupon all parties hereto will be relieved of all obligations
under this Omnibus Contribution Agreement, all Ancillary Agreements, and all
Closing Documents (except for obligations arising under Sections 1.7, 2.5 and
3.2 hereof).

1.7 CLOSING COSTS. Except as may be otherwise agreed between the
Operating Partnership and a particular Contributor, the Operating Partnership
agrees to pay all of the closing costs, other than Contributor's legal fees,
arising from the transfer of the Interests of each Contributor, including,
without limitation, any applicable transfer, taxes, including the taxes imposed
by Article 31 of the New York Tax Law and the New York City Real Property
Transfer Tax imposed pursuant to Administrative Code Article 21, et.al., gains
and sales taxes and any transfer fee due in connection with the assumption of
existing mortgage debt by the Operating Partnership (if so requested by
Contributor).

1.8 DEFAULT. (a) If, after notifying the Contributors of a date
for the Initial Closing, the Operating Partnership fails to close, then the
Operating Partnership will pay to each Contributor the sum of $100.00 as
liquidated and agreed-upon damages. It would be difficult, if not impossible,
to ascertain the actual measure of each Contributor's damages in the event of
the Operating Partnership's default and the parties agree that $100.00 is a fair
reflection of each Contributor's damages in the event of the Operating
Partnership's default.

(b) If any Contributor defaults with respect to its obligations
under this Omnibus Contribution Agreement, the Operating Partnership shall be
entitled to exercise against each such

<PAGE>

Contributor any and all remedies provided at law or in equity, including but not
limited to, the right to specific performance. No default by any Contributor
hereunder shall in any way limit or affect the obligations of any other
Contributor hereunder.

1.9 FURTHER ASSURANCES. Each Contributor will, from time to time,
execute and deliver to the Operating Partnership all such other and further
instruments and documents and take or cause to be taken all such other and
further action as the Operating Partnership may reasonably request in order to
effect the transactions contemplated by this Omnibus Contribution Agreement,
including instruments or documents deemed necessary or desirable by the
Operating Partnership to effect and evidence the conveyance of such
Contributor's Interests in accordance with the terms of this Omnibus
Contribution Agreement. The provisions of this Section 1.9 shall survive the
Final Closing.

ARTICLE II.

REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS

As a material inducement to the Operating Partnership and the REIT to
enter into this Omnibus Contribution Agreement and to consummate the
transactions contemplated hereby, certain Contributors or affiliates thereof
(collectively, the "Indemnitors") shall enter into a supplemental agreement (the
"Supplemental Agreement") on terms mutually acceptable to the Indemnitors and
the Operating Partnership whereby the Indemnitors shall make additional
representations, warranties and covenants with respect to matters relating to
this Omnibus Contribution Agreement and the transactions contemplation thereby,
and such Supplemental Agreement shall provide for the Indemnitors of such
representations, warranties and covenants, the survivability of such indemnity,
the amount of Common Stock and/or Units to which recourse thereunder shall be
limited, the maximum aggregate liability of all such Indemnitors and any other
relevant terms. In addition, each Contributor hereby severally makes to the
Operating Partnership and the REIT each of the representations and warranties
set forth in this Article II, which representations and warranties (unless
otherwise noted) are true as of the date hereof. As a condition to the
Operating Partnership's obligation to complete the acquisition of any
Contributor's Assets or Interests, such representations and warranties and the
representations and warranties contained in the Supplemental Agreement must
continue to be true as of the date of the Initial Closing and as of the date of
the Final Closing. Each Contributor hereby agrees to give the Operating
Partnership and the REIT written notice of any information which makes any
representation or warranty made by the Contributor hereunder or under the
Supplemental Agreement untrue within five (5) business days of obtaining such
information as follows with respect to the respective portions of the Property
owned by it.

2.1 TITLE TO INTERESTS. Each Contributor owns its Interests
beneficially and of record, free and clear of any claim, lien, pledge (other
than pledges or liens on Interests with third

<PAGE>

party lenders which will be removed on or prior to the Final Closing), voting
agreement, option, charge, security interest, mortgage, deed of trust,
encumbrance, rights of assignment, purchase rights or other rights of any nature
whatsoever (collectively, "Encumbrances"), except as disclosed as exceptions in
a title report, dated on or after January 1, 1998, provided such title
exceptions are satisfactory to the Operating Partnership in its sole discretion,
and except for contracts or arrangements relating to the operation of an Asset
which are in place as of the date of the Initial Closing and the Final Closing,
all as set forth on EXHIBIT E attached hereto (any such encumbrance, a
"Permitted Encumbrance"), and has full power and authority to convey free and
clear of any Encumbrances (except, where applicable, the Permitted
Encumbrances), its Interests and, upon delivery of Consideration for such
Interests as herein provided, the Operating Partnership will acquire good and
valid title thereto, free and clear of any Encumbrance except Encumbrances
created in favor of the Operating Partnership by the transactions contemplated
hereby and, where applicable, the Permitted Encumbrances. No Contributor will
consent to join in or in any way effect the transfer of any Asset prior to the
Final Closing. At the Final Closing, if so requested, Contributors will execute
all documents necessary to enable a title insurance company (acceptable to the
Operating Partnership, in its sole discretion) to issue to the Operating
Partnership an ALTA Form B (1987 or later) Owner's Policy and such endorsements
as the Operating Partnership may reasonably request, insuring fee simple and/or
leasehold title to all real property and improvements comprising all or any part
of the Assets to the Operating Partnership. Each of such Contributor's
Interests have been validly issued and each Contributor has funded (or will fund
before the same is past due) all capital contributions and advances to the
entity in which such Interest represents an interest that are required to be
funded or advanced prior to the date hereof and the date of the Initial Closing
and the Final Closing. There are no agreements, instruments or understandings
with respect to any of such Contributor's Interests except as disclosed in
writing to the Operating Partnership. Such Contributor has no interest, either
direct or indirect, in any of the Assets except for (a) the Interests owned by
it which are the subject of this Omnibus Contribution Agreement, (b) the
Excluded Interests (where applicable) and (c) direct or indirect interests in
partnerships or other entities which are themselves Contributors hereunder.
Such Contributor covenants that no Encumbrance on its Interests (except, where
applicable, the Permitted Encumbrances) will be in existence as of the date of
the Final Closing. In making the representations in this Section 2.1 regarding
the absence of Encumbrances, each Contributor may assume that the consents and
waivers of rights set forth in Section 7.11 hereof have been given by all
partners of partnerships or owners of voting interests in entities in which such
Contributor's Interests represent direct or indirect interests and may further
assume that any required consents from lenders have been obtained.
Notwithstanding anything to the contrary contained herein, to the extent that
the Contributor's Interests transferred hereunder constitute interests in
partnerships or other entities ("Continuing Partnerships") which will continue
in existence after the consummation of the transactions contemplated hereby,
such Interests are and will remain subject to the terms and provisions of the
partnership or other organizational agreements (each as amended) of the
Continuing Partnerships, including without limitation, restrictions, options,
priorities and partnership loans provided for therein.

<PAGE>

2.2 AUTHORITY. Such Contributor has full right, authority, power
and capacity: (a) to enter into this Omnibus Contribution Agreement and each
agreement, document and instrument to be executed and delivered by or on behalf
of such Contributor pursuant to this Omnibus Contribution Agreement; (b) to
carry out the transactions contemplated hereby and thereby; and (c) to assign,
transfer, convey, contribute and deliver all of such Contributor's Interests to
the Operating Partnership upon delivery to such Contributor of the Consideration
therefor in accordance with this Omnibus Contribution Agreement. This Omnibus
Contribution Agreement and each agreement, document and instrument executed and
delivered by or on behalf of such Contributor pursuant to this Omnibus
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of such Contributor, each
enforceable in accordance with their respective terms. Except for any breaches,
violations or defaults which will be waived or cured prior to the Initial
Closing and all loans, indentures, creditor agreements or other agreements which
will be discharged or repaid prior to or contemporaneously with the Final
Closing, the execution, delivery and performance of this Omnibus Contribution
Agreement and each such agreement, document and instrument by or on behalf of
such Contributor: (a) does not and will not violate such Contributor's
partnership agreement or operating agreement, if applicable, or other
organizational documentation; (b) does not and will not violate any foreign,
federal, state, local or other laws applicable to or binding on such Contributor
or require such Contributor to obtain any approval, consent or waiver of, or
make any filing with, any person or authority (governmental or otherwise) that
has not been obtained or made or which does not remain in effect; and (c) does
not and will not result in a breach of, constitute a default under, accelerate
any obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Contributor is a party or by
which the property of such Contributor is bound or affected, or result in the
creation of any Encumbrance on any of the property or assets of any partnership
in which an Interest of such Contributor represents an interest. In making the
representations set forth in this Section 2.2, each Contributor may assume that
the consents and waivers of rights set forth in Section 7.11 hereof have been
given by all partners of partnerships or owners of voting interests in entities
in which such Contributor's Interests represent direct or indirect interests,
and may further assume that any required consents from lenders have been
received.

2.3 LITIGATION. There is no material litigation or proceeding,
either judicial or administrative, pending or overtly threatened, affecting all
or any portion of such Contributor's Interests or such Contributor's ability to
consummate the transactions contemplated hereby. Such Contributor knows of no
outstanding order, writ, injunction or decree of any court, government,
governmental entity or authority or arbitration against or affecting all or any
portion of its Interests, which in any such case would impair such Contributor's
ability to enter into and perform all of its obligations under this Omnibus
Contribution Agreement.

2.4 NO OTHER AGREEMENTS TO SELL. Such Contributor has not made any
agreement with, and will not enter into any agreement with, and has no
obligation (absolute or

<PAGE>

contingent) to, any person or firm other than the Operating Partnership (a) to
sell, transfer or in any way encumber (except for Permitted Encumbrances) any of
such Contributor's Interests or to not sell such Contributor's Interests, or (b)
to enter into any agreement with respect to a sale, transfer or encumbrance or
put or call right with respect to such Contributor's Interests; except in each
case for those agreements which will be waived or terminated on or prior to the
Initial Closing. In making the representations set forth in this Section 2.4,
the Contributor may assume that the consents and waivers of rights set forth in
Section 7.11 hereof have been given by all partners of partnerships or owners of
voting interests in entities in which such Contributor's Interests represent
direct or indirect interests, and may further assume that any required consents
from lenders have been received.

2.5 NO BROKERS. Solely with respect to the transfer of the
Interests contemplated hereby, such Contributor has not entered into, and
covenants that it will not enter into, any agreement, arrangement or
understanding with any person or firm which will result in the obligation of the
Operating Partnership to pay any finder's fee, brokerage commission or similar
payment as a result of the transfer of the Interests contemplated hereby and
such Contributor shall indemnify and hold harmless the Operating Partnership for
all costs and expenses incurred by the Operating Partnership as a result of a
breach of this representation. The provisions of this Section 2.5 shall survive
termination of this Omnibus Contribution Agreement.

2.6 INVESTMENT REPRESENTATIONS AND WARRANTIES. Each Contributor
who is receiving Common Stock and/or Units represents and warrants as follows:

(a) Upon the issuance of Units to such Contributor, such
Contributor shall become subject to, and shall be bound by, the terms and
provisions of the agreement of limited partnership of the Operating
Partnership (in substantially the form attached hereto as EXHIBIT F (the
"Partnership Agreement"), including the terms of the power of attorney
contained in Section 2.4 thereof, as the Partnership Agreement may be
amended from time in accordance with its terms.

(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Common Stock and/or Units.
Such Contributor, by reason of its business and financial experience,
together with the business and financial experience of those persons, if
any, retained by it to represent or advise it with respect to its
investment in the Common Stock and/or Units, has such knowledge,
sophistication and experience in financial and business matters and in
making investment decisions of this type that it is capable of evaluating
the merits and risks of an investment in the REIT and/or the Operating
Partnership and of making an informed investment decision, (ii) is capable
of protecting its own interest or has engaged representatives or advisors
to assist it in protecting its interests and (iii) is capable of bearing
the economic risk of such investment. If such Contributor retained a
person to represent or advise it with respect to the investment in Common
Stock and/or Units that may be made hereby then, at the Operating
Partnership's request, such Contributor shall, prior to or at the Initial
Closing,

<PAGE>

(i) acknowledge in writing such representation and (ii) cause such
representative or advisor to deliver a certificate to the Operating
Partnership containing such representations as are reasonably requested by
the Operating Partnership.

(c) Such Contributor understands that an investment in the
REIT and/or the Operating Partnership involves substantial risks. Such
Contributor has been given the opportunity to make a thorough investigation
of the proposed activities of the REIT and/or the Operating Partnership and
has been furnished with materials relating to the REIT and/or the Operating
Partnership and their proposed activities. Such Contributor has been
afforded the opportunity to obtain any additional information deemed
necessary by such Contributor to verify the accuracy of any representations
made or information conveyed to such Contributor. Such Contributor
confirms that all documents, records, and books pertaining to its
investment in the REIT and/or the Operating Partnership and requested by
such Contributor have been made available or delivered to such Contributor.
Such Contributor has had an opportunity to ask questions of and receive
answers from the REIT and/or the Operating Partnership, or from a person or
persons acting on the REIT's or the Operating Partnership's behalf,
concerning the terms and conditions of this investment. Such Contributor
has relied and is making its investment decision upon written information
provided to the Contributor by or on behalf of the REIT and/or the
Operating Partnership and/or Contributor's position (in the case of certain
individual Contributors) as a director or executive officer of the REIT.

(d) The Common Stock and/or Units to be issued to such
Contributor will be acquired by such Contributor for its own account (or if
such Contributor is a trustee, for a trust account) for investment only and
not with a view to, or with any intention of, a distribution or resale
thereof, in whole or in part, or the grant of any participation therein,
without prejudice, however, to such Contributor's right (subject to the
terms of the Common Stock and/or Units) at all times to sell or otherwise
dispose of all or any part of its Common Stock and/or Units under an
exemption from such registration available under the Securities Act of
1933, as amended (the "Securities Act"), and applicable state securities
laws, and subject, nevertheless, to the disposition of its assets being at
all times within its control. Such Contributor was not formed for the
specific purpose of acquiring an interest in the REIT and/or the Operating
Partnership.

(e) Such Contributor acknowledges that (i) the Common Stock
and/or Units to be issued to such Contributor have not been registered
under the Securities Act or state securities laws by reason of a specific
exemption or exemptions from registration under the Securities Act and
applicable state securities laws and, if such Common Stock and/or Units are
represented by certificates, such certificates will bear a legend to such
effect, (ii) the REIT's and the Operating Partnership's reliance on such
exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii)
such Common Stock and/or Units, therefore, cannot be resold unless
registered under the Securities Act and applicable state securities

<PAGE>

laws, or unless an exemption from registration is available, (iv) there is
no public market for the Units, and (v) the Operating Partnership has no
obligation or intention to register such Units for resale under the
Securities Act or any state securities laws or to take any action that
would make available any exemption from the registration requirements of
such laws. Such Contributor hereby acknowledges that because of the
restrictions on transfer or assignment of such Common Stock and/or Units to
be issued hereunder which will be set forth in the Partnership Agreement
and/or in a Registration Rights Agreement (as defined in Section 5.1
hereof), such Contributor may have to bear the economic risk of the
investment commitment evidenced by this Omnibus Contribution Agreement and
any Common Stock and/or Units acquired hereby for an indefinite period of
time, although (i) under the terms of the Partnership Agreement, as it will
be in effect at the time of the IPO, Units will be redeemable at the
request of the holder thereof at any time after the first anniversary of
their issuance for cash or (at the option of the REIT) for Common Stock and
(ii) the holder of any such Common Stock issued upon a presentation of
Units for redemption or issued pursuant to this Omnibus Contribution
Agreement will be afforded certain rights to have such Common Stock
registered for resale under the Securities Act or applicable state
securities laws under the Registration Rights Agreement as described more
fully below.

(f) The information set forth in the investor questionnaire
(a form of which is attached hereto as EXHIBIT G) (the "Investor
Questionnaire") which has been completed and executed by such Contributor
and delivered to the Operating Partnership on the date hereof is true,
correct and complete.

2.7 FIRPTA REPRESENTATION. Contributor is not a "foreign person"
within the meaning of Section 1445 of the Internal Revenue Code of 1986, as
amended.

2.8 COVENANT TO REMEDY BREACHES. Each Contributor covenants to use
all reasonable efforts within its control (a) to prevent the breach of any
representation or warranty of such Contributor hereunder, (b) to satisfy all
covenants of such Contributor hereunder and (c) to promptly cure any breach of a
representation, warranty or covenant of such Contributor hereunder upon its
learning of same.

2.9 INDEMNIFICATION. Contributor agrees to indemnify, defend and
hold Operating Partnership and the REIT harmless from and against any and all
costs, expenses, losses and damages (including, without limitation, reasonable
attorneys' fees and expenses, but not excluding consequential damages) incurred
by the Operating Partnership or the REIT resulting from any misrepresentation or
breach of warranty made by Contributor in this Agreement; PROVIDED, HOWEVER,
that written notice of any such misrepresentation or breach of warranty must be
given to Contributor.

<PAGE>

2.10 COVENANT TO OPERATE IN THE ORDINARY COURSE. Each Contributor
covenants that, without the prior written consent of the Operating Partnership
and the REIT, the Contributor will not

(a) enter into any material transaction not in the ordinary
course of business;

(b) materially amend, modify or terminate any material
agreements or other instruments relating to the Interests and/or Assets
being contributed by it to which such Contributor is a party; or

(c) materially alter the manner of keeping its books,
accounts or records or the accounting practices therein reflected with
regard to the Interests and/or Assets being contributed by it.

2.11 NASD AFFILIATION. Each Contributor represents severally that
neither it nor any affiliate of such Contributor is a member, affiliate of a
member or person associated with a member of the National Association of
Securities Dealers, Inc. ("NASD"). Each Contributor further represents
severally that neither it nor any affiliate of such Contributor owns any stock
or other securities of any NASD member not purchased in the open market, or has
made any outstanding subordinated loans to an NASD member. (A company or
natural person is presumed to control a member of the NASD and is therefore
presumed to constitute an affiliate of such a member if the company or person is
the beneficial owner of 10% or more of the outstanding securities of a member
which is a corporation. Additionally, a natural person is presumed to control a
member of the NASD and is therefore presumed to constitute an affiliate of such
a member if such person has the power to direct or cause the direction of the
management or policies of such member.)

ARTICLE III.

REPRESENTATIONS, WARRANTIES AND
COVENANTS OF OPERATING PARTNERSHIP

As a material inducement to each Contributor to enter into this
Omnibus Contribution Agreement and to consummate the transactions contemplated
hereby, the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.

3.1 AUTHORITY. The Operating Partnership and the REIT each has
full right, authority, power and capacity: (a) to enter into this Omnibus
Contribution Agreement and each agreement, document and instrument to be
executed and delivered by or on behalf of it pursuant

<PAGE>

to this Omnibus Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Common Stock and/or Units, as
applicable, to each Contributor to the extent called for in accordance with the
terms of this Omnibus Contribution Agreement. This Omnibus Contribution
Agreement and each agreement, document and instrument executed and delivered by
the REIT and/or the Operating Partnership pursuant to this Omnibus Contribution
Agreement constitutes, or when executed and delivered will constitute, the
legal, valid and binding obligation each of the REIT and the Operating
Partnership, each enforceable in accordance with their respective terms. The
execution, delivery and performance of this Omnibus Contribution Agreement and
each such agreement, document and instrument by each of the REIT and the
Operating Partnership: (a) does not and will not violate the Partnership
Agreement; (b) does not and will not violate any foreign, federal, state and
local or other laws applicable to the REIT or the Operating Partnership or
require the REIT or the Operating Partnership to obtain any approval, consent or
waiver of, or make any filing with, any person or authority (governmental or
otherwise) that has not been obtained or made; and (c) does not and will not
result in a breach of, constitute a default under, accelerate any obligation
under or give rise to a right of termination of, any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award to which the REIT or the Operating Partnership is a party
or by which the property of the REIT or the Operating Partnership is bound or
affected.

3.2 NO BROKERS. Each of the REIT and the Operating Partnership
represents that it has not entered into, and covenants that it will not enter
into, any agreement, arrangement or understanding with any person or firm which
will result in the obligation of any Contributor to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby.

ARTICLE IV.

CLOSING ADJUSTMENTS

4.1 PRORATIONS. In the case of (i) each Asset Entity which is
itself a Contributor and (ii) each Asset Entity in which the Operating
Partnership acquires an interest pursuant to this Omnibus Contribution
Agreement, the Operating Partnership and such Asset Entity shall make the
prorations set forth below, and make payment with respect to such prorations as
appropriate. To the extent an Asset Entity ceases to have a separate legal
existence as a result of the transactions contemplated hereunder, those
Contributors who held interests in such Asset Entity shall collectively exercise
the rights of such Asset Entity, and succeed to the obligations of such Asset
Entity, under this Omnibus Contribution Agreement from and after the Final
Closing.

(a) TAXES. Except with respect to that portion of real
property taxes and general and special assessments, water and sewer rents,
tap charges, and business improvement district charges billable to tenants
as pass-through, common area charges or

<PAGE>

the like, which shall be adjusted pursuant to Section 4.1(b), real property
taxes and general and special assessments, water and sewer rents, tap
charges, and business improvement district charges upon the Asset shall be
adjusted and prorated as of the date of the Final Closing on the basis of
the fiscal year for such taxes and assessments (the "Tax Year"). If the
Final Closing shall occur before the real property tax rate for the Tax
Year is fixed, the apportionment of taxes provided above shall be made on
the basis of the taxes assessed for the preceding Tax Year. After the real
property taxes are finally fixed for the Tax Year in which the Final
Closing occurs, the Operating Partnership and such Asset Entity shall make
a recalculation of the apportionment of such taxes, and the Operating
Partnership or the Asset Entity, as the case may be, shall make an
appropriate payment to the other based on such recalculation. To the
extent that either the Asset Entity or the Operating Partnership shall
obtain any real estate tax abatement, reduction, refund or incentive with
respect to the Asset, the amount of the net proceeds of such tax abatement,
reduction, refund or incentive shall be prorated through the date of the
Final Closing if, as, and when such proceeds are paid by the applicable
governmental taxing authority (it being understood that to the extent any
tenant demising space in the Asset owned by such Asset Entity shall be
entitled to any portion of such tax abatement, that such portion shall be
turned over to the Operating Partnership to remit to such tenant and shall
be deducted from any tax abatement, reduction, refund or incentive proceeds
in connection with calculating the net proceeds thereof).

(b) RENTS. Rents, additional rents, including electricity
charges, operating expense recoveries, and tax reimbursements under the
leases affecting the Asset (collectively, "Rents") shall be adjusted and
prorated as of the date of the Final Closing. Rents collected after the
date of the Final Closing from tenants whose rental was delinquent on the
date of the Final Closing shall be deemed to apply first to current rents
due at the time of payment and second to past due rents accruing after the
Final Closing and last to the rents which were past due on the date of the
Final Closing. Unpaid and past due rents to which the Asset Entity is
entitled shall be promptly paid over to the Asset Entity if collected by
the Operating Partnership after the date of the Final Closing, less any
reasonable collection costs actually incurred by the Operating Partnership.

(c) PREPAYMENTS. Any prepayment made by or on behalf of
the Asset Entity under any service, maintenance, management, consulting, or
similar contracts shall be adjusted and prorated as of the date of the
Final Closing.

(d) EXPENSES. Charges and assessments for sewer and water
and other utilities, including charges for consumption of electricity,
steam and gas (unless the Operating Partnership elects to have final meter
readings made as of the Final Closing in which event the adjustment shall
be made based on such meter readings); current operating expenses,
including, without limitation, obligations under any service, maintenance,
management, consulting, or similar contracts; payroll and related expenses
(including all benefits and vacation and sick days); license and permit
fees relating to the operation of

<PAGE>

the Asset; insurance and bond premiums; and any other charges incident to
the ownership, use and/or occupancy of the Asset shall be adjusted and
prorated as of the date of the Final Closing. To the extent that any of
the foregoing expenses have been paid by a Asset Entity, and have been
billed or are billable to, but not yet paid by any tenant, such Asset
Entity shall receive a full credit for the aggregate of all such unpaid
billed or billable amounts, and to the extent payment in respect of same is
received by a Asset Entity after Closing, it shall promptly deliver such
payment to the Operating Partnership.

(e) INTEREST ON EXISTING MORTGAGES. Interest on existing
mortgages encumbering any Assets shall be adjusted and prorated as of the
date of the Final Closing.

(f) FUEL AND MAINTENANCE SUPPLIES STORED ON SITE. The
costs of purchasing fuel and maintenance supplies stored on site shall be
adjusted and prorated as of the date of the Final Closing.

(g) RELETTING EXPENSES FOR NEW LEASES. Customary reletting
expenses (including without limitation, brokerage commissions, tenant
improvements and moving expenses paid by the Asset Entity) for leases
entered into after the date hereof and prior to the Final Closing shall be
adjusted and prorated over the base term of the applicable lease and based
upon prices in effect on or immediately prior to the date of the Final
Closing.

4.2 ASSET ENTITY'S RETAINED ITEMS. All cash on hand, working
capital, escrow and reserve accounts other than tenant security deposits, and
utility or other deposits ("Cash on Hand") shall be distributed by the Asset
Entity to its current shareholders, partners or members, as applicable, prior to
the Final Closing, except as required as reserves to satisfy contingent
liabilities or proration amounts as described above. To the extent proration
amounts exceed Cash on Hand, a pro rata amount of the net prorations may be
deducted from the total Consideration payable in respect of the related
Interest.

4.3 ACCOUNTS RECEIVABLE. The Asset Entity shall retain all
accounts receivable and other income items other than Rents which are
attributable to periods prior to the date of the Final Closing. The Asset
Entity shall deliver to the Operating Partnership at the Final Closing a
schedule of all such unpaid accounts receivable and other income items as of the
date of the Final Closing. All such accounts receivable and other income items
collected by or for the Operating Partnership after the date of the Final
Closing which are attributable to periods prior to the date of the Final Closing
shall be promptly remitted to the order of the Asset Entity. Except for sums
actually received by the Operating Partnership pursuant to the immediately
preceding sentence, the Operating Partnership shall assume no obligation to
collect or enforce the payment of any amounts that may be due to the Asset
Entity, except that the Operating Partnership shall render reasonable
assistance, at no expense to the Operating Partnership, to the Asset Entity
after the Final Closing in the event the Asset Entity proceeds against any
third-party to collect any accounts receivable or other income items due the
Asset Entity.

<PAGE>

4.4 SECURITY DEPOSITS. An amount equal to all tenant security
deposits held by such Asset Entity and interest thereon, if any, and any other
amounts due tenants with respect to such security deposits shall be paid over to
the Operating Partnership at the Final Closing.

4.5 TIMING OF CALCULATIONS; COOPERATION. Each Asset Entity and/or
Contributor and the Operating Partnership agree to use reasonable efforts to
reconcile, prorate, and adjust all of the foregoing items upon the Final Closing
and, in all events within ninety (90) days after the date of the Final Closing,
to adjust and prorate such prorations and adjustments. In the event any
adjustments or prorations made pursuant to this Omnibus Contribution Agreement
are, subsequent to Final Closing, found to be erroneous, then either party
hereto who is entitled to additional amounts shall invoice the other party for
such additional amounts as may be owing, and such amounts shall be paid promptly
by the other party upon receipt of invoice. Such invoice shall be accompanied
by reasonable substantiating evidence.

4.6 ALLOCATION OF ADJUSTMENTS. All adjustments contemplated by
this Article IV shall, to the extent practicable, be made by adjusting (either
up or down) the Consideration by debiting or crediting (as the case may be) such
Contributor's Consideration with a portion of the prorated items allocated to
the Asset Entity in which the Contributor owns an interest; PROVIDED, HOWEVER,
that all such adjustments in favor of the Operating Partnership shall first be
made from Cash on Hand. The amount of an Asset Entity's adjustments calculated
pursuant to this Article IV allocated to each Contributor shall be that portion
equal to that Contributor's pro rata equity interest in each Asset Entity.

ARTICLE V.

POWER OF ATTORNEY

5.1 GRANT OF POWER OF ATTORNEY. Each Contributor does hereby
irrevocably appoint Harry Macklowe, Warren Cole and the Operating Partnership,
and each of them individually and any successor thereof from time to time (such
persons or the Operating Partnership or any such successor of any of them acting
in his, her or its capacity as attorney-in-fact pursuant hereto, the
"Attorney-In-Fact") as the true and lawful attorney-in-fact and agent of such
Contributor, to act in the name, place and stead of such Contributor:

(a) To enter into a registration rights agreement, a form
of which is attached hereto as EXHIBIT H (the "REGISTRATION RIGHTS
AGREEMENT") which provides for (i) the registration under the Securities
Act of 1933, as amended (the "Securities Act") of the REIT's Common Stock
which may be issued to the Contributor in accordance with this Omnibus
Contribution Agreement and the Partnership Agreement, upon the presentation
of Units for redemption and (ii) restrictions on the transfer of Units (and
any Common Stock which may be issued in redemption of Units) for a period
not to exceed one year from their date of issuance.

<PAGE>

(b) If so requested, to enter into a lock-up agreement (the
"LOCK-UP AGREEMENT") which provides that the Contributors will not,
directly or indirectly, offer, sell, offer to sell, contract to sell, grant
any option to purchase or otherwise dispose of (or announce any offer,
sale, offer of sale, contract of sale, grant of any option to purchase or
other sale or disposition of) any share of REIT Common Stock or any
securities convertible into or exchangeable for or substantially similar to
REIT Common Stock, including the Units, for a period of 180 days from the
IPO Closing without the prior written consent of the managing underwriter
named in the Lock-up Agreement.

(c) To take for such Contributor all steps deemed necessary
or advisable in connection with the registration of the REIT's Common Stock
under the Securities Act, including without limitation (i) filing the
Registration Statement and amendments thereto under the Securities Act
which shall describe the benefits to be received by such Contributor in
connection with the formation of the REIT and the IPO, (ii) distributing a
preliminary prospectus and prospectus regarding the IPO (the "Preliminary
Prospectus" and the "Prospectus," respectively) which contain such
information as is deemed necessary or desirable to lawfully effect the
initial public offering of such shares, and (iii) taking such other steps
as the Attorney-in-Fact may deem necessary or advisable.

(d) To make, execute, acknowledge and deliver all such
other contracts, orders, receipts, notices, requests, instructions,
certificates, consents, letters and other writings (including without
limitation the execution of Closing Documents, Ancillary Agreements, the
Partnership Agreement, any other documents relating to the acquisition by
the Operating Partnership of such Contributor's Interests, any consents
contemplated by Section 7.10 hereof, and any waiver or consent contemplated
by Section 7.11 hereof) and, in general, to do all things and to take all
action which the Attorney-in-Fact in its sole discretion may consider
necessary or proper in connection with or to carry out the transaction
contemplated by this Omnibus Contribution Agreement, the Ancillary
Agreements, if any, and the Closing Documents as fully as could such
Contributor if personally present and acting.

(e) To make, acknowledge, verify and file on behalf of such
Contributor applications, consents to service of process and such other
undertakings or reports as may be required by law with state commissioners
or officers administering state securities, Blue Sky or real estate
syndication laws and to take any other action required to facilitate the
exemption for registration of the Common Stock and/or Units and the
qualification of the Common Stock and/or Units under the securities, Blue
Sky or real estate syndication laws of the jurisdictions in which the Units
and the Common Stock are to be offered.

The Power of Attorney granted by each Contributor pursuant to this
Article V and all authority conferred hereby is granted and conferred subject to
and in consideration of the interests of the Operating Partnership, the REIT and
the other Contributors and is for the purpose of completing the transactions
contemplated by this Omnibus Contribution Agreement. The Power

<PAGE>

of Attorney shall terminate upon termination of this Omnibus Contribution
Agreement. The Power of Attorney of each Contributor granted hereby and all
authority conferred hereby is coupled with an interest and therefore shall be
irrevocable and shall not be terminated by any act of such Contributor or by
operation of law, whether by death, disability, incapacity or the liquidation of
such Contributor or by the occurrence of any other event or events (including
without limitation the termination of any trust or estate for which such
Contributor is acting as a fiduciary or fiduciaries), and if, after the
execution hereof, such Contributor shall die or become disabled or incapacitated
or is liquidated, or if any other such event or events shall occur before the
completion of the transactions contemplated by this Omnibus Contribution
Agreement, the Attorney-in-Fact shall nevertheless be authorized and directed to
complete all such transactions as if such death, disability, incapacity or
liquidation or other event or events had not occurred and regardless of notice
thereof. Each Contributor acknowledges that Harry Macklowe, Warren Cole and the
Operating Partnership have, and any successor thereof acting as Attorney-in-Fact
may have an economic interest in the transactions contemplated by this Omnibus
Contribution Agreement. Each Contributor agrees that, at the request of the
Operating Partnership, it will promptly execute a separate power of attorney on
the same terms set forth in this Article V, such execution to be witnessed and
notarized.

5.2 LIMITATION ON LIABILITY. It is understood that the
Attorney-in-Fact assumes no responsibility or liability to any person by virtue
of the Power of Attorney granted by each Contributor hereby. Other than as set
forth in the Supplemental Agreement, the Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
formation of the REIT, the acquisitions of the Interests by the Operating
Partnership, the Registration Statement, the Prospectus or any Preliminary
Prospectus, nor for any aspect of the offering of the REIT's Common Stock, and
it shall not be liable for any error of judgment or for any act done or omitted
or for any mistake of fact or law except for its own gross negligence or bad
faith. Each Contributor agrees that the Attorney-in-Fact may consult with
counsel of its own choice (who may be counsel for the Operating Partnership or
the REIT) and it shall have full and complete authorization and protection for
any action taken or suffered by it hereunder in good faith and in accordance
with the opinion of such counsel. It is understood that the Attorney-in-Fact
may, without breaching any express or implied obligation to the Contributor
hereunder, release, amend or modify any other Power of Attorney granted by any
other Contributor hereunder or by any other person under any related agreement.
The provisions of this Section 5.2 shall not limit or otherwise affect the
obligations of the Operating Partnership (acting for itself and not as
Attorney-in-Fact) under the other Articles of this Omnibus Contribution
Agreement.

5.3 RATIFICATION; THIRD PARTY RELIANCE. Each Contributor does
hereby ratify and confirm all that the Attorney-in-Fact shall lawfully do or
cause to be done by virtue of the exercise of the powers granted unto it by such
Contributor hereunder, and such Contributor authorizes the reliance of third
parties on this Power of Attorney and waives its rights, if any, as against any
such third party for its reliance hereon.

<PAGE>

ARTICLE VI.

RESTRICTIONS ON SALES
OF PROPERTIES/TAX MATTERS

6.1 RESTRICTIONS ON TRANSFER. The Operating Partnership and its
successors and assigns agree not to sell, transfer or otherwise dispose of
(whether by merger or otherwise) or distribute in a transaction treated as a
taxable disposition, any Property listed on EXHIBIT I hereto (each a "Designated
Property") or any property for which such Designated Property is exchanged
(collectively referred to as a "Property Transfer") in which any Contributor
holds an interest, whether direct or indirect, for the period described in
EXHIBIT I unless either (i) the Operating Partnership receives the consent of a
representative of the respective property's original contributors or (ii) the
Property Transfer occurs in a manner which upon such Property Transfer is tax
free to the Contributors or their successors and assigns.

6.2 MAINTENANCE OF INDEBTEDNESS. In connection with the
contributions of the Contributors' Interests, the Operating Partnership and the
REIT agree to maintain, at all times, and on a continuous basis, an amount of
indebtedness which shall be available to be allocated solely to each Contributor
for federal income tax purposes and for which each such Contributor shall solely
be reported for federal income tax purposes as bearing the "economic risk of
loss" within the meaning of Treasury Regulation Section 1.752-2(a) while such
Contributor is a partner in the Operating Partnership in an amount not less than
the amount set forth opposite such Contributor's name on the attached EXHIBIT J
(such amount to equal in the aggregate not less than $300 million.) In order to
have such indebtedness allocated to Contributors, the Operating Partnership
agrees to either (i) cause its lenders to permit the Contributors or any of them
individually to guarantee the "bottom portion" (i.e. least risky portion) of any
non-recourse indebtedness of the Operating Partnership (including additional
indebtedness or substitute indebtedness incurred after the Effective Date) and
to thereby become the guarantor or guarantors of last resort with respect to
such additional or substitute indebtedness or (ii) provide in the Agreement of
Limited Partnership of the Operating Partnership (the "Partnership Agreement")
for a special "bottom dollar" loss allocation to each such Contributor in an
amount equal to the amount set forth opposite such Contributor's name on the
attached EXHIBIT J with such Contributors simultaneously agreeing to a deficit
restoration obligation in the Partnership Agreement.

ARTICLE VII.

DIRECT CONTRIBUTIONS,
MERGERS AND OTHER MATTERS

7.1 AMENDMENT. Any amendment hereto shall be effective only
against those parties hereto who have acknowledged in writing their consent to
such amendment, provided that the Operating Partnership may amend this Omnibus
Contribution Agreement without notice to or

<PAGE>

the consent of any Contributor (a) for the purpose of adding additional
Contributors as parties hereto or deleting Contributors as parties hereto and
conforming EXHIBIT A in connection with such additions or deletions and (b) to
conform any Contributor's Supplemental Acquisition Exhibit to the extent the
interests set forth therein do not accurately or completely reflect the interest
of such Contributor in the Asset Entities or (in the case of Contributors which
are themselves Asset Entities) their properties. No waiver of any provisions of
this Omnibus Contribution Agreement shall be valid unless in writing and signed
by the party against whom enforcement is sought.

7.2 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Omnibus
Contribution Agreement and all Ancillary Agreements (a) constitute the entire
agreement and supersede conflicting provisions set forth in all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, (b) may be executed in several
counterparts, each of which will be deemed an original and all of which shall
constitute one and the same instrument and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of New York without giving effect to the conflict of law provisions
thereof.

7.3 ASSIGNABILITY. This Omnibus Contribution Agreement shall be
binding upon, and shall be enforceable by and inure to the benefit of, the
parties hereto and their respective heirs, legal representatives, successors and
assigns; PROVIDED, HOWEVER, that this Omnibus Contribution Agreement may not be
assigned (except by operation of law) by any party without the prior written
consent of the other parties, and any attempted assignment without such consent
shall be void and of no effect, except that the Operating Partnership, and REIT
may assign their rights and obligations hereunder to an affiliate.

7.4 TITLES. The titles and captions of the Articles, Sections and
paragraphs of this Omnibus Contribution Agreement are included for convenience
of reference only and shall have no effect on the construction or meaning of
this Omnibus Contribution Agreement.

7.5 THIRD PARTY BENEFICIARY. No provision of this Omnibus
Contribution Agreement is intended, nor shall it be interpreted, to provide or
create any third party beneficiary rights or any other rights of any kind in any
customer, affiliate, stockholder, partner, member, director, officer or employee
of any party hereto or any other person or entity, provided, however, that
Sections 5.3 and 7.3 and 7.11 of this Omnibus Contribution Agreement shall be
enforceable by and shall inure to the benefit of the persons described therein.

7.6 SEVERABILITY. If any provision of this Omnibus Contribution
Agreement, or the application thereof, is for any reason held to any extent to
be invalid or unenforceable, the remainder of this Omnibus Contribution
Agreement and application of such provision to other persons or circumstances
will be interpreted so as reasonably to effect the intent of the parties hereto.
The parties further agree to replace such void or unenforceable provision of
this Omnibus Contribution Agreement with a valid and enforceable provision that
will achieve, to the extent possible, the economic, business and other purposes
of the void or unenforceable provision and

<PAGE>

to execute any amendment, consent or agreement deemed necessary or desirable by
the Operating Partnership to effect such replacement.

7.7 EQUITABLE REMEDIES. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Omnibus
Contribution Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Omnibus Contribution Agreement and to enforce specifically the terms and
provisions hereof in any federal or state court located in New York (as to which
the parties agree to submit to jurisdiction for the purposes of such action),
this being in addition to any other remedy to which they are entitled under this
Omnibus Contribution Agreement or otherwise at law or in equity.

7.8 ATTORNEYS' FEES. In connection with any litigation or a court
proceeding arising out of this Omnibus Contribution Agreement, the prevailing
party shall be entitled to recover all costs incurred, including reasonable
attorneys' fees and legal assistants' fees and costs whether incurred prior to
trial, at trial, or on appeal.

7.9 NOTICES. Any notice or demand which must or may be given under
this Omnibus Contribution Agreement or by law shall, except as otherwise
provided, be in writing and shall be deemed to have been given (a) when
physically received by personal delivery (which shall include the confirmed
receipt of a telecopied facsimile transmission), or (b) three (3) business days
after being deposited in the United States certified or registered mail, return
receipt requested, postage prepaid, or (c) one (1) business day after being
deposited with a nationally known commercial courier service providing next day
delivery service (such as Federal Express); addressed and delivered or
telecopied in the case of a notice to the Operating Partnership at the following
address and telecopy number:

Macklowe Properties, L.P.
142 West 57th Street
New York, New York 10019
Attention: Warren D. Cole
Phone: 212-554-5800
Telecopy: 212-554-5890

with a copy to:

Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Robert E. King, Jr.
Phone: 212-878-8209
Telecopy: 212-878-8375

<PAGE>

and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the address and telecopy number set forth under such
Contributor's name in the Contributor's Signature Page hereto.

7.10 DIRECT CONTRIBUTIONS AND MERGERS. The parties acknowledge and
agree that the REIT and the Operating Partnership may decide to purchase one or
more of the Assets (i) by a Direct Contribution from the Asset Entity that
beneficially owns it or (ii) by way of a Merger of such Asset Entity with and
into the REIT or the Operating Partnership or any of their respective
affiliates, which transaction may be in conjunction with a contribution of an
Interest. In order to facilitate any such Direct Contribution or Merger without
the need for further consent or action of the Contributors and Asset Entities
and without such Direct Contribution or Merger causing a violation of any
relevant partnership agreement, each Contributor by its execution hereof with
respect to each Asset Entity in which an Interest owned by Contributor
represents a direct or indirect interest, gives such consent as is necessary
(under the partnership agreement of the applicable Asset Entity and under the
partnership agreement of any other partnership that has a direct or indirect
interest in such Asset Entity, to the extent Contributor is a partner of any
such partnership) to cause such Asset Entity to have authority to (i) transfer
all or substantially all of the assets (including an Asset) of such Asset Entity
to the REIT or the Operating Partnership on such terms and conditions as such
Asset Entity and the REIT or the Operating Partnership may agree or (ii) to
merge with and into the REIT or the Operating Partnership, PROVIDED, HOWEVER,
that in either such case the Contributor will receive, in respect of its
Interest in the Asset of such Asset Entity, the value (in cash, Common Stock
and/or Units) set forth for such Asset in such Contributor's Supplemental
Acquisition Exhibit.

The terms "partnership," "partner" and "partnership agreement" in this Section
7.10 and in Section 7.11 shall in all cases also refer to limited liability
companies, members and operating agreements or similar organizational documents.

7.11 WAIVER OF RIGHTS; CONSENTS WITH RESPECT TO PARTNERSHIP
INTERESTS.

(a) Each Contributor acknowledges that the agreements contained
herein and the transactions contemplated hereby and any actions taken in
contemplation of the transactions contemplated hereby may conflict with, and may
not have been contemplated by, the partnership agreement of one or more
partnerships in which one or more of such Contributor's Interests represents a
direct or indirect interest or another agreement among one or more holders of
such Interests or one or more of the partners of any such partnership. With
respect to each partnership in which an Interest of a Contributor represents a
direct or indirect interest, each Contributor expressly gives all Consents (and
any consents necessary to authorize the proper parties in interest to give all
Consents) and Waivers necessary or desirable to facilitate any Conveyance Action
relating to such partnership (as such terms are hereinafter defined).

As used herein, the term "Conveyance Action" means, with respect to
any partnership having a direct or indirect ownership interest in any Asset, (i)
the conveyance or

<PAGE>

agreement to convey by a partner thereof or by any holder of an indirect
interest therein (whether or not such partner or holder is a Contributor
hereunder) directly, by Direct Contribution, Merger or otherwise of its direct
or indirect interest in such partnership to the Operating Partnership or REIT or
(ii) the entering into by any such partner or holder of any agreement relating
to (x) the formation of the Operating Partnership or the REIT, or (y) the direct
or indirect acquisition by the Operating Partnership or REIT of any such direct
or indirect interest or (iii) the taking by any such partner or holder of any
action necessary or desirable to facilitate any of the foregoing, including,
without limitation, the following (provided that the same are taken in
furtherance of the foregoing): any sale or distribution to any person of a
direct or indirect interest in such partnership, the entering into any agreement
with any person that grants to such person the right to purchase a direct or
indirect interest in such partnership, and the giving of the Consents and
Waivers contained in this Section 7.11 or consents or waivers similar thereto in
form or purpose. As used herein, the term "Consents" means, with respect to any
such partnership, any consent necessary or desirable under the partnership
agreement of such partnership or any other agreement among all or any of the
holders of interests therein or any other agreement relating thereto or referred
to therein (i) to permit any and all Conveyance Actions relating to such
partnership or to amend such partnership agreement and/or other agreements so
that no provision thereof prohibits, restricts, impairs or interferes with any
Conveyance Action (such amendments to include, without limitation, the deletion
of provisions which cause a default under such agreement if interests therein
are transferred for cash), (ii) to admit the Operating Partnership as a
substitute limited partner or general partner of such partnership upon the
Operating Partnership's acquisition of a limited or general partnership interest
therein, respectively, and to adopt such amendment as is necessary or desirable
to effect such admission, (iii) to adopt any amendment as may be deemed
desirable by the Operating Partnership, either simultaneously with or
immediately prior to the acquisition of any interest therein, and (iv) to
continue such partnership following the transfer of interest therein to the
Operating Partnership. As used herein, the term "Waivers" means, with respect
to a partnership of which an Interest of a Contributor represents a direct or
indirect interest, the waiving of any and all rights that such Contributor may
have with respect to, and (to the extent possible) that any other person may
have with respect to, or that may accrue to such Contributor or other person
upon the occurrence of, a Conveyance Action relating to such partnership,
including, but not limited to, the following rights: rights of notice, rights to
response periods, rights to purchase the direct or indirect interests of another
partner in such partnership or to sell such Contributor's or other person's
direct or indirect interest therein to another partner, rights to sell such
Contributor's or other person's direct or indirect interest therein at a price
other than as provided herein, or rights to prohibit, limit, invalidate,
otherwise restrict or impair any such Conveyance Action or to cause a
termination or dissolution of such partnership because of such Conveyance
Action. Each Contributor further covenants that such Contributor will take no
action to enjoin, or seek damages resulting from, any Conveyance Action by any
holder of a direct or indirect interest in a partnership in which an Interest of
such Contributor represents a direct or indirect interest. The Waivers and
Consents contained in this Section 7.11 shall terminate upon the termination of
this Omnibus Contribution Agreement, except as to transactions completed
hereunder prior to termination.

<PAGE>

(b) Each Contributor by its execution hereof (i) with respect to
each Asset Entity in which an Interest owned by Contributor represents a direct
or indirect interest therein and with respect to which the Operating Partnership
acquires all of the ownership interests therein gives such consent as is
necessary to cause each such Asset Entity, as applicable, to have authority to
transfer the Assets of such Asset Entity to the Operating Partnership on such
terms and conditions as such Asset Entity and the Operating Partnership may
agree; and (ii) agrees that such Contributor's Consideration may be reduced to
reflect such direct transfer of assets and the consequent receipt of Units
and/or cash directly by such Asset Entity, provided that the total consideration
to be received by such Contributor either directly hereunder or indirectly
through the receipt of Units and or/cash by an Asset Entity shall not be less
than Contributor's Consideration.

(c) Each Contributor by its execution hereof gives such consent as
is necessary to cause, with respect to the partnership agreement of each
partnership in which an Interest of such Contributor represents, directly or
indirectly, a limited partner or general partner interest, an amendment thereto
to enable such partnership, to the extent permissible under applicable law, (i)
to admit the Operating Partnership as a substitute limited partner therein
and/or a substitute general partner therein if the Operating Partnership
acquires a limited partnership interest or a general partnership interest in
such partnership, respectively, (ii) to redeem the interest of any other partner
therein who has not agreed to become a party to this Omnibus Contribution
Agreement or a similar contribution agreement with the Operating Partnership,
(iii) to transfer to all partners thereof, including any partner who has not
agreed to become a party to this Omnibus Contribution Agreement, cash and/or
Units (provided that such Contributor receives as a result of all such
distributions and the direct payment of consideration hereunder, an amount of
cash and/or Units that is in conformity with the Consideration of such
Contributor provided for herein), and thereafter, at the Operating Partnership's
option, to dissolve, and (iv) any such other amendment as the Operating
Partnership may deem desirable, provided that such amendment occurs
simultaneously with or immediately prior to the acquisition of the applicable
partnership interest and, provided further, that such amendment will not result
in any increased liability on the part of any Contributor hereunder or under the
applicable partnership agreement. The Attorney-in-Fact may on behalf of each
Contributor execute such consents, amendments or other instruments as it deems
necessary or desirable in connection with the foregoing.

7.12 LEGENDING. Each certificate, if any, representing the Common
Stock and/or Units (and any Common Stock that might be exchanged therefor) shall
bear a legend substantially in the form set forth below:

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE,
TRANSFER OR OTHER

<PAGE>

DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.

7.13 CONFIDENTIALITY. Each Contributor agrees to keep all
information regarding the transactions contemplated herein strictly
confidential. No Contributor will issue any press release or other public
communication of any kind relating to the IPO or the transactions contemplated
herein.

7.14 COMPUTATION OF TIME. Any time period provided for herein which
shall end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of
the next full business day. All times are Eastern Time.

7.15 SURVIVAL. It is the express intention and agreement of the
parties hereto that the representations, warranties and covenants of each
Contributor set forth in this Omnibus Contribution Agreement shall survive the
consummation of the transactions contemplated hereby, subject to any limitation
on the duration of such survival as maybe expressly set forth herein.

7.16 TIME OF THE ESSENCE. Time is of the essence with respect to
all obligations of Contributor under this Omnibus Contribution Agreement.

<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has executed this
Omnibus Contribution Agreement, or caused the Omnibus Contribution Agreement to
be duly executed on its behalf, as of the date first written above.

Macklowe Properties, L.P.

By: Macklowe Properties, Inc.,
its General Partner

By:
-----------------------------------------------
Harry Macklowe
Chairman of the Board and
Chief Executive Officer

Macklowe Properties, Inc.

By:
-----------------------------------------------
Harry Macklowe
Chairman of the Board and
Chief Executive Officer

<PAGE>

[SIGNATURE PAGES AND SUPPLEMENTAL ACQUISITION EXHIBITS]
[FOR]

Harry Macklowe

Linda Macklowe

William Macklowe

Warren Cole

AWUJ, LLC

P.A.L.W. LLC

MAK West 55th Street Associates, L.P.

Regent Holding LLC

Macklowe Properties, LLC

81st - 30 East End Avenue Company

192 East 75th Street Co., L.P.

Macklowe Properties, Inc.

AZIW LLC

HEW - Rad Realty Corp.

Nuborn Assets Co., L.P.

<PAGE>

EXHIBIT A

CONTRIBUTORS

1. Harry Macklowe

2. Linda Macklowe

3. William Macklowe

4. Warren Cole

5. AWUJ, LLC

6. P.A.L.W. LLC

7. MAK West 55th Street Associates, L.P.

8. Regent Holding LLC

9. Macklowe Properties, LLC

10. 81st - 30 East End Avenue Company

11. 192 East 75th Street Co., L.P.

12. Macklowe Properties, Inc.

13. AZIW LLC

14. HEW - Rad Realty Corp.

15. Nuborn Assets Co., L.P.

<PAGE>

EXHIBIT B

ASSETS, INTERESTS, AND OTHER PROPERTIES CONTRIBUTED

1. 100% of the interest in 125 West 55th Street, LLC which owns the fee
interest in Avenue of the Americas Plaza (125 West 55th Street)

2. The fee interest in 140 West 57th Street

3. 100% of the interest in 369 Lexington Avenue Co., L.P. which owns the fee
interest in 369 Lexington Avenue

4. The fee interest in Two Grand Central Tower

5. 100% of the interest in 540 Acquisition Co., LLC which owns the leasehold
interest in 540 Madison Avenue

6. 100% of the interest in Purcel Woodward & Ames, LLC which owns the fee
interest in 305 West 50th Street

7. 50% of the interest in York 72 Associates, L.P. which owns the fee
interest in Riverterrace

8. 100% of the interest in Formerly Maxwells, LLC which owns the fee interest
in 345 East 64th Street

9. 100% of the interest in 40 West 55th LLC which owns the fee interest in 40
West 55th Street

10. 100% of the interest in 308 East 53 LLC which owns the fee interest in
308-310 East 53rd Street

11. 100% of the interest in 1000 Second Avenue, LLC which owns the fee
interest in 1000 Second Avenue

12. 100% of the interest in 907 M LLC which owns the leasehold interest for
996 Second Avenue

13. 100% of the interest in YNDA LLC which owns the leasehold interest for 998
Second Avenue

14. 100% of the interest in I5NO, LLC which owns the leasehold interest for
994 Second Avenue

B-1

<PAGE>

15. The fee interest in 30 East End Avenue

16. The fee interest in 192 East 75th Street

17. 100% of the interest in NX Cellphone LLC which owns the fee interest in 30
West End Avenue

18. 100% of the interest in KAM West 60th Street Associates, L.P. which owns
the fee interest in 20 West End Avenue

19. The contract right to purchase 150 Fifth Avenue

20. The contract right to purchase 1412 Broadway

21. 100% of the interest in 250 East 60th Street Co., L.P. which owns the fee
interest in 250 East 60th Street

22. 100% of the interest in RATL, LLC which owns the fee interest in 306
Madison Avenue

23. 100% of the fee interest in 787-791 Sixth Avenue

24. 79% of the interest in LLIW, LLC which owns a mortgage note secured by 300
Madison Avenue

25.. 100% of the interest in 400 Madison, LLC which owns the fee interest in
400 Madison Avenue

26. The contract right to purchase 16-18 East 53rd Street

27. 100% of the interest in NIPM LLC which owns the fee interest in 342
Madison Avenue

28. The contract option to a ground interest in 20 East 53rd Street.

B-2

<PAGE>

EXHIBIT C

EXCLUDED INTERESTS

1. 50% interest in Rivertower

2. 50% interest in 865 First Avenue

3. 800 Madison Avenue

4. 130 East 40th Street

5. 31 East 28th Street

6. 3 East 66th Street

7. 245 Seventh Avenue

8. Development condominium project on East 76th and Lexington Avenue

9. 1018 Lexington Avenue

C-1

<PAGE>

EXHIBIT D

ASSET ENTITIES

1. 125 West 55th Street, LLC

2. 140 West 57th Street Corp.

3. 369 Lexington Avenue Co., L.P.

4. Regent Holding LLC

5. 540 Acquisition Co., LLC

6. Purcel Woodward & Ames, LLC

7. York 72 Associates, L.P.

8. Formerly Maxwells, LLC

9. 40 West 55th LLC

10. 308 East 53 LLC

11. 1000 Second Avenue, LLC

12. 907 M LLC

13. YNDA LLC

14. 15NO, LLC

15. 81st-30 East End Avenue Company

16. 192 East 75th Street Co., L.P.

17. NX Cellphone LLC

18. KAM West 60th Street Associates, L.P.

19. Macklowe Properties, Inc.

D-1

<PAGE>

20. AZIW LLC

21. RATL, LLC

22. 250 East 60th Street Co., L.P.

23. P.A.L.W., LLC

24. Hew-Rad Realty Corp.

25. Manhattan Pacific Management Co., Inc.

26. 400 Madison Avenue, LLC

27. LLIW, LLC

28. NIPM, LLC

D-2

<PAGE>

EXHIBIT E

PERMITTED ENCUMBRANCES

E-1

<PAGE>

EXHIBIT F

AGREEMENT OF LIMITED PARTNERSHIP OF
THE OPERATING PARTNERSHIP

F-1

<PAGE>

EXHIBIT G

INVESTOR QUESTIONNAIRE

ACCREDITED INVESTOR QUESTIONNAIRE AND REPRESENTATION LETTER

The information being requested is required in order to determine whether you
will qualify as an "accredited investor" pursuant to Regulation D of the
Securities Act of 1933, as amended (the "Securities Act").

You understand that this questionnaire is merely a request for information and
is not an offer to sell or a solicitation of an offer to buy securities. ALL
INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED CONFIDENTIALLY.

The undersigned qualifies as an "accredited investor" pursuant to Regulation D
under the Securities Act (check the appropriate description(s)):

____ a) A trust with total assets in excess of US$5 million not formed for
the specific purpose of investing in the Macklowe Properties, Inc. a
Maryland corporation (the "REIT"), or any of its subsidiaries, whose
purchase is directed by a person with such knowledge and experience
in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the REIT or any of its
subsidiaries;

____ b) An employee benefit plan within the meaning of ERISA if the decision
to invest in the REIT or any of its subsidiaries is made by a plan
fiduciary, as defined in Section 3(21) of ERISA, which is either a
bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has
total assets in excess of US$5 million or, if a self directed plan,
with investment decisions made solely by persons that are accredited
investors;

____ c) a natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with his or her
spouse in excess of $300,000 in each of those years and who
reasonably expects to reach the same income level in the current
year;

NOTE: FOR THIS PURPOSE, "INDIVIDUAL INCOME" MEANS ADJUSTED GROSS
INCOME, AS REPORTED FOR FEDERAL INCOME TAX PURPOSES, LESS ANY
INCOME ATTRIBUTABLE TO A SPOUSE OR TO PROPERTY OWNED BY A SPOUSE,
INCREASED BY THE FOLLOWING AMOUNTS (BUT NOT INCLUDING ANY AMOUNTS
ATTRIBUTABLE TO A SPOUSE OR TO PROPERTY OWNED BY A SPOUSE): (I)
THE AMOUNT OF ANY EXCLUSION FOR TAX-EXEMPT INTEREST UNDER SECTION
103 OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"), (II) THE
AMOUNT OF ANY LOSSES CLAIMED AS A LIMITED PARTNER IN A

G-1

<PAGE>

LIMITED PARTNERSHIP AS REPORTED ON SCHEDULE E OF FORM 1040, (III)
THE AMOUNT OF ANY DEDUCTION, INCLUDING THE ALLOWANCE FOR
DEPLETION, UNDER SECTION 611, ET SEQ., OF THE CODE AND (IV) THE
AMOUNT OF ANY DEDUCTION FOR LONG-TERM CAPITAL GAINS UNDER SECTION
1202 OF THE CODE.

____ d) a natural person whose individual net worth, or joint net worth with
his or her spouse, exceeds $1,000,000; or

NOTE: FOR THIS PURPOSE, "INDIVIDUAL NET WORTH" MEANS THE EXCESS OF
TOTAL ASSETS AT FAIR MARKET VALUE (INCLUDING PRINCIPAL RESIDENCE)
OVER TOTAL LIABILITIES.

____ e) Any entity in which all of the equity owners are accredited
investors.

Signature: ________________________ Dated: _____________, 1998

Name: ________________________

Address: ________________________

________________________

Social Security No.: ___________________

G-2

<PAGE>

EXHIBIT H

REGISTRATION RIGHTS AGREEMENT

H-1

<PAGE>

EXHIBIT I

DESIGNATED PROPERTIES

PROPERTY LENGTH

I-1

<PAGE>

EXHIBIT J

MAINTENANCE OF INDEBTEDNESS

CONTRIBUTOR DEBT ALLOCATION

Harry Macklowe To Be Agreed Upon By the
Contributors and the Operating
Partnership to the Final
Closing

Warren Cole To Be Agreed Upon By the
Contributors and the Operating
Partnership to the Final
Closing

William Macklowe To Be Agreed Upon By the
Contributors and the Operating
Partnership to the Final
Closing

Linda Macklowe To Be Agreed Upon By the
Contributors and the Operating
Partnership to the Final
Closing

I-2

<PAGE>

Exhibit 10(e)

AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
MACKLOWE PROPERTIES, L.P.

Dated as of ____________, 1998
<PAGE>

TABLE OF CONTENTS

Page

ARTICLE 1
DEFINED TERMS...............................2

ARTICLE 2
ORGANIZATIONAL MATTERS..........................14
Section 2.1 Formation............................................14
Section 2.2 Name.................................................14
Section 2.3 Registered Office and Agent; Principal Office........15
Section 2.4 Power of Attorney....................................15
Section 2.5 Term.................................................16

ARTICLE 3
PURPOSE.................................16
Section 3.1 Purpose and Business.................................16
Section 3.2 Powers...............................................17
Section 3.3 Partnership Only for Purposes Specified..............17

ARTICLE 4
CAPITAL CONTRIBUTIONS..........................18
Section 4.1 Capital Contributions of the Partners................18
Section 4.2 Issuances of Additional Partnership Interests........19
Section 4.3 Contribution of Proceeds of Issuance of REIT Shares..20
Section 4.4 No Interest on Capital...............................20
Section 4.5 No Other Contribution Provisions.....................20
Section 4.6 No Preemptive Rights.................................21

ARTICLE 5
DISTRIBUTIONS...............................21
Section 5.1 Requirement and Characterization of Distributions....21
Section 5.2 Amounts Withheld.....................................21
Section 5.3 Distributions upon Liquidation.......................22
Section 5.4 Revisions to Reflect Issuance of Additional
Partnership Interests ...............................22
Section 5.5 Minimum Distributions If REIT Shares Not Publicly
Traded ..............................................22

ARTICLE 6
ALLOCATIONS OF PROFITS AND LOSSES....................22
Section 6.1 Profits and Losses...................................22

i
<PAGE>

Section 6.2 Mandatory Allocations................................22
Section 6.3 Other Allocation Rules...............................24
Section 6.4 Tax Allocations......................................24

ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS..................25
Section 7.1 Management...........................................25
Section 7.2 Certificate of Limited Partnership...................29
Section 7.3 Restrictions on General Partner Authority............30
Section 7.4 Reimbursement of the General Partner and the
General Partner; DRIP's and Repurchase Programs......30
Section 7.5 Outside Activities of the General Partner............32
Section 7.6 Contracts with Affiliates............................32
Section 7.7 Indemnification......................................33
Section 7.8 Liability of the General Partner.....................35
Section 7.9 Other Matters Concerning the General Partner.........36
Section 7.10 Title to Partnership Assets..........................37
Section 7.11 Reliance by Third Parties............................37

ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS................38
Section 8.1 Limitation of Liability..............................38
Section 8.2 Management of Business...............................38
Section 8.3 Outside Activities of Limited Partners...............38
Section 8.4 Return of Capital....................................39
Section 8.5 Rights of Limited Partners Relating to the
Partnership .........................................39
Section 8.6 Redemption Rights....................................40
Section 8.7 Intentionally Omitted................................43
Section 8.8 Class B Exchange Right...............................43

ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS..................43
Section 9.1 Records and Accounting...............................43
Section 9.2 Fiscal Year..........................................43
Section 9.3 Reports..............................................43

ARTICLE 10
TAX MATTERS...............................44
Section 10.1 Preparation of Tax Returns...........................44
Section 10.2 Tax Elections........................................44
Section 10.3 Tax Matters Partner..................................45
Section 10.4 Organizational Expenses..............................46

ii
<PAGE>

Page

Section 10.5 Withholding..........................................46

ARTICLE 11
TRANSFERS AND WITHDRAWALS........................47
Section 11.1 Transfer.............................................47
Section 11.2 Transfer of the General Partner Interest and
General Partner's Limited Partner Interest;
Extraordinary Transactions...........................48
Section 11.3 Limited Partners' Rights to Transfer.................49
Section 11.4 Substituted Limited Partners.........................50
Section 11.5 Assignees............................................51
Section 11.6 General Provisions...................................51

ARTICLE 12
ADMISSION OF PARTNERS..........................54
Section 12.1 Admission of Successor General Partner...............54
Section 12.2 Admission of Additional Limited Partners.............54
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership .........................................55

ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION.................55
Section 13.1 Dissolution..........................................55
Section 13.2 Winding-Up...........................................56
Section 13.3 Deemed Distribution and Recontribution...............58
Section 13.4 Rights of Limited Partners...........................58
Section 13.5 Notice of Dissolution................................58
Section 13.6 Termination of Partnership and Cancellation of
Certificate of Limited Partnership...................58
Section 13.7 Reasonable Time for Winding-Up.......................59
Section 13.8 Waiver of Partition..................................59
Section 13.9 Liability of Liquidator..............................59

ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS...............59
Section 14.1 Amendments...........................................59
Section 14.2 Meetings of the Partners.............................61

ARTICLE 15
GENERAL PROVISIONS............................62
Section 15.1 Addresses and Notice.................................62
Section 15.2 Titles and Captions..................................62

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Page

Section 15.3 Pronouns and Plurals.................................62
Section 15.4 Further Action.......................................62
Section 15.5 Binding Effect.......................................62
Section 15.6 Creditors............................................63
Section 15.7 Waiver...............................................63
Section 15.8 Counterparts.........................................63
Section 15.9 Applicable Law.......................................63
Section 15.10 Invalidity of Provisions.............................63
Section 15.11 Entire Agreement.....................................64
Section 15.12 No Rights as Stockholders............................64

EXHIBITS

Exhibit A - Partner's Contributions and Partnership Interests
Exhibit B - Notice of Redemption

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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
MACKLOWE PROPERTIES, L.P.

Dated as of ___________, 1998

THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") of MACKLOWE PROPERTIES, L.P., a Delaware limited partnership (the
"Partnership") , dated as of _____________, 1998, is entered into by and among
MACKLOWE PROPERTIES, INC., a Maryland corporation (the "General Partner"), and
the Persons (as defined below) whose names are set forth on Exhibit A attached
hereto under the heading "Limited Partners" (as it may be amended from time to
time).

WHEREAS, this Partnership was originally formed on March 25, 1998;

WHEREAS, immediately prior to or contemporaneously with the execution
hereof, the persons named on Exhibit A hereto conveyed to the Partnership all of
their right, title and interest to certain real properties, direct and indirect
interests in such properties and other assets owned by them and received in
exchange therefor Partnership Interests (as defined below) and, accordingly, the
parties would like to amend and restate the original partnership agreement of
this Partnership;

WHEREAS, the General Partner proposes (i) to effect a public offering of
its common stock, (ii) to acquire and cause the Partnership to acquire direct
and indirect interests in certain properties and other assets, (iii) to cause
the Partnership to enter into certain financing arrangements and (iv) to
contribute the remaining net proceeds from the public offering and the other
assets of the General Partner to the Partnership;

WHEREAS, the Partnership will issue Partnership Interests to the General
Partner in accordance with the foregoing transactions;

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

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ARTICLE 1
DEFINED TERMS

The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.

"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.

"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Sections 4.2 and 12.2 hereof and who is shown as
such on the books and records of the Partnership.

"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Partnership Year, after giving effect to the following adjustments:

(i) Credit to such Capital Account any amounts which such
Partner is obligated to restore to the Partnership pursuant to any
provision of this Agreement or is deemed to be obligated to restore to the
Partnership pursuant to the second to last sentences of Regulations ss.ss.
1.704-2(g)(1) and 1.704-2(i)(5).

(ii) Debit to such Capital Account the items described in
Regulations ss.ss. 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

Except as otherwise modified herein, the foregoing definition of Adjusted
Capital Account Deficit is intended to comply with the provisions of Regulations
ss. 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

"Administrative Expenses" means (i) all administrative and operating costs
and expenses incurred by the Partnership, (ii) those administrative costs and
expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner, and any accounting and
legal expenses of the General Partner, which expenses, the Partners have agreed,
are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, REIT Expenses.

"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with such Person.
For purposes of this definition, "control," when used with respect to any
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. No officer, director or stockholder of
the General

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Partner shall be considered an Affiliate of the General Partner solely as a
result of serving in such capacity or being a stockholder of the General
Partner.

"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be further amended, supplemented or restated from time to
time.

"Articles of Incorporation" means the Articles of Incorporation or other
organizational document governing the General Partner, as amended or restated
from time to time.

"Assignee" means a Person to whom one or more Partnership Units have been
transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner, and who has the rights set forth in Section 11.5.

"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York, are authorized or required by law
to close.

"Capital Account" means, with respect to each Partner, a book account
maintained in accordance with the following provisions:

(i) To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of Profits
and any items in the nature of income or gain which are allocated to such
Partner pursuant to Section 6.2, and the amount of any Partnership liabilities
that are assumed by such Partner or that are secured by any Partnership property
distributed to such Partner.

(ii) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership asset distributed to
such Partner pursuant to any provision of this Agreement, such Partner's
distributive share of Losses and any items in the nature of expenses and losses
which are allocated to such Partner pursuant to Section 6.2, and the amount of
any liabilities of such Partner that are assumed by the Partnership or which are
secured by any property contributed to the Partnership by such Partner (except
to the extent already reflected in the amount of such Partner's Capital
Contributions).

If the Gross Asset Value of Partnership assets are adjusted pursuant to
paragraph (ii), (iii) or (iv) of the definition of Gross Asset Value, the
Capital Accounts of the Partners shall be adjusted to reflect the aggregate net
adjustments as if the Partnership sold all of its assets for their fair market
values, and recognized gain or loss equal to the aggregate amount of such net
adjustment.

The foregoing definition and other provisions of this Agreement relating
to the maintenance of Capital Accounts are intended to comply with Code ss.
704(b) and the

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Regulations thereunder, and shall be interpreted and applied in a manner
consistent with such regulations.

Any transferee of a Partnership Interest or a portion thereof shall
succeed to the Capital Account relating to the Partnership Interest transferred
or the corresponding portion thereof.

"Capital Contributions" means, with respect to any Partner, the amount of
cash and the initial Gross Asset Value of any other property contributed or
deemed contributed to the capital of the Partnership by or on behalf of such
Partner, reduced by the amount of any liability assumed by the Partnership
relating to such property and any liability to which such property is subject.

"Cash Amount" means an amount of cash per Partnership Unit equal to the
Value on the Valuation Date of the REIT Shares Amount.

"Certificate of Limited Partnership" means the Certificate of Limited
Partnership relating to the Partnership filed in the office of the Delaware
Secretary of State, as amended from time to time in accordance with the terms
hereof and the Act.

"Class B Limited Partner" means any Limited Partner named as a Class B
Limited Partner under the heading "Class B Limited Partners" on Exhibit A
attached hereto.

"Class B Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued to Class B Limited Partners
pursuant to Sections 4.1, 4.2 and 4.3. The number of Class B Partnership Units
outstanding and the Percentage Interest in the Partnership represented by such
Units are set forth in Exhibit A attached hereto, as such Exhibit may be amended
from time to time. The ownership of Class B Partnership Units shall be evidenced
by such form of certificate for units as the General Partner adopts from time to
time unless the General Partner determines that the Class B Partnership Units
shall be uncertificated securities.

"Class B Redeeming Partner" has the meaning set forth in Section 8.6.B.

"Class B Redemption Right" has the meaning set forth in Section 8.6.B.

"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.

"Common Limited Partner" means any Limited Partner named as a Common
Limited Partner under the heading "Common Limited Partners" on Exhibit A
attached hereto.

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<PAGE>

"Common Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued to Common Limited Partners pursuant
to Sections 4.1, 4.2 and 4.3. The number of Common Partnership Units outstanding
and the Percentage Interest in the Partnership represented by such Units are set
forth in Exhibit A attached hereto, as such Exhibit may be amended from time to
time. The ownership of Common Partnership Units shall be evidenced by such form
of certificate for units as the General Partner adopts from time to time unless
the General Partner determines that the Common Partnership Units shall be
uncertificated securities.

"Common Redeeming Partner" has the meaning set forth in Section 8.6.A.

"Common Redemption Right" has the meaning set forth in Section 8.6.A.

"Consent" means the consent or approval of a proposed action by a Partner
given in accordance with Section 14.2 hereof.

"Conversion Factor" means 1.0; provided, that if the General Partner (i)
declares or pays a dividend on its outstanding REIT Shares in REIT Shares or
makes a distribution to all holders of its outstanding REIT Shares in REIT
Shares; (ii) subdivides its outstanding REIT Shares; or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purpose that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination. Any adjustment to the Conversion Factor shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event (provided, however, if a Notice of
Redemption is given prior to such a record date and the Specified Redemption
Date is after such a record date, then the adjustment to the Conversion Factor
shall, with respect to such redeeming Partner, be retroactive to the date of
such Notice of Redemption). It is intended that adjustments to the Conversion
Factor are to be made in order to avoid unintended dilution or anti-dilution as
a result of transactions in which REIT Shares are issued, redeemed or exchanged
without a corresponding issuance, redemption or exchange of Partnership Units.
If, prior to a Specified Redemption Date, Rights (other than Rights issued
pursuant to an employee benefit plan or other compensation arrangement) were
issued and have expired, and such Rights were issued with an exercise price
that, together with the purchase price for such Rights, was below fair market
value in relation to the security or other property to be acquired upon the
exercise of such Rights, and such Rights were issued to all holders of
outstanding REIT Shares or the General Partner cannot in good faith represent
that the issuance of such Rights benefitted the Limited Partners, then the
Conversion Factor applicable upon a Notice of Redemption shall be

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<PAGE>

equitably adjusted in a manner consistent with antidilution provisions in
warrants and other instruments in the case of such a below market issuance or
exercise price. A similar equitable adjustment to protect the value of
Partnership Units shall be made in all events if any Rights issued under a
"Shareholder Rights Plan" became exercisable and expired prior to a Specified
Redemption Date.

"Debt" means, as to any Person, as of any date of determination, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person, (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (iv) obligations of such Person
incurred in connection with entering into a lease which, in accordance with
generally accepted accounting principles, should be capitalized.

"Depreciation" means, for each Partnership Year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
Partnership Year or other period; provided, however, that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Partnership Year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization, or other cost
recovery deduction for such Partnership Year or other period bears to such
beginning adjusted tax basis; provided, further, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such
Partnership Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
General Partner.

"Effective Date" means the date of closing the initial public offering of
REIT Shares by the General Partner.

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

"Exchange Right" has the meaning set forth in Section 8.8

"Extraordinary Transaction" shall mean, with respect to the General
Partner, the occurrence of one or more of the following events: (i) a merger
(including a triangular merger), consolidation or other combination with or into
another Person; (ii) the direct or indirect sale, lease, exchange or other
transfer of all or substantially all of its assets in one transaction or a
series of transactions; (iii) any reclassification, recapitalization or change
of its

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<PAGE>

outstanding equity interests (other than a change in par value, or from par
value to no par value, or as a result of a split, dividend or similar
subdivision); (iv) any issuance of equity securities of the General Partner in
exchange for assets (other than an issuance of securities for cash or an
issuance of securities pursuant to an employee benefit plan); (v) any Change of
Control (as defined in the Articles of Incorporation) or (vi) the adoption of
any plan of liquidation or dissolution of the General Partner (whether or not in
compliance with the provisions of this Agreement).

"General Partner" means Macklowe Properties, Inc., a Maryland corporation,
in its capacity as the general partner of the Partnership, or its successors as
general partner of the Partnership.

"General Partner Interest" means a Partnership Interest held by the
General Partner, in its capacity as general partner. A General Partner Interest
may be expressed as a number of Partnership Units.

"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:

(i) The initial Gross Asset Value of any asset contributed by a Partner to
the Partnership shall be the gross fair market value of such asset at the time
of contribution, as reasonably determined by the General Partner;

(ii) The Gross Asset Values of all Partnership Assets shall be adjusted to
equal their respective gross fair market values, as reasonably determined by the
General Partner, as of the following times: (a) the acquisition of an additional
interest in the Partnership by any new or existing Partner in exchange for more
than a de minimis Capital Contribution; (b) the distribution by the Partnership
to a Partner of more than a de minimis amount of property as consideration for
an interest in the Partnership; and (c) the liquidation of the Partnership
within the meaning of Regulations ss. 1.704-1(b)(2)(ii)(g); provided, however,
that adjustments pursuant to clauses (a) and (b) above shall be made only if the
General Partner reasonably determine that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Partners in the
Partnership;

(iii) The Gross Asset Value of any Partnership Asset distributed to any
Partner shall be the gross fair market value of such asset on the date of
distribution; and

(iv) The Gross Asset Values of Partnership Assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code ss. 734(b) or Code ss. 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Regulations ss. 1.704-1(b)(2)(iv)(m).

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<PAGE>

If the Gross Asset Value of an asset has been determined or adjusted pursuant to
this provision, such Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for purposes of
computing Profits and Losses. Any adjustment to the Gross Asset Values of
Partnership Assets shall require an adjustment to the Partner's Capital Account
as provided in the definition of Profits and Losses and in Section 6.2 hereof.

"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his or her Person or estate; (ii) as to
any corporation which is a Partner, the filing of a certificate of dissolution,
or its equivalent, for the corporation or the revocation of its charter; (iii)
as to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner; (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors; (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above; (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties; (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof; (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within one hundred twenty (120) days
of such appointment; or (h) an appointment referred to in clause (g) which has
been stayed is not vacated within one hundred twenty (120) days after the
expiration of any such stay.

"Indemnitee" means (i) any Person made a party to a proceeding by reason
of (A) his status as the General Partner, or as a stockholder or Affiliate of
the General Partner, or as a director, officer or employee of the Partnership,
the General Partner or any such stockholder or Affiliate of the General Partner,
or (B) his or its liabilities, pursuant to a loan guarantee or otherwise, for
any indebtedness of the Partnership or any Subsidiary of the Partnership
(including, without limitation, any indebtedness which the Partnership or any
Subsidiary of the Partnership has assumed or taken assets subject to); and (ii)
such other Persons (including Affiliates of the General Partner or the
Partnership) as the General Partner may designate from

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<PAGE>

time to time (whether before or after the event giving rise to potential
liability), in its sole and absolute discretion.

"Independent Directors" has the meaning given such term in the Articles of
Incorporation.

"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.

"Limited Partner" means any Person (including the General Partner) named
as a Limited Partner in Exhibit A attached hereto (whether a Common Limited
Partner or a Class B Limited Partner), as such Exhibit may be amended from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Limited Partner of the Partnership.

"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled, as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.

"Liquidating Events" has the meaning set forth in Section 13.1.

"Liquidator" has the meaning set forth in Section 13.2.

"Losses" has the meaning set forth in the definition of "Profits" and
"Losses."

"Nonrecourse Deductions" has the meaning set forth in Regulations ss.
1.704-2(b)(1). The amount of Nonrecourse Deductions for a Partnership Year
equals the net increase, if any, in the amount of Partnership Minimum Gain
during such Partnership Year reduced by any distributions during such
Partnership Year of proceeds of a Nonrecourse Liability that are allocable to an
increase in Partnership Minimum Gain, determined according to the provisions of
Regulations ss.ss. 1.704-2(c) and 1.704-2(h).

"Nonrecourse Liability" has the meaning set forth in Regulations ss.
1.704-2(b)(3).

"Notice of Redemption" means the Notice of Redemption substantially in the
form of Exhibit B to this Agreement.

"Partner" means the General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.

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<PAGE>

"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations ss. 1.704-2(i)(3).

"Partner Nonrecourse Debt" has the meaning set forth in Regulations ss.
1.704-2(b)(4).

"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
ss. 1.704- 2(i)(2). The amount of Partner Nonrecourse Deductions with respect to
a Partner Nonrecourse Debt for a Partnership Year equals the net increase, if
any, in the amount of Partner Minimum Gain during such Partnership Year
attributable to such Partner Nonrecourse Debt, reduced by any distributions
during that Partnership Year to the Partner that bears the economic risk of loss
for such Partner Nonrecourse Debt to the extent that such distributions are from
the proceeds of such Partner Nonrecourse Debt and are allocable to an increase
in Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined according to the provisions of Regulations ss.ss. 1.704-2(h) and
1.704-2(i).

"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, as it may be amended and/or restated, and any
successor thereto.

"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.

"Partnership Minimum Gain" has the meaning set forth in Regulations ss.
1.704-2(d).

"Partnership Record Date" means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.1 hereof, which
record date shall be the same as the record date established by the General
Partner for a distribution to its stockholders of some or all of its portion of
such distribution.

"Partnership Unit" or "Unit" means a fractional, undivided share of the
Partnership Interests of all Partners (including Class B Partnership Units and
Common Partnership Units) issued pursuant to Sections 4.1, 4.2 and 4.3. The
number of Partnership Units outstanding and the Percentage Interest in the
Partnership represented by such Units are set forth in Exhibit A attached
hereto, as such Exhibit may be amended from time to time. The ownership of
Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities.

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<PAGE>

"Partnership Year" means the fiscal year of the Partnership, which shall
be the calendar year.

"Percentage Interest" means, as to a Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit may be amended from time
to time.

"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.

"Profits" and "Losses" means, for each Partnership Year or other period,
an amount equal to the Partnership's taxable income or loss for such Partnership
Year or period, determined in accordance with Code ss. 703(a) (for this purpose,
all items of income, gain, loss, or deduction required to be stated separately
pursuant to Code ss. 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:

(i) Any income of the Partnership that is exempt from federal
income tax or excluded from federal gross income and not otherwise taken
into account in computing Profits or Losses pursuant to this Section shall
be added to such taxable income or loss;

(ii) Any expenditures of the Partnership described in Code ss.
705(a)(2)(B) or treated as Code ss. 705(a)(2)(B) expenditures pursuant to
Regulations ss. 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this Section, shall be
subtracted from such taxable income or loss;

(iii) If the Gross Asset Value of any Partnership Asset is
adjusted pursuant to any provision of this Agreement in accordance with
the definition of Gross Asset Value, the amount of such adjustment shall
be taken into account as gain or loss from the disposition of such Asset
for purposes of computing Profits or Losses;

(iv) Gain or loss resulting from any disposition of any
Partnership Asset with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the Gross
Asset Value of the property disposed of, notwithstanding that the adjusted
tax basis of such Asset differs from its Gross Asset Value;

(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Partnership
Year or other period, computed in accordance with the definition of
Depreciation; and

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<PAGE>

(vi) Notwithstanding any other provision of this Section, any
items which are allocated pursuant to Section 6.2 shall not be taken into
account in computing Profits or Losses.

"Publicly Traded" means listed or admitted to trading on the New York
Stock Exchange, the American Stock Exchange or another national securities
exchange or designated for quotation on the NASDAQ National Market, or any
successor to any of the foregoing.

"Redeeming Partner" means either a Common Redeeming Partner or a Class B
Redeeming Partner.

"Redemption Right" means either the Common Redemption Right or the Class B
Redemption Right.

"Regulations" means the Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).

"REIT" means a real estate investment trust under Section 856 of the Code.

"REIT Expenses" means (i) costs and expenses relating to the formation and
continuity of existence and operation of the General Partner and any
Subsidiaries (which Subsidiaries shall, for purposes hereof, be included within
the definition of General Partner), including taxes, fees and assessments
associated therewith, and any and all costs, expenses or fees payable to any
director, officer, or employee of the General Partner, (ii) costs and expenses
relating to the public offering and registration of securities by the General
Partner and all statements, reports, fees and expenses incidental thereto,
including underwriting discounts and selling commissions applicable to any such
offering of securities, (iii) costs and expenses associated with the preparation
and filing of any periodic reports by the General Partner under federal, state
or local laws or regulations, (iv) costs and expenses associated with compliance
by the General Partner with laws, rules and regulations promulgated by any
regulatory body and (v) all other operating or administrative costs of the
General Partner incurred in the ordinary course of its business on behalf of or
in connection with the Partnership.

"REIT Share" shall mean a share of common stock, par value $.001 per
share, of the General Partner.

"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor in effect on the date of receipt by
the General Partner of a Notice of Redemption; provided, that if the General
Partner issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the stockholders to

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<PAGE>

subscribe for or purchase REIT Shares, or any other securities or property
(collectively, "Rights"), and the Rights have not expired at the Specified
Redemption Date, then the REIT Shares Amount shall also include the Rights that
were issuable to a holder of the REIT Shares Amount of REIT Shares on the
applicable record date relating to the issuance of such Rights.

"Rights" has the meaning set forth in the definition of "REIT Shares
Amount."

"Specified Redemption Date" means the tenth (10th) Business Day after
receipt by the General Partner of a Notice of Redemption; provided, that no
Specified Redemption Date shall occur before that date that is (i) six (6)
months after the Effective Date in the case of a Class B Redemption Right, or
(ii) twelve (12) months after the Effective Date in case of a Common Redemption
Right; provided, further, that if the General Partner combines its outstanding
REIT Shares, no Specified Redemption Date shall occur after the record date of
such combination of REIT Shares and prior to the effective date of such
combination.

"Stock Option Plan" means any stock incentive plan of the General Partner,
the Partnership or any Affiliate of the Partnership or the General Partner.

"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities; or (ii) the outstanding equity interests, is owned,
directly or indirectly, by such Person.

"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4.

"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.

"Unit" has the meaning set forth in the definition of "Partnership Unit."

"Valuation Date" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.

"Value" means, with respect to a REIT Share, the average of the daily
market price for the ten (10) consecutive trading days immediately preceding the
Valuation Date. The market price for each such trading day shall be: (i) if the
REIT Shares are listed or admitted to trading on any securities exchange or the
Nasdaq National Market System, the closing price on such day, or if no such sale
takes place on such day, the average of the closing bid and asked prices on such
day; (ii) if the REIT Shares are not listed or admitted to trading on any
securities exchange or the Nasdaq National Market System, the last reported sale
price on such day or, if

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no sale takes place on such day, the average of the closing bid and asked prices
on such day, as reported by a reliable quotation source designated by the
General Partner; or (iii) if the REIT Shares are not listed or admitted to
trading on any securities exchange or the Nasdaq National Market System and no
such last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reliable quotation source designated by the General Partner, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than ten (10)
days prior to the date in question) for which prices have been so reported;
provided, that if there are no bid and asked prices reported during the ten (10)
days prior to the date in question, the Value of the REIT Shares shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate. If the REIT Shares Amount includes Rights, then the Value of such
Rights shall be determined by the General Partner acting in good faith on the
basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate; provided, that the Value of any Rights issued
pursuant to a "Shareholder Rights Plan" shall be deemed to have no value unless
a "triggering event" shall have occurred (i.e., if the Rights issued pursuant
thereto are no longer "attached" to the REIT Shares and are able to trade
independently).

ARTICLE 2
ORGANIZATIONAL MATTERS

Section 2.1 Formation

The Partnership is a limited partnership organized pursuant to the
provisions of the Act. The Partners hereby agree to continue the Partnership
upon the terms and conditions set forth in this Agreement. Except as expressly
provided herein to the contrary, the rights and obligations of the Partners and
the administration and termination of the Partnership shall be governed by the
Act. The Partnership Interest of each Partner shall be personal property for all
purposes.

Section 2.2 Name

The name of the Partnership is "Macklowe Properties, L.P." The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.

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Section 2.3 Registered Office and Agent; Principal Office

The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is Corporation Service Company, 1013
Centre Road, Wilmington, Delaware 19805-1297. The principal office of the
Partnership shall be 142 West 57th Street, New York, NY 10019, or such other
place as the General Partner may from time to time designate by notice to the
Limited Partners. The Partnership may maintain offices at such other place or
places within or outside the State of Delaware as the General Partner deems
advisable.

Section 2.4 Power of Attorney

A. Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:

(a) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate of Limited Partnership and all amendments or restatements
thereof) that the General Partner or the Liquidator deems appropriate or
necessary to form, qualify or continue the existence or qualification of
the Partnership as a limited partnership (or a partnership in which the
Limited Partners have limited liability) in the State of Delaware and in
all other jurisdictions in which the Partnership may or plans to conduct
business or own property; (b) all instruments that the General Partner
deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its
terms; (c) all conveyances and other instruments or documents that the
General Partner or the Liquidator deems appropriate or necessary to
reflect the dissolution and liquidation of the Partnership pursuant to the
terms of this Agreement, including, without limitation, a certificate of
cancellation; (d) all instruments relating to the admission, withdrawal,
removal or substitution of any Partner pursuant to, or other events
described in, Article 11, 12 or 13 hereof or the Capital Contribution of
any Partner; and (e) all certificates, documents and other instruments
relating to the determination of the rights, preferences and privileges of
Partnership Interests; and

(b) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner or any Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is
made or given by the Partners hereunder or is consistent with the terms of
this

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Agreement or appropriate or necessary, in the sole discretion of the
General Partner or any Liquidator, to effectuate the terms or intent of
this Agreement.

Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.

B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.

Section 2.5 Term

The term of the Partnership commenced on March 25, 1998, the date on which
the Certificate of Limited Partnership was filed in the office of the Secretary
of State of the State of Delaware, and shall continue until December 31, 2048,
unless the Partnership is dissolved sooner pursuant to the provisions of Article
13 or as otherwise provided by law.

ARTICLE 3
PURPOSE

Section 3.1 Purpose and Business

The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act; (ii) to enter into any partnership,
joint venture, limited liability company or other similar arrangement to engage
in any of the foregoing or to own interests in any entity

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<PAGE>

engaged, directly or indirectly, in any of the foregoing; and (iii) to do
anything necessary or incidental to the foregoing; provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner at all times to be classified as a REIT, unless the General
Partner ceases to qualify as a REIT for reasons other than the conduct of the
business of the Partnership. In connection with the foregoing, and without
limiting the General Partner's right, in its sole discretion, to cease
qualifying as a REIT, the Partners acknowledge the General Partner's current
status as a REIT inures to the benefit of all of the Partners and not solely the
General Partner.

Section 3.2 Powers

The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership, including, without limitation, full
power and authority, directly or through its ownership interest in other
entities, to enter into, perform and carry out contracts of any kind, borrow
money and issue evidences of indebtedness whether or not secured by mortgage,
deed of trust, pledge or other lien, acquire, own, manage, improve and develop
real property, and lease, sell, transfer and dispose of real property; provided,
however, that the Partnership shall not take, or refrain from taking, any action
which, in the judgment of the General Partner, in its sole and absolute
discretion, (i) could adversely affect the ability of the General Partner to
continue to qualify as a REIT; (ii) could subject the General Partner to any
additional taxes under Section 857 or Section 4981 of the Code; or (iii) could
violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.

Section 3.3 Partnership Only for Purposes Specified

The Partnership shall be a partnership only for the purposes specified in
Section 3.1 above, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 above.

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ARTICLE 4
CAPITAL CONTRIBUTIONS

Section 4.1 Capital Contributions of the Partners

A. Initial Capital Contributions and Recapitalization of the Partnership
on the Effective Date. The General Partner and certain Limited Partners have
previously made Capital Contributions to the Partnership upon its formation. On
the Effective Date, the General Partner, as general partner, shall contribute
additional cash or other assets to the Partnership so that its total
contribution, as general partner, shall be the amount set forth on Exhibit A
under the heading "General Partner." On the Effective Date the General Partner,
as a limited partner, and the other Persons listed on Exhibit A will make
Capital Contributions to the Partnership so that their total contributions as
Limited Partners shall be the amount set forth opposite their names on Exhibit A
under the heading "Limited Partners." The General Partner will complete Exhibit
A to reflect the Capital Contributions made by each Partner, the Partnership
Units assigned to each Partner and the Percentage Interest in the Partnership
represented by such Partnership Units. The Capital Accounts of the Partners and
the Gross Asset Values of the Partnership's Assets shall be determined as of the
Effective Date to reflect the Capital Contributions made prior to and on the
Effective Date.

B. General Partnership Interest. A number of Partnership Units held by the
General Partner equal to one percent (1%) of all outstanding Partnership Units
shall be deemed to be the General Partner Partnership Units and shall be the
General Partnership Interest. All other Partnership Units held by the General
Partner shall be deemed to be Limited Partnership Interests and shall be held by
the General Partner in its capacity as a Limited Partner in the Partnership.

C. Capital Contributions by Merger. To the extent the Partnership acquires
any property by the merger of any other Person into the Partnership, Persons who
receive Partnership Interests in exchange for their interests in the Person
merging into the Partnership shall become Partners and shall be deemed to have
made Capital Contributions as provided in the applicable merger agreement and as
set forth in Exhibit A, as amended to reflect such deemed Capital Contributions.

D. No Obligation to Make Additional Capital Contributions. Each Partner
shall own the number of Partnership Units set forth for such Partner in Exhibit
A and shall have a Percentage Interest in the Partnership as set forth in
Exhibit A, which Percentage Interest shall be adjusted in Exhibit A from time to
time by the General Partner to the extent necessary to reflect accurately
redemptions, additional Capital Contributions, the issuance of additional
Partnership Units (pursuant to any merger or otherwise), or similar events
having an effect on any Partner's Percentage Interest. Except as provided in
Sections 4.2, 10.5 or elsewhere in

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this Agreement, the Partners shall have no obligation to make any additional
Capital Contributions or loans to the Partnership.

Section 4.2 Issuances of Additional Partnership Interests

A. The General Partner is hereby authorized to cause the Partnership from
time to time to issue to the Partners (including the General Partner and its
Affiliates) or other Persons (including, without limitation, in connection with
the contribution of property to the Partnership) additional Partnership Units or
other Partnership Interests in one or more classes, or one or more series of any
of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to the Limited Partner Interests issued on the
Effective Date, all as shall be determined by the General Partner in its sole
and absolute discretion subject to Delaware law, including, without limitation,
(i) the allocations of items of Partnership income, gain, loss, deduction and
credit to each such class or series of Partnership Interests; (ii) the right of
each such class or series of Partnership Interests to share in Partnership
distributions; and (iii) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership; provided, that no
such additional Partnership Units or other Partnership Interests shall be issued
to the General Partner, unless either (a)(1) the additional Partnership
Interests are issued in connection with the grant, award or issuance of REIT
Shares or other equity interests by the General Partner, which REIT Shares or
other equity interests have designations, preferences and other rights such that
the economic interests attributable to such REIT Shares or other equity
interests are substantially similar to the designations, preferences and other
rights of the additional Partnership Interests issued to the General Partner in
accordance with this Section 4.2.A, and (2) the General Partner shall make a
Capital Contribution to the Partnership in an amount equal to the proceeds
raised in connection with such issuance, or (b) the additional Partnership
Interests are issued to all Partners in proportion to their respective
Percentage Interests. In addition, the General Partner may acquire Units from
other Partners pursuant to this Agreement. If the Partnership issues Partnership
Interests pursuant to this Section 4.2.A, the General Partner shall make such
revisions to this Agreement including but not limited to the revisions described
in Section 5.4 and Section 8.6 hereof, as it deems necessary to reflect the
issuance of such additional Partnership Interests and the special rights, powers
and duties associated therewith. Unless specifically set forth otherwise by the
General Partner, any Partnership Interest issued after the Effective Date shall
have the same rights, powers and duties as the Partnership Interests issued on
the Effective Date.

B. From and after the date hereof, the General Partner shall not issue any
additional REIT Shares (other than REIT Shares issued pursuant to Section 8.6),
or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares (collectively,
"New Securities"), other than the issuance of New Securities to all holders of
REIT Shares (other than, in the case of New Securities issued

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<PAGE>

pursuant to a shareholder rights plan, any holder who would constitute an
"acquiring person" as defined therein), unless (i) the General Partner shall
cause the Partnership to issue to the General Partner, Partnership Interests or
rights, options, warrants or convertible or exchangeable securities of the
Partnership having designations, preferences and other rights, all such that the
economic interests are substantially similar to those of the New Securities; and
(ii) the General Partner contributes to the Partnership the proceeds from the
issuance of such New Securities and from the exercise of rights contained in
such New Securities. Without limiting the foregoing, the General Partner is
expressly authorized to issue New Securities for no tangible value or for less
than fair market value, and the General Partner is expressly authorized to cause
the Partnership to issue to the General Partner corresponding Partnership
Interests, so long as (x) the General Partner concludes in good faith that such
issuance of Partnership Interests is in the interests of the Partnership; and
(y) the General Partner contributes all proceeds, if any, from such issuance and
exercise to the Partnership.

Section 4.3 Contribution of Proceeds of Issuance of REIT Shares

In connection with the initial public offering of REIT Shares by the
General Partner and any other issuance of New Securities pursuant to Section
4.2, the General Partner shall contribute to the Partnership, any proceeds (or a
portion thereof) raised in connection with such issuance; provided, that if the
proceeds actually received by the General Partner are less than the gross
proceeds of such issuance as a result of any underwriter's discount or other
expenses paid or incurred in connection with such issuance, then the General
Partner shall be deemed to have made a Capital Contribution to the Partnership
in the amount equal to the sum of the net proceeds of such issuance plus the
amount of such underwriter's discount and other expenses paid by the General
Partner (which discount and expense shall be treated as an expense for the
benefit of the Partnership for purposes of Section 7.4). In the case of employee
acquisitions of New Securities at a discount from fair market value or for no
value in connection with a grant of New Securities, the amount of such discount
representing compensation to the employee, as determined by the General Partner,
shall be treated as an expense of the issuance of such New Securities.

Section 4.4 No Interest on Capital

No Partner shall be entitled to interest on its Capital Contributions or
its Capital Account.

Section 4.5 No Other Contribution Provisions

In the event that any Partner is admitted to the Partnership and is given
a Capital Account in exchange for services rendered to the Partnership, such
transaction shall be treated by the Partnership and the affected Partner as if
the Partnership had compensated such Partner in cash, and the Partner had
contributed such cash to the capital of the Partnership.

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<PAGE>

Section 4.6 No Preemptive Rights

Except to the extent expressly granted by the Partnership pursuant to
another agreement, no Person shall have any preemptive, preferential or other
similar right with respect to (i) additional Capital Contributions or loans to
the Partnership or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.

ARTICLE 5
DISTRIBUTIONS

Section 5.1 Requirement and Characterization of Distributions

The General Partner shall distribute cash at least quarterly in an amount
determined by the General Partner in its sole discretion to the Partners who are
Partners on the Partnership Record Date with respect to such quarter or shorter
period in accordance with their respective Percentage Interests on such
Partnership Record Date; provided, that in no event may a Partner receive a
distribution of cash with respect to a Partnership Unit if such Partner is
entitled to receive a distribution with respect to a REIT Share for which such
Partnership Unit has been exchanged and such distribution shall be made to the
General Partner; provided, further, that if a new or existing Partner acquires
additional Units on any date other than the day following a Partnership Record
Date, the cash distribution attributable to such additional Units relating to
the Partnership Record Date next following the issuance of such additional Units
shall be reduced in the proportion to (i) the number of days that such
additional Units are held by such Partner bears to (ii) the number of days
between such Partnership Record Date and the immediately preceding Partnership
Record Date. The General Partner shall take such reasonable efforts, as
determined by it in its sole and absolute discretion and consistent with the
General Partner's qualification as a REIT, to distribute cash (a) to the Limited
Partners so as to preclude any such distribution or portion thereof from being
treated as part of a sale of property to the Partnership by a Limited Partner
under Section 707 of the Code or the Regulations thereunder; provided, that the
General Partner and the Partnership shall not have liability to a Limited
Partner under any circumstances as a result of any distribution to a Limited
Partner being so treated and (b) to satisfy the requirements for qualifying as a
REIT under the Code.

Section 5.2 Amounts Withheld

All amounts withheld pursuant to the Code or any provisions of any state
or local tax law and Section 10.5 hereof with respect to any allocation, payment
or distribution to the Partners or Assignees shall be treated as amounts
distributed to the Partners or Assignees pursuant to Section 5.1 for all
purposes under this Agreement.

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<PAGE>

Section 5.3 Distributions upon Liquidation

Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.

Section 5.4 Revisions to Reflect Issuance of Additional Partnership
Interests

If the Partnership issues additional Partnership Interests to the General
Partner or any Additional Limited Partner pursuant to Article 4 hereof, the
General Partner shall make such revisions to this Article 5 as it deems
necessary to reflect the issuance of such additional Partnership Interests and
any special rights, duties or powers with respect thereto.

Section 5.5 Minimum Distributions If REIT Shares Not Publicly Traded

If the REIT Shares are not Publicly Traded, the General Partner shall make
cash distributions with respect to the Partnership Units at least annually for
each taxable year of the Partnership beginning prior to the 15th anniversary of
the date of the closing of the General Partner's initial public offering, in an
aggregate amount with respect to each such taxable year at least equal to 95% of
the Partnership's taxable income for such year allocable to the Partnership
Units, with such distributions to be made not later than 60 days after the end
of such year.

ARTICLE 6
ALLOCATIONS OF PROFITS AND LOSSES

Section 6.1 Profits and Losses

After giving effect to the mandatory allocations set forth in Section 6.2,
Profits and Losses for any Partnership Year or other applicable period shall be
allocated to the Partners in accordance with their Percentage Interests.

Section 6.2 Mandatory Allocations

(a) (i) Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 6, if there is a net decrease in Partnership Minimum
Gain during any Partnership Year or other applicable period, then, subject to
the exceptions set forth in Regulations ss.ss. 1.704-2(f)(2), (3), (4) and (5),
each Partner shall be specially allocated items of Partnership income and gain
for such Partnership Year (and, if necessary, subsequent Partnership Years) in
an amount equal to such Partner's share of the net decrease in Partnership
Minimum Gain, as determined in accordance with Regulations ss. 1.704-2(g).
Allocations

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<PAGE>

pursuant to the previous sentence shall be determined in accordance with
Regulations ss. 1.704- 2(f). This Section 6.2(a)(i) is intended to comply with
the minimum gain chargeback requirement in Regulations ss. 1.704-2(f) and shall
be interpreted consistently therewith.

(ii) Partner Minimum Gain Chargeback. Notwithstanding
any other provision of this Article 6, except Section 6.2(a)(i), if there is a
net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any Partnership Year or other applicable period, then, subject to the
exceptions set forth in Regulations ss. 1.704-2(i)(4), each Partner who has a
share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations ss. 1.704-2(i)(5) shall be specially
allocated items of Partnership income and gain for such Partnership Year (and,
if necessary, subsequent Partnership Years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations ss. 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Regulations
ss. 1.704-2(i)(4). This Section 6.2(a)(ii) is intended to comply with the
minimum gain chargeback requirement in Regulations ss. 1.704-2(i)(4) and shall
be interpreted consistently therewith.

(b) Qualified Income Offset. Notwithstanding any provision of
this Article 6, except Section 6.2(a), if any Partner receives any adjustments,
allocations, or distributions described in Regulations ss.
1.704-1(b)(2)(ii)(d)(4), (5) or (6), that cause or increase an Adjusted Capital
Account Deficit of such Partner, items of Partnership income and gain shall be
specially allocated to such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of such Partner as quickly as possible. This Section 6.2(b) is
intended to comply with the qualified income offset provision of Regulations ss.
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

(c) No Excess Deficit. To the extent that any Partner has or
would have, as a result of an allocation of Loss (or item thereof), an Adjusted
Capital Account Deficit, such amount of Loss (or item thereof) shall be
allocated to the other Partners in accordance with Section 6.1, but in a manner
which will not produce an Adjusted Capital Account Deficit as to such Partner.
To the extent such allocation would result in all Partners having Adjusted
Capital Account Deficits, such Loss shall be allocated to the General Partner.
Any allocations of Loss pursuant to this Section 6.2(c) shall be reversed with a
corresponding amount of Profits in subsequent years.

(d) Nonrecourse Deductions. Nonrecourse Deductions for any
Partnership Year or other applicable period shall be allocated to the Partners
pro rata in accordance with their Percentage Interests.

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<PAGE>

(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Partnership Year or other applicable period shall be
specially allocated to the Partner who bears the economic risk of loss with
respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Regulations ss. 1.704- 2(i)(1).

(f) Code ss. 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Partnership Asset pursuant to Code ss. 734(b) or
Code ss. 743(b) is required, pursuant to Regulations ss. 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Regulations.

(g) Curative Allocations. Any mandatory allocations of items
of income, gain, loss or deduction pursuant to Sections 6.2(a), (b), (c) and (f)
above shall be taken into account for the purpose of equitably adjusting
subsequent allocations of income, gain, loss or deduction so that the net
allocations, in the aggregate, allocated to each Partner pursuant to this
Article 6, and the Capital Accounts of each Partner, shall as quickly as
possible and to the extent possible, be the same as if no mandatory allocations
had been made.

Section 6.3 Other Allocation Rules

(a) For purposes of determining the Profits, Losses, or any
other items allocable to any period, Profits, Losses, and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
General Partner using any permissible method under Code ss. 706 and the
Regulations thereunder.

(b) The Partners are aware of the income tax consequences of
the allocations made by this Article 6 and hereby agree to be bound by the
provisions thereof in reporting their shares of Partnership income and loss for
income tax purposes.

Section 6.4 Tax Allocations

(a) Except as otherwise provided for in this Section 6.4, for
federal income tax purposes, each item of income, gain, loss and deduction shall
be allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Sections 6.1,
6.2 and 6.3 above.

(b) In accordance with Code Sections 704(b) and 704(c) and the
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the

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Partnership shall solely for federal income tax purposes, be allocated among the
Partners so as to take into account any variation between the adjusted basis of
such property to the Partnership for federal income tax purposes and the initial
Gross Asset Value. If the Gross Asset Value of any Partnership Asset is adjusted
as described in the definition of Gross Asset Value, subsequent allocations of
income, gain, loss and deduction with respect to such Partnership Asset shall
take into account any variation between the adjusted basis of such Partnership
Asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code ss. 704(c) and the Regulations thereunder. In furtherance
of the foregoing, the Partnership shall employ the method described in
Regulations ss. 1.704-3(b) (the "traditional method") with respect to the assets
contributed to the Partnership on the Effective Date. With respect to assets
which are contributed to the Partnership subsequent to the Effective Date, the
Partnership shall employ such method as the General Partner chooses. Allocations
pursuant to this Section 6.4 are solely for purposes of federal, state, and
local taxes and shall not affect, or in any way be taken into account in
computing, any Partner's Capital Account or share of Profits, Losses, other
items, or distributions pursuant to any provision of this Agreement.

ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS

Section 7.1 Management

A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:

(a) the making of any expenditures, the lending or borrowing
of money (including, without limitation, making prepayments on loans and
borrowing money to permit the Partnership to make distributions to its
Partners in such amounts as will permit the General Partner (so long as
the General Partner qualifies as a REIT) to avoid the payment of any
federal income tax (including, for this purpose, any excise tax pursuant
to Section 4981 of the Code) and to make distributions to its stockholders
in amounts sufficient to permit the General Partner to maintain REIT
status), the

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assumption or guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidence of indebtedness (including the
securing of the same by deed, mortgage, deed of trust or other lien or
encumbrance on the Partnership's assets) and the incurring of any
obligations it deems necessary for the conduct of the activities of the
Partnership;

(b) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the Partnership, the
registration of any class of securities of the Partnership under the
Securities Exchange Act of 1934, as amended, and the listing of any debt
securities of the Partnership on any exchange;

(c) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets of the Partnership
(including the exercise or grant of any conversion, option, privilege, or
subscription right or other right available in connection with any assets
at any time held by the Partnership) or the merger or other combination of
the Partnership with or into another entity (all of the foregoing subject
to any prior approval only to the extent required by Section 7.3 hereof);

(d) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose consistent with the
terms of this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct of the operations of the General
Partner, the Partnership or any of the Partnership's Subsidiaries, the
lending of funds to other Persons (including, without limitation, the
Subsidiaries of the Partnership and/or the General Partner) and the
repayment of obligations of the Partnership and its Subsidiaries and any
other Person in which it has an equity investment, and the making of
capital contributions to its Subsidiaries;

(e) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or improvements
owned by the Partnership or any Subsidiary of the Partnership;

(f) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the Partnership's
operations or the implementation of the General Partner's powers under
this Agreement, including contracting with contractors, developers,
consultants, accountants, legal counsel, other professional advisors and
other agents and the payment of their expenses and compensation out of the
Partnership's assets;

(g) the mortgage, pledge, encumbrance or hypothecation of any
assets of the Partnership, and the use of the assets of the Partnership
(including, without limitation,

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cash on hand) for any purpose consistent with the terms of this Agreement
and on any terms it sees fit, including, without limitation, the financing
of the conduct or the operations of the General Partner or the
Partnership, the lending of funds to other Persons (including, without
limitation, any Subsidiaries of the Partnership) and the repayment of
obligations of the Partnership, any of its Subsidiaries and any other
Person in which it has an equity investment;

(h) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;

(i) holding, managing, investing and reinvesting cash and
other assets of the Partnership;

(j) the collection and receipt of revenues and income of the
Partnership;

(k) the establishment of one or more divisions of the
Partnership, the selection, designation of powers, authority and duties
and dismissal of employees of the Partnership (including, without
limitation, employees having titles such as "president," "vice president,"
"secretary" and "treasurer" of the Partnership), and agents, outside
attorneys, accountants, consultants and contractors of the Partnership,
and the determination of their compensation and other terms of employment
or hiring;

(l) the maintenance of such insurance for the benefit of the
Partnership, the Partners and directors and officers thereof as it deems
necessary or appropriate;

(m) the formation of, or acquisition of an interest (including
non-voting interests in entities controlled by Affiliates of the
Partnership or third parties) in, and the contribution of property to, any
further limited or general partnerships, joint ventures limited liability
companies, or other relationships that it deems desirable (including,
without limitation, the acquisition of interests in, and the contributions
of funds or property or the making of loans to, its Subsidiaries and any
other Person in which it has an equity investment from time to time or the
incurrence of indebtedness on behalf of such Persons or guarantee of
obligations of such Persons); provided, that as long as the General
Partner has determined to qualify as a REIT, the Partnership may not
engage in any such formation, acquisition or contribution that would cause
the General Partner to fail to qualify as a REIT);

(n) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement, compromise,
submission to arbitration or any other form of dispute resolution, or
abandonment of, any claim, cause of action, liability, debt or damages,
due or owing to or from the Partnership, the commencement or defense of
suits, legal proceedings, administrative proceedings, arbitration or other

27
<PAGE>

forms of dispute resolution, and the representation of the Partnership in
all suits or legal proceedings, administrative proceedings, arbitrations
or other forms of dispute resolution, the incurring of legal expense, and
the indemnification of any Person against liabilities and contingencies to
the extent permitted by law;

(o) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any
other Person (including, without limitation, the contribution or loan of
funds by the Partnership to such Persons);

(p) the determination of the fair market value of any
Partnership property distributed in kind using such reasonable method of
valuation as the General Partner may adopt;

(q) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of
any right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;

(r) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any
Subsidiary of the Partnership or any other Person in which the Partnership
has a direct or indirect interest, or jointly with any such Subsidiary or
other Person;

(s) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have an interest pursuant to contractual or other
arrangements with such Person;

(t) the making, execution and delivery of any and all deeds,
leases, notes, mortgages, deeds of trust, security agreements,
conveyances, contracts, guarantees, warranties, indemnities, waivers,
releases or legal instruments or agreements in writing necessary or
appropriate, in the judgment of the General Partner, for the
accomplishment of any of the powers of the General Partner enumerated in
this Agreement;

(u) the issuance of additional Partnership Units, as
appropriate, in connection with Capital Contributions by Additional
Limited Partners and additional Capital Contributions by Partners pursuant
to Article 4 hereof;

(v) the distribution of cash to acquire Partnership Units held
by a Limited Partner in connection with a Limited Partner's exercise of
its Redemption Right under Section 8.6 hereof; and

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(w) the amendment and restatement of Exhibit A hereto to
reflect accurately at all times the Capital Contributions and Percentage
Interests of the Partners as the same are adjusted from time to time to
the extent necessary to reflect redemptions, Capital Contributions, the
issuance of Partnership Units, the admission of any Additional Limited
Partner or any Substituted Limited Partner or otherwise, which amendment
and restatement, notwithstanding anything in this Agreement to the
contrary, shall not be deemed an amendment to this Agreement, as long as
the matter or event being reflected in Exhibit A hereto otherwise is
authorized by this Agreement.

B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation, to the fullest extent permitted under the Act or other applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.

C. At all times from and after the date hereof, the General Partner may
cause the Partnership to obtain and maintain (i) casualty, liability and other
insurance on the properties of the Partnership, (ii) liability insurance for the
Indemnitees hereunder and (iii) such other insurance as the General Partner, in
its sole and absolute discretion, determines to be necessary.

D. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.

E. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken (or not taken) by it. The General Partner and
the Partnership shall not have liability to a Limited Partner under any
circumstances, as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner taken
pursuant to its authority under this Agreement and in accordance with the terms
of Section 7.3.

Section 7.2 Certificate of Limited Partnership

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The General Partner has previously filed the Certificate of Limited
Partnership with the Secretary of State of the State of Delaware as required by
the Act. The General Partner shall use all reasonable efforts to cause to be
filed such other certificates or documents as may be reasonable and necessary or
appropriate for the formation, continuation, qualification and operation of a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and any other state, or the District of
Columbia, in which the Partnership may elect to do business or own property. To
the extent that such action is determined by the General Partner to be
reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate of Limited Partnership and do
all of the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, or the District of Columbia, in
which the Partnership may elect to do business or own property. Subject to the
terms of Section 8.5.A(d) hereof, the General Partner shall not be required,
before or after filing, to deliver or mail a copy of the Certificate of Limited
Partnership or any amendment thereto to any Limited Partner.

Section 7.3 Restrictions on General Partner Authority

A. The General Partner may not take any action in contravention of an
express prohibition or limitation of this Agreement without the written Consent
of Limited Partners holding a majority of the Percentage Interests of the
Limited Partners (including Limited Partner Interests held by the General
Partner), or such other percentage of the Limited Partners as may be
specifically provided for under a provision of this Agreement.

B. Except as provided in Article 13 hereof, the General Partner may not,
directly or indirectly, cause the Partnership to sell, exchange, transfer or
otherwise dispose of all or substantially all of the Partnership's assets in a
single transaction or a series of related transactions (including by way of
merger (including a triangular merger), consolidation or other combination with
any other Persons) without the Consent of Limited Partners holding a majority of
the Percentage Interests of the Limited Partners (including the effect of any
Limited Partner Interests held by the General Partner).

Section 7.4 Reimbursement of the General Partner and the General Partner;
DRIP's and Repurchase Programs

A. Except as provided in this Section 7.4 and elsewhere in this Agreement
(including the provisions of Articles 5 and 6 regarding distributions, payments,
and allocations to which it may be entitled), the General Partner shall not be
compensated for its services as general partner of the Partnership.

B. The Partnership shall be responsible for and shall pay all expenses
relating to the Partnership's organization, the ownership of its assets and its
operations. The General

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<PAGE>

Partner is hereby authorized to pay compensation for accounting, administrative,
legal, technical, management and other services rendered to the Partnership. The
General Partner and its Affiliates shall be reimbursed on a monthly basis, or
such other basis as the General Partner may determine in its sole and absolute
discretion, for all expenses that the General Partner and its Affiliates incur
relating to the ownership and operation of, or for the benefit of, the
Partnership (including, without limitation, Administrative Expenses); provided,
that the amount of any such reimbursement shall be reduced by any interest
earned by the General Partner with respect to bank accounts or other instruments
or accounts held by it on behalf of the Partnership. The Partners acknowledge
that all such expenses of the General Partner are deemed to be for the benefit
of the Partnership. Such reimbursement shall be in addition to any reimbursement
made as a result of indemnification pursuant to Section 7.7 hereof. In the event
that certain expenses are incurred for the benefit of the Partnership and other
entities (including the General Partner), such expenses will be allocated to the
Partnership and such other entities in such a manner as the General Partner in
its sole and absolute discretion deems fair and reasonable. All payments and
reimbursements hereunder shall be characterized for federal income tax purposes
as expenses of the Partnership incurred on its behalf, and not as expenses of
the General Partner.

C. As set forth in Section 4.3, the General Partner shall be treated as
having made a Capital Contribution in the amount of all expenses that it incurs
relating to the General Partner's initial public offering of REIT Shares.

D. If the General Partner shall elect to purchase from its stockholders
REIT Shares for the purpose of delivering such REIT Shares to satisfy an
obligation under any dividend reinvestment program adopted by the General
Partner, any employee stock purchase plan adopted by the General Partner, or any
similar obligation or arrangement undertaken by the General Partner in the
future or for the purpose of retiring such REIT Shares, the purchase price paid
by the General Partner for such REIT Shares and any other expenses incurred by
the General Partner in connection with such purchase shall be considered
expenses of the Partnership and shall be advanced to the General Partner or
reimbursed to the General Partner, subject to the condition that: (i) if such
REIT Shares subsequently are sold by the General Partner, the General Partner
shall pay to the Partnership any proceeds received by the General Partner for
such REIT Shares (which sales proceeds shall include the amount of dividends
reinvested under any dividend reinvestment or similar program; provided, that a
transfer of REIT Shares for Units pursuant to Section 8.6 would not be
considered a sale for such purposes); and (ii) if such REIT Shares are not
retransferred by the General Partner within thirty (30) days after the purchase
thereof, or the General Partner otherwise determines not to retransfer such REIT
Shares, the General Partner, shall cause the Partnership to redeem a number of
Partnership Units held by the General Partner, as a Limited Partner, equal to
the product obtained by dividing the number of such REIT Shares by the
Conversion Factor (in which case such advancement or reimbursement of expenses
shall be treated as having been made as a distribution in redemption of such
number of Units held by the General Partner).

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<PAGE>

E. If and to the extent any reimbursement made pursuant to this Section
7.4 is determined for federal income tax purposes not to constitute a payment of
expenses of the Partnership, the amount so determined shall be treated as a
distribution to the General Partner and there shall be a corresponding special
allocation of gross income to the General Partner, for purposes of computing
Partners' capital accounts.

Section 7.5 Outside Activities of the General Partner

A. The General Partner shall not directly or indirectly enter into or
conduct any business other than in connection with the ownership, acquisition
and disposition of Partnership Interests and the management of the business of
the Partnership, and such activities as are incidental thereto; provided,
however, that the General Partner may make an acquisition (directly or through a
wholly owned Subsidiary) if such acquisition is made through the issuance of
REIT Shares and the acquisition has been approved by a majority of the
Independent Directors and if such acquisition is in turn contributed to the
Partnership in exchange for additional Partnership Interests; provided, further,
that the General Partner shall be permitted to (i) hold bank accounts or similar
instruments or accounts in its own name as it deems necessary to carry out its
responsibilities and purposes contemplated under this Agreement and its
organizational documents; and (ii) acquire, directly or through a Subsidiary, up
to a one percent (1%) interest in any partnership or limited liability company
at least ninety-nine percent (99%) of the equity of which is owned by the
Partnership. The General Partner and any Affiliates of the General Partner may
acquire Limited Partner Interests and shall be entitled to exercise all rights
of a Limited Partner relating to such Limited Partner Interests.

B. If at any time or from time to time the General Partner sells REIT
Shares pursuant to any Stock Option Plan, the General Partner shall transfer the
net proceeds of the sale of such REIT Shares to the Partnership as an additional
Capital Contribution in exchange for an amount of additional Partnership Units
equal to the number of REIT Shares so sold divided by the Conversion Factor.

Section 7.6 Contracts with Affiliates

A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.

B. Except as provided in Section 7.5, the Partnership may transfer assets
to joint ventures, other partnerships, corporations or other business entities
in which it is or thereby becomes a participant upon such terms and subject to
such conditions consistent with this

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<PAGE>

Agreement and applicable law as the General Partner, in its sole and absolute
discretion, believes are advisable.

C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions contemplated by this Agreement or that are
determined by the General Partner in good faith to be fair and reasonable.

D. The General Partner, in its sole and absolute discretion and without
the approval of the Limited Partners, may propose and adopt, on behalf of the
Partnership, employee benefit plans, stock option plans, and similar plans
funded by the Partnership for the benefit of employees of the General Partner,
the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them
in respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any Subsidiaries of the Partnership.

E. The General Partner is expressly authorized to enter into, in the name
and on behalf of the Partnership, a right of first opportunity arrangement and
other conflict avoidance agreements with various Affiliates of the Partnership
and the General Partner, on such terms as the General Partner, in its sole and
absolute discretion, believes are advisable.

Section 7.7 Indemnification

A. To the fullest extent permitted by Delaware law, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
attorneys' fees and other 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 or the General Partner as set
forth in this Agreement, in which such Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, unless it is established
that: (i) the act or omission of the Indemnitee was material to the matter
giving rise to the proceeding and either was committed in bad faith or was the
result of active and deliberate dishonesty; (ii) the Indemnitee actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful. Without limitation, the foregoing
indemnity shall extend to any liability of any Indemnitee, pursuant to a loan
guaranty (except a guaranty by a limited partner of nonrecourse indebtedness of
the Partnership or as otherwise provided in any such loan guaranty) or otherwise
for any indebtedness of the Partnership or any Subsidiary of the Partnership
(including without limitation, any indebtedness which the Partnership or any
Subsidiary of the Partnership has assumed or taken subject to), and the General
Partner is hereby authorized and empowered, on behalf of the Partnership, to
enter into one or more indemnity agreements

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<PAGE>

consistent with the provisions of this Section 7.7 in favor of any Indemnitee
having or potentially having liability for any such indebtedness. The
termination of any proceeding by conviction of an Indemnitee or upon a plea of
nolo contendere or its equivalent by an Indemnitee, or an entry of an order of
probation against an Indemnitee prior to judgment, creates a rebuttable
presumption that such Indemnitee acted in a manner contrary to that specified in
this Section 7.7.A. Any indemnification pursuant to this Section 7.7 shall be
made only out of the assets of the Partnership, and neither the General Partner
nor any Limited Partner shall have any obligation to contribute to the capital
of the Partnership, or otherwise provide funds, to enable the Partnership to
fund its obligations under this Section 7.7.

B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in Section 7.7.A. has been met, and (ii) a written undertaking by or
on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.

C. The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity unless otherwise provided in a written agreement pursuant to which
such Indemnitee is indemnified.

D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.

E. For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.7; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.

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<PAGE>

F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.

G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.

H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this Section 7.7, as in effect immediately
prior to such amendment, modification, or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.

I. Moreover, if and to the extent any reimbursement made pursuant to this
Section 7.7 is determined for federal income tax purpose not to constitute a
payment of expenses of the Partnership, the amount so determined shall be
treated as a distribution to the General Partner and there shall be a
corresponding special allocation of gross income to the General Partner for
purposes of computing Partners' Capital Accounts.

Section 7.8 Liability of the General Partner

A. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner and its officers, directors and stockholders shall not be
liable for monetary damages to the Partnership, any Partners or any Assignees
for losses sustained or liabilities incurred or benefits not derived as a result
of errors in judgment or mistakes of fact or law or of any act or omission if
the General Partner or its officers, directors and stockholders acted in good
faith.

B. The Limited Partners expressly acknowledge that the General Partner is
acting on behalf of the Partnership and the stockholders of the General Partner
collectively, and that, as stated in Section 7.1.E, the General Partner is under
no obligation to consider the separate interests of the Limited Partners in
deciding whether to cause the Partnership to take (or decline to take) any
actions. If there is a conflict between the interests of the stockholders of the
General Partner on one hand and the Limited Partners on the other, the General
Partner shall endeavor in good faith to resolve the conflict in a manner not
adverse to either the stockholders of the General Partner or the Limited
Partners; provided, however, that for so long as the General Partner, owns a
controlling interest in the Partnership, any such conflict that cannot be
resolved in a manner not adverse to either the stockholders of the General

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Partner or the Limited Partners shall be resolved in favor of the stockholders.
The General Partner shall not be liable for monetary damages or otherwise for
losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
has acted in good faith.

C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its employees or agents. The General Partner
shall not be responsible for any misconduct or negligence on the part of any
such employee or agent appointed by the General Partner in good faith.

D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's and its officers' and directors' liability
to the Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.

E. Whenever in this Agreement the General Partner is permitted or required
to make a decision (i) in its "sole discretion" or "discretion," or under a
similar grant of authority or latitude, the General Partner shall be entitled to
consider such interests and factors as it desires and may consider its own
interests, and shall have no duty or obligation to give any consideration to any
interest of or factors affecting the Partnership or the Limited partners, or
(ii) in its "good faith" or under another express standard, the general Partner
shall act under such express standard and shall not be subject to any other or
different standards imposed by this Agreement or by law or any other agreement
contemplated herein.

Section 7.9 Other Matters Concerning the General Partner

A. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.

B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investments bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.

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<PAGE>

C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.

D. Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT; or (ii) to avoid the General Partner incurring any taxes
under Section 857 or Section 4981 of the Code, is expressly authorized under
this Agreement and is deemed approved by all of the Limited Partners.

Section 7.10 Title to Partnership Assets

Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is held in the
name of the General Partner or any nominee or Affiliate of the General Partner
shall be held by the General Partner for the use and benefit of the Partnership
in accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably practicable
if failure to so vest such title would have a material adverse effect on the
Partnership. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.

Section 7.11 Reliance by Third Parties

Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection

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with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect; (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership; and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of his Agreement and is binding upon
the Partnership.

ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

Section 8.1 Limitation of Liability

The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 10.5 hereof, or under
the Act.

Section 8.2 Management of Business

No Limited Partner (other than the General Partner if it acquires a
Limited Partner Interest, any of its Affiliates or any officer, director,
employee, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such) shall participate in the management
or control of Partnership business nor shall they transact any business for the
Partnership nor shall they have the power to sign for or bind the Partnership,
such powers being vested solely and exclusively in the General Partner. The
transaction of any such business by the General Partner, any of its respective
Affiliates or any officer, director, employee, partner, agent or trustee of the
General Partner, the Partnership or any of their Affiliates, in their capacity
as such, shall not affect, impair or eliminate the limitations on the liability
of the Limited Partners or Assignees under this Agreement.

Section 8.3 Outside Activities of Limited Partners

Subject to any agreements entered into pursuant to Section 7.6.E hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the Partnership or any of its Subsidiaries, any Limited Partner (other than
the General Partner) and any officer, director,

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employee, agent, trustee, Affiliate or stockholder of any Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partners shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee. None of the Limited Partners (other
than the General Partner) nor any other Person shall have any rights by virtue
of this Agreement or the Partnership relationship established hereby in any
business ventures of any other Person and such Person shall have no obligation
pursuant to this Agreement to offer any interest in any such business ventures
to the Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.

Section 8.4 Return of Capital

Except pursuant to a Redemption Right set forth in Section 8.6, no Limited
Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. Except as
expressly provided in this Agreement, no Limited Partner or Assignee shall have
priority over any other Limited Partner or Assignee, either as to the return of
Capital Contributions or as to profits, losses or distributions.

Section 8.5 Rights of Limited Partners Relating to the Partnership

A. In addition to the other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):

(a) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by the General
Partner pursuant to the Securities Exchange Act of 1934;

(b) to obtain a copy of the Partnership's federal, state and
local income tax returns for each Partnership Year;

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(d) to obtain a copy of this Agreement and the Certificate of
Limited Partnership and all amendments thereto, together with executed
copies of all powers of attorney pursuant to which this Agreement, the
Certificate of Limited Partnership and all amendments thereto have been
executed; and

(e) to obtain true and full information regarding the amount
of cash and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner.

B. The Partnership shall notify each Limited Partner, upon request, of the
then current Conversion Factor and the REIT Shares Amount per Partnership Unit
and, with reasonable detail, how the same was determined.

C. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner reasonably believes to
be in the nature of trade secrets or other information, the disclosure of which
the General Partner in good faith believes is not in the best interests of the
Partnership or could damage the Partnership or its business; or (ii) the
Partnership is required by law or by agreements with an unaffiliated third party
to keep confidential.

Section 8.6 Redemption Rights

A. Subject to Sections 8.6.C and 8.6.D hereof, on or after that date which
is twelve (12) months after the Effective Date, each Common Limited Partner
(other than the General Partner) shall have the right (the "Common Redemption
Right") to require the Partnership to redeem on a Specified Redemption Date all
or a portion of the Partnership Units held by such Limited Partner at a
redemption price per Unit equal to and in the form of the Cash Amount to be paid
by the Partnership. The Common Redemption Right shall be exercised pursuant to a
Notice of Redemption delivered to the Partnership (with a copy to the General
Partner) by the Common Limited Partner who is exercising the redemption right
(the "Common Redeeming Partner"); provided, however, that the Partnership shall
not be obligated to satisfy such Common Redemption Right if the General Partner
elects to purchase the Partnership Units subject to the Notice of Redemption
pursuant to Section 8.6.C. A Common Limited Partner may not exercise the Common
Redemption Right for less than one thousand (1,000) Partnership Units or, if
such Common Limited Partner holds less than one thousand (1,000) Partnership
Units, all of the Partnership Units held by such Common Limited Partner. The
Common Redeeming Partner shall have no right, with respect to any Partnership
Units so redeemed, to receive any distributions paid on or after the Specified
Redemption Date. The Assignee of any Common Limited Partner may exercise the
rights of such Common Limited

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Partner pursuant to this Section 8.6, and such Common Limited Partner shall be
deemed to have assigned such rights to such Assignee and shall be bound by the
exercise of such rights by such Assignee. In connection with any exercise of
such rights by an Assignee on behalf of a Common Limited Partner, the Cash
Amount shall be paid by the Partnership directly to such Assignee and not to
such Common Limited Partner.

B. Subject to Sections 8.6.C and 8.6.D hereof, on or after that date which
is six (6) months after the Effective Date, each Class B Limited Partner shall
have the right (the "Class B Redemption Right") to require the Partnership to
redeem on a Specified Redemption Date all or a portion of the Partnership Units
(whether Common Partnership Units or Class B Partnership Units) held by such
Class B Limited Partner at a redemption price per Unit equal to and in the form
of the Cash Amount to be paid by the Partnership. The Class B Redemption Right
shall be exercised pursuant to a Notice of Redemption delivered to the
Partnership (with a copy to the General Partner) by the Class B Limited Partner
who is exercising the redemption right (the "Class B Redeeming Partner");
provided, however, that the Partnership shall not be obligated to satisfy such
Class B Redemption Right if the General Partner elects to purchase the
Partnership Units subject to the Notice of Redemption pursuant to Section 8.6.C.
A Class B Limited Partner may not exercise the Class B Redemption Right for less
than one thousand (1,000) Partnership Units or, if such Class B Limited Partner
holds less than one thousand (1,000) Partnership Units, all of the Partnership
Units held by such Class B Limited Partner. The Class B Redeeming Partner shall
have no right, with respect to any Partnership Units so redeemed, to receive any
distributions paid on or after the Specified Redemption Date. The Assignee of
any Class B Limited Partner may exercise the rights of such Class B Limited
Partner pursuant to this Section 8.6, and such Class B Limited Partner shall be
deemed to have assigned such rights to such Assignee and shall be bound by the
exercise of such rights by such Assignee. In connection with any exercise of
such rights by an Assignee on behalf of a Class B Limited Partner, the Cash
Amount shall be paid by the Partnership directly to such Assignee and not to
such Class B Limited Partner.

C. Notwithstanding the provisions of Sections 8.6.A and 8.6.B, a Limited
Partner that exercises a Redemption Right shall be deemed to have offered to
sell the Partnership Units described in the Notice of Redemption to the General
Partner, and the General Partner will, at the direction of the Partnership as
determined in the Partnership's sole and absolute discretion and only if so
directed, elect to purchase directly and acquire such Partnership Units by
paying to the Redeeming Partner either the Cash Amount or the REIT Shares Amount
(in the event the REIT Shares Amount is not a whole number of REIT Shares, the
Redeeming Partner shall be paid (i) that number of REIT Shares which equals the
nearest whole number less than such amount plus (ii) an amount of cash which the
General Partner determines, in its reasonable discretion, to represent the fair
value of the remaining fractional REIT Share which would otherwise be payable to
the Redeeming Partner), as directed by the Partnership, on the Specified
Redemption Date, whereupon the General Partner shall acquire the Partnership
Units offered for redemption by the Redeeming Partner and shall be treated for

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all purposes of this Agreement as the owner of such Partnership Units. If the
General Partner shall elect to exercise its right to purchase Partnership Units
under this Section 8.6.C with respect to a Notice of Redemption, it shall so
notify the Redeeming Partner within five (5) Business Days after the receipt by
it of such Notice of Redemption. Unless the General Partner (as directed by the
Partnership in its sole and absolute discretion) shall exercise its right to
purchase Partnership Units from the Redeeming Partner pursuant to this Section
8.6.C, the General Partner shall not have any obligation to the Redeeming
Partner or the Partnership with respect to the Redeeming Partner's exercise of a
Redemption Right. If the General Partner shall exercise its right to purchase
Partnership Units with respect to the exercise of a Redemption Right in the
manner described in the first sentence of this Section 8.6.C, the Partnership
shall have no obligation to pay any amount to the Redeeming Partner with respect
to such Redeeming Partner's exercise of such Redemption Right, and each of the
Redeeming Partner, the Partnership, and the General Partner shall treat the
transaction between the General Partner and the Redeeming Partner, for federal
income tax purposes, as a sale of the Redeeming Partner's Partnership Units to
the General Partner. Each Redeeming Partner agrees to execute such documents as
the General Partner may reasonably require in connection with the issuance of
REIT Shares upon exercise of a Redemption Right.

D. Notwithstanding the provisions of Sections 8.6.A, 8.6.B and 8.6.C, a
Partner shall not be entitled to exercise a Redemption Right pursuant to Section
8.6.A or Section 8.6.B if (but only as long as) the delivery of REIT Shares to
such Partner on the Specified Redemption Date by the General Partner pursuant to
Section 8.6.C (regardless of whether or not the General Partner would in fact
exercise its rights under Section 8.6.C), (i) would be prohibited under the
Articles of Incorporation of the General Partner or (ii) would be prohibited
under applicable federal or state securities laws or regulations.

E. If the Partnership issues additional Partnership Interests pursuant to
Section 4.2.A hereof, the General Partner shall make such revisions to this
Section 8.6 as it determines are necessary to reflect the issuance of such
additional Partnership Interests (including setting forth any restrictions on
the exercise of a Redemption Right with respect to such Partnership Interests).

F. Each Limited Partner covenants and agrees with the General Partner that
all Partnership Units delivered for redemption shall be delivered to the
Partnership or the General Partner, as the case may be, free and clear of all
liens, and notwithstanding anything contained herein to the contrary, neither
the General Partner nor the Partnership shall be under any obligation to acquire
Partnership Units which are or may be subject to any liens. Each Limited Partner
further agrees that, in the event any state or local property transfer tax is
payable as a result of the transfer of its Partnership Units to the Partnership
or the General Partner, such Limited Partner shall assume and pay such transfer
tax.

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Section 8.7 Intentionally Omitted

Section 8.8 Class B Exchange Right

The Class B Limited Partners (acting in unison) shall have the right, but
not the obligation, at any time during the period commencing on and including
the earlier to occur of the first Business Day after the date that is 180 days
after the Effective Date and the first day the Class B Partnership Units are
exchangeable for REIT Shares pursuant to Section 8.6.B and ending on the close
of business on the fourteenth (14th) day thereafter (but in no event prior to
January 5, 1999) (the "Exchange Period"), to exchange all or part of its (or
their Class B Partnership Units directly for a number of Common Partnership
Units having an aggregate value (based on the average closing price per REIT
Share for the ten (10) consecutive trading days immediately preceding the
commencement of the Exchange Period) equal to the aggregate initial value of the
Class B Partnership Units issued to the Class B Limited Partners on the
Effective Date; it being understood that the value of each Class B Partnership
Unit on the Effective Date is equal to the value of one REIT Share as of the
Effective Date.

ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 9.1 Records and Accounting

The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books and records deemed by the General Partner to be appropriate
with respect to the Partnership's business, including, without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to Section 8.5,
9.3 or 11.3.F hereof. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micrographics or any other information
storage device; provided, that the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles,
or such other basis as the General Partner determines to be necessary or
appropriate.

Section 9.2 Fiscal Year

The fiscal year of the Partnership shall be the calendar year.

Section 9.3 Reports

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A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Partnership Year, the General Partner shall
cause to be mailed to each Limited Partner as of the close of the Partnership
Year, an annual report containing financial statements of the Partnership, or of
the General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, for such Partnership Year, presented in
accordance with generally accepted accounting principles, such statements to be
audited by a nationally recognized firm of independent public accountants
selected by the General Partner.

B. If and to the extent that the General Partner mails quarterly reports
to its stockholders, as soon as practicable, but in no event later than the date
on which such reports are mailed, the General Partner shall cause to be mailed
to each Limited Partner as of the last day of the calendar quarter, a report
containing unaudited financial statements of the Partnership, or of the General
Partner, if such statements are prepared solely on a consolidated basis with the
General Partner, and such other information as may be required by applicable law
or regulation, or as the General Partner determines to be appropriate.

ARTICLE 10
TAX MATTERS

Section 10.1 Preparation of Tax Returns

The General Partner shall arrange for the preparation and timely filing of
all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by Limited Partners
for federal and state income tax reporting purposes.

Section 10.2 Tax Elections

Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code. Notwithstanding the above, in making any such tax election
the General Partner shall take into account the tax consequences to the Limited
Partners resulting from any such election. The General Partner shall make such
tax elections on behalf of the Partnership as the Limited Partners holding a
majority of the Percentage Interests of the Limited Partners (including Limited
Partner Interests held by the General Partner) request; provided, that the
General Partner believes that such election is not adverse to the interests of
the General Partner, including its interest in preserving its qualification as a
REIT under the Code. The General Partner intends that Section 704(c) allocations
with respect to property contributed as of the Effective Date shall be made by
the election of the so-called "traditional method" without curative allocations.
The General Partner shall have the right to seek to revoke any tax

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election it makes (including, without limitation, the election under Section 754
of the Code) upon the General Partner's determination, in its sole and absolute
discretion, that such revocation is in the best interests of the Partners.

Section 10.3 Tax Matters Partner

A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes within the meaning of Section
6231(a)(7) of the Code. Pursuant to Section 6230(e) of the Code, upon receipt of
notice from the IRS of the beginning of an administrative proceeding with
respect to the Partnership, the tax matters partner shall furnish the IRS with
the name, address, taxpayer identification number, and profit interest of each
of the Limited Partners and the Assignees; provided, however, that such
information is provided to the Partnership by the Limited Partners and the
Assignees.

B. The tax matters partner is authorized, but not required:

(a) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner for
income tax purposes (such administrative proceedings being referred to as
a "tax audit" and such judicial proceedings being referred to as "judicial
review"), and in the settlement agreement the tax matters partner may
expressly state that such agreement shall bind all Partners, except that
such settlement agreement shall not bind any Partner (i) who (within the
time prescribed pursuant to the Code and Regulations) files a statement
with the IRS providing that the tax matters partner shall not have the
authority to enter into a settlement agreement on behalf of such Partner;
or (ii) who is a "notice partner" (as defined in Section 6231(a)(8) of the
Code) or a member of a "notice group" (as defined in Section 6223(b)(2) of
the Code);

(b) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax
matters partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court or
the filing of a complaint for refund with the United States Claims Court
or the District Court of the United States for the district in which the
Partnership's principal place of business is located;

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(d) to file a request for an administrative adjustment with
the IRS and, if any part of such request is not allowed by the IRS, to
file an appropriate pleading (petition or complaint) for judicial review
with respect to such request;

(e) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to any item required to
be taken account of by a Partner for tax purposes, or an item affected by
such item; and

(f) to take any other action on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review proceeding
to the extent permitted by applicable law or regulations.

The taking of any action and the incurring of any expense by
the tax matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of the
tax matters partner and the provisions relating to indemnification of the
General Partner set forth in Section 7.7 of this Agreement shall be fully
applicable to the tax matters partner in its capacity as such.

C. The tax matters partner shall receive no compensation for its services.
All third party costs and expenses incurred by the tax matters partner in
performing its duties as such (including legal and accounting fees and expenses)
shall be borne by the Partnership. Nothing herein shall be construed to restrict
the Partnership from engaging an accounting firm to assist the tax matters
partner in discharging its duties hereunder, so long as the compensation paid by
the Partnership for such services is reasonable.

Section 10.4 Organizational Expenses

The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.

Section 10.5 Withholding

Each Limited Partner hereby authorizes the Partnership to withhold from,
or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Section 1441, 1442, 1445 or 1446 of the Code. Any amount
paid on behalf of or with respect to a Limited Partner shall constitute a loan
by the Partnership to such Limited Partner, which loan shall be repaid by such
Limited Partner within fifteen (15) days after notice from the General Partner
that such payment must be made unless (i) the Partnership withholds such payment
from a distribution which would otherwise be made to the

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Limited Partner; or (ii) the General Partner determines, in its sole and
absolute discretion, that such payment may be satisfied out of the available
funds of the Partnership which would, but for such payment, be distributed to
the Limited Partner. Any amounts withheld pursuant to the foregoing clause (i)
or (ii) shall be treated as having been distributed to such Limited Partner.
Each Limited Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Limited Partner's Partnership Interest
to secure such Limited Partner's obligation to pay to the Partnership any
amounts required to be paid pursuant to this Section 10.5. If a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner. Without limitation, in
such event the General Partner shall have the right to receive distributions
that would otherwise be distributable to such defaulting Limited Partner until
such time as such loan, together with all interest thereon, has been paid in
full, and any such distributions so received by the General Partner shall be
treated as having been distributed to the defaulting Limited Partner and
immediately paid by the defaulting Limited Partner to the General Partner in
repayment of such loan. Any amounts payable by a Limited Partner hereunder shall
bear interest at the lesser of (A) the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
The Wall Street Journal, plus four (4) percentage points, or (B) the maximum
lawful rate of interest on such obligation, such interest to accrue from the
date such amount is due (i.e., fifteen (15) days after demand) until such amount
is paid in full. Each Limited Partner shall take such actions as the Partnership
or the General Partner shall request in order to perfect or enforce the security
interest created hereunder.

ARTICLE 11
TRANSFERS AND WITHDRAWALS

Section 11.1 Transfer

A. The term "transfer," when used in this Article 11 with respect to a
Partnership Interest or Partnership Unit, shall be deemed to refer to a
transaction by which the General Partner purports to assign all or any part of
its General Partner Interest to another Person or by which a Limited Partner
purports to assign all or any part of its Limited Partner Interest to another
Person, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by operation of law
or otherwise. The term "transfer" when used in this Article 11 does not include
any redemption or repurchase of Partnership Interests by the Partnership from a
Partner or any acquisition of Partnership Units from a Limited Partner by the
General Partner pursuant to Section 8.6. No part of the interest of a Limited
Partner shall be subject to the claims of any creditor, any

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spouse for alimony or support, or to legal process, and may not be voluntarily
or involuntarily alienated or encumbered except as may be specifically provided
for in this Agreement or consented to by the General Partner.

B. No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.

Section 11.2 Transfer of the General Partner Interest and General
Partner's Limited Partner Interest; Extraordinary
Transactions

A. The General Partner may not transfer any of its General Partner
Interest or withdraw as General Partner, and the General Partner may not
transfer any of its Limited Partner Interest, or engage in an Extraordinary
Transaction, except, in any such case, (i) if such Extraordinary Transaction is,
or such transfer or withdrawal is pursuant to an Extraordinary Transaction that
is, permitted under Section 11.2.B or (ii) if Limited Partners holding at least
a majority of the Percentage Interests of the Limited Partners (including
Limited Partner Interests held by the General Partner or its Affiliates) consent
to such transfer or withdrawal or Extraordinary Transaction, or (iii) if such
transfer is to an entity that is wholly owned by the General Partner and is a
Qualified REIT Subsidiary under Section 856(i) of the Code.

B. The General Partner is permitted to engage in the following
Extraordinary Transactions without the approval or vote of the Limited Partners:

(i) an Extraordinary Transaction in connection with which all
Limited Partners either will receive, or will have the right to elect to
receive, for each Partnership Unit an amount of cash, securities, or other
property equal to the product of the REIT Shares Amount and the greatest
amount of cash, securities or other property paid to a holder of one REIT
Share in consideration of one REIT Share pursuant to the terms of the
Extraordinary Transaction; provided, that, if, in connection with the
Extraordinary Transaction, a purchase, tender or exchange offer shall have
been made to and accepted by the holders of the outstanding REIT Shares,
each holder of Partnership Units shall receive, or shall have the right to
elect to receive, the greatest amount of cash, securities, or other
property which such holder would have received had it exercised its
Redemption Right (as set forth in Section 8.6) and received REIT Shares in
exchange for its Partnership Units immediately prior to the expiration of
such purchase, tender or exchange offer and had thereupon accepted such
purchase, tender or exchange offer and then such Extraordinary Transaction
shall have been consummated; and

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(ii) a merger (including a triangular merger), consolidation
or other combination with or into another Person, or any issuance of
equity securities in exchange assets if: (w) immediately after such
Extraordinary Transaction, substantially all of the assets directly or
indirectly owned by the surviving entity, other than Partnership Units
held by the General Partner, are owned directly or indirectly by the
Partnership or another limited partnership or limited liability company
which is the survivor of a merger, consolidation or combination of assets
with the Partnership (in each case, the "Surviving Partnership"); (x) the
Limited Partners own a percentage interest of the Surviving Partnership
based on the relative fair market value of the net assets of the
Partnership (as determined pursuant to Section 11.2.C) and the other net
assets of the Surviving Partnership (as determined pursuant to Section
11.2.C) immediately prior to the consummation of such transaction; (y) the
rights, preferences and privileges of the Limited Partners in the
Surviving Partnership are at least as favorable as those in effect
immediately prior to the consummation of such transaction and as those
applicable to any other limited partners or non-managing members of the
Surviving Partnership; and (z) such rights of the Limited Partners include
the right to exchange their interests in the Surviving Partnership for at
least one of: (a) the consideration available to such Limited Partners
pursuant to Section 11.2.B(i) or (b) if the ultimate controlling person of
the Surviving Partnership has publicly traded common equity securities,
such common equity securities, with an exchange ratio based on the
relative fair market value of such securities (as determined pursuant to
Section 11.2.C) compared to the fair market of value the REIT Shares.

C. In connection with any transaction permitted by Section 11.2.B, the
relative fair market values of the securities of the ultimate controlling person
of the Surviving Partnership compared to the REIT Shares shall be reasonably
determined by the General Partner as of the time of such transaction and, to the
extent applicable, shall be no less favorable to the Limited Partners than the
relative values reflected in the terms of such transaction.

Section 11.3 Limited Partners' Rights to Transfer

A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, 11.4 and
11.6, a Limited Partner (other than the General Partner) may transfer, with or
without the consent of the General Partner, all or any portion of its
Partnership Interest, or any of such Limited Partner's economic rights as a
Limited Partner.

B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all of the rights of a Limited Partner, but
not more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the

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Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.

C. The General Partner may prohibit any transfer by a Limited Partner of
its Partnership Units if, in the opinion of legal counsel to the Partnership,
such transfer would require filing of a registration statement under the
Securities Act of 1933 or would otherwise violate any federal or state
securities laws or regulations applicable to the Partnership or the Partnership
Units.

D. No transfer by a Limited Partner of its Partnership Units may be made
to any Person if (i) in the opinion of legal counsel for the Partnership, it
would result in the Partnership being treated as an association taxable as a
corporation; (ii) it is made within one year after the consummation of the
initial public offering of the General Partner; (iii) such transfer is
effectuated through an "established securities market" or a "secondary market
(or the substantial equivalent thereof)" with the meaning of Section 7704 of the
Code; (iv) such transfer would cause the Partnership to become, with respect to
any employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), a "party-in-interest" (as defined in
Section 3(14) of ERISA) or a "disqualified person" (as defined in Section
4975(c) of the Code); (v) such transfer would, in the opinion of legal counsel
for the Partnership, cause any portion of the assets of the Partnership to
constitute assets of any employee benefit plan pursuant to Department of Labor
Regulations Section 2510.2-101; or (vi) such transfer would subject the
Partnership to be regulated under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or ERISA, each as amended.

E. No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, without the consent of the General Partner,
in its sole and absolute discretion; provided, that as a condition to such
consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to redeem for the Cash Amount any
Partnership Units in which a security interest is held simultaneously with the
time at which such lender would be deemed to be a partner in the Partnership for
purposes of allocating liabilities to such lender under Section 752 of the Code.

Section 11.4 Substituted Limited Partners

A. No Limited Partner shall have the right to substitute a transferee as a
Limited Partner in his place. The General Partner shall, however, have the right
to consent to the admission of a transferee of the interest of a Limited Partner
pursuant to this Section 11.4 as a Substituted Limited Partner, which consent
may be given or withheld by the General Partner in

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its sole and absolute discretion. The General Partner's failure or refusal to
permit a transferee of any such interests to become a Substituted Limited
Partner shall not give rise to any cause of action against the Partnership or
any Partner.

B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement. The admission of any transferee as a Substituted Limited Partner
shall be conditioned upon the transferee executing and delivering to the
Partnership an acceptance of all the terms and conditions of this Agreement and
such other documents or instruments as may be required to effect the admission.

C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.

Section 11.5 Assignees

If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee as a Substituted Limited
Partner, as described in Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive distributions from the
Partnership and the share of Profits, Losses, and any other items, gain, loss
deduction and credit of the Partnership attributable to the Partnership Units
assigned to such transferee, but except as otherwise provided in Section 8.6
hereof shall not be deemed to be a holder of Partnership Units for any other
purpose under this Agreement, and shall not be entitled to vote such Partnership
Units in any matter presented to the Limited Partners for a vote (such
Partnership Units being deemed to have been voted on such matter in the same
proportion as all other Partnership Units held by Limited Partners are voted).
If any such transferee desires to make a further assignment of any such
Partnership Units, such transferee shall be subject to all of the provisions of
this Article 11 to the same extent and in the same manner as any Limited Partner
desiring to make an assignment of Partnership Units.

Section 11.6 General Provisions

A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11 or pursuant to redemption of all of its
Partnership Units under Section 8.6.

B. Any Limited Partner who shall transfer all of its Partnership Units in
a transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the

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admission of all Assignees of such Partnership Units as Substitute Limited
Partners. Similarly, any Limited Partner who shall transfer all of its
Partnership Units pursuant to a redemption of all of its Partnership Units under
Section 8.6 shall cease to be a Limited Partner.

C. Transfers pursuant to this Article 11 may only be made on the first day
of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.

D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 or redeemed or transferred pursuant to Section 8.6
on any day other than the first day of a Partnership Year, then Profits, Losses,
each item thereof and all other items attributable to such interest for such
Partnership Year shall be divided and allocated between the transferor Partner
and the transferee Partner by taking into account their varying interests during
the Partnership Year in accordance with Section 706(d) of the Code, using the
interim closing of the books method. Solely for purposes of making such
allocations, each of such items for the calendar month in which the transfer or
assignment occurs shall be allocated to the transferee Partner, and none of such
items for the calendar month in which a redemption occurs shall be allocated to
the Redeeming Partner; provided, however, that the General Partner may adopt
such other conventions relating to allocations in connection with transfers,
assignments or redemptions as it determines are necessary or appropriate. All
distributions of cash attributable to such Partnership Unit with respect to
which the Partnership Record Date is before the date of such transfer,
assignment, or redemption shall be made to the transferor Partner or the
Redeeming Partner, as the case may be, and in the case of a transfer or
assignment other than a redemption, all distributions of cash thereafter
attributable to such Partnership Unit shall be made to the transferee Partner.

E. In addition to any other restrictions on transfer herein contained,
including, without limitation, the provisions of this Article 11, in no event
may any transfer or assignment of a Partnership Interest by any Partner
(including pursuant to Section 8.6 hereof) be made without the express consent
of the General Partner, in its sole and absolute discretion, (i) to any person
or entity who lacks the legal right, power or capacity to own a Partnership
Interest; (ii) in violation of applicable law; (iii) of any component portion of
a Partnership Interest, such as the Capital Account, or rights to distributions,
separate and apart from all other components of a Partnership Interest; (iv) if,
in the opinion of legal counsel to the Partnership experienced in such matters
such transfer would cause a termination of the Partnership for federal or state
income tax purposes (except as a result of the redemption or exchange for REIT
Shares of all Partnership Units held by all Limited Partners or pursuant to a
transaction expressly permitted under Section 11.2); (v) if, in the opinion of
counsel to the Partnership experienced in such matters, such transfer would
cause the Partnership to cease to be classified as a partnership for federal
income tax purposes (except as a result of the redemption or exchange for REIT
Shares of all Partnership Units held by all Limited Partners or pursuant to a
transaction expressly permitted under Section 11.2); (vi) if such transfer would

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cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of ERISA, a "party-in-interest" (as defined in Section 3(14)
of ERISA) or a "disqualified person" (as defined in Section 4975(c) of the
Code); (vii) if such transfer would, in the opinion of counsel to the
Partnership experienced in such matters, cause any portion of the assets of the
Partnership to constitute assets of any employee benefit plan pursuant to
Department of Labor Regulations Section 25101.2-101; (viii) if such transfer
requires the registration of such Partnership Interest pursuant to any
applicable federal or state securities laws; (ix) if such transfer is
effectuated through an "established securities market" or a "secondary market"
(or the substantial equivalent thereof) within the meaning of Section 7704 of
the Code or such transfer causes the Partnership to become a "publicly traded
partnership," as such term is defined in Section 469(k)(2) or Section 7704(b) of
the Code (provided, that this clause (ix) shall not be the basis for limiting or
restricting in any manner the exercise of the Redemption Right under Section 8.6
hereof unless, and only to the extent that, outside tax counsel experienced in
such matters provides to the General Partner an opinion to the effect that, in
the absence of such limitation or restriction, there is a significant risk that
the Partnership will be treated as a "publicly traded partnership" and, by
reason thereof, taxable as a corporation); (x) if such transfer subjects the
Partnership to regulation under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or ERISA, each as amended; (xi) such transfer
could adversely affect the ability of the General Partner to remain qualified as
a REIT; or (xii) if in the opinion of independent legal counsel experienced in
such matters for the transferring Partner (which opinion and counsel shall be
reasonably satisfactory to the Partnership) or legal counsel for the
Partnership, such transfer would adversely affect the ability of the General
Partner to continue to qualify as a REIT or subject the General Partner to any
additional taxes under Section 857 or Section 4981 of the Code.

F. The General Partner shall monitor the transfers of interests in the
Partnership to determine (i) if such interests are being traded on an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code and (ii)
whether additional transfers of interests would result in the Partnership being
unable to qualify for at least one of the "safe harbors" set forth in
Regulations Section 1.7704-1 (or such other guidance subsequently published by
the IRS setting forth safe harbors under which interests will not be treated as
"readily tradable on a secondary market (or the substantial equivalent thereof)"
within the meaning of Section 7704 of the Code) (the "Safe Harbors"). The
General Partner shall take all steps reasonably necessary or appropriate in its
sole an absolute discretion to prevent any trading of interests or any
recognition by the Partnership of transfers made on such markets and, except as
otherwise provided herein, to insure that at least one of the Safe Harbors is
met; provided, however, that the foregoing shall not authorize the General
Partner to limit or restrict in any manner the right of the holder of a
Partnership Unit to exercise the Redemption Right in accordance with the terms
of Section 8.6 unless, and only to the extent that, outside tax counsel
experienced in such matters provides to the General Partner an opinion to the
effect that, in the absence of such limitation or

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restriction, there is a significant risk that the Partnership will be treated as
a "publicly traded partnership" and, by reason thereof, taxable as a
corporation.

ARTICLE 12
ADMISSION OF PARTNERS

Section 12.1 Admission of Successor General Partner

A successor to all of the General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership Year
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6.D hereof.

Section 12.2 Admission of Additional Limited Partners

A. After the admission to the Partnership of the initial Limited Partners
on the date hereof, a Person who makes a Capital Contribution to the Partnership
in accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.4 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner.

B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.

C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Partnership Year, then Profits, Losses, each
item thereof and all other items allocable among Partners and Assignees for such
Partnership Year shall be allocated among such Additional Limited Partner and
all other Partners and Assignees by

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taking into account their varying interests during the Partnership Year in
accordance with Section 706(d) of the Code, using any convention permitted by
law and selected by the General Partner. Solely for purposes of making such
allocations, each such item for the calendar month in which an admission of any
Additional Limited Partner occurs shall be allocated among all of the Partners
and Assignees, including such Additional Limited Partner; provided, however,
that the General Partner may adopt such other conventions relating to
allocations to Additional Limited Partners as it determines are necessary or
appropriate. All distributions of cash with respect to which the Partnership
Record Date is before the date of such admission shall be made solely to
Partners and Assignees, other than the Additional Limited Partner, and all
distributions of cash thereafter shall be made to all of the Partners and
Assignees, including such Additional Limited Partner.

Section 12.3 Amendment of Agreement and Certificate of Limited Partnership

For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate of
Limited Partnership and may for this purpose exercise the power of attorney
granted pursuant to Section 2.4 hereof.

ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION

Section 13.1 Dissolution

The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, only upon the first to occur of any of the
following ("Liquidating Events"):

A. the expiration of its term as provided in Section 2.5 hereof;

B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless, within ninety (90) days after such
event of withdrawal Partners holding a majority of the Percentage Interests of
the remaining Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of withdrawal, of a
successor General Partner;

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C. from and after the date of this Agreement through December 31, 2048, an
election to dissolve the Partnership made by the General Partner with the
Consent of Partners holding eighty-five percent (85%) of the Percentage
Interests of the Limited Partners (including Limited Partner Interests held by
the General Partner);

D. on or after January 1, 2049, an election to dissolve the Partnership
made by the General Partner, in its sole and absolute discretion;

E. entry of a decree of judicial dissolution of the Partnership pursuant
to the provisions of the Act;

F. the sale of all or substantially all of the assets and properties of
the Partnership; or

G. a final and non-appealable judgment is entered by a court of competent
jurisdiction ruling that the General Partner is bankrupt or insolvent, or a
final and non-appealable order for relief is entered by a court with appropriate
jurisdiction against the General Partner, in each case under any federal or
state bankruptcy or insolvency laws as now or hereafter in effect, unless prior
to the entry of such order or judgment all of the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of a date prior to the date of such order or judgment, of a
substitute General Partner.

Section 13.2 Winding-Up

A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or, if there is no remaining General Partner, any Person
elected by a majority in interest of the Limited Partners (the General Partner
or such other Person being referred to herein as the "Liquidator"), shall be
responsible for overseeing the winding up and dissolution of the Partnership and
shall take full account of the Partnership's liabilities and property and the
Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom (which may, to the
extent determined by the General Partner, include shares of common stock in the
General Partner) shall be applied and distributed in the following order:

(a) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the Partners;

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(b) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General Partner;

(d) The balance, if any, to the General Partner and Partners
in accordance with their Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.

The General Partner shall not receive any additional
compensation for any services performed pursuant to this Article 13.

B. Notwithstanding the provisions of Section 13.2.A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.

C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:

(a) distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership, and paying
any contingent or unforeseen liabilities or obligations of the Partnership
or the General Partner arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the
General Partner and Limited Partners from time to time, in the reasonable
discretion of the Liquidator, in the same proportions as the amount
distributed to such trust by the Partnership would otherwise have been
distributed to the General Partner and Limited Partners pursuant to this
Agreement; or

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(b) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the Partnership;
provided, that such withheld or escrowed amounts shall be distributed to
the General Partner and Limited Partners in the manner and order of
priority set forth in Section 13.2.A as soon as practicable.

Section 13.3 Deemed Distribution and Recontribution

Notwithstanding any other provision of this Article 13, if the Partnership
is considered "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, for federal income tax purposes, the Partnership shall be deemed to
have contributed the Partnership property to a new partnership, in exchange for
an interest in the new partnership, which new partnership shall be deemed to
have assumed and taken such property subject to all Partnership liabilities.
Immediately thereafter, the Partnership shall be deemed to have distributed the
interests in the new partnership in liquidation of the Partnership, to the
General Partner and the Limited Partners, in proportion to their respective
Partnership Interests for the continuation of the business.

Section 13.4 Rights of Limited Partners

Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its Capital Contributions, distributions, or allocations.

Section 13.5 Notice of Dissolution

If a Liquidating Event occurs or an event occurs that would, but for the
provisions of an election or objection by one or more Partners pursuant to
Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.

Section 13.6 Termination of Partnership and Cancellation of Certificate of
Limited Partnership

Upon the completion of the liquidation of the Partnership's assets, as
provided in Section 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed, and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions

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other than the State of Delaware shall be canceled and such other actions as may
be necessary to terminate the Partnership shall be taken.

Section 13.7 Reasonable Time for Winding-Up

A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.

Section 13.8 Waiver of Partition

Each Partner hereby waives any right to partition of the Partnership
property.

Section 13.9 Liability of Liquidator

The Liquidator shall be indemnified and held harmless by the Partnership
in the same manner and to the same degree as an Indemnitee may be indemnified
pursuant to Section 7.7 hereof.

ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS

Section 14.1 Amendments

A. Amendments to this Agreement may be proposed by the General Partner or
by any Limited Partners (other than the General Partner) holding twenty percent
(20%) or more of the Partnership Interests. Following such proposal, the General
Partner shall submit any proposed amendment to the Limited Partners. The General
Partner shall seek the written vote of the Partners on the proposed amendment or
shall call a meeting to vote thereon and to transact any other business that it
may deem appropriate. For purposes of obtaining a written vote, the General
Partner may require a response within a reasonable specified time, but not less
than fifteen (15) days, and failure to respond in such time period shall
constitute a vote which is consistent with the General Partner's recommendation
with respect to the proposal. Except as provided in Section 13.1.C, 14.1.B,
14.1.C or 14.1.D, or in connection with an amendment made to reflect the
issuance of additional Partnership Interests and the relative rights, powers and
duties incident thereto, a proposed amendment shall be adopted and be effective
as an amendment hereto if it is approved by the General Partner and it receives
the Consent of Partners holding a majority of the Percentage Interests of the
Limited Partners (including Limited Partner Interests held by the General
Partner); provided, that an action shall

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become effective at such time as the requisite consents are received even if
prior to such specified time.

B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:

(a) to add to the obligations of the General Partner or
surrender any right or power granted to the General Partner or any
Affiliate of the General Partner for the benefit of the Limited Partners;

(b) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;

(c) to set forth and reflect in the Agreement the
designations, rights, powers, duties, and preferences of the holders of
any additional Partnership Interests issued pursuant to Section 4.2.A
hereof;

(d) to reflect a change that is of an inconsequential nature
and does not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity, correct or supplement any provision in
this Agreement not inconsistent with law or with other provisions, or make
other changes with respect to matters arising under this Agreement that
will not be inconsistent with law or with the provisions of this
Agreement; and

(e) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law.

The General Partner shall provide notice to the Limited
Partners when any action under this Section 14.1.B is taken.

C. Notwithstanding Sections 14.1.A and 14.1.B hereof, this Agreement shall
not be amended without the Consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the Partnership into
a General Partner Interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner (other than as a result of the issuance of Partnership Interests) to
receive distributions pursuant to Article 5 or Article 13 or the allocations
specified in Article 6 (except as permitted pursuant to Section 4.2 and Section
14.1.B(c) hereof); (iv) alter or modify a Redemption Right and REIT Shares
Amount as set forth in Sections 8.6 and 11.2.B, and the related definitions, in
a manner adverse to such Partner; (v) cause the termination of the Partnership
prior to the time set forth in Section 2.5 or 13.1; or (vi) amend this Section

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14.1.C. Further, no amendment may alter the restrictions on the General
Partner's authority set forth in Section 7.3 without the Consent specified in
that section.

D. Notwithstanding anything in this Article 14 or elsewhere in this
Agreement to the contrary, any amendment and restatement of Exhibit A authorized
or permitted by this Agreement, whether pursuant to Section 7.1.A(w) hereof or
otherwise, shall not be deemed an amendment of this Agreement and may be done at
any time and from time to time, as necessary by the General Partner without the
Consent of the Limited Partners.

Section 14.2 Meetings of the Partners

A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by
Limited Partners (other than the General Partner) holding twenty percent (20%)
or more of the Partnership Interests. The request shall state the nature of the
business to be transacted. Notice of any such meeting shall be given to all
Partners not less than seven (7) days nor more than thirty (30) days prior to
the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote or Consent of the Partners is permitted or required
under this Agreement, such vote or Consent may be given at a meeting of the
Partners or may be given in accordance with the procedure prescribed in Section
14.1.A hereof. Except as otherwise expressly provided in this Agreement, the
Consent of holders of a majority of the Percentage Interests held by Limited
Partners (including Limited Partner Interests held by the General Partner) shall
control.

B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.

C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of twelve (12)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.

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D. Each meeting of the Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate. Without limitation, meetings of Partners may be conducted in the
same manner as meetings of the stockholders of the General Partner and may be
held at the same time, and as part of, meetings of the stockholders of the
General Partner.

ARTICLE 15
GENERAL PROVISIONS

Section 15.1 Addresses and Notice

Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit A or such other address of which
the Partner shall notify the General Partner in writing.

Section 15.2 Titles and Captions

All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.

Section 15.3 Pronouns and Plurals

Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.

Section 15.4 Further Action

The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.

Section 15.5 Binding Effect

62
<PAGE>

This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

Section 15.6 Creditors

Other than as expressly set forth herein with respect to the Indemnitees,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.

Section 15.7 Waiver

No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.

Section 15.8 Counterparts

This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.

Section 15.9 Applicable Law

This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.

Section 15.10 Invalidity of Provisions

If any provision of this Agreement shall to any extent be held void or
unenforceable (as to duration, scope, activity, subject or otherwise) by a court
of competent jurisdiction, such provision shall be deemed to be modified so as
to constitute a provision conforming as nearly as possible to the original
provision while still remaining valid and enforceable. In such event, the
remainder of this Agreement (or the application of such provision to persons or
circumstances other than those in respect of which it is deemed to be void or
unenforceable) shall not be affected thereby. Each other provision of this
Agreement, unless specifically conditioned upon the voided aspect of such
provision, shall remain valid and enforceable to the fullest extent permitted by
law; any other provisions of this Agreement that are specifically conditioned on
the voided aspect of such invalid provision shall also be deemed to be modified
so as to constitute a provision conforming as nearly as possible to the original
provision while still remaining valid and enforceable to the fullest extent
permitted by law.

63
<PAGE>

Section 15.11 Entire Agreement

This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes any other
prior written or oral understandings or agreements among them with respect
thereto.

Section 15.12 No Rights as Stockholders

Nothing contained in this Agreement shall be construed as conferring upon
the holders of the Partnership Units any rights whatsoever as stockholders of
the General Partner, including, without limitation, any right to receive
dividends or other distributions made to stockholders of the General Partner or
to vote or to consent or receive notice as stockholders in respect to any
meeting of stockholders for the election of directors of the General Partner or
any other matter.

64
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

GENERAL PARTNER:

MACKLOWE PROPERTIES, INC.

By:______________________________
Name:
Title:

65
<PAGE>

LIMITED PARTNER SIGNATURE PAGE

The undersigned, desiring to become one of the within named Limited
Partners of Macklowe Properties, L.P., hereby becomes a party to the Agreement
of Limited Partnership of Macklowe Properties, L.P. by and among Macklowe
Properties, Inc. and such Limited Partners, dated as of ________, 1998. The
undersigned agrees that this signature page may be attached to any counterpart
of said Agreement of Limited Partnership.

Signature Line for Limited Partner:

MACKLOWE PROPERTIES, INC.

By:______________________________
Name:
Title:

Address of Limited Partner: 142 West 57th Street
New York, New York 10019

66
<PAGE>

[OTHER SIGNATURE PAGES]

67
<PAGE>

Exhibit A

Partners' Contributions and Partnership Interests

GENERAL PARTNER

Macklowe Properties, Inc.

Address for notices:

142 West 57th Street
New York, New York 10019
Attention: Warren D. Cole

with a copy to:

Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Robert E. King, Jr.

COMMON LIMITED PARTNERS

CLASS B LIMITED PARTNERS

A-1
<PAGE>

Exhibit B

Notice of Redemption

The undersigned Limited Partner hereby irrevocably (i) redeems [_____]
Partnership Units in Macklowe Properties, L.P. in accordance with the terms of
the Agreement of Limited Partnership of Macklowe Properties, L.P. and the
Redemption Right referred to therein; (ii) surrenders such Partnership Units and
all right, title and interest therein; and (iii) directs that the Cash Amount or
REIT Shares Amount (as determined by the General Partner) deliverable upon
exercise of the Redemption Right be delivered to the address specified below,
and if REIT Shares are to be delivered, such REIT Shares be registered or placed
in the name(s) and at the address(es) specified below. The undersigned hereby,
represents, warrants, and certifies that the undersigned (a) has marketable and
unencumbered title to such Partnership Units, free and clear of the rights or
interests of any other person or entity; (b) has the full right, power, and
authority to redeem and surrender such Partnership Units as provided herein; and
(c) has obtained the consent or approval of all person or entities, if any,
having the right to consent or approve such redemption and surrender.
Capitalized terms used herein and not otherwise defined shall have the meaning
ascribed to them in the Agreement of Limited Partnership of Macklowe Properties,
L.P.

Dated:________________________

Name of Limited Partner:

_________________________________________
(Please Print)

_________________________________________
(Signature of Partner)

_________________________________________
(Street Address)

_________________________________________
(City) (State) (Zip Code)

Signature Guaranteed By:
_________________________________________

B-1
<PAGE>

If REIT Shares are to be issued, issue to:

Name:

_________________________________________

Please insert social security or identifying number:

_________-___________-_____________

<PAGE>

Exhibit 10(f)

ARTICLES OF ORGANIZATION

MACKLOWE MANAGEMENT, LLC

(Under Section Two Hundred Three of the New York Limited Liability Company Law)

The undersigned person, acting as an organizer of the limited liability
company hereinafter named, sets forth the following statements.

FIRST: The name of the limited liability company (the "company") is
Macklowe Management, LLC.

SECOND: The county within the State of New York in which the office of the
company is to be located is in the County of

THIRD: The company is not to have a specific date of dissolution in
addition to the events of dissolution set forth in Section 701 of the New York
Limited Liability Company Law.

FOURTH: The Secretary of State of the State of New York is designated as
agent of the company upon whom process against it may be served. The post office
address within or without the State of New York to which the Secretary of State
of the State of New York shall mail a copy of any process against the company
served upon him or her is c/o Corporation Service Company, 80 State Street,
Albany, New York 12207.

FIFTH: The company is to be managed by one or more members.

SIXTH: The name and the address within the State of New York of the
registered agent of the company are: Corporation Service Company, 80 State
Street, Albany, New York, 12007. The registered agent is to be the agent of the
company upon whom process against it may be served.

SEVENTH: The business purpose for which the company is formed is as
follows: ordinary business purposes.

EIGHTH: There are no limitations on the authority of managers of the
company to bind the company.

<PAGE>

IN WITNESS WHEREOF, I have signed this document on the date set
forth below and do hereby affirm, under penalties of perjury, that the
statements contained therein have been examined by me and are true and correct.

Dated: April 28, 1998

/s/ Mark E. DeAngelis
---------------------
Mark E. DeAngelis, Authorized Signatory

2
<PAGE>

Exhibit 10(f)

ARTICLES OF ORGANIZATION

MACKLOWE CONSTRUCTION, LLC

(Under Section Two Hundred Three of the New York Limited Liability Company
Law)

The undersigned person, acting as an organizer of the limited liability
company hereinafter named, sets forth the following statements.

FIRST: The name of the limited liability company (the "company") is
Macklowe Construction, LLC

SECOND: The county within the State of New York in which the office of the
company is to be located is in the County of

THIRD: The company is not to have a specific date of dissolution in
addition to the events of dissolution set forth in Section 701 of the New York
Limited Liability Company Law.

FOURTH: The Secretary of State of the State of New York is designated as
agent of the company upon whom process against it may be served. The post
office address within or without the State of New York to which the Secretary of
State of the State of New York shall mail a copy of any process against the
company served upon him or her is c/o Corporation Service Company, 80 State
Street, Albany, New York 12207.

FIFTH: The company is to be managed by one or more members.

SIXTH: The name and the address within the State of New York of the
registered agent of the company are: Corporation Service Company, 80 State
Street, Albany, New York 12207. The registered agent is to be the agent of the
company upon whom process against it may be served.

SEVENTH: The business purpose for which the company is formed is as
follows: ordinary business purposes.

EIGHTH: There are no limitations on the authority of managers of the
company to bind the company.

<PAGE>

IN WITNESS WHEREOF, I have signed this document on the date set forth
below and do hereby affirm, under penalties of perjury, that the statements
contained therein have been examined by me and are true and correct.

Dated: April 28, 1998

/s/
---------------------------------------------
Mark E. DeAngelis, Authorized Signatory

<PAGE>

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

OPERATING AGREEMENT

MACKLOWE CONSTRUCTION, LLC

Dated as of April 28, 1998

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

<PAGE>

TABLE OF CONTENTS

PAGE

ARTICLE I
DEFINED TERMS

ARTICLE II
FORMATION AND NAME: OFFICE; PURPOSE; TERM

2.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2. Name of the Company. . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3. Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5. Registered Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6. Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE III
MEMBERS; CAPITAL; CAPITAL ACCOUNTS

3.1. Initial Capital Contributions. . . . . . . . . . . . . . . . . . . . 7
3.2. Additional Capital Contributions . . . . . . . . . . . . . . . . . . 7
3.3. No interest on Capital Contributions . . . . . . . . . . . . . . . . 7
3.4. Return of Capital Contributions. . . . . . . . . . . . . . . . . . . 7
3.5. Form of Return of Capital. . . . . . . . . . . . . . . . . . . . . . 7
3.6. Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE IV
PROFIT, LOSS, AND DISTRIBUTIONS

4.1. Distributions of Cash Flow and Allocations of
Profit or Loss Other than Capital Transactions . . . . . . . . . . . 8
4.2. Distributions of Capital Proceeds and Allocation
of Profit or Loss from Capital Transactions. . . . . . . . . . . . . 8
4.3. Regulatory Allocations . . . . . . . . . . . . . . . . . . . . . . . 10
4.4. Liquidation and Dissolution. . . . . . . . . . . . . . . . . . . . . 11
4.5. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE V
MANAGEMENT: RIGHTS, POWERS, AND DUTIES

5.1. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2. Limitation on Authority of Members . . . . . . . . . . . . . . . . . 13
5.3. Meetings of and Voting by Members. . . . . . . . . . . . . . . . . . 13

<PAGE>

5.4. Personal Service . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5. Duties of Parties. . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.6. Liability and Indemnification. . . . . . . . . . . . . . . . . . . . 14
5.7. Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE VI
TRANSFER OF INTERESTS AND WITHDRAWAL OF MEMBERS

6.1. Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2. Voluntary Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE VII
DISSOLUTION, LIQUIDATION, AND
TERMINATION OF THE COMPANY

7.1. Events of Dissolution. . . . . . . . . . . . . . . . . . . . . . . . 16
7.2. Procedure for Winding Up and Dissolution . . . . . . . . . . . . . . 17
7.3. Filing of Articles of Dissolution. . . . . . . . . . . . . . . . . . 17

ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING, AND TAX ELECTIONS

8.1. Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.3. Annual Accounting Period . . . . . . . . . . . . . . . . . . . . . . 18
8.4. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.5. Tax Matters Member . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.6. Tax Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.7. Title to Company Property. . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE IX
GENERAL PROVISIONS

9.1. Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2. Notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.3. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . 19
9.4. Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.5. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.6. Article and Section Titles . . . . . . . . . . . . . . . . . . . . . 20
9.7. Binding Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.8. Exclusive Jurisdiction and Venue . . . . . . . . . . . . . . . . . . 20
9.9. Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.10. Separability of Provisions . . . . . . . . . . . . . . . . . . . . . 20
9.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.12. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . 20

<PAGE>

THIS OPERATING AGREEMENT, dated as of April 28, 1998, of Macklowe
Construction, LLC, by and between Macklowe Properties, L.P. and such other
persons or entities as may from time to time be admitted to the Company

EXPLANATORY STATEMENT

WHEREAS, the parties have agreed to organize and operate a limited
liability company in accordance with the terms and subject to the conditions set
forth in this Agreement.

WHEREAS, the parties desire to provide for the regulation and establishment
of the affairs of the Company, the conduct of its business and the relations
among them as Members of the Company.

NOW, THEREFORE, for and in consideration of the premises stated, and for
good and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties, intending legally to be bound, agree as follows:

ARTICLE I
DEFINED TERMS

The following capitalized terms shall have the meaning specified in this
Article I. Other terms are defined in the text of this Agreement; and,
throughout this Agreement, those terms shall have the meanings respectively
ascribed to them.

"Adjusted Capital Account Deficit" means, with respect to any Economic
Interest Holder, the deficit balance, if any, in the Economic Interest Holder's
Capital Account as of the end of the relevant taxable year, after giving effect
to the following adjustments:

(i) the deficit shall be decreased by the amounts which the
Economic interest Holder is obligated to restore pursuant to Section 4.4.2 or is
deemed obligated to restore pursuant to Regulation Section 1.704-1(b)(2)(ii)(c);
and

(ii) the deficit shall be increased by the items described in
Regulation Sections 1.704-1(b)(2)(ii)-(d)(4), (5), and (6).

"Adjusted Capital Balance" means, as of any day, an Economic Interest
Holder's total Capital Contributions less all amounts actually distributed to
the Economic Interest Holder pursuant to Sections 4.2.3.4.1 and 4.4 hereof. If
any Economic Interest is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Adjusted Capital Balance of the
transferor to the extent the Adjusted Capital Balance relates to the Economic
interest transferred.

<PAGE>

"Affiliate" means, with respect to any Member, any Person: (i) which owns
more than 50% of the voting interests in the Member; or (ii) in which the Member
owns more than 50% of the voting interests; or (iii) in which more than 50% of
the voting interests are owned by a Person who has a relationship with the
Member described in clause (i) or (ii) above or who otherwise controls, is
controlled by, or under common control with, another person.

"Agreement" means this Operating Agreement, as amended from time to time.

"Capital Account" means the account to be maintained by the Company for
each Economic Interest Holder in accordance with the following provisions:

(i) an Economic Interest Holder's Capital Account shall be credited
with the Economic Interest Holder's Capital Contributions, the amount of any
Company liabilities assumed by the Economic Interest Holder (or which are
secured by Company property distributed to the Economic Interest Holder), the
Economic Interest Holder's distributive share of Profit and any item in the
nature of income or gain specially allocated to the Economic Interest Holder
pursuant to the provisions of Article IV (other than Section 4.3.3); and

(ii) an Economic Interest Holder's Capital Account shall be debited
with the amount of money and the fair market value of any Company property
distributed to the Economic Interest Holder, the amount of any liabilities of
the Economic Interest Holder assumed by the Company (or which are secured by
property contributed by the Economic Interest Holder to the Company), the
Economic Interest Holder's distributive share of loss and any item in the nature
of expenses or losses specially allocated to the Economic Interest Holder
pursuant to the provisions of Article IV (other than Section 4.3.3).

If any Economic Interest is transferred pursuant to the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent the Capital Account is attributable to the transferred Economic
Interest. If the book value of Company property is adjusted pursuant to Section
4.3.3, the Capital Account of each Economic Interest Holder shall be adjusted to
reflect the aggregate adjustment in the same manner as if the Company had
recognized gain or loss equal to the amount of such aggregate adjustment. It is
intended that the Capital Accounts of all Economic Interest Holders shall be
maintained in compliance with the provisions of Regulation Section 1.704-1(b),
and all provisions of this Agreement relating to the maintenance of Capital
Accounts shall be interpreted and applied in a manner consistent with at
Regulation.

"Capital Contribution" means the total amount of cash and the fair market
value of any other assets contributed (or deemed contributed under Regulation
Section 1.704-1(b)(2)(iv)(d)) to the Company by a Member, net of liabilities
assumed or to which the assets are subject.

"Capital Proceeds" means the gross receipts received by the Company from a
Capital Transaction.

<PAGE>

"Capital Transaction" means any transaction not in the ordinary course of
business which results in the Company's receipt of cash or other consideration
other than Capital Contributions, including, without limitation, proceeds of
sales or exchanges or other dispositions of property not in the ordinary course
of business, financings, refinancings, condemnations, recoveries of damage
awards, and insurance proceeds.

"Cash Flow" means all cash funds derived from operations of the Company
(including interest received on reserves), without reduction for any non-cash
charges, but less cash funds used to pay current operating expenses and to pay
or establish reasonable reserves for future expenses, debt payments, capital
improvements, and replacements as determined by the General Manager. Cash Flow
shall not include Capital Proceeds but shall be increased by the reduction of
any reserve previously established.

"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding law.

"Company" means the limited liability company formed in accordance with
this Agreement.

"Economic Interest" means a Person's share of the Profits and Losses of,
and the right to receive distributions from, the Company.

"Economic Interest Holder" means any Person who holds an Interest, whether
as a Member or an unadmitted assignee of a Member.

"Family Member" means a Member's spouse, lineal ancestors or descendants by
birth or adoption, siblings, and trusts for the exclusive benefit of a Member or
any of the foregoing individuals.

"General Manager" means the Person designated as such in Article V.

"Involuntary Withdrawal" means, with respect to any Member, the occurrence
of any of the following events:

(i) the Member makes an assignment for the benefit of creditors;

(ii) the Member files a voluntary petition of bankruptcy;

(iii) the Member is adjudged bankrupt or insolvent or there is
entered against the Member an order for relief in any bankruptcy or insolvency
proceeding;

(iv) the Member files a petition seeking for the Member any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any statute, law, or regulation;

<PAGE>

(v) the Member seeks, consents to, or acquiesces in the appointment
of a trustee for, receiver for, or liquidation of the Member or of all or any
substantial part of the Member's properties;

(vi) the Member files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Member in any proceeding described in Subsections (i) rough (v);

(vii) any proceeding against the Member seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any statute, law, or regulation, continues for one hundred twenty
(120) days after the commencement thereof, or the appointment of a trustee,
receiver, or liquidator for the Member or all or any substantial part of the
Member's properties without the Member's agreement or acquiescence, which
appointment is not vacated or stayed for one hundred twenty (120) days or, if
the appointment is stayed, for one hundred twenty (120) days after the
expiration of the stay during which period the appointment is not vacated;

(viii) if the Member is an individual, the Member's death, incapacity,
or adjudication by a court of competent jurisdiction as incompetent to manage
the Member's person or property;

(ix) if the Member is acting as a Member by virtue of being a
trustee of a trust, the termination of the trust;

(x) if the Member is a partnership or limited liability company,
the dissolution and commencement of winding up of the partnership or limited
liability company;

(xi) the Member is a corporation, the dissolution of the corporation
or the revocation of its charter;

(xii) if the Member is an estate, the distribution by the fiduciary
of the estate's entire interest in the Company;

"Law" means the New York Limited Liability Company Law, as amended from
time to time.

"Member" means each Person signing this Agreement and any Person who
subsequently is admitted as a member of the Company.

"Membership Interest" means all of the rights of a Member in the Company,
including a Member's: (i) Economic Interest; (ii) right to inspect the Company's
books and records; (iii) right to participate in the management of and vote on
matters coming before the Company; and (iv) unless this Agreement or the
Articles of Organization provide to the contrary, right to act as an agent of
the Company.

<PAGE>

"Member Loan Nonrecourse Deductions" means any Company deductions that
would be Nonrecourse Deductions if they were not attributable to a loan made or
guaranteed by a Member within the meaning of Regulation Section 1.704-2(i).

"Minimum Gain" has the meaning set forth in Regulation Section 1.704-2(d).
Minimum Gain shall be computed separately for each Economic Interest Holder in a
manner consistent with the Regulations under Code Section 704(b).

"Negative Capital Account" means a Capital Account with a balance of less
than zero.

"Nonrecourse Deductions" has the meaning set forth in Regulation Section
1.704-2(b)(1). The amount of Nonrecourse Deductions for a taxable year of the
Company equals the net increase, if any, in the amount of Minimum Gain during
that taxable year, determined according to the provisions of Regulation Section
1.704-2(c).

"Nonrecourse Liability" means any liability of the Company with respect to
which no Member has personal liability, as determined in accordance with Code
Section 752 and the Regulations promulgated thereunder.

"Percentage" means, as to a Member, the percentage set forth after the
Member's name on Exhibit A, as amended from time to time, and as to an Economic
Interest Holder who is not a Member, the Percentage of the Member whose Economic
Interest has been acquired by such Economic Interest Holder, to the extent the
Economic Interest Holder has succeeded to that Member's Economic Interest.

"Person" means and includes an individual, corporation, partnership,
association, limited liability company, trust, estate, or other entity.

"Positive Capital Account" means a Capital Account with a balance greater
than zero.

"Profit" and "Loss" mean, for each taxable year of the Company (or other
period for which Profit or Loss must be computed), the Company's taxable income
or loss determined in accordance with Code Section 703(a), with the following
adjustments:

(i) all items of income, gain, loss, deduction, or credit required
to be stated separately pursuant to Code Section 703(a)(1) shall be included in
computing taxable income or loss; and

(ii) any tax-exempt income of the Company, not otherwise taken into
account in computing Profit or Loss, shall be included in computing taxable
income or loss; and

(iii) any expenditures of the Company described in Code Section
705(a)(2)(B) (or treated as such pursuant to Regulation Section
1.704-l(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit
or Loss, shall be subtracted from taxable income or loss; and

<PAGE>

(iv) gain or loss resulting from any taxable disposition of Company
property shall be computed by reference to the adjusted book value of the
property disposed of, notwithstanding the fact that the adjusted book value
differs from the adjusted basis of the property for federal income tax purposes;
and

(v) in lieu of the depreciation, amortization, or cost recovery
deductions allowable in computing taxable income or loss, there shall be taken
into account the depreciation computed based upon the adjusted book value of the
asset; and

(vi) notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Section 4.3 hereof shall not be
taken into account in computing Profit or Loss.

"Regulation" means the income tax regulations, including any temporary
regulations, from time to time promulgated under the Code.

"Transfer" means, when used as a noun, any sale, hypothecation, pledge,
assignment, attachment, or other transfer, and, when used as a verb, means to
sell, hypothecate, pledge, assign, or otherwise transfer.

"Voluntary Withdrawal" means a Member's disassociation with the Company by
means other than a Transfer or an Involuntary Withdrawal.

ARTICLE II
FORMATION AND NAME: OFFICE; PURPOSE; TERM

2.1. ORGANIZATION. The parties shall organize a limited liability company
pursuant to the Law and the provisions of this Agreement and, for that purpose,
shall cause Articles of Organization to be executed and filed with the New York
Department of State.

2.2. NAME OF THE COMPANY. The name of the Company shall be Macklowe
Construction, LLC The Company may do business under that name and under any
other name or names which the General Manager selects. If the Company does
business under a name other than that set forth in its Articles of Organization,
then the Company shall file a certificate with the Department of State as
required by General Business Law Section 130.

2.3. PURPOSE. The business purpose for which the Company is formed shall be
to engage in any lawful act or activity for which limited liability companies
may be organized under the Law.

2.4. TERM. The term of the Company shall be 50 years from the date of the
filing of Articles of Organization with the Department of State, unless its
existence is sooner terminated pursuant to Article VII of this Agreement.

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2.5. REGISTERED AGENT. The name and address of the Company's registered
agent in the State of New York shall be the Secretary of the State of New York.
All copies of process shall be sent c/o The Macklowe Organization, 142 West 57th
Street, New York, New York, 10019.

2.6. MEMBERS. The name, present mailing address, and Percentage of each
Member are set forth on Exhibit A.

ARTICLE III
MEMBERS; CAPITAL; CAPITAL ACCOUNTS

3.1. INITIAL CAPITAL CONTRIBUTIONS. Upon the execution of this Agreement,
the Members shall contribute to the Company cash in the amounts respectively set
forth on Exhibit A as initial contributions.

3.2. ADDITIONAL CAPITAL CONTRIBUTIONS.

3.2.1. If the General Manager at any time or from time to time
determines that the Company requires additional Capital Contributions, then the
General Manager shall give notice to each Member of (i) the total amount of
additional Capital Contributions required, (ii) the reason the additional
Capital Contribution is required, (iii) each Member's proportionate share of the
total additional Capital Contribution (determined in accordance with this
Section), and (iv) the date each Member's additional Capital Contribution is due
and payable, which date shall be thirty (30) days after the notice has been
given. A Member's share of the total additional Capital Contribution shall be
equal to the product obtained by multiplying the Member's Percentage and the
total additional Capital Contribution required. A Member's share shall be
payable in cash or by certified check, or wire transfer.

3.2.2. Except as provided in Section 3.2.1, no Member shall be
required to contribute any additional capital to the Company, and no Member
shall have any personal liability for any obligation of the Company.

3.2.3. If a Member fails to pay when due all or any portion of any
Capital Contribution, the General Manager shall request the non-defaulting
Members to pay the unpaid amount of the defaulting Member's Capital Contribution
(the "Unpaid Contribution"). To the extent the Unpaid Contribution is
contributed by any other Member, the defaulting Member's Percentage shall be
reduced and the Percentage of each Member who makes up the Unpaid Contribution
shall be increased, so that each Member's Percentage is equal to a fraction, the
numerator of which is that Member's total Capital Contribution and the
denominator of which is the total Capital Contributions of all Members. The
General Manager shall amend Exhibit A accordingly. This remedy is in addition to
any other remedies allowed by law or by this Agreement.

3.3. NO INTEREST ON CAPITAL CONTRIBUTIONS. Economic Interest Holders shall
not be paid interest on their Capital Contributions.

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3.4. RETURN OF CAPITAL CONTRIBUTIONS. Except as otherwise provided in this
Agreement, no Economic Interest Holder shall have the right to receive any
return of any Capital Contribution.

3.5. FORM OF RETURN OF CAPITAL. If an Economic Interest Holder is entitled
to receive a return of a Capital Contribution, the Economic Interest Holder
shall not have the right to receive anything but cash in return of the Economic
Interest Holder's Capital Contribution.

3.5.1. CAPITAL ACCOUNTS. A separate Capital Account shall be
maintained for each Economic Interest Holder.

3.6. LOANS. The General Manager, may, at any time, make or cause a loan to
be made to the Company in any amount and on such terms as deemed necessary by
the General Manager.

ARTICLE IV
PROFIT, LOSS, AND DISTRIBUTIONS

4.1. Distributions of Cash Flow and Allocations of
PROFIT OR LOSS OTHER THAN CAPITAL TRANSACTIONS.

4.1.1. CASH FLOW. Cash flow from each taxable year of the Company
shall be distributed to the Economic Interest Holders in proportion to their
Percentages no later than ninety (90) days after the end of the taxable year.

4.1.2. PROFIT OR LOSS WHILE SINGLE MEMBER LLC. For federal income tax
purposes, during such time as Macklowe Properties, L.P. is the sole member of
the Company, all assets, liabilities and items of income deduction and credit of
the Company shall be treated as assets, liabilities and such items of the sole
Member. If any other persons or entities are admitted to the Company, the
Profit and Loss provisions of 4.1.3, 4.2 and 4.3 shall apply.

4.1.3. PROFIT OR LOSS OTHER THAN FROM A CAPITAL TRANSACTION. After
giving effect to the special allocations set for in Section 4.3, for any taxable
year of the Company, Profit or Loss (other than Profit or Loss resulting from a
Capital Transaction, which Profit or Loss shall be allocated in accordance with
the provisions of Sections 4.2.1 and 4.2.2) shall be allocated to the Economic
Interest Holders in proportion to their Percentages.

4.2. Distributions of Capital Proceeds and Allocation
OF PROFIT OR LOSS FROM CAPITAL TRANSACTIONS.

4.2.1. PROFIT. After giving effect to the special allocations set
forth in Section 4.3., Profit from a Capital Transaction shall be allocated as
follows:

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4.2.1.1. If one or more Economic Interest Holders has a
Negative Capital Account, to those Economic Interest Holders, in proportion to
their Negative Capital Accounts, until all of those Negative Capital Accounts
have been increased to zero.

4.2.1.2. To the Economic Interest Holders in accordance
with, and in the order and priority of, the cumulative distributions made (other
than distributions representing in the judgement of the General Manager, a
return of capital which are hereinafter referred to as "Excluded Distributions")
pursuant to this Agreement with respect to the current fiscal year and for all
prior fiscal years until the aggregate amount allocated to each Member pursuant
to this Section 4.2.1.2 equals the aggregate amount distributed to each Member
(other than Excluded Distributions) pursuant to Article IV; PROVIDED, HOWEVER,
that if the Profits allocable under this Section for the current fiscal year and
all prior fiscal years exceed the cumulative distributions (other than Excluded
Distributions) pursuant to Article IV with respect to the current fiscal year
and all prior fiscal years (the "Excess Profits") the portion of the Excess
Profits derived in the current fiscal year shall be allocated to the Members in
accordance with, and in the order and priority of, the Distributions that would
have been made pursuant to Article IV had distributions been made in the current
fiscal year in an amount equal to the Excess Profits derived in the current
fiscal year.

4.2.2. LOSS. After giving effect to the special allocations set forth
in Section 4.3, Loss from a Capital Transaction shall be allocated as follows:

4.2.2.1. If one or more Economic Interest Holders has a
Positive Capital Account, to those Economic Interest Holders, in proportion to
their Positive Capital Accounts, until all Positive Capital Accounts have been
reduced to zero.

4.2.2.2. Any Loss not allocated to reduce Positive Capital
Accounts to zero pursuant to Section 4.2.2.1 shall be allocated to the Economic
Interest Holders in proportion to their Percentages.

4.2.3. CAPITAL PROCEEDS. Capital Proceeds shall be distributed and
applied by the Company in the following order and priority:

4.2.3.1. to the payment of all expenses of the Company
incident to the Capital Transaction, then

4.2.3.2. to the payment of debts and liabilities of the
Company then due and outstanding (including all debts due to any Economic
Interest Holder); then

4.2.3.3. to the establishment of any reserves which the
General Manager deems necessary for liabilities or obligations of the Company;
then

4.2.3.4. the balance shall be distributed as follows:

<PAGE>

4.2.3.4.1. to the Economic Interest Holders in proportion to
their Adjusted Capital Balances, until their remaining Adjusted Capital Balances
have been paid in full;

4.2.3.4.2. the balance, to the Economic Interest Holders in
proportion to their Percentages.

4.3. REGULATORY ALLOCATIONS.

4.3.1. QUALIFIED INCOME OFFSET. No Economic Interest Holder shall be
allocated Losses or deductions if the allocation causes the Economic Interest
Holder to have an Adjusted Capital Account Deficit. If an Economic Interest
Holder receives (1) an allocation of Loss or deduction (or item thereof) or (2)
any distribution, which causes the Economic Interest Holder to have an Adjusted
Capital Account Deficit at the end of any taxable year, then all items of income
and gain of the Company (consisting of a pro rata portion of each item of
Company income, including gross income and gain) for that taxable year shall be
allocated to that Economic Interest Holder, before any other allocation is made
of Company items for that taxable year, in the amount and in proportions
required to eliminate the excess as quickly as possible. This Section 4.3.1 is
intended to comply with, and shall be interpreted consistently with, the
"qualified income offset" provisions of the Regulations promulgated under Code
Section 704(b).

4.3.2. MINIMUM GAIN CHARGEBACK. Except as set forth in Regulation
Section 1.704-2(f)(2), (3), and (4), if, during any taxable year, there is a net
decrease in Minimum Gain, each Economic Interest Holder, prior to any other
allocation pursuant to this Article IV, shall be specially allocated items of
gross income and gain for such taxable year (and, if necessary, subsequent
taxable years) in an amount equal to that Economic Interest Holder's share of
the net decrease of Minimum Gain, computed in accordance with Regulation Section
1.704-2(g). Allocations of gross income and gain pursuant to this Section
4.3.2 shall be made first from gain recognized from the disposition of Company
assets subject to nonrecourse liabilities (within the meaning of the Regulations
promulgated under Code Section 752), to the extent of the Minimum Gain
attributable to those assets, and thereafter, from a pro rata portion of the
Company's other items of income and gain for the taxable year. It is the intent
of the parties hereto that any allocation pursuant to this Section 4.3.2 shall
constitute a "minimum gain chargeback" under Regulation Section 1.704-2(f).

4.3.3. CONTRIBUTED PROPERTY AND BOOK-UPS. In accordance with Code
Section 704(c) and the Regulations thereunder, as well as Regulation Section
1.704-1(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect to any
property contributed (or deemed contributed) to the Company shall, solely for
tax purposes, be allocated among the Economic Interest Holders so as to take
account of any variation between the adjusted basis of the property to the
Company for federal income tax purposes and its fair market value at the date of
contribution (or deemed contribution). If the adjusted book value of any
Company asset is adjusted as provided herein, subsequent allocations of income,
gain, loss, and deduction with respect to the asset shall take account of any
variation between the adjusted basis of the asset for federal income tax
purposes and its adjusted book value in the manner required under Code Section
704(c) and the Regulations thereunder.

<PAGE>

4.3.4. CODE SECTION 754 ADJUSTMENT. To the extent an adjustment to
the tax basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulation Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of the
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases basis), and the gain or loss shall be specially allocated to the
Economic Interest Holders in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to at Section of the
Regulations.

4.3.5. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for a taxable
year or other period shall be specially allocated among the Economic Interest
Holders in proportion to their Percentages.

4.3.6. MEMBER LOAN NONRECOURSE DEDUCTIONS. Any Member Loan
Nonrecourse Deduction for any taxable year or other period shall be specially
allocated to the Economic Interest Holder who bears the risk of loss with
respect to the loan to which the Member Loan Nonrecourse Deduction is
attributable in accordance with Regulation Section 1.704-2(b).

4.3.7. GUARANTEED PAYMENTS. To the extent any compensation paid to
any Member by the Company, including any fees payable to any Member pursuant to
Section 5.3 hereof, is determined by the Internal Revenue Service not to be a
guaranteed payment under Code Section 707(c) or is not paid to the Member other
than in the Person's capacity as a Member within the meaning of Code Section
707(a), the Member shall be specially allocated gross income of the Company in
an amount equal to the amount of that compensation, and the Member's Capital
Account shall be adjusted to reflect the payment of that compensation.

4.3.8. UNREALIZED RECEIVABLES. If an Economic Interest Holder's
Economic Interest is reduced (provided the reduction does not result in a
complete termination of the Economic Interest Holder's Economic Interest), the
Economic Interest Holders share of the Company's "unrealized receivables" and
"substantially appreciated inventory" (within the meaning of Code Section 751)
shall not be reduced, so that, notwithstanding any other provision of this
Agreement to the contrary, that portion of the Profit otherwise allocable upon a
liquidation or dissolution of the Company pursuant to Section 4.4 hereof which
is taxable as ordinary income (recaptured) for federal income tax purposes
shall, to the extent possible without increasing the total gain to the Company
or to any Economic Interest Holder, be specially allocated among the Economic
Interest Holders in proportion to the deductions (or basis reductions treated as
deductions) giving rise to such recapture. Any questions as to the aforesaid
allocation of ordinary income (recapture), to the extent such questions cannot
be resolved in the manner specified above, shall be resolved by the General
Manager.

4.3.9. WITHHOLDING. All amounts required to be withheld pursuant to
Code Section 1446 or any other provision of federal, state, or local tax law
shall be treated as amounts actually distributed to the affected Economic
Interest Holders for all purposes under this Agreement.

4.4. LIQUIDATION AND DISSOLUTION.

4.4.1. If the Company is liquidated, the assets of the Company shall
be distributed to the Economic Interest Holders in accordance with the
provisions of Section 4.2.3.4.

4.4.2. No Economic Interest Holder shall be obligated to restore a
Negative Capital Account.

4.5. GENERAL.

4.5.1. Except as otherwise provided in this Agreement, the timing and
amount of all distributions shall be determined by the General Manager.

4.5.2. It any assets of the Company are distributed in kind to the
Economic Interest Holders, those assets shall be valued on the basis of their
fair market value, and any Economic Interest Holder entitled to any interest in
those assets shall receive that interest as a tenant-in-common with all other
Economic Interest Holders so entitled. Unless the Members otherwise agree, the
fair market value of the assets shall be determined by an independent appraiser
who shall be selected by the General Manager. The Profit or Loss for each
unsold asset shall be determined as if the asset had been sold at its fair
market value, and the Profit or Loss shall be allocated as provided in Section
4.2 and shall be properly credited or charged to the Capital Accounts of the
Economic Interest Holders prior to the distribution of the assets in liquidation
pursuant to Section 4.4.

4.5.3. All Profit and Loss shall be allocated, and all distributions
shall be made to the Persons shown on the records of the Company to have been
Economic Interest Holders as of the last day of the taxable year for which the
allocation or distribution is to be made. Notwithstanding the foregoing, unless
the Company's taxable year is separated into segments, if there is a Transfer or
Involuntary Withdrawal during the taxable year, the Profit and Loss shall be
allocated between the original Economic Interest Holder and the successor on the
basis of the number of days each was an Economic Interest Holder during the
taxable year; provided, however, the Company's taxable year shall be segregated
into two or more segments in order to account for Profit, Loss, or proceeds
attributable to a Capital Transaction or to any other extraordinary nonrecurring
items of the Company.

4.5.4. The General Manager is hereby authorized, upon the advice of
the Company's tax counsel, to amend this Article IV to comply with the Code and
the Regulations promulgated under Code Section 704(b); PROVIDED, HOWEVER, that
no amendment shall materially affect distributions to an Economic Interest
Holder without the Economic Interest Holder's prior written consent.

ARTICLE V
MANAGEMENT: RIGHTS, POWERS, AND DUTIES

<PAGE>

5.1. MANAGEMENT.

5.1.1. GENERAL MANAGER. Macklowe Properties, L.P. is hereby appointed
the manager of the Company (the "General Manager"). The business and control of
the Company shall be managed under the direction and control of the General
Manager, and all powers of the Company shall be exercised by or under the
control the authority of the General Manager. No other Person shall have any
right or authority to act for or bind the Company except as permitted by this
Agreement or required by Law.

5.1.2. GENERAL POWERS. The General Manager shall have the full power
to execute and deliver, for and on behalf of the Company, and any and all
documents and instruments which may be necessary or desirable to carry on the
business of the Company, including without limitation, any and all deeds,
contracts, leases, mortgages, deeds of trust, promissory notes, security
agreements, and financing statements pertaining to the Company's assets or
obligations, and to authorize the confession of judgment against the Company.
No person dealing with the General Manager shall need to inquire into the
validity of any document or instrument executed in the name of the Company by
the General Manager, or as to the authority of the General Manager in executing
the same.

5.2. LIMITATION ON AUTHORITY OF MEMBERS.

5.2.1. No Member is an agent of the Company solely by virtue of being
a Member and no Member has authority to act for the Company solely by virtue of
being a Member.

5.2.2. This Section 5.1 supersedes any authority granted to the
Members pursuant to Section 401 of the Law. Any Member who takes any action or
binds the Company in violation of this Section 5.1 shall be solely responsible
for any loss and expense incurred by the Company as a result of the unauthorized
action and shall indemnify and hold the Company harmless with respect to the
loss or expense.

5.3. MEETINGS OF AND VOTING BY MEMBERS.

5.3.1. A meeting of the Members may be called at any time by the
General Manager or by those Members holding at least 20 percent (20%) of the
Percentages then held by Members. Meetings of Members shall be held at the
Company's principal place of business or at any other place in New York, New
York designated by the Person calling the meeting. Not less than ten (10) nor
more than sixty (60) days before each meeting, the Person calling the meeting
shall give written notice of the meeting to each Member entitled to vote at the
meeting. The notice shall state the place, date, hour, and purpose of the
meeting. Notwithstanding the foregoing provisions, each Member who is entitled
to notice waives notice if before or after the meeting the Member signs a waiver
of the notice which is filed with the records of Members' meetings, or is
present at the meeting in person or by proxy without objecting to the lack of
notice. Unless this Agreement provides otherwise, at a meeting of Members, the
presence in person or by proxy of Members holding not less than a majority (over
50 percent) of the Percentages then held by Members

<PAGE>

constitutes a quorum. A Member may vote either in person or by written proxy
signed by the Member or by the Member's duly authorized attorney in fact.

5.3.2. Except as otherwise provided in this Agreement, the affirmative
vote of Members holding a majority (over 50 percent) or more of the Percentages
then held by Members shall be required to approve any matter coming before the
Members.

5.3.3. In lieu of holding a meeting, the Members may vote or otherwise
take action by a written instrument indicating the consent of Members holding
such Percentages then held by Members as would be required for Members to take
action under this operating agreement. If such consent is not unanimous, prompt
notice shall be given to those Members who have not consented in writing but who
would have been entitled to vote thereon had such action been taken at a
meeting.

5.4. PERSONAL SERVICE.

5.4.1. No Member shall be required to perform services for the Company
solely by virtue of being a Member. Unless approved by the General Manager, no
Member shall perform services for the Company or be entitled to compensation for
services performed for the Company.

5.4.2. Upon approval of Members holding two-thirds (2/3) percent of
the Percentages then held by Members, the General Manager shall be entitled to
compensation for services performed for the Company in such amounts as
determined by such members. Further, upon substantiation of the amount and
purpose thereof, the General Manager shall be entitled to reimbursement for
expenses reasonably incurred in connection with the activities of the Company.

5.5. DUTIES OF PARTIES.

5.5.1. The General Manager shall devote such time to the business and
affairs of the Company as is necessary to carry out the General Manager's duties
set forth in this Agreement.

5.5.2. Except as otherwise expressly provided in Section 5.5.1,
nothing in this Agreement shall be deemed to restrict in any way the rights of
any Member, or of any Affiliate of any Member, to conduct any other business or
activity whatsoever, and no Member shall be accountable to the Company or to any
other Member with respect to that business or activity even if the business or
activity competes with the Company's business. The organization of the Company
shall be without prejudice to the Members' respective rights (or the rights of
their respective Affiliates) to maintain, expand, or diversify such other
interests and activities and to receive and enjoy profits or compensation
therefrom. Each Member waives any rights the Member might otherwise have to
share or participate in such other interests or activities of any other Member
or the Member's Affiliates.

5.5.3. Each Member understands and acknowledges that the conduct of
the Company's business may involve business dealings and undertakings with
Members and their Affiliates. In

<PAGE>

any of those cases, those dealings and undertakings shall be at arm's length and
on commercially reasonable terms.

5.6. LIABILITY AND INDEMNIFICATION.

5.6.1. The General Manager shall not be liable, responsible, or
accountable, in damages or otherwise, to any Member or to the Company for any
act performed by the General Manager within the scope of the authority conferred
on the General Manager by this Agreement, except for fraud, bad faith, gross
negligence, or an intentional breach of this Agreement.

5.6.2. The Company shall indemnify the General Manager for any act
performed by the General Manager within the scope of the authority conferred on
the General Manager by this Agreement, except for fraud, bad faith, gross
negligence, or an intentional breach of this Agreement.

5.7. POWER OF ATTORNEY.

5.7.1. GRANT OF POWER. Each Member constitutes and appoints the
General Manager as the Member's true and lawful attorney-in-fact
("Attorney-in-Fact"), and in the Member's name,
place, and stead, to make, execute, sign, acknowledge, and file:

5.7.1. one or more articles of organization;

5.7.2. all documents (including amendments to articles of
organization) which the Attorney-in-Fact deems appropriate to reflect any
amendment, charge, or modification of this Agreement;

5.7.3. any and all other certificates or other instruments
required to be filed by the Company under the laws of the State of New York or
of any other state or jurisdiction, including, without limitation, any
certificate or other instruments necessary in order for the Company to continue
to qualify as a limited liability company under the laws of the State of New
York;

5.7.4. one or more fictitious or trade name certificates; and

5.7.5. all documents which may be required to dissolve and
terminate the Company and to cancel its articles of organization.

5.7.2. IRREVOCABILITY. The foregoing power of attorney is irrevocable
and is coupled with an interest, and, to the extent permitted by applicable law,
shall survive the death or disability of a Member. It also shall survive the
Transfer of an Economic Interest, except that if the transferee is admitted as a
Member, this power of attorney shall survive the delivery of the assignment for
the sole purpose of enabling the Attorney-in-Fact to execute, acknowledge, and
file any documents needed to effectuate the substitution. Each Member shall be
bound by any representations made by the Attorney-in-Fact acting in good faith
pursuant to this power of attorney, and each Member

<PAGE>

hereby waives any and all defenses which may be available to contest, negate, or
disaffirm the action of the Attorney-in-Fact taken in good faith under this
power of attorney.

ARTICLE VI
TRANSFER OF INTERESTS AND WITHDRAWAL OF MEMBERS

6.1. TRANSFERS. No Member may Voluntarily Transfer all, or any portion of,
or any interest or rights in, the Membership Interest owned by the Member. Each
Member hereby acknowledges the reasonableness of this prohibition in view of the
purposes of the Company and the relationship of the Members. The voluntary
Transfer of any Membership Interests, including Economic Interests, in violation
of the prohibition contained in this Section 6.1 shall be deemed invalid, null
and void, and of no force or effect. Any Person to whom Membership Interests
are attempted to be transferred in violation of this Section 6.1 shall not be
entitled to vote on matters coming before the Members, participate in the
management of the Company, act as an agent of the Company, receive distributions
from the Company, or have any other rights in or with respect to the Membership
Interests.

6.1.1. TRANSFERS TO AFFILIATES AND FAMILY. Notwithstanding anything
set forth in this Agreement to the contrary, any Member may at any time, and
from time to time, Transfer all, or any portion of, or any interest or rights
in, the Member's Economic or Membership Interest to (i) any other Member; (ii)
any member of the Member's Family; or (iii) any Affiliate of the Member.

6.1.2. VOLUNTARY WITHDRAWAL. No Member shall have the right or power
to Voluntarily Withdraw from the Company, except as otherwise provided by this
Agreement. Any withdrawal in violation of this Agreement shall entitle the
Company to damages for breach, which may be offset against the amounts otherwise
distributable to such member.

6.2. VOLUNTARY WITHDRAWAL. Immediately upon the occurrence of an Involuntary
Withdrawal, the successor of the Withdrawn Member shall thereupon become an
Economic Interest Holder, but shall not become a Member. If the Company is
continued as provided in Section 7.1.3, the successor Economic Interest Holder
shall have all the rights of an Economic Interest Holder, but shall not be
entitled to receive in liquidation of the Economic Interest, the fair market
value of the Member's Economic Interest as of the date the Member Involuntarily
withdrew from the Company.

ARTICLE VII
DISSOLUTION, LIQUIDATION, AND
TERMINATION OF THE COMPANY

7.1. EVENTS OF DISSOLUTION. The Company shall be dissolved upon the
happening of any of the following events:

<PAGE>

7.1.1. when the period fixed for its duration in Section 2.4 has
expired;

7.1.2. upon the written agreement of the Members holding 2/3 or more
of the Percentages then held by Members; or

7.1.3. the occurrence of an Involuntary Withdrawal, unless remaining
Members holding 2/3 or more of the Percentages then held by Members, within
ninety (90) days after the occurrence of the Involuntary Withdrawal, elect to
continue the business of the Company pursuant to the terms of this Agreement.

7.2. PROCEDURE FOR WINDING UP AND DISSOLUTION. If the Company is dissolved,
the General Manager shall wind up its affairs. On winding up of the Company,
the assets of the Company shall be distributed, first, to creditors of the
Company, including Economic Interest Holders who are creditors, in satisfaction
of the liabilities of the Company, and then to the Economic Interest Holders in
accordance with Section 4.4.

7.3. FILING OF ARTICLES OF DISSOLUTION. If the Company is dissolved, the
General Manager shall promptly file Articles of Dissolution with the Department
of State. If there is no General Manager, then the Articles of Dissolution
shall be filed by the remaining Members; if there are no remaining Members, the
Articles shall be filed by the last Person to be a Member; if there is neither a
General Manager, remaining Members, or a Person who last was a Member, the
Articles shall be filed by the legal or personal representatives of the Person
who last was a Member.

ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING, AND TAX ELECTIONS

8.1. BANK ACCOUNTS. All funds of the Company shall be deposited in a bank
account or accounts opened in the Company's name. The General Manager shall
determine the institution or institutions at which the accounts will be opened
and maintained, the types of accounts, and the Persons who will have authority
with respect to the accounts and the funds therein.

8.2. BOOKS AND RECORDS.

8.2.1. The General Manager shall keep or cause to be kept complete and
accurate books and records of the Company and supporting documentation of the
transactions with respect to the Company's business. The records shall include,
but not be limited to:

(1) a current alphabetized list of the names and addresses
of all of the members, as well as the contribution and the share of profits and
losses of each member or information from which such share can be readily
derived;

(2) if the firm is managed by a manager or managers, a
current alphabetized list of the names and addresses of the managers;

<PAGE>

(3) a copy of the articles of organization and all
amendments thereto or restatements thereof, together with executed copies of any
powers of attorney pursuant to which any certificate or amendment has been
executed;

(4) a copy of the operating agreement and any amendments
thereto and any amended and restated operating agreement; and

(5) a copy of the limited liability company's federal,
state, and local income tax or information returns and reports, if any, for the
three most recent Fiscal years.

8.2.2. The books and records shall be maintained in accordance with
sound accounting practices and shall be available at the Company's principal
office for examination by any Member or the Member's duly authorized
representative at any and all reasonable times during normal business hours.

8.2.3. Each Member shall reimburse the Company for all costs and
expenses incurred by the Company in connection with the Member's inspection and
copying of the Company's books and records.

8.3. ANNUAL ACCOUNTING PERIOD. The annual accounting period of the Company
shall be its taxable year. The Company's taxable year shall be selected by the
General Manager, subject to the requirements and limitations of the Code.

8.4. REPORTS. Within seventy-five (75) days after the end of each taxable
year of the Company, the General Manager shall cause to be sent to each Person
who was a Member at any time during the taxable year then ended: (i) an annual
compilation report, prepared by the Company's independent accountants in
accordance with standards issued by the American Institute of Certified Public
Accountants; and (ii) a report summarizing the fees and other remuneration paid
by the Company to any Member, the General Manager, or any Affiliate in respect
of the taxable year. In addition, within seventy-five (75) days after the end
of each taxable year of the Company, the General Manager shall cause to be sent
to each Person who was an Interest Holder at any time during the taxable year
then ended, that tax information concerning the Company which is necessary for
preparing the Interest Holder's income tax returns for that year. At the
request of any Member, and at the Member's expense, the General Manager shall
cause an audit of the Company's books and records to be prepared by independent
accountants for the period requested by the Member.

8.5. TAX MATTERS MEMBER. The General Manager shall be the Company's tax
matters Member ("Tax Matters Member"). The Tax Matters Member shall have all
powers and responsibilities provided in Code Section 6221, ET SEQ. The Tax
Matters Member shall keep all Members informed of all notices from government
taxing authorities which may come to the attention of the Tax Matters Member.
The Company shall pay and be responsible for all reasonable third party costs
and expenses incurred by the Tax Matters Member in performing those duties.
Member shall be responsible for any costs incurred by the Member with respect to
any tax audit or tax-related administrative or judicial proceeding against any
Member, even though it relates to the

<PAGE>

Company. The Tax Matters Member shall not compromise any dispute with the
Internal Revenue Service without the approval of the Members.

8.6. TAX ELECTIONS. The General Manager shall have the authority to make all
Company elections permitted under the Code, including, without limitation,
elections of methods of depreciation and elections under Code Section 754. The
decision to made or not make an election shall be at the General Manager's sole
and absolute discretion.

8.7. TITLE TO COMPANY PROPERTY.

8.7.1. Except as provided in Section 8.7.2, all real and personal
property acquired by the Company shall be acquired and held by the Company in
its name.

8.7.2. The General Manager may direct that legal title to all or any
portion of the Company's property be acquired or held in a name other than the
Company's name. Without limiting the foregoing, the General Manager may cause
title to be acquired and held in its name or in the names of trustees, nominees,
or straw parties for the Company. It is expressly understood and agreed that
the manner of holding title to the Company's property (or any part thereof) is
solely for the convenience of the Company and all of that property shall be
treated as Company property.

ARTICLE IX
GENERAL PROVISIONS

9.1. ASSURANCES. Each Member shall execute all certificates and other
documents and shall do all such filing, recording, publishing, and other acts as
the General Manager deems appropriate to comply with the requirements of law for
the formation and operation of the Company and to comply with any laws, rules,
and regulations relating to the acquisition, operation, or holding of the
property of the Company.

9.2. NOTIFICATIONS. Any notice, demand, consent, election, offer, approval,
request, or other communication (collectively, a "notice") required or permitted
under this Agreement must be in writing and either delivered personally or sent
by certified or registered mail, postage prepaid, return receipt requested or by
facsimile transmission, provided receipt is actually acknowledged by the member
or member's agent. Any notice to bc given hereunder by the Company shall be
given by the General Manager. A notice must be addressed to a Member at the
Members last known address on the records of the Company. A notice to the
Company must be addressed to the Company's principal office. A notice delivered
personally will be deemed given only when acknowledged in writing by the person
to whom it is delivered. A notice that is sent by mail will be deemed given
three (3) business days after it is mailed. Any party may designate, by notice
to all of the others, substitute addresses or addressees for notices; and,
thereafter, notices are to be directed to those substitute addresses or
addressees. A notice sent by facsimile is deemed given when receipt is
acknowledged.

<PAGE>

9.3. SPECIFIC PERFORMANCE. The parties recognize that irreparable injury
will result from a breach of any provision of this Agreement and that money
damages will be inadequate to fully remedy the injury. Accordingly, in the
event of a breach or threatened breach of one or more of the provisions of this
Agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to one or more preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a
breach or (ii) compelling the performance of any obligation which, if not
performed, would constitute a breach.

9.4. COMPLETE AGREEMENT. This Agreement constitutes the complete and
exclusive statement of the agreement among the Members with respect to the
subject matter thereof. It supersedes all prior written and oral statements,
including any prior representation, statement, condition, or warranty. Except
as expressly provided otherwise herein, this Agreement may not be amended
without the written consent of the Members holding 2/3 or more of the
Percentages then held by Members.

9.5. APPLICABLE LAW. All questions concerning the construction, validity,
and interpretation of this Agreement and the performance of the obligations
imposed by this Agreement shall be governed by the internal law, not the law of
conflicts, of the State of New York.

9.6. ARTICLE AND SECTION TITLES. The headings herein are inserted as a
matter of convenience only and do not define, limit, or describe the scope of
this Agreement or the intent of the provisions hereof.

9.7. BINDING PROVISIONS. This Agreement is binding upon, and inures to the
benefit of, the parties hereto and their respective heirs, executors,
administrators, personal and legal representatives, successors, and permitted
assigns.

9.8. EXCLUSIVE JURISDICTION AND VENUE. Any suit involving any dispute or
matter arising under this Agreement may only be brought in a United States
District Court located in the State of New York or any New York State Court
having jurisdiction over the subject matter of the dispute or matter. All
Members hereby consent to the exercise of personal jurisdiction by any such
court with respect to any such proceeding.

9.9. TERMS. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular, and plural, as the identity of the Person
may in the context require.

9.10. SEPARABILITY OF PROVISIONS. Each provision of this Agreement shall be
considered separable; and if, for any reason, any provision or provisions herein
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.

9.11. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which,
when taken together, constitute one and the same document. The signature of any
party to any counterpart shall be deemed a signature to, and may be appended to,
any other counterpart.

<PAGE>

9.12. ESTOPPEL CERTIFICATE. Each Member shall, within ten (10) days after
written request by the General Manager, deliver to the requesting Person a
certificate stating, to the Member's knowledge, that: (a) this Agreement is in
full force and effect; (b) this Agreement has not been modified except by any
instrument or instruments identified in the certificate; and (c) there is no
default hereunder by the requesting Person, or if there is a default, the nature
and extent thereof.

<PAGE>

IN WITNESS WHEREOF, the parties have executed, or caused this Agreement
to be executed, under seal, as of the date set forth hereinabove.

GENERAL MANAGER: Macklowe Properties, L.P.

By: Macklowe Properties, Inc.
Its General Partner

By: /s/
------------------------------------------
Name: Harry Macklowe
Title: Chairman of the Board and
Chief Executive Officer

MEMBERS: Macklowe Properties, L.P.

By: Macklowe Properties, Inc.
Its General Partner

By: /s/
------------------------------------------
Name: Harry Macklowe
Title: Chairman of the Board and
Chief Executive Officer

<PAGE>

MACKLOWE CONSTRUCTION, LLC
OPERATING AGREEMENT

EXHIBIT A
LIST OF MEMBERS, CAPITAL, AND PERCENTAGES

Name and Address Percentages
- --------------------------------------------------------------------------------

Macklowe Properties, L.P. 100%

c/o The Macklowe Organization
142 West 57th Street
New York, NY 10019

<PAGE>

Exhibit 10(g)

ARTICLES OF ORGANIZATION

MACKLOWE CONSTRUCTION, LLC

(Under Section Two Hundred Three of the New York Limited Liability Company
Law)

The undersigned person, acting as an organizer of the limited liability
company hereinafter named, sets forth the following statements.

FIRST: The name of the limited liability company (the "company") is
Macklowe Construction, LLC

SECOND: The county within the State of New York in which the office of the
company is to be located is in the County of

THIRD: The company is not to have a specific date of dissolution in
addition to the events of dissolution set forth in Section 701 of the New York
Limited Liability Company Law.

FOURTH: The Secretary of State of the State of New York is designated as
agent of the company upon whom process against it may be served. The post
office address within or without the State of New York to which the Secretary of
State of the State of New York shall mail a copy of any process against the
company served upon him or her is c/o Corporation Service Company, 80 State
Street, Albany, New York 12207.

FIFTH: The company is to be managed by one or more members.

SEVENTH: The business purpose for which the company is formed is as
follows: ordinary business purposes.

EIGHTH: There are no limitations on the authority of managers of the
company to bind the company.

<PAGE>

IN WITNESS WHEREOF, I have signed this document on the date set forth
below and do hereby affirm, under penalties of perjury, that the statements
contained therein have been examined by me and are true and correct.

Dated: April 28, 1998

/s/ MARK E. DEANGELIS
---------------------------------------------
Mark E. DeAngelis, Authorized Signatory