CORNERSTONE PROPERTIES INC, 424B5, 1997-04-16

CORNERSTONE PROPERTIES INC
424B5, 1997-04-16
REAL ESTATE

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<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-18303

PROSPECTUS SUPPLEMENT
- ----------------------------------
(TO PROSPECTUS DATED MARCH 12, 1997)

14,000,000 SHARES

CORNERSTONE PROPERTIES INC.
COMMON STOCK
------------------------

Cornerstone Properties Inc. ("Cornerstone" or the "Company") is a
self-advised equity real estate investment trust ("REIT") which owns, through
subsidiaries, interests in eight Class A office properties comprising nearly
five million rentable square feet (the "Properties"). The Properties are located
in seven major metropolitan areas throughout the United States: Boston, suburban
Chicago, Denver, Minneapolis, New York City, Pittsburgh and Seattle. All of the
Properties were built in the mid- to late- 1980s, except the Pittsburgh
property, which was substantially renovated in 1988. The Company's strategy is
to own Class A office properties in prime central business district ("CBD")
locations and major suburban office markets in U.S. metropolitan areas. Class A
office properties are generally considered to be those that have the most
favorable locations and physical attributes, attract premium rents and
experience the highest tenant retention rates within their markets. As of
December 31, 1996, the Properties were approximately 97% leased to approximately
400 tenants.

All of the shares of common stock of the Company, without par value
("Common Stock"), offered hereby are being sold by the Company (the "Offering").

A quarterly distribution of $0.30 per share was declared by the Board of
Directors of the Company on March 14, 1997; the Company intends to continue
paying regular quarterly distributions. The Common Stock has been approved for
listing on the New York Stock Exchange (the "NYSE") under the symbol "CPP",
subject to official notice of issuance. The Common Stock currently trades on the
Frankfurt, Dusseldorf and Luxembourg Stock Exchanges. See "Price Range of Common
Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE S-11 FOR CERTAIN FACTORS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS
TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE

===========================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $14.00 $.875 $13.125
- -----------------------------------------------------------------------------------------------------------
Total(3).................................... $196,000,000 $12,250,000 $183,750,000
===========================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $3,500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 2,100,000 shares of Common Stock solely to cover
over-allotments, if any. If all such additional shares are purchased, the
total Price to Public, Underwriting Discounts and Proceeds to Company will
be $225,400,000, $14,087,500 and $211,312,500, respectively. See
"Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to approval of certain legal matters by counsel to the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and
to reject orders in whole or in part. It is expected that delivery of the
Common Stock offered hereby will be made in New York, New York on or about
April 21, 1997.
------------------------

MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
BT SECURITIES CORPORATION
------------------------

The date of this Prospectus Supplement is April 15, 1997.
<PAGE> 2

PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in, or incorporated by
reference into, this Prospectus Supplement and the accompanying Prospectus.
References herein to the percentage of a Property or Properties occupied are
calculated by dividing rentable square feet leased by total rentable square
feet, unless otherwise indicated. Unless otherwise indicated, the information
contained in this Prospectus Supplement assumes that the Underwriters'
over-allotment option is not exercised. When used in this Prospectus Supplement,
the words "believes," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended. The Company's
actual results could differ materially from those set forth in the
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially, including,
but not limited to, those set forth in "Risk Factors" starting on page S-11 of
this Prospectus Supplement. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof.

THE COMPANY

The Company is a self-advised REIT which owns, through subsidiaries,
interests in eight Class A office Properties comprising nearly five million
rentable square feet. The Properties are located in seven major metropolitan
areas throughout the United States: Boston, suburban Chicago, Denver,
Minneapolis, New York City (two Properties), Pittsburgh and Seattle. All of the
Properties were built in the mid- to late-1980s, with the exception of the
Pittsburgh property, which was substantially renovated in 1988. The Company's
strategy is to own Class A office properties in prime CBD locations and major
suburban office markets in U.S. metropolitan areas. Class A office properties
are generally considered to be those that have the most favorable locations and
physical attributes, attract premium rents and experience the highest tenant
retention rates within their markets. As of December 31, 1996, the Properties
were approximately 97% leased to approximately 400 tenants.

Cornerstone was formed in 1981 as ARICO America Realestate Investment
Company. Advised initially by Deutsche Bank AG ("Deutsche Bank"), the Company
was created to provide individual German investors the opportunity to invest in
the U.S. commercial real estate market through a European exchange-listed
security. The Company initially raised $145.0 million in 1981 and subsequently
raised $113.4 million in 1986 through the public sale of Common Stock in Germany
and developed with development partners Class A office buildings in Denver,
Minneapolis and Seattle. The Common Stock has been listed on the Luxembourg
Stock Exchange since 1981, the Frankfurt Stock Exchange since 1984 and the
Dusseldorf Stock Exchange since 1986.

In September 1995, the Company completed a reorganization in which it
became self-advised, was renamed Cornerstone Properties Inc., and adopted a
growth strategy designed to enhance shareholder value through the expansion and
diversification of its asset base and broadening of its stockholder base. In
August 1995, the Company sold approximately $90 million of Common Stock to the
public in Germany and $50 million of convertible preferred stock to Deutsche
Bank. Proceeds from these sales were used to reduce the Company's leverage and
acquire 125 Summer Street in Boston and Tower 56 in New York City for a total of
approximately $138.6 million. In November 1996, the Company completed a private
placement of $166.5 million of convertible preferred stock with the New York
State Teachers' Retirement System ("NYSTRS") and an indirect subsidiary of
Rodamco N.V. (together with its subsidiaries, "Rodamco"). Proceeds from this
sale were used to acquire One Lincoln Centre in Oakbrook Terrace, Illinois, the
Frick Building in Pittsburgh (from Rodamco) and 527 Madison Avenue in New York
City for a total of approximately $145.9 million, and to further strengthen the
Company's balance sheet.

S-3
<PAGE> 3

estate experience. They are supported by a team of five officers with an average
of 13 years of experience in all areas of acquisitions, asset management,
leasing and finance.

The Company focuses its professional and executive staff on the execution
of its acquisition and management strategy, including market research,
budgeting, leasing, capital planning, finance and property management oversight.
The Company engages prominent regional or national third-party management
companies to provide day-to-day property management functions at the local
level. The Company believes that its use of third-party property managers offers
a flexible, cost-efficient, and demonstrably effective means for managing a
national office portfolio, as historically its Properties have consistently
outperformed their respective submarkets' Class A rent and occupancy levels. In
all cases, the Company retains full responsibility for capital planning,
budgeting, leasing, major tenant relationships, financing and strategic
initiatives with respect to its Properties.

Management believes that the Company is well positioned to become a major
owner of Class A office properties throughout the United States as fundamentals
for office property markets improve. Management also believes the Company can
leverage its existing portfolio of premium quality assets, proven access to
multiple sources of debt and equity capital, and efficient management structure
to rapidly expand nationally. Proceeds of the Offering combined with borrowings
available under its Revolving Credit Facility (as defined herein) will provide
the Company with sufficient capital to acquire in excess of $400 million in
assets, which would result in an increase in its asset base of over 50%.

RISK FACTORS

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

- Risks associated with the concentrated nature of the Properties currently
owned by the Company;

- Risks associated with the Company's dependence on certain tenants,
including Norwest Corporation which, together with its subsidiaries,
accounted for 22% of the Company's total Full Service Straight-Line Rent
(as defined herein) in 1996;

- Risks associated with the concentration of ownership in the hands of
NYSTRS, Rodamco and Deutsche Bank, and the negative effect future sales
of a significant number of shares of Common Stock by such holders could
have on the market price of the Common Stock;

- Risks associated with the Company's dependence on its senior officers;

- Risks associated with the Company's planned expansion and with the
acquisition and redevelopment of office properties;

- Risks associated with the ownership of properties through joint ventures
and partnerships in which the Company does not have sole control over the
property, including the risk that a co-venturer or partner may become
bankrupt or insolvent and that such co-venturers or partners may have
different objectives than the Company which could negatively affect the
management and ultimate financial success of a property;

- Real estate investment considerations, such as the effect of economic and
other conditions in the market area on property cash flows and values,
the need to renew leases or relet space upon the expiration of current
leases, the risk of tenant bankruptcies, the ability of a property to
generate revenue sufficient to meet debt service payments and other
operating expenses, the risk of incurring a loss not covered by the
Company's insurance and the illiquidity of real estate investments, all
of which may affect the Company's ability to make expected distributions;

- Risks associated with borrowing, such as the possibility that: (i) the
Company will not have sufficient funds available to make principal
payments on debt expected to be outstanding after completion of the
Offering; and (ii) such indebtedness might be refinanced at higher
interest rates or otherwise on terms

S-4
<PAGE> 4

less favorable to the Company than existing indebtedness, all of which
could adversely affect the Company's ability to make expected
distributions to stockholders and its ability to qualify as a REIT; and

- Immediate and substantial dilution in the net tangible book value per
share of the Common Stock purchased in the Offering and the risk of
future dilution due to the Company's issuance of capital stock or due to
the conversion of one or more of the outstanding series of preferred
stock of the Company ("Preferred Stock").

BUSINESS OBJECTIVES

BUSINESS STRATEGY

The Company's primary objective is to maximize long-term stockholder value
through growth in funds from operations per share and through appreciation in
the value of its Properties. The Company's strategies to accomplish this
objective are:

- Generate internal growth by aggressively maintaining, managing, and
leasing its Properties, in order to increase rent, maintain high
occupancy levels, enhance tenant retention, and maximize current returns
and long-term value;

- Seek external growth by acquiring additional Class A office properties
with local submarket and asset characteristics consistent with those
Properties currently in its portfolio; and

- Capitalize on the Company's access to capital in multiple markets,
including the domestic and international institutional and individual
investor marketplaces.

INTERNAL GROWTH STRATEGY

The Company believes that its existing portfolio offers opportunities for
growth through the Company's active and aggressive asset management program,
which emphasizes maintaining a strong market position based on superior asset
quality and tenant service. The Company will continue to implement its internal
growth strategies through the following:

- Rental Rate Increases. Based on its own historical activities and
knowledge of its local marketplaces, the Company believes that occupancy
levels and net rents in its submarkets are increasing but, on average,
that net rents must still rise significantly in order to justify and
finance new construction. The Company believes that these market dynamics
should enable it to realize rental rate increases without facing
potentially competitive new construction. Moreover, the Company believes
that its high-quality assets will continue to compete very effectively
even when market rents rise sufficiently to support new construction.

- Maintenance. The Company places strong emphasis on programs for regular
maintenance of the Properties as well as periodic refurbishment,
renovation and redevelopment where such investment provides attractive
returns and cash flow growth. Higher maintenance levels generally allow
building systems to operate more efficiently, thereby reducing operating
expenses to a level which is lower than that of competing properties. In
addition, many of the Company's capital and maintenance expenditures,
such as the upgrading of a building's electrical system, are designed to
produce ongoing operational efficiencies in order to increase cash flow
and long-term value.

- Proactive Leasing Program. The Company believes that retention of
existing tenants, and the leasing of additional space to those tenants,
is important to a property's stability and enhances its cash flow and
value over time. Maximizing tenant retention reduces the cost of lease
rollovers and rental revenue fluctuations by removing "down" periods
between tenant occupancies and reducing the "up front" costs (tenant
improvements and leasing commissions) of signing leases. The Company's
senior management therefore focuses significant attention on negotiating
lease terms for prospective new tenants, and on working with existing
tenants to negotiate lease renewals that meet the tenant's changing space
needs.

S-5
<PAGE> 5

EXTERNAL GROWTH STRATEGY

The Company will continue to pursue significant growth in its asset base to
the extent that appropriate Class A office properties and financing are
available on attractive terms that will enhance stockholder value. The Company
will continue to implement its external growth strategies by acquiring
properties and portfolios of properties with the following characteristics:

- Class A Office Properties. The Company believes that its strategy of
investing in and owning Class A office properties has the following
benefits: (i) Class A properties can currently be acquired at prices that
produce attractive yields for the Company and are accretive to earnings;
(ii) Class A properties typically maintain higher occupancies because,
when overall vacancy rates are rising, tenants often take the opportunity
to relocate to better located and higher quality buildings; and (iii)
Class A properties generally attract strong credit tenants which results
in a more stable source of cash flow.

- Major Metropolitan Areas. The Company intends to target properties
located in the central business districts and major suburban submarkets
of major metropolitan areas. Target markets will typically exhibit
underlying economic, demographic, and employment trends that lead to the
positive net absorption of Class A office space in that market. The
Company also expects future acquisitions to be concentrated in submarkets
where high barriers to entry reduce the likelihood that new office space
will be constructed.

- Discount to Replacement Cost. The Company expects to continue acquiring
properties at discounts to replacement cost that possess one or more
competitive advantages, such as a superior location, quality
construction, high-quality tenancy, efficient floorplates, and modern
building systems. Because Class A properties being considered for
acquisition by the Company are at prices below replacement cost, the
opportunity exists for the Company to enhance property performance and
operating income, thereby increasing asset values, before potentially
competitive new construction is justified in most markets.

- Stock-for-Asset Swaps. The Company believes that opportunities exist for
it to grow its asset base, and increase earnings, through stock-for-asset
swaps with major institutional owners of property. For example, a number
of major pension funds and life insurance companies have publicly
announced initiatives to exchange portfolios of direct real estate
holdings for securities of publicly traded companies in order to improve
portfolio diversification, liquidity, and overall investment returns. The
Company believes that the very high quality of the Properties, and its
intended future acquisitions, should make the Company an attractive
vehicle for swap transactions and afford access to a broader range of
acquisition opportunities.

FINANCING STRATEGIES

The Company believes that in order to continue to maximize the value of its
stockholders' equity and to execute its growth strategies, it is essential to
implement and periodically review a diversified financing strategy that: (i)
incorporates long-term, secured and unsecured corporate debt; (ii) minimizes
exposure to fluctuations of interest rates; and (iii) maintains maximum
flexibility to manage the Company's short-term cash needs. Furthermore, the
Company believes that its capital structure will be conducive to and allow
flexibility for the aggressive growth which the Company seeks to achieve. The
Company anticipates employing the following strategies to enhance shareholder
value:

- Access to Multiple Capital Sources. Because of the unique circumstance
of its foreign stockholder base and the high quality of its assets, the
Company believes it has several competitive advantages in its ability to
access equity capital from several different sources on attractive terms.
This financial flexibility should enable the Company to choose from among
several equity alternatives and to select the capital source that best
meets the Company's needs at that time. The Company expects to continue
to access capital from the most cost-efficient sources, including public
and private equity and debt from domestic and foreign investors.

- Prudent Leverage. The Company will use leverage prudently to take
advantage of what it believes to be the positive spread between the total
return on investment and the cost of debt financing in the Class

S-6
<PAGE> 6

A sector of the office property market. Historically, the Company has
employed somewhat higher levels of leverage than property companies
holding assets of lesser quality, since the Company's high-quality assets
and tenancy have generally produced occupancy rates, rent levels and
income streams that are higher and more stable than those associated with
lower quality assets. The Company believes that its use of leverage has
been and will continue to be consistent with its ownership of very high-
quality assets in which 38% of its Full Service Straight-Line Rent is
received from tenants which carry investment-grade long-term debt
ratings.

- Credit Facility. The Company has received a commitment, subject to
certain conditions, for a $200 million unsecured credit facility (the
"Revolving Credit Facility") to be provided by Bankers Trust Company and
The Chase Manhattan Bank. The Revolving Credit Facility will have a term
of three years and will be used for the acquisition of additional
properties. Borrowings under the Revolving Credit Facility will bear
interest at a rate between 1.25% and 1.625% above LIBOR, depending upon
the Company's ratio of total debt to asset value while funds are
outstanding.

S-7
<PAGE> 7

PROPERTIES

The Company owns and operates eight Class A office Properties, comprising
nearly five million rentable square feet. Class A office properties are
generally considered to be those which have the most favorable locations and
physical attributes, attract premium rents, and experience the highest tenant
retention rates within their markets. As of December 31, 1996, the Properties
were approximately 97% leased to a total of 400 tenants.

The following table summarizes certain information as of December 31, 1996
with respect to the Properties.

TABLE OF PROPERTIES

<TABLE>
<CAPTION>
YEAR REMAINING
CONSTRUCTED/ COMPANY'S TOTAL AVERAGE
YEAR PERCENTAGE RENTABLE OCCUPANCY NUMBER OF LEASE TERM
PROPERTY NAME AND LOCATION ACQUIRED INTEREST SQUARE FEET RATE TENANTS (IN YEARS) LARGEST TENANTS
- ------------------------------ ------------ ---------- ----------- --------- --------- ---------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One Norwest Center
Denver, Colorado............. 1983 100% 1,188,000 99% 38 8.8 Norwest Bank Denver N.A.
Apache Corporation
Newmont Gold Company
Norwest Center(1)
Minneapolis, Minnesota...... 1988 50 1,118,000 100 35 11.8 Norwest Corporation
Faegre & Benson
KPMG Peat Marwick
Washington Mutual Tower(2)(3)
Seattle, Washington......... 1988 50 1,155,000 97 122 5.0 Perkins Coie
Washington Mutual
125 Summer Street
Boston, Massachusetts....... 1989/1995 100 464,000 100 30 3.7 Deloitte & Touche
BTM Capital Corp. (4)
Tower 56(5)
New York, New York.......... 1983/1996 100 162,000 97 45 3.1 ICC Associates, L.P.
United Bank of Kuwait
One Lincoln Centre
Oakbrook Terrace,
Illinois.................... 1986/1996 100 297,000 91 40 2.9 Superior Bank FSB
Microsoft Corporation
Frick Building(6)
Pittsburgh, Pennsylvania.... 1902/1996 100 341,000 85 70 3.1 Meyer, Darragh, Buckler,
Bebenek & Eck
Sable, Makaroff & Gudsky
527 Madison Avenue(7)
New York, New York.......... 1986/1997 100 216,000 96 20 5.5 The Sumitomo Trust
--------- --- & Banking Co., Ltd.
W.P. Stewart Co., Inc.
Total/Weighted Average,
All Properties.............. 4,941,000 97% 400
========= === ===
</TABLE>

- ---------------
(1) While the Company's stated interest in the partnership which owns Norwest
Center is 50%, its economic interest in the Property is significantly larger
due to priority distributions it receives on its invested capital base. For
the twelve months ended December 31, 1996, the Company's share of earnings
and cash distributions from the partnership which owns Norwest Center was
78.2%. See "Properties -- Description of Properties and Market
Data -- Norwest Center."

(2) Includes the Galland and Seneca Buildings. See "Properties -- Description of
Properties and Market Data -- Washington Mutual Tower."

(3) While the Company's stated interest in the partnership which owns Washington
Mutual Tower is 50%, its economic interest in the Property is significantly
larger due to priority distributions it receives on its invested capital
base. For the twelve months ended December 31, 1996, the Company received
100% of the cash distributions from the partnership which owns Washington
Mutual Tower. See "Properties -- Description of Properties and Market
Data -- Washington Mutual Tower."

(4) BTM Capital Corporation is a wholly-owned subsidiary of the Bank of
Tokyo -- Mitsubishi.

(5) The Company's headquarters are located at Tower 56. See
"Properties -- Description of Properties and Market Data -- New York City
Properties -- Advisory Services Obligations -- Tower 56" for additional
information regarding the Company's economic interest in Tower 56 upon a
sale of the Property.

(6) The Property was substantially renovated in 1988.

(7) The Property was acquired by the Company in February 1997.

S-8
<PAGE> 8

THE OFFERING

All of the shares of Common Stock offered hereby are being sold by the
Company. None of the Company's stockholders are selling any Common Stock in the
Offering.

Common Stock Offered.. 14,000,000 shares(1)

Common Stock
Outstanding After
the Offering........ 34,956,453 shares(1)(2)

Use of Proceeds........ The Company intends to use the net cash proceeds of
the Offering for general corporate purposes,
including future acquisitions and capital
expenditures.

Listing............... The Common Stock has been approved for listing on
the NYSE, subject to official notice of issuance.

NYSE Symbol........... "CPP"
- ---------------
(1) Does not include up to 2,100,000 shares subject to an over-allotment option
granted to the Underwriters.

(2) Does not include the exercise of options on 1,757,500 shares of Common Stock
held by officers and directors of the Company. See "Management --
Compensation."

DISTRIBUTIONS

The Company intends to continue to pay cash distributions to its
stockholders. In accordance with the requirements of the Company's qualification
as a REIT, distributions will be equal to at least 95% of the Company's taxable
income. The Company intends that at least 85% of all distributions from income
earned during any taxable year will be made prior to the end of such taxable
year. Distributions of $1.20 were declared by the Board of Directors (the
"Board") and paid by the Company for the year 1996, and of this amount $0.29 was
a taxable dividend in the United States. A quarterly distribution of $0.30 per
share was declared by the Board on March 14, 1997, payable to stockholders of
record as of March 21, 1997. The Company intends to continue to declare
distributions quarterly in the future. No assurance can be given as to the
amounts of future distributions since they are subject to the Company's funds
from operations, earnings, financial condition, and such other factors as the
Board deems relevant.

TAX STATUS OF THE COMPANY

The Company believes that, commencing with its taxable year ended December
31, 1983, it was organized and has operated in such a manner as to qualify for
taxation as a REIT under the Internal Revenue Code of 1986, as amended. Although
the Company intends to continue to operate in such a manner, no assurance can be
given that it has operated or will operate in a manner so as to qualify as a
REIT. As long as the Company qualifies as a REIT, it is not subject to federal
income taxation at the corporate level on its taxable income that is distributed
to the stockholders of the Company. A REIT is subject to a number of
organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its annual taxable income (excluding net
capital gains). Failure to qualify as a REIT would render the Company subject to
tax (including any applicable minimum tax) on its taxable income at regular
corporate rates, and distributions to the stockholders in any such year would
not be deductible by the Company. Even if the Company qualifies for taxation as
a REIT, the Company may be subject to certain federal income or excise taxes as
well as state and local taxes on its income and property.

S-9
<PAGE> 9

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth selected consolidated statement of operations
and balance sheet data for the Company and its subsidiaries on a pro forma basis
and on a historical basis. The following data should be read in conjunction with
the Consolidated Financial Statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus Supplement or incorporated by reference in
the accompanying Prospectus. The selected consolidated statement of operations
and balance sheet data as of and for the years ended December 31, 1994 through
1996 have been derived from the Company's audited financial statements.

The unaudited selected pro forma consolidated statement of operations and
balance sheet data is presented as if the Offering, the sale of the Company's 8%
Cumulative Convertible Preferred Stock and the 8% Cumulative Convertible
Preferred Stock, Series A, the Company's repayment of a $32.5 million term loan
from Deutsche Bank, and the acquisitions of both Properties in New York City,
the Property in Oakbrook Terrace, Illinois and the Property in Pittsburgh had
occurred as of January 1, 1996 for operating data and December 31, 1996 for
balance sheet data. The pro forma financial information is not necessarily
indicative of what the results of operations of the Company would have been for
the periods indicated, nor does it purport to represent the Company's future
results of operations.

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
PRO FORMA HISTORICAL
(UNAUDITED) -------------------------------------
1996 1996 1995 1994
----------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA:

Revenues:
Office and parking rentals..................................... $ 133,592 $111,494 $ 88,548 $ 83,557
Interest and other income...................................... 5,040 5,414 3,839 2,017
-------- --------- -------- --------
Total revenues........................................... 138,632 116,908 92,387 85,574
-------- --------- -------- --------
Expenses:
Building operating expenses.................................... 53,693 44,188 31,530 29,991
Interest expense............................................... 29,720 31,345 29,467 30,792
Depreciation and amortization.................................. 27,829 24,801 23,877 23,432
General and administrative..................................... 6,312 6,312 5,553 3,869
Unrealized (gain) loss on interest rate swap................... (4,278) (4,278) 7,672 --
-------- --------- -------- --------
Total expenses........................................... 113,276 102,368 98,099 88,084
-------- --------- -------- --------
Income (loss) from operations.................................... 25,356 14,540 (5,712) (2,510)
Minority interest................................................ 1,519 1,519 3,417 3,899
-------- --------- -------- --------
Income (loss) before extraordinary items......................... 23,837 13,021 (9,129) (6,409)
Extraordinary loss(1)............................................ (3,925) (3,925) (4,445) (581)
-------- --------- -------- --------
Net income (loss)................................................ $ 19,912 $ 9,096 $ (13,574) $ (6,990)
======== ========= ======== ========
Net income (loss) (per share).................................. $ 0.36 $ 0.19 $ (0.94) $ (0.53)
======== ========= ======== ========
Distributions to stockholders (per share)........................ -- $ 1.20 $ 1.16 $ 1.16
======== ========= ======== ========
BALANCE SHEET DATA:
Real estate investments before accumulated depreciation. ........ $ 867,332 $799,662 $ 706,988 $577,134
Total assets..................................................... 913,930 766,180 586,089 477,996
Long-term debt................................................... 367,642 400,142 369,600 130,500
Credit facility debt............................................. -- -- -- 236,467
Total liabilities........................................ 409,875 442,375 403,927 400,712
Minority interest................................................ (17,478) (17,478) (7,194) (6,642)
Redeemable preferred stock....................................... 162,743 162,743 0 0
Preferred stock.................................................. 50,000 50,000 50,000 0
Common stockholders' equity...................................... 308,790 128,540 139,356 83,926
OTHER DATA:
Funds from operations(2)....................................... 48,562 34,718 21,424 15,562
Capital expenditures........................................... -- 6,100 712 1,790
Preferred stock dividends(3)................................... 16,820 5,153 1,449 --
Common stock distributions..................................... -- 24,551 18,485 15,359
Cash flow from:
Operations................................................... -- 34,522 20,036 28,968
Investing.................................................... -- (57,259) (135,527) (1,762)
Financing.................................................... -- 129,800 110,725 (33,141)
Total rentable square footage of properties(4)................. 4,941 4,725 4,087 3,461
Average occupancy.............................................. 97% 97% 98% 98%
Weighted average number of shares of Common Stock
outstanding.................................................. 34,411 20,411 15,910 13,241
</TABLE>

- ---------------
(1) Reflects the costs associated with the extinguishment of long-term debt.

(2) Funds from operations is a calculation which is defined by the National
Association of Real Estate Investment Trusts ("NAREIT") and is not
indicative of either net income or cash flow from operations as calculated
under GAAP. The Company makes certain adjustments to funds from operations
for amortization and real estate taxes which are not contemplated by NAREIT
in its definition. See "Selected Consolidated Financial and Operating Data."

(3) Includes preferred stock dividends accrued but not declared.

(4) At December 31, 1995, the Company held the mortgage note on Tower 56, and
the square footage of Tower 56 is included as of that date.

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CERTAIN CONVENTIONS AND DEFINITIONS

References to the "Company" in this Prospectus Supplement shall be deemed
to include Cornerstone Properties Inc. and its wholly owned subsidiaries unless
otherwise indicated or the context indicates otherwise.

All references to "Dollars," "U.S. Dollars," "US$" and "$" are references
to the currency of the United States of America, and all references to "Deutsche
Marks" and "DM" are to the currency of the Federal Republic of Germany.

Information concerning the Properties presented as of December 31, 1996
includes information regarding 527 Madison Avenue (which was acquired by the
Company in February 1997) as of that date, but historical financial information
presented as of December 31, 1996 does not include the effects of the
acquisition. Such effects are included in the pro forma consolidated financial
and operating data of the Company. See "Selected Consolidated Financial and
Operating Data."

A glossary containing certain additional defined terms used herein is set
forth below under "Glossary."

RISK FACTORS

In addition to the other information contained or incorporated by reference
in this Prospectus Supplement and the accompanying Prospectus, prospective
investors should carefully consider the following factors before purchasing the
Common Stock offered hereby.

CONCENTRATION OF ASSETS

The Company currently owns eight Properties in seven different cities in
the United States. The three largest Properties accounted for approximately 62%
of the Company's total Full Service Straight-Line Rent (as defined below) as of
December 31, 1996. Individually, each of the three largest Properties
represented at least 16% of total Full Service Straight-Line Rent as of December
31, 1996. The concentration of the Company's assets makes the performance of the
Company particularly sensitive to adverse changes at any one of the Properties.
Although the Company carries comprehensive insurance on all of its Properties,
if an uninsured loss were to occur with respect to one of the Properties or if
one or more of the Properties were to experience adverse economic changes, the
adverse effects of such events on the Company's overall financial condition
could be exacerbated as a result of the concentration of the Company's assets.
While the Company intends to increase the number of properties it owns through
acquisitions, there can be no assurance that such acquisitions will be completed
or that such acquisitions will significantly reduce the concentrated nature of
the Company's assets in the future.

DEPENDENCE ON CERTAIN TENANTS

As of December 31, 1996, the Company's ten largest tenants accounted for
approximately 50% of its total Full Service Straight-Line Rent. Norwest
Corporation and its financial subsidiaries accounted for 22% of the total Full
Service Straight-Line Rent; the long-term debt of Norwest Corporation is
currently rated AA- by Standard & Poor's Ratings Group and Aa3 by Moody's
Investors Service, Inc., respectively. If the Company were to lose any one or
more of such tenants, or if any one or more of such tenants were to declare
bankruptcy or fail to make rental payments when due, there could be a material
adverse effect on the Company and its ability to make distributions to
stockholders. See "-- Real Estate Investment Risks -- Bankruptcy of Tenants" and
"Properties -- Tenants."

SUBSTANTIAL CONCENTRATION OF OWNERSHIP OF COMMON STOCK

As of December 31, 1996, Deutsche Bank, NYSTRS and Rodamco together owned
40.28% of the Common Stock on a fully diluted basis through their ownership of
convertible preferred stock of the Company, and 28.8% on a pro forma fully
diluted basis, upon completion of the Offering. In addition, each of NYSTRS and
Rodamco is entitled to elect and has elected one director to the Board, two
persons affiliated with Deutsche Bank are Directors, and the Company has been
advised by Deutsche Bank that it has investment discretion over approximately
3.5 million shares of Common Stock owned by investors in Germany as of the date
of the Offering. These stockholders are the largest stockholders of the Company,
and, due to certain limitations which the Company has adopted to preserve its
status as a REIT, no other stockholder is

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permitted to own, directly or indirectly, more than 6% of the capital stock of
the Company, subject to certain exceptions set forth in the Restated Articles of
Incorporation of the Company (the "Articles of Incorporation") or to approval by
the Board. This concentration of ownership could potentially be disadvantageous
to other stockholders' interests.

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent on the efforts of its senior officers, and
in particular John S. Moody, its President and Chief Executive Officer, and
Rodney C. Dimock, its Executive Vice President and Chief Operating Officer.
While the Company believes that it could find replacements for these key
personnel, the loss of their services could have a material adverse effect on
the Company.

RISKS ASSOCIATED WITH EXPANSION

Part of the Company's strategy for growth is to actively seek to acquire
additional Class A office properties, which acquisitions may include the
acquisition of other companies and business entities owning such properties. The
Company's future growth will depend upon (i) the availability of suitable
properties, (ii) the Company's ability to compete effectively for available
properties and (iii) the availability of capital to complete the acquisitions.
In pursuing a strategy of acquiring other properties, the Company will face
risks commonly encountered with growth through acquisitions. Although the
Company will engage in due diligence with respect to each new acquisition, there
can be no assurance that the Company will be aware of all potential liabilities
and problems associated with such properties, and the Company may have limited
contractual recourse, or no contractual recourse, against the sellers of such
properties. In addition, risks associated with acquisitions include failure of
the investments to perform in accordance with expectations, failure to
assimilate the acquired properties, disruption of the Company's ongoing
business, dissipation of the Company's limited management resources, failure to
maintain uniform standards, controls and policies and impairment of
relationships with tenants as a result of changes in management. Acquiring
additional properties, as the Company intends, could also have a significant
impact on the Company's financial position, and could cause substantial
fluctuations in the Company's quarterly and yearly operating results. See
"Business Objectives."

NEED FOR FINANCING AND POSSIBLE DILUTION THROUGH ISSUANCE OF STOCK

The Company will require substantial additional capital in order to
continue to acquire properties in the future. The Company intends to finance
acquisitions with cash on hand (including the proceeds of the Offering), through
the issuance of additional capital stock from time to time, through the use of
its Revolving Credit Facility (as defined in "Business Objectives -- Financing
Strategies") and through mortgage financing. Using cash to complete acquisitions
could substantially limit the Company's financial flexibility. Using stock to
consummate acquisitions may result in significant dilution of reported
stockholders' equity in the Company. Using the Revolving Credit Facility to
complete acquisitions will increase the Company's exposure to the risks
associated with debt financing. See "-- Risks of Debt Financing." In addition,
five of the Company's eight Properties are pledged to secure the Company's
mortgage indebtedness amounting to approximately $354.7 million as of December
31, 1996, which may impede the Company's ability to borrow from other sources.
If the Company is unable to obtain additional capital on acceptable terms, the
Company may be required to reduce the scope of its presently anticipated
expansion, which could materially adversely affect the Company's business and
the value of the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business Objectives -- External Growth Strategy."

RISKS INVOLVED IN PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT VENTURES

The Company owns its interests in two of the Properties through
partnerships in which other entities own an interest. The Company may also
participate with other entities in property ownership through joint ventures or
partnerships in the future. Partnership or joint venture investments may, under
certain circumstances, involve risks not otherwise present in property
ownership, including the possibility that the Company's partners or co-venturers
might become bankrupt, that such partners or co-venturers might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Company, and that such partners or
co-venturers may be in a position to take action contrary to the Company's

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<PAGE> 12

instructions or requests or contrary to the Company's policies or objectives,
including the Company's policy with respect to maintaining its qualification as
a REIT. The Company will, however, seek to maintain sufficient control of such
partnerships or joint ventures to permit the Company's business objectives to be
achieved. There is no limitation under the Company's organizational documents as
to the amount of available funds that may be invested in partnerships or joint
ventures.

REAL ESTATE INVESTMENT RISKS

General

Real property investments are subject to numerous risks. The yields
available from an equity investment in real estate depend on the amount of
income generated and costs incurred by the related properties. If properties in
which the Company invests do not generate sufficient income to meet costs,
including debt service and capital expenditures, the Company's results of
operations and ability to make distributions to its stockholders will be
adversely affected. Revenues and values of the Company's properties may be
adversely affected by a number of factors, including the national economic
climate, the local economic climate, local real estate conditions (such as an
oversupply of space or a reduction in demand for real estate in an area), the
attractiveness of the properties to tenants, competition from other available
space, the ability of the Company to provide adequate maintenance and insurance
and to cover other operating costs, government regulations and changes in real
estate, zoning or tax laws, interest rate levels, the availability of financing
and potential liabilities under environmental and other laws. In addition,
certain significant expenditures associated with each Property (such as debt
service, real estate taxes and maintenance costs) are generally not reduced when
circumstances cause a reduction in rental income from the investment. Should
such events occur, the Company's results of operations and ability to make
distributions to stockholders could be adversely affected.

Lease Expirations; Renewal of Leases and Reletting of Unleased Space

As of December 31, 1996, leases representing 10%, 13%, 12%, 10% and 7% of
the Company's total Full Service Straight-Line Rent at that date were scheduled
to expire during the years ended December 31, 1997, 1998, 1999, 2000 and 2001,
respectively. The Company will be subject to the risk that, upon expiration,
certain of these leases will not be renewed, the space may not be relet, or the
terms of renewal or reletting (including the cost of required renovations or
concessions to tenants) may be less favorable than current lease terms. See
"Properties -- Lease Expirations." In addition, the Company expects to incur
costs in making improvements or repairs to its Properties required by new or
renewing tenants and expenses associated with brokerage commissions payable in
connection with the reletting of space. Three of the Company's largest tenants,
Norwest Corporation, Faegre & Benson and Perkins Coie, have minority equity
interests in their respective buildings, strengthening such tenants' ties to
their properties and increasing the probability that they will remain as
tenants. However, if the Company is unable to renew leases promptly, relet
space, fund expenses relating to tenant turnover, or if the terms of any such
renewal or reletting are less favorable than current lease terms, or if the
expenses relating to tenant turnover are greater than expected, then the
foregoing could have a material adverse effect on the Company and its ability to
make distributions to stockholders.

Bankruptcy of Tenants

At any time, a tenant could seek the protection of the bankruptcy laws,
which might result in the modification or termination of such tenant's lease and
cause a reduction in the cash flow of the Company. From time to time a tenant
also may experience a downturn in its business which may weaken its financial
condition and result in its failure to make rental payments when due. In the
event of default by or bankruptcy of a tenant, the Company may experience delays
in enforcing its rights as lessor and may incur substantial costs in protecting
its investment. The default, bankruptcy or insolvency of a major tenant may have
an adverse effect on the Company and its ability to make distributions to
stockholders. The most significant termination experienced by the Company during
the past ten years due to a tenant default occurred in 1991 with respect to a
lease representing approximately 29,035 square feet of office space at Norwest
Center and approximately $552,000 of annual rental revenue. No assurance can be
given that the Company will not experience significant tenant defaults in the
future.

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<PAGE> 13

Market Illiquidity

Equity real estate investments, especially assets of relatively large size,
are often illiquid. Such illiquidity will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions. In addition, provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), limit the Company's ability to sell properties held for
fewer than four years, which may affect the Company's ability to sell properties
without adversely affecting returns to stockholders.

Effect of Uninsured Loss

The Company carries general liability coverage with primary limits of $1
million per occurrence and $2 million in the aggregate, as well as $150 million
of umbrella liability policies. The Company carries property insurance on a
replacement value basis covering both the cost of direct physical damage and the
loss of rental income. Separate flood and earthquake insurance is provided with
an annual aggregate limit of $100 million, subject to deductibles of $25,000
each of total insurable value per building with respect to earthquake coverage.
The property insurance policy carries an aggregate sublimit of $50 million for
"Washington Earthquakes", subject to a deductible of $250,000. Certain types of
losses, however (such as losses due to acts of war, nuclear accidents or
pollution), may be either uninsurable or not economically insurable. Likewise,
certain losses could exceed the limits of the Company's insurance policies or
could cause the Company to bear a substantial portion of those losses due to
deductibles under those policies. Should an uninsured loss occur, the Company
could lose both its invested capital in and anticipated cash flow from the
property and would continue to be obligated to repay any outstanding
indebtedness incurred to acquire such property. Although the Company has
obtained owner's title insurance policies for each of the Properties, the title
insurance may be in an amount less than the current market value of certain of
the Properties. If a title defect results in a loss that exceeds insured limits,
the Company could lose all or part of its investment in, and anticipated gains
(if any) from, such Property.

Competition

Numerous office properties both in central business district and suburban
locations compete with the Company's Properties in attracting tenants. Some of
these competing properties are newer and/or better located than the Company's
Properties. The Company's Properties are located in markets which at times have
a significant supply of available space, resulting in competition for tenants.
The number of competitive properties in a particular area could have a material
adverse effect on the Company's ability to lease space in the Properties or at
newly acquired or developed properties on commercially competitive terms. In
addition, numerous real estate companies (including other REITs) compete with
the Company in making bids to acquire new properties. Many of these companies
are larger and have substantially greater financial resources than the Company.
The activities of these competitors could cause the Company to pay a higher
purchase price for a new property than it otherwise would have paid, or may
prevent the Company from purchasing a desired property at all.

RISKS OF DEBT FINANCING

Dependence on Revolving Credit Facility and Mortgage Financing

The Company is subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow from operations will
be insufficient to meet required payments of principal and interest, the risk
that the Company will not be able to refinance existing indebtedness or that the
terms of any such refinancing will not be as favorable as the terms of such
indebtedness, and the risk that the Company may be unable to finance future
acquisitions or capital expenditures on favorable terms, or at all. In addition,
the Revolving Credit Facility will provide that an acceleration of any debt
instrument also could, pursuant to a

S-14
<PAGE> 14

cross-default clause, cause or permit the acceleration of the Revolving Credit
Facility. Any such acceleration could have a material adverse effect on the
Company and its ability to make distributions to stockholders and to maintain
its qualification as a REIT under the Code, potentially threatening the
continued viability of the Company.

Refinancing Risks

The Company has significant amounts of debt maturing under outstanding
mortgage loans beginning in the year 2001 in the following increments: $97.7
million or 27.5% in 2001; $67.9 million or 19.1% in 2003 and $189.1 million or
53.4% in 2005. See "Properties -- Mortgage Indebtedness and Credit Facility." In
the event the Company is unable to secure refinancing of such mortgage
indebtedness on acceptable terms, the Company might be forced to dispose of
Properties upon disadvantageous terms, which might result in losses to the
Company and might adversely affect the cash flow available for distribution to
equity holders or for debt service. In addition, if a Property or Properties are
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the mortgage securing the Property could be foreclosed upon
by, or the Property could be otherwise transferred to, the mortgagee with a
consequent loss of income and asset value to the Company.

Policies on Indebtedness Subject to Change

While the Company currently intends to maintain a reasonable level of debt
service coverage taking into account the Company's high quality of assets and
tenancy, the Company could become more highly leveraged. This could result in an
increase in debt service which could adversely affect the Company and its
ability to make distributions to stockholders and result in increased risk of
default on its obligations. Moreover, although the Company will consider factors
other than its market capitalization in making decisions regarding the
incurrence of debt (such as the purchase price of Properties to be acquired with
debt financing, the estimated market value of properties upon refinancing, and
the ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service), there can be no assurance that the
Company's future cash flow will be sufficient to allow the Company, after
meeting debt service obligations, to make stockholder distributions at the level
currently expected.

Risk of Rising Interest Rates

The outstanding advances under the Revolving Credit Facility will bear
interest at a variable rate. In addition, the Company may incur indebtedness in
the future that also bears interest at a variable rate or may be required to
refinance its debt at higher rates. Increases in interest rates could increase
the Company's interest expense, which could adversely affect the Company's
ability to pay expected distributions to stockholders.

REDEMPTION OF THE PREFERRED STOCK

The terms of the 8% Cumulative Convertible Preferred Stock ("8% Preferred
Stock") and the 8% Cumulative Convertible Preferred Stock, Series A ("8%
Preferred Stock, Series A"), provide each holder the right to require the
redemption of its Preferred Stock by the Company in cash upon the occurrence of
a "Change in Control." A "Change in Control" means (i) a merger, consolidation
or reorganization of the Company, if, after giving effect thereto, the holders
of the Common Stock prior to such transaction shall fail to own at least 51% of
the capital stock entitled to vote for the election of directors in the
successor entity, (ii) the sale of a majority or more of the assets of the
Company in any single transaction or in any series of related transactions, or
(iii) a change in the composition of the Board such that during any period of
two consecutive years the individuals who at the beginning of such period were
directors of the Company shall cease for any reason to constitute a majority of
the directors then in office (and not designated to the Board by any holder of
Preferred Stock) unless the individuals replacing such directors were elected or
nominated by the Board. The Company could experience substantial difficulty in
financing any such redemption and may be required to liquidate a substantial
portion of its properties in order to satisfy its obligations under the terms of

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<PAGE> 15

the Preferred Stock. In addition, it is likely that the resultant financial
strain on the Company's capital resources would adversely affect the market
price of the Common Stock. See "Description of Capital Stock of the
Company -- Preferred Stock" in the accompanying Prospectus.

TAX RISKS; RISKS ASSOCIATED WITH REIT STATUS

Adverse Consequences of the Failure to Maintain Qualification as a REIT

The Company believes that it has operated so as to qualify as a REIT under
the Code, commencing with its taxable year ended December 31, 1983. However, no
assurance can be given that the Company will be able to continue to operate in a
manner enabling it to remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions which have only a
limited number of judicial and administrative interpretations, and the
determination of various factual matters and circumstances not entirely within
the Company's control may have an impact on its ability to maintain its
qualification as a REIT. For example, in order to qualify as a REIT, at least
95% of the Company's gross income in any year must be derived from qualifying
sources and the Company must make distributions to stockholders aggregating
annually at least 95% of its REIT taxable income (excluding net capital gains).
In addition, no assurance can be given that new legislation, regulations issued
by the United States Treasury Department (the "Treasury Regulations") under the
Code, administrative interpretations or court decisions will not significantly
change the tax laws with respect to its qualification as a REIT or the federal
income tax consequences of such qualification. The Company, however, is not
aware of any proposal to amend the tax laws that would significantly and
adversely affect the Company's ability to continue to operate as a REIT.

As a condition to maintaining status as a REIT, the Code and the Treasury
Regulations promulgated thereunder contain a requirement (the "Five or Fewer
Requirement") that, during the last half of each taxable year, not more than 50%
in value of the REIT's outstanding stock be owned, directly or indirectly, by
five or fewer individuals (defined in the Code to include certain specified
entities). For this purpose, stock that is held by most entities such as a
corporation, partnership, limited liability company or pension plan, is treated
as held proportionately by their beneficiaries rather than by such entities. In
addition, as described below, the Articles of Incorporation contain restrictions
on share ownership that are designed to prevent violation of the Five or Fewer
Requirement. See "-- Transfer and Ownership Limitations." Therefore, the Company
believes that it is unlikely that five or fewer "individuals" would be
considered to own more than 50% of the outstanding shares.

If the Company fails to maintain its qualification as a REIT, or is found
not to have qualified as a REIT for any prior year, the Company would not be
entitled to deduct dividends paid to its stockholders and would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. This treatment would reduce amounts
available for investment or distribution to stockholders because of the
additional tax liability to the Company for the year or years involved. In
addition, the Company would no longer be required by the Code to make any
distributions. As a result, disqualification of the Company as a REIT could have
a material adverse effect on the Company and its ability to make distributions
to stockholders. To the extent that distributions to stockholders have been made
in anticipation of the Company's qualifying as a REIT, the Company might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. See "Federal Income Tax Considerations" in the accompanying
Prospectus.

Effect of Distribution Requirements

To maintain its status as a REIT, the Company is required each year to
distribute to its stockholders at least 95% of its taxable income (excluding net
capital gains). In addition, the Company is subject to a 4% nondeductible excise
tax on the amount, if any, by which certain distributions paid by it with
respect to any calendar year are less than the sum of 85% of its ordinary income
and 95% of its capital gain net income for the calendar year plus any amount of
such income not distributed in prior years. See "Federal Income Tax

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<PAGE> 16

Considerations" in the accompanying Prospectus. Although the Company anticipates
that cash flow from operations will be sufficient to enable it to pay its
operating expenses and meet the distribution requirements discussed above, there
can be no assurance that this will be the case, and it may be necessary for the
Company to incur borrowings or otherwise obtain funds to satisfy the
distribution requirements associated with maintaining its qualification as a
REIT. In addition, differences in timing between the receipt of income and the
payment of expenses in arriving at taxable income of the Company could require
the Company to incur borrowings or otherwise obtain funds to meet the
distribution requirements that are necessary to maintain its qualification as a
REIT. There can be no assurance that the Company will be able to borrow funds or
otherwise obtain funds if and when necessary to satisfy such requirements.

TRANSFER AND OWNERSHIP LIMITATIONS

For the purpose of preserving the Company's REIT qualification, the
Articles of Incorporation provide that no holder is permitted to own, either
actually or constructively under the applicable attribution rules of the Code,
more than 6% of the value of the aggregate outstanding shares of all classes of
stock of the Company (the "6% Limit"). The Board may waive the 6% Limit with
respect to a particular stockholder if it determines in good faith that
ownership by such stockholder in excess of the 6% Limit would not jeopardize the
Company's status as a REIT and the Board otherwise decides such action would be
in the best interests of the Company. The Board has waived the 6% Limit with
respect to Deutsche Bank, to permit its purchase of the 7% Cumulative
Convertible Preferred Stock ("7% Preferred Stock") with respect to Rodamco, to
permit its purchase of the 8% Preferred Stock, Series A, and with respect to
NYSTRS, to permit its purchase of the 8% Preferred Stock. In addition, no holder
is permitted to own, either actually or constructively under the applicable
attribution rules of the Code, any shares of any class of the Company's stock if
such ownership would cause more than 50% in value of the Company's outstanding
stock to be owned by five or fewer individuals or would result in the Company's
stock being beneficially owned by less than 100 persons (determined without
reference to any rule of attribution). Shares of capital stock acquired in
excess of the 6% Limit are deemed to be transferred to the Company as trustee
for the benefit of the person to whom the stockholder who acquired the excess
shares later transfers such shares and are also deemed to have been offered for
sale to the Company or its designee at their "fair market value" for a 90-day
period. The Articles of Incorporation further provide that a person who
knowingly violates the 6% Limit must indemnify the Company and its stockholders
for losses if such violation causes the Company either to fail to qualify as a
REIT or to be subject to personal holding company taxes.

The constructive ownership rules are complex and may cause Common Stock or
convertible preferred stock owned beneficially or constructively by a group of
related individuals and/or entities to be constructively owned by one individual
or entity. As a result, the acquisition of less than 6% of the number or value
of outstanding Common Stock or of less than 6% of the value of outstanding
convertible preferred stock (or the acquisition of an interest in an entity
which owns Common Stock or convertible preferred stock) by an individual or
entity could cause that individual or entity (or another individual or entity)
to have constructively acquired Common Stock or convertible preferred stock in
excess of the limits described above in which case the excess shares shall be
subject to the procedures described above. See "Description of Capital Stock of
the Company" in the accompanying Prospectus.

The 6% Limit and the provisions of the Code referred to above may have the
effect of delaying, deferring or preventing a third party from making an
acquisition proposal for the Company and may thereby inhibit a change in control
of the Company. For example, such provisions may (i) deter tender offers for
Common Stock that may be attractive to stockholders or (ii) deter purchases of
large blocks of Common Stock, thereby limiting the opportunity for stockholders
to receive a premium for their Common Stock over then-prevailing market prices.
See "Certain Provisions of Nevada Law and of the Company's Articles of
Incorporation" in the accompanying Prospectus.

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REGULATORY COMPLIANCE

Environmental Matters

Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of such removal or remediation could be
substantial. Additionally, the presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
borrow using such real estate as collateral. All of the Properties have Phase I
environmental site assessments (which involve inspection without soil sampling
or groundwater analysis) by independent environmental consultants (the "Phase I
Assessments") and have been inspected for hazardous materials as part of the
Company's acquisition inspections. None of the Phase I Assessments has revealed
any environmental conditions requiring material expenditures for remediation. No
assurance can be given that these Phase I Assessments or the Company's
inspections have revealed all environmental liabilities and problems relating to
its Properties.

The Company believes that it is in compliance in all material respects with
all federal, state and local laws regarding hazardous or toxic substances. To
date, compliance with federal, state and local environmental protection
regulations has not had a material effect upon the Company. However, there can
be no assurance that costs of investigating and remediating environmental
matters with respect to properties currently or previously owned by the Company
or properties which the Company may acquire in the future, or other expenditures
or liabilities (including claims by private parties) resulting from hazardous
substances present in, on, under or above such properties or resulting from
circumstances or other actions or claims relating to environmental matters, will
not have a material adverse effect on the Company and its ability to make
distributions to stockholders.

Other Regulations

The Properties are, and properties which the Company may acquire in the
future will be, subject to various other federal, state and local regulatory
requirements such as local building codes and other similar regulations. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Company
believes that the Properties are currently in substantial compliance with all
applicable regulatory requirements, although expenditures at properties owned by
the Company may be required to comply with changes in these laws. No material
expenditures are contemplated at this time in order to comply with any such laws
or regulations; however, there can be no assurance that these requirements will
not be changed or that new requirements will not be imposed that would require
significant unanticipated expenditures by the Company, which could have an
adverse effect on the Company and its ability to make distributions to
stockholders. Similarly, changes in laws increasing the potential liability for
environmental conditions existing on the Properties may result in significant
unanticipated expenditures, which could adversely affect the Company and its
ability to make distributions to stockholders.

IMMEDIATE AND SUBSTANTIAL DILUTION; RISK OF SUBSTANTIAL DILUTION UPON CONVERSION
OF PREFERRED STOCK; REGISTRATION RIGHTS

Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value per share from the initial
public offering price. In addition, any future issuances of Common Stock or
other capital stock of the Company could also be dilutive to investors in the
Common Stock.

Holders of Common Stock could also experience substantial dilution upon the
conversion of a currently outstanding series of Preferred Stock into Common
Stock. Any such conversion could adversely affect the market price of the Common
Stock. The Company has the right, at its option, to convert all shares of 8%
Preferred Stock and 8% Preferred Stock, Series A, then outstanding into shares
of Common Stock upon the consummation of a public offering of Common Stock
meeting certain conditions or upon the satisfaction of

S-18
<PAGE> 18

certain market conditions subsequent to a public offering. The terms of the
Offering will not permit the Company to exercise this right. The 8% Preferred
Stock and the 8% Preferred Stock, Series A, are convertible into a total of
11,482,760 shares of Common Stock at the current conversion price. The 7%
Preferred Stock is convertible after August 4, 2000; at the current conversion
price, such stock would be convertible into 3,030,303 shares of Common Stock.
See "Description of Capital Stock of the Company -- Preferred Stock" in the
accompanying Prospectus.

The Company has granted registration rights to the holders of the 7%
Preferred Stock, the 8% Preferred Stock and the 8% Preferred Stock, Series A,
and certain of their respective transferees. Such rights to register shares of
Common Stock issuable upon conversion of the Preferred Stock and to sell them in
the public market could have a material adverse effect on both the market price
for the Common Stock and the Company's ability to raise additional equity
capital in the future. The Company has obtained agreements from Rodamco, NYSTRS,
and Deutsche Bank which restrict the ability of such stockholders to transfer
their shares for 180 days following the date of this Prospectus Supplement. See
"Description of Capital Stock of the Company -- Preferred Stock" in the
accompanying Prospectus and "Shares Available for Future Sale" herein.

HISTORICAL LOSSES; POSSIBILITY OF FUTURE LOSSES

The Company had losses of $5.7 million, $7.0 million, and $13.6 million
for fiscal years 1993 through 1995, respectively. Although such losses were due
in large part to the Company's higher levels of leverage in the past,
unrealized losses and certain non-recurring extraordinary items resulting from
prepayment penalties on debt refinancing, there can be no assurance that the
Company will not incur significant losses in the future. As of December 31,
1996, the Company's consolidated balance sheet reflected an accumulated deficit
aggregating approximately $30.8 million, resulting from the losses referred to
above and the fact that aggregate distributions to stockholders have exceeded
net income. See "Selected Consolidated Financial and Operating Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

CHANGE IN POLICIES

The major policies of the Company, including its policies with respect to
maintaining its qualification as a REIT and with respect to dividends,
acquisitions, debt and investments, are established by the Board. Although it
has no present intention to do so, the Board may amend or revise these and other
policies from time to time without a vote of or notice to the stockholders of
the Company (subject to the rights of the holders of the Company's outstanding
series of Preferred Stock). Accordingly, holders of the shares of Common Stock
will have no control over changes in policies of the Company, including any
policies relating to the payment of dividends or maintaining qualification as a
REIT.

RISK OF INABILITY TO SUSTAIN DISTRIBUTION LEVEL

The Company's current intended distribution level is based on a number of
assumptions, including assumptions relating to the future operations of the
Company. These assumptions concern, among other matters, continued property
occupancy and profitability of tenants, capital expenditures and other costs
relating to the Properties, the level of leasing activity, the strength of real
estate markets, competition, the cost of environmental compliance and
compliance with other laws, the amount of uninsured losses, and decisions by
the Company to reinvest rather than distribute cash available for distribution.
The Company currently expects to maintain its current distribution level.
However, some of the assumptions described above are beyond the control of the
Company, and a significant change in any such assumptions could cause a
reduction in cash available for distributions, which could affect the Company's
ability to sustain its distribution level.

S-19
<PAGE> 19

ABSENCE OF PRIOR U.S. MARKET FOR COMMON STOCK

Prior to the Offering, there has been no market in the United States for
the Common Stock, and there can be no assurance that an active trading market
will develop or be sustained in the United States or that the Common Stock can
be resold at or above the initial public offering price. The initial public
offering price of the Common Stock has been determined by agreement among the
Company and the Underwriters and may not be indicative of the market price for
the Common Stock after the Offering. See "Underwriting." The market value of the
Common Stock could be substantially affected by general market conditions,
including changes in interest rates. Moreover, numerous other factors, such as
government regulatory action and changes in tax laws, could have a significant
impact on the future market price of the Common Stock.

S-20
<PAGE> 20

THE COMPANY

The Company was formed in May 1981 as ARICO America Realestate Investment
Company. Advised initially by Deutsche Bank, the Company was created to provide
individual German investors the opportunity to invest in the U.S. commercial
real estate market through a European exchange listed security. The Company
initially raised $145.0 million in Germany in 1981 and used the proceeds to
develop One Norwest Center, a high rise office tower in Denver, Colorado,
together with Gerald D. Hines Interests (collectively, with its affiliates,
"Hines"). In 1987, the Company refinanced its equity position in the Denver
building and, along with the proceeds of $113.4 million from a second equity
offering in Germany in November 1986, developed Norwest Center in Minneapolis
together with Hines and Washington Mutual Tower in Seattle together with Wright
Runstad & Company.

In April 1991, John S. Moody became President and Chief Executive Officer
of Deutsche Bank Realty Advisors, Inc. ("DBRA"). From 1991 to 1994, management
of the Company, under the direction of DBRA, reorganized its operations by,
among other things, refinancing the Company's debt in order to reduce borrowing
costs and extend maturities and by adding members to the Board who had
substantial experience in the United States real estate markets. In 1995, the
management of the Company proposed, and its stockholders adopted, a plan to
pursue a growth strategy in the United States which included (1) becoming
self-advised; (2) strengthening the Company's balance sheet by reducing its
leverage ratio; and (3) expanding the Company's asset base. As of July 1, 1995,
the Company became a self-advised REIT and terminated its advisory contract with
DBRA. The majority of employees of DBRA became employees of the Company. The
Company changed its name to Cornerstone Properties Inc. effective September 18,
1995.

The Company is led by John S. Moody, the President and Chief Executive
Officer since 1991, and by Rodney C. Dimock, who joined the Company in 1995 as
Executive Vice President and Chief Operating Officer. Mr. Moody and Mr. Dimock
have a combined total of approximately 50 years of commercial real estate
experience. They are supported by a team of five officers with an average of 13
years of experience in all areas of acquisitions, asset management, leasing and
finance, as well as nine professional and administrative staff members.

The principal executive offices of the Company are located at Tower 56, 126
East 56th Street, New York, New York 10022, and its telephone number at that
location is (212) 605-7100. The Company was organized under the laws of the
State of Nevada in May 1981.

S-21
<PAGE> 21

BUSINESS OBJECTIVES

BUSINESS STRATEGY

- Seek external growth by acquiring additional Class A office properties
with local submarket and asset characteristics consistent with those
Properties currently in its portfolio; and

- Capitalize on the Company's access to capital in multiple markets,
including the domestic and international institutional and individual
investor marketplaces.

INTERNAL GROWTH STRATEGY

Rental Rate Increases

Based on its own historical activities and knowledge of its local
marketplaces, the Company believes that occupancy levels and net rents in its
submarkets are increasing but, on average, that net rents must still rise
significantly in order to justify and finance new construction. The Company
believes that these market dynamics should enable it to realize rental rate
increases without facing potentially competitive new construction. Moreover, the
Company believes that its high-quality assets will continue to compete very
effectively even when market rents rise sufficiently to support new
construction.

Maintenance

The Company places strong emphasis on programs for regular maintenance of
the Properties as well as periodic refurbishment, renovation and redevelopment
where such investment provides attractive returns and cash flow growth. Higher
maintenance levels generally allow building systems to operate more efficiently,
thereby reducing operating expenses to a level which is lower than that of
competitors in the marketplace. In addition, many of the Company's capital and
maintenance expenditures, such as the upgrading of a building's electrical
system, are designed to produce ongoing operational efficiencies in order to
increase cash flow and long-term value.

- Over the past several years, the Company has undertaken lighting
retrofits at three of its Properties, producing substantial energy cost
savings and resulting in higher net rental receipts to the Company.
Additionally, the Company employs sophisticated energy management systems
that allow for dynamic "load shedding" and ultimately lower energy costs.

Proactive Leasing Program.

The Company believes that retention of existing tenants, and the leasing of
additional space to those tenants, is important to a property's stability and
enhances its cash flow and value over time. Maximizing tenant retention reduces
the cost of lease rollovers and rental revenue fluctuations by removing "down"
periods between tenant occupancies and reducing the "up front" costs (tenant
improvements and leasing commissions) of signing leases. The Company's senior
management therefore focuses significant attention on negotiating lease terms
for prospective new tenants, and on working with existing tenants to negotiate
lease renewals that meet the tenant's potentially changing space needs.

S-22
<PAGE> 22

- At those Properties that were owned by the Company since January 1, 1992,
approximately 79% of expiring leased space has been extended either
through a lease renewal with the existing tenant or occupying subtenant
or through the expansion of another existing tenant.

- The Company has maintained average year-end occupancy rates of
approximately 97% for those Properties owned during the same period.

EXTERNAL GROWTH STRATEGY

Class A Office Properties

The Company believes that its strategy of investing in and owning Class A
office properties has the following benefits: (i) Class A properties can
currently be acquired at prices that produce attractive yields for the Company
and are accretive to earnings; (ii) Class A properties typically maintain higher
occupancies because, when overall vacancy rates are rising, tenants often take
the opportunity to relocate to better located and higher quality buildings; and
(iii) Class A properties generally attract strong credit tenants which results
in a more stable source of cash flow.

Major Metropolitan Areas

The Company intends to target properties located in the central business
districts and major suburban submarkets of major metropolitan areas. Target
markets will typically exhibit underlying economic, demographic, and employment
trends that lead to the positive net absorption of Class A office space in that
market. The Company also expects future acquisitions to be concentrated in
submarkets where high barriers to entry reduce the likelihood that new office
space will be constructed; such barriers to entry may include a limited supply
of attractive building sites and, significant regulatory constraints on new
development.

- Since November 1996, the Company has completed acquisitions of Properties
in Pittsburgh, suburban Chicago and New York City.

Discount to Replacement Cost

The Company expects to continue acquiring properties at a discount to
replacement cost that possess one or more competitive advantages, such as a
superior location, quality construction, high-quality tenancy, efficient
floorplates, and modern building systems. Because Class A properties being
considered for acquisition by the Company are at prices below replacement cost,
the opportunity exists for the Company to enhance property performance and
operating income, thereby increasing asset values, before potentially
competitive new construction is justified in most markets.

- The Company estimates that the five Properties it has acquired over the
past 18 months were purchased at an average price between 70% and 80% of
replacement cost.

Stock-for-Asset Swaps

The Company believes that opportunities exist for it to grow its asset
base, and increase earnings, through stock-for-asset swaps with major
institutional owners of property. For example, a number of major pension funds
and life insurance companies have publicly announced initiatives to exchange
portfolios of direct real estate holdings for securities of publicly traded
companies in order to improve portfolio diversification, liquidity, and overall
investment returns. The Company believes that the very high quality of the
Properties, and its intended future acquisitions, should make the Company an
attractive vehicle for swap transactions and afford access to a broader range of
acquisition opportunities.

S-23
<PAGE> 23

- The Company successfully implemented this strategy in November 1996 in
its exchange with Rodamco of its 8% Preferred Stock, Series A, for $40
million and the Frick Building. The Company also successfully executed
this strategy with Hines in January 1996 when it exchanged Common Stock
and convertible notes for the 10% minority interest Hines held in One
Norwest Center.

FINANCING STRATEGIES

Access to Multiple Capital Sources

Because of the unique circumstance of its foreign stockholder base and the
high quality of its assets, the Company believes it has several competitive
advantages in its ability to access equity capital from several different
sources on attractive terms. This financial flexibility should enable the
Company to choose from among several equity alternatives and to select the
capital source that best meets the Company's needs at that time. The Company
expects to continue to access capital from the most cost-efficient sources,
including public and private equity and debt from domestic and foreign
investors.

The following transactions are recent examples of the Company's ability to
execute its financing strategy:

- The Company recently completed a $166.5 million placement of convertible
preferred stock that included a $100.0 million investment in the Company
by NYSTRS, a major domestic pension fund, and a $66.5 million investment
in the Company by Rodamco, one of the world's largest publicly-traded
property companies.

- The Company estimates that approximately 13,000 individual German
investors now hold shares of its Common Stock. The Company believes there
may be additional opportunities to place shares of the Common Stock in
Germany or elsewhere in the European capital markets, and that this may
represent a future source of equity capital to fund the Company's growth.

Prudent Leverage

The Company will use leverage prudently to take advantage of what it
believes to be the positive spread between the total return on investments and
the cost of debt financing in the Class A sector of the office property market.
The Company believes that its use of leverage has been and will continue to be
consistent with its ownership of very high-quality assets in which a large
proportion of its tenants carry investment-grade long-term debt ratings.
Approximately 38% of the Full Service Straight-Line Rent is received from
tenants, or their financial subsidiaries, with investment-grade debt ratings.

Credit Facility

The Company has received a commitment, subject to certain conditions, for a
$200 million unsecured Revolving Credit Facility to be provided by Bankers Trust
Company and The Chase Manhattan Bank. The Revolving Credit Facility will have a
term of three years and will be used for the acquisition of additional
properties. Borrowings under the Revolving Credit Facility will bear interest at
a rate between 1.25% and 1.625% above LIBOR, depending upon the Company's ratio
of total debt to asset value while funds are outstanding.

S-24
<PAGE> 24

USE OF PROCEEDS

The net cash proceeds to the Company from the Offering, after deducting the
estimated underwriting discounts and commissions and estimated expenses of the
Offering, are estimated to be approximately $180.3 million (approximately $207.6
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use the net cash proceeds of the Offering for general
corporate purposes, including future acquisitions and capital expenditures.

Pending such uses, the Company may invest such net proceeds in short-term
liquid investments which are consistent with the Company's intention to qualify
for taxation as a REIT. Such investments may include, for example, government
and government agency securities, certificates of deposit, interest-bearing bank
deposits, investment grade commercial paper and mutual funds investing in
similar instruments.

FUTURE ACQUISITIONS

In the normal course of its business, the Company is regularly evaluating
opportunities to purchase office buildings in major markets in the United
States. The Company has entered into a non-binding letter of intent to purchase
from an affiliate of a major stockholder of the Company the State Street Bank
Building in Boston, Massachusetts, a Class A office building with approximately
one million rentable square feet. The letter of intent is subject to the
completion of a definitive purchase and sale agreement, due diligence and
approval by the Board. It is also subject to a determination by a major tenant
that it will not exercise its right to acquire the property pursuant to the
terms of its lease. There can be no assurance that the Company will acquire this
property or any other building the acquisition of which it is currently
considering.

S-25
<PAGE> 25

DISTRIBUTIONS

The Company intends to continue to pay cash distributions to its
stockholders. In accordance with the requirements of the Company's qualification
as a REIT, cash distributions will be equal to at least 95% of the Company's
taxable income. The Company intends that at least 85% of all distributions from
income earned during any taxable year will be made prior to the end of such
taxable year. Distributions of $1.20 were declared by the Board and paid by the
Company for the year 1996, of which $0.29 was a taxable dividend in the United
States. A quarterly distribution of $.30 per share was declared by the Board on
March 14, 1997 payable to stockholders of record as of March 21, 1997. The
Company intends to continue to declare distributions quarterly in the future. No
assurance can be given as to the amounts of future distributions since they are
subject to the Company's funds from operations, earnings, financial condition,
and such other factors as the Board deems relevant.

PRICE RANGE OF COMMON STOCK

The Common Stock trades on the Frankfurt, Dusseldorf and Luxembourg Stock
Exchanges, and application has been made for the Common Stock to be listed on
the NYSE under the symbol "CPP." Prior to the Offering, trading in the Common
Stock has been conducted only outside the United States under laws that prevent
disclosure of the number of beneficial owners of the Common Stock, most of whom
hold their shares through banks or other fiduciaries. The Company estimates,
however, that the number of beneficial owners of its Common Stock as of December
31, 1996 exceeded 13,000. The following table sets forth, for the periods
indicated, the quarterly high and low sale prices per share reported on the
Frankfurt, Dusseldorf and Luxembourg Stock Exchanges.

<TABLE>
<CAPTION>
FRANKFURT DUSSELDORF LUXEMBOURG
STOCK EXCHANGE STOCK EXCHANGE STOCK EXCHANGE
SALE PRICE SALE PRICE SALE PRICE(1) PERIOD AVERAGE
------------------ ------------------ --------------- DM/$
HIGH LOW HIGH LOW HIGH LOW EXCHANGE RATE(2)
-------- -------- -------- -------- ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
First Quarter................. DM30.00 DM27.60 DM30.10 DM27.20 $17.38 $16.00 1.7213
Second Quarter................ 28.70 25.60 28.60 25.50 17.25 16.00 1.6601
Third Quarter................. 26.60 24.10 26.80 24.00 17.00 15.40 1.5604
Fourth Quarter................ 24.80 22.70 24.50 22.80 15.75 15.00 1.5441
1995
First Quarter................. 23.50 21.60 23.40 21.60 16.00 13.88 1.4756
Second Quarter................ 22.20 20.30 22.30 20.00 16.30 14.50 1.3978
Third Quarter................. 24.80 20.90 24.60 20.90 18.25 14.40 1.4321
Fourth Quarter................ 21.40 19.45 21.40 19.45 14.88 13.75 1.4237
1996
First Quarter................. 22.70 20.10 22.50 20.30 15.50 14.00 1.4692
Second Quarter................ 20.80 20.00 20.80 20.10 14.00 12.50 1.5216
Third Quarter................. 22.55 20.50 22.55 20.50 15.10 13.75 1.4974
Fourth Quarter................ 24.70 22.10 24.30 21.10 16.00 14.50 1.5312
1997
First Quarter................. 28.25 23.50 28.20 23.40 17.25 15.00 1.6556
</TABLE>

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

(1) Prices on the Luxembourg Stock Exchange are quoted in U.S. dollars and are
indicative of actual trading.

(2) Provided for informational purposes only. Expressed in Deutsche Marks per
U.S. dollar at the average of the noon buying rates in New York City for
cable transfers in foreign currencies as certified for customs purposes by
the Federal Reserve Bank of New York on the last business day of each full
month during the relevant period. The market price of the Common Stock on
the NYSE may be affected by fluctuations in the exchange rate between the
Deutsche Mark and the U.S. dollar. Fluctuations in exchange rates will not
affect the earnings or dividends of the Company, which are reported and
declared in U.S. dollars.

S-26
<PAGE> 26

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted to reflect the repayment of a $32.5 million
term loan by the Company and the Offering as described under "Use of Proceeds."
The information set forth below should be read in conjunction with the
consolidated historical financial statements and notes thereto incorporated
herein by reference, the unaudited pro forma financial information and notes
thereto and the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Prospectus Supplement.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term Debt
Mortgage Debt...................................................... $354,716 $ 354,716
Convertible Promissory Note Due 2001............................... 12,926 12,926
Term Loan.......................................................... 32,500 0
Revolving Credit Facility Borrowings............................... 0 0
-------- -----------
Total Long-term Debt....................................... 400,142 367,642
-------- -----------
Redeemable Preferred Stock
8% Cumulative Convertible Preferred Stock (1):
no par value; stated value $145.00 per share; 1,034,483 shares
authorized; 689,655 shares issued and outstanding............... 97,743 97,743
8% Cumulative Convertible Preferred Stock, Series A (1):
no par value; stated value $145.00 per share; 458,621 shares
authorized and outstanding...................................... 65,000 65,000
-------- -----------
Total Redeemable Preferred Stock........................... 162,743 162,743
-------- -----------
Stockholders' Investment
Common Stock no par value; 100,000,000 shares authorized;
20,609,754 (actual) and 34,956,453 (as adjusted) shares issued
and outstanding................................................. 0 0
7% Cumulative Convertible Preferred Stock:
no par value; stated value $16.50 per share; 3,030,303 shares
authorized and outstanding..................................... 50,000 50,000
Paid-in Capital.................................................... 160,577 340,827
Accumulated deficit................................................ (30,789) (30,789)
Deferred Compensation.............................................. (1,248) (1,248)
-------- -----------
Total Stockholders' Investment............................. 178,540 358,790
-------- -----------
Total Capitalization................................................. $741,424 $ 889,175
======== =========
</TABLE>

- ---------------
(1) See "Risk Factors -- Redemption of the Preferred Stock."

S-27
<PAGE> 27

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The unaudited selected pro forma consolidated statement of operations and
balance sheet data is presented as if the Offering, the sale of the Company's 8%
Preferred Stock and the 8% Preferred Stock, Series A, the Company's repayment of
a $32.5 million term loan from Deutsche Bank and the acquisitions of both
Properties in New York City, the Property in Oakbrook Terrace, Illinois, and the
Property in Pittsburgh had occurred as of January 1, 1996 for operating data and
December 31, 1996 for balance sheet data. The pro forma financial information is
not necessarily indicative of what the results of operations of the Company
would have been for the periods indicated, nor does it purport to represent the
Company's future results of operations.

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
PRO FORMA HISTORICAL
(UNAUDITED) -------------------------------------
1996 1996 1995 1994
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA:

Revenues:
Office and parking rentals...................................... $133,592 $111,494 $ 88,548 $ 83,557
Interest and other income....................................... 5,040 5,414 3,839 2,017
-------- --------- -------- --------
Total revenues............................................ 138,632 116,908 92,387 85,574
-------- --------- -------- --------
Expenses:
Building operating expenses..................................... 53,693 44,188 31,530 29,991
Interest expense................................................ 29,720 31,345 29,467 30,792
Depreciation and amortization................................... 27,829 24,801 23,877 23,432
General and administrative...................................... 6,312 6,312 5,553 3,869
Unrealized (gain) loss on interest rate swap.................... (4,278) (4,278) 7,672 --
-------- --------- -------- --------
Total expenses............................................ 113,276 102,368 98,099 88,084
-------- --------- -------- --------
Income (loss) from operations..................................... 25,356 14,540 (5,712) (2,510)
Minority interest................................................. 1,519 1,519 3,417 3,899
-------- --------- -------- --------
Income (loss) before extraordinary items.......................... 23,837 13,021 (9,129) (6,409)
Extraordinary loss(1)............................................. (3,925) (3,925) (4,445) (581)
-------- --------- -------- --------
Net income (loss)................................................. $ 19,912 $ 9,096 $ (13,574) $ (6,990)
======== ========= ======== ========
Net income (loss) (per share)................................... $ 0.36 $ 0.19 $ (0.94) $ (0.53)
======== ========= ======== ========
Distributions to stockholders (per share)......................... -- $ 1.20 $ 1.16 $ 1.16
======== ========= ======== ========
BALANCE SHEET DATA:
Real estate investments before accumulated depreciation. ......... $867,332 $799,662 $ 706,988 $577,134
Total assets...................................................... 913,930 766,180 586,089 477,996
Long-term debt.................................................... 367,642 400,142 369,600 130,500
Credit facility debt.............................................. -- -- -- 236,467
Total liabilities......................................... 409,875 442,375 403,927 400,712
Minority interest................................................. (17,478) (17,478) (7,194) (6,642)
Redeemable preferred stock........................................ 162,743 162,743 0 0
Preferred stock................................................... 50,000 50,000 50,000 0
Common stockholders' equity....................................... 308,790 128,540 139,356 83,926
OTHER DATA:
Funds from operations(2)........................................ 48,562 34,718 21,424 15,562
Capital expenditures............................................ -- 6,100 712 1,790
Preferred stock dividends(3).................................... 16,820 5,153 1,449 --
Common stock distributions...................................... -- 24,551 18,485 15,359
Cash flow from:
Operations.................................................... -- 34,522 20,036 28,968
Investing..................................................... -- (57,259) (135,527) (1,762)
Financing..................................................... -- 129,800 110,725 (33,141)
Total rentable square footage of properties(4).................. 4,941 4,725 4,087 3,461
Average occupancy............................................... 97% 97% 98% 98%
Weighted average number of shares of Common Stock outstanding... 34,411 20,411 15,910 13,241
</TABLE>

- ---------------
(1) Reflects the costs associated with the extinguishment of long-term debt.

(2) The Company calculates Funds from Operations ("FFO") based upon guidance
from NAREIT. FFO is defined as net income, excluding gains or losses from
debt restructuring and sales of property, plus real estate depreciation and
amortization, and after adjustments for unconsolidated joint ventures.

The Company makes two adjustments to FFO which are not contemplated by
NAREIT in its definition. The first adjustment is for the amortization of
the rent notes receivable from Hines which were put in place to compensate
the Company for their share of cash flow from the partnership which owns One
Norwest Center during the period when the Company owned 90% of the
partnership but received 100% of the cash flow. The notes were kept in place
at the time of the acquisition of Hines' 10% partnership interest to
compensate the Company for the future value of the cash flow which the
Company would have received had the partnership remained in place. These
notes will be fully amortized as of December 31, 1998.

S-28
<PAGE> 28

The second adjustment is made for the differential between the real estate
tax expense at Norwest Center and the accrual of the recovery of such taxes
due to the one year time lag between the assessment of such taxes and actual
payment. The Company believes that, since the building is 100% leased, these
funds will be collected under any circumstance as a pass-through to the
tenants. Based on this fact, the Company eliminates the timing effects of
these tax increases in its calculation of FFO. The effect of the adjustment
in 1996 and 1995 is substantial due to a 29.4% and 13.8% increase in real
estate taxes over the last two years.

The table below sets forth the adjustments which were made to the net income
(loss) of the Company for the last three years and Pro Forma 1996 in the
calculation of FFO (in thousands).

<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS
------------------------------------------------
PRO FORMA
1996
(UNAUDITED) 1996 1995 1994
----------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income (loss)................................................. $19,912 $ 9,096 $(13,574) $(6,990)
NAREIT Adjustments:
Depreciation and amortization................................... 27,344 24,316 22,572 22,321
Net (gain) loss on swap transactions............................ (4,278) (4,278) 7,672 --
Extraordinary losses............................................ 3,925 3,925 4,445 581
Minority interest adjustments................................... (2,011) (2,011) (1,617) (1,358)
Other Adjustments:
Amortization on rent notes...................................... 1,242 1,242 1,119 1,008
Real estate tax adjustment...................................... 2,428 2,428 807 --
------ ------ ------- ------
Funds From Operations............................................. 48,562 34,718 21,424 15,562
====== ====== ======= ======
Preferred Dividends............................................... (16,820) (5,153) (1,449) --
------ ------ ------- ------
Funds from Operations Available For Common Shares................. $31,742 $29,565 $ 19,975 $15,562
====== ====== ======= ======
</TABLE>

Although the Company believes that this table is a full and fair
presentation of the Company's FFO, similarly captioned items may be defined
differently by other REITs, in which case direct comparisons may not be
possible.

Industry analysts generally consider FFO to be an appropriate measure of
performance of an equity REIT such as the Company, and the Company believes
that FFO is helpful to investors as a measure of the performance of an
equity REIT. FFO does not represent cash generated from operating activities
in accordance with GAAP and, therefore, should not be considered a
substitute for net income as a measure of performance or cash flow from
operations as a measure of liquidity calculated in accordance with GAAP.

(3) Includes preferred stock dividends accrued but not declared.

(4) At December 31, 1995, the Company held the mortgage note on Tower 56, and
the square footage of Tower 56 is included as of that date.

S-29
<PAGE> 29

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

The following discussion and analysis should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference in the accompanying Prospectus and with the
Selected Consolidated Financial and Operating Data set forth above and the
Consolidated Financial Statements and Notes thereto incorporated by reference
herein.

RESULTS OF OPERATIONS

The Company's principal source of income is rental revenues received
through its investment in six fee simple investments and two real estate
partnerships held by nine wholly-owned subsidiaries: 1700 Lincoln Limited owned
90 percent by ARICO-Denver, Inc. and 10 percent by 1700 Lincoln Inc., NWC
Limited Partnership owned by ARICO-Minneapolis, Inc., Third and University
Limited Partnership owned by ARICO-Seattle, Inc., 125 Summer Street owned by
CStone-Boston, Inc., Tower 56 owned by CStone-New York, Inc., One Lincoln Centre
owned by CStone-Oakbrook, Inc., the Frick Building owned by CStone-Pittsburgh
Trust, and 527 Madison Avenue owned by CStone-527 Madison, Inc., respectively.
NWC Limited Partnership and Third and University Limited Partnership have been
consolidated since Cornerstone has a majority interest in the economic benefits
and has the right to become managing general partner at its sole discretion.

PRO FORMA TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1996 (UNAUDITED) COMPARED TO
HISTORICAL TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1996

Net income for the year ended December 31, 1996 was $9.10 million as
compared to $19.91 million in the pro forma results for the year ended December
31, 1996. The increase of $10.81 million was due to an increase in property
income of $9.56 million and a decrease in interest expense of $1.63 million, the
effects of which were partially offset by a decrease in interest income of $0.37
million.

Property Results. The Company's property results for the year ended
December 31, 1996, as compared to pro forma results for the year ended December
31, 1996, can be summarized as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
--------------------
PRO
FORMA
(UNAUDITED) HISTORICAL
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Office and Parking Rentals.............................. $133,592 $111,494
Less:
Building Operating Expenses........................... 53,693 44,188
Depreciation and Amortization......................... 27,829 24,801
-------- --------
Total Operating Expenses......................... 81,522 68,989
-------- --------
Total Property Income............................ $ 52,070 $ 42,505
======== ========
</TABLE>

Total property income in the pro forma results for the year ended December
31, 1996 increased over the historical results for the year ended December 31,
1996 as a result of the acquisition of One Lincoln Centre, the Frick Building
and 527 Madison Avenue which contributed additional income in the amount of $2.1
million, $1.7 million and $5.7 million, respectively.

Interest and Other Income. Pro forma interest and other income for the
year ended December 31, 1996 was $5.04 million as compared to historical
interest and other income of $5.41 million. The $0.37 million decrease is due to
the adjustment for short-term interest earned on the Preferred Stock placement
during the fourth quarter.

Interest Expense. Historical interest expense was $31.35 million while pro
forma interest expense was $29.72 million. The decrease is due to the repayment
of the $32.5 million term loan as of January 1, 1996.

S-30
<PAGE> 30

LIQUIDITY AND CAPITAL RESOURCES

Offering Proceeds

Upon completion of the Offering, the Company will have approximately $180
million of cash available for general corporate purposes including the
acquisition of new properties and capital expenditures.

Credit Facility Debt

The Company has received a commitment from Bankers Trust Company and The
Chase Manhattan Bank (collectively, the "Lenders") for an unsecured Revolving
Credit Facility in the amount of $200 million for future acquisitions. The
Revolving Credit Facility will be for a term of three years and will be
available contingent on the acquisition of approximately $157 million of
unencumbered properties which are acceptable to the Lenders. The interest rate
on the loan will be based on a spread over LIBOR of between 1.25% and 1.625%
depending on the Company's leverage ratio (to be defined in the Revolving Credit
Facility).

The Revolving Credit Facility will contain representations, warranties, and
events of default and will require the Company to comply with certain
affirmative and negative covenants, including a covenant that the Company
maintain its status as a REIT. Other significant covenants include a minimum
interest coverage ratio of 2.25 to 1, a 2.5 times interest coverage ratio on
unsecured debt, a minimum fixed charge coverage ratio of 1.75 to 1, that the
Company will not distribute in excess of 90% of its FFO or 110% of its funds
available for distribution, and that the Company will maintain at least $10
million of working capital.

S-31
<PAGE> 31

PROPERTIES

The Company owns and operates eight Class A office Properties, comprising
nearly five million rentable square feet. Class A office properties generally
are considered to be those which have the most favorable locations and physical
attributes, attract premium rents, and experience the highest tenant retention
rates within their markets. Based on rentable square feet, as of December 31,
1996, the Properties were approximately 97% leased to a total of 400 tenants.

The following table summarizes certain information as of December 31, 1996
with respect to the Properties.

TABLE OF PROPERTIES

<TABLE>
<CAPTION>
YEAR REMAINING
CONSTRUCTED/ COMPANY'S TOTAL AVERAGE
PROPERTY NAME AND YEAR PERCENTAGE RENTABLE OCCUPANCY NUMBER OF LEASE TERM
LOCATION ACQUIRED INTEREST SQUARE FEET RATE TENANTS (IN YEARS) LARGEST TENANTS
- ---------------------- ------------ ---------- ----------- --------- --------- ---------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One Norwest Center
Denver, Colorado.... 1983 100% 1,188,000 99% 38 8.8 Norwest Bank Denver N.A.
Apache Corporation
Newmont Gold Company
Norwest Center(1)
Minneapolis,
Minnesota........... 1988 50 1,118,000 100 35 11.8 Norwest Corporation
Faegre & Benson KPMG Peat
Marwick
Washington Mutual
Tower(2)(3)
Seattle,
Washington.......... 1988 50 1,155,000 97 122 5.0 Perkins Coie
Washington Mutual
125 Summer Street
Boston,
Massachusetts....... 1989/1995 100 464,000 100 30 3.7 Deloitte & Touche
BTM Capital Corp.(4)
Tower 56(5)
New York, New York.. 1983/1996 100 162,000 97 45 3.1 ICC Associates, L.P.
United Bank of Kuwait
One Lincoln Centre
Oakbrook Terrace,
Illinois............ 1986/1996 100 297,000 91 40 2.9 Superior Bank FSB
Microsoft Corporation
Frick Building(6)
Pittsburgh,
Pennsylvania........ 1902/1996 100 341,000 85 70 3.1 Meyer, Darragh, Buckler,
Bebenek & Eck
Sable, Makaroff & Gudsky
527 Madison Avenue(7)
New York, New York.. 1986/1997 100 216,000 96 20 5.5 The Sumitomo Trust
--------- ------ & Banking Co., Ltd.
W.P. Stewart Co., Inc.
Total/Weighted
Average,
All Properties...... 4,941,000 97% 400
========= === ===
</TABLE>

(2) Includes the Galland and Seneca Buildings. See "Properties -- Description of
Properties and Market Data -- Washington Mutual Tower."

(4) BTM Capital Corporation is a wholly-owned subsidiary of The Bank of
Tokyo-Mitsubishi.

(5) The Company's headquarters are located at Tower 56. See "-- Description of
Properties and Market Data -- New York City Properties -- Advisory Services
Obligations -- Tower 56" for additional information regarding the Company's
economic interest in Tower 56 upon the sale of the Property.

(6) The Property was substantially renovated in 1988.

(7) The Property was acquired by the Company in February 1997.

S-32
<PAGE> 32

NET RENT AND NET EFFECTIVE RENT

The following tables show the average annual Base Rent and the average
annual Net Effective Rent (each as defined below) per square foot occupied for
each of the Properties for each of the last five years in which such Property
was owned by the Company. "Base Rent" as used herein means (i) the actual stated
fixed rent received on a net or a gross basis (the "Actual Rent"), less (ii)
total operating expenses net of Recoveries. "Recoveries" means the actual
recovery of operating expenses in net lease buildings or the actual recovery of
operating expense escalations in gross lease buildings. "Net Effective Rent" as
used herein means (i) Actual Rent determined for each year on a straight-line
basis through the term of the lease, less (ii) the amount of operating expenses
net of Recoveries and the amortization of deferred leasing costs (tenant
improvements, leasing commissions, takeover obligations and other tenant
inducements). For a discussion of the Company's historical experience concerning
recurring, non-incremental revenue-generating capital expenditures and
non-incremental revenue-generating tenant improvement costs to retain revenues
attributable to existing leased space, see "-- Leasing and Capital Costs."

<TABLE>
<CAPTION>
AVERAGE ANNUAL BASE RENT
------------------------------------------
TOTAL BLDG. (PER SQUARE FOOT OCCUPIED)
PROPERTY SQ. FT. 1996 1995 1994 1993 1992
- -------------------------------------------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center Denver, Colorado......... 1,188,000 $12.08 $11.78 $11.61 $12.05 $12.35
Norwest Center Minneapolis, Minnesota....... 1,118,000 17.94 17.82 17.25 17.56 16.02
Washington Mutual Tower Seattle,
Washington................................ 1,155,000 15.98 16.17 15.27 15.34 15.26
125 Summer Street Boston, Massachusetts..... 464,000 23.24 22.48 -- -- --
Tower 56 New York, New York................. 162,000 20.45 -- -- -- --
One Lincoln Centre Oakbrook Terrace,
Illinois.................................. 297,000 18.56 -- -- -- --
Frick Building Pittsburgh, Pennsylvania..... 341,000 11.24 -- -- -- --
527 Madison Avenue New York, New York....... 216,000 35.47 -- -- -- --
--------- ------ ------ ------ ------ ------
Total/Weighted Average...................... 4,941,000 $16.99 $16.06 $14.65 $14.93 $14.51
========= ====== ====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL NET EFFECTIVE RENT
------------------------------------------
TOTAL BLDG. (PER SQUARE FOOT OCCUPIED)
PROPERTY SQ. FT. 1996 1995 1994 1993 1992
- -------------------------------------------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center Denver, Colorado......... 1,188,000 $10.80 $10.56 $10.25 $10.59 $10.92
Norwest Center Minneapolis, Minnesota....... 1,118,000 17.43 17.31 17.00 17.27 17.48
Washington Mutual Tower Seattle,
Washington................................ 1,155,000 11.80 11.83 11.03 10.84 10.43
125 Summer Street Boston, Massachusetts..... 464,000 22.27 23.33 -- -- --
Tower 56 New York, New York................. 162,000 21.17 -- -- -- --
One Lincoln Centre Oakbrook Terrace,
Illinois.................................. 297,000 19.70 -- -- -- --
Frick Building Pittsburgh, Pennsylvania..... 341,000 11.69 -- -- -- --
527 Madison Avenue New York, New York....... 216,000 30.99 -- -- -- --
--------- ------ ------ ------ ------ ------
Total/Weighted Average...................... 4,941,000 $15.43 $14.37 $12.69 $12.83 $12.88
========= ====== ====== ====== ====== ======
</TABLE>

S-33
<PAGE> 33

OCCUPANCY RATES

The following table sets forth the occupancy rate, expressed as a
percentage, for each of the Properties for each of the last five years in which
such Property was owned by the Company.

<TABLE>
<CAPTION>
OCCUPANCY RATE
TOTAL BLDG. ------------------------------------------
PROPERTY SQ. FT. 1996 1995 1994 1993 1992
- -------------------------------------------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center Denver, Colorado......... 1,188,000 99% 98% 96% 96% 95%
Norwest Center Minneapolis, Minnesota....... 1,118,000 100 100 100 100 100
Washington Mutual Tower Seattle,
Washington................................ 1,155,000 97 97 97 96 94
125 Summer Street Boston, Massachusetts..... 464,000 100 94 -- -- --
Tower 56 New York, New York................. 162,000 97 91 -- -- --
One Lincoln Centre Oakbrook Terrace,
Illinois.................................. 297,000 91 -- -- -- --
Frick Building Pittsburgh, Pennsylvania..... 341,000 85 -- -- -- --
527 Madison Avenue(1) New York, New York.... 216,000 96 -- -- -- --
--------- --- --- --- --- ---
Total/Weighted Average...................... 4,941,000 97% 98% 98% 97% 96%
========= === === === === ===
</TABLE>

- ---------------
(1) The Property was acquired by the Company is February 1997.

S-34
<PAGE> 34

TENANTS

The Company's tenants include local, regional, national and international
companies engaged in a wide variety of businesses. The following table sets
forth, as of December 31, 1996, information concerning the Company's ten largest
tenants (ranked by Full Service Straight-Line Rent as of that date). "Full
Service Straight-Line Rent" is Straight-Line Rent plus Recoveries.
"Straight-Line Rent" means the average of all Actual Rent required to be paid
through the term of the lease calculated in accordance with GAAP. Full Service
Straight-Line Rent does not reflect any increases or decreases in monthly rental
rates or any lease expirations which are scheduled to occur or which may occur
after December 31, 1996 or the cost of any leasing commissions or tenant
improvements.

TEN LARGEST TENANTS

<TABLE>
<CAPTION>
FULL SERVICE
STRAIGHT-LINE RENT SCHEDULED
------------------------- LEASE
STRAIGHT-LINE PERCENT EXPIRATION SQUARE
TENANT RENT RECOVERIES AMOUNT OF TOTAL DATE FEET
- ---------------------------- ------------ ----------- ------------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Norwest Corporation(1)...... $ 20,200,000 $ 9,139,000 $ 29,339,000 22% Jan-99 14,000
Aug-01 7,000
Jul-03 154,000
Jul-13 408,000
Aug-18 451,000
---------
1,034,000
Faegre & Benson(2).......... 3,492,000 2,446,000 5,938,000 5 Sep-98 196,000

Perkins Coie................ 4,898,000 400,000 5,298,000 4 Jul-98 4,000
Feb-99 17,000
Jul-04 175,000
---------
196,000
Deloitte & Touche........... 4,695,000 515,000 5,210,000 4 Oct-99 121,000

The Sumitomo Trust and
Banking Company........... 4,334,000 559,000 4,893,000 4 Oct-01 78,000

Washington Mutual........... 3,191,000 266,000 3,457,000 3 Aug-03 21,000
Apr-07 138,000
---------
159,000
Burns & Levinson............ 2,896,000 281,000 3,177,000 2 Mar-00 85,000
Apache Corporation(3)....... 1,914,000 950,000 2,864,000 2 May-97 92,000
May-00 44,000
Jul-01 24,000
---------
160,000
KPMG Peat Marwick........... 1,831,000 983,000 2,814,000 2 Aug-09 75,000

BTM Capital
Corporation(4)(5)......... 2,513,000 261,000 2,774,000 2 Jun-97 3,000
Jul-02 91,000
------------ ----------- ------------ ---------
--
94,000
Ten Largest Tenants......... $ 49,964,000 $15,800,000 $ 65,764,000 50%
============ =========== ============ ==
Total Portfolio........... $103,756,000 $27,722,000 $131,478,000
============ =========== ============
</TABLE>

- ---------------
(1) Includes Norwest Corporation and Norwest Bank Denver N.A.

(2) The Company has reached a non-binding agreement with Faegre & Benson to
extend its lease, based on their extension option, on 175,000 square feet of
space at a rate of $13.64 through September 30, 2003. The $13.64 rate will
take effect September 30, 1998.

(3) Apache Corporation's subtenant on this space, Teletech, Inc. has taken a
direct lease for 44,000 square feet from May 1997 through May 2000.

(4) BTM Capital Corporation has contracted to expand into 21,000 square feet to
be delivered to tenant no later than August 1, 1997 at a gross rate of
$26.00 per square foot.

(5) Beginning January 15, 1997, the lease with BTM Capital Corporation adjusts
to a 1997 base year. Escalations will be collected only as expenses increase
above those actually paid in 1997.

S-35
<PAGE> 35

LEASE EXPIRATIONS

The following table sets forth certain categories of information relating
to lease expirations for all of the Properties, collectively.
<TABLE>
<CAPTION>
TOTAL ALL PROPERTIES 1997 1998 1999 2000 2001 2002 2003 2004
- ---------------------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet
expiring............ 548,000 663,000 602,000 511,000 240,000 294,000 316,000 458,000
Straight-Line Rent.... $11,042,000 $13,147,000 $13,597,000 $10,446,000 $8,070,000 $6,147,000 $5,621,000 $10,184,000
Straight-Line Rent
per sq. ft.......... $ 20.15 $ 19.83 $ 22.59 $ 20.44 $ 33.63 $ 20.91 $ 17.79 $ 22.24
Recoveries............ $ 2,221,000 $ 4,289,000 $ 2,470,000 $ 3,169,000 $1,094,000 $1,571,000 $1,129,000 $ 2,228,000
Full Service Straight-
Line Rent........... $13,263,000 $17,436,000 $16,067,000 $13,615,000 $9,164,000 $7,718,000 $6,750,000 $12,412,000
Full Service
Straight-Line Rent
per sq. ft. ........ $ 24.20 $ 26.30 $ 26.69 $ 26.64 $ 38.18 $ 26.25 $ 21.36 $ 27.10
% Full Service
Straight-Line
Rent................ 10.09% 13.26% 12.22% 10.36% 6.97% 5.87% 5.13% 9.44%
Culmulative percent of
Full Service
Straight-Line
Rent................ 10.09% 23.35% 35.57% 45.93% 52.90% 58.77% 63.90% 73.34%
No. of tenant leases
expiring............ 116 88 66 50 31 14 11 10

<CAPTION>
2006
AND
TOTAL ALL PROPERTIES 2005 BEYOND
- ---------------------- -------- -----------
<S> <<C> <C>
Square feet
expiring............ 29,000 1,129,000
Straight-Line Rent.... $794,000 $24,708,000
Straight-Line Rent
per sq. ft.......... $ 27.38 $ 21.88
Recoveries............ $ 11,000 $ 9,540,000
Full Service Straight-
Line Rent........... $805,000 $34,248,000
Full Service
Straight-Line Rent
per sq. ft. ........ $ 27.76 $ 30.33
% Full Service
Straight-Line
Rent................ 0.61% 26.05%
Culmulative percent of
Full Service
Straight-Line
Rent................ 73.95% 100.00%
No. of tenant leases
expiring............ 3 11
</TABLE>

TENANT RETENTION

The following table sets forth the Company's tenant retention on expiring
leases since January 1, 1992. The analysis is based upon the percentage of
expiring leases in the appropriate building with a tenant or subtenant being
retained in the expiring space or an existing tenant expanding into the expiring
space. A tenant is assumed to be retained in the year in which their lease is
renewed or extended.

RETENTION
<TABLE>
<CAPTION>
1996 1995 1994 1993
--------------------------- --------------------------- --------------------------- --------
RETAINED EXPIRING RETAINED EXPIRING RETAINED EXPIRING RETAINED
PROPERTY(1) SQ. FT. SQ. FT. RET.% SQ. FT. SQ. FT. RET.% SQ. FT. SQ. FT. RET.% SQ. FT.
- -------------------------- -------- -------- ----- -------- -------- ----- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Norwest Center
Denver, Colorado......... 43,601 72,903 60% 64,627 71,364 91% 93,962 94,981 99% 126,511
Norwest Center
Minneapolis, Minnesota... 4,336 9,777 44 22,762 23,792 96 16,293 26,317 62 24,832
Washington Mutual Tower
Seattle, Washington...... 86,956 106,250 82 29,547 44,742 66 127,334 153,645 83 90,230
125 Summer Street
Boston, Massachusetts.... 95,816 96,658 99 -- -- -- -- -- -- --
Tower 56
New York, New York....... 46,003 53,762 86 -- -- -- -- -- -- --
-- -- --
------- ------- ------- ------- ------- ------- -------
Total/Weighted Average.... 276,712 339,350 82% 116,936 139,898 84% 237,589 274,943 86% 241,573

<CAPTION>
1992
---------------------------
EXPIRING RETAINED EXPIRING
PROPERTY(1) SQ. FT. RET.% SQ. FT. SQ. FT. RET.%
- -------------------------- -------- ----- -------- -------- -----
<S> <C<C> <C> <C> <C> <C>
One Norwest Center
Denver, Colorado......... 154,615 82% 44,795 77,848 58%
Norwest Center
Minneapolis, Minnesota... 37,806 66 38,010 38,010 100
Washington Mutual Tower
Seattle, Washington...... 130,010 69 24,355 46,938 52
125 Summer Street
Boston, Massachusetts.... -- -- -- -- --
Tower 56
New York, New York....... -- -- -- -- --
-- --
------- ------- -------
Total/Weighted Average.... 322,431 75% 107,160 162,796 66%
</TABLE>

- ---------------
(1) One Lincoln Centre, the Frick Building and 527 Madison Avenue are not
included because they were acquired during and after November 1996.

S-36
<PAGE> 36

LEASING COSTS AND CAPITAL EXPENDITURES

NON INCREMENTAL REVENUE GENERATING (RECURRING LEASING COSTS AND CAPITAL
EXPENDITURES)

The following table shows Historical Non-Incremental Revenue Generating
Leasing Costs which are the leasing costs (tenant improvements and leasing
commissions), in total and on a per square foot basis, to re-lease expiring
leases or renew or extend existing leases. Additionally, the table shows
Historical Non-Incremental Revenue Generating Capital Expenditures which are
capital expenditures expended to maintain a property in a Class A manner and do
not give rise to additional earnings capacity, but rather allow the property to
maintain its competitive position within its market.

<TABLE>
<CAPTION>
TOTAL/WEIGHTED
1996 1995 1994 1993 1992 AVERAGE
----------- -------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ONE NORWEST CENTER
Total Tenant Lease
Costs.................. $ 1,009,006 $141,135 $ 540,444 $ 754,802 $ 345,958 $ 2,791,345
Total Per Square Foot
Leased................. 12.39 1.86 4.58 4.25 6.35 5.50

NORWEST CENTER
Total Tenant Lease
Costs.................. 42,237 144,275 30,193 154,940 1,736,244 2,107,889
Total Per Square Foot
Leased................. 6.37 5.77 1.12 4.07 15.82 10.95

WASHINGTON MUTUAL TOWER
Total Tenant Lease
Costs.................. 793,361 290,971 1,065,962 1,303,860 1,110,402 4,564,556
Total Per Square Foot
Leased................. 6.37 5.40 7.06 8.66 14.86 8.23

125 SUMMER STREET
Total Tenant Lease
Costs.................. 2,158,339 -- -- -- -- 2,158,339
Total Per Square Foot
Leased................. 18.32 -- -- -- -- 18.32

TOWER 56
Total Tenant Lease
Costs.................. 339,124 -- -- -- -- 339,124
Total Per Square Foot
Leased................. 8.04 -- -- -- -- 8.04

ONE LINCOLN CENTRE
Total Tenant Lease
Costs.................. 2,859 -- -- -- -- 2,859
Total Per Square Foot
Leased................. 0.78 -- -- -- -- 0.78

FRICK BUILDING
Total Tenant Lease
Costs.................. -- -- -- -- -- --
Total Per Square Foot
Leased................. -- -- -- -- -- --
---------- -------- ---------- ---------- ---------- -----------
CORNERSTONE PORTFOLIO
Total Tenant Lease
Costs.................. $ 4,344,926 $576,381 $1,636,599 $2,213,602 $3,192,604 $11,964,112
Total Per Square Foot
Leased................. 11.55 3.72 5.53 6.04 13.36 8.35

CAPITAL EXPENDITURES..... $ 532,851(1) -- $ 50,801 -- $ 2,524 $ 586,176
Weight Average Square
Footage Owned.......... 4,139,000 3,500,000 3,461,000 3,461,000 3,461,000 18,022,000
Per Square Foot.......... $ 0.13 -- $ 0.01 -- -- $ 0.03
</TABLE>

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

(1) Start-up capital included in the purchase price of 125 Summer Street and the
Frick Building.

S-37
<PAGE> 37

INCREMENTAL REVENUE GENERATING (NON-RECURRING LEASING COSTS AND CAPITAL
EXPENDITURES)

The following table shows Historical Incremental Revenue Generating Leasing
Costs which are the leasing costs (tenant improvements and leasing commissions)
required (i) to lease first generation space in development properties or (ii)
to lease space which was vacant at the time of the acquisition of a property
which will increase the overall return on the property. Additionally, the table
shows Historical Incremental Revenue Generating Capital Expenditures which are
capital expenditures expended to increase the profitability of the building
either through generation of higher earnings, or by improving building systems
efficiency, thus producing lower operating expenses prospectively.

<TABLE>
<CAPTION>
TOTAL/
WEIGHTED
1996 1995 1994 1993 1992 AVERAGE
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ONE NORWEST CENTER
Total Tenant Lease Costs... -- -- -- -- -- --
Total Per Square Foot...... -- -- -- -- -- --

NORWEST CENTER
Total Tenant Lease Costs... -- -- -- -- -- --
Total Per Square Foot...... -- -- -- -- -- --

WASHINGTON MUTUAL TOWER
Total Tenant Lease Costs... $ 643,235 -- -- -- -- $ 643,235
Total Per Square Foot...... 4.39 -- -- -- -- 4.39

125 SUMMER STREET
Total Tenant Lease Costs... 369,727 -- -- -- -- 369,727
Total Per Square Foot...... 11.16 -- -- -- -- 11.16

TOWER 56
Total Tenant Lease Costs... 174,266 -- -- -- -- 174,266
Total Per Square Foot...... 24.49 -- -- -- -- 24.49

ONE LINCOLN CENTRE
Total Tenant Lease Costs... 9,706 -- -- -- -- 9,706
Total Per Square Foot...... 5.00 -- -- -- -- 5.00

FRICK BUILDING
Total Tenant Lease Costs... -- -- -- -- -- --
Total Per Square Foot...... -- -- -- -- -- --
---------- -------- ---------- ---------- ---------- ----------
CORNERSTONE PORTFOLIO
Total Tenant Lease Costs... $1,196,934 -- -- -- -- $1,196,934
Total Per Square Foot...... 6.34 -- -- -- -- 6.34

CAPITAL EXPENDITURES....... $ 25,500 $135,194 $ 102,567 $ 967,533 -- $1,230,794
Weighted Average Square
Footage Owned............ 4,139,000 3,500,000 3,461,000 3,461,000 3,461,000 18,022,000
Per Square Foot............ $ 0.01 $ 0.04 $ 0.03 $ 0.28 $ 0.00 $ 0.07
</TABLE>

S-38
<PAGE> 38

MORTGAGE INDEBTEDNESS AND CREDIT FACILITY

The following table sets forth certain information regarding the
consolidated debt obligations of the Company upon completion of the Offering,
including mortgage obligations relating to specific Properties, assuming the
application of the proceeds as set forth in "Use of Proceeds." All of this debt
is nonrecourse to the Company. However, even with respect to nonrecourse
indebtedness, the lender may have the right to recover deficiencies from the
Company in certain circumstances, including fraud, misappropriation of funds and
environmental liabilities. See "Risk Factors -- Risks of Debt Financing."

The Company has received a commitment, subject to certain conditions, for a
three-year, $200 million, unsecured Revolving Credit Facility from Bankers Trust
Company and The Chase Manhattan Bank which will be used for the acquisition of
additional properties. Borrowings under the Revolving Credit Facility will bear
interest at a rate between 1.25% and 1.625% over LIBOR, depending on the
Company's leverage ratio while funds are outstanding.

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN
THOUSANDS)
(AS OF INTEREST MATURITY PREPAYMENT
PROPERTY/OBLIGATION 12/31/96) AMORTIZATION RATE DATE PROVISIONS
- --------------------------------- ---------- ---------------- -------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Convertible Note(1).............. $ 12,926 Interest only 8.11% max.(2) Dec-2000 Not prepayable
One Norwest Center
Denver, Colorado............... 97,706 30 year 7.50 Aug-2001 (3)
125 Summer Street
Boston, Massachusetts.......... 50,000 Interest only(4) 7.20 Jan-2003 (5)
Tower 56
New York, New York............. 17,909 30 year 7.67 May-2003 (6)
Washington Mutual Tower Seattle,
Washington..................... 79,100 Interest only 7.53 Nov-2005 (7)
Norwest Center
Minneapolis, Minnesota......... 110,000 Interest only 8.74 Dec-2005 Not prepayable
-------- ----
Total/Weighted Average....... $367,641 7.87%
======== ====
</TABLE>

- ---------------
(1) The lender, Hines Colorado Limited, has the right to convert the note into
Common Stock at a conversion price of $14.30 per share. At maturity, the
Company is entitled to repay the principal of the note with Common Stock
priced at the lesser of $14.30 per share or the then existing share price.

(2) Lesser of 30-day LIBOR + 0.5% or 8.11%.

(3) No prepayment until July 24, 1998. From July 24, 1998 through July 23, 2000,
prepayment fee is greater of 1% of outstanding principal balance or Treasury
Yield Maintenance. Beginning July 24, 2000, prepayment fee is Treasury Yield
Maintenance. Loan may be prepaid at par during last 90 days of loan.

(4) Interest only payments through January 1, 2001. Beginning February 1, 2001,
25-year amortization schedule.

(5) Beginning July 1, 1999, fee is greater of Treasury Yield Maintenance or 1%
of outstanding principal balance. Prepayment without fee on or after three
months prior to maturity date.

(6) Open to prepayment after December 31, 1999 with a prepayment fee of greater
of 1.0% of principal balance or Treasury Yield Maintenance. Prepayment
without fee on or after three months prior to maturity date.

(7) No prepayment rights through September 30, 1998, prepayable thereafter, with
a prepayment fee of the greater of: (1) 1.0% of the outstanding principal
balance or (2) Treasury Yield Maintenance. Prepayment without fee for the
six months prior to the maturity date.

S-39
<PAGE> 39

DESCRIPTION OF PROPERTIES AND MARKET DATA

ONE NORWEST CENTER

Description

Completed in 1983, One Norwest Center is a 50-story, granite and glass
office tower containing approximately 1,188,000 square feet of net rentable area
and a 12-level, 1,004-vehicle parking facility. One Norwest Center is located in
downtown Denver -- the major business, financial, government and cultural center
for the Rocky Mountain region. In downtown Denver, the compact central core area
of offices, financial institutions, retail stores, and hotels is bordered by
adjacent districts of public buildings. One Norwest Center is located at 17th
Street and Lincoln Street on the east boundary of the financial district.
Historically, this financial district has been a major hub for many financial
institutions in the Rocky Mountain region.

One Norwest Center is owned by 1700 Lincoln Limited in which the Company
owns a 90% partnership interest through its wholly owned subsidiary,
ARICO-Denver, Inc., and a 10% partnership interest through its wholly owned
subsidiary, 1700 Lincoln Inc. The Property is managed by Hines.

Market Information

The Company believes economic fundamentals in the Denver market are
positive. Key factors supporting a positive view of the Denver market include:
(1) an expanding local economy, (2) improving office occupancy rates in downtown
Denver when certain extraordinary effects are excluded, and (3) the lack of new
construction of office space.

The Denver area has had a recent positive history of office employment
growth led by a mix of technological, communications and financial service
firms, as well as businesses engaged in tourism and miscellaneous business
services. Torto Wheaton Research reports that office employment in the Denver
area grew at an average annual rate of 3.9% for the ten-year period ended June
30, 1996, which compares positively to the office employment growth of 2.5% in
the 54 Metropolitan Statistical Areas ("MSAs") covered by their research. Over
the 12 months ended June 30, 1996, office employment in the Denver area grew
6.2% as compared to an average employment growth rate of 3.5% in the same 54
MSAs.

As of December 31, 1996, the Denver MSA contained a total inventory of 64.6
million square feet of office space, of which 64.2% had been built since 1980,
with most building occurring in the early 1980s. This increased inventory was
largely due to increased interest in oil and gas exploration in the Rocky
Mountain Region. The downtown submarket, where One Norwest Center is located,
contains approximately 22.6 million square feet of this inventory. As of
December 31, 1996, the overall downtown occupancy rate was 86.4%. The downtown
submarket includes 11.0 million square feet of Class A office space, with an
occupancy rate of 89.4% as of December 31, 1996.

Set forth below is certain statistical information regarding the downtown
Denver submarket.

<TABLE>
<CAPTION>
NET PERIOD END
ABSORPTION PERIOD END ONE NORWEST
YEAR ENDED (SQ. FT.) COMPLETIONS (SQ. FT.) OCCUPANCY OCCUPANCY
- ------------------------------------------- ---------- --------------------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996.......................... 439,000 0 86.4% 99%
December 31, 1995.......................... (362,000) 0 84.5 98
December 31, 1994.......................... 563,000 0 86.2 96
December 31, 1993.......................... 470,000 0 83.4 96
December 31, 1992.......................... 344,000 0 81.2 95
</TABLE>

- ---------------
Source: Torto Wheaton Research

The downtown Denver submarket occupancy rate improved from 81.2% in 1992 to
86.2% in 1994 reflecting strong space absorption in the submarket. The occupancy
rate fell to 84.5% in 1995, due primarily to the actions of the Federal Deposit
Insurance Corporation and the Resolution Trust Corporation, which closed offices
in Denver and returned substantial space to the office leasing market. As of
December 31, 1996, the market had fully absorbed this additional space and the
occupancy rate increased to 86.4%.

S-40
<PAGE> 40

Principal Tenants

The following table lists the principal tenants of One Norwest Center as of
December 31, 1996.

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL ----------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- -------------------------------------------------------- ----------- ------- ----------
<S> <C> <C> <C>
Norwest Bank Denver N.A................................. Banking 583,000 49.1%
Apache Corporation...................................... Oil and Gas 160,000 13.4
Newmont Gold Company.................................... Mining 117,000 9.9
------- ---
Total......................................... 860,000 72.4%
======= ===
</TABLE>

- ---------------
(1) Based on a total of 1,188,000 rentable square feet as of December 31, 1996.

Lease Expirations

The following table sets forth lease expirations for One Norwest Center.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003
---------- -------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring...................... 181,000 53,000 95,000 105,000 55,000 21,000 157,000
Straight-Line Rent(1)..................... $1,931,000 $375,000 $ 858,000 $ 896,000 $593,000 $242,000 $2,159,000
Straight-Line Rent per sq. ft.(1)......... $ 10.67 $ 7.08 $ 9.03 $ 8.53 $ 10.78 $ 11.52 $ 13.75
Recoveries................................ $1,062,000 $249,000 $ 558,000 $ 610,000 $320,000 $122,000 $ 925,000
Full Service Straight-Line Rent(1)........ $2,993,000 $624,000 $1,416,000 $1,506,000 $913,000 $364,000 $3,084,000
Full Service Straight-Line Rent per sq.
ft.(1).................................. $ 16.54 $ 11.77 $ 14.91 $ 14.34 $ 16.60 $ 17.33 $ 19.64
% Full Service Straight-Line Rent(1)...... 14.31% 2.98% 6.77% 7.20% 4.37% 1.74% 14.74%
Asking market rent per sq. ft.(2)......... $ 18.00
No. of tenant leases expiring............. 8 8 6 6 5 1 1

<CAPTION>
2006
AND
2004 2005 BEYOND
---------- -------- ----------
<S> <C> <C> <C>
Square feet expiring...................... 94,000 -- 413,000
Straight-Line Rent(1)..................... $ 936,000 -- $6,064,000
Straight-Line Rent per sq. ft.(1)......... $ 9.96 -- $ 14.68
Recoveries................................ $ 548,000 $2,470,000
Full Service Straight-Line Rent(1)........ $1,484,000 -- $8,534,000
Full Service Straight-Line Rent per sq.
ft.(1).................................. $ 15.79 -- $ 20.66
% Full Service Straight-Line Rent(1)...... 7.09% -- 40.80%
Asking market rent per sq. ft.(2).........
No. of tenant leases expiring............. 1 -- 2
</TABLE>

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

(1) Newmont Gold Company's lease expiration is included in 2004 since they have
exercised their renewal option to extend its lease from January 1, 1999
through January 1, 2004. The rate on the lease will be determined based on
market conditions for similar space in the Denver market. The expiring rates
shown are based on the rates which Newmont is currently paying on its lease.

(2) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.

S-41
<PAGE> 41

NORWEST CENTER

Description

Norwest Center is a 55-story, granite and glass office tower containing
approximately 1,118,000 square feet of net rentable area and a 340-vehicle
underground parking facility. Norwest Center is located at the center of
downtown Minneapolis, at the intersection of Seventh Street South and Marquette
Avenue. The main business entrance to the building is on Seventh Street South,
opposite the IDS Center, a prominent landmark in the Twin Cities. Pedestrian
access is also available from Sixth Street South and Marquette Avenue; a grand
ceremonial entrance to the building on Sixth Street South incorporates a rotunda
and retail banking function.

Norwest Center is owned by NWC Limited Partnership ("NWC"), a partnership
in which the Company owns a 50% general partnership interest. Sixth & Marquette
Limited Partnership ("S&M") owns a 50% partnership interest in NWC. The general
partner of S&M is itself a Minnesota limited partnership in which Gerald D.
Hines, individually, and entities affiliated with Gerald D. Hines are directly
or indirectly the sole general partners. The Company has the right, at its sole
discretion, to become the managing general partner of NWC. Norwest Center is
managed by Hines. Hines currently owns 354,825 shares of the Company's Common
Stock and holds a $12,926,000 note, which may be converted into 903,916 shares
of Common Stock at $14.30 per share.

Market Information

The Company believes the economic fundamentals of the Minneapolis CBD
Class-A office market are strong. Unlike many American cities, the Minneapolis
CBD has been growing in importance as the commercial center of its metropolitan
area. Since 1980, the Minneapolis CBD office market has more than doubled in
size while experiencing strong net absorption of space. At the same time, the
Minneapolis-St. Paul metropolitan area has witnessed strong economic growth over
the past several years. Low unemployment rates and a highly educated workforce
earning a per capita income which is 13% above the national level are additional
indicators of growth potential.

The economic base of the Minneapolis-St. Paul area is well diversified. The
metropolitan economy includes a broad foundation of income-producing trades
including agribusiness, computer/high technology systems, machinery
manufacturing, graphic art, government, medical, and educational institutions.
This diversification has helped prevent any major out-migrations during the past
and has led to general stability and low unemployment rates. Office employment
has been strong during the last ten years, in part because of the area's
reputation as a desirable place for corporate relocations. As of September 1996,
a total of 32 Fortune 500 companies were headquartered in the Minneapolis-St.
Paul area.

As of December 31, 1996, the Minneapolis MSA contained a total inventory of
50.8 million square feet of office space, of which 56.9% had been built since
1980. The Minneapolis CBD, where Norwest Center is located, contains
approximately 20.6 million square feet of this inventory. As of December 31,
1996, the overall Minneapolis CBD occupancy rate was 93.3%. The Minneapolis CBD
submarket includes 12.9 million square feet of Class A office space, with an
occupancy rate of 96.2% as of December 31, 1996.

Set forth below is certain statistical information regarding the
Minneapolis CBD submarket.

<TABLE>
<CAPTION>
PERIOD END
NET PERIOD END NORWEST CENTER
YEAR ENDED ABSORPTION (SQ. FT.) COMPLETIONS (SQ. FT.) OCCUPANCY OCCUPANCY
- ------------------------------------- -------------------- --------------------- ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1996.................... 370,000 0 93.3% 100%
December 31, 1995.................... (69,000) 0 91.5 100
December 31, 1994.................... 1,147,000 0 91.8 100
December 31, 1993.................... 804,000 0 86.1 100
December 31, 1992.................... 401,000 1,893,000 82.1 100
</TABLE>

- ---------------
Source: Torto Wheaton Research

S-42
<PAGE> 42

The above table reflects strong space absorption in the Minneapolis CBD,
which, when combined with the absence of new construction, has resulted in a
steady reduction in vacancies from 1992 through 1994. The market has effectively
absorbed the excess supply which came on the market in the late 1980s and early
1990s. In 1996, continued demand from tenants again resulted in positive
absorption and a marginal increase in the occupancy rate.

Principal Tenants

The following table lists the principal tenants of Norwest Center as of
December 31, 1996.

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL ----------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- ---------------------------------------------------------- ------------ ------- ----------
<S> <C> <C> <C>
Norwest Corporation....................................... Banking 451,000 40.3%
Faegre & Benson........................................... Legal 196,000 17.5
KPMG Peat Marwick......................................... Accounting 75,000 6.7
------- ----
Total........................................... 722,000 64.5%
======= ====
</TABLE>

- ---------------
(1) Based on a total of 1,118,000 rentable square feet as of December 31, 1996.

Lease Expirations

The following table sets forth lease expirations for Norwest Center.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003
-------- ---------- ---------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring(1)................... 20,000 257,000 61,000 104,000 2,000 47,000 --
Straight-Line Rent........................ $197,000 $4,084,000 $1,050,000 $1,645,000 $34,000 $350,000 --
Straight-Line Rent per sq. ft............. $ 9.85 $ 15.89 $ 17.21 $ 15.82 $ 17.00 $ 7.45 --
Recoveries................................ $252,000 $3,149,000 $ 770,000 $1,308,000 $26,000 $591,000 --
Full Service Straight-Line Rent........... $449,000 $7,233,000 $1,820,000 $2,953,000 $60,000 $941,000 --
Full Service Straight-Line Rent per sq.
ft...................................... $ 22.45 $ 28.14 $ 29.84 $ 28.39 $ 30.00 $ 20.02 --
% Full Service Straight-Line Rent......... 1.23% 19.75% 4.97% 8.06% 0.16% 2.57% --
Asking market rent per sq. ft.(2)......... $ 30.20
No. of tenant leases expiring............. 6 15 5 3 1 1

<CAPTION>
2006
AND
2004 2005 BEYOND
---------- -------- -----------
<S> <C> <C> <C>
Square feet expiring(1)................... 99,000 -- 527,000
Straight-Line Rent........................ $1,575,000 -- $13,744,000
Straight-Line Rent per sq. ft............. $ 15.91 -- $ 26.08
Recoveries................................ $1,222,000 -- $ 6,625,000
Full Service Straight-Line Rent........... $2,797,000 -- $20,369,000
Full Service Straight-Line Rent per sq.
ft...................................... $ 28.25 -- $ 38.65
% Full Service Straight-Line Rent......... 7.64% -- 55.62%
Asking market rent per sq. ft.(2).........
No. of tenant leases expiring............. 2 2
</TABLE>

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

(1) The Company has reached a non-binding agreement with Faegre & Benson on a
total of 174,860 square feet to extend its lease for a term of five years at
a net rate of $13.64 per square foot. Faegre & Benson currently leases
196,000 square feet at a net rate of $17.82 on a straight-line basis.

(2) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.

The Partnership

Under the partnership agreement governing NWC, the managing general partner
has the right to manage and operate NWC's business. Until certain cash flow
levels have been achieved for two consecutive years (the "NWC Preference
Period"), S&M and the Company each hold a 50% interest in NWC. After the NWC
Preference Period ends, the Company will be entitled to hold a 60% interest
(subject to increases in the Company's interest that may result from early
termination of the NWC Preference Period), and S&M a 40% interest. The Company
does not expect the NWC Preference Period to end in the foreseeable future.

During the NWC Preference Period, the Company is entitled to receive a
cumulative preference return equal to 7.0% of its capital base, which is $92.3
million. Cash distributions of $11.46 million during 1996 were split $8.96
million to the Company (78.2%) and $2.5 million to S&M (21.8%). Currently, there
is no accrued deficiency in the Company's preference return outstanding on
Norwest Center.

Subject to the preferential distributions to the Company described above,
all of NWC's operating revenues remaining after making payments required for the
operations of NWC and Norwest Center and the payment of debt service will be
distributed 50% to the Company and 50% to S&M during the NWC Preference Period.

S-43
<PAGE> 43

WASHINGTON MUTUAL TOWER

Description

Washington Mutual Tower is a 55-story, granite and glass office tower
containing approximately 1,155,000 square feet of net rentable area (including
the Galland and Seneca Buildings described below). Washington Mutual Tower is
located in the heart of the downtown Seattle CBD, at 1201 Third Avenue, with
unobstructed views of Puget Sound. The project site (the "Project Site") is
comprised of Washington Mutual Tower and Block 6 ("Block 6"), which consists of
a six-level underground parking facility for 810 cars; an adjacent historic
brick building (the Brooklyn Building); three levels of restaurants, shops and
service businesses; and, to protect sight lines from Washington Mutual Tower,
two masonry office buildings located across the street -- the Galland and Seneca
Buildings -- master leased by Third and University Limited Partnership ("Third
Partnership") through 2005 from Samis Land Company. Wright Runstad & Company has
a subordinated equity interest in Washington Mutual Tower and manages the
Property for Third Partnership.

As of June 30, 1996, the Seattle MSA contained a total inventory of 51.3
million square feet of office space, of which 64.8% had been placed in service
since 1980. The Seattle CBD, where Washington Mutual Tower is located, contains
approximately 15.9 million square feet of this inventory. As of December 31,
1996, the overall occupancy rate in the Seattle CBD was 93.3%. The Seattle CBD
submarket includes 13.1 million square feet of Class A office space, with an
occupancy rate of 94.7%.

The Project Site is owned by Third Partnership. The Company owns, through a
wholly owned subsidiary, a 50% general partnership interest in Third
Partnership. Third Partnership is the successor in interest as lessee under a
13-year lease, expiring in 2005, of the Galland and Seneca Buildings. The
Company holds the right, at its sole discretion, to elect to become the managing
general partner of Third Partnership. 1212 Second Avenue Limited Partnership
("1212 Partnership") was originally the only general partner and is now the
managing general partner with the obligation to manage and operate Third
Partnership's business.

Market Information

The Company believes economic fundamentals in the Seattle market are
strong. Key factors supporting a positive view of the Seattle market are: (1)
growth in office employment at an average annual rate of 4.4% over the ten years
ended June 30, 1996 as compared to an average of 2.0% in the 54 MSAs reported on
by Torto Wheaton Research and at the rate of 4.9% in the twelve months ended
June 30, 1996 as compared to an average of 3.5% in the 54 MSAs; (2) a
diversified job base, which has reduced the economy's dependence on the Boeing
Company as an employer over the last fifteen years; and (3) a Class A occupancy
rate of 94.7% in the Seattle CBD as of June 30, 1996 with no new construction in
the near term forecast.

The economy in the Seattle and surrounding Puget Sound area is fairly well
diversified. The largest employment sector is the services sector, accounting
for approximately 27% of the total non-agricultural employment in the region.
The next largest employment sector is wholesale and retail trade at
approximately 25% of total 1995 non-agricultural employment. Forest products,
pulp, paper, aircraft, ships, and seafood products are recognized as the
traditional components of the regions' economic base. Several services, such as
transportation, engineering and finance, are also exported and thus considered
base industries. An increasing share of software and durable goods is also
exported, making these industries significant contributors to the economic base.
The area has consistently experienced relatively low unemployment in recent
years, with rates below the national average, but did experience slight
decreases in employment due to layoffs at Boeing during the early 1990s.

Set forth below is certain statistical information regarding the Seattle
CBD submarket.

<TABLE>
<CAPTION>
PERIOD END
WASHINGTON
NET COMPLETIONS PERIOD MUTUAL TOWER
YEAR ENDED ABSORPTION (SQ. FT.) (SQ. FT.) END OCCUPANCY OCCUPANCY
- ----------------------------------- -------------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1996.................. 226,000 22,000 93.3% 97%
December 31, 1995.................. 681,000 0 92.6 97
December 31, 1994.................. 528,000 0 88.2 97
December 31, 1993.................. 144,000 0 84.9 96
December 31, 1992.................. 258,000 0 84.0 94
</TABLE>

- ---------------
Source: Torto Wheaton Research

S-44
<PAGE> 44

The above table reflects strong space absorption in the Seattle CBD, which,
when combined with the absence of new construction, has resulted in a steady
reduction in vacancy in 1994 and 1995. The market has effectively absorbed the
excess supply which came on the market in the late 1980s and early 1990s.

Principal Tenants

The following table lists the principal tenants of Washington Mutual Tower
and Block 6 as of December 31, 1996.

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
-----------------------
PRINCIPAL PERCENT
TENANT BUSINESS ACTIVITY TOTAL OF TOTAL(1)
- -------------------------------------------------------- ----------------- -------- -----------
<S> <C> <C> <C>
Perkins Coie............................................ Legal 196,000 17.0%
Washington Mutual....................................... Banking 159,000 13.8
Karr Tuttle Campbell.................................... Legal 51,000 4.4
----
Total......................................... 406,000 35.2%
====
</TABLE>

- ---------------
(1) Based on a total of 1,155,000 rentable square feet as of December 31, 1996.

Lease Expirations

The following table sets forth lease expirations for Washington Mutual
Tower.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003
---------- ---------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring...................... 97,000 218,000 210,000 23,000 42,000 61,000 63,000
Straight-Line Rent........................ $1,684,000 $4,644,000 $4,089,000 $394,000 $868,000 $1,229,000 $1,123,000
Straight-Line Rent per sq. ft. ........... $ 17.36 $ 21.30 $ 19.47 $ 17.13 $ 20.67 $ 20.15 $ 17.83
Recoveries................................ $ 67,000 $ 334,000 $ 218,000 $ 23,000 $ 31,000 $ 21,000 $ 33,000
Full Service Straight-Line Rent........... $1,751,000 $4,978,000 $4,307,000 $417,000 $899,000 $1,250,000 $1,156,000
Full Service Straight-Line Rent per sq. $ 18.05 $ 22.83 $ 20.51 $ 18.13 $ 21.40 $ 20.49 $ 18.35
ft. ....................................
% Full Service Straight-Line Rent......... 7.15% 20.34% 17.59% 1.70% 3.67% 5.11% 4.72%
Asking market rent per sq. ft.(1)......... $ 24.30
No. of tenant leases expiring............. 39 30 28 7 6 4 2

<CAPTION>
2006
AND
2004 2005 BEYOND
---------- -------- ----------
<S> <C> <C> <C>
Square feet expiring...................... 247,000 13,000 138,000
Straight-Line Rent........................ $6,121,000 $242,000 $2,653,000
Straight-Line Rent per sq. ft. ........... $ 24.78 $ 18.62 $ 19.22
Recoveries................................ $ 450,000 $ 0 $ 255,000
Full Service Straight-Line Rent........... $6,571,000 $242,000 $2,908,000
Full Service Straight-Line Rent per sq. $ 26.60 $ 18.62 $ 21.07
ft. ....................................
% Full Service Straight-Line Rent......... 26.84% 1.00% 11.88%
Asking market rent per sq. ft.(1).........
No. of tenant leases expiring............. 4 1 1
</TABLE>

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

(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.

The Partnership

Under the partnership agreement governing Third Partnership, until certain
cash flow levels have been achieved for two consecutive years, the Company is
entitled to receive an annual preference return (the "Washington Preference
Return") equal to 8% of its capital base, which was $100 million as of December
31, 1996. As of December 31, 1996, the Company is due a cumulative preference
deficit, including accrued interest, of approximately $7.8 million which will be
reduced as cash flow becomes available. On a priority basis to the Washington
Preference Return described above, the Company also receives a 9.53% return on
an additional equity investment of $47 million made in September 1995. The
Company is entitled to receive this 9.53% return through September 30, 2003, at
which time the rate of return will adjust based on conditions in the interest
rate markets. Revenues remaining after making such payments will be distributed
50% to the Company and 50% to 1212 Partnership. Cash flow of $12.4 million was
distributed to the Company during 1996. The Company's partner, 1212 Partnership,
does not currently share in the cash flow from Washington Mutual Tower.

S-45
<PAGE> 45

125 SUMMER STREET

Description

Completed in 1989, 125 Summer Street is a 22-story, granite and glass
office tower containing approximately 464,000 square feet of net rentable area
and a 292-vehicle underground parking facility. 125 Summer Street is located on
the edge of the financial district in the downtown submarket of Boston, one
block from Boston's busiest train station (South Station).

The Company acquired the fee interest in 125 Summer Street through its
wholly owned subsidiary, CStone-Boston Inc., on November 1, 1995. The Property
is managed by Hines pursuant to a management contract which is, after December
1998, cancellable with 30 days' notice.

Market Information

The Company believes the economic fundamentals of the Boston area are
strong. Key factors supporting a positive view of the Boston market include: (1)
high office employment growth over the 12-month period ending June 30, 1996, at
4.6% as compared to 3.5% in the average of 54 MSA's reported on by Torto Wheaton
Research; (2) a highly educated workforce with a median per capita income which
is 18% higher than the national level; and (3) the lack of new construction of
office space.

The Boston area saw strong growth patterns in the mid-1980s. Manufacturing
was the base for this development, but it was propelled by increases in the
research, development, and finance sectors to create a more balanced economy.
These trends contributed to increases in retail services and real estate
development. Boston has, for quite some time, been developing a strong
technological workforce. Industries that prevail in the Boston market include
medical industries, research and development, finance, education, printing and
publishing and computer-based technological industries. The high number of
educational opportunities in the area has contributed to this high technological
development. The Boston economy did slow when the national and local economies
declined, and a recession dominated the area in the late 1980s and early 1990s;
however, the past few years have seen continued diversification of the economy
and increases in total employment.

S-46
<PAGE> 46

As of December 31, 1996, the Boston MSA contained a total inventory of
104.0 million square feet of office space, of which 51.6% had been built since
1980. The downtown submarket, where 125 Summer Street is located, contains
approximately 48.2 million square feet of this inventory. As of December 31,
1996, the overall downtown occupancy rate was 93.6%. The downtown submarket
includes 31.1 million square feet of Class A office space, with an occupancy
rate of 96.1% as of December 31, 1996.

Set forth below is certain statistical information regarding the downtown
Boston submarket.

<TABLE>
<CAPTION>
PERIOD END
NET PERIOD END 125 SUMMER STREET
YEAR ENDED ABSORPTION (SQ. FT.) COMPLETIONS (SQ. FT.) OCCUPANCY OCCUPANCY
- ---------------------------------- -------------------- --------------------- ---------- -----------------
<S> <C> <C> <C> <C>
December 31, 1996................. 1,294,000 0 93.6% 100%
December 31, 1995................. 1,394,000 0 90.8 94
December 31, 1994................. 1,646,000 0 88.0 --
December 31, 1993................. 1,158,000 700,000 86.1 --
December 31, 1992................. 1,028,000 0 85.4 --
</TABLE>

- ---------------
Source: Torto Wheaton Research

The Boston market continues to show strong and steady absorption in the
downtown market with a shortage of large blocks of contiguous space downtown.

Principal Tenants

The following table lists the principal tenants of 125 Summer Street as of
December 31, 1996.

<TABLE>
<CAPTION>
PRINCIPAL RENTABLE SQUARE FEET
BUSINESS -----------------------------
TENANT ACTIVITY TOTAL PERCENT OF TOTAL(1)
------------------------------------------------ ---------- ------- -------------------
<S> <C> <C> <C>
Deloitte & Touche............................... Accounting 121,000 26.1%
BTM Capital Corporation......................... Finance 94,000 20.3
Burns & Levinson................................ Legal 85,000 18.3
Gadsby & Hannah................................. Legal 42,000 9.1
------- ----
Total................................. 342,000 73.8%
======= ====
</TABLE>

- ---------------
(1) Based on a total of 464,000 rentable square feet as of December 31, 1996.

S-47
<PAGE> 47

Lease Expirations

The following table sets forth lease expirations for 125 Summer Street.
<TABLE>
<CAPTION>
1997(1) 1998 1999 2000 2001 2002 2003 2004
---------- -------- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring... 62,000 12,000 134,000 121,000 9,000 97,000 16,000 --
Straight-Line Rent..... $2,181,000 $278,000 $5,038,000 $4,056,000 $139,000 $2,651,000 $318,000 --
Straight-Line Rent per
sq. ft. ............. $ 35.18 $ 23.17 $ 37.60 $ 33.52 $ 15.44 $ 27.33 $ 19.88 --
Recoveries............. $ 188,000 $ 42,000 $ 535,000 $ 389,000 $121,000 $ 299,000 $134,000 --
Full Service St-Line
Rent................. $2,369,000 $320,000 $5,573,000 $4,445,000 $260,000 $2,950,000 $452,000 --
Full Service St-Line
Rent per sq. ft. .... $ 38.21 $ 26.67 $ 41.59 $ 36.74 $ 28.89 $ 30.41 $ 28.25 --
% Full Service
Straight-Line Rent... 14.23% 1.92% 33.47% 26.69% 1.56% 17.72% 2.71% --
Asking market rent per
sq. ft.(2)........... $ 36.60
No. of tenant leases
expiring............. 5 6 3 9 2 2 2 --

<CAPTION>
2006
AND
2005 BEYOND
-------- ----------
<S> <C> <C>
Square feet expiring... 10,000 --
Straight-Line Rent..... $275,000 --
Straight-Line Rent per
sq. ft. ............. $ 27.50 --
Recoveries............. $ 8,000 --
Full Service St-Line
Rent................. $283,000 --
Full Service St-Line
Rent per sq. ft. .... $ 28.30 --
% Full Service
Straight-Line Rent... 1.70% --
Asking market rent per
sq. ft.(2)...........
No. of tenant leases
expiring............. 1 --
</TABLE>

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

(1) BTM Capital Corporation is required to expand into 21,308 square feet of
space to be delivered to the tenant no later than August 1, 1997 at a gross
rate of $26.00 per square foot.
(2) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.

S-48
<PAGE> 48

NEW YORK CITY PROPERTIES

Description

Tower 56

Completed in 1983, Tower 56 is a 33-story, steel and granite office tower
containing approximately 162,000 square feet of net rentable area. Tower 56 is
located in the midtown east district of Manhattan, the largest commercial real
estate market in the world and a major business, financial, government and
cultural center. Tower 56 is located on the south side of 56th Street between
Park and Lexington Avenues.

The Company acquired the fee interest in Tower 56 through its wholly-owned
subsidiary, CStone-New York, Inc., on April 24, 1996. The Property is managed by
HRO International Ltd. ("HRO").

527 Madison Avenue

Completed in 1986, 527 Madison Avenue is a 26-story, precast concrete,
granite and reflective glass office tower containing approximately 216,000
square feet of net rentable area. 527 Madison Avenue is located in the midtown
east district of Manhattan, the largest commercial real estate market and a
major business, financial, government and cultural center of the world. 527
Madison Avenue is located on the southeast corner of 54th Street and Madison
Avenue.

The Company acquired the fee interest in 527 Madison Avenue through its
wholly-owned subsidiary CStone-527 Madison, Inc. on February 14, 1997. The
Property is managed by the Louis Dreyfus Management Group pursuant to a
management contract which is cancellable with 30 days' notice after August 1997.

Market Information

The Company believes the economic fundamentals of the New York City area
are positive. Key factors supporting a positive view of the New York City market
include: (1) a highly educated workforce with a mean per capita income which is
34.3% higher than the national average; (2) a lack of well-located building
sites and the high cost of building new office towers are a major barrier to
entry; and (3) the continued trend in the market to redevelop obsolete office
space for alternative uses.

Midtown market leasing has been driven by numerous small to mid-sized
office tenants in the legal, communications, entertainment and financial
advisory sectors. These firms have provided sufficient growth to partially
offset net losses from corporate restructuring and financial services
consolidation. However, due to a significant number of large tenants signing
long-term leases over the past few years, smaller transactions are expected to
continue to dominate leasing activity until 1998 and 1999, when tenants who
signed 10-year leases in new buildings built in the late 1980s return to the
market.

As of December 31, 1996, the New York MSA contained a total inventory of
311.5 million square feet of office space, of which only 17.5% had been built
since 1980. The midtown submarket, where Tower 56 and 527 Madison Avenue are
located, contains approximately 218.5 million square feet of this inventory. As
of December 31, 1996, the overall midtown occupancy rate was 91.6%. The midtown
submarket includes 128.0 million square feet of Class A office space with an
occupancy rate of 92.4%.

S-49
<PAGE> 49

Set forth below is certain statistical information regarding the midtown
submarket.

<TABLE>
<CAPTION>
PERIOD
END PERIOD END
NET PERIOD END TOWER 56 527 MADISON
YEAR ENDED ABSORPTION (SQ. FT.) COMPLETIONS (SQ. FT.) OCCUPANCY OCCUPANCY AVENUE OCCUPANCY
- -------------------------- -------------------- --------------------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
December 31, 1996......... 7,190,000 0 91.6% 97 % 96 %
December 31, 1995......... 2,555,000 0 88.3 91 --
December 31, 1994......... (34,800) 0 87.1 -- --
December 31, 1993......... 4,019,000 324,000 87.4 -- --
December 31, 1992......... 2,228,000 1,877,000 85.6 -- --
</TABLE>

- ---------------
Source: Torto Wheaton Research

The above table reflects strong absorption in the submarket for four of the
last five years, with a steady reduction in vacancies over the last two years.
The Park/Lexington section of the submarket, where Tower 56 is located, has
extremely low vacancy at 4.8% and the highest Class A asking rents in New York
City with rents which are 65% higher than the average, according to Torto
Wheaton Research. The Fifth/Madison section of the submarket, where 527 Madison
Avenue is located, has a 9.5% vacancy rate.

Principal Tenants

Tower 56

The following table lists the principal tenants of Tower 56 as of December
31, 1996.

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL ---------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- ----------------------------------------------- --------------------- ------ ----------
<S> <C> <C> <C>
ICC Associates, L.P............................ Cable Communications 8,000 4.9%
United Bank of Kuwait.......................... Banking 6,000 3.7
------ ---
14,000 8.6%
====== =======
</TABLE>

- ---------------
(1) Based on a total of 162,000 rentable square feet as of December 31, 1996.

527 Madison Avenue

The following table lists the principal tenants of 527 Madison Avenue as of
December 31, 1996.

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL ----------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- ---------------------------------------------- --------------------- ------- ----------
<S> <C> <C> <C>
The Sumitomo Trust & Banking Co., Ltd......... Banking 78,000 36.1%
W.P. Stewart Co., Inc......................... Brokerage 26,000 12.0
Hill Samuel New York, Inc..................... Finance 18,000 8.3
Saudi Petroleum International................. Energy 12,000 5.6
------- ----
Total............................... 134,000 62.0%
======= ====
</TABLE>

- ---------------
(1) Based on a total of 216,000 rentable square feet as of December 31, 1996.

S-50
<PAGE> 50

Lease Expirations

The following table sets forth lease expirations for Tower 56 and 527
Madison Avenue.

Tower 56
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003
---------- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring...................... 29,000 30,000 31,000 3,000 42,000 7,000 5,000
Straight-Line Rent........................ $1,173,000 $1,324,000 $1,274,000 $105,000 $1,823,000 $290,000 $194,000
Straight-Line Rent per sq. ft. ........... $ 40.45 $ 44.13 $ 41.10 $ 35.00 $ 43.40 $ 41.43 $ 38.80
Recoveries................................ $ 15,000 $ 12,000 $ 10,000 $ 0 $ 9,000 $ 5,000 $ 4,000
Full Service St-Line Rent................. $1,188,000 $1,336,000 $1,284,000 $105,000 $1,832,000 $295,000 $198,000
Full Service St-Line Rent per sq. ft. .... $ 40.97 $ 44.53 $ 41.42 $ 35.00 $ 43.62 $ 42.14 $ 39.60
% Full Service Straight-Line Rent......... 17.83% 20.04% 19.27% 1.58% 27.49% 4.43% 2.97%
Asking market rent per sq. ft.(1)......... $ 49.70
No. of tenant leases expiring............. 11 7 8 1 11 3 2

<CAPTION>
2006
AND
2004 2005 BEYOND
-------- -------- ------
<S> <C> <C> <C>
Square feet expiring...................... 10,000 -- --
Straight-Line Rent........................ $424,000 -- --
Straight-Line Rent per sq. ft. ........... $ 42.40 -- --
Recoveries................................ $ 2,000 -- --
Full Service St-Line Rent................. $426,000 -- --
Full Service St-Line Rent per sq. ft. .... $ 42.60 -- --
% Full Service Straight-Line Rent......... 6.39% -- --
Asking market rent per sq. ft.(1).........
No. of tenant leases expiring............. 2 -- --
</TABLE>

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

(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.

527 Madison Avenue
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003
---------- ---------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring...................... 28,000 19,000 -- 6,000 78,000 -- 22,000
Straight-Line Rent........................ $1,425,000 $1,003,000 -- $ 241,000 $4,334,000 -- $802,000
Straight-Line Rent per sq. ft. ........... $ 50.89 $ 52.79 -- $ 40.17 $ 55.56 -- $ 36.45
Recoveries................................ $ 187,000 $ 146,000 -- $ 7,000 $ 559,000 -- $ 14,000
Full Service St-Line Rent................. $1,612,000 $1,149,000 -- $ 248,000 $4,893,000 -- $816,000
Full Service St-Line Rent per sq. ft. .... $ 57.57 $ 60.47 -- $ 41.33 $ 62.73 -- $ 37.09
% Full Service Straight-Line Rent......... 13.23% 9.43% -- 2.04% 40.17% -- 6.70%
Asking market rent per sq. ft.(1)......... $ 47.70
No. of tenant leases expiring............. 6 3 -- 1 1 -- 2

<CAPTION>
2006
AND
2004(2) 2005 BEYOND
---------- ---------- ----------
<S> <C> <C> <C>
Square feet expiring...................... 8,000 6,000 42,000
Straight-Line Rent........................ $1,128,000 $ 277,000 $1,887,000
Straight-Line Rent per sq. ft. ........... $ 141.00 $ 46.17 $ 44.93
Recoveries................................ $ 6,000 $ 3,000 $ 163,000
Full Service St-Line Rent................. $1,134,000 $ 280,000 $ 2,050,00
Full Service St-Line Rent per sq. ft. .... $ 141.75 $ 46.67 $ 48.81
% Full Service Straight-Line Rent......... 9.31% 2.30% 16.82%
Asking market rent per sq. ft.(1).........
No. of tenant leases expiring............. 1 1 5
</TABLE>

- ---------------
(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.

(2) The expiring rent in 2004 is a retail lease.

Advisory Services Obligations-Tower 56

Certain affiliates of HRO have agreed to provide additional advisory
services relating to the management and leasing of Tower 56, and for rendering
such services receive 33 1/3% of (i) annual net cash flow in excess of $2.97
million which represents 9% of the Company's $32.99 million investment in Tower
56 and (ii) the net proceeds of any sale of Tower 56 in excess of the Company's
net investment in Tower 56. For the period from December 19, 1995 through
December 31, 1996, the net cash flow of the Property was $2.83 million giving
rise to a $141,000 shortfall which must be recovered by the Company before HRO
can share in cash flow.

S-51
<PAGE> 51

ONE LINCOLN CENTRE

Description

Completed in 1986, One Lincoln Centre is a 16-story office building
containing approximately 297,000 square feet of net rentable area and a 5-level,
1,056-vehicle parking facility. One Lincoln Centre is located in the
Oakbrook-Oakbrook Terrace submarket in the middle of the East-West Corridor
market, the first suburban office market in Chicago. The market has evolved
around the development of the Oakbrook Mall. One Lincoln Centre is located at
the intersection of 22nd Street and Butterfield Road, the major east-west
roadways that service the Oakbrook area.

The Company acquired a fee interest in One Lincoln Centre through its
wholly owned subsidiary, CStone-Oakbrook, Inc., on November 7, 1996. The
Property is managed by Hines pursuant to a management contract which is
cancellable with 30 days' notice.

Market Information

The Company believes the economic fundamentals of Oakbrook Terrace and the
Chicago market are strong. The Chicago area has a diversified economic base
which is supported by a number of prospering industries, including brokerage
firms, air travel, electronics, insurance, retail and printing/publishing. This
diversity has helped reduce vulnerability to economic swings, creating a stable
economy. Overall employment has grown at an annual rate of nearly 3% since 1995.

Continued strong employment growth in Oakbrook Terrace, where finance and
service jobs are projected to grow at twice the national average, generates
ongoing positive trends. The area has the fourth highest concentration of
corporate and regional headquarters in the nation. Shorter commute times, lower
occupancy costs, higher quality of life and easy access created strong
incentives for businesses to relocate to Oakbrook. Oakbrook Terrace is
surrounded by affluent communities and substantial commercial and retail
development.

As of June 30, 1996, the Chicago MSA contained 188.2 million square feet of
office space, of which 50.2% has been built since 1980. The Oakbrook submarket,
where One Lincoln Centre is located, contains approximately 26.0 million square
feet of this space, and 10.2 million square feet of which is Class A. The
overall occupancy rate in Oakbrook is 90.6% and the Class A occupancy rate in
the Oakbrook submarket was 92.4% as of December 31, 1996.

Set forth below is certain information regarding the Oakbrook submarket.

<TABLE>
<CAPTION>
PERIOD END
NET PERIOD END ONE LINCOLN CENTRE
YEAR ENDED ABSORPTION (SQ. FT.) COMPLETIONS (SQ. FT.) OCCUPANCY OCCUPANCY
- ---------------------------- -------------------- --------------------- ---------- ------------------
<S> <C> <C> <C> <C>
December 31, 1996........... 499,000 244,000 90.6% 91%
December 31, 1995........... 405,000 0 89.6 --
December 31, 1994........... 955,000 0 88.1 --
December 31, 1993........... 692,000 193,000 84.3 --
December 31, 1992........... 146,000 30,000 82.2 --
</TABLE>

- ---------------
Source: Torto Wheaton Research

The Oakbrook submarket has shown strong and steady absorption over the last
five years with the vacancy rate declining and rental rates rising even with the
additional inventory added in 1996.

S-52
<PAGE> 52

Principal Tenants

The following table lists the principal tenants of One Lincoln Centre as of
December 31, 1996.

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL ----------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- ------------------------------------------------------ -------------- ------- ----------
<S> <C> <C> <C>
Superior Bank......................................... Banking 57,000 19.2%
Microsoft Corporation................................. Software 19,000 6.4
Arthur Andersen, L.L.P................................ Accounting 19,000 6.4
Corporate Travel...................................... Travel Agency 16,000 5.4
------ ---
Total....................................... 111,000 37.4%
====== ===
</TABLE>

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

(1) Calculated based on a total of 297,000 rentable square feet as of December
31, 1996.

Lease Expirations

The following table sets forth lease expirations for One Lincoln Centre.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003
-------- ---------- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring...................... 36,000 51,000 41,000 80,000 3,000 61,000 --
Straight-Line Rent........................ $587,000 $ 971,000 $ 661,000 $1,711,000 $54,000 $1,385,000 --
Straight-Line Rent per sq. ft. ........... $ 16.31 $ 19.04 $ 16.12 $ 21.39 $ 18.00 $ 22.70 --
Recoveries................................ $315,000 $ 336,000 $ 362,000 $ 556,000 $25,000 $ 533,000 --
Full Service St-Line Rent................. $902,000 $1,307,000 $1,023,000 $2,267,000 $79,000 $1,918,000 --
Full Service St-Line Rent per sq. ft. .... $ 25.06 $ 25.63 $ 24.95 $ 28.34 $ 26.33 $ 31.44 --
% Full Service Straight-Line Rent......... 12.03% 17.44% 13.65% 30.24% 1.05% 25.59% --
Asking market rent per sq. ft.(1)......... $ 28.00
No. of tenant leases expiring............. 8 12 7 9 1 3 --

<CAPTION>
2006
AND
2004 2005 BEYOND
---------- ---------- ----------
<S> <C> <C> <C>
Square feet expiring...................... -- -- --
Straight-Line Rent........................ -- -- --
Straight-Line Rent per sq. ft. ........... -- -- --
Recoveries................................ -- -- --
Full Service St-Line Rent................. -- -- --
Full Service St-Line Rent per sq. ft. .... -- -- --
% Full Service Straight-Line Rent......... -- -- --
Asking market rent per sq. ft.(1).........
No. of tenant leases expiring............. -- -- --
</TABLE>

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

(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.

S-53
<PAGE> 53

THE FRICK BUILDING

Description

Completed in 1902 and renovated in 1988, the Frick Building is a 20-story
granite office building containing approximately 341,000 square feet of net
rentable area. The Frick Building is a prominent and historic office building
located in the heart of Pittsburgh's CBD. The Frick Building is located on Grant
Street between Forbes and Fifth Avenues, across from the Allegheny County Court
House and the City-County Building. The success of the building is due in large
part to its strategic location across Grant Street from these two important
government buildings, providing convenient access for its tenants, principally
small law firms, lawyers and judges.

The Company acquired a fee interest in the Frick Building through its
wholly owned subsidiary CStone-Pittsburgh Trust on November 7, 1996. The
Property is managed by The Galbreath Company pursuant to a management contract
which is cancellable with 30 days' notice.

Market Information

Since the late 1970s, the Pittsburgh MSA has shifted its concentration from
a manufacturing economy to a more diversified economic base. In addition to its
strength in heavy industry, the city is now recognized as a major finance,
business, health care, research and educational center. As a result of
Pittsburgh's transition from a manufacturing-based economy to a diversified one,
its population steadily declined through the 1970s and 1980s. The population
began to stabilize as of 1990, and the current population is approximately 2.5
million.

Pittsburgh is the seventh largest corporate headquarters location in the
U.S. Nine Fortune 500 companies have their headquarters in Pittsburgh including
USX Corporation, Westinghouse Electric Corporation, PPG Industries and the H.J.
Heinz Company. The Pittsburgh area is known as one of the largest and most
productive centers of scientific and technological innovation in the nation.

As of December 31, 1996, the Pittsburgh MSA contained a total inventory of
37.0 million square feet of office space. The Pittsburgh CBD, where the Frick
Building is located, contains approximately 24.0 million square feet of this
inventory. As of December 31, 1996, the overall Pittsburgh CBD occupancy rate
was 82.7%. The Pittsburgh CBD submarket includes 14.6 million square feet of
Class A office space with an occupancy rate of 87.5%.

Set forth below is certain information regarding the Pittsburgh CBD
submarket.

<TABLE>
<CAPTION>
PERIOD END
NET PERIOD END FRICK BUILDING
AS OF ABSORPTION (SQ. FT.) COMPLETIONS (SQ. FT.) OCCUPANCY OCCUPANCY
- -------------------------------- -------------------- --------------------- ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1996............... 137,000 0 82.7% 85%
December 31, 1995............... 275,000 0 83.2 --
December 31, 1994............... 319,000 0 82.1 --
December 31, 1993............... (128,000) 0 84.4 --
December 31, 1992............... 250,000 0 82.2 --
</TABLE>

- ---------------
Source: The Galbreath Company

From 1992 to 1996, the Pittsburgh market has been stable with positive
absorption in four of the five years. Occupancy rates have increased at a slower
pace because of several significant building renovations which brought
additional space to the market.

S-54
<PAGE> 54

Principal Tenants

The following table lists the principal tenants of the Frick Building as of
December 31, 1996.

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
PRINCIPAL ---------------------
BUSINESS PERCENT OF
TENANT ACTIVITY TOTAL TOTAL(1)
- --------------------------------------------------------------- -------- ------- ----------
<S> <C> <C> <C>
Meyer, Darragh, Buckler, Bebenek & Eck......................... Law 39,000 11.4%
Sable, Makaroff & Gudsky....................................... Law 17,000 5.0
------ ----
Total................................................ 56,000 16.4%
====== ====
</TABLE>

- ---------------
(1) Based on a total of 341,000 rentable square feet as of December 31, 1996.

Lease Expirations

The following table sets forth lease expirations for the Frick Building.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003
---------- -------- -------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Square feet expiring...................... 95,000 23,000 30,000 69,000 9,000 -- 53,000
Straight-Line Rent........................ $1,864,000 $468,000 $627,000 $1,398,000 $225,000 -- $1,025,000
Straight-Line Rent per sq. ft. ........... $ 19.62 $ 20.35 $ 20.90 $ 20.26 $ 25.00 -- $ 19.34
Recoveries................................ $ 135,000 $ 21,000 $ 17,000 $ 276,000 $ 3,000 -- $ 19,000
Full Service St-Line Rent................. $1,999,000 $489,000 $644,000 $1,674,000 $228,000 -- $1,044,000
Full Service St-Line Rent per sq. ft. .... $ 21.04 $ 21.26 $ 21.47 $ 24.26 $ 25.33 -- $ 19.70
% Full Service Straight-Line Rent......... 30.92% 7.56% 9.96% 25.89% 3.53% -- 16.15%
Asking market rent per sq. ft.(1)......... $ 21.70
No. of tenant leases expiring............. 33 7 9 14 4 -- 2

<CAPTION>
2006
AND
2004 2005 BEYOND
---------- ---------- --------
<S> <C> <C> <C>
Square feet expiring...................... -- -- 9,000
Straight-Line Rent........................ -- -- $360,000
Straight-Line Rent per sq. ft. ........... -- -- $ 40.00
Recoveries................................ -- -- $ 27,000
Full Service St-Line Rent................. -- -- $387,000
Full Service St-Line Rent per sq. ft. .... -- -- $ 43.00
% Full Service Straight-Line Rent......... -- -- 5.99%
Asking market rent per sq. ft.(1).........
No. of tenant leases expiring............. -- -- 1
</TABLE>

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

(1) Asking market rent is the average initially quoted rent to prospective
tenants in the Property. All market rents are shown on a full service basis.

S-55
<PAGE> 55

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following tables set forth certain information concerning the Company's
directors and executive officers. Officers of the Company serve at the
discretion of the Board. In addition to the Company's executive officers, eight
full-time employees assist with the management of the Company's day-to-day
operations.

DIRECTORS AND EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Dr. Rolf-E. Breuer................. 59 Chairman of the Board and Director
John S. Moody...................... 48 President, Chief Executive Officer and Director
Rodney C. Dimock................... 50 Executive Vice President and Chief Operating Officer
Scott M. Dalrymple................. 38 Vice President -- Asset Management
Thomas P. Loftus................... 38 Vice President, Secretary and Controller
Kevin P. Mahoney................... 36 Vice President, Treasurer and Assistant Secretary
Thomas A. Nye...................... 32 Vice President -- Acquisitions
Francis H. Shields, Jr. ........... 33 Vice President -- Acquisitions
Cecil D. Conlee.................... 60 Director
George A. Davis.................... 58 Director
Blake Eagle........................ 63 Director
Dr. Karl-Ludwig Hermann............ 62 Director
Hans C. Mautner.................... 59 Director
Gerald Rauenhorst.................. 69 Director
Michael J.G. Topham................ 49 Director
Berthold T. Wetteskind............. 59 Director
</TABLE>

The following is a biographical summary of the experience of the directors
and executive officers of the Company.

Dr. Breuer has served as the Chairman of the Board and a Director of the
Company since 1986. Dr. Breuer has served as a Member of the Board of Managing
Directors of Deutsche Bank in Frankfurt, Germany since 1985. Dr. Breuer served
as Director and Head of the Exchange Trading Department of Deutsche Bank AG,
from 1974 to 1985. He is currently a Director of The Central European Equity
Fund, Inc., The Germany Fund, Inc. and The New Germany Fund, Inc. Dr. Breuer
received his Doctorate of Jurisprudence from the University of Bonn.

Mr. Moody has served as the President and Chief Executive Officer of the
Company since 1991 and as a Director of the Company since 1991. He is the former
Chairman and a former member of the Board of Directors of AFIRE (Association of
Foreign Investors in Real Estate). Prior to joining DBRA in 1991, Mr. Moody was
President and Chief Executive Officer of PaineWebber Properties, a real estate
syndication, advisory and asset management firm with over $3 billion of real
estate assets which were owned in 26 public and private funds. He originated
over $1 billion in transactions which were marketed through the PaineWebber
retail branch system. Mr. Moody was President of The Moody Corporation from 1984
through 1986, where he developed and sold over 2,000 single-family lots, and
master planned and developed 3,000 acres of mixed-use land in Texas. In 1974,
Mr. Moody co-founded the law firm of Wood, Campbell, Moody & Gibbs where he was
Managing Partner and practiced real estate law for ten years. He is currently a
Director and Chairman of the Compensation Committee of Meridian Industrial
Trust. Mr. Moody received an undergraduate degree from Stanford University in
1970. He also received a Juris Doctorate from the University of Texas School of
Law in 1973.

Mr. Dimock has served as the Executive Vice President and Chief Operating
Officer of the Company since 1995. From 1991 until he joined the Company in
1995, he was President of Aetna Realty Investors, Inc., a $3.5 billion affiliate
of Aetna Life and Casualty Company. Aetna Realty Investors served as a real
estate

S-56
<PAGE> 56

investment advisor for more than 300 U.S. pension fund and offshore clients,
managing 19 real estate funds on their behalf. Mr. Dimock joined Aetna in 1972
and immediately prior to 1991 served as Senior Vice President and Investment
Committee member responsible for portfolio management. Prior to that he headed
Aetna's asset management group. Mr. Dimock earned a Bachelor of Arts, Phi Beta
Kappa in Economics, from Williams College in 1968. He is Chairman and Director
of the National Association of Real Estate Investment Managers (NAREIM), a
former Director and Executive Committee Member of the Institutional Real Estate
Clearinghouse and served as a Director of Tolland Bank from 1980 to 1995.

Mr. Dalrymple has served as a Vice President of the Company in the Asset
Management Department since 1995. From 1989 to July 1995, he served in the same
capacity at DBRA. Mr. Dalrymple received a Bachelor of Business Administration
in Finance from the University of Massachusetts at Amherst, graduating cum laude
in 1981. He then went on to receive his Masters of Business Administration from
DePaul University in Chicago, Illinois in 1984.

Mr. Loftus has served as a Vice President and the Controller of the Company
since 1992 and Secretary of the Company since 1993. He currently has
responsibility for accounting, financial reporting and controls, Board liaison
and corporate Secretarial duties. Since the advent of self-administration in
July 1995, he has assumed responsibility for the entire human resource function
including personnel administration, payroll, employee benefit programs and
retirement plans. Mr. Loftus, a Certified Public Accountant, holds a Bachelor of
Science degree and a Masters of Business Administration degree from Seton Hall
University.

Mr. Mahoney has served as a Vice President and the Treasurer of the Company
since 1992. He is currently responsible for all treasury, finance, tax and
budgeting functions of the Company. From 1988 to July 1995, Mr. Mahoney held
several positions including Vice President and Treasurer with DBRA. He graduated
from Belmont Abbey College with a Bachelor of Arts in Accounting in 1983 and
Pace University with a Masters in Business Administration in 1990. Mr. Mahoney
is a Chartered Financial Analyst and a member of The Institute of Chartered
Financial Analysts.

Mr. Nye is a Vice President of the Company in the Real Estate Acquisitions
and Asset Management Departments. Mr. Nye is responsible for all acquisitions in
the southwestern region of the United States, focusing mainly on California and
Texas. He is also the asset manager for three large office buildings in Houston,
Texas, for which the Company has an advisory contract with Deutsche Bank until
July 1997. He received a Bachelor of Arts Degree in Economics from Stanford
University in 1987 and earned a Masters of Business Administration from the
Wharton School of Business at the University of Pennsylvania in 1996.

Mr. Shields is a Vice President of the Company in the Real Estate
Acquisitions Department. Mr. Shields is responsible for acquisitions in the
eastern half of the United States, focusing mainly on Atlanta, Boston, Chicago,
New York and Washington, DC. From March 1994 to July 1995 he was Assistant Vice
President of Acquisitions and Capital Markets for DBRA. Prior to joining DBRA,
Mr. Shields was an Asset Manager from May 1992 to March 1994 at the Edward S.
Gordon Company in New York City. Mr. Shields received a Bachelor of Science
Degree in Mechanical Engineering from the University of Massachusetts at Amherst
in 1986. In 1992, he earned a Masters of Business Administration Degree from the
Cornell University Johnson Graduate School of Management.

Mr. Conlee has served as a Director of the Company since 1996. Mr. Conlee
formed The Conlee Company in 1983 and CGR Advisors in 1989, and currently serves
as the Chairman of both of these Atlanta-based companies. The Conlee Company and
CGR Advisors provide real estate investment advice and portfolio management. Mr.
Conlee is currently a Director of Oxford Industries Inc., and Central Parking
Corp. and is a Managing Director of Rodamco. He received a Masters of Business
Administration from Harvard University and received his undergraduate degree
from Vanderbilt University. Mr. Conlee serves as a Trustee of The International
Council of Shopping Centers, Vanderbilt University, and served as a Director of
the Corporation for Olympic Development Atlanta.

Mr. Davis has been a Director of the Company since 1996. Mr. Davis has
served as Real Estate Investment Officer for NYSTRS since 1993. From 1989 to
1993, Mr. Davis was Chairman and 50% owner of Associated Real Estate Advisors,
Inc., a real estate consulting company, and during 1988 and 1989, was a

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<PAGE> 57

Senior Vice President in charge of commercial mortgages at Apple Bank. From 1969
to 1988, Mr. Davis held a variety of positions in Metropolitan Life's Real
Estate Investment Department. From 1985 to 1988, he was Chairman of its Real
Estate Investment Committee. Mr. Davis received his undergraduate degree from
Dartmouth College. He is a member of Pension Real Estate Association, the
Mortgage Bankers Association, and the Urban Land Institute.

Mr. Eagle has served as a Director of the Company since 1995. Mr. Eagle has
served as Chairman of the Center of Real Estate at the Massachusetts Institute
of Technology since 1994. From 1992 to 1993, Mr. Eagle served as Senior Real
Estate Consultant to the Frank Russell Group of Companies in Tacoma, Washington.
From 1985 to 1991, he was President of the Frank Russell Company, a real estate
consulting company which he joined in 1971. Mr. Eagle is currently a director of
Storage Trust Realty. Mr. Eagle received a Bachelor's of Business Administration
from the University of Washington. He is a member of the Real Estate Advisory
Committee of the New York State Teachers' Retirement Plan and is Chairman of the
Board of Directors of Institutional Real Estate Clearinghouse, a non-profit
organization. Mr. Eagle is a member of the National Society of Real Estate
Finance, the Pension Real Estate Association and the Urban Land Institute.

Dr. Hermann has served as a Director of the Company since 1981. Dr. Hermann
has been an Independent Financial Consultant in Greenwich, Connecticut since
1984. From 1984 to 1987, Dr. Hermann was President and Chief Executive Officer
of American Bioactive Colloids, Inc., in Greenwich, Connecticut. From 1977 to
1984, Dr. Hermann was a Managing Director of Warburg, Paribas Becker Inc. in New
York, New York. Dr. Hermann received a Masters of Business Administration from
Harvard University, and he received an Llc from the University of Paris,
Sorbonne and received his LLD from the University of Cologne.

Mr. Mautner has been a Director of the Company since 1992. Mr. Mautner has
served as Chairman, Chief Executive Officer and Trustee of Corporate Property
Investors, a New York-based private REIT. Mr. Mautner was a General Partner at
Lazard Freres & Co., New York, New York from 1964 to 1972. He is currently a
director of Julius Baer Investment Management and a number of mutual funds
managed by Dreyfus Service Corporation. Mr. Mautner received a Masters of
Business Administration from Harvard University and received his undergraduate
degree from Princeton University. He serves as Vice Chairman of the Business
Committee of the Metropolitan Museum of Art, and serves on the Advisory Board of
the International Investor.

Mr. Rauenhorst has served as a Director of the Company since 1993. Mr.
Rauenhorst founded Opus Corporation (formerly Rauenhorst Construction Co.), a
design, construction and development firm headquartered in Minneapolis, and has
served as its Chairman and Chief Executive Officer. He is currently Chairman of
the Board of Opus U.S. Corporation and Opus U.S. L.L.C. and a Director of
ConAgra, Inc. Mr. Rauenhorst received a Bachelor of Science in Civil Engineering
from Marquette University and a Bachelor of Arts in Economics from the
University of St. Thomas in St. Paul, Minnesota. He is a member of the Board of
Trustees at the University of St. Thomas and Marquette University and a member
of the Minnesota Business Partnership, the World Presidents' Organization and
the American Society of Civil Engineers.

Mr. Topham has been a Director of the Company since 1995. Mr. Topham has
served as Regional Partner, Executive Vice President and a member of the
Executive Committee of Hines Interests Limited Partnership ("HILP"), a privately
held real estate development and investment company, where he is responsible for
all aspects of development, acquisition and operations in Europe, the Middle
East, Canada and the Central United States. Mr. Topham joined HILP in 1975. From
1971 to 1975, Mr. Topham served as a Vice President of Bank of America, where he
was in charge of certain Middle East funds which invested in real estate
acquisitions and joint ventures in the United States. He received his Masters of
Business Administration with a concentration in REITs from the University of
California at Berkeley and received his undergraduate degree from Exeter
University in England.

Mr. Wetteskind has been a Director of the Company since 1992. Mr.
Wetteskind has served as Chief Executive Officer of Deutsche Immobilien
Anlagegesellschaft mbH, the holding company for the Deutsche Bank Group's real
estate activities, since 1991. From 1986 to 1991, Mr. Wetteskind served as Chief
Executive Officer of Deutsche Grundbesitz Investmentgesellschaft, a large German
open-ended real estate fund.

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<PAGE> 58

Mr. Wetteskind received a degree in architecture and structural engineering. He
is a Fellow of the Royal Institution of Chartered Surveyors, Lecturer for Real
Estate Management at the European Business School and a member of the senate of
the college in Nurtingen, Germany.

BOARD OF DIRECTORS AND COMMITTEES

The Company is managed by a ten member Board, a majority of whom are
independent of the Company's management. Pursuant to the terms of the Articles
of Incorporation, the Directors are not divided into classes. At each annual
meeting of stockholders of the Company, each Director is elected to hold office
for the term of one year until his successor is duly elected and qualified. The
holders of 8% Preferred Stock and the holders of 8% Preferred Stock, Series A,
are each entitled to elect one member of the Board. In addition, the holders of
8% Preferred Stock and the holders of 8% Preferred Stock, Series A, may, upon
the occurrence of certain triggering events, each elect an additional member of
the Board. See "Description of Capital Stock of the Company," and "Certain
Provisions of Nevada Law and the Company's Articles of
Incorporation -- Directors' Duties" in the accompanying Prospectus.

Audit Committee. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees and reviews the adequacy of the Company's internal
accounting controls. Mr. Eagle, Dr. Hermann and Mr. Wetteskind currently serve
on the Audit Committee, with Mr. Eagle being Chairman.

Compensation Committee. The Compensation Committee determines compensation
for the Company's executive officers. The members of the Compensation Committee
are Mr. Mautner, Dr. Hermann and Mr. Topham, with Mr. Mautner being Chairman.
The Compensation Committee exercises all powers of the Board in connection with
compensation matters, including incentive compensation and benefit plans. The
Compensation Committee also has authority to grant stock options and awards to
the employee Directors and management of the Company and its subsidiaries and
other employees.

Investment Committee. The Investment Committee establishes the Company's
acquisition procedures and reviews all potential acquisitions. Mr. Conlee, Mr.
Davis, Mr. Moody, Mr. Rauenhorst and Mr. Wetteskind currently serve on the
Investment Committee, with Mr. Rauenhorst serving as Chairman.

Board Affairs Committee. The Board Affairs Committee evaluates the
qualifications of all persons recommended to serve on the Board and makes
recommendations to the Board regarding their proposed nominees for election as
Directors. Mr. Eagle, Mr. Mautner and Mr. Topham currently serve on the Board
Affairs Committee, with Mr. Mautner being Chairman.

Administrative Committee. To the extent permitted by law, the
Administrative Committee may take action with the same force and effect as if
the entire Board has acted in such situation where time is of the essence and it
would be impractical and not in the best interests of the Company to convene a
meeting of the entire Board. Dr. Breuer, Mr. Mautner and Mr. Moody currently
serve on the Administrative Committee, with Dr. Breuer serving as Chairman.

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<PAGE> 59

COMPENSATION

Executive Officers. The following table sets forth each component of
compensation paid or awarded to, or earned by, the Chief Executive Officer and
the five most highly compensated officers other than the Chief Executive Officer
(collectively, the "Named Executive Officers") for the year ended December 31,
1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------- ALL OTHER
OFFICER SALARY BONUS COMPENSATION(1)
- ------------------------------------------------------------------------------------ ---------- -------- ---------------
<S> <C> <C> <C>
John S. Moody....................................................................... $ 350,000 $300,000 $ 84,659(2)
President and Chief Executive Officer
Rodney C. Dimock.................................................................... 275,000 200,000 21,525
Executive Vice President and Chief Operating Officer
Thomas P. Loftus.................................................................... 125,000 55,000 12,586
Vice President, Controller and Secretary
Scott M. Dalrymple.................................................................. 95,000 75,000 12,452
Vice President
Kevin P. Mahoney.................................................................... 95,000 100,000 11,255
Vice President and Treasurer
Thomas A. Nye....................................................................... 95,000 75,000 9,837
Vice President
---------- -------- ---------------
Totals $1,035,000 $805,000 $ 152,314
========= ======== ===============
</TABLE>

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

(1) With respect to each Named Executive Officer, the amounts set forth include
Company matching contributions to the 401(k) plan, profit sharing
contributions and executive life insurance provided by the Company.

(2) The Company has entered into a contract with Mr. Moody whereby amounts are
accrued under an unfunded arrangement to pay Mr. Moody a supplemental
pension. Under the contract, his supplemental pension account was
established with a credit of $250,000 as of July 1, 1995, and the Company is
obligated to credit the account in the amount of $60,000 each subsequent
July 1 during the continuance of Mr. Moody's employment. In certain
circumstances, the Company is also obligated to credit his supplemental
pension account with an amount equal to $60,000 times the number of years
(and fractions) remaining between his age on the date his employment ceases
and age 60.

The following table sets forth information concerning the restricted stock
and options held by employees of the Company as of the date of the Offering.

RESTRICTED STOCK AND OPTIONS HELD BY EMPLOYEES(1)

<TABLE>
<CAPTION>
1995 TOTAL
STOCK 1997 OPTION STOCK
1995 VALUE AT VALUE AT TOTAL OPTIONS GRANTS OPTIONS
RESTRICTED GRANT 1997 GRANT RESTRICTED (NO. OF (NO. OF (NO. OF
OFFICER STOCK(2) DATE(3) GRANTS(4) DATE(3) STOCK SHARES)(5) SHARES)(6) SHARES)(7)
- --------------------------------- ---------- ---------- --------- ---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John S. Moody.................... 57,692 $ 824,996 35,308 $ 579,051 93,000 300,000 325,000 625,000
President and Chief Executive
Officer
Rodney C. Dimock................. 41,958 599,999 15,042 246,689 57,000 150,000 160,000 310,000
Executive Vice President and
Chief Operating Officer
Thomas P. Loftus................. 18,042 258,001 5,958 97,710 24,000 75,000 78,000 153,000
Vice President, Controller and
Secretary
Scott M. Dalrymple............... 13,846 197,998 10,154 166,526 24,000 75,000 78,000 153,000
Vice President
Kevin P. Mahoney................. 13,846 197,998 10,154 166,526 24,000 75,000 78,000 153,000
Vice President and Treasurer
Thomas A. Nye.................... 13,846 197,998 10,154 166,526 24,000 75,000 78,000 153,000
Vice President
Francis H. Shields, Jr........... 8,392 120,006 13,230 216,972 21,622 37,500 83,000 120,500
Vice President
---------- ---------- --------- ---------- ---------- --------- ----------- ---------
Totals................... 167,622 $2,396,996 100,000 $1,640,000 267,622 787,500 880,000 1,667,500
========= ========= ========= ========= ========= ========= =========== =========
</TABLE>

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<PAGE> 60

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

(1) The Company has not granted any stock appreciation rights.

(2) All of these shares were awarded for 1995. They will fully vest with respect
to $13.333% on June 30, 1996, 1997, 1998 and 1999, and with respect to
46.668% on June 30, 2000. Regular dividends are paid on restricted stock.

(3) Dollar value calculated by multiplying the closing market price on the
Frankfurt Stock Exchange on the date of grant by the number of shares
awarded.

(4) The 1997 grant will fully vest with respect to 13.333% on June 30, 1998,
1999, 2000 and 2001, and with respect to 46.668% on June 30, 2002. Regular
dividends are paid on restricted stock.

(5) The exercise price of the 1995 options is equal to $14.30 per share.

(6) The exercise price of the 1997 options is equal to $14.00.

(7) Options become exercisable in installments of 20% each year following the
date of grant and have a term of ten years. All outstanding stock options
would become fully exercisable prior to any reorganization, merger or sale
of assets of the Company where the Company is not the surviving corporation
or prior to liquidation of the Company or a change in control.

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<PAGE> 61

SHARES AVAILABLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have an aggregate of
34,956,453 shares of Common Stock outstanding assuming that: (i) the
Underwriters' overallotment option is not exercised; and (ii) no outstanding
stock options. Of these shares, the 14,000,000 shares of Common Stock to be sold
pursuant to the Offering and an additional 20,309,134 outstanding shares of
Common Stock will be freely tradeable in the United States, Germany and
Luxembourg without restriction or requirement for further registration under the
Securities Act or qualification under German securities laws. The 11,482,760
shares of Common Stock representing shares which are issuable to Rodamco and
NYSTRS upon the conversion of the Preferred Stock will be freely tradeable in
Germany and Luxembourg subject to fulfillment of certain resale conditions
imposed by Regulation S under the Securities Act ("Regulation S"), but are
otherwise "restricted" securities within the meaning of Rule 144(a)(3) under the
Securities Act and will be subject to certain limitations on resale in the
United States imposed by Rule 144 ("Rule 144") under the Securities Act
described below. The remaining 647,319 shares of Common Stock are held by
"affiliates" of the Company, as that term is defined in the rules and
regulations under the Securities Act. All of such remaining shares of Common
Stock are, by virtue of being held by "affiliates," subject to the resale
limitations imposed upon "affiliates" by Rule 144 and Regulation S. In addition,
297,669 of such remaining shares of Common Stock are subject to certain
contractual and legal restrictions described below.

The Commission recently adopted revisions to Rule 144, the effect of which
substantially shortened the holding periods under Rule 144. In general, under
Rule 144 as will be in effect in April 1997, a person who has beneficially owned
shares for at least one year, including an "affiliate," will be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock
(approximately 350,000 shares after giving effect to this Offering), or the
average weekly trading volume during the four calendar weeks preceding filing of
notice of such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. A person who is not an affiliate at any time
during the 90 days preceding a sale, and who has beneficially owned shares for
at least two years, will be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions or public
information requirements.

Under Regulation S as currently in effect, any Common Stock held by persons
other than the Company, a distributor, any of their respective affiliates (other
than directors or officers who are affiliates solely by virtue of holding such
position) or any person acting on behalf of any of the foregoing, may resell
shares of Common Stock in an offshore transaction, including sales through the
facilities of the Frankfurt, Dusseldorf and Luxembourg Stock Exchanges, provided
that the sale is not prearranged with a buyer in the United States and no
directed selling efforts (as such term is defined in Regulation S) are made in
the United States by the seller, an affiliate or any person acting on their
behalf. Officers and directors who are affiliates solely by virtue of holding
such position may also resell shares of Common Stock on the same basis, provided
that no selling concession, fee or other remuneration is paid in connection with
such offers and sales other than usual and customary brokers commissions. All
other affiliates of the Company would be required to comply with Regulation S
restrictions applied to primary offerings by issuers which, in addition to the
offshore transaction and no directed selling efforts requirements may include
certain other offering restrictions.

All directors and executive officers of the Company, who will beneficially
own an aggregate of 297,669 shares of Common Stock upon completion of this
Offering, NYSTRS, Rodamco and the Company, with certain limited exceptions, have
agreed, as described below under "Underwriting," with the Underwriters not to
offer for sale, sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock for a period of 180 days from the date of this Prospectus
without the prior written consent of Merrill Lynch & Co.

NYSTRS and Rodamco, holders of Preferred Stock which is convertible into
11,482,760 shares of Common Stock, are entitled to certain registration rights
with respect to such shares for resale under the Securities Act. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have an adverse
effect on the market price for the Common Stock. Such rights may not be
exercised prior to the expiration of 180 days from the date of this

S-62
<PAGE> 62

Prospectus. See "Description of Capital Stock -- 8% Preferred
Stock -- Registration Rights" and "Description of Capital Stock -- 8% Preferred
Stock, Series A -- Registration Rights" in the accompanying Prospectus.

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 of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could also occur, may
affect adversely prevailing market prices of the Common Stock. See "Risk
Factors -- Immediate and Substantial Dilution; Risk of Substantial Dilution upon
Conversion of Preferred Stock; Registration Rights."

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UNDERWRITING

Subject to the terms and conditions contained in the terms agreement and
related underwriting agreement (collectively, the "Underwriting Agreement"), the
Company has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Lazard Freres & Co. LLC
("Lazard"), Lehman Brothers Inc., Morgan Stanley & Co. Incorporated, Smith
Barney Inc. and BT Securities Corporation, are acting as representatives (the
"Representatives") has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth after its name below. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the shares of Common Stock if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................... 1,816,000
Lazard Freres & Co. LLC........................................... 1,816,000
Lehman Brothers Inc............................................... 1,816,000
Morgan Stanley & Co. Incorporated ................................ 1,816,000
Smith Barney Inc.................................................. 1,816,000
BT Securities Corporation......................................... 920,000
Bear, Stearns & Co. Inc........................................... 200,000
Alex. Brown & Sons Incorporated................................... 200,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 200,000
A.G. Edwards & Sons, Inc.......................................... 200,000
Montgomery Securities............................................. 200,000
Oppenheimer & Co., Inc............................................ 200,000
PaineWebber Incorporated.......................................... 200,000
Prudential Securities Incorporated................................ 200,000
Dain Bosworth Incorporated........................................ 100,000
Dominick & Dominick, Incorporated................................. 100,000
EVEREN Securities, Inc............................................ 100,000
Fahnestock & Co. Inc.............................................. 100,000
Friedman, Billings, Ramsey & Co., Inc............................. 100,000
Furman Selz LLC................................................... 100,000
Gruntal & Co., Incorporated....................................... 100,000
Hanifen, Imhoff Inc............................................... 100,000
Edward D. Jones & Co., L.P........................................ 100,000
Legg Mason Wood Walker, Incorporated.............................. 100,000
Mesirow Financial, Inc............................................ 100,000
Parker/Hunter Incorporated........................................ 100,000
Pennsylvania Merchant Group Ltd................................... 100,000
Piper Jaffray Inc................................................. 100,000
Prime Charter LTD................................................. 100,000
Ragen MacKenzie Incorporated...................................... 100,000
Rauscher Pierce Refsnes, Inc...................................... 100,000
Raymond James & Associates, Inc................................... 100,000
The Robinson-Humphrey Company, Inc................................ 100,000
Sands Brothers & Co., Ltd......................................... 100,000
Sutro & Co. Incorporated.......................................... 100,000
Tucker Anthony Incorporated....................................... 100,000
Utendahl Capital Partners, L.P.................................... 100,000
Wheat, First Securities, Inc...................................... 100,000
----------------
Total................................................ 14,000,000
================
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of $.52 per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $.10 to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.

S-64
<PAGE> 64

At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to .84% of the shares to be sold and
offered hereby by the Company to certain eligible employees and persons having
business relationships with the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of the Offering will be
offered by the Underwriters to the general public on the same terms as the other
shares offered hereby.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus Supplement, to purchase up
to an aggregate of 2,100,000 additional shares of Common Stock at the price to
the public set forth on the cover page of this Prospectus Supplement, less the
underwriting discount. The Underwriters may exercise this option only to cover
over-allotments, if any. If the Underwriters exercise this option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the foregoing table bears to the
14,000,000 shares of Common Stock offered hereby.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.

The Company and the directors and executive officers of the Company have
agreed that for a period of 180 days from the date of this Prospectus Supplement
they will not, without prior and written consent of Merrill Lynch, offer, sell
or otherwise dispose of any shares of Common Stock or any other security
convertible into or exercisable for shares of Common Stock. NYSTRs and Rodamco
have agreed to identical restrictions.

The public offering price was determined by agreement between the Company
and the Representatives. Among the factors that were considered by the parties
in making such determination are the prevailing market conditions, dividend
yields and financial characteristics of publicly traded REITs that the Company
and the Representatives believe to be comparable to the Company, the present
state of the Company's business operations and estimates of business, cash flow
and earnings potential of the Company following the Offering.

Each of Merrill Lynch and Lazard has from time to time provided investment
banking and financial advisory services to the Company. The Company has agreed
to pay Merrill Lynch an advisory fee of .75% for advisory services rendered in
connection with the evaluation, analysis and structuring of the Offering. In
addition, Lazard was the placement agent in the private placements of 8%
Preferred Stock and 8% Preferred Stock, Series A, in November 1995. An affiliate
of BT Securities Corporation has committed to be an agent and lender under the
Company's Revolving Credit Facility.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for the purchase shares of 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 may 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 Supplement), the
Representatives may reduce that short position by purchasing Common Stock in the
open market. The Representatives also may elect to reduce any short position by
exercising all or part of the over-allotment option described herein.

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

S-65
<PAGE> 65

the selling concession from the Underwriters and selling group members who sold
those shares as part of the Offering.

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

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

EXPERTS

The consolidated financial statements and financial statement schedules of
Cornerstone Properties Inc. as of December 31, 1996 and 1995 and for each of the
years in the three-year period ended December 31, 1996 have been incorporated by
reference herein and in the registration statement in reliance upon the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
said firm as experts in accounting and auditing.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Lionel Sawyer & Collins, Las Vegas, Nevada. Certain legal matters
related to the sale of the shares of Common Stock will be passed upon for the
Company by Shearman & Sterling, New York, New York. In addition, the
descriptions of federal income tax consequences contained in the section of the
accompanying Prospectus entitled "Federal Income Tax Considerations" is based
upon the opinion of Shearman & Sterling. Certain legal matters related to the
Offering will be passed upon for the Underwriters by Rogers & Wells, New York,
New York.

S-66
<PAGE> 66

GLOSSARY

"1212 Partnership" means 1212 Second Avenue Limited Partnership, the
managing general partner of Third Partnership.

"6% Limit" means, for the purpose of preserving the Company's REIT
qualification, the Articles of Incorporation provision that no holder is
permitted to own, either actually or constructively under the applicable
attribution rules of the Code, more than 6% of the value of the aggregate
outstanding shares of all classes of stock of the Company.

"7% Preferred Stock" means the 7% Cumulative Convertible Preferred Stock of
the Company.

"8% Preferred Stock" means the 8% Cumulative Convertible Preferred Stock of
the Company.

"8% Preferred Stock, Series A" means the 8% Cumulative Convertible
Preferred Stock, Series A, of the Company.

"Actual Rent" means the actual stated fixed rent received on a net or a
gross basis.

"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the possession
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.

"Articles of Incorporation" means the Restated Articles of Incorporation of
the Company.

"Base Rent" means the monthly contractual base rent under the applicable
lease(s) (e.g., relating to a tenant, a Property or all of the Properties, as
applicable).

"Board" means the Board of Directors of the Company.

"CBD" means central business district.

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

"Common Stock" means the common stock of the Company, without par value.

"Company" means Cornerstone Properties Inc., a Nevada Corporation, and its
subsidiaries on a consolidated basis.

"DBRA" means Deutsche Bank Realty Advisors, Inc.

"Deutsche Bank" means Deutsche Bank AG.

"FFO" means Funds from Operations.

"Five or Fewer Requirement" means the requirement under the Code and
Treasury Regulations that during the last half of each taxable year, not more
than 50% in value of a REIT's outstanding stock be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include certain
specified entities).

"Full Service Straight-Line Rent" means Straight-Line Rent plus Recoveries.

"GAAP" means generally accepted accounting principles.

"HILP" means Hines Interests Limited Partnership.

"Hines" means Gerald D. Hines Interests and its affiliates.

"HRO" means HRO International Ltd.

"LIBOR" means the London Interbank Offered Rate.

"MSA's" means Metropolitan Statistical Areas.

S-67
<PAGE> 67

"Net Effective Rent" means (i) Actual Rent determined for each year on a
straight-line basis through the term of the lease, less (ii) the amount of
operating expenses net of Recoveries and the amortization of deferred leasing
costs (tenant improvements, leasing commissions, takeover obligations and other
tenant inducements).

"NWC" means NWC Limited Partnership, the owner of Norwest Center.

"NYSE" means the New York Stock Exchange.

"NYSTRS" means the New York State Teachers' Retirement System.

"Offering" means the offering of shares of Common Stock of Cornerstone
Properties, Inc., pursuant to and described in this Prospectus Supplement.

"Phase I Assessments" mean Phase I Environmental Assessments conducted by
environmental consultants.

"Preferred Stock" means the 7% Preferred Stock, 8% Preferred Stock and 8%
Preferred Stock, Series A of the Company and any other series of preferred stock
of the Company, without par value, issued from time to time.

"Properties" means the Company's interests in eight Class A office
properties encompassing approximately five million rentable square feet.

"Regulation S" means Regulation S under the Securities Act.

"Recoveries" means the actual recovery of operating expenses in net lease
buildings or the actual recovery of operating expense escalations in gross lease
buildings.

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

"Revolving Credit Facility" means the unsecured acquisition credit facility
to be provided by Bankers Trust Company and The Chase Manhattan Bank in an
amount of up to $200 million and bearing interest at a rate between 1.25% and
1.625% above LIBOR, depending upon the Company's ratio of total debt to asset
value while funds are outstanding.

"Rodamco" means Rodamco N.V. together with its subsidiaries.

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

"S&M" means Sixth and Marquette Limited Partnership, owner of 50%
partnership interest in NWC.

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

"Straight-Line Rent" means the average of all Actual Rent required to be
paid through the term of the lease calculated in accordance with GAAP.

"Third Partnership" means Third and University Limited Partnership, the
owner of Washington Mutual Tower.

"Treasury Regulations" means regulations issued by the United States
Treasury Department under the Code.

"WRALP" means Wright Runstad Associates Limited Partnership.

S-68
<PAGE> 68

CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
INDEX TO PRO FORMA FINANCIAL STATEMENTS AND NOTES

<TABLE>
<S> <C>
Consolidated Pro Forma Balance Sheet at December 31, 1996.............................. F-2
Consolidated Pro Forma Statement of Operations for the year ended December 31, 1996.... F-3
Notes to Pro Forma Financial Statements................................................ F-4
</TABLE>

F-1
<PAGE> 69

CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED PRO FORMA BALANCE SHEET

AS OF DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS
------------------------------
ONE 527
HISTORICAL LINCOLN FRICK MADISON PRO FORMA PRO FORMA
CORNERSTONE CENTRE BUILDING AVENUE ADJUSTMENTS CORNERSTONE
----------- -------- -------- -------- ----------- -----------
(1) (2) (3)
<S> <C> <C> <C> <C> <C> <C>
Assets
Real estate investments........... $ 799,662 $ -- $ -- $ 67,670 $ -- $ 867,332
Less: Accumulated depreciation... 198,686 -- -- -- -- 198,686
----------- -------- -------- -------- ----------- -----------
Real estate investments........... 600,976 -- -- 67,670 -- 668,646
Other assets...................... 165,204 -- -- (67,670) 147,750(4)(5) 245,284
----------- -------- -------- -------- ----------- -----------
Total assets...................... $ 766,180 -- -- -- $ 147,750 $ 913,930
========= ======== ======== ======== ========= =========
Liabilities
Long term debt.................... 400,142 -- -- -- (32,500)(5) 367,642
Other liabilities................. 42,233 -- -- -- -- 42,233
----------- -------- -------- -------- ----------- -----------
Total liabilities................. 442,375 -- -- -- (32,500) 409,875
----------- -------- -------- -------- ----------- -----------
Minority interest................... (17,478) -- -- -- -- (17,478)
Redeemable preferred stock.......... 162,743 -- -- -- 162,743
Stockholders' investment............ 178,540 -- -- -- 180,250(4) 358,790
----------- -------- -------- -------- ----------- -----------
Total liabilities and stockholders'
investment........................ $ 766,180 $ -- $ -- $ -- $ 147,750 $ 913,930
========= ======== ======== ======== ========= =========
</TABLE>

F-2
<PAGE> 70

CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS
--------------------------------
527
HISTORICAL ONE LINCOLN FRICK MADISON PRO FORMA PRO FORMA
CORNERSTONE CENTRE BUILDING AVENUE ADJUSTMENTS CORNERSTONE
----------- ----------- -------- ------- ----------- -----------
(1) (2) (3)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Office and parking rentals..... $ 111,494 $ 5,374 $4,919 $11,805 $ -- $ 133,592
Interest and other income...... 5,414 -- 6 -- (380)(6) 5,040
----------- ----------- -------- ------- ----------- ----------
Total Revenues............... 116,908 5,374 4,925 11,805 (380) 138,632
============ ============ ======== ======== ============ ===========
Expenses
Building operating expenses.... 44,188 2,225 2,673 4,607 -- 53,693
Interest expense............... 31,345 -- -- -- (1,625)(5) 29,720
Depreciation and
amortization................. 24,801 1,002 502 1,524 -- 27,829
General and administrative..... 6,312 -- -- -- -- 6,312
----------- ----------- -------- ------- ----------- -----------
Total Expenses............... 106,646 3,227 3,175 6,131 (1,625) 117,554
----------- ----------- -------- ------- ----------- -----------
Other income (expense)
Net gain (loss) on interest
rate swap.................... 4,278 -- -- -- -- 4,278
Minority interest.............. (1,519) -- -- -- -- (1,519)
----------- ----------- -------- ------- ----------- -----------
Income before extraordinary
loss........................... $ 13,021 $ 2,147 $1,750 $5,674 $ 1,245 $ 23,837
============ ============ ======== ======== ============ ===========
Extraordinary loss............... (3,925) -- -- -- -- (3,925)
Net Income....................... $ 9,096 $ 2,147 $1,750 $5,674 $ 1,245 $ 19,912
============ ============ ======== ======== ============ ===========
Preferred Dividends.............. 5,153 11,667 (7) 16,820
----------- ----------- -----------
Income available for Common
Stockholders................... $ 3,943 $ 2,147 $1,750 $5,674 $ (10,422) $ 3,092
============ ============ ======== ======== ============ ===========
Income Before Extraordinary
Item per Share................. $ 0.39 $ 0.20
============ ==========
Net Income per Share............. $ 0.19 $ 0.09
============ ==========
Weighted Shares Outstanding...... 20,411 14,000 34,411
============ ============ ==========
</TABLE>

F-3
<PAGE> 71

CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS

The unaudited selected pro forma consolidated statement of operations and
balance sheet data is presented as if the Offering, the sale of the Company's 8%
Preferred Stock and the 8% Preferred Stock, Series A, the Company's repayment of
a $32.5 million term loan from Deutsche Bank and the acquisition of both
Properties in New York City, the Property in Oakbrook Terrace, Illinois, and the
Property in Pittsburgh had occurred as of January 1, 1996 for operating data and
December 31, 1996 for balance sheet data. The pro forma financial information is
not necessarily indicative of what the results of operations of the Company
would have been for the periods indicated, nor does it purport to represent the
Company's future results of operations.
- ---------------

(1) One Lincoln Centre was purchased on November 8, 1996 for $49,950,000. The
purchase price and related acquisition and stock issuance costs were funded
by issuing 8% Preferred Stock, Series A ($40,000,000) and by available cash
($9,950,000). Depreciation expense on the building (including acquisition
costs) has been calculated on a straight-line basis over 40 years.

(2) The Frick Building was purchased on November 8, 1996 for $26,500,000. The
purchase price and related acquisition and stock issuance costs were funded
by issuing 8% Preferred Stock, Series A. Depreciation expense on the
building (including acquisition costs) has been calculated on a
straight-line basis over 40 years.

(3) 527 Madison Avenue was purchased on January 29, 1997 for $67,000,000. The
purchase price and related acquisition and stock issuance costs were
purchased with cash that was raised by issuing 8% Preferred Stock.
Depreciation expense on the building (including acquisition costs) has been
calculated on a straight-line basis over 40 years.

(4) An adjustment has been made to reflect the gross Offering proceeds
(14,000,000 shares @ $14.00 per share) less Offering costs estimated at
$15.75 million, including underwriters' discount.

(5) Proceeds from the 8% Preferred Stock was used to retire the $32,500,000 term
loan from Deutsche Bank. An adjustment has been made to eliminate the
interest expense on the term loan for the year ended December 31, 1996.

(6) On November 22, 1996, the Company raised $100,000,000 in equity by issuing
8% Preferred Stock. $67,000,000 of this issue was used to purchase 527
Madison Avenue. An adjustment has been made to eliminate the interest income
and accrued dividends on the $67,000,000 from November 23, 1996 to December
31, 1996.

(7) Reflects the dividends on the 8% Preferred Stock and the 8% Preferred Stock,
Series A for the period January 1, 1996 until the date of issuance.

F-4
<PAGE> 72

PROSPECTUS

$700,000,000

CORNERSTONE PROPERTIES INC.
Common Stock

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

Cornerstone Properties Inc. ("Cornerstone" or the "Company") may offer from
time to time shares of its Common Stock, with no par value ("Common Stock"),
with an aggregate public offering price of up to $700,000,000 in amounts, at
prices and on terms to be determined at the time of offering and set forth in
one or more supplements to this Prospectus (each a "Prospectus Supplement").

The number of the shares and specific terms of the Common Stock in respect
of which this Prospectus is being delivered (the "Offered Securities") will be
set forth in an accompanying Prospectus Supplement, including the initial public
offering price and the net proceeds to the Company.

The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.

The Common Stock may be offered by the Company directly to one or more
purchasers, through agents designated from time to time by the Company or
through dealers or underwriters. If any agents of the Company or any dealers or
underwriters are involved in the offering of Common Stock in respect of which
this Prospectus is being delivered, the names of such agents, dealers or
underwriters and any applicable purchase price, fee, commission or discount will
be set forth, or will be calculable from the information set forth, in the
accompanying Prospectus Supplement, together with the net proceeds to the
Company. See "Plan of Distribution". This Prospectus may not be used to
consummate sales of Common Stock unless accompanied by a Prospectus Supplement
describing the method and terms of the offering of such Common Stock.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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

The date of this Prospectus is March 12, 1997.
<PAGE> 73

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS AND ANY
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE. NEITHER THE
DELIVERY OF THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS SUPPLEMENT NOR ANY
SALE OF OR OFFER TO SELL THE OFFERED SECURITIES SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME AFTER THE DATE
HEREOF. THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
OFFERED SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH STATE.

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

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (of which this Prospectus is a part) on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Offered Securities. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission,
and in the exhibits thereto. Statements contained in this Prospectus as to the
content of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Offered
Securities, reference is hereby made to the Registration Statement and such
exhibits and schedules, which may be examined without charge at, or copies
obtained upon payment of prescribed fees from, the Commission and its regional
offices listed below.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Commission. The Registration Statement, as well as such reports, proxy
statements and other information filed with the Commission, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
The Company files its reports, proxy statements and other information with the
Commission electronically. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at http://www.sec.gov.

2
<PAGE> 74

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents have been filed by the Company under the Exchange
Act with the Commission and are incorporated by reference in this Prospectus:

1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996, as amended by the Company's Report on Form 10-K/A, dated March 10,
1997, filed with the Commission pursuant to the Exchange Act.

2. The Company's Report on Form 10-K/A, dated February 21, 1997, amending
the Company's Annual Report on Form 10-K for the year ended December 31,
1995, filed with the Commission pursuant to the Exchange Act.

3. The Company's Current Report on Form 8-K, dated January 29, 1997, filed
with the Commission pursuant to the Exchange Act.

4. The Company's Current Reports on Form 8-K/A, dated January 22, 1997,
February 24, 1997, February 24, 1997 and March 10, 1997, filed with the
Commission pursuant to the Exchange Act.

5. The description of the Company's Common Stock contained in Item 10 of
Form 10 filed with the Commission on April 30, 1982, pursuant to Section
12(g) of the Exchange Act, including all amendments and reports updating
such description.

All documents and reports filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of filing hereof and prior
to the date on which the Company ceases offering and selling Common Stock
pursuant to this Prospectus shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the dates of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus and the accompanying Prospectus
Supplement are delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into the Registration Statement to which this Prospectus relates or
into such other documents. Requests for documents should be directed to
Cornerstone Properties Inc., Tower 56, 126 East 56th Street, New York, New York
10022, Attention: Secretary (telephone number: (212) 605-7100).

3
<PAGE> 75

THE COMPANY

The Company is a self-advised equity real estate investment trust ("REIT").
Since its formation in 1981, the Company has developed three office properties
in geographically diverse cities of the United States -- Denver, Colorado,
Minneapolis, Minnesota and Seattle, Washington. The Company has also acquired
five office buildings in Boston, Massachusetts, New York, New York, Oakbrook
Terrace, Illinois and Pittsburgh, Pennsylvania. Seven of the eight properties
were built in the mid- to late-1980s and the eighth was fully renovated in the
late 1980s.

The Company's business objective is to increase its funds from operations
by generating sustainable current cash flow and providing capital appreciation
through investments in the office real estate markets of the United States. The
general strategy of the Company is to invest in larger, high-quality office
buildings in major metropolitan markets in the United States. The Company
intends to focus on office properties in central business district locations, as
well as in highly developed suburban markets. Highly qualified, local property
managers are hired to manage the Company's properties on a day-to-day basis.
This allows Cornerstone personnel to remain focused on financing, budgeting,
leasing and other major decisions regarding the properties.

The Company does not intend to undertake any major new business assignments
other than the management of the Company's own portfolio in order to avoid
potential conflicting priorities or the need to serve multiple clients. The
Company continues to have advisory responsibilities to three clients which were
undertaken earlier, but these responsibilities will be terminated by July 1,
1997 and, in any case, are estimated to occupy a minimal amount of management
time.

USE OF PROCEEDS

Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net cash proceeds from the sale of Offered Securities
for general corporate purposes, including working capital, repayment of
indebtedness, investment in new properties or maintenance or improvement of
currently owned properties. The Prospectus Supplement relating to a particular
sale of Offered Securities will set forth the Company's intended use for the net
proceeds received from the sale of such Offered Securities. Pending application
of the net proceeds of any sale of Offered Securities to such uses, the Company
may invest such net proceeds in short-term liquid investments which are
consistent with the Company's intention to qualify for taxation as a REIT. Such
investments may include, for example, government and government agency
securities, certificates of deposit, interest-bearing bank deposits, investment
grade commercial paper and mutual funds investing in similar instruments.

DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock and 15,000,000 shares of Preferred Stock, with no par value
("Preferred Stock"). Stockholders have no preemptive or other rights to
subscribe for or purchase any proportionate part of any new or additional shares
of stock of any class or of securities convertible into stock of any class. The
following brief description of the capital stock of the Company does not purport
to be complete and is subject in all respects to applicable Nevada law and to
the provisions of the Company's Restated Articles of Incorporation (the
"Articles of Incorporation") and Bylaws, as amended, and to the respective
certificates of designations for each series of Preferred Stock, copies of which
are exhibits to the Registration Statement of which this Prospectus is a part.

4
<PAGE> 76

COMMON STOCK

The Company had 20,853,661 shares of Common Stock outstanding at January
31, 1997. Subject to the provisions of the Articles of Incorporation regarding
preservation of the Company's REIT status, each outstanding share of Common
Stock entitles the holder thereof to one vote on all matters presented to
stockholders for a vote. There are no cumulative voting rights with respect to
the election of directors. Holders of Common Stock have no conversion, sinking
fund or redemption rights. All of the Offered Securities will be, when issued,
fully paid and nonassessable.

The holders of the Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors of the Company out of funds legally
available therefor, subject to the terms of any Preferred Stock at the time
outstanding and to the provisions of the Articles of Incorporation regarding
preservation of the Company's REIT status. In the event of the liquidation of
the Company, each outstanding share of Common Stock is entitled to participate
pro rata in the assets remaining after payment of, or adequate provision for,
all known debts and liabilities of the Company.

The Transfer Agent and Registrar for the Common Stock is Boston EquiServe.

PREFERRED STOCK

Under the Articles of Incorporation, the Board of Directors of the Company
is authorized, without further stockholder action, to provide for the issuance
of Preferred Stock in one or more series. The powers, designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions, including dividend rights, voting
rights, conversion rights, terms of redemption and liquidation preferences, of
the Preferred Stock of each series are fixed or designated by the Board of
Directors pursuant to a certificate of designations (each, a "Certificate of
Designations"). Such Preferred Stock may have voting or other rights which could
adversely affect the rights of holders of the Common Stock.

Holders of Preferred Stock have no voting rights in general corporate
matters except as provided by law or as set forth in the Certificate of
Designations therefor. Under Nevada law, if any proposed amendment to the
Articles of Incorporation would alter or change any preference or any relative
or other right given to the holders of Preferred Stock, then the amendment must
be approved by the affirmative vote of the holders of shares representing a
majority of the voting power of each class or series affected by the amendment
regardless of limitations or restrictions on the voting power thereof.

As of January 31, 1997, the Preferred Stock established by the Company
consisted of (i) 3,030,303 shares of 7% Cumulative Convertible Preferred Stock,
with no par value (the "7% Preferred Stock"), all of which were issued and
outstanding and held by Deutsche Bank; (ii) 458,621 shares of 8% Cumulative
Convertible Preferred Stock, Series A, with no par value (the "8% Preferred
Stock, Series A"), all of which were issued and outstanding and held indirectly
by Rodamco, N.V. ("Rodamco"); and (iii) 1,035,483 shares of its 8% Cumulative
Convertible Preferred Stock, with no par value (the "8% Preferred Stock"),
689,655 of which were issued and outstanding and held by the New York State
Teachers' Retirement System. Set forth below is a brief description of the terms
of each series of Preferred Stock.

7% Preferred Stock

Priority. The 7% Preferred Stock, with respect to dividends and
distributions and upon the liquidation, dissolution or winding-up of the
Company, ranks (i) senior to all classes of Common Stock, to the 8% Preferred
Stock, Series A, and to each other class of capital stock or series of Preferred
Stock established by the Board of Directors (except as set forth below) which
does not expressly provide that it ranks senior to the 7% Preferred Stock as to
dividends and distributions and upon the liquidation, winding-up and dissolution
of the Company and (ii) on a parity with the 8% Preferred Stock and any other
class of capital stock or series of Preferred Stock issued by the Company, the
terms of which expressly provide that such class or series will rank on a parity
with the 7% Preferred Stock as to dividends and distributions or upon the
liquidation, dissolution or winding-up of the Company.

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Dividends. Holders of 7% Preferred Stock are entitled to receive
cumulative cash dividends payable annually at the rate of 7% per annum when, as
and if declared by the Board of Directors out of funds legally available
therefor and in preference to any dividend payable on the Common Stock and the
8% Preferred Stock, Series A. Such dividends accrue from day to day and are
cumulative, whether or not declared.

Liquidation. Upon the liquidation, dissolution or winding-up of the
Company (either voluntary or involuntary), holders of 7% Preferred Stock are
entitled to receive out of the assets of the Company available for distribution
after payment of all liabilities, before any distribution is made to the holders
of the 8% Preferred Stock, Series A, or the Common Stock, an amount equal to
$16.50 per share plus an amount equal to all dividends (whether or not earned or
declared) accrued and accumulated and unpaid on the shares of 7% Preferred Stock
to the date of final distribution.

Conversion. Each share of the 7% Preferred Stock is convertible, at the
option of the holder thereof, at any time after August 4, 2000, into that number
of shares of Common Stock as is determined by dividing the stated value of such
share by the conversion price in effect for the 7% Preferred Stock at the time
of conversion. The conversion price currently in effect is $16.50 per share of
Common Stock, subject to adjustment.

Redemption. The 7% Preferred Stock is not redeemable.

Voting. The Certificate of Designations for the 7% Preferred Stock
provides that if dividends payable on the 7% Preferred Stock shall be in arrears
for six calendar quarters or more, whether or not consecutive, the holders of
the outstanding shares of the 7% Preferred Stock shall have the right to elect
two of the authorized number of members of the Board of Directors at the
Company's next annual meeting of stockholders until such arrearages have been
paid or set apart for payment. In addition, the Certificate of Designations for
the 7% Preferred Stock provides that the issuance of any shares of Preferred
Stock ranking prior to the 7% Preferred Stock shall require the consent of the
holders of the 7% Preferred Stock. The Company has agreed that so long as
Deutsche Bank holds at least 1,000,000 shares of the 7% Preferred Stock, the
Company will not issue any shares of Preferred Stock ranking on a parity with
the 7% Preferred Stock without the prior written consent of Deutsche Bank.
Deutsche Bank consented to the issuance of the 8% Preferred Stock.

Registration Rights. If at any time after one year following a registered
initial public offering in the United States by the Company, Deutsche Bank
notifies the Company in writing that it intends to offer or to cause to be
offered for sale its shares of the 7% Preferred Stock and/or shares of Common
Stock issued upon conversion of the 7% Preferred Stock and requests the Company
to cause such securities to be registered under the Securities Act, the Company
will use its best efforts to cause such securities to be so registered if
counsel for the Company shall deem such registration necessary or advisable.
Deutsche Bank is required to hold and to intend to offer for public sale not
less than a total of 1,500,000 shares of the 7% Preferred Stock and/or shares of
Common Stock issued upon conversion thereof at the time of any such request. The
Company is not obligated to make more than one registration pursuant to these
provisions.

8% Preferred Stock

Priority. The 8% Preferred Stock, with respect to dividends and
distributions and upon the liquidation, dissolution or winding-up of the
Company, ranks (i) senior to all classes of Common Stock, to the 8% Preferred
Stock, Series A, and to each other class of capital stock or series of Preferred
Stock established by the Board of Directors which does not expressly provide
that it ranks senior to the 8% Preferred Stock as to dividends and distributions
or upon the liquidation, winding-up and dissolution of the Company and (ii) on
parity with the 7% Preferred Stock and any other class of capital stock or
series of Preferred Stock issued by the Company, the terms of which expressly
provide that such class or series will rank on a parity with the 8% Preferred
Stock as to dividends and distributions or upon the liquidation, dissolution or
winding-up of the Company.

Dividends. Holders of 8% Preferred Stock are entitled to receive
cumulative cash dividends payable quarterly at the rate of 8% per annum when, as
and if declared by the Board of Directors out of funds legally

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available therefor and in preference to any dividend payable on the Common Stock
and the 8% Preferred Stock, Series A. Such dividends accrue from day to day and
are cumulative, whether or not declared.

Liquidation. Upon the liquidation, dissolution or winding-up of the
Company (either voluntary or involuntary), holders of 8% Preferred Stock are
entitled to receive out of the assets of the Company available for distribution
after payment of all liabilities, before any distribution is made to the holders
of the 8% Preferred Stock, Series A, or the Common Stock, an amount equal to
$145.00 per share plus an amount equal to all dividends (whether or not earned
or declared) accrued and accumulated and unpaid on the shares of 8% Preferred
Stock to the date of final distribution.

Conversion. Each share of 8% Preferred Stock is convertible, at the option
of the holder thereof, at any time and from time to time, into that number of
shares of Common Stock as is determined by dividing the stated value of such
share by the conversion price in effect for the 8% Preferred Stock at the time
of conversion. The conversion price currently in effect is $14.50 per share of
Common Stock, subject to adjustment.

Conversion by the Company. The Company has the right, at its option, to
convert all shares of 8% Preferred Stock then outstanding into shares of Common
Stock upon the consummation of a public offering meeting the following
conditions (an "8% Preferred Stock Qualified Public Offering"). An "8% Preferred
Stock Qualified Public Offering" means an underwritten public offering of Common
Stock to be listed on the New York Stock Exchange in which (i) the aggregate net
proceeds to the Company (after payment of all fees and expenses of the offering
and pay-down of any then remaining debt under the Term Loan Agreement, dated as
of August 8, 1995, between the Company and Deutsche Bank AG (London)) together
with the net proceeds of any prior public offerings of Common Stock listed on
the New York Stock Exchange equal or exceed US$200 million, (ii) the expected
distributions on shares of Common Stock of the Company for the 12 months
following the 8% Preferred Stock Qualified Public Offering (as certified by the
treasurer or chief financial officer of the Company) divided by the public
offering price is equal to or less than 7.75% and (iii) (A) if the 8% Preferred
Stock Qualified Public Offering is completed in calendar year 1997, the initial
public offering price is at least $16.00 per share, (B) if the 8% Preferred
Stock Qualified Public Offering is completed in calendar year 1998, the initial
public offering price is at least $16.50 per share and (C) if the 8% Preferred
Stock Qualified Public Offering is completed in calendar year 1999, the initial
public offering price is at least $17.00 per share; provided, however, that an
8% Preferred Stock Qualified Public Offering shall be deemed to occur on the
first business day following any day the condition set forth in clause (i) above
and each of the following conditions is satisfied: (x) the day is prior to
January 1, 2000, (y) the average of the closing prices for shares of Common
Stock as reported on the New York Stock Exchange composite tape for the 20
consecutive trading days immediately preceding such day (the "Composite
Average") equals or exceeds the applicable minimum initial public offering price
for a public offering to be considered an 8% Preferred Stock Qualified Public
Offering at such time and (z) the expected distributions on shares of Common
Stock for the 12 months following such day (as certified by the treasurer or
chief financial officer of the Company) divided by the Composite Average is
equal to or less than 7.75%.

Redemption. The Company may redeem the 8% Preferred Stock at any time on
or after November 22, 2001, as a whole in cash at a redemption price equal to
$145.00 per share plus an amount equal to all dividends accrued and unpaid
thereon to the redemption date, plus a redemption premium calculated to cause
the holders of the 8% Preferred Stock to have received an internal rate of
return of 12% per annum.

Change in Control Put. Each holder of 8% Preferred Stock has the right to
require the redemption of its 8% Preferred Stock by the Company in cash at a
redemption price equal to $146.45 per share plus an amount equal to all
dividends accrued and unpaid thereon to the redemption date upon the occurrence
of a "Change in Control". A "Change in Control" means (i) a merger,
consolidation or reorganization of the Company, if, after giving effect thereto,
the holders of the Common Stock prior to such transaction shall fail to own at
least 51% of the capital stock entitled to vote for the election of directors in
the successor entity, (ii) the sale of a majority or more of the assets of the
Company in any single transaction or in any series of related transactions or
(iii) a change in the composition of the Board of Directors of the Company such
that during any period of two consecutive years the individuals who at the
beginning of such period were directors of the Company shall

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cease for any reason to constitute a majority of the directors then in office
(and not designated to the Board of Directors by any holder of Preferred Stock)
unless the individuals replacing such directors were elected or nominated by the
Board of Directors of the Company.

Restriction on Debt. The Company may not incur debt exceeding 60% of the
appraised value of the assets of the Company other than debt in an amount which
does not exceed the principal amount of outstanding debt of the Company
extended, refinanced, renewed or replaced with the proceeds thereof, plus any
costs associated with the extension, refinancing, renewal or replacement.

Voting. The Certificate of Designations for the 8% Preferred Stock
provides that the holders of shares of 8% Preferred Stock are entitled to elect
one member of the Board of Directors of the Company. The Certificate of
Designations for the 8% Preferred Stock also provides that if (i) on or prior to
December 31, 1999, the Company has not completed an 8% Preferred Stock Qualified
Public Offering, (ii) dividends on the 8% Preferred Stock are in arrears for two
consecutive calendar quarters or more or (iii) the Company has violated the
restriction on debt described above, the holders of the outstanding shares of 8%
Preferred Stock shall have the right to elect one additional member of the Board
of Directors. The Certificate of Designations for the 8% Preferred Stock further
provides that prior to the completion of an 8% Preferred Stock Qualified Public
Offering, the consent of the holders of at least a majority of the shares of 8%
Preferred Stock outstanding at the time shall be necessary to effect certain
material changes to the Articles of Incorporation or to increase the size of the
Board of Directors to greater than nine members. The consent of the holders of
8% Preferred Stock is not required for increases in the size of the Board of
Directors to allow for directors elected by holders of 8% Preferred Stock or 8%
Preferred Stock, Series A, to be seated.

Registration Rights. The holders of at least 25% of the shares of Common
Stock or other securities issuable upon conversion of the 8% Preferred Stock
(the "8% Conversion Stock") may require the Company to use its best efforts to
register the 8% Conversion Stock on the earlier of (i) the date which is six
months after the date the registration statement filed by the Company covering
an 8% Preferred Stock Qualified Public Offering became effective or (ii)
December 31, 1999 if an 8% Preferred Stock Qualified Public Offering shall not
have been completed on or prior to such date. In addition, holders of the 8%
Preferred Stock have been granted certain incidental rights to register 8%
Conversion Stock upon the filing of registration statements by the Company,
subject to certain limitations.

8% Preferred Stock, Series A

Priority. The 8% Preferred Stock, Series A, with respect to dividends and
distributions and upon the liquidation, dissolution or winding-up of the
Company, ranks (i) senior to all classes of Common Stock and each other class of
capital stock or series of preferred stock established by the Board of Directors
(except as set forth below) which does not expressly provide that it ranks
senior to the 8% Preferred Stock as to dividends and distributions or upon the
liquidation, winding-up and dissolution of the Company; (ii) on a parity with
any other class of capital stock or series of Preferred Stock issued by the
Company the terms of which expressly provide that such class or series will rank
on a parity with the 8% Preferred Stock, Series A, with respect to dividends and
distributions or upon the liquidation, dissolution or winding-up of the Company;
and (iii) junior to the 7% Preferred Stock and the 8% Preferred Stock.

Dividends. Holders of 8% Preferred Stock, Series A, are entitled to
receive cumulative cash dividends payable quarterly at the rate of 8% per annum
when, as and if declared by the Board of Directors out of funds legally
available therefor and in preference to any dividend payable on the Common
Stock. Such dividends accrue from day to day and are cumulative, whether or not
declared.

Liquidation. Upon the liquidation, dissolution or winding-up of the
Company (either voluntary or involuntary), holders of 8% Preferred Stock, Series
A, are entitled to receive out of the assets of the Company available for
distribution after payment of all liabilities, before any distribution is made
to the holders of the Common Stock, an amount equal to $145.00 per share plus an
amount equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid on the shares of 8% Preferred Stock, Series A, to the
date of final distribution.

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<PAGE> 80

Conversion. Each share of 8% Preferred Stock, Series A, is convertible, at
the option of the holder thereof, at any time and from time to time, into that
number of shares of Common Stock as is determined by dividing the stated value
of such share by the conversion price in effect for the 8% Preferred Stock,
Series A, at the time of conversion. The conversion price currently in effect is
$14.50 per share of Common Stock, subject to adjustment.

Conversion by the Company. The Company has the right, at its option, to
convert all shares of 8% Preferred Stock, Series A, then outstanding into shares
of Common Stock upon the consummation of a "Series A Qualified Public Offering".
A "Series A Qualified Public Offering" means: a "Public Offering" (as defined
below) prior to January 1, 2000 in which (i) the aggregate net proceeds to the
Company (after payment of all fees and expenses of the offering) together with
the net proceeds of any prior Public Offerings of Common Stock listed on the New
York Stock Exchange equal or exceed the Minimum Amount (as defined below) and
(ii) (a) if the Public Offering is completed in calendar year 1997, the initial
public offering price is at least $16.00 per share, (b) if the Public Offering
is completed in calendar year 1998, the initial public offering price is at
least $16.50 per share or (c) if the Public Offering is completed in calendar
year 1999, the initial public offering price is at least $17.00 per share;
provided, however, that a Qualified Public Offering shall be deemed to occur on
the first business day which follows any period of 20 trading days after a
Public Offering and prior to January 1, 2000 in which the Composite Average
equals or exceeds the applicable minimum initial price for a Public Offering to
be considered a Series A Qualified Public Offering at such time. "Public
Offering" means an underwritten public offering of Common Stock pursuant to an
effective registration statement under the 1933 Act and listed on the New York
Stock Exchange. "Minimum Amount" means, at any time, the sum of (i) $75 million
plus (ii) the product of .5618 multiplied by the stated value of all shares of
8% Preferred Stock issued by the Company prior to such time and after November
1, 1996. As of December 1, 1996, the Minimum Amount was $131,180,000.

Redemption. The Company may redeem the 8% Preferred Stock, Series A, at
any time on or after December 31, 2001, as a whole in cash at a redemption price
equal to $145.00 per share plus an amount equal to all dividends accrued and
unpaid thereon through the redemption date, plus a redemption premium calculated
to cause the holders of the 8% Preferred Stock, Series A, to have received an
internal rate of return equal to 12% per annum.

Put if No Public Offering. Each holder of the 8% Preferred Stock, Series
A, has the right to require redemption of its 8% Preferred Stock, Series A, in
cash at a price equal to $145.00 per share plus a sum equal to all dividends
accrued and unpaid thereon (if any) if the Company has not completed, prior to
January 1, 2001, a Public Offering in which the aggregate net proceeds to the
Company (after payment of fees and expenses of the offering) equal or exceed
$75,000,000.

Change in Control Put. Each holder of shares of 8% Preferred Stock, Series
A, has the right to require the redemption of its 8% Preferred Stock, Series A,
by the Company in cash at a redemption price equal to $146.45 per share plus an
amount equal to all dividends accrued and unpaid thereon to the redemption date
upon the occurrence of a Change in Control (as defined above).

Voting. The Certificate of Designations for the 8% Preferred Stock, Series
A, provides that the holders of shares of 8% Preferred Stock, Series A, are
entitled to elect one member of the Board of Directors of the Company. The
Certificate of Designations for the 8% Preferred Stock, Series A, also provides
that if dividends on the 8% Preferred Stock, Series A, are in arrears for two
consecutive calendar quarters or more, the holders of the outstanding shares of
8% Preferred Stock, Series A, shall have the right to elect one additional
member of the Board of Directors of the Company. The Certificate of Designations
for the 8% Preferred Stock, Series A, further provides that prior to the
completion of a Series A Qualified Public Offering, the consent of the holders
of at least a majority of the shares of 8% Preferred Stock, Series A,
outstanding at the time shall be necessary to effect certain material changes to
the Restated Articles of Incorporation or to increase the size of the Board of
Directors to greater than nine members. Such consent is not required for
increases in the size of the Board of Directors to allow for directors elected
by holders of 8% Preferred Stock or 8% Preferred Stock, Series A, to be seated.

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Designation of Director. The Company has agreed that, as long as Rodamco
maintains an investment in the Company of at least $50 million, management of
the Company will continue to nominate a representative of Rodamco for election
to the Board of Directors and the Investment Committee of the Board of
Directors.

Registration Rights. The holders of all the shares of Common Stock or
other securities issuable upon conversion of the 8% Preferred Stock, Series A
("Series A Conversion Stock"), may require the Company to use its best efforts
to register the Series A Conversion Stock on the earlier of (i) the date which
is six months after the date the registration statement filed by the Company
covering a Public Offering shall have become effective and (ii) December 31,
2000 if a Series A Qualified Public Offering shall not have been completed on or
prior to such date. In addition, holders of the 8% Preferred Stock, Series A,
have been granted certain incidental rights to register the Series A Conversion
Stock upon the filing of registration statements by the Company, subject to
certain limitations.

Conversion Price Adjustments

Subject to certain exceptions, the conversion prices per share applicable
to the 7% Preferred Stock, the 8% Preferred Stock and the 8% Preferred Stock,
Series A, are subject to adjustment upon the occurrence of certain events,
including (i) dividends (and other distributions) payable in Common Stock on the
Company's outstanding shares of Common Stock, (ii) the issuance to all holders
of Common Stock of certain rights or warrants entitling them to subscribe for or
purchase Common Stock, (iii) subdivisions, combinations and reclassifications of
Common Stock and (iv) distributions to all holders of Common Stock of evidences
of indebtedness of the Company or assets (including securities, but excluding
those dividends, rights, warrants and distributions referred to above and
dividends and distributions paid in cash out of the profits or surplus of the
Company).

In case the Company shall be a party to any transaction (including, without
limitation, a merger, consolidation or sale of all or substantially all of the
Company's assets), in each case as a result of which shares of Common Stock will
be converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each outstanding share of 7%
Preferred Stock, 8% Preferred Stock and 8% Preferred Stock, Series A, if
convertible after the consummation of the transaction, will thereafter be
convertible into the kind and amount of shares of stock and other securities and
property receivable (including cash or any combination thereof) upon the
consummation of such transaction by a holder of that number of shares or
fraction thereof of Common Stock into which one share of the applicable series
of Preferred Stock is convertible immediately prior to such transaction.

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CERTAIN PROVISIONS OF NEVADA LAW
AND OF THE COMPANY'S ARTICLES OF INCORPORATION

The terms of Chapter 78 of the Nevada Revised Statutes, entitled the Nevada
General Corporation Law (the "NGCL"), apply to the Company. Under certain
circumstances, the following selected provisions of the NGCL may delay or make
more difficult acquisitions or changes of control of the Company. The Articles
of Incorporation and Bylaws of the Company do not exclude the Company from such
provisions of the NGCL. Such provisions may make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests. Such provisions may also have the effect of preventing changes in the
management of the Company.

CONTROL SHARE ACQUISITIONS

Pursuant to Sections 78.378 to 78.3793 of the NGCL, an "acquiring person",
who acquires a "controlling interest" in an "issuing corporation", may not
exercise voting rights on any "control shares" unless such voting rights are
conferred by a majority vote of the disinterested stockholders of the issuing
corporation at a special meeting of such stockholders held upon the request and
at the expense of the acquiring person. In the event that the control shares are
accorded full voting rights and the acquiring person acquires control shares
with a majority or more of all the voting powers, any stockholder, other than
the acquiring person, who does not vote in favor of authorizing voting rights
for the control shares is entitled to demand payment for the fair value of his
or her shares, and the corporation must comply with the demand. For purposes of
the above provisions, "acquiring person" means (subject to certain exceptions)
any person who, individually or in association with others, acquires or offers
to acquire, directly or indirectly, a controlling interest in an issuing
corporation. "Controlling interest" means the ownership of outstanding voting
shares of an issuing corporation sufficient to enable the acquiring person,
individually or in association with others, directly or indirectly, to exercise
(i) one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority and/or (iii) a majority or more of the voting power of the
issuing corporation in the election of directors. Voting rights must be
conferred by a majority of the disinterested stockholders as each threshold is
reached and/or exceeded. "Control Shares" means those outstanding voting shares
of an issuing corporation which an acquiring person acquires or offers to
acquire in an acquisition or within 90 days immediately preceding the date when
the acquiring person became an acquiring person. "Issuing corporation" means a
corporation that is organized in Nevada, has 200 or more stockholders (at least
100 of whom are stockholders of record and residents of Nevada) and does
business in Nevada directly or through an affiliated corporation. The above
provisions do not apply if the articles of incorporation or bylaws of the
corporation in effect on the 10th day following the acquisition of a controlling
interest by an acquiring person provide that said provisions do not apply. As
noted above, the Company's Articles of Incorporation and Bylaws do not exclude
the Company from the restrictions imposed by such provisions.

CERTAIN BUSINESS COMBINATIONS

Sections 78.411 to 78.444 of the NGCL restrict the ability of a "resident
domestic corporation" to engage in any combination with an "interested
stockholder" for three years following the interested stockholder's date of
acquiring the shares that cause such stockholder to become an interested
stockholder, unless the combination or the purchase of shares by the interested
stockholder on the interested stockholder's date of acquiring the shares that
cause such stockholder to become an interested stockholder is approved by the
board of directors of the resident domestic corporation before that date. If the
combination was not previously approved, the interested stockholder may effect a
combination after the three-year period only if such stockholder receives
approval from a majority of the disinterested shares or the offer meets certain
fair price criteria. For purposes of the above provisions, "resident domestic
corporation" means a Nevada corporation that has 200 or more stockholders.
"Interested stockholder" means any person, other than the resident domestic
corporation or its subsidiaries, who is (i) the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding voting shares
of the resident domestic corporation or (ii) an affiliate or associate of the
resident domestic corporation and, at any time within three years immediately
before the date in question, was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then

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outstanding shares of the resident domestic corporation. The above provisions do
not apply to corporations that so elect in a charter amendment approved by a
majority of the disinterested shares. Such a charter amendment, however, would
not become effective for 18 months after its passage and would apply only to
stock acquisitions occurring after its effective date. As noted above, the
Company's Articles of Incorporation and Bylaws do not exclude the Company from
the restrictions imposed by such provisions.

DIRECTORS' DUTIES

Section 78.138 of the NGCL allows directors and officers, in exercising
their respective powers with a view to the interests of the corporation, to
consider the interests of the corporation's employees, suppliers, creditors and
customers, the economy of the state and the nation, the interests of the
community and of society and the long and short-term interests of the
corporation and its stockholders, including the possibility that these interests
may be best served by the continued independence of the corporation. Directors
may resist a change or potential change in control if the directors, by a
majority vote of a quorum, determine that the change or potential change is
opposed to or not in the best interest of the corporation. In so determining,
the board of directors must consider the interests set forth above or have
reasonable grounds to believe that, within a reasonable time, the debt created
as a result of the change in control would cause the assets of the corporation
or any successor to be less than the liabilities or would render the corporation
or any successor insolvent or lead to bankruptcy proceedings.

PUT PROVISIONS

The terms of the 8% Preferred Stock and the 8% Preferred Stock, Series A,
allow the holders to require the Company to redeem their shares in certain
circumstances, including upon the occurrence of events constituting a "Change in
Control". See "Description of Capital Stock of the Company -- Preferred Stock".

OWNERSHIP RESTRICTIONS

For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital stock may be owned, directly or indirectly, by five or fewer individuals
(as defined by the Code to include certain entities) during the last half of a
taxable year. To help ensure that the Company continues to qualify as a REIT,
Article 8 of the Company's Articles of Incorporation provides that shares of the
Company's stock shall not be transferred to any person if such transfer would
cause such person to become the direct or indirect owner of more than 6% of the
value of the outstanding shares of capital stock of the Company (the "6%
Limit"). Shares of stock acquired in excess of the 6% Limit shall be deemed to
be transferred to the Company as trustee for the benefit of the person to whom
the person who acquired the excess shares later transfers such shares. In
addition, excess shares shall be deemed to have been offered for sale to the
Company or its designee at their "fair market value" for a 90-day period.
Article 8 further provides that a person who knowingly violates the 6% Limit
must indemnify the Company and its stockholders for losses if such violation
causes the Company either to fail to qualify as a REIT or to be subject to
personal holding company taxes. The affirmative vote of the holders of at least
80% of the outstanding shares of Common Stock is required to alter, amend,
repeal or adopt any provision inconsistent with such restrictions.

FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary of the material federal income tax
considerations associated with an investment in the Common Stock offered hereby.
Shearman & Sterling, counsel to the Company, has reviewed the following
discussion and is of the opinion that it fairly summarizes the federal income
tax considerations that are likely to be material to a holder of Common Stock.
The following discussion is not exhaustive of all possible tax considerations
and is not tax advice. Moreover, this summary does not deal with all tax aspects
that might be relevant to a particular prospective stockholder in light of his
or her personal circumstances; nor does it deal with particular types of
stockholders that are subject to special treatment under the Code, such as
insurance companies, financial institutions and broker-dealers. The Code
provisions governing the federal

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income tax treatment of REITs are highly technical and complex, and this summary
is qualified in its entirety by the applicable Code provisions, rules and
Treasury Regulations promulgated thereunder, and administrative and judicial
interpretations thereof. The following discussion and the opinions of Shearman &
Sterling are based on current law.

EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX
ADVISOR WITH RESPECT TO SUCH PURCHASER'S SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF COMMON STOCK OF
THE COMPANY.

FEDERAL INCOME TAXATION OF THE COMPANY

The Company believes that, commencing with its taxable year ended December
31, 1983, it was organized and has operated in such a manner so as to qualify
for taxation as a REIT under the Code, and the Company intends to continue to
operate in such a manner, but no assurance can be given that it has qualified or
will remain qualified as a REIT. The Company has not requested and does not
intend to request a ruling from the Internal Revenue Service (the "IRS") as to
its status as a REIT. Based on various assumptions and factual representations
made by the Company, in the opinion of Shearman & Sterling, counsel to the
Company, the Company was organized and has operated in conformity with the
requirements for qualification as a REIT, the Company has operated so as to
qualify as a REIT since its taxable year ended December 31, 1992 (which such
counsel believes is the Company's earliest taxable year which is within the
normal period for federal tax audit), and the Company's proposed method of
operation will enable it to meet the requirements for qualification and taxation
as a REIT under the Code for each of its subsequent taxable years. Such
qualification depends upon the Company's ability to meet the various
requirements imposed under the Code through actual operations, as discussed
below, and no assurance can be given that actual operations will meet these
requirements. The opinion of Shearman & Sterling is not binding on the IRS. The
opinion of Shearman & Sterling also is based upon existing law, the regulations
issued by the United States Treasury Department (the "Treasury Regulations"),
currently published administrative positions of the IRS and judicial decisions,
which are subject to change either prospectively or retroactively.

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the federal "double taxation" on earnings (once at the corporate
level and once again at the stockholder level) that usually results from
investments in a corporation.

The Company, however, will be subject to federal income tax, as follows:
first, the Company will be taxed at regular corporate rates on its undistributed
REIT taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the corporate "alternative
minimum tax." Third, if the Company has net income from the sale or other
disposition of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or other non-qualifying income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either the 75% or 95% gross income test
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to reflect
the Company's profitability. Sixth, if the Company fails to distribute during
each year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire or be treated as
acquiring any asset from a C corporation (i.e., a corporation generally subject
to full corporate-level tax) in a carryover-basis transaction and the Company

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subsequently recognizes gain on the disposition of such asset during the
ten-year period (the "Recognition Period") beginning on the date on which such
asset was acquired by the Company, then, to the extent of the excess of (a) the
fair market value of the asset as of the beginning of the applicable Recognition
Period over (b) the Company's adjusted basis in such asset as of the beginning
of such Recognition Period (the "Built-In Gain"), such gain will be subject to
tax at the highest regular corporate rate, pursuant to guidelines issued by the
IRS (the "Built-In Gain Rules").

REQUIREMENTS FOR QUALIFICATION

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

Organizational Requirements

The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more directors or trustees, (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) the beneficial ownership of which is held by 100 or more persons (the "100
Stockholder Requirement"), and (vi) 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, through the application of certain attribution rules, by five or
fewer individuals (as defined in the Code to include certain entities) (the
"Five or Fewer Requirement"). In addition, certain other tests, described below,
regarding the nature of its income and assets also must be satisfied. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months or during a proportionate part of a taxable year
of less than 12 months. For purposes of conditions (v) and (vi), pension funds
and certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).

In order to protect the Company from a concentration of ownership of its
stock that would cause the Company to fail the Five or Fewer Requirement or the
100 Stockholder Requirement, the Articles of Incorporation of the Company
provides that no holder is permitted to own, either actually or constructively
under the applicable attribution rules of the Code, more than 6% (in value) of
the aggregate outstanding shares of all classes of stock of the Company with
certain exceptions. In addition, no holder is permitted to own, either actually
or constructively under the applicable attribution rules of the Code, any shares
of any class of the Company's stock if such ownership would cause more than 50%
in value of the Company's outstanding stock to be owned by five or fewer
individuals or would result in the Company's stock being beneficially owned by
less than 100 persons (determined without reference to any rule of attribution).
In rendering its opinion that the Company has operated in a manner so as to
qualify, and its proposed method of operation will continue to enable it to
qualify, as a REIT, Shearman & Sterling is relying on the representation of the
Company that the ownership of its stock has satisfied and will satisfy the Five
or Fewer Requirement and the 100 Stockholder Requirement, without regard to
whether, as a matter of law, the provisions contained in the Articles of
Incorporation will preclude the Company from failing the Five or Fewer
Requirement or the 100 Stockholder Requirement.

Pursuant to applicable Treasury Regulations, a REIT must maintain certain
records and request on an annual basis certain information designed to disclose
the actual owners of its outstanding shares. The Company believes it has
satisfied and intends to continue to satisfy such requirements.

In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has a calendar year taxable year.

The Company owns and operates a number of properties through wholly owned
subsidiaries. Under the Code, a corporation which is a "qualified REIT
subsidiary" is not treated as a separate corporation; rather, all assets,
liabilities and items of income, deduction, and credit of a "qualified REIT
subsidiary" are treated as

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assets, liabilities and such items (as the case may be) of the REIT. Thus, in
applying the requirements described herein, the Company's "qualified REIT
subsidiaries" will be ignored, and all assets, liabilities and items of income,
deduction and credit of such subsidiaries will be treated as assets, liabilities
and items of the Company.

Income Tests

To maintain qualification as a REIT, the Company must satisfy three gross
income requirements annually. First, at least 75% of the Company's gross income,
excluding gross income from certain dispositions of property held primarily for
sale to customers in the ordinary course of a trade or business ("prohibited
transactions") for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the Company's
gross income (excluding gross income from "prohibited transactions") for each
taxable year must be derived from such real property investments and from
dividends, interest and gain from the sale or disposition of stock or securities
or from any combination of the foregoing. Third, short-term gain from the sale
or other disposition of stock or securities, gain from "prohibited transactions"
and gain from the sale or other disposition of real property held for less than
four years (apart from involuntary conversions and sales of foreclosure
property) must represent less than 30% of the Company's gross income (including
gross income from prohibited transactions) for each taxable year.

Rents received or deemed to be received by the Company will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent generally must not be based in whole or in part on the income or profits of
any person. However, an amount received or accrued generally will not be
excluded from the term "rents from real property," solely by reason of being
based on a fixed percentage or percentages of receipts or sales. Second, the
Code provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the REIT, or a direct or
constructive 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 the personal property will not qualify as
"rents from real property." Fourth, for rents to qualify as "rents from real
property" the REIT must not operate or manage the property or furnish or render
services to tenants, other than through an "independent contractor" who is
adequately compensated and from whom the REIT does not derive any income;
provided, however, that a REIT may provide services with respect to its
properties and the income will qualify as "rents from real property" if the
services are "usually or customarily rendered" in connection with the rental of
room or other space for occupancy only and are not otherwise considered
"rendered to the occupant."

The Company has not and does not anticipate that it will in the future (i)
charge rent that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage or percentages of
receipts or sales consistent with the rule described above), (ii) derive rent
attributable to personal property leased in connection with real property that
exceeds 15% of the total rents or (iii) derive rent attributable to a Related
Party Tenant. The Company believes it has met and will continue to meet the
three gross income requirements outlined above.

The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "interest," however, solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its federal income
tax return and (iii) any incorrect information on the schedule is not due to
fraud

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<PAGE> 87

with intent to evade tax. It is not possible, however, to state whether, in all
circumstances, the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. As discussed above in
"-- Federal Income Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income. No similar
mitigation provision provides relief if the Company fails the 30% income test;
and in such case, the Company will cease to qualify as a REIT.

Asset Tests

At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature and diversification of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, no more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities owned
by the Company may not exceed 5% of the value of the Company's total assets, and
the Company may not own more than 10% of any one issuer's outstanding voting
securities (excluding securities of a qualified REIT Subsidiary or another
REIT).

After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company has maintained and intends in the future to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and to take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance.

Annual Distribution Requirements

In order to be taxed as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (a) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends-paid deduction and the Company's net
capital gain) and (ii) 95% of the net income, if any, from foreclosure property
in excess of the special tax on income from foreclosure property, minus (b) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate or in the following taxable year if declared
before the Company timely files its federal income tax return for such year and
if paid on or before the first regular dividend payment after such declaration.
Even if the Company satisfies the foregoing distribution requirements, to the
extent that the Company does not distribute all of its net capital gain or "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
capital gains or ordinary corporate tax rates. Furthermore, if the Company
should fail to distribute during each calendar year at least the sum of (a) 85%
of its REIT ordinary income for that year, (b) 95% of its capital gain net
income for that year and (c) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. In addition, during
its Recognition Period, if the Company disposes of any asset subject to the
Built-In Gain Rules, the Company will be required, pursuant to guidance issued
by the IRS, to distribute at least 95% of the Built-In Gain (after tax), if any,
recognized on the disposition of the asset.

It is expected that the Company's REIT taxable income will continue to be
less than its cash flow due to the allowance of depreciation and other non-cash
charges in computing REIT taxable income. Accordingly, the Company anticipates
that it generally will have sufficient cash or liquid assets to enable it to
satisfy the 95% distribution requirement. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement or to distribute such greater amount as
may be necessary to avoid income and excise taxation, as a result of timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such

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income and deduction of such expenses in arriving at taxable income of the
Company, or as a result of nondeductible expenses such as principal amortization
or repayments, or capital expenditures in excess of non-cash deductions. In the
event that such timing differences occur, the Company may find it necessary to
seek funds through borrowings or the issuance of equity securities (there being
no assurance that it will be able to do so) or, if possible, to pay taxable
stock dividends in order to meet the dividend requirement.

Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends. The Company
will, however, be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.

FAILURE TO QUALIFY

If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current or
accumulated earnings and profits, all distributions to stockholders will be
dividends, taxable as ordinary income; and subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends-received
deduction. Unless the Company is entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief. For example, if the Company fails to satisfy
the gross income tests because nonqualifying income that the Company
intentionally incurs exceeds the limit on such income, the IRS could conclude
that the Company's failure to satisfy the tests was not due to reasonable cause.

TAXATION OF U.S. STOCKHOLDERS

As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that for United States federal income tax purposes is (a) a citizen or resident
of the United States, (b) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof or (c) an estate or trust, the income of which is subject to
United States federal income taxation regardless of its source. For any taxable
year for which the Company qualifies for taxation as a REIT, amounts distributed
to taxable U.S. Stockholders will be taxed as follows.

Distributions Generally

Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of the Company's
current or accumulated earnings and profits and will be taxable to the
stockholders as ordinary income. For purposes of determining whether
distributions are out of earnings and profits, the earnings and profits of the
Company will be allocated first to the Company's Preferred Stock (to the extent
of distributions made in respect thereof), and then to the Common Stock.
Distributions are not eligible for the dividends-received deduction for
corporations. To the extent that the Company makes a distribution in excess of
its current or accumulated earnings and profits, the distribution will be
treated first as a tax-free return of capital, reducing the tax basis in the
U.S. Stockholder's Common Stock, and the distribution in excess of a U.S.
Stockholder's tax basis in its Common Stock will be taxable as gain realized
from the sale of its Common Stock. Dividends declared by the Company in October,
November or December of any year payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of that year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Stockholders may not include on their own federal income tax
returns any losses of the Company.

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

Capital Gain Dividends

Dividends to U.S. Stockholders that are properly designated by the Company
as capital gain dividends will be treated as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the stockholder has held his stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.

Passive Activity Loss and Investment Interest Limitations

Distributions from the Company and gain from the disposition of Common
Stock will not be treated as passive activity income, and therefore stockholders
may not be able to apply any "passive activity losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment income limitation on the deduction of investment interest. Under
recently enacted legislation, net capital gain from the disposition of Common
Stock and capital gain dividends generally will be excluded from investment
income.

Certain Dispositions of Shares

In general, a U.S. Stockholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between the sales
price for such shares and the adjusted tax basis for such shares. Gain or loss
realized upon a sale or exchange of Common Stock by a U.S. Stockholder who has
held such Common Stock for more than one year will be treated as long-term
capital gain or loss, respectively, and otherwise will be treated as short-term
capital gain or loss. However, losses incurred on the sale or exchange of Common
Stock held for less than six months (after applying certain holding period
rules) will be deemed long-term capital loss to the extent of any capital gain
dividends received by the selling stockholder from those shares.

Treatment of Tax-Exempt Stockholders

A tax-exempt investor that is exempt from tax on its investment income,
such as an individual retirement account ("IRA") or a 401(k) plan, that holds
the Common Stock as an investment generally will not be subject to tax on
dividends paid by the Company. However, if such tax-exempt investor is treated
as having purchased its Common Stock with borrowed funds, some or all of its
dividends will be subject to tax. In addition, a portion of the dividends paid
to certain pension plans (including 401(k) plans but not including IRAs and
government pension plans) that own more than 10% (by value) of the Company's
outstanding capital stock will be taxed as unrelated business taxable income if
the Company is a "pension held REIT." The Company does not expect to be a
pension held REIT.

SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS

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

In general, Non-U.S. Stockholders will be subject to regular United States
federal income tax with respect to their investment in the Company if the
investment is "effectively connected" with the Non-U.S.

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Stockholder's conduct of a trade or business in the United States. A corporate
Non-U.S. Stockholder that receives income that is (or is treated as) effectively
connected with a U.S. trade or business also may be subject to the branch
profits tax under Section 884 of the Code, which is imposed in addition to
regular United States federal corporate income tax generally at the rate of 30%,
subject to reduction under a tax treaty, if applicable. Certain certification
requirements must be met in order for effectively connected income to be exempt
from withholding. The following discussion will apply to Non-U.S. Stockholders
whose investment in the Company is not so effectively connected.

A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain dividend will be treated
as an ordinary income dividend to the extent that it is made out of current or
accumulated earnings and profits. Generally, any ordinary income dividend will
be subject to a United States federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
To the extent that the Company makes a distribution in excess of its current or
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing a Non-U.S. Stockholder's basis in its
Common Stock (but not below zero), and the distribution in excess of a Non-U.S.
Stockholder's tax basis in its Common Stock will be treated as gain realized
from the sale of its Common Stock.

Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Stockholder
as if the distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Stockholder will be taxed at the
normal capital gains rates applicable to a U.S. Stockholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals). Distributions subject to FIRPTA also
may be subject to the branch profits tax generally at the rate of 30%, subject
to reduction under a tax treaty, if applicable.

All dividends payable in respect of the 8% Preferred Stock, Series A, will,
to the extent permitted under the Code, be paid first out of earnings and
profits other than earnings and profits attributable to gain from the sale or
exchange of United States real property interests. Consequently, a
proportionately greater amount of distributions in respect of the Common Stock,
the 7% Preferred Stock and the 8% Preferred Stock may be out of earnings and
profits attributable to gain from the sale or exchange of United States real
property interests.

Although tax treaties may reduce the Company's withholding obligations, the
Company generally will withhold from distributions to Non-U.S. Stockholders, and
remit to the IRS, (i) 35% of designated capital gain dividends (or, if greater,
35% of the amount of any distributions that could be designated as capital gain
dividends) and (ii) 30% of all other distributions out of current or accumulated
earnings and profits, unless reduced by an applicable tax treaty. In addition,
as a result of recently enacted legislation, the Company generally will withhold
10% of any distribution in excess of the Company's current and accumulated
earnings and profits. In addition, if the Company designates prior distributions
as capital gain dividends, subsequent distributions, up to the amount of such
prior distributions, will be treated as capital gain dividends for purposes of
withholding. A Non-U.S. Stockholder generally will be entitled to a refund from
the IRS to the extent an amount is withheld from a distribution that exceeds the
amount of U.S. tax owed by such Non-U.S. Stockholder.

Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations, not currently in effect, however, a Non-U.S.
Stockholder who wished to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company.

If the Common Stock constitutes a "United States real property interest"
within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S. Stockholder
generally will be subject to United States federal income taxation. The Common
Stock will constitute a United States real property interest unless the

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Company is a "domestically controlled REIT." A domestically controlled REIT is a
REIT in which at all times during a specified testing period less than 50% in
value of its shares is held directly or indirectly by Non-U.S. Stockholders.
Currently, the Company does not qualify as a domestically controlled REIT, and
will not qualify as a domestically controlled REIT for at least five years
following completion of this Offering. It is currently anticipated that,
following the expiration of such five-year period, the Company will be a
domestically controlled REIT and therefore that the sale of Common Stock
thereafter will not be subject to taxation under FIRPTA. However, in part
because the Common Stock is publicly traded in the United States, Luxembourg and
Germany, no assurance can be given that the Company will qualify as a
domestically controlled REIT even following such five-year period. So long as
the Company is not a domestically controlled REIT, gain on the sale of Common
Stock will be subject to taxation under FIRPTA, and a Non-U.S. Stockholder will
be subject to the same treatment as a U.S. Stockholder with respect to the gain
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of non-resident alien individuals). Even at such time as the
Company may become a domestically controlled REIT, capital gains will be taxable
to a Non-U.S. Stockholder if the Non-U.S. Stockholder is a non-resident alien
individual who is present in the United States for 183 days or more during the
taxable year and certain other conditions apply, in which case the non-resident
alien individual will be subject to a 30% tax on his or her U.S. source capital
gains.

Upon the death of a foreign individual stockholder, the stockholder's
shares will be treated as part of the stockholder's U.S. estate for purposes of
the U.S. estate tax, except as may be otherwise provided in an applicable estate
tax treaty.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

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

U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against the U.S. Stockholder's United
States federal income tax liability and may entitle the U.S. Stockholder to a
refund, provided that the required information is furnished to the IRS.

Backup withholding tax and information reporting will generally not apply
to distributions paid to Non-U.S. Stockholders outside the United States that
are treated as (i) dividends subject to the 30% (or lower treaty rate)
withholding tax discussed above, (ii) capital gains dividends or (iii)
distributions attributable to gain from the sale or exchange by the Company of
United States real property interests. As a general matter, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of Common Stock by or through a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply, however, to a payment of the
proceeds of a sale of Common Stock by a foreign office of a broker that (a) is a
United States person, (b) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States or (c) is a
"controlled foreign corporation" (generally, a foreign corporation controlled by
United States stockholders) for United States tax purposes, unless the broker
has documentary evidence in its records that the holder is a Non-U.S.
Stockholder and certain other conditions are met, or the stockholder otherwise
establishes an exemption. Payment to or

20
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through a United States office of a broker of the proceeds of a sale of Common
Stock is subject to both backup withholding and information reporting unless the
stockholder certifies under penalty of perjury that the stockholder is a
Non-U.S. Stockholder, or otherwise establishes an exemption. A Non-U.S.
Stockholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.

STATE AND LOCAL TAX

The Company and its stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. The tax
treatment of the Company and the stockholders in such jurisdictions may differ
from the federal income tax treatment described above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in the Company.

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<PAGE> 93

PLAN OF DISTRIBUTION

The Company may sell Common Stock to one or more underwriters or dealers
for public offering and sale by them, or may sell Common Stock to investors
directly or through agents. The Prospectus Supplement with respect to the Common
Stock offered thereby describes the terms of the offering of such Common Stock
and the method of distribution of the Common Stock offered thereby and
identifies any firms acting as underwriters, dealers or agents in connection
therewith.

The Common Stock may be distributed from time to time in one or more
transactions at a fixed price or prices (which may be changed), at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at prices determined as specified in the
Prospectus Supplement. In connection with the sale of the Common Stock,
underwriters, dealers or agents may be deemed to have received compensation from
the Company in the form of underwriting discounts, concessions or commissions
and may also receive commissions from purchasers of the Common Stock for whom
they may act as agent. Underwriters may sell the Common Stock to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent. Certain of the underwriters, dealers
or agents who participate in the distribution of Common Stock may engage in
other transactions with, or perform other services for, the Company in the
ordinary course of business.

Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Common Stock, and any discounts, concessions
or commissions allowed by underwriters to dealers, are set forth in the
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of Common Stock may be deemed to be underwriters, and any discounts
or commissions received by them and any profit realized by them on the resale of
the Common Stock may be deemed to be underwriting discounts and commissions
under the Securities Act. Any such underwriter or agent will be identified, and
any such compensation received from the Company will be described, in the
applicable Prospectus Supplement.

Underwriters and their controlling persons, dealers and agents may be
entitled, under agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act.

In order to comply with the securities laws of certain states, if
applicable, Common Stock will be sold in such jurisdictions only through
registered or licensed brokers and dealers. In addition, in certain states
Common Stock may not be sold unless it has been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

EXPERTS

The consolidated financial statements and financial statement schedules as
of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995
and 1994 incorporated by reference in this Prospectus or elsewhere in the
Registration Statement of which this Prospectus is a part, have been
incorporated herein in reliance upon the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Shearman &
Sterling, New York, New York and Lionel, Sawyer & Collins, Las Vegas, Nevada.

22
<PAGE> 94

=======================================================

NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE OR, IN THE CASE OF
INFORMATION INCORPORATED HEREIN BY REFERENCE, THE DATE OF FILING WITH THE
SECURITIES AND EXCHANGE COMMISSION.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.......... S-3
Certain Conventions and Definitions.... S-11
Risk Factors........................... S-11
The Company............................ S-21
Business Objectives.................... S-22
Use of Proceeds........................ S-25
Future Acquisitions.................... S-25
Distributions.......................... S-26
Price Range of Common Stock............ S-26
Capitalization......................... S-27
Selected Consolidated Financial and
Operating Data....................... S-28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... S-30
Properties............................. S-32
Management............................. S-56
Shares Available for Future Sale....... S-62
Underwriting........................... S-64
Experts................................ S-66
Legal Matters.......................... S-66
Glossary............................... S-67
Index to Pro Forma Financial Statements
and Notes............................ F-1
PROSPECTUS
Available Information.................. 2
Incorporation of Certain Information by
Reference............................ 3
The Company............................ 4
Use of Proceeds........................ 4
Description of Capital Stock of the
Company.............................. 4
Certain Provisions of Nevada Law and of
the Company's Articles of
Incorporation........................ 11
Federal Income Tax Considerations...... 12
Plan of Distribution................... 22
Experts................................ 22
Legal Matters.......................... 22
</TABLE>

=======================================================

14,000,000 SHARES

CORNERSTONE
PROPERTIES INC.
COMMON STOCK
---------------------------------

PROSPECTUS SUPPLEMENT
---------------------------------
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED

SMITH BARNEY INC.
BT SECURITIES CORPORATION
APRIL 15, 1997
=======================================================