CARLYLE REAL ESTATE LTD PARTNERSHIP XIII, 10-Q/A, 1994-11-30

CARLYLE REAL ESTATE LTD PARTNERSHIP XIII
10-Q/A, 1994-11-30
REAL ESTATE

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10Q\A

AMENDMENT NO. 1

Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(Exact name of registrant as specified in its charter)

The undersigned registrant hereby amends the following sections of its
Report for September 30, 1994 on Form 10-Q as set forth in the pages
attached hereto:

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

Pages 3 through 9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pages 10 through 29

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Pages 30 through 39

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XIII

BY: JMB Realty Corporation
(Corporate General Partner)

By: C. Scott Nelson, Vice President
Accounting Officer

Dated: November 29, 1994
<TABLE>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 1994 AND DECEMBER 31, 1993

(UNAUDITED)

ASSETS
------

<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,314,569 5,362,152
Short-term investments (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,990,128 23,095,901
Restricted funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538,800 538,800
Rents and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,013,832 3,711,359
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475,272 397,109
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,323,554 3,918,882
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,656,155 37,024,203
------------ ------------
Investment properties, at cost:
Land and leasehold interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,935,808 27,002,062
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408,436,794 447,201,128
------------ ------------
429,372,602 474,203,190
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,127,699 149,914,951
------------ ------------
Total investment properties, net of
accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283,244,903 324,288,239
------------ ------------
Investment in unconsolidated venture,
at equity (notes 1, 2 and 6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,453,210 2,446,681
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,229,485 5,983,034
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475,162 487,289
Venture partners' deficits in ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,058,801 4,557,854
------------ ------------
$335,117,716 374,787,300
============ ============
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(a limited partnership)
and Consolidated Ventures
Consolidated Balance Sheets (Continued)

LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------

SEPTEMBER 30, DECEMBER 31,
1994 1993
------------ -----------
Current liabilities:
Current portion of long-term debt (note 3). . . . . . . . . . . . . . . . . . . . . . . . $ 52,119,139 94,086,630
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,907,842 2,397,159
Amounts due to affiliates (note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,060,971 14,894,459
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,292 770,237
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,012,969 8,591,163
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,269,986 2,064,479
------------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,845,199 122,804,127
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583,932 880,056
Investment in unconsolidated venture, at equity
(notes 1, 2 and 6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,888,626 72,546,193
Long-term debt, less current portion (note 3) . . . . . . . . . . . . . . . . . . . . . . . 358,913,218 360,881,897
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517,230,975 557,112,273
Venture partners' subordinated equity in ventures . . . . . . . . . . . . . . . . . . . . . 328,929 330,185
Partners' capital accounts (deficits) (note 1):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,236,647) (19,664,338)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,039,022) (1,039,022)
------------ ------------
(21,274,669) (20,702,360)
------------ ------------
Limited partners:
Capital contributions, net of offering costs. . . . . . . . . . . . . . . . . . . . . . 326,224,167 326,224,167
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457,416,797) (458,202,076)
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,974,889) (29,974,889)
------------ ------------
(161,167,519) (161,952,798)
------------ ------------
Total partners' deficits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182,442,188) (182,655,158)
------------ ------------
Commitments and contingencies (notes 2, 3 and 7)
$335,117,716 374,787,300
============ ============

<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE> CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- ---------------------------
1994 1993 1994 1993
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Rental income . . . . . . . . . . . . . . . . . . . . $14,671,145 22,446,906 48,605,544 67,427,966
Interest income . . . . . . . . . . . . . . . . . . . 230,490 112,069 626,048 334,664
----------- ---------- ---------- -----------
14,901,635 22,558,975 49,231,592 67,762,630
----------- ---------- ---------- -----------
Expenses:
Mortgage and other interest . . . . . . . . . . . . . 10,035,107 13,982,900 29,833,796 41,959,064
Depreciation. . . . . . . . . . . . . . . . . . . . . 3,399,098 4,712,808 10,355,491 14,262,970
Property operating expenses . . . . . . . . . . . . . 10,043,718 10,302,759 28,627,018 32,652,626
Professional services . . . . . . . . . . . . . . . . 56,001 68,592 444,859 590,580
Amortization of deferred expenses . . . . . . . . . . 310,297 340,678 1,158,809 1,001,390
General and administrative. . . . . . . . . . . . . . 120,835 85,233 410,617 346,895
----------- ---------- ---------- -----------
23,965,056 29,492,970 70,830,590 90,813,525
----------- ---------- ---------- -----------
Operating loss. . . . . . . . . . . . . . . . . (9,063,421) (6,933,995) (21,598,998) (23,050,895)
Partnership's share of gain (loss) from
operations of unconsolidated
ventures (notes 1, 2 and 6) . . . . . . . . . . . . . (1,537,644) (1,889,920) (4,345,904) (5,809,670)
Venture partners' share of (earnings)
loss from ventures' operations
(note 2). . . . . . . . . . . . . . . . . . . . . . . 2,704,581 1,196,786 5,094,872 1,996,041
----------- ---------- ---------- -----------
Net operating loss. . . . . . . . . . . . . . . (7,896,484) (7,627,129) (20,850,030) (26,864,524)
Gain on sale or disposition of
investment properties, net of
venture partners' share of
$2,887,659 in 1994 (notes 3(e),
3(f), 7(b), 7(c) and 7(d)) . . . . . . . . . . . . . -- -- 18,364,792 4,312,031
Gain on sale of interest in
unconsolidated venture (note 2(d)). . . . . . . . . . 1,702,082 7,898,727 1,702,082 7,898,727
----------- ---------- ---------- -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(UNAUDITED)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- ---------------------------
1994 1993 1994 1993
----------- ---------- ----------- -----------
Net earnings (loss) before extra-
ordinary item . . . . . . . . . . . . . . . . (6,194,402) 271,598 (783,156) (14,653,766)
Extraordinary items (notes 3(d)
and 3(k)) . . . . . . . . . . . . . . . . . . . . . . -- (141,776) 996,126 (141,776)
----------- ---------- ---------- -----------
Net earnings (loss) . . . . . . . . . . . . . . $(6,194,402) 129,822 212,970 (14,795,542)
=========== ========== ========== ===========

Net earnings (loss) per
limited partnership interest
(note 1):
Net operating loss. . . . . . . . . . . . . . $ (20.70) (20.00) (54.67) (70.43)
Gain on sale or disposition
of investment properties. . . . . . . . . . -- -- 49.66 11.66
Gain on sale of interest
in unconsolidated venture . . . . . . . . . 4.60 21.35 4.60 21.35
Extraordinary gain on early
extinguishment of debt
(notes 3(d) and 3(k)) . . . . . . . . . . . -- (.39) 2.69 (.38)
----------- ---------- ---------- -----------
Net earnings (loss) . . . . . . . . . . . $ (16.10) .96 2.28 (37.80)
=========== ========== ========== ===========
Cash distributions per
limited partnership
interest. . . . . . . . . . . . . . . . . . . $ -- -- -- --
=========== ========== ========== ===========

<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(UNAUDITED)

<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 212,970 (14,795,542)
Items not requiring (providing) cash or
cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,355,491 14,262,970
Amortization of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,158,809 1,001,390
Amortization of discount on long-term debt. . . . . . . . . . . . . . . . . . . . . . . 85,983 76,306
Partnership's share of loss from operations
of unconsolidated ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,345,904 5,809,670
Venture partners' share of loss from ventures'
operations and gain on disposition of
investment property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,094,872) (1,996,041)
Long-term debt - deferred accrued interest. . . . . . . . . . . . . . . . . . . . . . . 8,079,317 11,954,600
Gain on sale or disposition of investment properties. . . . . . . . . . . . . . . . . . (18,364,792) (4,458,784)
Gain on sale of interest in unconsolidated venture. . . . . . . . . . . . . . . . . . . (1,702,082) (7,898,727)
Extraordinary items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (996,126) 141,776
Changes in:
Restricted funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (55,881)
Rents and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,697,527 (316,984)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (78,163) (296,068)
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,404,672) (616,652)
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,127 542,113
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,683 897,504
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (295,945) 300,006
Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421,806 (346,130)
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,507 1,671,484
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (833,488) 532,836
Deferred management fees and lease commissions. . . . . . . . . . . . . . . . . . . . . -- 612,744
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (296,124) (36,901)
------------ -----------
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (980,140) 6,985,689
------------ -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(UNAUDITED)

1994 1993
------------ -----------

Cash flows from investing activities:
Net purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . (2,894,227) (280,855)
Additions to investment properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,192,364) (1,934,061)
Cash sales proceeds from sale of investment
properties, net of selling expenses
(notes 7(b), 7(c) and 7(d)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,781,988 1,220,737
Cash expended in disposition of investment
property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,014) --
Partnership's contributions to unconsolidated
ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,000) (983,541)
Partnership's distribution from unconsolidated
ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,702,082 --
Payment of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (405,256) (1,545,423)
------------ -----------
Net cash provided by (used in)
investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,981,209 (3,523,143)
------------ -----------
Cash flows from financing activities:
Proceeds from refinancing of long-term debt
(note 3(k)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 4,253
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (9,753,662) (521,758)
Ventures partners' contribution to venture. . . . . . . . . . . . . . . . . . . . . . . . 705,010 --
------------ -----------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . (9,048,652) (517,505)
------------ -----------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ (1,047,583) 2,945,041
============ ===========
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(UNAUDITED)

1994 1993
------------ -----------
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest . . . . . . . . . . . . . . . . . . . . . . . . $ 29,411,990 27,223,613
============ ===========
Non-cash investing and financing activities:
Total sales price of investment property,
net of selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,781,988 18,479,297
Balance due on long-term debt cancelled
(notes 3(b), 3(e), 3(f) and 3(g)) . . . . . . . . . . . . . . . . . . . . . . . . . . 41,351,685 (17,258,560)
Reduction in land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,066,254) --
Reduction in buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . (39,956,697) --
Reduction in accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 14,142,743 --
Cash expended in disposition of investment
property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,014) --
Venture partners share of gain on disposition
of investment property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,887,659) --
------------ -----------
Gain on sale of investment property and
extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,364,792 1,220,737
============ ===========
Principal balance due on mortgages payable. . . . . . . . . . . . . . . . . . . . . . . . $ 9,696,126 --
Payment on long-term debt from sale of investment properties. . . . . . . . . . . . . . . (8,700,000) --
------------ -----------
Extraordinary items - non-cash gain recognized
on forgiveness of indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . $ 996,126 --
============ ===========
Proceeds from refinancing of long-term debt
(note 3(k)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- 7,455,000
Payoff of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (7,160,425)
Prepayment penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (141,776)
Refinancing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (148,546)
------------ -----------
Proceeds from refinancing of
long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 4,253
============ ===========

<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1994 AND 1993

(UNAUDITED)

Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1993,
which are included in the Partnership's 1993 Annual Report, on Form 10-K
(File No. 0-12791) filed on March 28, 1994 (the "Annual Report"), as
certain footnote disclosures which would substantially duplicate those
contained in such audited financial statements have been omitted from this
report.

(1) BASIS OF ACCOUNTING

The accompanying consolidated financial statements include the
accounts of the Partnership and its consolidated ventures (note 2) - Copley
Place Associates ("Copley Place"), Gables Corporate Plaza Associates
("Gables"), Carrollwood Station Associates, Ltd. ("Carrollwood"),
Jacksonville Cove I Associates, Ltd. ("Glades") and Sherry Lane Associates
("Sherry Lane"). The effect of all transactions between the Partnership
and the ventures has been eliminated.

The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Partnership's
interests in Orchard Associates (note 2(d)) and Carlyle-XIII Associates,
L.P., which has an interest in JMB/NYC Office Building Associates L.P.
("JMB/NYC") (note 2(b)).

The Partnership records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to present the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to consolidate the accounts of the ventures as described
above. Such adjustments are not recorded on the records of the
Partnership. The effect of these items is summarized as follows for the
nine months ended September 30:
<TABLE>
<CAPTION>
1994 1993
----------------------- -----------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net earnings
(loss) . . . . . . $212,970 535,616 (14,795,542) (11,634,588)
Net earnings
(loss) per
limited
partnership
interest . . . . . $ 2.28 7.73 (37.80) (29.36)
======== ========= =========== ===========
</TABLE>

The net earnings (loss) per limited partnership interest is based upon
the limited partnership interests outstanding at the end of each period.
Deficit capital accounts will result, through the duration of the
Partnership, in gain for financial reporting and Federal income tax
purposes.

Statement of Financial Accounting Standards No. 95 requires the
Partnership to present a statement which classifies receipts and payments
according to whether they stem from operating, investing or financing
activities. The required information has been segregated and accumulated

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

according to the classifications specified in the pronouncement.
Partnership distributions from unconsolidated ventures are considered cash
flow from operating activities only to the extent of the Partnership's
cumulative share of net earnings. In addition, the Partnership records
amounts held in U.S. government obligations at cost, which approximates
market. Therefore, for the purposes of these statements, the Partnership's
policy is to consider all such amounts held with original maturities of
three months or less (approximately $1,686,000 and none at September 30,
1994 and December 31, 1993, respectively) as cash equivalents with any
remaining amounts (generally with original maturities of one year or less)
reflected as short-term investments being held to maturity.

Certain amounts in the 1993 consolidated financial statements have
been reclassified to conform with the 1994 presentation.

As more fully discussed in note 2(b), due to the potential sale of the
2 Broadway building at a sales price significantly below its net carrying
value and due to discussions with the O & Y affiliates regarding the
reallocation of the unpaid first mortgage indebtedness currently allocated
to 2 Broadway, the 2 Broadway venture has made a provision for value
impairment on such investment property of $192,627,560 in 1993. Such
provision for value impairment was allocated $136,534,366 and $56,093,194
to the O & Y affiliates and to JMB/NYC, respectively. The provision for
value impairment has been allocated to the partners to reflect their
respective ownership percentages before the effect of the non-recourse
promissory notes, including the related accrued interest.

(2) VENTURE AGREEMENTS

(a) General

The Partnership at September 30, 1994 is a party to seven operating
joint venture agreements. Pursuant to such agreements, the Partnership
made initial capital contributions of approximately $152,831,130 (before
legal and other acquisition costs and its share of operating deficits as
discussed below). In general, the joint venture partners, who are either
the sellers (or their affiliates) of the property investments acquired, or
parties which have contributed an interest in the property developed, or
were subsequently admitted to the ventures, made no cash contributions to
the ventures, but their retention of an interest in the property, through
the joint venture, was taken into account in determining the purchase price
of the Partnership's interest, which was determined by arm's-length
negotiations. Under certain circumstances, either pursuant to the venture
agreements or due to the Partnership's obligations as a general partner,
the Partnership may be required to make additional cash contributions to
the ventures.

The Partnership has acquired, through the above ventures, two
apartment complexes, four office buildings and a multi-use complex. The
joint venture partners (who in many instances were primarily responsible
for constructing the properties) contributed any excess of cost over the
aggregate amount available from the Partnership contributions and financing
and, to the extent such funds exceeded the aggregate costs, were to retain
such excesses. Certain of the venture properties have been financed under
various long-term debt arrangements as described in note 3.

The Partnership generally has a cumulative preferred interest in net
cash receipts (as defined) from the properties. Such preferential interest
relates to a negotiated rate of return on contributions made by the
Partnership. After the Partnership receives its preferential return, the
venture partner is generally entitled to a non-cumulative return on its
interest in the venture; net cash receipts are generally shared in a ratio

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

relating to the various ownership interests of the Partnership and its
venture partners. During the nine months ended September 30, 1994, three
of the ventures' properties produced net cash receipts. In addition, the
Partnership generally has preferred positions (related to the Partnership's
cash investment in the ventures) with respect to distribution of sale or
refinancing proceeds from the ventures. In general, operating profits and
losses are shared in the same ratio as net cash receipts; however, if there
are no net cash receipts, substantially all profits or losses are allocated
to the partners in accordance with their respective economic interest.

Physical management of the properties generally was performed by
affiliates of the venture partners during the development period and
initial rent-up period. The managers were responsible for cash flow
deficits (after debt service requirements). Compensation to the managers
during such periods for management and leasing was limited to specified
payments made by the ventures, plus any excess net cash receipts generated
by the properties during the periods. Thereafter, the management
agreements generally provide for an extended term during which the
management fee is calculated as a percentage of certain types of cash
income from the property. The management terms are in the extended term
for all of the ventures.

There are certain risks associated with the Partnership's investments
made through joint ventures, including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership.

The terms of the significant venture agreements are summarized as
follows:

(b) JMB/NYC

The Partnership owns indirectly through Carlyle-XIII Associates, L.P.
and JMB/NYC an interest in (i) the 237 Park Avenue Associates venture which
owns an existing 23-story office building, (ii) the 1290 Associates venture
which owns an existing 44-story office building, and (iii) the 2 Broadway
Associates and 2 Broadway Land Co. ventures which own an existing 32-story
office building (together "Three Joint Ventures" and individually a "Joint
Venture"). All of the buildings are located in New York, New York. In
addition to JMB/NYC, the partners of the Three Joint Ventures include O&Y
Equity Company, L.P. and O&Y NY Building Corp. (hereinafter sometimes
referred to as the "Olympia & York affiliates"), both of which are
affiliates of Olympia and York Developments, Ltd. (hereinafter sometimes
referred to as "O&Y").

JMB/NYC is a joint venture among Carlyle-XIII Associates, L.P. (of
which the Partnership holds a 99% limited partnership interest), Carlyle-
XIV Associates, L.P. and Property Partners, L.P. as limited partners and
Carlyle Managers, Inc. as the sole general partner. Effective March 25,
1993, the Partnership became a 20% shareholder of Carlyle Managers, Inc.
Related to this investment, the Partnership has an obligation to fund, on
demand, $600,000 of additional paid-in capital to Carlyle Managers, Inc.
(reflected in amounts due to affiliates in the accompanying financial
statements). The terms of the JMB/NYC venture agreement generally provide
that JMB/NYC's share of the Three Joint Ventures' annual cash flow, sale or
refinancing proceeds, operating and capital costs (to the extent not
covered by cash flow from a property) and profit and loss will be
distributed to, contributed by or allocated to the Partnership in
proportion to its (indirect) share of capital contributions to JMB/NYC. In

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

March 1993, JMB/NYC, originally a general partnership, was converted to a
limited partnership, and the Partnership's interest in JMB/NYC, which
previously had been held directly, was contributed to Carlyle-XIII
Associates, L.P. As a result of these transactions, the Partnership
currently holds, indirectly as a limited partner of Carlyle-XIII
Associates, L.P., an approximate 25% limited partnership interest in
JMB/NYC. The sole general partner of Carlyle-XIII Associates, L.P. is
Carlyle Investors, Inc., of which the Partnership became a 20% shareholder
effective March 25, 1993. Related to this investment, the Partnership has
an obligation to fund, on demand, $600,000 of additional paid-in capital
(reflected in amounts due to affiliates in the accompanying financial
statements). The general partner in each of JMB/NYC and Carlyle-XIII
Associates, L.P. is an affiliate of the Partnership. For financial
reporting purposes, the allocation of profits and losses of JMB/NYC to the
Partnership is 25%.

There are certain risks and uncertainties associated with the
Partnership's investments made through joint ventures, including the
possibility that the Partnership's joint venture partners might become
unable or unwilling to fulfill their financial or other obligations (as
discussed below), or that such joint venture partners may have economic or
business interests or goals that are inconsistent with those of the
Partnership.

JMB/NYC purchased a 46.5% interest in each of the Three Joint Ventures
for approximately $173,600,000, subject to a long-term first mortgage loan
which has been allocated among the individual Joint Ventures. A portion of
the purchase price is represented by four 12-3/4% promissory notes (the
"Purchase Notes") which have an aggregate outstanding principal balance of
$34,158,225 at September 30, 1994 and December 31, 1993. Such Purchase
Notes, which contain cross-default provisions, and are non-recourse to
JMB/NYC, are secured by JMB/NYC's interests in the Three Joint Ventures,
and such Purchase Note relating to the purchase of the interest in the
ventures owning the 2 Broadway Building is additionally secured by
JMB/NYC's interest in $19,000,000 of distributable sale proceeds from the
other two Joint Ventures. A default under the Purchase Notes would
include, among other things, a failure by JMB/NYC to repay a Purchase Note
upon acceleration of the maturity, and could cause an immediate
acceleration of the Purchase Notes for the other ventures. Beginning in
1992, the Purchase Notes provide for monthly interest only payments on the
principal and accrued interest based upon the level of distributions
payable to JMB/NYC discussed below. If there are no distributions payable
to JMB/NYC or if the distributions are insufficient to cover monthly
interest on the Purchase Notes, then the shortfall interest (as defined)
accrues and compounds monthly. Interest accruals total $89,858,379 at
September 30, 1994. During 1993 and for the nine months ended September
30, 1994, no payments were made on any of the Purchase Notes. All of the
principal and accrued interest on the Purchase Notes is due in 1999 or, if
earlier, on the sale or refinancing of the related property. As discussed
more fully below, the Olympia & York affiliates have informed JMB/NYC that
they have received a sales contract for the sale of the 2 Broadway Building
at a price which will not provide any proceeds to JMB/NYC to repay the
related Purchase Notes. Consequently, if the proposed sale is finalized,
$19,000,000 of the 2 Broadway Purchase notes will be re-allocated and will
be payable out of JMB/NYC's share of distributable sale proceeds from the
other two Joint Ventures.

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Prior to 1992, operating profits (excluding depreciation and
amortization) were allocated 30% to JMB/NYC and 70% to the Olympia & York
affiliates, and operating losses (excluding depreciation and amortization)
were allocated 96% to JMB/NYC and 4% to the Olympia & York affiliates.
Depreciation and amortization were allocated 46.5% to JMB/NYC and 53.5% to
the Olympia & York affiliates. Subsequent to 1991, pursuant to the
agreement between JMB/NYC and the Olympia & York affiliates, for the period
January 1, 1992 to June 30, 1993, as discussed below, gross income was
allocable to the Olympia & York affiliates to the extent of the
distributions of excess monthly cash flow received for the period with the
balance of operating profits or losses allocable 46.5% to JMB/NYC and 53.5%
to the Olympia & York affiliates. Beginning July 1, 1993, operating
profits or losses, in general, are allocated 46.5% to JMB/NYC and 53.5% to
the Olympia & York affiliates.

The Three Joint Ventures agreements further provide that, in general,
upon sale or refinancing of the properties, net sale or refinancing
proceeds will be distributable 46.5% to JMB/NYC and 53.5% to the Olympia &
York affiliates subject to, as described above, repayment by JMB/NYC of its
Purchase Notes.

Under the terms of the Three Joint Ventures agreements, JMB/NYC was
entitled to a preferred return of annual cash flow, with any additional
cash flow distributable 99% to the Olympia & York affiliates and 1% to
JMB/NYC, through 1991. The Olympia & York affiliates were obligated to
make capital contributions to the Three Joint Ventures to pay any operating
deficits (as defined) and to pay JMB/NYC's preferred return through
December 31, 1991. JMB/NYC did not receive its preferred return for the
fourth quarter 1991. Subsequent to 1991, capital contributions to pay for
property operating deficits and other requirements that may be called for
under the Three Joint Ventures agreements are required to be shared 46.5%
by JMB/NYC and 53.5% by the Olympia & York affiliates. Pursuant to the
Three Joint Ventures agreements between the Olympia & York affiliates and
JMB/NYC, the effective rate of interest with reference to the first
mortgage loan for calculating JMB/NYC's share of operating cash flow or
deficits through 1991 was as though the rate were fixed at 12-3/4% per
annum (versus the short-term U.S. Treasury obligation rate plus 1-3/4% per
annum (with a minimum 7%) payable on the first mortgage loan). JMB/NYC
believes that, commencing in 1992, the Three Joint Ventures' agreements
require an effective rate of interest with reference to the first mortgage
loan, based upon each Joint Venture's allocable share of the loan, to be 1-
3/4% over the short-term U.S. Treasury obligation rate plus any excess
monthly operating cash flow after capital costs of each of the Three Joint
Ventures, such sum not to be less than a 7% nor exceed a 12-3/4% per annum
interest rate, rather than the 12-3/4% per annum fixed rate that applied
prior to 1992. The Olympia & York affiliates disputed this calculation of
interest expense and contended that the 12-3/4% per annum fixed rate
applied after 1991.

During the quarter ended March 31, 1993, an agreement was reached
between JMB/NYC and the Olympia & York affiliates which rescinded default
notices previously received by JMB/NYC alleging defaults for failing to
make capital contributions and eliminated the alleged operating deficit
funding obligation of JMB/NYC for the period January 1, 1992 through June
30, 1993. Pursuant to this agreement, during this period, JMB/NYC recorded
interest expense at 1-3/4% over the short-term U.S. Treasury obligation
rate (subject to a minimum rate of 7% per annum), which is the interest
rate on the underlying first mortgage loan. Under the terms of this
agreement, during this period, the amount of capital contributions that the

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Olympia & York affiliates and JMB/NYC would have been required to make to
the Three Joint Ventures if the first mortgage loan bore interest at a rate
of 12.75% per annum (the Olympia & York affiliates' interpretation), became
a priority distribution level to the Olympia & York affiliates from the
Three Joint Ventures' annual cash flow or net sale or refinancing proceeds.

The agreement also entitles the Olympia & York affiliates to a 7% per annum
return on such unpaid priority distribution level. It was also agreed that
during this period the excess available operating cash flow after the
payment of the priority distribution level discussed above from any of the
Three Joint Ventures will be advanced in the form of loans to pay operating
deficits and/or unpaid priority distribution level amounts of any of the
Three Joint Ventures. Such loans will bear a market rate of interest, have
a final maturity of ten years from the date when made and are repayable
only out of first available annual cash flow or net sale or refinancing
proceeds. The agreement also provides that except as specifically agreed
otherwise, the parties each reserves all rights and claims with respect to
each of the Three Joint Ventures and each of the partners thereof,
including, without limitation, the interpretation of or rights under each
of the joint venture partnership agreements for the Three Joint Ventures.
As a result of the above noted agreement with the Olympia & York
affiliates, the cumulative priority distribution level payable to the
Olympia & York affiliates at September 30, 1994 is $48,522,601. The term
of the agreement expired on June 30, 1993. Therefore, effective July 1,
1993, JMB/NYC is recording interest expense at 1-3/4% over the short-term
U.S. Treasury obligation rate plus any excess operating cash flow after
capital costs of the Three Joint Ventures, such sum not to be less than 7%
nor exceed a 12-3/4% per annum interest rate. The Olympia & York
affiliates continue to dispute this calculation for the period commencing
July 1, 1993 and contend that the 12-3/4% per annum fixed rate applies.
Based upon the Olympia & York affiliates' interpretation, interest expense
for the Three Joint Ventures for the nine months ended September 30, 1994
was $87,736,582. Based upon the amount of interest determined by JMB/NYC
for the nine months ended September 30, 1994, interest expense for the
Three Joint Ventures was $55,727,569. The effect of recording the interest
expense calculated by JMB/NYC is to reduce the losses of the Three Joint
Ventures by $32,009,013 (of which the Partnership's share is $3,721,048)
for the nine months ended September 30, 1994 and to correspondingly reduce
what would otherwise be JMB/NYC's funding obligation with respect to the
Three Joint Ventures.

O & Y and certain of its affiliates have been involved in bankruptcy
proceedings in the United States and Canada and similar proceedings in
England. The Olympia & York affiliates have not been directly involved in
these proceedings. During the quarter ended March 31, 1993, O & Y emerged
from bankruptcy protection in the Canadian proceedings. In addition, a
reorganization of the management of the company's United States operations
has been completed, and affiliates of O & Y are in the process of
renegotiating or restructuring a number of loans affecting various
properties in the United States in which they have an interest. The
Partnership is unable to assess and cannot presently determine to what
extent these events may adversely affect the willingness and ability of the
Olympia & York affiliates either to meet their own obligations to the Three
Joint Ventures and JMB/NYC or to negotiate a restructuring of the joint
venture agreements, or otherwise reach an understanding with JMB/NYC
regarding any future funding obligation of JMB/NYC.

During the fourth quarter of 1992, the Joint Ventures received a
notice from the first mortgage lender alleging a default for failure to
meet certain reporting requirements of the Olympia & York affiliates
contained in the first mortgage loan documents. No monetary default has

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

been alleged. The Olympia & York affiliates have responded to the lender
that the Joint Ventures are not in default. JMB/NYC has been unable to
determine if the Three Joint Ventures are in default. There have not been
any further notices from the first mortgage lender. However, on June 30,
1994 the Olympia & York affiliates, on behalf of the Three Joint Ventures,
signed a non-binding letter of intent with representatives of the lender
(consisting of a steering committee of holders of notes evidencing the
mortgage loan), to restructure certain terms of the existing mortgage loan.

The proposed restructuring would change the interest rate on the notes from
a floating rate equal to 1.75% over the rate on three months U.S. treasury
bills to a fixed rate of 9% per annum with periodic payments of interest
only at a pay rate of 7%. Unpaid interest would accrue at 9% per annum and
unless previously paid out of excess property cash flow will be payable at
maturity. There is no assurance that a restructuring of the loan will be
obtained under these or any other terms. In conjunction with negotiations
held prior to June 30, 1994, the Olympia & York affiliates reached an
agreement with the first mortgage lender whereby effective January 1, 1993,
the Olympia & York affiliates are limited to taking distributions of
$250,000 on a monthly basis from the Three Joint Ventures reserving the
remaining excess cash flow in a separate interest-bearing account to be
used exclusively to meet the obligations of the Three Joint Ventures as
approved by the lender. Interest on the first mortgage loan is currently
calculated based upon a variable rate related to the short-term U.S.
Treasury obligation rate, subject to a minimum rate on the loan of 7% per
annum. An increase in the short-term U.S. Treasury obligation rate could
result in increased interest payable on the first mortgage loan by the
Three Joint Ventures.

During 1992, the Olympia & York affiliates and certain other
affiliates of O & Y reached an agreement with the City of New York to defer
the payment of real estate taxes on properties in which O&Y affiliates have
an ownership interest, including the 237 Park Avenue, 1290 Avenue of the
Americas and 2 Broadway buildings, whereby, payment of the July real estate
taxes are made in six equal monthly installments from July through December
and payment of the December real estate taxes are made in six equal
installments from January through June. This agreement has been extended
through December 1994. As of the date of this report, 237 Park Avenue and
1290 Avenue of the Americas are current in their payments to the City of
New York. However, the August 1994 real estate tax installment payment
related to the 2 Broadway building has not been paid and there is
uncertainty regarding the remittance of future installment payments related
to the building.

In addition, it is possible that JMB/NYC may determine to litigate these
issues with the Olympia and York affiliates. A decision not to commit any
additional funds or an adverse litigation result could, under certain
circumstances, result in the loss of the interest in the related Joint
Ventures. The loss of an interest in a particular Joint Venture could,
under certain circumstances, permit an acceleration of the maturity of the
related Purchase Note (each Purchase Note is secured by JMB/NYC's interest
in the related Joint Venture). Under certain circumstances, the failure to
repay a Purchase Note could constitute a default under, and permit an
immediate acceleration of, the maturity of the Purchase Notes for the other
Joint Ventures. In such event, JMB/NYC may decide not to repay, or may not

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

have sufficient funds to repay, any of the Purchase Notes and accrued
interest thereon. This could result in JMB/NYC no longer having an
interest in any of the related ventures, which would result in substantial
net gain for financial reporting and Federal income tax purposes to JMB/NYC
(and through JMB/NYC and the Partnership, to the Limited Partners) with no
distributable proceeds. In such event, the JMB/NYC would then proceed to
terminate its affairs.

If JMB/NYC is successful in its negotiations to restructure the joint
venture agreements and retains an interest in one or more of these
investment properties, there would nevertheless need to be a significant
improvement in current market and property operating conditions resulting
in a significant increase in value of the 237 Park and 1290 Avenue of the
Americas properties before JMB/NYC would receive any share of future net
sale or refinancing proceeds. The 2 Broadway building is in need of a
major renovation. The Joint Ventures that own the 2 Broadway building and
land have no plans for a renovation of the property because of a potential
sale of the property discussed below and because the effective rents that
could be obtained under the current office market conditions may not be
sufficient to justify the costs of the renovation.

The O & Y affiliates have informed JMB/NYC that they have received a
contract for the sale of 2 Broadway for a net purchase price of
$15,000,000. The first mortgage lender has preliminarily agreed in the
loan restructuring proposal discussed above to the sale of the building
according to the terms of the 2 Broadway sales contract. A sale pursuant
to the contract received by the O & Y affiliates would be subject to, among
other things, the approval of the first mortgage lender as well as JMB/NYC.

While there can be no assurance that a sale would occur pursuant to such
contract or any other contract, if this contract were to be accepted by or
consented to by all required parties and the sale completed pursuant
thereto, and if discussions with the O & Y affiliates relating to the
contract were finalized to allocate the unpaid first mortgage indebtedness
currently allocated to 2 Broadway to 237 Park and 1290 Avenue of the
Americas after completion of the sale, then the 2 Broadway Joint Ventures
would incur a significant loss for financial reporting purposes and Federal
income tax purposes. Accordingly, a provision for value impairment was
recorded at December 31, 1993 for financial reporting purposes for
$192,627,560, net of the non-recourse portion of the Purchase Notes
including accrued interest related to the 2 Broadway Joint Venture
interests that are payable by JMB/NYC to the O & Y affiliates in the amount
of $46,646,810. The provision for value impairment has been allocated
$136,534,366 and $56,093,194 to the O & Y affiliates and to JMB/NYC,
respectively. Such provision was allocated to the partners to reflect
their respective ownership percentages before the effect of the non-
recourse promissory notes, including accrued interest.

In the event of a dissolution and liquidation of a Joint Venture, the
terms of the joint venture partnership agreements between the Olympia &
York affiliates and JMB/NYC for the Three Joint Ventures provide that if
there is a deficit balance in the tax basis capital account of JMB/NYC,
after the allocation of profits or losses and the distribution of all
liquidation proceeds, then JMB/NYC generally would be required to
contribute cash to the Joint Venture in the amount of its deficit capital
account balance. Taxable gain arising from the sale or other disposition
of a Joint Venture's property generally would be allocated to the joint
venture partner or partners then having a deficit balance in its or their
respective capital accounts in accordance with the terms of the joint
venture partnership agreement. However, if such taxable gain is
insufficient to eliminate the deficit balance in its account in connection

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

with a liquidation of a Joint Venture, JMB/NYC would be required to
contribute funds to the Joint Venture (regardless of whether any proceeds
were received by JMB/NYC from the disposition of the Joint Venture's
property) to eliminate any remaining deficit capital account balance.

The Partnership's liability for such contribution, if any, would be
its share, if any, of the liability of JMB/NYC and would depend upon, among
other things, the amounts of JMB/NYC's and the Olympia & York affiliates'
respective capital accounts at the time of a sale or other disposition of
Joint Venture property, the amount of JMB/NYC's share of the taxable gain
attributable to such sale or other disposition of the Joint Venture
property and the timing of the dissolution and liquidation of the Joint
Venture. In such event, the Partnership could be required to sell or
dispose of its other assets in order to satisfy any obligation attributable
to it as a partner of JMB/NYC to make such contribution. Although the
amount of such liability could be material, the Limited Partners of the
Partnership would not be required to make additional contributions of
capital to satisfy such obligation, if any, of the Partnership. The
Partnership's deficit investment balance in JMB/NYC as reflected in the
balance sheet (aggregating $76,888,626 at September 30, 1994) does not
necessarily represent the amount, if any, the Partnership would be required
to pay to satisfy its deficit restoration obligation.

Subsequent to the end of the quarter, JMB/NYC entered into a binding
letter agreement with the Olympia & York affiliates to resolve certain
disputes which are more fully discussed above. In general, the parties
have agreed to: (i) amend the Three Joint Ventures' agreements to
eliminate any funding obligation by JMB/NYC for any purpose in return for
JMB/NYC relinquishing its rights to approve most all property management,
leasing, sale (for any sale subsequent to 1998) or refinancing decisions
and the establishment of a new preferential distribution level payable to
the Olympia & York affiliates from all future sources of cash, (ii) sell
the 2 Broadway Building, and (iii) restructure the first mortgage loan.
The general terms for sale of the 2 Broadway Building and the restructure
of the underlying loan are as outlined above. In order to facilitate the
restructuring of JMB/NYC, the Olympia & York affiliates, and
representatives of the mortgage lender have agreed to file for each of the
three Joint Ventures a pre-arranged bankruptcy plan for reorganization
under Chapter 11 of the Bankruptcy Code. Such filing's are expected to
occur prior to the end of the year. The reorganization plans will
essentially be the proposed transactions contained in the letter agreement.

During the bankruptcy proceedings there exists a possibility that one or
more of plans could be challenged by certain creditors resulting in
elimination or changes to all or portions of the letter agreement
transactions by the bankruptcy court. Consequently, there are no
assurances that the transactions contemplated in the letter agreement will
be finalized. If the transactions contemplated in the letter agreement are
finalized, there would nevertheless need to be a significant improvement in
current market and property operating conditions resulting in a significant
increase in the value of the 237 Park Avenue and 1290 Avenue of the
Americas properties before JMB/NYC would receive any share of future net
proceeds from operations, sale or refinancing.

The properties are being managed by an affiliate of the Olympia & York
affiliates. An affiliate of the Olympia & York affiliates performs certain
maintenance and repair work and construction of certain tenant improvements
at the investment properties. Additionally, the Olympia & York affiliates
have lease agreements and occupy approximately 95,000 square feet of space
at 237 Park Avenue at rental rates which approximate market.

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Partnership acquired in 1983, through a joint venture with the
developer, an interest in a portion of Copley Place, a multi-use complex in
Boston, Massachusetts.

Initially, the Partnership purchased an interest in the complex from
the developer for a purchase price of $20,000,000 which was paid by giving
a purchase price note to the developer. Subsequently, the Partnership and
the developer formed Copley Place Associates which purchased the balance of
the office and retail portion of the complex from the developer for
$245,000,000. The Partnership contributed its previously acquired interest
in the property and made total cash contributions of $60,000,000 for its
interest in Copley Place Associates.

In December 1984, an affiliate of the Corporate General Partner of the
Partnership acquired ownership of the joint venture partner.

The joint venture agreement provides that, in general, from 1985
through 1989, the Partnership was entitled to a guaranteed return of annual
cash flow of $3,600,000 increasing to $4,800,000. The joint venture
partner was obligated to fund (through capital contributions and loans, as
defined) any deficiency in the Partnership's guaranteed return and any
operating deficits (as defined). Commencing January 1, 1990, the
Partnership was entitled to a preferred return of $6,000,000 per year
through December 31, 1991 of any available cash flow. The joint venture
partner was obligated through December 31, 1991 to loan amounts to pay for
any operating deficits (as defined). The joint venture partner has loaned
approximately $13,398,000 through September 30, 1994 to fund its required
obligation. The loan accrues interest at the contract rate based on the
joint venture partner's line of credit. The line of credit bears interest
at a floating rate (currently averaging 6.06% per annum at September 30,
1994). The loan is to be repaid from future available cash flow (as
defined). In addition, the Partnership and the joint venture partner were
obligated to contribute equally to tenant improvement and other capital
costs beginning in 1990. Commencing January 1, 1992, the Partnership and
the venture partner are required to equally fund all cash deficits of the
property. Annual cash flow (as defined), after repayment to the joint
venture partner of operating deficit loans and funding requirements, is to
be allocated equally between the Partnership and joint venture partner. In
March 1994, the venture partner and the Partnership each contributed
$424,980 for the payment of previously deferred management fees.

Operating profits and losses of the joint venture are 50% to the
Partnership and 50% to the joint venture partner.

The joint venture agreement further provides that, in general, upon
any sale or refinancing of the complex, the first $60,000,000, after
repayment of the joint venture loans, of net proceeds will be distributed
equally between the Partnership and the joint venture partner. The
Partnership will then be entitled to receive an amount equal to any
cumulative deficiencies of its annual preferred return of cash flow for
1990 and 1991 (balance at September 30, 1994 is $12,000,000). The
Partnership will then be entitled to receive the next $190,000,000 plus an
amount equal to certain interest which has been paid or is payable to the
developer on its $20,000,000 purchase price note. The joint venture
partner will then be entitled to receive the next $190,000,000 plus an
amount equal to certain interest paid to it on the $20,000,000 purchase
price note, with any remaining proceeds distributable equally to the
Partnership and the joint venture partner. Reference is made to Note 3(h)
for a discussion of the modification of the mortgage loan (effective March
1, 1992) for the property.

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

An affiliate of the Partnership and joint venture partner manages the
portion of the complex owned by the joint venture, pursuant to an agreement
which provides for a fee calculated as a percentage of certain types of
income from the property.

(d) Orchard Associates

The Partnership's interest in Old Orchard shopping center (through
Orchard Associates and Old Orchard Urban Venture ("OOUV")) was sold in
September 1993, as described below.

At sale, OOUV and an unaffiliated third party contributed the Old
Orchard shopping center and $60,366,572 in cash (before closing costs and
prorations), respectively, to a newly formed limited partnership.
Immediately at closing, the new partnership distributed to OOUV $60,366,572
in cash (before closing costs and prorations) in redemption of
approximately 89.5833% of OOUV's interest in the new partnership. OOUV,
the limited partner, has retained a 10.4167% interest in the new limited
partnership after such redemption. OOUV was also entitled to receive up to
an additional $4,300,000 based upon certain events (as defined all of which
was earned and received as of September 1994). Upon receipt, OOUV
distributed the $4,300,000 to the respective partners, based upon their
pre-contribution percentage interests. OOUV still may earn up to an
additional $3,400,000 based upon certain future earnings of the property
(as defined), none of which has been earned or received as of the date of
this report.

Contemporaneously with the formation of the new limited partnership,
OOUV redeemed Orchard Associates' ("Orchard") interest in OOUV for
$56,689,747 (before closing costs and prorations). This transaction has
resulted in Orchard having no ownership interest in the property as of the
effective date of the redemption agreement. Orchard recognized a gain of
$15,797,454 for financial reporting purposes ($7,898,727 allocable to the
Partnership) and recognized a gain for Federal income tax reporting
purposes of $32,492,776, ($16,246,388 allocable to the Partnership) in
1993.

OOUV and Orchard have also entered into a contribution agreement
whereby they have agreed to share future gains and losses which may arise
with respect to potential revenues and liabilities from events which
predated the contribution of the property to the new venture (including,
without limitation, the distribution to OOUV of $4,300,000 and the
potential future distribution of $3,400,000 as described above) in
accordance with their pre-contribution percentage interests. In September
1994, Orchard received its share of the contingent $4,300,000 as discussed
above and distributed to each of the respective partners their fifty
percent share ($1,702,082) of such amount. The Partnership has recognized
a gain of $1,702,082 for financial reporting purposes in September 1994 and
expects to recognize a gain for Federal income tax reporting purposes in
1994. Upon receipt of all or a portion of the remaining contingent
amounts, Orchard and the Partnership would expect to recognize additional
gain for Federal income tax and financial reporting purposes in the year of
such receipts. However, there can be no assurance that any portion of the
remaining contingent amounts will be received.

(3) LONG-TERM DEBT MODIFICATIONS AND REFINANCINGS

(a) General

As described below and in response to operating deficits incurred at
certain properties, the Partnership or its ventures are seeking and/or have

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

received mortgage note modifications on certain properties. Certain of the
modifications received have expired and others expire on various dates
commencing November 1996. In addition, certain properties have loans with
scheduled maturities commencing November 1994. Upon expiration of such
modifications or at maturity, should the Partnership or its ventures be
unable to secure new or additional modifications to the loans, based upon
current and anticipated future market conditions, the Partnership may
decide not to commit any significant additional amounts to these
properties. This generally would result in the Partnership no longer
having an ownership interest in such properties and may result in a gain
for financial reporting purposes and Federal income tax purposes without
any net distributable proceeds. Such decisions would be made on a
property-by-property basis.

(b) Rio Cancion Apartments

The mortgage note secured by the Rio Cancion apartments located in
Tucson, Arizona and related deferred interest was satisfied on March 31,
1993 upon sale of the property (see note 7(b)). The first mortgage loan
was modified in 1987 and 1989 to lower interest payable. During 1992, the
Partnership reached an agreement for an additional modification to the
first mortgage loan whereby on January 1, 1993, the contract rate of 12.25%
per annum and the pay rate of 10.25% per annum was permanently lowered to
10%. The additional modification also extended the maturity date to
January 1, 1997. In return, the lender was entitled to, as additional
interest, a minority residual participation of 25% of net sales proceeds
(as defined) after the Partnership recovered its investment (as defined).
The lender received approximately $317,000 as its 25% minority residual
participation upon sale of the property in March, 1993 as discussed in note
7(b).

The Partnership transferred title to the property to the lender on
November 1, 1993, as discussed below.

The long-term mortgage note secured by the 1001 Fourth Avenue Plaza
office building located in Seattle, Washington was modified effective June
16, 1987 to lower both the contract and payment interest rates. The
contract interest rate had been reduced to 9% per annum for the period from
June 16, 1987 through December 15, 1992, to 10% per annum for the period
from December 16, 1992 through May 15, 1994 and to 12% per annum for the
period from May 16, 1994 through May 15, 1995. In addition, the interest
payment rate had been reduced to 7% per annum from June 16, 1987 through
May 15, 1989, to 8% per annum from May 16, 1989 through December 15, 1992
and to 9% per annum from December 16, 1992 through May 15, 1995. The
difference between the contract rate and the interest paid was deferred and
bore interest at 9% per annum. In addition, any Net Cash Flow (as defined)
from the property was escrowed for future capital improvements. On May 16,
1995, the note was to revert to its original terms. In addition, upon the
subsequent sale of the property, the lender would have been entitled to a
minority residual participation beginning at 30% and decreasing to 15% of
Net Proceeds (as defined) from such sale or refinancing.

The Partnership continued to maintain a $2,000,000 letter of credit as
additional security for the lender for the modification of interest rates,
repayment schedule and other terms of the original loan. The letter of
credit was secured by the Partnership's investments in U.S. government
obligations in an equal amount. The letter of credit was to be renewed
annually until the earlier of June 15, 1995 or the date on which Operating
Income (as defined) from the property equaled at least 1.2 times the
original debt service for a twelve month period. In October 1992, the

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Partnership notified the lender of its intent not to renew the letter of
credit based on the property generating sufficient Operating Income (as
defined) to meet the calculation requirement described above. As a result,
the lender subsequently notified the Partnership that the Partnership was
in default for non-submittal of Net Cash Flow (as defined). As previously
reported, the Partnership was attempting to obtain an additional loan
modification from the mortgage lender. Such negotiations proved to be
unsuccessful, and in November 1993 the Partnership transferred title to the
property in full satisfaction of the Partnership's mortgage obligation. As
part of the agreement to transfer title, the lender agreed to the return of
the Partnership's letter of credit. The transfer of the Partnership's
ownership interest resulted in a net gain of $6,771,760 for financial
reporting and a gain of $27,567,458 for Federal income tax purposes with no
corresponding distributable proceeds in 1993.

(d) Eastridge Apartments

In August 1990, the Partnership reached an agreement to remodify the
mortgage note effective July 1, 1989 to lower both the contract rate (as
defined) and interest payment rates for a thirty-six month period. The
difference between the contract rate and the interest paid was deferred and
bore interest when added to the outstanding principal balance of the note
on July 1, 1992. Thereafter, monthly installments, payable at 10.34% per
annum, of principal and interest were due (amortized on a 30 year term)
until maturity of the loan in March 1995. The Partnership subsequently
reached an agreement for another modification on the existing loan. The
remodification extended the maturity date to May 1, 1998 and adjusted the
contract rate to 8% per annum. The remodification became effective May 1,
1993 and the Partnership was required to submit equal payments of principal
and interest (amortized over approximately 22 years) until maturity when
all outstanding principal and interest would be due. The remodification
established release prices for the mortgage obligation (as defined), upon
execution until May 1, 1995.

In April 1994, the Partnership exercised its option, under the latest
loan modification, for a discounted payoff of its mortgage obligation
secured by the Eastridge Apartments. The loan balance of approximately
$9,696,000 was fully satisfied with a payment of approximately $8,700,000.
As a result of this transaction, the Partnership will recognize an
extraordinary gain of $996,126 for financial reporting purposes and expects
to recognize a gain for Federal income tax purposes in 1994. The
Partnership determined that exercising its option for the early payoff was
necessary in order to maximize its return upon sale of the property which
occurred on June 30, 1994 (see note 7(d)).

(e) University Park Office Building

Effective July 1989, the Partnership remodified the note such that the
interest payment rate was reduced to 10% per annum for a period of two
years, at which time the loan was to be due and payable. The difference
between the contract rate and the interest paid was deferred and was
accruing at 12.5% per annum. In July 1991, the Partnership exercised its
option to extend the maturity date from July 1991 to maturity in July 1993,
during which time interest only payments were due at a rate of 10.66% per
annum.

In April 1993, the Partnership had began submitting cash flow debt
service payments to the lender due to the move-out of the building's
primary tenant. The Partnership's discussions with the first mortgage
lender to further modify the note were unsuccessful. As a result, on
January 10, 1994, the Partnership transferred to the lender title to the
property. This resulted in the Partnership's no longer having an ownership

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

interest in the property, has resulted in a gain of approximately
$5,676,000 for financial reporting purposes. The Partnership also expects
to recognize a gain for Federal income tax purposes of approximately
$6,897,000 in 1994. There were no corresponding distributable proceeds as
a result of the transfer of title.

(f) Gables Corporate Plaza

Effective March 1, 1989, the Gables venture reached an agreement to
modify the long-term first mortgage note secured by Gables Corporate Plaza
located in Coral Gables, Florida. The contract rate had been permanently
lowered from 12.8% to 10.75% per annum and from January 1, 1989 through
December 31, 1993, interest only payments were due at a rate of 7% per
annum. The difference between the interest paid and the contract rate was
deferred and was accrued at the contract rate. Deferred interest was due
monthly from cash flow or upon maturity of the note. From April 1, 1994
through maturity in 1996, interest only payments were due at the contract
rate.

In addition, the Partnership agreed with the joint venture partner to
defer interest payments on its second and third mortgage notes for the same
five year period. The interest rate had been permanently lowered for the
five years from 12.9% per annum to 11.99% per annum. The Partnership also
agreed with the joint venture partner to reduce the second and third
mortgage notes by $230,000 and treat this amount as a capital contribution
by the joint venture partner. The Partnership agreed to pay operating
deficits at the property of up to $1,200,000 from January 1, 1989 through
December 31, 1993.

Gables venture had negotiated for an additional modification or
refinancing of the first mortgage loan. Since January 1991, interest only
payments were remitted at a 5% pay rate instead of the required 7% rate to
the extent of available property cash flow. Negotiations with the lender
were unsuccessful and the Partnership on behalf of the venture decided to
not commit any significant additional amounts to the property. On May 3,
1993, the lender appointed a receiver and took possession and control of
the property. In addition, the venture entered into an agreement with the
lender whereby the venture would transfer title to the lender in January,
1994. During this period, the venture attempted to sell the property. The
venture was unable to sell the property during the allotted time. On
January 5, 1994, the venture transferred title of the property to the
lender in accordance with its previous agreement. This resulted in the
venture no longer having an ownership interest in the property and has
resulted in a gain to the venture in 1994 of approximately $10,565,000 for
financial reporting purposes (of which the Partnership's share is
approximately $7,667,500). The venture also expects to recognize a gain in
1994 of approximately $12,464,000 for Federal income tax purposes (of which
the Partnership's share is approximately $3,793,000) in 1994. There were
no corresponding distributable proceeds as a result of the transfer of
title.

(g) Greenwood Creek II Apartments

The Partnership had been negotiating for modification of the long-term
mortgage note secured by Greenwood Creek II Apartments located in Benbrook
(Fort Worth), Texas. The Partnership had reached an agreement in principle
with the lender to submit the monthly cash flow as debt service payments
beginning April 1, 1991 while continuing to negotiate for the modification.

However, the Partnership was notified that the loan had been sold to a
third party. The Partnership was not successful in securing a
modification. On April 6, 1993, the Partnership transferred title to the
property to the lender for a transfer price of $100,000 (before selling

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

costs and prorations) in excess of the existing mortgage balance. The
Partnership recognized a gain of $1,787,073 for financial reporting and
recognized a gain for Federal income tax purposes of $1,823,988 in 1993
(see note 7(c)).

(h) Copley Place

The joint venture modified the existing first mortgage note effective
March 1, 1992. The modification lowered the pay rate from 12% to 9% per
annum through August 1993 and, at that time, further reduced it to 7-1/2%
per annum through August 1998. The contract rate has been lowered to 10%
per annum through August 1993 and, at that time, further reduced it to 8-
1/2% per annum through August 1998. After each monthly payment, the
difference between the contract interest rate on the outstanding principal
balance on the loan, including the difference between deferred interest and
interest paid at the applicable pay rate, (as defined), will be added to
the principal balance and will accrue interest at the contract interest
rate. All outstanding principal, including the unpaid deferred interest, is
due and payable on August 31, 1998. In return, the lender will be entitled
to receive, as additional interest, a minority residual participation of
10% of net proceeds (if any, as defined) from a sale or refinancing after
the Partnership and its joint venture partner have recovered their
investments (as defined). Any cash flow from the property, after all
capital and leasing expenditures, will be escrowed for the purpose of
paying for future capital and leasing requirements. As a result of the
debt modification, the property produced cash flow in 1993. This cash flow
has been escrowed for future potential leasing requirements as set forth in
the loan modification. The property has experienced a significant loss of
rental income in 1994 due to the expiration of a major tenant's lease.
Based on this fact, the joint venture has initiated discussions with the
first mortgage lender regarding an additional modification of the loan.
There can be no assurances such additional modification will be
consummated. If the joint venture is unable to secure such remodification,
it may decide not to commit any significant additional amounts to the
property. This would result in the joint venture no longer having an
ownership interest in the property and would result in a net gain for
financial reporting and Federal income tax purposes with no corresponding
distributable proceeds. The joint venture is aggressively marketing the
recently vacated space.

(i) Sherry Lane Place

The existing long-term note secured by the Sherry Lane Place office
building located in Dallas, Texas was modified effective February 1, 1988
to lower both the contract and payment interest rates. The contract
interest rate was reduced to 9% per annum for the period from March 1, 1988
through February 28, 1993 and to 10% per annum for the period from March 1,
1993 through April 1, 1998. Interest only was to be payable at 6.5% per
annum from February 1, 1988 through July 31, 1991, at 8% per annum from
August 1, 1991 through July 31, 1994 and at 10% per annum from August 1,
1994 through March 1, 1998. The difference between the contract rate and
the interest paid was to be deferred and to bear interest at 13.125% per
annum from February 1, 1988 through February 28, 1988, at 9% per annum from
March 1, 1988 through February 28, 1993 and at 10% per annum from March 1,
1993 through April 1, 1998. In addition, upon the earlier of the
subsequent sale of the property or maturity of the note, the lender is
entitled to a residual participation equal to 40% of the applicable value
(as defined). In connection with the modification, the Partnership prepaid
$1,665,000 of principal without a prepayment penalty, and paid a loan
modification fee of $2,335,000.

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In November 1993, the Partnership reached an agreement with the
current lender to further modify the existing long-term non-recourse
mortgage note secured by the property. Under the terms of the
remodification, the existing mortgage balance was divided into two notes.
The first note of $22,000,000 bears a contract interest rate of 8% per
annum for the period retroactive from January 1, 1993 through December 31,
1994, increasing to 8.5% per annum for the period from January 1, 1995
through April 1, 1998. Interest only is payable on the first note at 5.75%
per annum for the period retroactive to January 1, 1993 through December
31, 1993, at 8% per annum from January 1, 1994 through December 31, 1994
and at 8.5% per annum from January 1, 1995 through April 1, 1998. The
difference between the contract rate and the pay rate was added to the
principal balance. The second note, consisting of the remaining unpaid
principal and accrued interest in the aggregate amount of approximately
$18,526,000, has a zero pay and accrual rate and is due and payable April
1, 1998. All excess cash flow above debt service on the first note is to
be applied first against accrued interest on the first note and then as
contingent interest on the second note (as defined).

(j) Marshall's Aurora Plaza

The long-term note secured by the Marshall's Aurora Plaza shopping
center located in Aurora, Colorado reached its scheduled maturity in June
1993. The Partnership had continued remitting debt service under the
original terms of the loans until January 1994, when the Partnership
reached an agreement with the current lender to modify and extend the
existing long-term note. The modification, which became effective in
November 1993, lowered the pay and accrual rates from 12.75% per annum to
8.375% per annum and extended the loan for a three year period to November
1, 1996. Concurrent with the closing of the modification, the Partnership
paid down the existing mortgage balance in the amount of $250,000.

(k) Carrollwood Apartments

In September 1993, the venture refinanced with a third party lender
the existing underlying mortgage loan with a balance of approximately
$7,200,000 payable at 12 3/4% per annum due in 1995. The new loan is in
the amount of $7,455,000. The loan is payable in monthly installments of
principal and interest and bears interest at 7.45% per annum for a five
year period until maturity. The venture paid a prepayment penalty relating
to the original mortgage of approximately $143,200 in connection with the
refinancing. The Partnership recognized its share of approximately
$141,700 as an extraordinary loss for financial reporting purposes in 1993.

In addition, the venture was obligated to establish an escrow account for
future capital improvements. The escrow account was initially funded by
the Partnership's capital contribution to the venture and is subsequently
funded by the operations of the venture plus interest. As of the date of
this report, the escrow account is approximately $118,000 and no amounts
have been withdrawn.

(l) Long Beach Plaza

The long-term mortgage note, secured by Long Beach Plaza, matured in
June 1994. The Partnership has initiated and continues to hold discussions
with the first mortgage lender regarding a modification and extension of
the mortgage loan. There can be no assurance that any modification
agreement will be executed. If the Partnership is unable to secure such
modification and extension, it may decide not to commit any significant
additional amounts to the property. This would result in the Partnership
no longer having an ownership interest in the property and would result in
a net gain for financial reporting and Federal income tax purposes with no
corresponding distributable proceeds. The Partnership has not remitted all

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

of the scheduled debt service payments since June 1993. The combined
balances of the mortgage note and related accrued interest of approximately
$38,738,000 are in arrears at September 30, 1994 and are classified as
current liabilities in the accompanying consolidated financial statements.

(m) Plaza Tower

The long-term mortgage note, secured by the Plaza Tower office
building, matured on November 1, 1994. The Partnership and the mortgage
lender have reached an agreement in principle to extend the existing
mortgage note for a period of four months. Accordingly, the Partnership
has continued to remit debt service under the existing loan terms. In
addition, the Partnership has submitted an application to refinance the
mortgage loan with another third-party lender. However, there can be no
assurance that the Partnership will be able to secure such refinancing.

(4) MANAGEMENT AGREEMENTS

The Partnership has entered into agreements for the operation and
management of the investment properties. Such agreements are summarized as
follows:

The Partnership entered into an agreement with an affiliate of the
seller for the operation and management of Marshall's Aurora Plaza, Aurora,
Colorado for a management fee calculated at a percentage of certain types
of cash income from the property.

The Long Beach Plaza in Long Beach, California, Copley Place in
Boston, Massachusetts, Plaza Tower office building in Knoxville, Tennessee,
Greenwood Creek II Apartments in Benbrook, Texas, (prior to its sale in
April 1993), Rio Cancion Apartments in Tucson, Arizona, (prior to its sale
in March 1993), Eastridge Apartments in Tucson, Arizona, (prior to its sale
in June 1994), University Park office building in Sacramento, California
(prior to transferring title to the lender in January 1994), 1001 Fourth
Avenue Plaza office building in Seattle, Washington (prior to transferring
title to the lender in November 1993), Sherry Lane Place office building in
Dallas, Texas, and Gables Corporate Plaza in Coral Gables, Florida (prior
to the lender appointing a receiver in May 1993), are or were managed by an
affiliate of the Corporate General Partner for a fee equal to a percentage
of defined gross income from the property.

(5) TRANSACTIONS WITH AFFILIATES

Certain of the Partnership's properties are managed by affiliates of
the General Partner. In October 1994, one of the affiliated property
managers agreed to sell substantially all of its assets to an unaffiliated
third party. In addition, substantially all of the management personnel of
the property manager will become management personnel of the purchaser or
its affiliates if the sale is completed. The sale is subject to certain
closing conditions. In the event that the sale is completed, it is
expected that the successor to the affiliated property manager's assets
would act as the property manager of Plaza Tower and Sherry Lane on the
same terms that existed prior to the sale. In addition, in December 1994,
the affiliated manager that is to be sold is expected to assume the
management duties at Glades Apartments for the same fees as with the former
manager.

Fees, commissions and other expenses required to be paid by the
Partnership or the Partnership's consolidated ventures to the General
Partners and their affiliates as of September 30, 1994 and for the nine
months ended September 30, 1994 and 1993 are as follows:

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

<TABLE>
<CAPTION>
Unpaid at
September 30,
1994 1993 1994
---------- --------- -------------
<S> <C> <C> <C>
Property manage-
ment and leasing
fees . . . . . . . . . . . . . . $2,022,357 2,801,094 12,818,640
Insurance commissions . . . . . . 56,710 223,255 --
Reimbursement
(at cost) for
out-of-pocket
expenses . . . . . . . . . . . . 1,736 34,077 264
---------- --------- ----------
$2,080,803 3,058,426 12,818,904
========== ========= ==========
</TABLE>

Payment of certain pre-1993 property management and leasing fees
payable under the terms of the management agreements ($12,818,640
approximately $35 per $1,000 interest at September 30, 1994) has been
deferred. All property management fees and leasing fees are being paid
currently.

The Corporate General Partner and its affiliates are entitled to
reimbursement for salaries of employees and direct expenses of officers and
employees of the Corporate General Partner relating to the administration
of the Partnership and operation of the properties. Such costs were
$179,093 and $112,063 for December 31, 1993 and September 30, 1994,
respectively, of which $108,202 of the costs were unpaid as of September
30, 1994.

Effective January 1, 1994, certain officers and directors of the
Corporate General Partner acquired interests in a company which, among
other things, has provided and continues to provide certain property
management services to certain of the investment properties of the
Partnership. Such acquisition had no effect on the fees payable by the
Partnership or its consolidated ventures under any existing agreements with
such company. The fees earned by such company from the Partnership and its
consolidated ventures for the nine months ending September 30, 1994 were
$50,113.

(6) UNCONSOLIDATED VENTURES - SUMMARY INFORMATION

Summary income statement information for JMB/NYC venture for the nine
months ended September 30, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Total income from
properties
(unconsolidated). . . . . . . . . $117,625,535 127,902,357
============ ===========
Operating loss of
ventures. . . . . . . . . . . . . $ 17,369,731 20,884,687
============ ===========
Partnership's share
of loss . . . . . . . . . . . . . $ 4,342,433 5,221,172
============ ===========
</TABLE>

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(7) SALE OF INVESTMENT PROPERTY

(a) Allied Automotive Center

On October 10, 1990, the Partnership sold the land, building, and
related improvements of the Allied Automotive Center located in Southfield,
Michigan for $19,613,121 (in cash before prorations and cost of sale).

The sale included the adjacent undeveloped land, building and
improvements owned by two other partnerships affiliated with the Corporate
General Partner. The Partnership has retained title to a defined 1.9 acre
piece of land (the "Parcel"). During the buyer's due diligence
investigation, the buyer found traces of contamination located on a portion
of the Parcel as well as on a portion of the land owned by the two
affiliated selling entities. It was subsequently determined that such
contamination was most likely the result of certain activities of the
previous owner. As a result, the purchase price was reduced by
approximately $682,000 for the Partnership's excluded parcel. The parcel
may be purchased by the buyer after the environmental clean-up is
completed. As a condition of the sale, the Partnership has agreed to
conduct investigations to determine all contaminants and to conduct clean-
up of any such contaminants. The Partnership was also required to
indemnify the buyer from specified potential clean-up related liabilities.
If the clean-up is successful, the buyer will purchase the parcel for
$682,000, the purchase price adjustment. In addition, the Partnership has
reached an agreement with the previous owner of the Allied Automotive
Center, who has agreed to cause such investigation and clean-up to be done
at the previous owner's expense. The previous owner has also indemnified
the Partnership from specified potential clean-up related liabilities. The
Partnership, in cooperation with the previous owner, has approved a plan to
clean up the parcel, and the previous owner has undertaken the clean up and
is paying the costs thereof. The cost of clean up remaining to be
performed are not estimated to be material. The gain associated with this
Parcel, approximately $543,000, will be recognized when the closing occurs
(currently estimated to be in mid 1995). There can be no assurance that
the sale of this Parcel will be consummated on these or any other terms.

(b) Rio Cancion Apartments

On March 31, 1993, the Partnership sold the land, related
improvements, and personal property of the Rio Cancion Apartments, located
in Tucson, Arizona for $13,700,000 (before selling costs and prorations)
which was paid in cash at closing. In conjunction with the sale, the
mortgage note and related accrued interest with a balance of approximately
$12,157,000 was satisfied in full. The lender received, as its 25%
minority residual participation (as defined), approximately $317,000 (see
note 3(b)). The Partnership received net sales proceeds of approximately
$809,000. The Partnership recognized a gain from this transaction in 1993
of $2,524,958 for financial reporting purposes and recognized a gain of
$7,865,633 for Federal income tax purposes in 1993.

On April 6, 1993, the Partnership transferred to the existing lender
title to the land, related improvements, and personal property of the
Greenwood Creek II Apartments, located in Benbrook, (Fort Worth) Texas for
a transfer price of $100,000 (before selling costs and prorations) in
excess of the existing mortgage balance of approximately $3,747,000 (see
note 3(g)). The Partnership recognized a gain for financial reporting
purposes in 1993 of $1,787,073 and recognized a gain of $1,823,988 for
Federal income tax purposes in 1993.

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(d) Eastridge Apartments

On June 30, 1994, the Partnership sold the land, related improvements,
and personal property of the Eastridge Apartments, located in Tucson
Arizona for $12,000,000 (before selling costs and prorations) which was
paid in cash at closing. The mortgage note was satisfied in full prior to
the sale date (see note 3(d)). The Partnership recognized a gain of
$5,010,871 for financial reporting purposes and expects to recognize a gain
of approximately $7,877,000 for federal income tax purposes in 1994.

(8) ADJUSTMENTS

In the opinion of the Corporate General Partner, all adjustments
(consisting solely of normal recurring adjustments and adjustments to
reflect the treatment given certain transactions in the Partnership's 1993
Annual Report) necessary for a fair presentation have been made to the
accompanying figures as of September 30, 1994 and for the three and nine
months ended September 30, 1994 and 1993 (see note 1).

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

All references to "Notes" are to Notes to Consolidated Financial
Statements contained in this report.

At September 30, 1994, the Partnership and its consolidated ventures
had cash and cash equivalents of approximately $4,315,000. Such funds and
short-term investments of approximately $25,990,000 are available for
distributions to partners, leasing and capital improvement costs and/or
operating deficits at Long Beach Plaza, Marshall's Aurora Plaza, and the
Plaza Tower Office Building, for funding requirements at Copley Place for
its share of management fees, for working capital requirements, including
potential future operating deficits, and for significant leasing and tenant
improvement costs at certain of the Partnership's other investment
properties. The Partnership and its consolidated ventures have currently
budgeted in 1994 approximately $7,266,000 for tenant improvements and other
capital expenditures. The Partnership's share of such items and its share
of such similar items for its unconsolidated ventures in 1994 is currently
budgeted to be approximately $6,490,000. Actual amounts expended in 1994
may vary depending on a number of factors including actual leasing
activity, results of property operations, liquidity considerations and
other market conditions over the course of the year. The source of capital
for such items and for both short-term and long-term future liquidity and
distributions is expected to be through the net cash generated by the
Partnership's investment properties and through the sale or refinancing of
such investments as well as the cash and short-term investments currently
held by the Partnership and its ventures. Due to impending maturities of
long-term debt and other operational constraints as discussed below, only
certain of the Partnership investment properties would be considered a
significant source of future liquidity. The Partnership's and its
ventures' mortgage obligations are generally non-recourse and therefore,
the Partnership and its ventures generally are not personally obligated to
pay such mortgage indebtedness.

Many of the Partnership's investment properties currently operate in
overbuilt markets which are characterized by lower than normal occupancies
and/or reduced rent levels. Such competitive conditions have resulted in
the operating deficits described above.

As described more fully below and/or in Note 3, the Partnership has
received (certain of which have expired and others of which expire at
various dates commencing November, 1996) or is negotiating mortgage note
modifications or refinancing on the Sherry Lane Place office building,
Glades Apartments, Long Beach Plaza, Carrollwood Apartments, Marshall's
Aurora Plaza, Plaza Tower office building and Copley Place multi-use
complex. The Partnership was unsuccessful in its efforts to obtain
modifications of the loans secured by the 1001 Fourth Avenue office
building, University Park office building and the Gables Corporate Plaza,
as further discussed below and in Note 3. The Partnership has not remitted
the required debt service payments pursuant to the loan agreement on the
Long Beach Plaza which matured in June 1994. The corresponding balance of
its mortgage note and related deferred accrued interest thereon has been
classified as a current liability in the accompanying Consolidated
Financial Statements. In January 1994, the Partnership or its venture
transferred title to Gables Corporate Plaza and to the University Park
office buildings to their respective lenders and the related mortgage loans
were fully discharged by each. (Reference is made to Notes 3(f) and (e)).
In April 1994, the Partnership exercised its option to fully satisfy its
obligation with respect to the Eastridge Apartment mortgage loan at the
previously agreed upon release price. The loan balance of approximately
$9,696,000 was fully satisfied with a payment of approximately $8,700,000,
which was paid out of the Partnership's cash and cash equivalents and
proceeds from the sale and maturity of short term investments. (See Notes
3(d) and 7(d)). In October 1994, the Partnership submitted an application
with a third-party mortgage lender, to refinance the Plaza Tower office
building. The existing mortgage lender has agreed, in principle, to a four
month extension of the loan which came due on November 1, 1994. For those
investment properties where modifications are being sought, or with expired
modifications or short-term modifications, if the Partnership is unable to
secure new or additional modifications to the loans, based upon current and
anticipated market conditions, the Partnership may decide not to commit any
significant additional amounts to any of the properties which are
incurring, or in the future do incur, operating deficits. This could
result in the Partnership no longer having an ownership interest in such
properties and could result in gain for financial reporting and Federal
income tax purposes to the Partnership with no corresponding distributable
proceeds. Such decisions would be made on a property-by-property basis.

The indebtedness on certain other of the Partnership's investment
properties matures and is due and payable commencing in 1994 and subsequent
years (Reference is made to Note 3). The source of repayment is expected
to be from proceeds from the sale or refinancing of such properties, or
extension of such indebtedness. However, there can be no assurance that
any such sales, refinancings or extensions will occur.

Copley Place

The Boston office market remains very competitive due to the large
supply of available space and to the prevalence of concessions being
offered to attract and retain tenants.

Commencing January 1, 1992, cash deficits and funding requirements are
allocated equally between the Partnership and the joint venture partner.
The joint venture has obtained a modification of the existing first
mortgage note effective March 1, 1992. The modification lowered the pay
rate from 12% to 9% per annum through August 1993, and at that time,
further reduced it to 7-1/2% per annum through August 1998. The contract
rate has been lowered to 10% per annum through August 1993 and at that time
further reduced to 8-1/2% per annum through August 1998. After each
monthly payment, the difference between the contract interest rate on the
outstanding principal balance of the loan, including the difference between
deferred interest and interest paid at the applicable pay rate (as
defined), will be added to the principal balance and will accrue interest
at the contract interest rate. The outstanding principal balance,
including the unpaid deferred interest, is due and payable on August 31,
1998. In return, the lender will be entitled to receive, as additional
interest, a minority residual participation of 10% of net proceeds (as
defined) from a sale or refinancing after the Partnership and its joint
venture partner have recovered their investments (as defined). Any cash
flow from the property, after all capital and leasing expenditures, will be
escrowed for the purpose of paying for future capital and leasing
requirements. As a result of the debt modification, the property produced
cash flow in 1993, which has been escrowed for future potential leasing
requirements as set forth in the current loan modification.

In 1994, the property has experienced a significant loss in rental
income in connection with the expiration of the IBM lease (279,432 square
feet in April 1994) representing 23% of the leasable office space in the
aggregate. Although the structure of the modification of the first
mortgage loan took into account the potential downsizing of IBM, it was
originally anticipated that IBM would renew approximately 80,000 square
feet. However, IBM has renewed only 8,398 square feet. In addition, the
John Hancock Property and Casualty Co. (which leased 97,180 square feet
representing 11.5% of the leasable office space) vacated their space upon
the expiration of their lease in October 1994. Therefore, the property's
operations will be insufficient to pay the modified debt service. The
joint venture has initiated discussions with the first mortgage lender
regarding an additional modification of the loan. There can be no
assurances such remodification will be consummated. If the joint venture
is unable to secure such remodification, the joint venture may decide not
to commit any significant additional amounts to the property. This could
result in the joint venture no longer having an ownership interest in the
property, which would result in a gain for financial reporting and Federal
income tax purposes with no corresponding distributable proceeds. The
joint venture is aggressively marketing IBM's and John Hancock's vacant
space and currently has numerous prospective replacements for the space,
although replacement cannot be assured. The joint venture partners decided
to pay previously deferred property management fees owed to an affiliate
for 1993 and to end the deferment of any subsequent fees incurred. As a
result, the venture partners have made contributions of $705,010 as of
September 30, 1994 and will continue to make capital contributions for the
payment of the above mentioned fees. As of September 30, 1994 the
aggregate amount of such deferred management fees was approximately
$619,000.

Old Orchard

On September 2, 1993, effective August 30, 1993, Orchard Associates,
in which the Partnership and an affiliated partnership sponsored by the
Corporate General Partner each had a 50% interest, sold its interest in the
Old Orchard Shopping Center. At sale, OOUV and an unaffiliated third party
contributed the Old Orchard shopping center and $60,366,572 in cash (before
closing costs and prorations), respectively, to a newly formed limited
partnership. Immediately at closing, the new partnership distributed to
OOUV $60,366,572 in cash (before closing costs and prorations) in
redemption of approximately 89.5833% of OOUV's interest in the new
partnership. OOUV, the limited partner, has retained a 10.4167% interest
in the new limited partnership after such redemption. OOUV has received an
additional $4,300,000 as a result of certain events (as defined) and still
may earn up to an additional $3,400,000 based upon certain future earnings
of the property (as defined). In September 1994, the Partnership has
received its share ($1,702,082) of the $4,300,000. The Partnership is
currently retaining its share of the net proceeds from the sale for working
capital purposes. Reference is made to Note 2(d).

JMB/NYC

At the 2 Broadway Building, occupancy during the quarter remained at
19%, down from 30% in the first quarter due to Bear Stearns Co. vacating
its space in April 1994 upon the expiration of its lease. Kidder Peabody &
Co. (71,994 square feet or approximately 4.5% of the building's leasable
space) whose lease was to expire December 1993 extended their lease to
December 31, 1995. The remaining tenant roster at the property includes
several other major financial service companies whose leases expire in
1994. Most of these companies maintain back office support operations in
the building which can be easily consolidated or moved. In addition to the
competition for tenants in the Downtown Manhattan market from other
buildings in the area, there is ever increasing competition from less
expensive alternatives to Manhattan, such as locations in New Jersey and
Brooklyn, which are also experiencing high vacancy levels. Rental rates in
the Downtown market continue to be at depressed levels and this can be
expected to continue while the large amount of vacant space is gradually
absorbed. Little, if any, new construction is planned for Downtown over
the next couple years. It is expected that 2 Broadway will continue to be
adversely affected by a high vacancy rate and the low effective rental
rates achieved upon re-leasing of space under existing leases which expire
over the next few years. In addition, the property is in need of a major
renovation in order to compete in the office leasing market. However,
there are currently no plans for a renovation because of the potential sale
of the property discussed below and because the effective rents that could
be obtained under current market conditions likely are not sufficient to
justify the costs of the renovation. As more fully discussed below, the
Olympia & York affiliates have informed JMB/NYC that they have received a
written proposal for the sale of the 2 Broadway building.

Occupancy at 1290 Avenue of the Americas remained at 91%. It is
expected that the property will continue to be adversely affected by low
effective rental rates achieved upon re-leasing of space under existing
leases which expire over the next few years and may be adversely affected
by an increased vacancy rate over the next few years. Although
approximately 20% of the building's space under tenant leases will expire
by the end of 1995, negotiations are currently being conducted with a
number of prospective tenants in the financial services industry to lease a
significant portion of the current and anticipated vacant space. There can
be no assurances that such negotiations will be successful. During the
third quarter a lease with Alex Brown (approximately 78,000 square feet or
approximately 40% of the building's leasable space) was executed. The
lease has an eighteen year term and the tenant is expected to take
occupancy during the fourth quarter. John Blair & Co. (which had leased
253,193 square feet or approximately 13% of the building's leasable space)
filed for Chapter 11 bankruptcy protection in 1993. Because much of the
John Blair space had been subleased, the Joint Venture had been collecting
approximately 70% of the monthly rent due from John Blair from the
subtenants. Due to the uncertainty regarding the collection of the balance
of the monthly rents from Blair, a provision for doubtful accounts related
to rents and other receivables and accrued rents receivable aggregating
$7,659,366 was recorded at December 31, 1993 related to this tenant.
During the quarter a settlement was reached whereby the Joint Venture
received a $7,000,000 lease termination fee which included settlement of
past due amounts. In conjunction with the settlement, effective July 1,
1994 John Blair is released from all future lease obligations and the Joint
Venture now has direct leases with the original Blair subtenants. Such
subtenants occupy 228,398 square feet or approximately 11% of the
building's leasable space. As a result of the settlement, the provision
for doubtful accounts related to Blair is $0 at September 30, 1994.

Occupancy at 237 Park Avenue during the quarter remained at 98%. It
is expected that the property will be adversely affected by the low
effective rental rates achieved upon re-leasing of space under existing
leases which expire over the next few years and may be adversely affected
by an increased vacancy rate over the next few years.

JMB/NYC has had a dispute with the unaffiliated venture partners who
are affiliates (hereinafter sometimes referred to as the "Olympia & York
affiliates") of Olympia & York Developments, Ltd. (hereinafter sometimes
referred to as "O&Y") over the calculation of the effective interest rate
with reference to the first mortgage loan, which covers all three
properties, for the purpose of determining JMB/NYC's deficit funding
obligation, as described more fully in Note 2(b). Under JMB/NYC's
interpretation of the calculation of the effective rate of interest
payable, only 2 Broadway operated at a deficit for the nine months ended
September 30, 1994. During the first quarter of 1993, an agreement was
reached between JMB/NYC and the Olympia & York affiliates which rescinded
the default notices previously received by JMB/NYC and eliminated the
operating deficit funding obligation of JMB/NYC for the period January 1,
1992 through June 30, 1993. Pursuant to this agreement, during this
period, JMB/NYC recorded interest expense at 1-3/4% over the short-term
U.S. Treasury obligation rate (subject to a minimum rate of 7% per annum),
which is the interest rate on the underlying first mortgage loan. Under
the terms of this agreement, during this period, the amount of capital
contributions that the Olympia & York affiliates and JMB/NYC would have
been required to make to the Joint Ventures if the first mortgage loan bore
interest at a rate of 12-3/4% per annum (the Olympia & York affiliates'
interpretation), became a priority distribution level to the Olympia & York
affiliates from the Joint Ventures' annual cash flow or net sale or
refinancing proceeds. The agreement also entitles the Olympia & York
affiliates to a 7% per annum return on such unpaid priority distribution
level amount. It was also agreed that during this period, the excess
available operating cash flow after the payment of the priority
distribution level discussed above from any of the Three Joint Ventures
would be advanced in the form of loans to pay operating deficits and/or
unpaid priority distribution level amounts of any of the other Three Joint
Ventures. Such loans bear a market rate of interest, have a final maturity
of ten years from the date when made and are repayable only out of first
available annual cash flow or net sale or refinancing proceeds. The
agreement also provides that except as specifically agreed otherwise, the
parties each reserve all rights and claims with respect to each of the
Three Joint Ventures and each of the partners thereof, including, without
limitation, the interpretation of or rights under each of the joint venture
partnership agreements for the Three Joint Ventures. The term of the
agreement expired on June 30, 1993. Therefore, effective July 1, 1993,
JMB/NYC is recording interest expense at 1-3/4% over the short-term U.S.
Treasury obligation rate plus any excess operating cash flow after capital
costs of each of the Three Joint Ventures, such sum not to be less than 7%
nor exceed a 12-3/4% per annum interest rate. The Olympia & York
affiliates continue to dispute this calculation after the period commencing
July 1, 1993 and contend that the 12-3/4% per annum fixed rate applies.

JMB/NYC continues to seek, among other things, a restructuring of the
joint venture partnership agreements or otherwise to reach an acceptable
understanding regarding its funding obligations. If JMB/NYC is unable to
achieve this, based upon current and anticipated market conditions
mentioned above, JMB/NYC may decide not to commit any additional amounts to
the Three Joint Ventures. In addition, it is possible that JMB/NYC may
determine to litigate these issues with the Olympia & York affiliates. A
decision not to commit any additional funds or an adverse litigation result
could, under certain circumstances, result in the loss of the interest in
the related ventures. The loss of an interest in a particular venture
could, under certain circumstances, permit an acceleration of the maturity
of the related Purchase Note (each Purchase Note is secured by JMB/NYC's
interest in the related Joint Venture). The failure to repay a Purchase
Note could, under certain circumstances, constitute a default that would
permit an immediate acceleration of the maturity of the Purchase Notes for
the other Joint Ventures. In such event, JMB/NYC may decide not to repay,
or may not have sufficient funds to repay, any of the Purchase Notes and
accrued interest thereon. This could result in JMB/NYC no longer having an
interest in any of the related Joint Ventures, which would result in net
gain for financial reporting and Federal income tax purposes to JMB/NYC
(and through JMB/NYC and the Partnership, to the Limited Partners) with no
distributable proceeds. In such an event, JMB/NYC would then proceed to
terminate its affairs. As discussed more fully below, the Olympia & York
affiliates have informed JMB/NYC that they have received a sales contract
for the sale of the 2 Broadway Building at a price which will not provide
any proceeds to JMB/NYC to repay the related Purchase Notes. Consequently,
if the proposed sale is finalized, $19,000,000 of the 2 Broadway Purchase
notes will be re-allocated and will be payable out of JMB/NYC's share of
distributable sale proceeds from the other two Joint Ventures. In
addition, as discussed more fully in Note 2(b), under certain
circumstances, JMB/NYC may be required to make additional capital
contributions to the Joint Ventures in order to fund a deficit restoration
obligation associated with a deficit balance in its capital account, and
the Partnership could be required bear a share of such capital
contributions obligation.

If JMB/NYC is successful in its negotiations to restructure the Three
Joint Ventures agreements and retains an interest in one or more of these
investment properties, there would nevertheless need to be a significant
improvement in current market and property operating conditions (including
a major renovation of the 2 Broadway building) resulting in a significant
increase in value of the properties before JMB/NYC would receive any share
of future net sale or refinancing proceeds. The Joint Ventures that own
the 2 Broadway building and land have no plans for a renovation of the
property because of the potential sale of the property discussed below and
because the effective rents that could be obtained under the current office
market conditions are not sufficient to justify the costs of the
renovation.

The Olympia & York affiliates have informed JMB/NYC that they have
received a contract for the sale of 2 Broadway for a net purchase price of
$15 million. The first mortgage lender has preliminarily agreed in the
loan restructuring proposal discussed below to the sale of the building
according to the terms of the 2 Broadway sales contract. A sale pursuant
to the contract received by the Olympia & York affiliates would be subject
to, among other things, the approval of the first mortgage lender as well
as JMB/NYC. While there can be no assurance that a sale would occur
pursuant to such contract or any other contract, if this contract were to
be accepted by or consented to by all required parties and the sale
completed pursuant thereto, and if discussions with the Olympia & York
affiliates relating to the contract were finalized to allocate the unpaid
first mortgage indebtedness currently allocated to 2 Broadway to 237 Park
and 1290 Avenue of the Americas after completion of the sale, then the 2
Broadway Joint Ventures would incur a significant loss for financial
reporting purposes. Accordingly, a provision for value impairment was
recorded at December 31, 1993 for financial reporting purposes for
$192,627,560, net of the non-recourse portion of the Purchase Notes
including accrued interest related to the 2 Broadway Joint Venture
interests that are payable by JMB/NYC to the Olympia & York affiliates in
the amount of $46,646,810. The provision for value impairment has been
allocated $136,534,366 and $56,093,194 to the Olympia & York affiliates and
JMB/NYC, respectively. Such provision has been allocated to the partners
to reflect their respective ownership percentages before the effect of the
non-recourse promissory notes including accrued interest.

There are certain risks and uncertainties associated with the
Partnership's investments made through joint ventures including the
possibility that the Partnership's Joint Venture Partners might become
unable or unwilling to fulfill their financial or other obligations or that
such Joint Venture Partners may have economic or business interest or
goals, that are inconsistent with those of the Partnership. O & Y and
certain of its affiliates have been involved in bankruptcy proceedings in
the United States and Canada and similar proceedings in England. The
Olympia & York affiliates have not been directly involved in these
proceedings. In addition, a reorganization of the management of the
company's United States operations has been completed, and affiliates of O
& Y are in the process of renegotiating or restructuring a number of loans
affecting various properties in the United States in which they have an
interest. The Partnership is unable to assess and cannot presently
determine to what extent these events may adversely affect the willingness
and ability of the Olympia & York affiliates either to meet their own
obligations to the Joint Ventures and JMB/NYC or to negotiate a
restructuring of the Joint Venture agreements, or otherwise reach an
understanding with JMB/NYC regarding any funding obligation of JMB/NYC.
However, the financial difficulties of Olympia & York and its affiliates
may be adversely affecting the Three Joint Ventures' efforts to restructure
the mortgage loan and to re-lease vacant space in the buildings.

During the fourth quarter 1992, the Joint Ventures received a notice
from the first mortgage lender alleging a default for failure to meet
certain reporting requirements of the Olympia & York affiliates contained
in the first mortgage loan documents. No monetary default has been
alleged. The Olympia & York affiliates have responded to the lender that
the Joint Ventures are not in default. JMB/NYC is unable to determine if
the Joint Ventures are in default. There have not been any further notices
from the first mortgage lender. However, on June 30, 1994 the Olympia &
York affiliates, on behalf of the Three Joint Ventures, signed a letter of
intent with representatives of the lender (consisting of a steering
committee of holders of notes evidencing the mortgage loan) to restructure
certain terms of the existing mortgage loan. The proposed restructuring
would change the interest rate on the notes from a floating rate equal to
1.75% over the rate on three months U.S. treasury bills to a fixed rate of
9% per annum with periodic payments of interest only at a pay rate of 7%
per annum. Unpaid interest would accrue at 9% per annum and unless
previously paid out of excess property cash flow will be payable at
maturity. There is no assurance that a restructuring of the loan will be
obtained under these or any other terms. In conjunction with negotiations
held prior to June 30, 1994, the Olympia & York affiliates reached an
agreement with the first mortgage lender whereby effective January 1, 1993,
the Olympia & York affiliates are limited to taking distributions of
$250,000 on a monthly basis from the Three Joint Ventures reserving the
remaining excess cash flow in a separate interest-bearing account to be
used exclusively to meet the obligations of the Three Joint Ventures as
approved by the lender. Interest on the first mortgage loan is currently
calculated based upon a variable rate related to the short-term U.S.
Treasury obligation rate, subject to a minimum rate on the loan of 7% per
annum. An increase in the short-term U.S. Treasury obligation rate could
result in increased interest payable on the first mortgage loan by the
Three Joint Ventures.

Subsequent to the end of the quarter, JMB/NYC entered into a binding
letter agreement with the Olympia & York affiliates to resolve certain
disputes which are more fully discussed in Note 2. In general, the parties
have agreed to: (i) amend the Three Joint Ventures' agreements to
eliminate any funding obligation by JMB/NYC for any purpose in return for
JMB/NYC relinquishing its rights to approve most all property management,
leasing, sale (for any sale subsequent to 1998) or refinancing decisions
and the establishment of a new preferential distribution level payable to
the Olympia & York affiliates from all future sources of cash, (ii) sell
the 2 Broadway Building, and (iii) restructure the first mortgage loan.
The general terms for sale of the 2 Broadway Building and the restructure
of the underlying loan are as outlined above. In order to facilitate the
restructuring of JMB/NYC, the Olympia & York affiliates, and
representatives of the mortgage lender have agreed to file for each of the
three Joint Ventures a pre-arranged bankruptcy plan for reorganization
under Chapter 11 of the Bankruptcy Code. Such filing's are expected to
occur prior to the end of the year. The reorganization plans will
essentially be the proposed transactions contained in the letter agreement.

Long Beach Plaza

In March 1993, the Partnership completed a settlement of its
litigation with Australian Ventures, Inc. ("AVI") involving a long-term
ground and improvement lease for approximately 144,000 square feet at the
shopping center. Under the terms of the settlement, AVI paid the
Partnership $550,000, and the parties terminated the ground and improvement
lease. As a result, the gross leasable area owned by the Partnership
increased by 144,000 square feet. In addition, both parties dismissed
their respective claims in the lawsuit with prejudice. The Partnership has
paid the $550,000 received from AVI to the mortgage lender for the property
as scheduled debt service due for April and part of May 1993 on the loan
secured by the property. The Partnership is seeking a replacement tenant
for the vacated space. In January 1994, the Partnership received a letter
of intent from Ross Dress for Less to lease approximately 27,200 square
feet of the first floor of the vacated Buffum's building. In addition,
Gold's Gym has offered to lease approximately 34,000 square feet of the
third floor of the vacated Buffum's building and relocate from its current
9,813 square foot space on Pine Avenue. The Partnership has several
prospects for the smaller Gold's Gym space. There can be no assurance
these leases will be consummated. The Partnership had discussions with
several tenants regarding their requests for temporary rent relief
commencing in 1992. The tenants indicated that, due to the poor sales
levels of their stores at the mall, such relief was necessary if they were
to continue to operate. After review of those tenants requesting relief,
the Partnership decided to grant temporary relief (approximately 50% of
their minimum rent) to certain tenants through December 31, 1992. The
Partnership had re-evaluated each tenant's sales level and financial
situation for 1993. Additional relief was granted for 1993 and has been
granted in 1994. As a result of the foregoing, the Partnership has
initiated and continues to hold discussions with the first mortgage lender
regarding a modification of its mortgage loan secured by the property which
matured in June 1994. Due to declining retail sales at the center along
with one of the center's anchor tenants vacating its space in 1991, the
Partnership has not remitted all of the scheduled debt service payments
since June 1993. There can be no assurance that such modification will be
consummated (reference is made to Note 3(l)).

University Park

University Park office building's major tenant, California Vision
Services, vacated its space of 70,697 square feet (59% of the building)
upon the expiration of its lease in April 1993. The tenant's anticipated
space requirements over the next several years were expected to grow to
over 200,000 square feet, which the property was unable to accommodate.
The Partnership had been actively marketing the vacated space. As a result
of Cal-Vision's move out, the Partnership was unable to remit the full debt
service payment from property operations and had submitted cash flow from
the property through May, 1993. In addition, the Partnership's discussions
with the first mortgage lender to further modify the note were
unsuccessful. The Partnership decided not to commit any additional capital
to the property. Given the current vacancy level of the building and the
current and projected market conditions, the likelihood of recovering any
additional cash investment necessary to retain ownership of the building
would have been remote. As a result, on January 10, 1994, the Partnership
transferred to the lender title to the property. This resulted in the
Partnership recognizing a gain of approximately $5,676,000 for financial
reporting, and it expects to recognize a gain of approximately $6,897,000
for Federal income tax purposes with no distributable proceeds in 1994.
(See Note 3(e)).

1001 Fourth Avenue

In recent years, the Seattle, Washington office market has been very
competitive due to significant overbuilding, especially in the Central
Business District where 1001 Fourth Avenue Plaza is located. Current
vacancy rates exceed 15%, and rental rates remain significantly depressed.
In addition, a substantial amount of sublease space had become available in
the immediate downtown area. Given the current and projected market
conditions, the likelihood of recovering the additional cash investment
necessary to fund anticipated operating deficits for 1001 Fourth Avenue
Plaza would have been remote.

In addition, certain disputes had arisen between the Partnership and
the lender regarding a $2,000,000 letter of credit maintained by the
Partnership as additional security for the lender in connection with the
existing loan modification. As a result of defaults alleged by the lender,
the lender attempted to draw on the $2,000,000 letter of credit prior to
its expiration in November 1992. Subsequent negotiations with the lender
for a loan modification were unsuccessful. On November 1, 1993, the
Partnership transferred title to the 1001 Fourth Avenue Plaza office
building in full satisfaction of the Partnership's mortgage obligation
(which had an outstanding balance, including accrued interest, of
approximately $102,607,000). In exchange for the transfer of title, the
lender agreed to return the Partnership's bond and letter of credit. This
transfer has resulted in the Partnership no longer having an ownership
interest in the property. Reference is made to Note 3(c).

Eastridge Apartments

In April 1994, the Partnership exercised its option for a discounted
payoff of its mortgage obligation secured by the Eastridge Apartments (see
Note 3(d)). On June 30, 1994, the Partnership sold the land, building and
related improvements of the Eastridge Apartments, located in Tucson,
Arizona. See Note 7(d).

Plaza Tower Office Building

The mortgage loan on the Plaza Tower office building, which has an
outstanding principal balance at September 30, 1994 of approximately
$17,800,000, matured on November 1, 1994. The Partnership has an agreement
in principle for a short term loan extension and has submitted an
application (with a $50,000 application fee) with a third-party mortgage
lender for a refinancing of the mortgage loan (see note 3(m)). However,
there can be no assurance that an extension and/or refinancing can be
obtained. As of September 30, 1994, approximately 51,000 square feet of
leased space expired, all of which has been renewed or re-leased.

General

The affiliates of the Corporate General Partner have deferred certain
pre-1993 property management and leasing fees payable to them under the
terms of the management agreements in an aggregate amount of approximately
$12,818,000 (approximately $35 per interest) through September 30, 1994.
The amounts do not bear interest and are payable in future periods. All
property management fees and leasing fees are being paid currently.
Reference is made to Note 5.

A number of the Partnership's investments have been made through joint
ventures. There are certain risks associated with these investments,
including the possibility that the Partnership's joint venture partners in
an investment might become unable or unwilling to fulfill their financial
or other obligations or, that such joint venture partners may have economic
or business interests or goals that are inconsistent with those of the
Partnership.

Due to the factors discussed above and the general lack of buyers of
real estate today, it is likely that the Partnership may hold some of its
investment properties longer than originally anticipated in order to
maximize the recovery of its investments and any potential return thereon.
However, in light of the current severely depressed real estate markets, it
currently appears that the Partnership's goal of capital appreciation will
not be achieved. Although the Partnership expects to distribute from sale
proceeds some portion of the Limited Partners' original capital, without a
dramatic improvement in market conditions, the Limited Partners will
receive substantially less than half their original investment. It should
be noted, however, that in connection with sales or other dispositions
(including transfers to lenders) of properties (or interests therein) owned
by the Partnership or its joint ventures, the Limited Partners may be
allocated substantial gain for Federal income tax purposes even though the
Partnership would not be able to return a substantial amount of the Limited
Partners' original capital from such sales or other dispositions.

RESULTS OF OPERATIONS

The net increase in cash and cash equivalents and short-term invest-
ments is due to a $1,702,082 cash distribution from Orchard Associates and
cash proceeds related to the sale of the Eastridge Apartments (see note
7(d)). The corresponding decrease in amounts due to affiliates and the
increase in escrow deposits are due primarily to (a) funding of the capital
improvement escrow of approximately $1,635,000 pursuant to the terms of the
Copley Place loan modification as more fully described in Note 3(h) and to
(b) the payment of approximately $850,000 of previously deferred management
fees and accrued interest of approximately $2,747,000 related to the
deficit loans at the Copley Place multi-use complex. As of the date of
this report, no amounts have been withdrawn from the capital improvement
escrow.

The decreases in rents and other receivables, land and leasehold
interest, buildings and improvements, accumulated depreciation, deferred
expenses, current portion of long-term debt, tenant security deposits,
unearned rents and long-term debt less current portion at September 30,
1994 as compared to December 31, 1993 and the corresponding decreases in
rental income, mortgage and other interest, depreciation and property
operating expenses for the three and nine months ended September 30, 1994
as compared to September 30, 1993 are due primarily to the lender taking
title to the Gables Corporate Plaza and University Park office buildings
and to the sale of the Eastridge Apartments in 1994, and to the sales of
the Rio Cancion and Greenwood Creek II apartments and to the lender taking
title to the 1001 Fourth Avenue office building in 1993. The decrease in
rental income is also attributable to the expiration of the IBM lease at
Copley Place multi-use complex. Reference is made to Notes 3(c), 3(e),
3(f), 3(g), 7(b), 7(c) and 7(d), respectively.

The increase in venture partners' deficits in ventures at September
30, 1994 as compared to December 31, 1993 and the corresponding increase in
venture partner's share of losses from ventures operations for the nine
months ended September 30, 1994 as compared to September 30, 1993 is due
primarily to the venture partner's share of losses incurred at Copley Place
multi-use complex (see note 3(h)) offset by the venture partner's
realization of its share of gain on the disposition of the Gables Corporate
Plaza office building in January 1994 (as more fully discussed in Note
3(f)) and the contribution of its share of funds used for the payment of
deferred management fees at Copley Place in 1994.

The increase in accrued real estate taxes at September 30, 1994 as
compared to December 31, 1993 is due primarily to the timing of real estate
tax payments at certain of the Partnership's investment properties.

The increase in interest income for the three and nine months ended
September 30, 1994 as compared to September 30, 1993 is due primarily to
higher average balances of investments in U.S. Government Obligations and
as a result of the investment of proceeds retained from the sale of the Old
Orchard Shopping Center in September 1993 (see Note 2(d)) as well as higher
interest rates earned.

The decrease in the Partnership's share of loss from unconsolidated
ventures for the three and nine months ended September 30, 1994 as compared
to September 30, 1993 is due primarily to the sale of the Partnership's
interest in the Old Orchard shopping center in September 1993 (as more
fully discussed in Note 2(d)). The decrease is also attributable to
JMB/NYC recording a $192,627,560 provision for value impairment at 2
Broadway at December 31, 1993, which reduced the subsequent depreciation
expense related to that investment property.

The net gain of $18,364,792 on sale or disposition of investment
property for the nine months ended September 30, 1994 consists of a gain of
$5,676,413 on the transfer of the University Park office building, a gain
(net of the venture partner's share) of $7,677,508 on the transfer of
Gables Corporate Plaza office building, and a gain of $5,010,871 related to
the sale of the Eastridge Apartments (as more fully discussed in Notes
3(e), 3(f), and 7(d)).

The net gain of $4,312,031 on sale or disposition of investment
property for the nine months ended September 30, 1993 consists primarily of
a gain of $2,524,958 from the sale of the Rio Cancion apartments and a gain
of $1,787,073 from the transfer of the Greenwood Creek Apartments (as more
fully discussed in Notes 7(b) and (c)).

The extraordinary item of $996,126 for the nine months ended September
30, 1994 is due to the discounted payoff of the mortgage note which secured
the Eastridge Apartments (see Note 3(d)).