AMERICAN INDUSTRIAL PROPERTIES REIT INC, S-4, 1994-01-31

AMERICAN INDUSTRIAL PROPERTIES REIT INC
S-4, 1994-01-31
REAL ESTATE INVESTMENT TRUSTS

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THIS DOCUMENT IS A COPY OF THE FORM S-4 FILED ON JANUARY 21, 1994 PURSUANT TO A
RULE 201 TEMPORARY HARDSHIP EXEMPTION.

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1994

REGISTRATION NO. 33-74292
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
(Exact name of registrant as specified in its charter)

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MARYLAND 6798 75-6335572
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>

6220 NORTH BELTLINE, SUITE 205, DALLAS, TEXAS 75063
(214) 550-6053

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

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CHARLES W. WOLCOTT
6220 NORTH BELTLINE, SUITE 205
DALLAS, TEXAS 75063
(214) 550-6053
(Name, address, including zip code, and telephone number of agent for service of
process)

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Copies to:

BRYAN L. GOOLSBY
GINA E. BETTS
LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
2200 ROSS AVENUE, SUITE 900
DALLAS, TEXAS 75201
(214) 220-4800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM
AMOUNT AGGREGATE PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, par value
$0.01 per share.......... 1,915,080 $10.65 $20,395,602 $7,035.00
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(1) Based upon the maximum number of shares of Common Stock to be issued
pursuant to the Merger, which is equal to 1/5 of the number of Shares of
Beneficial Interest issued and outstanding as of January 17, 1994, plus an
additional 100,000 shares to cover shares that may be issued to holders of
fractional shares and holders of fewer than 10 shares of Common Stock.

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

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AMERICAN INDUSTRIAL PROPERTIES REIT, INC.

CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)

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ITEM NUMBER AND CAPTION OF FORM S-4 LOCATION IN PROXY STATEMENT/PROSPECTUS
----------------------------------------------- ----------------------------------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Proxy
Statement/Prospectus......................... Outside Front Cover of Registration
Statement; Cross Reference Sheet;
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Proxy Statement/Prospectus................... Inside Front and Outside Back Cover
Pages; Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Outside Front Cover of Registration
Statement; Proxy Statement/Prospectus
Summary; Risk Factors; The Special
Meeting
4. Terms of the Transaction....................... Outside Front Cover Page of Proxy
Statement/Prospectus; Proxy
Statement/Prospectus Summary; The
Proposal; The Company's Securities;
Certain Statutory and Charter
Provisions; Summary Comparison of
Shares of Beneficial Interest and
Common Stock; Federal Income Tax
Considerations
5. Pro Forma Financial Information................ Financial Statements
6. Material Contacts With the Company Being
Acquired..................................... *
7. Additional Information Required For Reoffering
by Persons and Parties Deemed to be
Underwriters................................. *
8. Interests of Named Experts and Counsel......... *
9. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities.................................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants.... *
11. Incorporation of Certain Information by
Reference.................................... *
12. Information With Respect to S-2 or S-3
Registrants.................................. *
13. Incorporation of Certain Information by
Reference.................................... *
</TABLE>
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<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION OF FORM S-4 LOCATION IN PROXY STATEMENT/PROSPECTUS
----------------------------------------------- ----------------------------------------
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14. Information With Respect to Registrants Other
Than S-3 or S-2 Registrants.................. Proxy Statement/Prospectus Summary; The
Company; The Properties; Management's
Discussion and Analysis of Financial
Condition and Results of Operations
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies...... *
16. Information With Respect to S-2 or S-3
Companies.................................... *
17. Information With Respect to Companies Other
Than S-3 or S-2 Companies.................... Proxy Statement/Prospectus Summary; The
Company; The Properties; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited........... Front Cover Page of Proxy
Statement/Prospectus; Proxy
Statement/Prospectus Summary; The
Proposal; The Special Meeting; The
Company's Securities; Management;
Conflicts of Interest
19. Information if Proxies, Consents or
Authorizations Are not to be Solicited, or in
an Exchange Offer............................ *
</TABLE>

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* Not Applicable
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PROXY STATEMENT

AMERICAN INDUSTRIAL PROPERTIES REIT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 28, 1994

PROSPECTUS

AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
1,915,080 SHARES OF COMMON STOCK

This Proxy Statement/Prospectus is being furnished to the holders
("Shareholders") of shares of Beneficial Interest ("Shares") of American
Industrial Properties REIT, a Texas real estate investment trust (the "Trust")
in connection with the solicitation of proxies by the Trust Managers on behalf
of the Trust for use at a special meeting of Shareholders of the Trust (the
"Special Meeting") which has been called to consider and vote on a proposal (the
"Proposal") to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement") between the Trust and American Industrial Properties REIT, Inc., a
Maryland corporation and wholly-owned subsidiary of the Trust (the "Company")
and, as contemplated thereby, the merger of the Trust with and into the Company
(the "Merger"). Pursuant to the Merger Agreement (a) every five Shares will be
converted into one share of Common Stock of the Company, par value $0.01 per
share ("Common Stock"); (b) persons that will hold a fractional share in the
Company after the Merger must either (i) pay to the Company an amount equal to
the fraction necessary to round upward to a whole share of Common Stock times
the opening price of the Company's Common Stock on the first trading date after
the consummation of the Merger (the "Opening Price") and the fractional share
shall be rounded upward to the nearest whole share of Common Stock or (ii)
permit the Company to purchase the fractional share at a price equal to the
fraction owned times the Opening Price; (c) persons holding fewer than 10 shares
of Common Stock after the Merger will have the right to either (i) be paid by
the Company for such Shares at a price equal to the number of shares of Common
Stock owned times the Opening Price or (ii) purchase from the Company the number
of shares of Common Stock necessary to bring the Stockholder's ownership up to
10 shares of Common Stock, at a purchase price per share equal to the Opening
Price; (d) all rights and obligations of the Trust will be assumed by the
Company; and (e) the executive officers of the Trust immediately prior to the
Merger shall become the executive officers of the Company and Messrs. Bricker
and Wolcott will serve as directors of the Company. See "THE PROPOSAL" and the
Merger Agreement, a copy of which is attached hereto as Appendix A. This Proxy
Statement/Prospectus is first being mailed or delivered to Shareholders on or
about February 25, 1994. This Proxy Statement/Prospectus also constitutes the
Prospectus of the Company with respect to its Common Stock to be issued in
connection with the Merger.

Only Shareholders of record on February 28, 1994 are entitled to notice of
and to vote at the Special Meeting. The consummation of the Merger is subject to
receipt of the approval of holders of 66 2/3% of the outstanding Shares. Neither
the Declaration of Trust nor Texas law provide for dissenters' rights. The sole
stockholder of the Company, which is the Trust, acting through the Trust
Managers, and the Board of Directors of the Company have unanimously approved
the Merger. THE TRUST MANAGERS HAVE UNANIMOUSLY APPROVED THE PROPOSAL AND
RECOMMEND THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND THE MERGER.

SEE "RISK FACTORS" FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE
COMMON STOCK, INCLUDING:

- Real estate investment risks, such as the effect of economic and other
conditions on the ability of the Properties to generate sufficient cash
flow to meet operating expenses and debt service requirements.

- Absence of a provision in the Company's organizational documents limiting
the amount of debt that the Company may incur.

- Dependence on the Texas market.

- Ability of the Board of Directors to change the investment, financing,
borrowing and other policies of the Company at any time without
Stockholder approval.

- Taxation of the Company as a corporation if it fails to qualify as a
REIT.

- Certain provisions in the Company's Articles which may limit a change in
control of the Company.

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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.

THE SHARES OF COMMON STOCK OF THE COMPANY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCU-
RACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1994.
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AVAILABLE INFORMATION

The Trust is presently subject to the information requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Commission. Such reports, proxy statements and other
information are available for inspection and copying at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices of
the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois, 60601, and New York Regional
Office, 7 World Trade Center, New York, New York 10048. Copies of such material
may be obtained upon payment of the Commission's customary charges by writing to
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, reports and other information
concerning the Trust may be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.

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TABLE OF CONTENTS

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HEADING PAGE
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PROXY STATEMENT/PROSPECTUS SUMMARY.................................................... 5
The Company......................................................................... 5
The Proposal and the Merger......................................................... 5
The Special Meeting; Voting......................................................... 7
Comparative Rights of Shareholders Before and After the Merger...................... 7
Risk Factors........................................................................ 7
Market Price and Distribution Data.................................................. 9
Selected Historical Financial Data.................................................. 10
Distribution Policy................................................................. 11
Federal Income Tax Consequences of the Merger....................................... 11
Tax Status of the Company........................................................... 11
RISK FACTORS.......................................................................... 12
Real Estate Investment Considerations............................................... 12
Uninsured Loss...................................................................... 12
No Limitation on Debt............................................................... 13
Dependence on Texas Market.......................................................... 13
Changes in Policies................................................................. 13
Adverse Consequences of a Failure to Qualify as a REIT.............................. 13
Certain Anti-takeover Provisions; Ownership Limits.................................. 14
Adverse Effect of Market Interest Rates on Price of Common Stock.................... 14
Possible Environmental Liabilities.................................................. 14
Possible Future Dilution............................................................ 15
Texas Franchise Taxes............................................................... 15
Employment Agreements............................................................... 16
Risks of Development and Acquisition Activities..................................... 16
Market Illiquidity.................................................................. 16
THE PROPOSAL.......................................................................... 16
General............................................................................. 16
Benefits............................................................................ 17
Detriments.......................................................................... 18
Recommendation of the Trust Managers................................................ 19
THE SPECIAL MEETING................................................................... 19
General............................................................................. 19
Record Date; Outstanding Shares; Voting............................................. 19
Quorum.............................................................................. 19
Dissenters' Rights.................................................................. 19
Proxy............................................................................... 19
Solicitation of Proxies............................................................. 20
THE COMPANY........................................................................... 20
Company History..................................................................... 20
Investment Policies................................................................. 21
Operating Policies.................................................................. 21
Distribution Policy................................................................. 22
THE PROPERTIES........................................................................ 23
Additional Information Regarding Certain Properties................................. 24
Other Encumbrances on Real Estate................................................... 25
Terms of Mortgage Indebtedness...................................................... 26
Competition......................................................................... 26
Insurance........................................................................... 26
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES........................................... 27
Disposition......................................................................... 27
Conflict of Interest Policy......................................................... 27
Affiliate Transaction Policy........................................................ 27
Policies With Respect to Other Activities........................................... 28
</TABLE>

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HEADING PAGE
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 29
Results of Operations............................................................... 29
Liquidity and Capital Resources..................................................... 30
Other Matters....................................................................... 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS.......................... 33
MANAGEMENT............................................................................ 33
Directors and Executive Officers.................................................... 33
Compensation of Directors and Executive Officers.................................... 34
Employment Agreements............................................................... 35
Stock Option Plan................................................................... 36
401(k) Plan......................................................................... 37
Limitation of Liability and Indemnification......................................... 37
SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST AND COMMON STOCK.................. 38
THE COMPANY'S SECURITIES.............................................................. 40
Capital Stock....................................................................... 40
The Notes........................................................................... 42
CERTAIN STATUTORY AND CHARTER PROVISIONS.............................................. 44
Classification of the Board of Directors............................................ 44
Limitation of Liability and Indemnification......................................... 45
Business Combinations............................................................... 45
Control Share Acquisition........................................................... 46
Amendment to the Articles of Incorporation and Bylaws............................... 46
Dissolution of the Company.......................................................... 47
Director Nominations and New Business............................................... 47
Meetings of Stockholders............................................................ 47
FEDERAL INCOME TAX CONSIDERATIONS..................................................... 47
Effect of the Merger................................................................ 47
Taxation............................................................................ 47
Taxation of the Company............................................................. 48
Taxation of the Stockholders of a REIT.............................................. 50
Withholding on Dividends and Sale Proceeds.......................................... 50
Foreign Stockholders................................................................ 50
Tax Exempt Stockholders............................................................. 51
EXPERTS............................................................................... 52
LEGAL MATTERS......................................................................... 52
STOCKHOLDER PROPOSALS................................................................. 52
ADDITIONAL INFORMATION................................................................ 52
GLOSSARY.............................................................................. 53
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
AGREEMENT AND PLAN OF MERGER.......................................................... A-1
</TABLE>

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PROXY STATEMENT/PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information contained elsewhere in this Proxy Statement/Prospectus, the
Exhibits hereto and the Merger Agreement attached hereto as Appendix A. Each
Shareholder is urged to read this Proxy Statement/Prospectus in its entirety.
Capitalized terms used in this Proxy Statement/Prospectus shall have the
meanings set forth in the Glossary.

THE COMPANY

The Company is a newly-formed Maryland corporation which is a wholly-owned
subsidiary of the Trust. The Company was incorporated for the purpose of
reorganizing the Trust into a Maryland corporation. See "THE PROPOSAL." The
Company, like the Trust, will operate as a self-administered REIT and expects to
continue to qualify as a REIT for federal income tax purposes. The Company does
not intend to engage a separate REIT advisor.

If the Proposal is approved and adopted, the Company will own and operate
real estate properties consisting of 14 industrial developments and one enclosed
specialty retail mall (collectively, the "Properties"). The Properties contain
1,592,880 net rentable square feet and are located in eight states. For the
twelve-month period ended December 31, 1993, the Properties had an average
occupancy rate of 88%. At December 31, 1993, the Properties were 90% occupied.
As of December 31, 1993, the Properties had average monthly rental from a low of
$2.80 to a high of $14.43 per square foot. See "THE PROPERTIES."

As with the Trust, industrial properties will be the primary focus of the
Company's acquisition policy. The Company will seek to invest in industrial
properties in major mid-American markets such as Dallas, Chicago and Atlanta,
which are located at the key rail and highway intersects controlling the
distribution of goods in the United States. See "THE COMPANY -- Investment
Objectives."

The principal executive offices of the Trust and the Company are located at
6220 N. Beltline, Suite 205, Irving, Texas 75063, and their telephone number is
(214) 550-6053.

THE PROPOSAL AND THE MERGER

General. The Shareholders are being asked to consider and approve the
Merger Agreement and the Merger thereunder pursuant to which the Trust will
merge with and into the Company, a wholly-owned subsidiary of the Trust. The
purpose of the Merger is to reorganize the Trust into a Maryland corporation
that intends to continue to qualify as a REIT for federal income tax purposes.

The affirmative vote of the holders of 66 2/3% of the outstanding Shares
(at least 6,060,267 Shares) and the Trust Managers are required to approve the
Proposal. The Trust Managers and the executive officers of the Trust own a total
of 18,000 Shares (.20%). The percentage ownership of the Trust Managers and
executive officers of the Trust will not be materially affected by the Merger.
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS." The Trust
Managers have unanimously approved the Proposal, subject to the approval of the
Shareholders. The Board of Directors and the sole Stockholder of the Company
have unanimously approved the Merger.

There are no statutory rights of dissent or appraisal available under Texas
law to the Shareholders who object to the Proposal. No federal or state
regulatory approvals must be obtained in connection with the Merger. Certain
filings will be required in Texas and Maryland in order to consummate the
Merger.

If the Merger is approved, each Shareholder will receive one share of
Common Stock for every five Shares surrendered. Persons that will hold a
fractional share in the Company after the Merger must either (i) pay to the
Company an amount equal to the fraction necessary to round upward to a whole
share of Common Stock times the Opening Price and the fractional share shall be
rounded upward to the nearest whole share of Common Stock or (ii) permit the
Company to repurchase the fractional share at a price equal to the fraction
owned times the Opening Price. Persons holding fewer than 10 shares of Common
Stock after the Merger will have the right to either (i) be paid by the Company
for such Shares at a price equal to the number of shares of Common Stock owned
times the Opening Price or (ii) purchase from the Company the

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number of shares of Common Stock necessary to bring the Stockholder's ownership
up to 10 shares of Common Stock, at a purchase price per share equal to the
Opening Price. Each Shareholder will be entitled to receive, upon surrender of
certificates previously representing Shares, certificates representing the
number of full shares of Common Stock to which such Shareholder is entitled
pursuant to the Merger Agreement. Stockholders holding fractional shares of
Common Stock and Stockholders holding fewer than 10 shares of Common Stock will
be contacted by the Company or its Transfer Agent after the Effective Date to
determine whether the Stockholder desires to pay the necessary funds to be
rounded upward to the nearest whole share or to 10 shares, as applicable, or if
the Stockholder desires to receive cash for his or her shares of Common Stock as
described above.

Two of the Trust Managers (Messrs. Bricker and Wolcott) shall serve on the
Board of Directors of the Company along with Mr. Raymond H. Hay, and the
executive officers of the Trust shall serve as the executive officers of the
Company. See "MANAGEMENT -- Directors and Executive Officers."

Benefits and Detriments. The Trust Managers believe the Proposal has the
following potential benefits for the Trust and its Shareholders:

- Improved Capital and Organizational Structure. Consistent with recent
Shareholder action approving the removal of the finite life limitation on
the Trust, the Proposal provides a capital and organizational structure
under the Articles which is expected to allow the Company improved access
to the capital markets.

- Established Body of Law. A substantial body of law has developed around
the interpretations of the Maryland General Corporation Law (the "MGCL")
while the Texas REIT Act has been subject to relatively little judicial
interpretation.

- Properties No Longer Subject to Mandatory Sale or Improvement. The Texas
REIT Act mandates the sale of real property owned by the Trust unless
major capital improvements are made to the Property within 15 years of its
acquisition. There is no statutory guidance or judicial interpretation as
to what constitutes a major capital improvement. The Proposal alleviates
the risk of a statutorily mandated sale at a time which is not beneficial
to the Shareholders.

- Limited Liability of Stockholders. Although the Texas REIT Act
specifically provides that the shareholders of a trust formed under the
Texas REIT Act are not liable for the debts of the trust, it is unclear as
to whether such protection would be afforded to the shareholders by courts
outside Texas. It is well accepted as a general matter in all
jurisdictions that stockholders in a corporation are not personally liable
for the debts of a corporation.

- Purchase of Property With Stock. The Articles provide for a sufficient
number of authorized shares to permit the Company to acquire property for
Common Stock, thereby giving the Company more flexibility in negotiating
purchases of additional properties.

- Marginability. The exchange rate of five shares in the Trust for one
share in the Company is anticipated to permit the Common Stock to be
marginable under the requirements of most established brokerage firms,
which management believes should improve the liquidity and marketability
of the Common Stock.

See "THE PROPOSAL -- Benefits."

The Trust Managers believe the Proposal has the following possible
detriments for the Trust and its Shareholders:

- Dilution. The Proposal will result in additional authorized shares which
may be offered in future capital raising transactions on behalf of the
Company without Stockholder approval. Such transactions may result in
dilution to then-current Stockholders. See "RISK FACTORS -- Dilution."

- Ownership Limitations and Staggered Board. Provisions in the Articles
limiting ownership of Common Stock and Preferred Stock by a single person
to 9.8%, requiring a staggered Board of Directors and

6
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authorizing the issuance of Preferred Stock may discourage a change in
control of the Company and thus limit the opportunity for Stockholders to
receive a premium over the then-current market price for their Common
Stock.

- Texas Franchise Taxes. As a corporation doing business in Texas, the
Company will be subject to Texas franchise taxes. The Trust is not
currently subject to Texas franchise taxes as a REIT formed under the
Texas REIT Act. Such amount is not expected to be material for fiscal 1994
(less than $50,000).

See "THE PROPOSAL -- Detriments."

THE SPECIAL MEETING; VOTING

The Special Meeting will be held at 9:00 a.m., Dallas time on April 28,
1994 at the , Dallas, Texas. See "THE SPECIAL
MEETING -- General".

Only Shareholders of record at the close of business on February 28, 1994
(the "Record Date") will be entitled to notice of and to vote at the Special
Meeting or any adjournments thereof. As of January 7, 1994, 9,075,400 Shares
were issued and outstanding. See "THE SPECIAL MEETING -- Record Date;
Outstanding Shares; Voting." The presence either in person or by properly
executed proxy of a majority of the outstanding Shares (4,537,701 Shares) is
necessary to constitute a quorum at the Special Meeting. See "THE SPECIAL
MEETING -- Quorum."

Accompanying this Proxy Statement/Prospectus is a proxy card ("Proxy") that
may be used to indicate a Shareholder's vote on the Proposal. All Proxies that
are properly completed, signed and returned to the Trust prior to the Special
Meeting, and which have not been revoked, will be voted at the Special Meeting
as indicated on the Proxy. If the Proxy is signed and returned, but no vote is
indicated thereon, the Proxy will be voted FOR the Proposal. A Shareholder may
revoke his or her Proxy at any time before it is voted by (i) executing a
subsequently dated Proxy; (ii) filing a written request to revoke or amend his
or her Proxy with the President of the Trust at the principal executive office
of the Trust; or (iii) attending the Special Meeting and revoking the Proxy
prior to the start of the Special Meeting. Failure to return the Proxy is the
same as voting against the Proposal. See "THE SPECIAL MEETING -- Proxy."

COMPARATIVE RIGHTS OF SHAREHOLDERS BEFORE AND AFTER THE MERGER

The rights of the Shareholders are currently governed by the Texas REIT Act
and by the Declaration of Trust and the By-Laws of the Trust. On the Effective
Date, the Shareholders will become Stockholders of the Company, a Maryland
corporation, and their rights as Stockholders will be governed by Maryland law
and by the Articles and Bylaws of the Company. There are various differences
between the rights of Company Stockholders and Trust Shareholders. See "SUMMARY
COMPARISON OF SHARES OF BENEFICIAL INTEREST AND COMMON STOCK."

RISK FACTORS

There are numerous risk factors relating to the receipt of Common Stock in
connection with the Merger and the operation of the Company which the
Shareholders should carefully consider before voting on the Proposal. See "RISK
FACTORS."

Such risks include, among other things:

- real estate investment risks, such as the effect of economic and other
conditions on property values (including the dependency of the Properties
on the economies of the metropolitan areas where they are located), the
ability of tenants to make rent payments, the ability of the Properties to
generate revenues sufficient to meet operating expenses, including future
debt service, and the illiquidity of real estate investments;

- risks associated with the acquisition or development of industrial
properties, including lease-up and financing risks and the risk that such
properties may not perform as expected;

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<PAGE> 11

- risk of potential losses in the event of a casualty or other liability
that is not insured, uninsurable or not economically insurable;

- the risk of potential increases in leverage due to the absence of a
provision in the organizational documents of the Company that limits the
amount of debt that the Company may incur, which may result in increases
in debt service requirements that could adversely affect the Company's
Funds from Operations and the ability to pay dividends to Stockholders and
an increase of default in the obligations of the Company;

- risks associated with the location of seven of the Company's Properties
in Texas, which account for 834,521 leasable square feet of the 1,592,880
total leasable square feet of the Properties (52%); therefore, the
Company's performance is largely dependent upon economic conditions in the
Texas areas in which the Properties are located;

- risks associated with the ability of the Board of Directors of the
Company to change the investment, financing, borrowing, distribution and
other policies of the Company at any time without Stockholder approval;

- the risk of the failure of the Company to qualify as a REIT and therefore
be taxed as a corporation and the liability of the Company for certain
federal, state and local income taxes in such event;

- risks associated with the potential anti-takeover effect of limiting
ownership of Common Stock and Preferred Stock by a single person to 9.8%
of the outstanding Common Stock and of certain other provisions contained
in the organizational documents of the Company, such as a staggered Board
of Directors and the ability to issue Preferred Stock, any of which may
discourage a change in control and limit the opportunity for Stockholders
to receive a premium over then-current market prices for their Common
Stock;

- risk of increases in market interest rates, which may lead prospective
purchasers of the Common Stock to demand a higher anticipated annual yield
from future dividends, which in turn may adversely affect the market price
of the Common Stock;

- risks of potential liability of the Company for unknown or future
environmental liabilities;

- risks of potential dilution to then-existing Stockholders as a result of
the Company's ability to issue additional shares of Common Stock;

- risks associated with the Company being subject to Texas franchise taxes;

- risks associated with the severance compensation to the executive
officers of the Company in the event of a change in control of the
Company, which may discourage a potential acquiror from seeking control of
the Company thereby affecting the ability of Stockholders to receive a
premium for their stock over then-existing market prices; and

- risks associated with the effect of REIT distribution requirements
(mandating that 95% of a REIT's net ordinary taxable income be distributed
currently) on the Company's ability to finance future developments,
acquisitions and capital improvements.

8
<PAGE> 12

MARKET PRICE AND DISTRIBUTION DATA

The Trust's Shares are listed and traded on the New York Stock Exchange
(the "NYSE"). The following table sets forth for the periods indicated the high
and low per Share closing sale price of the Trust's Shares, and the cash
distributions declared per Share:

<TABLE>
<CAPTION>
QUARTER ENDED: HIGH LOW DISTRIBUTIONS
-------------- ---- --- -------------
<S> <C> <C> <C>
December 31, 1993............................................. 3 1/4 2 .04
September 30, 1993............................................ 2 3/8 1 7/8 .04
June 30, 1993................................................. 2 1/2 2 .04
March 31, 1993................................................ 3 1 3/4 .04
December 31, 1992............................................. 2 1 1/2 .04
September 30, 1992............................................ 2 1/8 1 3/4 .04
June 30, 1992................................................. 2 1/4 1 7/8 .04
March 31, 1992................................................ 2 5/8 1 3/4 .08
</TABLE>

At January 20, 1994, the last trading day prior to the public announcement
of the proposed Merger, the closing sale price per Share as reported on the NYSE
Composite Tape was $2.13. On such date, there were 9,075,400 outstanding Shares
held by approximately 2,341 holders.

9
<PAGE> 13

SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

The following table sets forth historical financial information for the
Trust and should be read in conjunction with the Financial Statements of the
Trust and the Notes thereto which are contained elsewhere in the Proxy
Statement/Prospectus. There is not expected to be any material impact to the
historical operations of the Trust as a result of the proposed Merger with the
Company.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ ------------------------
1988 1989 1990 1991(A) 1992(B) 1992 1993(C)
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................... $ 18,110 $ 17,824 $ 17,744 $ 16,488 $ 15,139 $ 11,461 $ 7,802
Loss before gain (loss) on
sales of real estate and
extraordinary gains(d)... (904) (2,708) (4,484) (13,786) (18,719) (5,846) (3,921)
Net loss(d)................ (904) (2,708) (2,626) (9,162) (17,593) (6,090) (4,126)
BALANCE SHEET DATA:
Total assets............... $178,370 $173,143 $169,465 $147,877 $110,446 $110,446 $101,086
Total long-term debt, net
of unamortized
discount................. 82,633 90,343 94,666 87,141 68,578 68,578 64,746
Shareholders' equity....... 91,088 79,486 70,507 57,579 38,171 38,171 32,954
OTHER DATA:
Funds from Operations(e)... $ 10,250 $ 9,522 $ 9,032 $ 8,308 $ 2,852 $ 2,861 $ (551)
PER SHARE DATA:
Loss before gain (loss) on
sales of real estate and
extraordinary gains...... $ (0.10) $ (0.30) $ (0.49) $ (1.52) $ (2.06) $ (0.64) $ (0.43)
Net loss................... (0.10) (0.30) (0.29) (1.01) (1.94) (0.67) (0.45)
Book value................. 10.04 8.76 7.77 6.34 4.21 4.21 3.63
Distributions paid......... 1.33 0.98 0.70 0.42 0.20 0.16 0.12
Number of shares
outstanding................ 9,075,400 9,075,400 9,075,400 9,075,400 9,075,400 9,075,400 9,075,400
</TABLE>

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

(a) On December 30, 1990, the Trust sold two of its 19 original properties, thus
operating with only 17 properties during 1991.
(b) The Trust sold two of its properties in the fourth quarter of 1992, thus
operating with only 15 properties for the remainder of the year.
(c) The Trust sold one of its properties in the first quarter of 1993, thus
operating with only 14 properties through the end of the third quarter.
(d) Loss before gain (loss) on sales of real estate and extraordinary gains and
net loss for 1991, 1992 and for the nine months ended September 30, 1992,
include provisions for writedowns of real estate due to permanent
impairments in value of $9,371, $14,094 and $2,836, respectively.
(e) Funds from Operations is computed based on the definition adopted by the
National Association of Real Estate Investment Trusts, which is net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Funds from Operations should not be
considered by the reader as an alternative to net income as an indicator of
the Trust's operating performance or to cash flows from operations as a
measure of liquidity. The 1991-1992 changes in the Trust's debt structure
from primarily zero coupon debt to current pay debt negatively impacts Funds
from Operations as the amortization of the zero coupon debt has been
previously added back to net income in computing Funds from Operations,
whereas the current pay interest incurred on the notes replacing the zero
coupon debt is not added back.

10
<PAGE> 14

DISTRIBUTION POLICY

On December 15, 1993, the Trust announced its intent to redirect its cash
resources to the ultimate elimination of the Zero Coupon Notes Due 1997 (the
"Notes") through a complete defeasance of the remaining Notes in 1994. For this
reason, the Trust determined that it was in the best interest of the Trust and
its Shareholders to suspend quarterly distributions (which had been at $.04 per
quarter, equivalent to $.20 per quarter for the Company) until such time as the
remaining Notes are fully defeased and distributions can be supported from the
positive cash flow of the Trust, as measured by its Funds from Operations. See
"-- Market Price and Distribution Data." Management intends to pursue a
recapitalization and refinancing of the Company which would allow the Company to
reinstate a dividend sometime in the near future.

The Company's dividend policy is to review operating results, capital
requirements and working capital reserves on a quarterly basis and to declare
dividends based on the Board of Directors' and management's determination of
distributable cash flow. Generally, the Company intends to maintain a dividend
equal to approximately 85% of Funds from Operations within these parameters. No
dividends on Common Stock are anticipated while the Company pursues a
recapitalization and refinancing strategy. In order to satisfy the requirement
to distribute 95% of the Company's taxable income, it is management's intent to
make sufficient distributions necessary in order to maintain the Company's REIT
status. So long as there is no REIT taxable income, suspension of cash
distributions will not result in a disqualification of the Company's status as a
REIT.

For a further discussion of the amount of distributions that must be made
in order for the Company to retain REIT status, see "FEDERAL INCOME TAX
CONSIDERATIONS -- Taxation of the Company."

FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The Trust and the Company will receive an opinion from counsel, Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., to the effect that the Merger as
contemplated by the Merger Agreement will constitute a reorganization within the
meaning of Section 368(a) of the Code, thus neither the Company nor the Trust
will recognize any gain or loss upon the Merger and no gain or loss will be
recognized by the Shareholders on the receipt of shares of Common Stock in
exchange for their Shares pursuant to the Merger Agreement. See "FEDERAL INCOME
TAX CONSIDERATIONS."

TAX STATUS OF THE COMPANY

The Company intends to continue to be taxed as a REIT, like the Trust,
under Sections 856 through 860 of the Code. As a REIT, the Company generally
will not be subject to federal income tax if it distributes at least 95% of its
REIT taxable income (which does not include capital gains) to its Stockholders.
REITs are subject to a number of organizational and operational requirements. If
the Company fails to qualify as a REIT in any taxable year, the Company will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate rates. See "RISK FACTORS -- Failure
to Qualify as a REIT" for a more detailed discussion of the consequences of the
failure of the Company to qualify as a REIT. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local taxes
on its income and property and to federal income and excise taxes on its
undistributed income. See "FEDERAL INCOME TAX CONSIDERATIONS."

The legality of Common Stock to be issued in connection with the Merger and
the qualification of the Company as a REIT for federal income tax purposes will
be passed upon by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. in an opinion to
be issued to the Company.

11
<PAGE> 15

RISK FACTORS

An investment in the Common Stock involves various risks. Prospective
investors should consider carefully the risk factors, in addition to the other
information set forth in this Proxy Statement/Prospectus, in connection with an
investment in the Common Stock offered hereby.

REAL ESTATE INVESTMENT CONSIDERATIONS

Effect of Economic and Real Estate Conditions. Investments in real estate
typically involve a high level of risk. One of the risk of investing in real
estate is the possibility that the Properties will not generate income
sufficient to meet operating expenses or will generate income and capital
appreciation, if any, at rates lower than those anticipated or available through
investment in comparable real estate or other investments. Income from
properties and yields from investments in properties may be affected by many
factors, including the type of property involved, the form of investment,
conditions in financial markets, over-building, a reduction in rental income as
the result of the inability to maintain occupancy levels, adverse changes in
applicable tax laws, changes in general economic conditions, adverse local
conditions (such as changes in real estate zoning laws that may reduce the
desirability of real estate in the area) and acts of God, such as earthquakes or
floods. Some or all of the foregoing conditions may affect the Properties.

Renewal of Leases and Reletting of Space. The Company will be subject to
the risks that, upon expiration of leases of the Properties, the leases may not
be renewed, the space may not be relet or the terms of renewal or reletting
(including the costs of required renovation or concessions to tenants) may be
less favorable than current lease terms. If the Company were unable to promptly
relet or renew the leases for all or a substantial portion of the space, if the
rental rate upon such renewal or reletting were significantly lower than
expected or if its reserves proved inadequate, then the Company's Funds from
Operations and ability to make expected dividend payments to Stockholders may be
adversely affected. Leases on approximately 20% of the total Property owned by
the Company will expire in 1994. The expiring leases represent approximately 19%
of the total Property annualized base rent received by the Company. Management
will attempt to negotiate renewals with certain of the tenants with expiring
leases; however, no assurance can be given that such negotiations will be
successful.

Market Illiquidity. Equity real estate investments are relatively illiquid.
Such illiquidity will tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions. In
addition, federal income tax provisions applicable to REITs limit the Company's
ability to sell Properties held for fewer than four years, which may affect the
Company's ability to sell Properties at a time which would be in the best
interest of the Stockholders.

Operating Risks. The Properties will be subject to all operating risks
common to real estate developments in general, any or all of which might
adversely affect occupancy or rental rates. In addition, increases in operating
costs due to inflation and other factors may not necessarily be offset by
increased rents. If operating expenses increase, the local rental market for
industrial properties may limit the extent to which rents may be increased to
meet increased expenses without decreasing occupancy rates. If any of the above
occur, the Company's ability to make expected payments of dividends to
Stockholders could be adversely affected.

Competition. All of the Properties are located in areas that include
competing properties. The number of competitive properties in a particular area
could have a material effect on both the Company's ability to lease space at the
Property or at any newly developed or acquired properties and the rents charged.
The Company may be competing with other owners that have greater resources than
the Company.

UNINSURED LOSS

12
<PAGE> 16

percentage of the Notes), and would continue to be obligated on any mortgage
indebtedness or other obligations related to the affected Property. Any such
loss could adversely affect the Company. Management believes the Properties are
currently adequately insured in accordance with industry standards.

NO LIMITATION ON DEBT

The Company's current financial capitalization policy is to seek to limit
its debt-to-asset value ratio to 50% or less. As a general practice, management
expects to maintain the Company's debt-to-market capitalization ratio at or
below the REIT industry average. However, the Company's organizational documents
do not contain any limitation on the amount or percentage of indebtedness the
Company can incur. Accordingly, the Company could alter its current debt policy.
If this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Company's ability to make dividend payments to its Stockholders and would not
result in an increased risk of default on its obligations.

Subject to the Indenture and other existing loan documents, the Company may
borrow funds in the future and secure such loans with mortgages on the
Properties. In the event such mortgage loans require balloon payments, the
ability of the Company to make such payments will depend upon its ability to
sell or refinance the Properties for amounts sufficient to repay such loans. In
addition, the payment of debt service in connection with any borrowings may
adversely affect cash flow and the value of the Common Stock.

DEPENDENCE ON TEXAS MARKET

Seven of the Properties, containing 834,521 leasable square feet
(approximately 52% of the total leasable square feet of the Properties owned by
the Company), are located in Texas. The Company's performance is, therefore,
largely dependent upon economic conditions in the Texas metropolitan areas in
which the Properties are located. A decline in the Texas markets may adversely
affect the ability of the Company to pay dividends to its Stockholders.

CHANGES IN POLICIES

The investment and financing policies of the Company and its policies with
respect to all other activities, including its growth, debt, capitalization,
dividends and operating policies, will be determined by the Board of Directors
of the Company. Although the Board of Directors has no present intention to do
so, these policies may be amended or revised at any time and from time to time
at the discretion of the Board of Directors without a vote of the Stockholders
of the Company. See "THE COMPANY -- Investment Objectives -- Operating
Strategies." A change in these policies could adversely affect the Company's
financial condition or results of operations or the market price of the Common
Stock.

ADVERSE CONSEQUENCES OF A FAILURE TO QUALIFY AS A REIT

The Trust has historically operated as a REIT and maintained its
qualification as a REIT under the Code. The Company intends to operate so as to
qualify as a REIT under the Code. Although management of the Company believes
that the Company will be organized and will operate in such a manner, no
assurance can be given that the Company will qualify or remain qualified as a
REIT. Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the Company's control may affect the Company's
ability to qualify as a REIT. If in any taxable year the Company were to fail to
qualify as a REIT, it would be taxed as a corporation and distributions to
Stockholders would not be deductible by the Company in computing its taxable
income. Failure to qualify for even one taxable year could result in the Company
incurring indebtedness (to the extent that borrowings are feasible and permitted
by limitations relating to the Notes and other indebtedness of the Trust assumed
by the Company) or liquidating investments should the Company not have
sufficient funds to pay the resulting federal income tax liabilities, and the
Company would also be disqualified from taxation as a REIT for the next four
taxable years. As a result, the funds available for distribution to the
Company's Stockholders would be reduced for each of the years involved. In
addition, dividends would no longer be required to be paid. To the

13
<PAGE> 17

extent the dividends to Stockholders would have been paid in anticipation of the
Company's qualification as a REIT, the Company might be required to borrow funds
or to liquidate certain of its investments to pay the applicable tax. Although
the Company currently intends to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the Company's Board of Directors to revoke the REIT
election. See "FEDERAL INCOME TAX CONSIDERATIONS."

CERTAIN ANTI-TAKEOVER PROVISIONS; OWNERSHIP LIMITS

Charter Provisions. Certain provisions of the Company's Articles may have
the effect of discouraging a third party from making an acquisition proposal for
the Company and may thereby inhibit a change in control of the Company under
circumstances that could give the holders of shares of Common Stock the
opportunity to realize a premium over the then-prevailing market prices.
Furthermore, the ability of the Company's Stockholders to effect a change in
management control of the Company would be substantially impeded by such
anti-takeover provisions. Moreover, in order for the Company to maintain its
qualification as a REIT, not more than 50% in value of its outstanding shares of
Common Stock may be owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities). For the purpose of
preserving the Company's REIT qualification, the Articles prohibit ownership
either directly or under the applicable attribution rules of the Code of more
than 9.8% of the shares of Common Stock and Preferred Stock by any Stockholder,
subject to certain exceptions. Such ownership limit may have the effect of
preventing an acquisition of control of the Company without the approval of the
Board of Directors. See "THE COMPANY'S SECURITIES -- Capital Stock," "CERTAIN
STATUTORY AND CHARTER PROVISIONS" and "FEDERAL INCOME TAX CONSIDERATIONS."

Staggered Board. The Board of Directors will be divided into three classes.
The terms of the first, second and third classes will expire in 1995, 1996 and
1997, respectively. Directors of each class will be elected for a three-year
term upon the expiration of the term of the current class. See "MANAGEMENT." The
staggered terms for directors may affect the ability of the Stockholders to
effect a change in control of the Company even if a change of control were in
the Stockholders' best interest. See "CERTAIN STATUTORY AND CHARTER
PROVISIONS -- Classification of the Board of Directors."

Preferred Stock. The Articles authorize the Board of Directors to issue up
to 10,000,000 shares of Preferred Stock and to establish the preference and
rights of any such shares issued. See "THE COMPANY'S SECURITIES -- Preferred
Stock." The issuance of Preferred Stock could have the effect of delaying or
preventing a change in control of the Company even if a change in control were
in the best interests of the Stockholders. No shares of Preferred Stock will be
issued or outstanding upon consummation of the Merger.

Business Combination Provision. Certain provisions of the MGCL regarding
business combinations require approval of the holders of 80% of the outstanding
voting shares of the Company. See "CERTAIN STATUTORY AND CHARTER
PROVISIONS -- Business Combinations." These statutory provisions may discourage
a change in control and limit the opportunity for Stockholders to receive a
premium over the then-current market prices for their Common Stock.

ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK

One of the factors that may influence the price of the Common Stock in the
public markets will be the annual yield from dividend payments by the Company on
the price paid for the Common Stock. Thus, an increase in market interest rates
may lead prospective purchasers of Common Stock to demand a higher anticipated
annual yield from future dividends. Such an increase in the required anticipated
dividend yield may adversely affect the market price of the Common Stock.

POSSIBLE ENVIRONMENTAL LIABILITIES

Under various federal, state and local environmental laws, ordinances and
regulations, an owner or operator of real estate may become liable for the costs
of removal or remediation of certain hazardous substances released on or in its
property. Such laws typically impose cleanup responsibility and liability
without regard to whether the owner knew of or was responsible for the presence
of the contaminants. The

14
<PAGE> 18

costs of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such property, may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances also may
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site.

Management has been notified of the possible existence of underground
contamination at Tamarac Square, the Trust's Denver retail Property. The source
of the possible contamination is apparently related to underground storage tanks
located on an adjacent property. This adjacent property was placed on Colorado's
list of leaking underground storage tanks. A second potential source of
contamination is a nearby tract on which a service station was formerly
operated. The owner of the adjacent property is currently conducting studies
under the direction of the Colorado Department of Health in an attempt to define
the contamination and institute an appropriate plan to address the situation. At
this time, management does not anticipate any exposure to the Trust relative to
this issue.

Certain federal, state and local laws, regulation and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials ("ACMs")
when such materials are in poor condition or in the event of building
remodeling, renovation or demolition. Such laws may impose liability for release
of ACMs and may provide for third parties to seek recovery from owners or
operators of real estate for personal injuries associated with ACMs. In
connection with its ownership, management and operation of the Properties, the
Company may be potentially liable for such costs. Except as described above, the
Company has not been notified by any governmental authority or any other third
party of any noncompliance, liability or other claim in connection with any of
the Properties.

Management believes that the Properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products. The Company has
not been notified (except with respect to Tamarac Square), and is not otherwise
aware, of any material non-compliance, liability or claim relating to hazardous
or toxic substances in connection with any of the Properties.

POSSIBLE FUTURE DILUTION

The Company has a substantially greater number of authorized shares than
the Trust. The Company's authorized Common Stock may be offered in capital
raising transactions on behalf of the Company. Such transactions may result in
dilution to then-current Stockholders. The authorized but unissued capital stock
of the Company may be issued for any corporate purpose, including the purchase
of additional properties and the investment in, or acquisition of, interests in
other entities, including other REITs or limited partnerships whose assets
consist of investments suitable for the Company. Authorized and unissued capital
stock could also be issued in one or more transactions which would make it more
difficult, and therefore less likely, to effect a takeover of the Company. See
"THE COMPANY'S SECURITIES" and "CERTAIN STATUTORY AND CHARTER PROVISIONS." Any
such issuance of additional Common Stock or other capital stock could have the
effect of diluting the earnings per share, book value per share, voting power of
existing shares of Common Stock and the ownership of persons seeking to obtain
control of the Company. See "-- Certain Anti-Takeover Provisions; Ownership
Limits."

TEXAS FRANCHISE TAXES

By doing business as a corporation rather than as a trust, the Company may
become subject to certain state taxes that it would not have been subject to as
a trust. As a corporation doing business in Texas, the Company will be subject
to Texas franchise taxes. Based upon the Company's current portfolio and the
current franchise tax rates, the Company estimates its franchise tax liability
for 1994 at $30,000. There can be no assurance that the Company's franchise tax
liability will not increase due to additional purchases of Texas properties,
increases in the capital base subject to Texas franchise tax or changes in Texas
law which would

15
<PAGE> 19

increase the scope and amount of tax. As a trust organized under the Texas REIT
Act, the Trust is not currently subject to Texas franchise taxes; however, there
can be no assurance that the State of Texas will not expand the scope of persons
subject to franchise taxes to include trusts.

EMPLOYMENT AGREEMENTS

Effective January 12, 1994, the Company entered into Employment Agreements
with its executive officers (Messrs. Wolcott, O'Brien and Warner) which provide
for severance payments in the event of a change of control of the Company. See
"MANAGEMENT -- Employment Agreements." These Employment Agreements may
discourage a potential acquiror from seeking control of the Company thereby
affecting the ability of Stockholders to receive a premium for their Common
Stock over then-existing market prices.

RISKS OF DEVELOPMENT AND ACQUISITION ACTIVITIES

The Company will incur risks associated with any development activities it
undertakes, including the risks that (i) occupancy rates and rents at a newly
completed project may not be sufficient to make the project profitable; (ii)
financing may not be available on favorable terms for the project; (iii)
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs; (iv) construction costs
of a project may exceed original estimates, possibly making the project
uneconomical; (v) zoning, occupancy and other required governmental approvals or
authorizations may not be granted and development costs associated therewith may
not be recovered; and (vi) development opportunities explored by the Company may
be abandoned. Acquisitions of properties entail risks that investments will fail
to perform in accordance with expectations and that judgments with respect to
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property will prove
inaccurate, as well as general investment risks associated with any new real
estate investment.

The Company anticipates that its new developments and acquisitions will be
financed under lines of credit or other interim forms of secured or unsecured
financing. There is no assurance that permanent financing for such newly
developed or acquired projects will be available or might be available only on
disadvantageous terms. In addition, the fact that the Company must distribute
95% of its taxable income in order to maintain its qualification as a REIT will
limit the ability of the Company to rely upon income from operations or cash
flow from operations to finance new development or acquisitions. As a result, if
permanent debt or equity financing is not available on acceptable terms to
refinance new developments or acquisitions undertaken without permanent
financing, further development activities or acquisitions might be curtailed or
cash available for distribution might be adversely affected. In the case of an
unsuccessful development or acquisition, the Company's loss could exceed its
investment in the project. See "THE COMPANY."

MARKET ILLIQUIDITY

Real estate investments are relatively illiquid. Such illiquidity will tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In addition, provisions of the Code
relating to REIT qualification limit the Company's ability to sell Properties
held for fewer than four years, which may affect the Company's ability to sell
Properties. See "FEDERAL INCOME TAX CONSEQUENCES -- Taxation of the Company."

THE PROPOSAL

The following discussion summarizes certain aspects of the Proposal. This
summary is not intended to be complete and is subject to, and qualified in its
entirety by, reference to the Merger Agreement, a copy of which is attached
hereto as Appendix A.

GENERAL

Shareholders are being asked to consider and approve the Merger Agreement
and the Merger thereunder pursuant to which the Trust will merge with and into
the Company, a wholly-owned subsidiary of the Trust

16
<PAGE> 20

which intends to qualify as a REIT for federal income tax purposes. The Company
will be the surviving entity. If the Merger is approved, the Trust's
Shareholders will receive one share of the Company's Common Stock for every five
Trust Shares owned by the Shareholder. Persons that will hold a fractional share
in the Company after the Merger must either (i) pay to the Company an amount
equal to the fraction necessary to round upward to a whole share of Common Stock
times the Opening Price and the fractional share shall be rounded upward to the
nearest whole share of Common Stock or (ii) permit the Company to cash out the
fractional share at a price equal to the fraction owned times the Opening Price.
Persons holding fewer than 10 shares of Common Stock after the Merger will have
the right to either (i) be cashed out by the Company at a price equal to the
number of shares of Common Stock owned times the Opening Price or (ii) purchase
from the Company the number of shares of Common Stock necessary to bring the
Stockholder's ownership up to 10 shares of Common Stock, at a purchase price per
share equal to the Opening Price. Stockholders holding fractional shares of
Common Stock and Stockholders holding fewer than 10 shares of Common Stock will
be contacted by the Company or its Transfer Agent after the Effective Date to
determine whether the Stockholder desires to pay the necessary funds to be
rounded upward to the nearest whole share or to 10 shares, as applicable, or if
the Stockholder desires to receive to cash for his or her shares of Common
Stock, as described above. Pursuant to the Merger Agreement, the Company will
assume all rights and obligations of the Trust, including, without limitation,
the Trust's obligations under the Notes.

The Trust Managers have unanimously approved the Proposal subject to
Shareholder approval. Shareholder approval is the only condition precedent to
the consummation of the Merger. The Board of Directors and the sole Stockholder
(the Trust acting through the Trust Managers) of the Company have unanimously
approved the Merger.

BENEFITS

The Trust Managers believe it is in the best interests of the Trust and its
Shareholders for the Shareholders to vote in favor of the Proposal. The Trust
Managers believe that the Proposal should be adopted at this time in order to
continue the Trust's strategy of pursuing the opportunities available in today's
real estate and capital markets. These opportunities include the ability to
acquire and develop industrial properties at investment yields in excess of the
Company's cost of capital, in order to achieve positive spread investing and
increased cash flow to the Company. In addition, current interest rates could
provide the Company the opportunity to refinance its existing debt at reduced
rates. The Trust Managers also believe that the Proposal offers several
potential benefits for the Trust and its Shareholders and few detriments. These
benefits include the following:

Improved Capital and Organizational Structure. On October 23, 1993,
the Shareholders of the Trust approved a modification to the Declaration of
Trust which had the effect of converting the Trust from a finite life
entity with a maximum term of 15 years of existence into an infinite life
entity with no predetermined date of termination. The finite life status of
the Trust limited the Trust's access to more competitively priced sources
of capital. Consistent with the removal of the finite life limitation on
the Trust, the Proposal provides a capital and organizational structure
under the Articles which is expected to allow the Company improved access
to the capital markets which should enable it to adapt to changing capital
market conditions while expanding and diversifying its investment
portfolio. The Declaration of Trust authorizes the issuance of 10,000,000
Shares, all such Shares to be equal in rights and preferences. As of
January 20, 1994, 9,075,400 Shares were outstanding. In contrast to the
relatively small number of authorized Shares, the Company is authorized to
issue 50,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock. This greater number of authorized shares of Common Stock and
Preferred Stock provides the Company with greater flexibility to issue
stock, options or warrants to raise capital for the Company without having
to amend the Articles to increase the authorized capital stock of the
Company. See "-- Purchase of Property With Stock" below.

Maryland Corporate Law. In recent years, the State of Maryland has
adopted a policy of encouraging incorporation in that state and, in
furtherance of that policy, has adopted comprehensive, modern and flexible
corporate laws which are periodically updated and revised to meet changing
business needs. As a result, many corporations, including numerous recently
formed REITs, have chosen

17
<PAGE> 21

Maryland for their domicile. Maryland courts have developed a body of case
law construing Maryland law and establishing public policies with respect
to corporations incorporated in Maryland. In contrast, a body of case law
construing the Texas REIT Act has not developed. Consequently,
reorganization of the Trust into a Maryland corporation should provide
greater predictability with respect to the Company's corporate affairs.

Properties No Longer Subject to Mandatory Sale or Improvement. The
Declaration of Trust, as required by the Texas REIT Act, provides that with
respect to any real property owned by the Trust, major capital improvements
must be made within 15 years of purchase of the property or the property
must be sold. If the property was purchased as unimproved property or the
property is outside the city, town or village limits, the major capital
improvements must be equal to or exceed the purchase price of the property.
While these provisions of the Declaration of Trust were unobjectionable
when the Trust was a finite-life entity with a maximum term of 15 years of
existence, the subsequent conversion of the Trust to infinite-life status
has rendered such provisions potentially contrary to the best interests of
the Trust and of its Shareholders. These requirements, which are unique to
the Texas REIT Act, could potentially force the Trust Managers and officers
to either (i) sell the property without regard to economic conditions
existing at such time, or (ii) make "major capital improvements" regardless
of whether such improvements are needed. Such action may not be in the best
interests of the Trust or its Shareholders. If the property at issue was
not unimproved property on the date of purchase or the property is located
within city limits, there are no statutory guidelines or judicial
interpretations as to what constitute "major capital improvements." Neither
Maryland corporate law nor the Articles impose such a requirement on the
Company.

Limited Liability. Although the Texas REIT Act specifically provides
that the shareholders of a trust formed under the Texas REIT Act are not
liable for the debts of the trust, it is unclear as to whether such
protection would be afforded to the shareholders by courts outside Texas.
It is well accepted as a general matter of law that stockholders in a
corporation are not personally liable for the debts of the corporation.

Purchase of Property With Stock. The Company has a greater number of
authorized shares than the Trust which could be used by the Company to
acquire additional properties which meet the investment objectives and
policies of the Company. The availability of these shares allows for
additional flexibility in negotiating and structuring an acquisition from a
potential seller.

Marginability. The exchange rate of five shares in the Trust for one
share of Common Stock in the Company is anticipated to permit the Common
Stock to be marginable under the requirements of most established brokerage
firms, which should improve the liquidity and marketability of the Common
Stock.

DETRIMENTS

The Trust Managers believe the Proposal presents the following potential
detriments for the Trust and its Shareholders:

Dilution. The Proposal will result in additional authorized shares
which may be offered in capital raising transactions on behalf of the
Company. Such transactions may result in dilution to then current
Stockholders. See "RISK FACTORS -- Dilution."

Ownership Limitations and Staggered Board. Provisions in the Articles
limiting ownership of Common Stock by a single person to 9.8%, requiring a
staggered Board of Directors and authorizing the issuance of Preferred
Stock may discourage a change in control and thus limit the opportunity for
Stockholders to receive a premium over the then-current market price for
their Common Stock.

Texas Franchise Taxes. By doing business as a corporation rather than
as a trust, the Company may become subject to certain state taxes that it
would not have been subject to as a trust. As a foreign corporation engaged
in business in Texas, the Company will be subject to the payment of Texas
franchise taxes. Had the Trust been subject to Texas franchise taxes in
fiscal 1993, the Trust would have paid approximately $50,000 in franchise
taxes to the State of Texas. Based on the existing franchise tax rates

18
<PAGE> 22

and the existing property portfolio, it is estimated that the Company's
Texas franchise tax liability will not be material for fiscal 1994 (less
than $50,000). There can be no assurance that the Company's franchise tax
liability would not increase due to additional purchases of Texas
properties, increases in the capital base subject to the Texas franchise
tax or changes in Texas law which could increase the scope and amount of
tax.

RECOMMENDATION OF THE TRUST MANAGERS

THE TRUST MANAGERS RECOMMEND THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL.

THE SPECIAL MEETING

GENERAL

The Special Meeting will be held on April 28, 1994, at 9:00 Dallas time, at
(or such other time and place to which such
meeting is adjourned), to consider and vote on the Proposal. See "THE PROPOSAL."
In order for the Proposal to be adopted, it must be approved by the holders of
66 2/3% of the outstanding Shares (6,050,569 Shares). Shareholder approval is
the only condition to the consummation of the Merger.

RECORD DATE; OUTSTANDING SHARES; VOTING

The Trust Managers have fixed the close of business on February 28, 1994 as
the Record Date. As of the Record Date, there were 9,075,400 Shares outstanding
held of record by approximately 2,341 Shareholders. Shareholders are entitled to
cast one vote per Share. The affirmative vote of Shareholders holding at least
66 2/3% of the outstanding Shares (6,050,569 Shares) is necessary to approve the
Proposal. The Trust Managers and the executive officers of the Trust own .20% of
the issued and outstanding Shares (18,000 Shares).

QUORUM

In accordance with the By-Laws of the Trust, Shareholders holding at least
a majority of the issued and outstanding Shares (4,537,701 Shares) must be
present or represented by properly executed proxies at the Special Meeting to
constitute a quorum. If a quorum is not present or represented at the Special
Meeting, the meeting may be adjourned from time to time, without further
notification, until a quorum is obtained.

DISSENTERS' RIGHTS

Under Texas law, Shareholders objecting to the Proposal and the Merger
thereunder do not have any statutory rights of dissent or appraisal.

PROXY

The Proxy, which is enclosed with this Proxy Statement/Prospectus, contains
a space where each Shareholder may indicate whether such Shareholder chooses to
vote his or her Shares in favor of or against the Proposal or to abstain from
voting. If the Proxy is duly completed and returned to the Trust, the Proxy will
be voted in accordance with this instruction. If a Shareholder returns the Proxy
duly executed, but does not indicate the manner in which the Proxy is to be
voted, the Proxy will be voted in favor of the Proposal. FAILURE TO RETURN THE
PROXY OR TO VOTE AT THE SPECIAL MEETING OR ABSTAINING FROM VOTING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE PROPOSAL. BROKER NON-VOTES HAVE THE SAME
EFFECT AS A VOTE AGAINST THE PROPOSAL.

A Shareholder may revoke his or her Proxy at any time before it is voted by
(i) executing a subsequently dated Proxy; (ii) filing a written request to
revoke or amend his or her Proxy with the President of the Trust at

19
<PAGE> 23

the principal executive office of the Trust; or (iii) attending the Special
Meeting and revoking the Proxy prior to the start of the Special Meeting.

SOLICITATION OF PROXIES

This Proxy Statement/Prospectus is submitted, and Proxies are being
solicited by, the Trust Managers on behalf of the Trust in support of the
Proposal. The expense of solicitation of Proxies will be borne by the Trust. See
"FEES AND EXPENSES."

The Trust will enlist the help of banks and brokerage houses in soliciting
Proxies from their customers. The Trust will reimburse these institutions for
out-of-pocket expenses. In addition to being solicited through the mails,
Proxies may also be solicited personally or by telephone by officers and
employees of the Trust. These officers and employees will not receive
compensation for such services other than their regular salaried compensation.
The Trust has engaged the firms of D.F. King & Co., Inc. and Proveaux, Stephen &
Spencer, Inc. to assist in soliciting Proxies for the Special Meeting for fees
of approximately $10,000 and $40,000, respectively, plus reasonable
out-of-pocket expenses.

THE COMPANY

The Company is a newly-organized Maryland corporation which was
incorporated on January 12, 1994 as a wholly-owned subsidiary of the Trust. The
Trust was originally organized on September 26, 1985, and currently owns and
operates 15 commercial real estate Properties consisting of 14 industrial
Properties and one retail Property. The Company intends to operate as a
self-administered REIT. The Company has been formed to succeed to and continue
the property ownership and acquisition activities of the Trust. If the Merger is
approved, the Company will own and operate the Properties. It is anticipated
that industrial properties will continue to be the primary focus for investment
by the Company.

The Company intends to qualify as a REIT for federal income tax purposes
and will be operated by the management of its predecessor in interest, the
Trust. Approximately six officers and employees will be involved in the
administration of the Company. The executive officers will be responsible for
the day to day administration of the Company and the Board of Directors will be
responsible for the overall direction and supervision of the Company. The
investment and financing policies of the Company and its policies with respect
to certain activities, including its growth, capitalization, distributions, REIT
status and investment and operating policies will be determined by the Board of
Directors. See "MANAGEMENT."

The Trust and the Company maintain their principal executive offices at
6220 North Beltline, Suite 205, Irving, Texas 75063, and their telephone number
is (214) 550-6053.

COMPANY HISTORY

The Trust was formed in September, 1985, as Trammell Crow Real Estate
Investors, a finite-life real estate investment trust due to liquidate by
December 31, 1997. The Trust's initial portfolio consisted of 19 properties,
including 18 industrial properties and one retail mall, located throughout the
United States. The Trust was advised initially by Trammell Crow Ventures, Ltd.,
an affiliate of Trammell Crow Company, under an advisory agreement that provided
for the payment of an annual advisory fee and reimbursements for certain
expenses as well as transaction fees for asset acquisitions and dispositions. As
part of its initial capitalization, the Trust issued approximately $180 million
of Notes.

Beginning in 1991, the Trust commenced a program designed to reposition the
Trust in order to participate in the growth taking place in the real estate
investment trust industry. The first part of this process was to reduce the
amount of Notes outstanding. By December 1992, approximately $160 million of the
Trust's outstanding Notes were repurchased by the Trust in part through the
proceeds of the sales of five of the Trust's 19 properties, and through the
issuance of a $53.2 million unsecured note.

With the completion of the acquisitions of the Notes described above, the
Trust commenced the second part of its repositioning program with a transition
to self-administration, which was concluded in June 1993,

20
<PAGE> 24

with the establishment of a new management team for the Trust and the
termination of the advisory agreement with Trammell Crow Ventures. As part of
this change, the Trust adopted the new name, American Industrial Properties
REIT, and changed its ticker symbol on the New York Stock Exchange to "IND."

In July 1993, the Trust presented its Shareholders with a set of proposals
related to the Trust's change to self-administration, and a proposal to make the
life of the Trust perpetual through the removal of a limited term restriction in
the Trust's Declaration of Trust and By-Laws. This second proposal, which
required an affirmative vote of 80% of the Trust's outstanding Shares for
approval, was passed on October 22, 1993, by 81.2% of the Trust's outstanding
Shares. With these changes, and the prospective completion of its reorganization
as a Maryland corporation and the other proposed changes, management believes
the Company will be well positioned to attract new investment capital to
increase its asset base, its cash flow and its value for the Company
Stockholders.

INVESTMENT POLICIES

The Company's primary business objective is to maximize the total return to
Stockholders through the acquisition, leasing, management and eventual
disposition of its Properties. In doing so, the Company will seek to provide
quarterly distributions and achieve long-term appreciation through increases in
cash flow and in the values of its Properties.

The Company's investment program will focus on industrial properties, both
through the acquisition of existing properties and the development of
build-to-suit properties for credit worthy tenants, primarily in the major
mid-American markets. These markets, such as Dallas, Chicago and Atlanta, are
located at the key rail and highway intersects that control the distribution of
goods throughout the United States. The secondary markets within the
Mid-American region will also be considered if the investment otherwise meets
the business objectives of the Company.

Industrial properties consist of distribution warehouses, service centers,
office/showroom properties, research and development properties and light
manufacturing facilities. Industrial properties are generally characterized by
relatively simple configurations, thus allowing for a high degree of flexibility
to meet the changing needs of tenants. As a result, management believes that
industrial properties are generally more resistant to obsolescence than other
types of real estate property. Industrial properties typically have limited
amounts of office finish-out and other customized improvements. For this reason,
the capital requirements of bringing in new tenants are relatively small.
Finally, industrial properties are highly location sensitive, requiring direct
access to major transportation arteries which are well known. For this reason
and others, industrial properties have tended not to attract the speculative
overbuilding characteristic of other types of real estate property.

The Company will focus on markets characterized by steady economic growth
rates, positive demographic trends and locations at the key highway and rail
intersects in the middle part of the United States. It will be the Company's
goal, over time, to establish dominant market positions in selective sub-markets
of each of these large, super-regional distribution centers.

Short term leases of three to five years, which are typical for industrial
properties, will provide the Company with the flexibility to adjust rents to
meet changing market conditions, and often to increase rents as leases roll-over
at maturity. While the Company intends to focus its efforts on multi-tenanted
properties, it will also seek to invest selectively in the development of
single-tenant, build-to-suit properties for credit worthy companies. The Company
believes that the scarcity of capital from traditional sources in this important
sector of the industrial property market provides significant opportunities to
achieve above market returns on investments at relatively moderate levels of
risk.

The Company's investment policies, as described above, do not differ from
the policies of the Trust.

OPERATING POLICIES

A key element of the Company's investment strategy is to acquire properties
which provide significant opportunities to add value through effective operating
programs. Such properties generally under perform their

21
<PAGE> 25

true economic potential as a result of deferred maintenance and cosmetic
deficiencies. In many cases, the strategic application of capital, property
improvements and intense management can substantially increase the appeal of the
property to prospective tenants, thus increasing the revenue potential of the
property. A significant advantage of industrial properties is that recurring
internal capital requirements tend to be moderate. Industrial tenant spaces are
typically used for the storage and handling of intermediary and finished
products, and as such, spaces are configured in simple, efficient layouts with
relatively little space, generally no more than 5-10% of the total, finished out
for offices or other customized applications.

The Company will establish annual business plans for each property that
will include operating objectives, budgets, resource allocations and financial
performance objectives. Management of the Company believes that such a formal
planning process increases portfolio performance in that operating strategies
are reviewed regularly and adjusted as needed to meet changing market
conditions. In addition, the use of such a planning process in conjunction with
a performance based compensation program ensures greater accountability among
the asset managers, property managers and leasing personnel responsible for each
property.

The Company intends to continue the Trust's policy of maintaining very low
direct overhead by employing third-party property managers and leasing personnel
to manage the Company's Properties. The level of competition in the marketplace
today for providers of such services is very intense. As a result, the quality
of service is typically very high while operating costs are low in that they can
be spread over many millions of square feet of property under management. The
Company will continue to evaluate the merits of providing its own leasing and
management services to the Company's Properties; however, it is management's
belief that these services can be acquired currently at much lower costs though
the marketplace than if the Company were to attempt to provide these services
internally.

The Company's operating policies, as described above, do not differ from
the operating policies of the Trust.

DISTRIBUTION POLICY

On December 15, 1993, the Trust announced its intent to redirect its cash
resources to the ultimate elimination of the Notes through a complete defeasance
of the remaining Notes in 1994. For this reason, the Trust determined that it
was in the best interest of the Trust and its Shareholders to suspend quarterly
distributions (which had been at $.04 per quarter, equivalent to $.20 per
quarter for the Company) until such time as the remaining Notes are fully
defeased and distributions can be supported from the positive cash flow of the
Trust, as measured by its Funds from Operations. Management intends to pursue a
recapitalization and refinancing of the Company which would allow the Company to
reinstate a dividend sometime in the future.

The Company's dividend policy is to review operating results, capital
requirements and working capital reserves on a quarterly basis and to declare
dividends based on the Board of Directors' and management's determination of
distributable cash flow. Generally, the Company intends to maintain a dividend
equal to approximately 85% of Funds from Operations within these parameters. No
dividend payments on Common Stock are anticipated while the Company pursues a
recapitalization and refinancing strategy. In order to satisfy the requirement
to distribute 95% of the Company's taxable income, it is management's intent to
make sufficient distributions necessary in order to maintain the Company's REIT
status. So long as there is no REIT taxable income, suspension of cash
distributions will not result in a disqualification of the Company's status as a
REIT.

For a further discussion of the amount of distributions that must be made
in order for the Company to retain REIT status, see "FEDERAL INCOME TAX
CONSIDERATIONS -- Taxation of the Company."

22
<PAGE> 26

THE PROPERTIES

The Trust currently owns and manages 15 industrial and retail Properties in
eight states. Set forth below is a brief description of each of the Properties.
<TABLE>
<CAPTION>
NUMBER OCCUPANCY
LEASABLE CONSTRUCTION OF AT
REGION PROPERTY NAME LOCATION SQ. FT. PHYSICAL DESCRIPTION DATE TENANTS 9/30/93
- --------------- ------------- -------------- --------- ------------------------------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Baltimore Patapsco Linthicum 95,151 Five building, two-phase 1980-1984 23 83%
Industrial Center(2) Heights, industrial park on 8.3 acres
Maryland
Dallas Beltline Irving, Texas 60,526 Three industrial office 1984 22 73%
Industrial Center buildings on 5.0 acres in Las
Colinas
Gateway 5 & 6 Irving, Texas 78,786 Two industrial buildings 1984-1985 8 79%
within a six-building
industrial park on 5.0 acres
in Las Colinas
Northgate II Dallas, Texas 235,827 Four industrial buildings on 1982-1983 13 94%
12.5 acres within a 21
building office and
industrial park
Northview Dallas, Texas 174,793 Two industrial buildings on 1980 6 100%
Distribution 9.42 acres
Center(3)
Denver Retail Tamarac Denver, 197,152 An enclosed specialty retail 1976-1979 (4) 55 88%
Square Colorado mall, convenience center and
four restaurant pad sites on
18.9 acres
Ft. Lauderdale Quadrant Deerfield 73,597 Two industrial buildings on 1986 9 96%
Industrial Beach, 5.4 acres within a
Florida seven-building industrial
park
Houston Plaza Houston, Texas 149,680 Five industrial buildings on 1970-1974 36 89%
Industrial Southwest 10.3 acres
Commerce Park Houston, Texas 87,279 Two-building industrial 1984 7 61%
complex on 5.5 acres
Westchase Houston, Texas 47,630 Two-building industrial park 1983 8 100%
Park on 4.2 acres
Los Angeles Huntington Monrovia, 62,218 A two-story office building 1985 6 84%
Industrial Drive Center California and an industrial building on
4.0 acres
Milwaukee Northwest Milwaukee, 143,120 Three industrial buildings on 1983 17 89%
Industrial Business Wisconsin 10.7 acres
Park
Minneapolis Burnsville Burnsville, 46,066 One industrial building on 3.8 1985 4 68%
Industrial Minnesota acres
Cahill Edina, 60,082 One industrial building on 3.9 1981 4 100%
Minnesota acres
Seattle Springbrook Kent, 80,973 One industrial building on 5.5 1984 11 94%
Industrial Washington acres comprising Phase II of
the two-phased Springbrook
Industrial Park
--------- -- --
Totals 1,592,880 229 87%
--------- -- --
--------- -- --
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
ANNUALIZED BASE FIRST
BASE RENT MORTGAGE
RENTAL PER SQ. DEBT
REGION REVENUE FT. 9/30/93(1)
- --------------- ---------- ------- ----------
<S> <C> <C> <C>
Baltimore $ 541,000 $6.85 $1,437,000
Industrial

Dallas 263,000 5.95 None
Industrial

276,000 4.43 None

641,000 2.89 None

490,000 2.80 None

Denver Retail 2,264,000 13.05 1,222,000 (5)

Ft. Lauderdale 321,000 4.54 1,200,000
Industrial

Houston 565,000 4.24 None
Industrial
314,000 5.90 None

190,000 3.99 None

Los Angeles 754,000 14.43 None
Industrial

Milwaukee 737,000 5.79 1,346,000 (6)
Industrial

Minneapolis 199,000 6.35 2,037,000 (7)
Industrial
283,000 4.71 None

Seattle 487,000 6.40 None
Industrial

---------- ------- ----------
Totals $8,325,000 $6.01 $7,242,000
---------- ------- ----------
---------- ------- ----------
</TABLE>

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

(1) All properties are subject to either a first or second mortgage lien arising
from the Zero Coupon Notes due November 1997. Mortgages reflected above are
only those which encumber individual properties as a first mortgage other
than the lien and mortgage associated with the Zero Coupon Notes.

(2) The Trust owns 99.99% of the limited partnership interests in a limited
partnership that owns Patapsco Center. This interest entitles the Trust to
100% of the income generated by Patapsco Center, 100% of any appreciation in
the value of Patapsco Center, and 99.99% of the return of capital in any
sale of Patapsco Center. The remaining interest in the limited partnership
is a limited partner's interest held by Trammell Crow Ventures, Ltd., the
former Advisor to the Trust. The limited partner has no rights to
participate in the management of Patapsco Center.

(3) Northview Distribution Center was acquired by the Trust in December 1993.

(4) Tamarac Square underwent a $2.1 million renovation during 1992-1993.

(5) The first mortgage debt encumbers the convenience center only.

(6) Only one building of Northwest Business Park is subject to the first
mortgage.

(7) The Burnsville mortgage is also recourse to the Trust.

23
<PAGE> 27

The following table shows as of September 30, 1993 scheduled lease
expirations commencing with the fourth quarter of 1993 and for the next nine
years, assuming that no tenants exercise renewal options.

<TABLE>
<CAPTION>
AVERAGE EXPIRATION AS A
RENT -----------------
PER % OF
ANNUALIZED SQ. % OF TOTAL
NO. SQ. FT. BASE RENT FT. TOTAL PROPERTY
OF OF OF OF PROPERTY ANNUALIZED
LEASES EXPIRING EXPIRING EXPIRING SQ. BASE
EXPIRING LEASES LEASES LEASES FT. RENT
--- ------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Three months ended
December 31, 1993.............. 6 32,018 $ 273,000 $ 8.53 2.01% 3.28%
YEAR ENDING
DECEMBER 31,
- ---------------------------------
1994.......................... 57 313,572 1,574,000 5.02 19.69% 18.91%
1995.......................... 48 300,543 1,422,224 4.73 18.87% 17.08%
1996.......................... 49 251,631 1,492,000 5.93 15.80% 17.92%
1997.......................... 23 154,426 813,000 5.26 9.69% 9.77%
1998.......................... 30 202,732 1,300,000 6.41 12.73% 15.62%
1999.......................... 5 56,668 279,000 4.92 3.56% 3.35%
2000.......................... 4 31,622 305,000 9.65 1.99% 3.66%
2001.......................... 2 20,850 157,000 7.53 1.31% 1.89%
2002.......................... 2 5,630 73,000 12.97 0.35% 0.88%
</TABLE>

ADDITIONAL INFORMATION REGARDING CERTAIN PROPERTIES

One of the Trust's Properties has rental revenues and a book value in
excess of 10% of the Trust's total rental revenues and total assets,
respectively. Information concerning this Property is set forth below.

Tamarac Square. Tamarac Square is an approximately 134,000 square-foot
two-level enclosed specialty retail mall with an adjacent approximately
33,000-square-foot convenience center and four free-standing restaurant sites
totaling 29,800 square feet. Tamarac Square is located at 7777 and 7293 East
Hampden Avenue and 3333 South Tamarac Drive, approximately 11 miles southeast of
downtown Denver, in a commercial retail district. The mall and convenience
center feature a contemporary design of all brick exteriors, skylights and
landscaping. The initial occupancy of Tamarac Square commenced in December 1976
and the property was one of the Trust's initial acquisitions in connection with
its formation in 1985. Tamarac's federal income tax basis was approximately
$31,000,000 (net of approximately $6,500,000 in accumulated depreciation) at
September 30, 1993. Annualized minimum rentals are approximately $2,065,000
based on leases currently in effect. An approximate $2.5 million renovation of
the specialty retail mall was completed during 1992 and 1993 which created new
entryways, replaced stairs with escalators and enhanced the mall's interiors
with paint and other new amenities and new signage. No significant additional
renovations are currently planned for this property.

The following tables sets forth information with respect to the occupancy
of this Property for each of the five years ending December 31, 1992 and for the
nine months ended September 30, 1993, and the average effective annual base
rental per square foot for each of such periods:

<TABLE>
<CAPTION>
AVERAGE
RENT
PER
PHYSICAL SQ.
PERIOD ENDING OCCUPANCY FT.
----------------------------------------------------------- --------- ------
<S> <C> <C>
September 30, 1993......................................... 88% $13.05
December 31, 1992.......................................... 92% $12.69
December 31, 1991.......................................... 80% $14.26
December 31, 1990.......................................... 83% $13.72
December 31, 1989.......................................... 94% $13.27
</TABLE>

24
<PAGE> 28

Tamarac Square is currently leased to 55 tenants. The following table sets
forth certain information with respect to the expiration of leases at this
Property:

<TABLE>
<CAPTION>
AVERAGE EXPIRATIONS AS A
RENT -----------------
PER % OF
ANNUALIZED SQ. % OF TOTAL
NO. SQ. BASE FT. TOTAL PROPERTY
OF FT. OF RENT OF OF PROPERTY ANNUALIZED
LEASES EXPIRING EXPIRING EXPIRING SQ. BASE
EXPIRING LEASES LEASES LEASES FT. RENT
--- ------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Three months ended
December 31, 1993............... 0 0 0 0 0 0
YEAR ENDING
DECEMBER 31,
- ----------------------------------
1994........................... 7 15,646 $270,000 $17.26 7.94% 11.93%
1995........................... 11 29,474 359,000 12.18 14.95% 15.86%
1996........................... 12 35,775 400,000 11.18 18.15% 17.67%
1997........................... 6 19,247 192,000 9.98 9.76% 8.48%
1998........................... 9 20,158 262,000 13.00 10.22% 11.57%
1999........................... 1 4,090 73,000 17.85 2.07% 3.22%
2000........................... 3 8,927 144,000 16.13 4.53% 6.36%
2001........................... 1 8,000 98,000 12.25 4.06% 4.33%
2002........................... 2 5,630 73,000 12.97 2.86% 3.22%
</TABLE>

One Tenant's lease is in excess of 10% of the gross leasable area of
Tamarac Square. Mann Theatres, a national movie theatre concern, leases 19,934
square feet for a six screen theatre running first-run films. The lease provides
for minimum base rents at $5.70 per square foot ($113,624 annually) and expires
in December 1996. The tenant has three five-year options to renew upon
expiration.

Property taxes are assessed on Tamarac based on 29% of assessed value at
the applicable tax rate (estimated at 8.379% in 1993). Property taxes paid in
1993 with respect to Tamarac were approximately $415,000.

OTHER ENCUMBRANCES ON REAL ESTATE

Each of the Properties is subject to a mortgage securing the Notes (a
"Mortgage"), as required by the Indenture. In the case of Tamarac Square,
Burnsville, Northwest Business Park and Quadrant, the Mortgage is a second
mortgage; in the case of Patapsco, the Mortgage is a first lien on the Trust's
partnership interest; and for all other Properties, the Mortgage is a first
lien.

25
<PAGE> 29

TERMS OF MORTGAGE INDEBTEDNESS

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT AMOUNT
OUTSTANDING DUE
AT SEPT. MATURITY INTEREST AT PAYMENT PREPAYMENT
PROPERTY 30, 1993 DATE RATE MATURITY TERMS TERMS
- -------------- --------- ---------- -------- --------- -------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Tamarac $1,222,737 July 9.63% $ 0 Monthly Prepayable after Aug. 1989
Convenience 2006 payments with a 5% penalty which
Center of principal declines 1/2 of 1% each
and interest year until penalty reaches
to maturity 1%, which continues in
of $13,905 effect to maturity
Northwest $1,346,328 March 11.00% $1,227,676 Monthly Prepayable in March 1994 at
Business 1999 payments 100% of principal.
Park of principal Subsequent to March 1994,
and interest prepayment is at 105% of
to maturity principal, declining by 1%
of $13,811 annually until maturity.
Patapsco $1,439,630 September 10.00% $ 0 Monthly Prepayable after Sept. 1992
2010 payments with a 5% penalty which
of principal declines 1/2 of 1% each
and interest year until penalty reaches
to maturity 1%, which continues in
of $14,279. effect to maturity
Quadrant $1,200,000 October 9.63% $1,200,000 Monthly Prepayable at any time prior
1996 payments to maturity subject to yield
of interest maintenance based on current
only to Treasury yield
maturity
Burnsville $1,976,000 May Prime + $1,948,800 Monthly Prepayable at any time with
1995 2% payments no penalty
of principal
and interest
based on
variable rate
and a 30 year
amortization
of
principal.
Payments as of
9/30/93 were
$14,994
</TABLE>

COMPETITION

All of the Properties are located in areas that include numerous other
industrial and retail properties, many of which may be deemed to be more
suitable to a potential tenant than the Properties. The resulting competition
could have a material adverse effect on the Company's ability to lease the
Properties and to increase rentals charged under existing leases. The Company
may be competing with others that have greater resources than the Company.

INSURANCE

The Company will seek to maintain comprehensive liability, fire and
extended coverage insurance of the type and in the amount customarily obtained
for similar properties. There are, however, certain types of losses (generally
of a catastrophic nature, such as earthquakes, floods and wars) that either may
be uninsurable or not economically insurable. Should an uninsurable loss occur,
the Company could lose both its invested capital and anticipated future revenues
related to the affected Property (and may also be required to defease a certain
percentage of the Notes), and would continue to be obligated on any mortgage
indebtedness or other obligations related to the affected Property. Any such
loss could adversely affect the Company. Management believes the Properties are
currently adequately insured in accordance with industry standards. See "RISK
FACTORS -- Uninsured Loss."

26
<PAGE> 30

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The Company's policies with respect to the following activities have been
determined by the Board of Directors of the Company and may be amended or
revised from time to time at the discretion of the Board of Directors without a
vote of the Stockholders if they determine in the future that such a change is
in the best interest of the Company and its Stockholders. See "RISK
FACTORS -- Changes in Policies."

While the Company has emphasized equity real estate investments, it may, in
its discretion, invest in mortgage and other real estate interests, including
securities of other real estate investment trusts, consistent with its
qualification as a REIT. The Company has not previously invested in mortgages or
securities of other entities, including other REITs, and does not presently
intend to invest to a significant extent in mortgages or securities of other
entities, including other REITs. The Company may invest in participating or
convertible mortgages if it concludes that it may benefit from the cash flow or
any appreciation in the value of the subject property. Such mortgages are
similar to equity participation. The mortgages in which the Company may invest
may be either first mortgages or junior mortgages and may or may not be insured
by a governmental agency.

Subject to the percentage of ownership limitations and gross income tests
necessary for qualification as a REIT (see "FEDERAL INCOME TAX CONSIDERATIONS"),
the Company also may invest in securities of concerns engaged in real estate
activities or securities of other issuers. The Company may also invest in the
securities of other issuers in connection with acquisitions of indirect
interests in properties (normally general or limited partnership interests in
special purpose partnerships owning properties). The Company may in the future
acquire all or substantially all of the securities or assets of other REITs or
similar entities where such investments would be consistent with the Company's
investment policies. The Company will not be limited as to the percentage of
securities of any one issuer it may acquire. However, the Company does not
anticipate investing in issuers of securities (other than REITs and to acquire
interests in real property) for the purpose of exercising control or acquiring
any investments primarily for sale in the ordinary course of business or holding
any investments with a view to making short-term profits from their sale. In any
event, the Company does not intend that its investments in securities will
require the Company to register as an "investment company" under the Investment
Company Act of 1940, and the Company intends to divest securities before any
such registration would be required. The Company does not intend to underwrite
the securities of other issuers.

The Company may, but has no present intention to, make investments other
than as previously described. At all times, the Company intends to make
investments in a manner consistent with the requirements of the Code to qualify
as a REIT unless, because of circumstances or changes in the applicable law, the
Board of Directors determines that it is no longer in the best interests of the
Company to qualify as a REIT. See "FEDERAL INCOME TAX CONSIDERATIONS."

DISPOSITION

Management will periodically review the assets comprising the Company's
portfolio. The Company has no current intention to dispose of any of the
Properties unless the sale of Properties is necessary or appropriate because of
liquidity problems. The Company reserves the right to dispose of any of the
Properties or any property that may be acquired in the future if the Board of
Directors, based in part upon management's periodic reviews, determines that the
disposition of such property is in the best interests of the Company.

CONFLICT OF INTEREST POLICY

Each of Messrs. Wolcott, Warner and O'Brien are prohibited from engaging in
any real estate acquisitions, development or management activities, except on
behalf of the Company, during their employment with the Company.

AFFILIATE TRANSACTION POLICY

The Company will not enter into any transactions, including without
limitation, loans, acquisitions or sales of property, joint ventures and
partnerships, in which the Company or a subsidiary is a party and in which

27
<PAGE> 31

any Director, officer, principal security holder or affiliate has any direct or
indirect pecuniary interest, unless such transaction is approved by a majority
of the disinterested Directors after full disclosure of such interests to the
disinterested members of the Board of Directors. In determining whether to
approve the transaction, the Board of Directors will condition such approval on
the transaction being fair and reasonable to the Company and, to the extent
deemed relevant by such Directors, on terms no less favorable to the Company
than prevailing market terms and conditions for comparable transactions.
Directors who are also officers of the Company will be considered to be
disinterested for this purpose provided they have no direct or indirect
pecuniary interest in the transaction.

POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Company has authority to issue additional Common Stock or other
securities in exchange for property and other valid consideration, and to
repurchase or otherwise reacquire its shares or any other securities and may
engage in such activities in the future. The Company expects to implement a
dividend reinvestment program, and may from time to time repurchase Common Stock
in the open market for the purposes of fulfilling its obligations under the
program or may elect to issue additional Common Stock.

28
<PAGE> 32

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

RESULTS OF OPERATIONS

Below is a summary of Funds from Operations for the Trust for the nine
months ended September 30, 1993 and 1992, and for the years ended December 31,
1992, 1991 and 1990. Management believes that the presentation of Funds from
Operations will enhance the reader's understanding of the Trust's financial
condition because it provides the reader with an additional measure of the
Trust's operating performance which excludes non-recurring activities (i.e.,
gains or losses from debt restructuring and sales of property) as well as
certain non-cash items (i.e., depreciation and amortization). Many REITs
disclose Funds from Operations in order to provide readers with additional
information with which to compare performance. Funds from Operations, however,
should not be considered an alternative to net income as an indicator of the
Trust's operating performance or to cash flows from operations as a measure of
liquidity. The determination of Funds from Operations is based on the definition
adopted by the National Association of Real Estate Investment Trusts, which is
net income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization (the Trust adds back the
amortization of the original issue discount on its Notes) and after adjustments
for unconsolidated partnerships and joint ventures.

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------------- ----------------------------
1993 1992 1992 1991 1990
----- ------ ------ ------ ------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Funds From Operations.................. $(551) $2,861 $2,852 $8,308 $9,032
Per Share.............................. $(.06) $ .32 $ .31 $ .92 $ 1.00
Pro Forma Funds From Operations(1)..... $(551) $ 49 $ (48) $1,094 $1,329
Pro Forma Per Share.................... $(.06) $ .01 $ (.01) $ .12 $ .15
</TABLE>

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

(1) The pro forma presentation assumes that the approximately $65,000 of
recorded value in Notes repurchased during 1992 were not outstanding and
were replaced for all periods presented with the $45,234 in notes payable
under the MLI Agreement which were issued and outstanding during 1993 in
connection with the repurchases. The pro forma presentation also reflects
the operations of only those properties owned by the Trust as of September
30, 1993, excluding the two properties sold in December, 1990, the two
properties sold in December, 1992 and the property sold in January, 1993.

Comparison of Nine Months Ended September 30, 1993 to 1992

Funds from Operations for the nine months ended September 30, 1993
decreased to $(551) from $2,861 for the same period in 1992 due primarily to the
sales of the Woodland Industrial Park in Charlotte, North Carolina and the
Southland industrial property in Houston, Texas, at the end of 1992, and the
sale of the Royal Lane Business Park in Dallas, Texas in January, 1993. On a
same property basis, rental revenues remained flat during the year, although in
the third quarter the Trust began to see some strengthening in the leasing
markets in most of the areas in which the Trust operates in terms of both
traffic and rental rates (other than in Southern California). Same property
occupancy improved to 87% at September 30, 1993 from 85% at September 30, 1992.
The decline in Funds from Operations on a pro forma basis is attributable to the
termination fee paid to the Advisor and the additional Trust administration and
overhead costs incurred associated with the proxy solicitation effort to remove
the Trust's finite life provision (discussed below).

The Trust terminated its Advisory Agreement with the Advisor effective June
12, 1993. In accordance with the terms of the Advisory Agreement, a one-time
termination fee of $435,000 was paid to the Advisor on June 12, 1993. The Trust
is now self-administered and employs six full-time employees to conduct and
manage the business affairs of the Trust.

29
<PAGE> 33

The overall costs to the Trust over time under self-administration related
to managerial, administrative and other services are expected to be lower than
fees previously paid to the Advisor under the Advisory Agreement. For example,
under self-management, the Trust will be able to provide, through its management
group, certain services, including restructuring activities and certain
transaction services, without the need to pay the fees previously provided for
in the Advisory Agreement.

Comparison of 1992 to 1991

The Trust had a net loss of $17,593,000 in 1992 compared to a net loss of
$9,162,000 in 1991. The 1992 net loss included a provision for possible losses
on real estate of $14,094,000, an extraordinary gain from partial repurchases of
Notes of $1,910,000 and a net loss on sales of real estate of $784,000.
Excluding the 1992 and 1991 provisions for possible losses, the extraordinary
gains, and the gain or loss on sales of real estate, the net loss would have
been $4,625,000 and $4,415,000 in 1992 and 1991, respectively. Net loss before
extraordinary gain and gain or loss on sales of real estate was $18,719,000 in
1992 and $13,786,000 in 1991.

Total revenue decreased to $15,139,000 in 1992 from $16,488,000 in 1991.
Average occupancy levels were the same in both years, at 89%; however, the sales
of the Southland and Woodland properties negatively impacted revenue and
earnings. Total real estate expenses decreased to $18,443,000 in 1992 from
$19,555,000 in 1991. This decrease is principally attributable to a reduction in
amortization of original issue discount on Zero Coupon Notes repurchased in 1992
(which accreted at 12%) that was partially offset by interest expense on the
8.8% Notes payable.

Comparison of 1991 to 1990

The Trust had a net loss of $9,162,000 in 1991 compared to a net loss of
$2,626,000 in 1990. The 1991 net loss included a provision for possible losses
on real estate of $9,371,000, and an extraordinary gain from partial repurchases
of Notes of $4,320,000. Excluding the provision for possible losses, the
extraordinary gain and the gain on sales of real estate, the net loss would have
been $4,415,000 and $4,484,000 in 1991 and 1990, respectively. An additional
factor affecting the comparison of 1991 and 1990 financial results is the sale
of two of the Trust's properties on December 31, 1990. In addition to reducing
the size of the portfolio for 1991 operations, the sale resulted in gains of
$304,000 in 1991 and $1,858,000 in 1990. Net loss before extraordinary gain and
gain on sales of real estate was $13,786,000 in 1991 and $4,484,000 in 1990.

LIQUIDITY AND CAPITAL RESOURCES

The principal source of funds for the Trust's liquidity requirements is
funds generated from operations of the Trust's real estate assets and
unrestricted cash reserves. As of September 30, 1993, the Trust had $2,914,000
in unrestricted cash on hand. The Trust presently anticipates that cash on hand
and Funds from Operations will provide sufficient funds for all known
liabilities and commitments relating to the Trust's operations. However, certain
uses of the Trust's cash, including (i) the costs of the Trust's reorganization
into a Maryland corporation via merger (estimated at approximately $400,000),
(ii) the loss of the income producing ability of the $10.2 million expected to
be used to defease the Notes (see discussion below), and (iii) future debt
service payments, could affect the Trust's operations by reducing its ability to
make capital investments necessary to be competitive in the markets in which the
Trust operates and could result in a default under the provisions of the MLI
Agreement. Distributions made and declared to date during 1993 in the amount of
$1,452,000 ($.16 per Share), have been paid out of cash reserves of the Trust.
In December, 1993, the Trust Managers announced the suspension of the Trust's
quarterly distribution in order to redirect the Trust's resources to the
ultimate defeasance of the Trust's Notes (see discussion below).

The initial capitalization of the Trust included $179,698,000 face amount
of Zero Coupon Notes due November 27, 1997 secured by first or second liens on
all of the Trust's initial investments. Amortization of the original issue
discount on the Notes is a non-cash charge against net income of the Trust,
compounding semiannually at 12%. During 1991 and 1992 the Trust repurchased a
substantial amount of the Notes, decreasing the remaining face amount
outstanding to a total of $19,956,000. Subsequent to September 30, 1993, the
Trust Managers authorized management to utilize the Trust's available cash to
provide liquidity for

30
<PAGE> 34

the repurchase of outstanding Notes at their accreted value from Noteholders
desiring to sell their notes and unable to find a market for them. Through
December 31, 1993, the Trust had acquired approximately $500,000 face amount of
the Notes at their accreted value. No other purchases of significance are
planned at this time, however, should the Trust identify an opportunity to
purchase significant blocks of the Zero Coupon Notes at a discount to their
defeasance amount (the amount that would be required to Defease the Notes under
the Indenture), additional purchases may be made.

Pursuant to the terms of the Indenture covering the Trust's Notes, the
Trust is required to deposit the net proceeds of any property sale or
refinancing into a Property Acquisition Account administered by a Trustee to the
extent deemed necessary or appropriate by the Trust Managers to secure the
interests of the Noteholders. Prior to November 27, 1993 (the "Defeasance
Commencement Date"), funds in the Property Acquisition Account could be used to
make additional investments as allowed under the Trust's By-Laws. After the
Defeasance Commencement Date, any remaining funds in the Property Acquisition
Account must be used to defease the holders of the remaining Notes. Subsequent
to September 30, 1993, the Trust reinvested all of the funds held in the
Property Acquisition Account (approximately $13.6 million) into short-term
commercial paper and Treasury Notes which are pledged as additional collateral
to the Noteholders.

On December 10, 1993, pursuant to a court order directing the Indenture
Trustee to release certain funds securing the Noteholders, the Trust acquired a
175,000 square foot multi-tenant distribution center in Dallas for a purchase
price of approximately $3,400,000. The acquired property is pledged under a
first mortgage lien to the Noteholders. Management believes the acquisition will
further enhance Funds from Operations of the Trust in fiscal 1994.

The Trust has determined that it is in the best interest of the
Shareholders to use the remaining $10.2 million of cash pledged as collateral to
the Noteholders, which is currently invested in short-term securities due to
mature in February of 1994, to partially defease the Notes outstanding in the
first quarter of 1994. The result of a partial defeasance of the Notes would be
a reduction in the accreted value of the debt on the Trust's balance sheet from
approximately $13.0 million to approximately $4.9 million, with a loss of
approximately $2.1 million being recognized by the Trust.

In acquiring its existing Properties, the Trust assumed a total of
$8,075,000 in mortgage debt, of which $7,242,000 remained outstanding as of
September 30, 1993. The debt service on the Trust's mortgages amount to
approximately $800,000 annually.

Under the terms of the first mortgage loan due April 30, 1995, covering the
Trust's Burnsville property located in Minneapolis, Minnesota, the termination
of the Advisory Agreement constituted an event of default. The Trust secured a
waiver of the event of default from the mortgagee by agreeing to make a
principal prepayment in the amount of $120,000 in two installments of $60,000.
The first installment was made on May 17, 1993 and the second installment was
paid on November 17, 1993.

In accordance with the terms of the Notes, the Trust paid its first
installment of accrued interest on the Notes on May 27, 1993 in the amount of
$1,974,000. Accrued interest in the amount of approximately $1,990,000 will be
payable each May and November until the Notes become due.

Tenant and capital improvements were $1,105,000 for the nine months ended
September 30, 1993 as compared to $2,508,000 for the same period of 1992. The
improvements during 1992 primarily related to renovation at the Trust's Tamarac
Square retail property in Denver, Colorado. Current year capital expenditures
relate primarily to leasing activity, including tenant improvements and lease
commissions arising from the new lease with The GAP at Tamarac Square.

The Trust's successful conversion from a finite-life entity required to
liquidate in 1997 to a perpetual-life entity (which was announced after the
Trust received in excess of the required 80% positive vote of all Shareholders
on October 22, 1993) is expected to enhance the Trust's ability to take
advantage of the capital and investment markets available to REITS. Management
intends to pursue a strategy which will lower the Trust's cost of capital and
enable the Trust to make additional investments in industrial real estate. This
can be accomplished through raising additional debt and/or equity capital from
various sources, including the public markets. At this time, however, management
has obtained no commitments for funding or underwriting

31
<PAGE> 35

additional debt or equity capital and there can be no assurances that sources of
capital will become available in the future. The Trust Managers have determined
that a reorganization of the Trust into a Maryland corporation is a necessary
step towards a future financial restructuring because it removes existing
barriers of the Trust's organization to additional debt and equity capital by
increasing the authorized Shares of the Trust and allowing for different classes
of equity capital, amongst other things. As such, the Trust has capitalized a
Maryland corporation, American Industrial Properties REIT, Inc., with $1,000 and
will seek approval from Shareholders to merge with this newly-formed subsidiary.
Concurrent with this reorganization, management will continue to pursue capital
raising opportunities. However, there can be no assurances that a successful
recapitalization will occur as a result of the reorganization into a Maryland
corporation.

In order to replace the income generated from the investment of the funds
to be used to achieve a partial defeasance of the Notes as discussed above, the
Trust may seek liquidity through sales of existing Properties, financing
transactions and from improvements in the operating cash flow of the Trust.
Additionally, the Trust Managers have determined that it is in the best interest
of the Trust and its Shareholders to suspend quarterly distributions to
Shareholders until such time as the remaining Notes are fully defeased and
distributions can be supported from the available Funds from Operations of the
Trust.

OTHER MATTERS

On January 8, 1993, the Trust sold its Royal Lane Business Park in Dallas,
Texas. The sales price was $7,500,000, and the net proceeds of approximately
$1,800,000, after reduction for the existing first mortgage loan and the related
sales costs, were deposited into the Property Acquisition Account under the
terms of the Indenture.

Distributions to Shareholders are charges against Shareholders' equity, and
therefore, Shareholders' equity will continue to decrease due to distributions
made and net losses incurred by the Trust. Distributions in excess of taxable
net income, or to the extent of net loss, constitute a return of capital to
Shareholders. For federal income tax purposes, the taxable portion of
distributions is determined on a calendar year basis, and is computed based on
actual distributions for the year. It is presently estimated that the entire
distributions paid by the Trust in 1993 will constitute a return of capital.

Management has been notified of the possible existence of underground
contamination at Tamarac Square, the Trust's Denver retail Property. The source
of the possible contamination is apparently related to petroleum underground
storage tanks located on an adjacent property. This adjacent property was placed
on Colorado's list of leaking underground storage tanks. A second potential
source of contamination is a nearby tract on which a service station was
formerly operated. The owner of the adjacent property is currently conducting
studies under the direction of the Colorado Department of Health in an attempt
to define the contamination and institute an appropriate plan to address the
situation. At this time, management does not anticipate any exposure to the
Trust relative to this issue.

32
<PAGE> 36

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS

The following table sets forth certain information as to the number of
Trust Shares and the number of shares of Company Common Stock beneficially owned
before and after the Merger by (a) each person (including any "group" as that
term is used in Section 13(d) of the Exchange Act) who is known by the Trust to
own beneficially 5% or more of the Shares, (b) each Trust Manager, (c) each
executive officer, and (d) all executive officers and Trust Managers as a group.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
OWNERSHIP OF CLASS
BEFORE/AFTER BEFORE/AFTER
NAMES OF BENEFICIAL OWNERS THE MERGER THE MERGER
--------------------------------------------------- ------------ -------
<S> <C> <C>
W. H. Bricker.................................... 2,000/400 *
George P. Jenkins................................ 500/100 *
Charles W. Wolcott............................... 15,500/3,100 *
David B. Warner.................................. -- *
Mark A. O'Brien.................................. -- *
All Trust Managers and executive officers as a
group......................................... 18,000/3,600 .20/.20%
</TABLE>

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

* Ownership is less than 1% of the outstanding Shares/Common Stock.

As of January 17, 1994, no person or group within the meaning of Section
13(d)(3) of the Exchange Act, to the knowledge of the Trust, owned more than 5%
of the outstanding Shares.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The persons who serve as executive officers and directors of the Company,
their ages and their respective positions are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S) AND OFFICE(S) HELD
------------------------- --- -------------------------------------------------
<S> <C> <C>
W. H. Bricker 61 Director
Raymond H. Hay 65 Director
Charles W. Wolcott 41 Director, President and Chief Executive Officer
David B. Warner 35 Vice President and Chief Operating Officer
Mark A. O'Brien 31 Vice President and Chief Financial Officer,
Secretary and Treasurer
</TABLE>

The term of Mr. Hay will expire at the Annual Meeting of Stockholders to be
held in 1995. The term of Mr. Wolcott will expire at the Annual Meeting of
Stockholders to be held in 1996. The term of Mr. Bricker will expire at the
Annual Meeting of Stockholders to be held in 1997. In each case, the directors
will serve until the election and qualification of their respective successors.
Executive officers of the Company are elected annually by the Board of Directors
and serve at the Board's discretion.

The following is a biographical summary of the experience of the persons
that will serve as executive officers and directors of the Company:

WILLIAM H. BRICKER has served as President of D.S. Energy Services
Incorporated (consulting in the energy field; international trade) since
1987. In May 1987, Mr. Bricker retired as the Chairman and Chief Executive
Officer of Diamond Shamrock Corporation where he held various management
positions from 1969 through May, 1987. Mr. Bricker is a director of the LTV
Corporation, the Eltech Systems Corporation and the National Paralysis
Foundation. He received his Bachelor of Science and Masters of Science
degrees from Michigan State University.

33
<PAGE> 37

RAYMOND H. HAY became Chairman of Aberdeen Associates (investments)
after his retirement in 1991 as Chairman and Chief Executive Officer of the
LTV Corporation (steel, aerospace, defense and energy) where he worked for
16 years. Mr. Hay previously served as Executive Vice President of the
Xerox Corporation (office equipment) where he worked from 1961 through
1975. Mr. Hay is director of National Medical Enterprises, Inc. and Maxus
Energy Corporation. He has a Bachelor of Science degree in Economics from
Long Island University.

CHARLES W. WOLCOTT was hired as the President and Chief Executive
Officer of the Trust on May 4, 1993. For the six months immediately prior
to his election as President of the Trust, Mr. Wolcott was engaged in
developing various personal business enterprises. Mr. Wolcott was President
and Chief Executive Officer of Trammell Crow Asset Services, a real estate
asset and portfolio management affiliate of Trammel Crow Company, from 1990
to 1992. He served as Vice President and Chief Financial and Operating
Officer of the Trust from 1988 to 1991. From 1988 to 1990, Mr. Wolcott was
a partner in Trammell Crow Ventures Operating Partnership. Prior to joining
the Trammell Crow Company in 1984, Mr. Wolcott was President of Wolcott
Corporation, a firm engaged in the development and management of commercial
real estate properties. Mr. Wolcott graduated from the University of Texas
at Austin in 1975 with a Bachelor of Science degree and received a Masters
of Business Administration degree from Harvard University in 1977.

DAVID B. WARNER was hired as Vice President and Chief Operating
Officer of the Trust on May 24, 1993. From 1989 through the date of his
accepting a position with the Trust, Mr. Warner was Director of the Equity
Investment Group for The Prudential Realty Group. From 1985 to 1989, he
served in the Real Estate Banking Group of NCNB Texas National Bank. Mr.
Warner graduated from the University of Texas at Austin in 1981 with a
degree in Finance and received a Masters of Business Administration from
the same institution in 1984.

MARK A. O'BRIEN was hired as the Vice President of Finance &
Administration of the Trust on May 11, 1993. Prior to joining the Trust,
Mr. O'Brien was employed by the accounting firm of Arthur Andersen & Co. in
the real estate services group. Mr. O'Brien was the Vice-President of
Finance & Administration with the Fritz Duda Company, a Dallas, Texas based
real estate development, investment and property management company, from
1991 to October 1992. Mr. O'Brien was employed by Arthur Andersen & Co.
from 1984 through 1991, where he was an auditor of and consultant to
companies engaged in real estate, health care and construction industries,
including publicly traded limited partnerships and other Securities and
Exchange Commission registrants. Mr. O'Brien graduated from the University
of Mississippi in 1984 with a Bachelor of Accountancy degree. He is a
Certified Public Accountant and a member of the AICPA and the Texas Society
of CPA's.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

The Company will pay each independent director a fee of $20,000 per year
for services as a director plus $1,000 for each meeting of the directors or a
committee of the Board of Directors attended in person. In addition, the Company
will reimburse the directors for their expenses incurred in connection with
their duties as directors. Payment by the Company for services will not commence
until the first meeting following consummation of the Merger.

34
<PAGE> 38

The Company was organized on January 12, 1994. Accordingly, the Company did
not pay any cash compensation to its executive officers for the year ended
December 31, 1993. The Company will not pay compensation to its executive
officers prior to the Effective Date. Effective January 12, 1994, the Company
awarded stock options under the Omnibus Plan to purchase Common Stock as
follows:

<TABLE>
<CAPTION>
NUMBER
OF
SHARES
OF
COMMON
STOCK
COVERED
BY EXERCISE
NAME AND OFFICE OPTIONS PRICE
------------------------------------------------------- ------ ------
<S> <C> <C>
Charles W. Wolcott..................................... 81,600 $10.63
President and Chief Executive Officer
David B. Warner........................................ 27,200 $10.63
Vice President and Chief Operating Officer
Mark A. O'Brien........................................ 27,200 $10.63
Vice President and Chief Financial Officer, Secretary
and Treasurer
</TABLE>

EMPLOYMENT AGREEMENTS

Messrs. Wolcott, O'Brien and Warner have entered into Employment Agreements
with the Company (each an "Employment Agreement"), effective as of January 1,
1994. In general, the Employment Agreements provide for certain incentive bonus
compensation and severance compensation in order to encourage these
key-employees of the Company to remain as employees of the Company. In the event
that such employee is terminated, voluntarily or involuntarily, as a direct
result of a change in control of the Company, the employee will be entitled to
receive severance compensation in an amount equal to three times the average of
the total cash compensation, inclusive of base salary and cash bonuses, received
by such employee during each of the preceding five calendar years. Each
Employment Agreement is for an initial term of three years, renewable for
unlimited terms of one year with the agreement of both the Company and the
employee. For purposes of the Employment Agreements, the term "change in
control" means the consolidation or merger of the Company with or into another
entity (other than a merger with a subsidiary or a merger in which the Company
is the surviving entity) or the sale of all or substantially all of the assets
of the Company to a third-party unaffiliated with the Company. In the event of
the expiration of the term of the Employment Agreement, or the termination of
the employee for any reason at any time at least 90 days prior to the time that
a change in control of the Company occurs, the employee shall not be entitled to
receive severance compensation.

Each Employment Agreement also provides that key-employees shall be
eligible for an annual incentive bonus, subject to certain conditions being
satisfied. Annual incentive bonuses will be awarded as follows: for every
incremental specified increase (the "Increase Multiple") in Funds from
Operations per share earned by the Company in each calendar year during the term
of the Employment Agreement, key-employees shall receive an additional fixed
percentage of such employee's base salary (the "Bonus Percentage") as incentive
bonus compensation. The Increase Multiple and the Bonus Percentage shall be
determined by the Compensation Committee of the Company for each calendar year
for which an incentive bonus is calculated. In no event may any employee's
incentive bonus exceed 25% of such employee's base salary for each calendar
year. In the event of the expiration of the term of an Employment Agreement,
employees shall not be entitled to receive any further incentive bonus,
provided, however, that in the event an employee's employment is terminated for
any reason prior to the expiration of the Employment Agreement or any renewal,
such employee shall be entitled to receive any previously unpaid annual
incentive bonus, prorated for the portion of such year which elapsed prior to
the date of such termination.

In addition to the annual incentive bonus, the Employment Agreement
provides that the employee is also entitled to receive an annual achievement
bonus of up to 15% of employee's base salary during the year in which the annual
achievement bonus is awarded. The employee is entitled to receive an annual
achievement bonus in each year that the Company achieves specific targets
established annually by the Compensation Committee of the Company. The
Employment Agreement also provides that the employee is eligible to receive
annually a merit bonus at the discretion of the Compensation Committee. The
merit bonus may not

35
<PAGE> 39

exceed 10% of the employee's base salary for the year in which the merit bonus
is awarded. The Compensation Committee determines if an employee should be
awarded a merit bonus based upon an evaluation of employee's work by his direct
supervisor and the recommendation of the President and Chief Executive Officer
of the Company. The Compensation Committee determines whether the President and
Chief Executive Officer should receive a merit bonus without being required to
review an evaluation or receiving any recommendations as described above.

The Employment Agreements provide further that each key-employee is
employed by the Company on an at-will basis, which means that their employment
with the Company is terminable at the will of either the Company or such
employee without prior notice to the other.

STOCK OPTION PLAN

The Company has adopted an Omnibus Common Stock Incentive Plan (the
"Omnibus Plan") to assist the Company in recruiting, retaining and rewarding
employees with ability and initiative by enabling employees to participate in
its future success and to associate their interests with those of the Company
and its Stockholders. The summary of the Omnibus Plan set forth below is
qualified in its entirety by reference to the text of the Omnibus Plan, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Proxy Statement/Prospectus constitutes a part.

The Board of Directors of the Company approved and adopted the Omnibus Plan
as of January 12, 1994, and the sole Stockholder of the Company approved and
adopted the Omnibus Plan as of January 12, 1994. The Omnibus Plan will be
administered by a committee of the Board of Directors (the "Committee"). A total
of 185,000 shares of Common Stock have been reserved for issuance under the
Omnibus Plan pursuant to the exercise of incentive and non-incentive stock
options (collectively, "Options"), stock appreciation rights ("SARs") and the
award of Common Stock of the Company subject to forfeiture and limitations on
transferability ("Restricted Shares"). The maximum number of shares of Common
Stock authorized for issuance under the Omnibus Plan will be increased each year
beginning January 1, 1994, by 6% of the amount, if any, by which the total
number of shares of Common Stock outstanding as of the last day of the Company's
fiscal year exceeds the total number of shares of Common Stock outstanding as of
the first day of such fiscal year.

The Committee has complete authority to interpret all provisions of the
Omnibus Plan, to prescribe the form of agreements, to adopt, amend and rescind
rules and regulations pertaining to the administration of the Omnibus Plan, and
to make all other determinations necessary or advisable for the administration
of the Omnibus Plan. A member of the Committee may not participate in the
Omnibus Plan during the time that his or her participation would prevent the
Committee from being "disinterested" within the meaning of Rule 16b-3, as from
time to time amended, under the Exchange Act.

Under the terms of the Omnibus Plan, any employee who is an officer of the
Company or of any Affiliate of the Company is eligible to participate in the
Omnibus Plan if the Committee, in its sole discretion, determines that such
person has contributed or can be expected to contribute to the profits or growth
of the Company or an Affiliate.

Options and SARs. The number of shares of Common Stock which may be granted
under the Omnibus Plan or for which any outstanding Options and SARs are
exercisable are subject to customary anti-dilution adjustment provisions. The
maximum term of any Option or SAR granted pursuant to the Omnibus Plan is ten
years. If an Option or SAR is terminated or forfeited, in whole or in part, for
any reason other than its exercise, Common Stock allocated to such Options or
SARs (or portion thereof) may be reallocated to other awards to be granted under
the Omnibus Plan. The Omnibus Plan provides that the exercise price of an Option
shall be determined by the Committee on the date of grant; provided, however,
that the exercise price of any Option that is an incentive stock option shall
not be less than the fair market value of the underlying Common Stock on the
date of grant of the Option. No participant in the Omnibus Plan may be granted
incentive options or related SARs (under any incentive option plan of the
Company or its Affiliates) which are first exercisable in any calendar year for
stock having an aggregate fair market value (determined as of the date of grant)
exceeding $100,000.

36
<PAGE> 40

Any Option or SAR granted under the Omnibus Plan shall be nontransferable
except by will or by laws of descent and distribution. Any Option or SAR may
only be exercised by the participant to whom they were granted during the
lifetime of such participant.

Restricted Share Awards. The Committee may, in its discretion, designate
eligible employees to receive awards of Restricted Shares. The Committee may
prescribe that a participant's rights in the Restricted Shares are forfeitable
or otherwise restricted for a period of time set forth in the agreement
applicable to each such award. Prior to their forfeiture, in accordance with the
terms of each award agreement, a participant will have all of the rights of a
Stockholder with respect to such Restricted Shares, including the right to
receive dividends and vote; provided, however, that (i) a participant may not
sell, transfer, pledge, exchange, hypothecate or otherwise dispose of Restricted
Shares, (ii) the Company shall retain custody of the certificates evidencing the
Restricted Shares, and (iii) a participant will deliver to the Company a stock
power endorsed in blank, with respect to each award of Restricted Shares.

The Omnibus Plan may be amended or terminated by the Board of Directors of
the Company, provided, however, that no amendment may become effective until
approved by the Stockholders of the Company if (i) the amendment increases the
aggregate number of shares of Common Stock that may be issued under the Omnibus
Plan, or (ii) the amendment changes the class of individuals eligible to become
participants. No amendment to the Omnibus Plan may, without a participant's
consent, adversely affect any rights of such participant under any outstanding
Restricted Share award or under any Option or SAR outstanding at the time such
amendment is made.

401(K) PLAN

The Trust has adopted a Retirement and Profit Sharing Plan (the "Profit
Sharing Plan") (to be assumed by the Company upon consummation of the Merger)
for the benefit of employees of the Trust. Employees who were employed by the
Trust on January 1, 1993, and who have attained the age of 21 are immediately
eligible to participate in the Profit Sharing Plan. All other employees of the
Trust are eligible to participate in the Plan after they have completed one year
of service with the Trust and attained the age of 21. The summary of the Profit
Sharing Plan set forth below is qualified in its entirety by reference to the
text of the Profit Sharing Plan, a copy of which has been filed as an exhibit to
the Registration Statement of which this Proxy Statement/Prospectus is a part.

Each participant may make contributions to the Profit Sharing Plan by means
of a pre-tax salary deferral which may not be more than 15% of the employee's
compensation. The Trust will contribute, on behalf of each non-highly
compensated employee and non-key employee who is actively employed on the last
day of each plan year, a special discretionary contribution equal to a
percentage of such employee's compensation, which will be determined each year
by the Trust. The Code limits the annual amount of salary deferrals that may be
made by any employee.

An employee's salary deferral contribution will always be 100% vested and
nonforfeitable, although such contributions will be affected by any investment
gains or losses to the Profit Sharing Plan. In general, in the event of
retirement, death or disability, 100% of a participating employee's account
would be available for distribution to either the employee or such employee's
beneficiary, as applicable. The Trust Managers may amend the Profit Sharing Plan
at any time. In no event, however, may any amendment (i) authorize or permit any
part of the Profit Sharing Plan assets to be used for purposes other than the
exclusive benefit of participating employees or their beneficiaries, or (ii)
cause any reduction in the amount credited to each participating employee's
account. Likewise, the Trust Managers have the right to terminate the Profit
Sharing Plan at any time. In the event of such termination, all amounts credited
to each employee's account will continue to be 100% vested. A complete
discontinuance of contributions to the Profit Sharing Plan by the Trust will
also constitute an event of termination of the Profit Sharing Plan.

LIMITATION OF LIABILITY AND INDEMNIFICATION

37
<PAGE> 41

permits the liability of directors and officers to a corporation or its
stockholders for money damages to be limited, except (i) to the extent that it
is proved that the director or officer actually received an improper benefit or
profit or (ii) if a judgment or other final adjudication is entered against the
director or officer in a proceeding based on a finding that the director's or
officer's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. This provision does not limit the ability of the Company or its
Stockholders to obtain other relief, such as an injunction or rescission.

The Company's Articles require the Company to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by the MGCL. The MGCL permits a corporation, subject to certain exceptions,
to indemnify its directors, officers and certain other parties against
judgments, penalties, fines, settlements and reasonable expenses, including
attorneys' fees, actually incurred by or at the request of the corporation,
unless it is established that (i) the act or omission of the indemnified party
was material to the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) the
indemnified party actually received an improper personal benefit, or (iii) in
the case of any criminal proceeding, the indemnified party had reasonable cause
to believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that
personal benefit was improperly received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted. It is the position of the Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act.

SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST
AND COMMON STOCK

There are a number of differences in the investment attributes and legal
rights associated with the ownership of Trust Shares and shares of Company
Common Stock. The principal differences are summarized below.

<TABLE>
<CAPTION>
SHARES OF BENEFICIAL INTEREST COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
PREFERENCES
All holders of Shares participate equally in All holders of Common Stock participate
distributions and have no preference rights. equally in distributions and have no
preference rights; however, the Company may
issue Preferred Stock with priorities or
preferences with respect to dividends and
liquidation proceeds.
CUMULATIVE VOTING
Cumulative voting in the election of Trust There is no cumulative voting in the
Managers is prohibited except when the Trust election of directors.
is aware that a person beneficially owns
more than 30% of the outstanding Shares.
EXCHANGE LISTING
The Shares are listed for trading on the The Company will apply to list the Common
NYSE. Stock on the NYSE.
</TABLE>

38
<PAGE> 42

<TABLE>
<CAPTION>
SHARES OF BENEFICIAL INTEREST COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
STAGGERED BOARD OF DIRECTORS
The Texas REIT Act does not specifically The MGCL specifically authorizes the Company
authorize the Trust to stagger the terms of to stagger the terms of office of the Board
office of the Trust Managers, and the of Directors, and the Articles of the
Declaration of Trust does not provide for Company provide for staggered terms.
staggered terms.
BUSINESS COMBINATIONS
Certain business combinations between the Certain business combinations between the
Trust and a beneficial holder of 10% or Company and an Interested Stockholder (as
more of the Trust's outstanding Shares (an hereinafter defined) or an affiliate
"Interested Shareholder") must be approved thereof, are prohibited for five years after
by the affirmative vote of the holders of at the most recent date on which the Interested
least 80% of the voting power of the Stockholder became an Interested
outstanding Shares. "Business Combinations" Stockholder. Thereafter any such business
include liquidations, mergers or combination must be recommended by the Board
consolidations with or into an Interested of Directors of the Company and approved by
Shareholder, the sale of substantially all the affirmative vote of at least (i) 80% of
the Trust's assets to an Interested the votes entitled to be cast by holders of
Shareholder, and certain issuances of outstanding voting shares of the Company and
securities to an Interested Shareholder. (ii) 2/3 of the votes entitled to be cast by
the holders of outstanding voting shares of
the Company other than shares held by the
Interested Stockholder with whom the
business combination is to be affected
unless, among other things, the Company's
stockholders receive a minimum price for
their shares and the consideration is
received in cash or the same form as
previously paid by the Interested
Stockholder for its shares. See "Certain
Provisions of Maryland Law and of the
Company's Articles and Bylaws."
SPECIAL MEETINGS
Special meetings of Shareholders may be Special meetings may be called by the
called by the holders of not less than holders of not less than 25% of the stock
1/10 of all Shares entitled to vote at the entitled to vote at the special meeting.
meeting.
DIVIDENDS
The Trust Managers may declare dividends on The Board of Directors may declare dividends
the outstanding Shares in cash, property on outstanding stock in cash, property or
or Shares except when the Trust is insolvent its own stock except when the Company would
or the payment thereof would render the not be able to pay its indebtedness as it
Trust insolvent. becomes due or if liabilities exceed assets.
VOTING REQUIREMENTS
Under the Declaration of Trust, a two-thirds Under the Articles, a majority vote of
vote of outstanding Shares is required to outstanding stock is required to approve
approve mergers (other than business mergers and consolidations (other than
combinations), dissolution of the Trust and business combinations), transfers of assets,
amendment of the Declaration of Trust. dissolution of the Company and amendment of
the Articles.
</TABLE>

39
<PAGE> 43

THE COMPANY'S SECURITIES

The description of the Company's securities set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles and Bylaws, copies of which are filed as Exhibits to this
Registration Statement of which this Proxy Statement/Prospectus is a part. See
"ADDITIONAL INFORMATION."

CAPITAL STOCK

General. Under the Articles, the Company has the authority to issue up to
60,000,000 shares of capital stock, consisting of 50,000,000 shares of Common
Stock, par value $.01 per share and 10,000,000 shares of Preferred Stock, par
value $.01 per share. Shares of Common Stock and Preferred Stock may be
automatically deemed "Excess Stock" as described below. Under the MGCL,
stockholders generally are not responsible for the corporation's debts or
obligations. Upon completion of the Merger, there will be approximately
1,815,080 shares of Common Stock issued and outstanding, and no shares of
Preferred Stock will be issued or outstanding.

Common Stock. All shares of Common Stock received by Shareholders in
connection with the Merger will be duly authorized, fully paid and
non-assessable. Subject to the preferential rights of any other shares or series
of shares and to the provisions of the Articles regarding Excess Shares, holders
of shares of Common Stock will be entitled to receive dividends on the stock if,
as and when authorized and declared by the Board of Directors out of assets
legally available therefor and to share ratably in the assets of the Company
legally available for distribution to its Stockholders in the event of its
liquidation, dissolution or winding-up after payment of, or adequate provision
for payment of, all known debts and liabilities of the Company.

Subject to the provisions of the Articles regarding Excess Shares, each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of Stockholders, including the election of directors, and,
except as otherwise required by law or except as provided with respect to any
other class or series of stock, the holders of shares of Common Stock will
possess the exclusive voting power. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all of the directors then standing
for election and the holders of the remaining shares will not be able to elect
any directors.

Holders of shares of Common Stock have no conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company.

The Company intends to furnish its Stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.

Subject to the provisions of the Articles regarding Excess Shares, shares
of Common Stock will have equal dividend, distribution, liquidation and other
rights and will have no preference, appraisal or exchange rights.

The transfer agent and registrar for the Common Stock is Society
Shareholder Services, Inc., Dallas, Texas.

Preferred Stock. Shares of Preferred Stock may be issued from time to time,
in one or more series, as authorized by the Board of Directors. Prior to the
issuance of shares of each series, the Board of Directors is required by the
MGCL and the Articles to fix for each series, subject to the provisions of the
Articles regarding Excess Shares, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by the MGCL. The Board of Directors could authorize the issuance of
Preferred Shares with terms and conditions that could have the effect of
discouraging a takeover or other transaction that holders of shares of Common
Stock might believe to be in their best interests or in which holders of some,
or a majority, of shares of Common Stock might receive a premium for their
shares over the then-current market price of such

40
<PAGE> 44

shares. As of the date hereof, no Preferred Shares are outstanding, and the
Company has no present plans to issue any Preferred Shares.

Restrictions on Transfers. For the Company to qualify as REIT under the
Code, among other things, not more than 50% of the value of its issued and
outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (defined in the Code to include certain entities)
during the last half of a taxable year or during a proportionate part of a
shorter taxable year, and such shares of Common Stock must be beneficially owned
by 100 or more persons during at least 335 days of a taxable year of 12 months
or during a proportionate part of a shorter taxable year. See "FEDERAL INCOME
TAX CONSIDERATIONS." Since the Board of Directors believes it is essential for
the Company to maintain its status as a REIT under the Code, the Articles
provide that no holder (other than persons approved by the directors at their
option and in their discretion) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% percent (the "Ownership
Limit") of the number or value of the issued and outstanding capital stock of
the Company. The Board of Directors may waive the Ownership Limit if evidence
satisfactory to the Board of Directors is presented that the changes in
ownership will not then or in the future jeopardize the Company's status as a
REIT. As a condition to this waiver, the intended transferee must give written
notice to the Company of the proposed transfer no later than the 50th day prior
to any transfer which, if effected, would result in the intended transferee
owning shares in excess of the Ownership Limit. The Board of Directors may
require opinions of counsel, affidavits, undertakings or agreements as it may
deem necessary or advisable in order to determine or ensure the Company's status
as a REIT. Any transfer of shares of stock that would create a direct or
indirect ownership of shares of stock in excess of the Ownership Limit or that
would result in the disqualification of the Company as a REIT, including any
transfer that results in the shares of Common Stock being owned by fewer than
100 persons or that results in the Company being "closely-held" within the
meaning of Section 856(h) of the Code, shall be null and void, and the intended
transferee will acquire no rights to the shares of stock. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best interests of the Company
to attempt to qualify, or to continue to qualify, as a REIT.

Shares of stock owned, or deemed to be owned, or transferred to a
Stockholder in excess of the Ownership Limit or which cause the Company to
become "closely-held" under Section 856(h) of the Code except as permitted
above, will automatically be deemed Excess Shares that will be transferred, by
operation of law, to the trustee of a trust for the exclusive benefit of the
transferees for whom such shares of stock may be ultimately transferred without
violating the Ownership Limit. Subject to the Ownership Limit, the Excess Shares
may be transferred by the intended transferee to any person (if the Excess
Shares would not be Excess Shares in the hands of that person) at a price not to
exceed the price paid by the intended transferee (or, if no consideration was
paid, fair market value at the time of the original attempted transfer) at which
point the Excess Shares will automatically be deemed shares of stock. In
addition, Excess Shares held in trust are subject to purchase by the Company at
a purchase price equal to the lesser of: (i) the price paid for the shares of
stock by the intended transferee (or, if no consideration was paid, fair market
value of the shares of stock by the attempted transfer of which resulted in
Excess Shares, measured on the date of the transfer); or (ii) the average daily
per share closing price on a national securities exchange or NASDAQ NMS of the
shares of stock the attempted transfer of which resulted in Excess Shares
measured during the 30 day calendar period ending on the business day
immediately preceding the redemption date, or if not then traded on the NYSE, a
national securities exchange or NASDAQ NMS, the mean between the average per
share closing bid prices and the average per share closing asked prices measured
during the 30 day calendar period ending on the business day immediately
preceding the redemption date, then the market price of the shares of stock on
the relevant date as determined in good faith by the Board of Directors.

From and after the intended transfer to the intended transferee of the
Excess Shares, the intended transferee shall cease to be entitled to
distributions (except upon liquidation), voting rights and other benefits with
respect to the Excess Shares except the right to payment of the purchase price
for the shares of stock. Any dividend or distribution paid to a proposed
transferee on Excess Shares prior to the discovery by the Company that the
shares have been transferred in violation of the Articles shall be repaid to the
Company upon demand. If the foregoing transfer restrictions are determined to be
void or invalid by virtue of any legal

41
<PAGE> 45

decision, statute, rule or regulation, then the intended transferee of any
Excess Shares may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring the Excess Shares and to hold the
Excess Shares on behalf of the Company. All certificates representing shares of
Common Stock and Preferred Stock will bear a legend referring to the
restrictions described above.

The Board of Directors may require an affidavit from each Stockholder or
proposed transferee of Common or Preferred Stock setting forth the number of
shares already beneficially owned by such person. If, in the opinion of the
Board of Directors, a proposed transfer jeopardizes the qualification of the
Company as a REIT, the Board has the right, but not the duty, to refuse to
permit the transfer of Stock to such person. All persons who own, directly or by
virtue of the attribution provisions of the Code, more than 9.8% of the number
or value of the outstanding shares of Common Stock must give the Company written
notice by January 31st of each year. In addition, each Stockholder shall, upon
demand, be required to disclose to the Company in writing all information
regarding the direct, indirect and constructive ownership of shares of Common
Stock as the Board of Directors deems reasonably necessary to comply with the
provisions of the Code applicable to a REIT, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.

These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of Common Stock might receive a premium for their shares over the then
prevailing market price or which these holders might believe to be otherwise in
their best interest.

THE NOTES

General. The Trust issued the Notes pursuant to an Indenture (the
"Indenture") dated as of November 15, 1985, between the Trust and IBJ Schroder
Bank & Trust (formerly known as J. Henry Schroder Bank & Trust Company), as
Trustee (the "Indenture Trustee"). The Notes are sold in registered form,
without coupons, in minimum denominations of $1,000 and integral multiples
thereof. In connection with the acquisition of the Properties, the Trust granted
Mortgages (defined below) to or for the benefit of the Indenture Trustee for the
ratable benefit of the Noteholders pursuant to the provisions of the Indenture.
See "-- Collateral." Under the Merger Agreement, the Company will assume the
obligations of the Trust under the Indenture and will assume the Mortgages.

If all currently outstanding Notes remain outstanding, the Notes will
accrue at stated maturity to $19,491,000 on the twelfth anniversary of date of
issuance, and there are no periodic payments of interest.

Collateral. The Notes are secured by first or second mortgages on the
Properties to be acquired by the Company in the Merger (the "Mortgages").
Pursuant to the Indenture and Mortgages on the Properties, the Noteholders will
have a claim prior to that of the Stockholders with respect to the Company's
Properties. See "-- Events of Default." In addition, the Indenture Trustee will
hold a security interest on funds in the defeasance account (as described
below), excluding income earned on such funds, which income will be distributed
at least annually to the Company.

Subject to its investment policies and the limitations set forth in
"-- Proceeds from Sale of Assets and Refinancing" below, the Company will have
the right from time to time to sell or dispose of for cash any or all of the
Properties subject to the Mortgages. In the event of a sale or other disposition
of any of the Properties, the Company will be entitled to the release thereof
from the lien of the Indenture and the applicable Mortgage upon delivery to the
Indenture Trustee of funds generally equal to not less than the purchase price
of the Property (less debt assumed on the purchase) to be released, and
compliance with certain other conditions precedent. In any such event, funds
delivered shall be deposited in the defeasance account (as described below).

Insurance; Uninsured Losses. Until all Notes are defeased or redeemed, the
Mortgages require the Company to maintain adequate insurance coverage for the
Properties from an insurance company having a claims paying rating of "AA" or
better by Standard & Poor's Corporation. The insurance policies covering the
Properties will not cover certain types of losses (generally of a catastrophic
nature, such as earthquakes, floods and wars). Should such an uninsured loss
occur, the Company could lose both its invested capital and

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anticipated profits relating to the affected Property, and the Company would be
required to defease an amount of the Notes having an aggregate principal amount
at stated maturity equal generally to the purchase price (less debt assumed on
the purchase) to the Company of the affected Property. In that event, the
Company might be required to use reserves, seek additional funds, sell a
Property at unfavorable terms or suffer a foreclosure of a Property. Because of
the restrictions contained in the Indenture, there can be no assurance, however,
that additional funds would be available or, if available, that such funds would
be on acceptable terms. See "RISK FACTORS -- Uninsured Loss."

Proceeds from Sale of Assets and Refinancing. Pursuant to the Indenture,
until all Notes are defeased or redeemed, the Board of Directors shall deposit
with the Indenture Trustee such portion of the proceeds of any sale, refinancing
or other disposition of any of the Company's Properties as they deem necessary
or appropriate to protect the interests of the Noteholders but in no event less
than the original purchase price of the Property being sold, refinanced or
otherwise disposed of (less debt assumed on purchase). In the event of a sale or
other disposition of property, such Property may only be released from the lien
of the Indenture and the applicable Mortgage upon compliance with the conditions
set forth in Article 13 of the Indenture. See "-- Collateral."

Until the eleventh anniversary of the issuance of the Notes, the Company
shall not make distributions to Stockholders out of the proceeds of the sale,
refinancing or other disposition of any Property, or insurance payment or
condemnation proceeding, if the principal amount of the Notes at stated maturity
(reduced by the amount, if any, of the funds in the defeasance account and the
redemption account (excluding income earned on such funds)) would be greater
than 100% of the sum of the most recent appraisal report on the Company's
Properties (reduced by the amount of debt assumed on purchase of the Properties
and the amount attributable to the gain, if any, or the proposed sale,
refinancing or other disposition, based on the most recent appraisal report on
such Property or to the gain, if any, from the insurance payment or condemnation
proceeding) and the gross value of all other Properties. Notwithstanding the
foregoing, this limitation shall not prevent the Company from making any
distributions to Stockholders deemed necessary by the Board of Directors to
maintain the Company's qualification as a REIT under the Code.

If, by November 27, 1996, the Notes have not been redeemed or defeased in
full and refinancing commitments from bona fide creditors are not sufficient to
repay the outstanding Notes at stated maturity, the Company will be required to
sell Properties to raise cash sufficient to retire the Notes at stated maturity.

Redemption, Defeasance and Discharge. From and after November 27, 1995, the
Notes may be redeemed at the option of the Trust, in whole or in part, upon not
less than 30 nor more than 60 days notice at their stated principal amounts at
maturity. Funds deposited in the redemption account are held for the persons
entitled thereto, do not constitute part of the collateral pursuant to the
Indenture, and may be used solely to redeem the Notes subject to redemption.

Pursuant to the Indenture, a defeasance account will be established. In
order to defease all or any portion of the Notes, at or before maturity, the
Trust must deposit cash and government obligations in the defeasance account, in
principal amounts sufficient to pay the aggregate principal amount of the
defeased Notes at stated maturity. The amounts in the defeasance account may be
transferred to the redemption account to be used to redeem the Notes subject to
redemption.

Events of Default. The following events constitute Events of Default
pursuant to the terms of the Notes and the Indenture:

(i) Any failure to pay principal on the Notes when due;

(ii) Any nonpayment of taxes or insurance or failure to perform any other
obligation under any of the Mortgages involving solely the payment of
money occurring for a period of 30 calendar days after proper notice;

(iii) Any default in the performance or breach of any warranty or of any
other obligation contained in the Indenture or any Mortgage for a period
of 30 calendar days after proper notice (provided that the 30-day cure
period will be extended for another single 30-day period if the default
is not cured

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within the initial period but the Company has commenced efforts to cure
the default and thereafter proceeds to cure the same with due
diligence);

(iv) Events of bankruptcy, insolvency, reorganization or other similar
events, of the Company; and

(v) Any default under any indebtedness for borrowed money by the Company
under any mortgage, indenture or other instrument which secures such
indebtedness, whether now-existing or hereafter incurred, which default
shall constitute a monetary default or result in such indebtedness being
declared due and payable prior to its maturity after expiration of
applicable grace periods, without such indebtedness being discharged,
rescinded or waived within a period of 20 calendar days after proper
notice.

Upon the occurrence and continuance of an Event of Default as described above,
the Indenture Trustee or the holders of not less than 25% in principal amount of
the Notes may declare to be due and payable immediately an amount of principal
equal to the then accreted aggregate principal amount of the Notes using the
interest method of computation. After declaration of acceleration but before
judgment or decree thereon, holders of a majority in principal amount of the
Notes by notice may rescind such acceleration if certain monies are deposited
for payment of Notes which are due otherwise than by acceleration, payments of
certain Indenture Trustee fees are made and all Events of Default other than
non-payment of principal of Notes which have become due as a result of
acceleration are cured or waived. Upon such declaration, such amount of
principal will become immediately due and payable and the Indenture Trustee may
foreclose on the Properties subject to Mortgages. Overdue principal will bear
interest at an annual rate equal to 14.70% (to the extent that the payment of
such interest is legally enforceable).

Limitations on Consolidation, Merger. The Trust, without the consent of
Noteholders, may consolidate with or merge into any entity or convey or transfer
its properties and assets substantially as an entirety, if its successor is a
domestic trust or corporation and assumes the Trust's obligations on the Notes
and under the Indenture, and after giving effect to such transaction the Trust
or its successor would not be in default under the Indenture.

CERTAIN STATUTORY AND CHARTER PROVISIONS

The following is a summary of certain provisions of the MGCL and the
Company's Articles and Bylaws and does not purport to be complete and is
qualified in its entirety by reference to the MGCL and the Company's Articles
and Bylaws. Copies of the Company's Articles and Bylaws have been filed as
exhibits to the Registration Statement of which this Proxy Statement/Prospectus
is a part. See "ADDITIONAL INFORMATION."

CLASSIFICATION OF THE BOARD OF DIRECTORS

The Company's Bylaws provide that the number of directors of the Company
may be established by the Board of Directors but may not be fewer than the
number required under the MGCL. Any vacancy will be filled, at any regular
meeting or at any special meeting called for that purpose, by a majority of the
remaining directors, except that a vacancy resulting from an increase in the
number of directors will be filled by a majority of the entire Board of
Directors. The Stockholders may fill vacancies resulting from the removal of a
director. Pursuant to the terms of the Articles, the directors are divided into
three classes. One class will hold office initially for a term expiring at the
annual meeting of Stockholders to be held in 1995, another class will hold
office initially for a term expiring at the annual meeting of Stockholders to be
held in 1996 and another class will hold office initially for a term expiring at
the annual meeting of Stockholders to be held in 1997. As the term of each class
expires, directors in that class will be elected for a term of three years until
their successors are duly elected and qualified. The Company believes that
classification of the Board of Directors will help to assure the continuity and
stability of the Company's business strategies and policies as determined by the
Board of Directors.

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The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its Stockholders. At least two annual meetings of
Stockholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
Further, holders of shares of Common Stock will have no right to cumulative
voting for the election of directors. Consequently, at each annual meeting of
Stockholders, the holders of a majority of shares of Common Stock will be able
to elect all of the successors of the class of directors whose term expires at
that meeting.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Articles limit the liability of the Company's directors and
officers to the Company and its Stockholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the liability
of directors and officers to a corporation or its Stockholders for money damages
to be limited, except (i) to the extent that it is proved that the director or
officer actually received an improper benefit or profit or (ii) if a judgment or
other final adjudication is entered against the director or officer in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its Stockholders to obtain other
relief, such as an injunction or rescission.

BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate thereof, are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of such corporation
and approved by the affirmative vote of at least (i) 80% of the votes entitled
to be cast by holders of outstanding voting

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<PAGE> 49

shares of the corporation voting together as a single group; and (ii) two-thirds
of the votes entitled to be cast by holders of outstanding voting shares of the
corporation other than shares held by the Interested Stockholder with whom the
business combination is to be effected, unless, among other things, the
corporation's stockholders receive a minimum price (as defined in the MGCL) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of Maryland law do not apply, however, to business combinations that are
approved or exempted by the board of directors of the corporation prior to the
time that the Interested Stockholder becomes an Interested Stockholder. The
Articles contain a provision exempting from these provisions of the MGCL any
business combination involving the Trust (or its affiliates).

CONTROL SHARE ACQUISITION

The MGCL provides that "control shares" of the Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquirer, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power, would entitle the acquirer
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third; (ii)
one-third or more but less than a majority; or (iii) a majority or more of all
voting power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any
and all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for control shares, as of the date of the last control
share acquisition or of any meeting of stockholders at which the voting rights
of such shares are considered and not approved. If voting rights for control
shares are approved at a stockholders meeting and the acquirer becomes entitled
to vote a majority of the shares entitled to vote, all other stockholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid in the control share acquisition, and certain limitations and
restrictions otherwise applicable to the exercise of dissenters' rights do not
apply in the context of a control share acquisition.

The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation.

The Articles contain a provision exempting from the control share
acquisition statute any and all acquisitions by the Trust (or its affiliates).

AMENDMENT TO THE ARTICLES OF INCORPORATION AND BYLAWS

The Company's Articles, including their provisions on classification of the
Board of Directors and removal of directors, may not be amended without the
affirmative vote of the holders of at least a majority of all of the votes
entitled to be cast on the matter. The Company's Bylaws may be amended by either
the affirmative vote of a majority of all shares outstanding and entitled to
vote or by the affirmative vote of a majority of the Company's directors then
holding office. Neither the Board of Directors nor the Stockholders may amend
the indemnification provisions of the Bylaws without the consent of the persons
whose right to indemnification under the Bylaws would be adversely affected by
the amendment.

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DISSOLUTION OF THE COMPANY

The MGCL permits the dissolution of the Company by (i) the affirmation or
vote of a majority of the entire Board of Directors declaring such dissolution
to be advisable and directing that the proposed dissolution be submitted for
consideration at an annual or special meeting of Stockholders; and (ii) upon
proper notice, Stockholder approval by the affirmative vote of the holders of
not less than a majority of all of the votes entitled to be cast on the matter
or the written consent of all shares entitled to vote on the matter.

DIRECTOR NOMINATIONS AND NEW BUSINESS

The Company's Bylaws provide that (i) with respect to an annual meeting of
Stockholders, nominations of persons for election to the Board of Directors may
be made only by the Board of Directors; and (ii) with respect to special
meetings of Stockholders, only the business specified in the Company's notice of
meeting may be brought before the meeting of Stockholders.

The provisions in the Company's Articles on classification of the Board of
Directors and removal of directors, the business combination and, if the
applicable provision in the Bylaws is rescinded, control share acquisition
provisions of the MGCL could have the effect of discouraging a takeover or other
transaction in which holders of some, or a majority, of the shares of Common
Stock might receive a premium for their shares of Common Stock over the then
prevailing market price or which such holders might believe to be otherwise in
their best interests.

MEETINGS OF STOCKHOLDERS

Beginning in 1995, an annual meeting of the Stockholders for the election
of directors and the transaction of any business within the powers of the
Company shall be held during May of each calendar year at the time set by the
directors.

Subject to the rights which may be granted to the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
special meetings of the Stockholders may be called by the Chairman of the Board
of Directors, by the President or by a resolution adopted by a majority of the
directors, assuming no vacancies, and by the holders of 25% or more of the
outstanding Common Stock.

FEDERAL INCOME TAX CONSIDERATIONS

EFFECT OF THE MERGER

In the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., special
counsel to the Company, the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code, and accordingly (i) no gain or loss
will be recognized by the Trust as a result of the Merger; (ii) except for
Stockholders who elect to receive cash in lieu of fractional shares or who own
less than 10 shares of the Company's Common Stock after the Merger and elect to
have the Company repurchase those shares, no gain or loss will be recognized by
the Trust's Shareholders upon receipt of the Company's Common Stock in exchange
for the Trust's Shares in connection with the Merger; (iii) the tax basis of the
Company's Common Stock to be received by the Trust's Shareholders in connection
with the Merger will be the same as the basis in the Trust's Shares surrendered
in exchange therefor; and (iv) the holding period of the Company's Common Stock
to be received by the Trust's Shareholders in connection with the Merger will
include the holding period of the Trust's Shares surrendered in exchange
therefor, provided that the Trust's Shares are held as a capital asset at the
Effective Date.

TAXATION

This section is a general summary of the material federal income tax
considerations that may be relevant to prospective purchasers of Common Stock of
the Company and is based upon applicable Code provisions, rules and regulations
promulgated thereunder, and reported judicial and administrative interpretations
pertaining thereto, all of which are subject to change (possibly on a
retroactive basis).

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The following discussion does not include all matters that may be relevant
to any particular holder of Common Stock in light of such holder's particular
facts and circumstances. Certain Stockholders, such as foreign persons,
tax-exempt entities, insurance companies and financial institutions, may be
subject to special rules not discussed below. In particular, the following
discussion does not address issues under the Employee Retirement Income Security
Act of 1974, as amended, the Foreign Investment in Real Property Tax Act of
1980, and foreign, state and local tax laws.

Each prospective purchaser should consult his own tax advisor regarding the
specific tax consequences to him of the purchase, ownership, and sale of the
Common Stock, including the federal, state, local, foreign and other tax
consequences of such purchase, ownership, sale and of potential changes in
applicable tax laws.

TAXATION OF THE COMPANY

To qualify as a REIT under the Code for a taxable year, the Company must
meet certain requirements relating to its assets, income, stock ownership and
distributions to Stockholders. Generally, at the end of each calendar quarter,
(i) at least 75% of the value of the total assets of the Company must consist of
real estate assets, cash or government securities, (ii) not more than 25% of the
value of its total assets may consist of non-governmental securities, and (iii)
the Company may not own more than 10% of the outstanding voting securities of
any one issuer and may not own securities of any one issuer whose value
represents more than 5% of the total value of the Company's assets (shares of
qualified REITs and of certain wholly-owned subsidiaries are exempt from the
requirements described in clauses (ii) and (iii) above).

The Company must also satisfy three separate income tests. First, at least
75% of a REIT's gross income must be derived from specified real estate sources
for each taxable year. Income that qualifies under the 75% test includes certain
qualified rents from real property, gains from the sale of real property not
held primarily for sale to customers in the ordinary course of business,
dividends on REIT shares, interest on loans secured by mortgages on real
property, and certain qualified temporary investment mortgages on real property,
certain income from foreclosure property, and certain qualified temporary
investment income attributable to the investment of new capital received by the
REIT in exchange for either stock or certain debt instruments during the
one-year period following the receipt of such new capital. In order for rents to
qualify under the 75% test, they may not be derived from tenants having certain
relationships with the Company and may not be based on the income or profits of
any person, except that they may be based on a fixed percentage or percentages
of gross income or receipts. Further, a REIT may not manage the property or
furnish services to the tenants from whom the rents are received unless either
(i) the property is managed by an independent contractor which is paid an
arm's-length fee for its services and from which the REIT derives no income, or
(ii) any services performed are of a type customarily rendered in connection
with the rental of space for occupancy only. In this regard, it should be noted
that the Company currently retains an independent contractor which is paid an
arm's-length fee to manage its rental properties.

Second, at least 95% of the Company's gross income for each taxable year
must be derived from income that qualifies under the 75% test (other than
qualified temporary investment income), plus dividends, interest or gains from
disposition of certain stock or securities.

Third, gross income from the sale or other disposition of (i) stock and
securities held for less than one year, (ii) property in certain prohibited
transactions, and (iii) real property held for less than four years must
comprise less than 30% of the gross income for each taxable year of the Company.

In order to qualify as a REIT, the Company must also satisfy certain
ownership requirements with respect to its Common Stock. The Common Stock of the
Company must be held by at least 100 Stockholders, and no more than 50% in value
of the outstanding Common Stock may be owned, actually or constructively, by
five or fewer individuals (including certain types of pension funds and other
tax-exempt entities that are treated as individuals for this purpose, subject to
a "look-through" exception described below) at any time during the last half of
the Company's taxable year. In this regard, there are restrictions in the
Company's Articles that would limit the ability of a Stockholder to transfer
Common Stock if such transfer would cause or contribute to a violation of the
stock ownership requirements.

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Finally, the Company must distribute to its Stockholders annually an amount
(determined without regard to capital gains dividends) at least equal to (i) 95%
of its REIT taxable income (computed without regard to capital gains and the
dividends-received deduction), plus (ii) 95% of the after-tax income from any
foreclosure property, and less (iii) certain noncash income. If the Company were
to fail the 95% distribution requirement as a result of an IRS adjustment (to
taxable income or to the dividend paid amount) to a particular taxable year,
then, provided certain conditions are met, the Company generally would be
entitled to cure the deficiency retroactively by paying deficiency dividends to
its Stockholders. However, the Company would be liable for interest charges on
such deficiency dividends.

So long as the Company satisfies the above-described requirements and
qualifies for taxation as a REIT, it generally will not be subject to federal
income tax on that portion of its taxable income and capital gain that is
currently distributed to its Stockholders. Any undistributed taxable income or
capital gain, however, will be taxed to the Company at regular corporate rates.
In addition, the Company may be subject to other special income and excise taxes
(including the alternative minimum tax) in certain circumstances.

Regardless of distributions to Stockholders: (i) if the Company fails
either or both of the 75% or 95% income tests, but still maintains its
qualification as a REIT, it will be subject to a 100% tax on the taxable income
attributable to the greater of the amount by which it failed the 75% or the 95%
income test, and (ii) the Company will be subject to a 100% tax on any net
income from prohibited transactions.

A "prohibited transaction" is the sale or other disposition of property,
other than foreclosure property, held primarily for sale to customers in the
ordinary course of business. Certain sales, which might otherwise be classified
as "prohibited transactions", will not be subject to the 100% tax if the sales
meet the "safe harbor" rules provided in the Code.

A REIT is required to pay a 4% excise tax on the difference between the
"required distribution" and the "distributed amount" for each calendar year.
These terms are specifically defined in Code Section 4981. The excise tax rule
is designed to encourage REITs to distribute income in the same calendar year
that the income is accrued.

If the Company fails to qualify as a REIT for any taxable year and certain
relief provisions do not apply, the Company will be subject to federal income
tax (including the alternative minimum tax) on all of its taxable income at
regular corporate rates, and will not receive a deduction for dividends paid to
its Stockholders. Additionally, any distributions to Stockholders will still be
taxable to the Stockholders as ordinary income to the extent of current and
accumulated earnings and profits (although such dividends will be eligible,
subject to certain limitations, for the corporate dividends-received deduction
as to a corporate Stockholder). Thus, the Company's income would be subject to
"double taxation" -- at the corporate level and the stockholder level -- to the
extent such income is distributed to Stockholders. Failure to qualify as a REIT
could force the Company to reduce significantly its distributions and to incur
substantial indebtedness or liquidate substantial investments in order to pay
the resulting corporate taxes. In addition, the Company would not be eligible to
elect REIT status for the four subsequent taxable years, unless its failure to
qualify was due to reasonable cause and not willful neglect, and certain other
requirements were satisfied.

As a foreign corporation doing business in Texas, the Company will be
subject to the payment of Texas franchise taxes. The Texas franchise tax is
measured by a corporation's earnings and capital base apportioned on the basis
of business done in Texas versus business done everywhere. Thus, the relative
percentage of the Company's business in Texas and the Company's capital base
will affect the Texas franchise tax liability of the Company regardless of
whether the Company has earnings.

It is the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., based
upon certain representations of the Company, that the Company is organized in
conformity with the requirements for qualification as a REIT and that its
proposed method of operations, as described in this Proxy Statement/Prospectus,
will enable it to meet the requirements for taxation as a REIT. Counsel's
opinion does not have binding effect on the IRS or the courts, and no assurance
can be given that the Company would be characterized as a REIT if its status
were challenged by the IRS.

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TAXATION OF THE STOCKHOLDERS OF A REIT

Distributions made by the Company to its Stockholders out of its current or
accumulated earnings and profits will generally be taxed to them as ordinary
income. Distributions paid to Stockholders will constitute portfolio income for
purposes of Code Section 469. A distribution by the Company of net capital gains
will generally be taxed to the Stockholders as long-term capital gain to the
extent properly designated by the Company as a capital gain dividend. Ordinary
and capital gain dividends are not eligible for the dividends-received deduction
that is generally allowed to corporate stockholders.

Capital gain distributions to corporate stockholders are generally taxed in
the same manner as ordinary income except that capital losses are deductible
only to the extent of capital gains. However, corporate stockholders may be
required to treat up to 20% of any such capital gain as ordinary income. For
non-corporate stockholders, net capital gains are currently taxed at a maximum
rate of 28%, while short-term capital gains and ordinary income are taxed at a
maximum rate of 39.6%. However, because of certain limitations on itemized
deductions and personal exemptions, the effective rate may be higher in certain
circumstances. Except to a very limited extent, capital losses of non-corporate
stockholders are deductible only to the extent of capital gains.

Any loss recognized by a stockholder on a sale of shares of a REIT which
were held for not more than six months and with respect to which a capital gain
dividend was received will be treated as a long-term capital loss to the extent
of the amount of distributions from the Company required to be treated by such
stockholder as long-term capital gain.

A distribution in excess of current or accumulated earnings and profits
will constitute a nontaxable return of capital to the extent of the
stockholder's basis in his share of a REIT, and is applied to reduce the
stockholder's basis in such shares. To the extent that such distribution exceeds
such basis, the excess will be treated as capital gain to those stockholders
holding their shares as capital assets. The Company will notify each Stockholder
as to the portions of each distribution which, in its judgment, constitute
ordinary income, capital gain or return of capital. Should the Company incur
ordinary or capital losses, Stockholders will not be entitled to deduct such
losses on their own income tax returns. Under regulations to be promulgated by
the Treasury Department, Stockholders may be required to report as tax
preference items or adjustments, certain items and adjustments of the Company
for purposes of determining the Stockholders' alternative minimum tax liability,
if any.

WITHHOLDING ON DIVIDENDS AND SALE PROCEEDS

Dividends from the Company will ordinarily not be subject to withholding of
federal income taxes. However, the Company will be required to withhold at a
rate of 31% from distributions paid to those Stockholders who (i) fail to
furnish their taxpayer identification number to the Company, (ii) have,
according to the IRS, furnished an incorrect taxpayer identification number to
the Company, (iii) have, according to the IRS, under-reported interest, dividend
or patronage dividend income in the past, or (iv) have failed to satisfy the
payee-certification requirements of Code Section 3406. Each Stockholder will be
required to provide and certify his correct taxpayer identification number and
to certify that he is an exempt recipient. In addition, proceeds from the sale
of Common Stock could be subject to backup withholding if the broker through
whom the sale is made does not have certain certifications from the selling
Stockholder.

FOREIGN STOCKHOLDERS

Whether gain from the sale of Common Stock of the Company by a nonresident
alien individual or foreign corporation ("foreign persons") is subject to United
States taxation will depend on, among other things, whether the Company is a
"domestically controlled REIT." The Company will be a "domestically controlled
REIT" if United States persons own 50% or more in value of the Common Stock of
the Company at all times during a specified testing period. If the Company is a
"domestically controlled REIT," gain from the sale of Common Stock by foreign
persons generally will not be subject to United States income taxation. However,
such gain will be subject to United States taxation if it is effectively
connected with the foreign person's United States trade or business or, in the
case of an individual foreign person, such person is present

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within the United States for more than 182 days in the taxable year in question,
regardless of whether the Company is a "domestically controlled REIT." In
addition, if the Company at any time ceases to be a "domestically controlled
REIT," gain from the sale of Common Stock by a foreign person may be subject to
United States taxation if the foreign person holds more than 5% of the Common
Stock of the Company.

Distributions of cash generated by the Company's operations that are paid
to foreign persons generally will be subject to United States withholding tax at
a rate of 30% or at a lower rate if a foreign person can claim the benefits of a
tax treaty. Capital gain or other taxable distributions of cash to foreign
persons generated by the Company's sale or exchange of "United States real
property interests" generally will be subject to United States taxation at the
rates applicable to U.S. persons, collected by means of a withholding tax at a
rate of 34%. In addition, to the extent such dividends are attributable to the
sale or exchange by the Company of "United States real property interests" they
may be subject to a 30% branch profits tax (net of the amount of regular income
tax) in the hands of any foreign corporate recipients. Such tax may be reduced
or eliminated in the case of corporations which are residents of certain
countries with which the United States has a tax treaty if certain statutory
requirements are met. Stockholders may be able to obtain a partial refund of
taxes withheld in respect of capital gains distributions by filing a nonresident
U.S. tax return.

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

The federal taxation of foreign persons is a highly complex matter that may
be affected by many considerations. Foreign investors should consult their own
tax advisors regarding the U.S. and foreign tax considerations of investing.

TAX EXEMPT STOCKHOLDERS

In general, a qualified plan, IRA or other tax-exempt entity which is a
Stockholder of the Company is not subject to federal income tax on distributions
from the Company because the IRS has ruled that amounts distributed as dividends
by a qualified REIT do not constitute unrelated business taxable income ("UBTI")
when received by a tax-exempt entity. Based on that ruling, indebtedness
incurred by the Company in connection with the acquisition of an investment will
not cause distributions of the Company paid to a tax-exempt Stockholder to be
UBTI. Revenue rulings are interpretive in nature and subject to revocation or
modification; however, based on this ruling, it would appear that distributions
by the Company to tax-exempt entities would not constitute UBTI. Furthermore,
provided that the tax-exempt Stockholder has not borrowed money to acquire
Common Stock, the dividend income from the Company will not be UBTI to a
tax-exempt Stockholder. Similarly, income from the sale of Common Stock should
not constitute UBTI unless the Stockholder has borrowed to acquire his Common
Stock or is a dealer in Common Stock. For taxable years beginning after December
31, 1993, however, qualified trusts that hold more than 10% (by value) of the
shares of certain REITs may be required to treat a certain percentage of such a
REIT's distributions as UBTI. This requirement will apply only if (i) the REIT
would not qualify as such for federal income tax purposes but for the
application of a "look-through" exception to the five or fewer requirement
applicable to Common Stock held by qualified trusts, and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held if either
(i) a single qualified trust holds more than 25% by value of the REIT interests
or (ii) one or more qualified trusts, each owning more than 10% by value of the
REIT interests, hold in the aggregate more than 50% of the REIT interest. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of (a) the
UBTI earned by the REIT (treating the REIT as if it were a qualified trust and
therefore subject to tax on UBTI) to (b) the total gross income (less certain
associated expenses) of the REIT. A de minimis exception applies where the ratio
set forth in the preceding sentence is less than 5% for any year. For these
purposes, a qualified trust is any trust described in Section 401(a) of the Code
and exempt from tax under Section 501(a) of the Code. The provisions requiring
qualified trusts to treat a portion of REIT distributions as UBTI will not apply
if the REIT is able to satisfy the five or fewer requirement without relying
upon the "look-through" exception. The restrictions on ownership of Common Stock
in the Company's Articles will prevent application of the provisions treating a
portion of REIT distributions as UBTI to tax-

51
<PAGE> 55

exempt entities purchasing Common Stock, absent a waiver of such restrictions by
the Board of Directors of the Company.

EXPERTS

The balance sheets of the Trust as of December 31, 1992 and 1991 and the
related statements of operations, changes in shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1992 included in
this Proxy Statement/Prospectus have been audited by Kenneth Leventhal &
Company, independent auditors, as stated in its report appearing herein, and
having been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

The balance sheet of the Company as of January 17, 1994 included in this
Proxy Statement/Prospectus has been audited by , independent
auditors, as stated in its report appearing herein, and having been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

LEGAL MATTERS

The legality of the shares of Common Stock to be issued in connection with
the proposed Merger has been passed upon for the Company by Liddell, Sapp,
Zivley, Hill & LaBoon, L.L.P., Dallas, Texas. The statement in this Proxy
Statement/Prospectus under the caption "FEDERAL INCOME TAX CONSIDERATIONS" and
the other statements herein relating to the Company's qualification as a REIT,
as well as the tax consequences of the Merger will be passed upon by Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., Dallas, Texas.

STOCKHOLDER PROPOSALS

A proper proposal submitted by a Stockholder for presentation at the
Company's 1995 Annual Meeting and received at the Company's principal executive
offices no later than , 1995, will be included in the Company's
proxy statement and form of proxy relating to the 1995 Annual Meeting.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement (of
which this Proxy Statement/Prospectus is a part) on the Form S-4 under the
Securities Act with respect to the securities offered hereby. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Proxy Statement/Prospectus as to the content of any contract or other document
are not necessarily complete, and in each instance reference is made to copies
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
and the exhibits and schedules hereto. For further information regarding the
Company and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the SEC at its Public Reference Section, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.

The Registration Statement, the exhibits and schedules forming a part
thereof filed by the Company with the Commission can be inspected and copies can
be obtained at the Commission at Room 1024 Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601.

52
<PAGE> 56

GLOSSARY

ACMs -- Asbestos-containing materials.

ADA -- Title III of the Americans with Disabilities Act of 1990, as
amended.

Affiliate -- Any "subsidiary corporation" or "parent corporation" as such
terms are defined in Sections 424(d) and 424(e) of the Code, respectively.

Articles -- The Company's Articles of Incorporation as filed with the
Maryland Secretary of State.

Employment Agreement -- the Employment Agreement between the Company and
either of Messrs. Wolcott, Warner or O'Brien.

Code -- Internal Revenue Code of 1986, as amended.

Commission -- Securities and Exchange Commission.

Common Stock -- The Common Stock of the Company, $0.01 par value per share.

Company -- American Industrial Properties REIT, Inc., a Maryland
corporation.

Effective Date -- The effective date of the Merger.

Excess Shares -- Those shares of Common Stock of the Company in excess of
9.8% of the issued and outstanding Common Stock of the Company acquired by one
person or persons acting as a group, which acquisition would give rise to
certain redemption and other rights in favor of the Board of Directors of the
Company.

Exchange Act -- The Securities Exchange Act of 1934, as amended.

Funds from Operations -- Net income (computed in accordance with generally
accepted accounting principles), excluding financing costs and gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization and other non-cash items.

Indenture -- The Indenture dated as of November 15, 1985 relating to the
issuance of the Notes.

Interested Shareholder -- Any beneficial holder of 10% or more of the
Trust's outstanding shares.

IRS -- Internal Revenue Service.

Merger -- The proposed merger of the Trust with and into the Company.

Merger Agreement -- The Agreement and Plan of Merger between the Trust and
the Company.

MGCL -- The Maryland General Corporation Law, as amended.

MLI Agreement -- The Note Purchase Agreement dated as of February 27, 1992,
by and between the Trust and Manufacturers Life Insurance Company.

Mortgage -- Each of the mortgages on the Properties securing payment of the
Notes.

NYSE -- The New York Stock Exchange.

Notes -- Zero Coupon Notes of the Company due 1997 issued pursuant to an
Indenture dated as of November 15, 1985, between the Trust and IBJ Schroder Bank
& Trust Company, as Trustee.

Omnibus Plan -- The Omnibus Common Stock Incentive Plan of the Company
approved by the Board of Directors of the Company as of January 12, 1994 and by
the sole Stockholder of the Company as of January 12, 1994.

Options -- All incentive and non-incentive stock options granted pursuant
to the Omnibus Plan.

Ownership Limit -- The maximum percentage of the issued and outstanding
capital stock of the Company that may be beneficially owned by any single
Stockholder of the Company.

53
<PAGE> 57

Preferred Stock -- The Preferred Stock of the Company, $0.01 par value per
share.

Profit Sharing Plan -- The Retirement and Profit Sharing Plan of the
Company adopted by the Board of Directors of the Company on October 28, 1993.

Properties -- Fourteen industrial properties and one enclosed specialty
retail mall owned and operated by the Trust including Patapsco Center,
Baltimore, Maryland; Beltline Center, Gateway 5 and 6, Northgate II and
Northview Distribution Center, Dallas, Texas; Tamarac Square, Denver Colorado;
Quadrant, Deerfield Beach, Florida; Plaza Southwest, Commerce Park, and
Westchase Park, Houston, Texas; Huntington Drive Center, Los Angeles,
California; Northwest Business Park, Milwaukee, Wisconsin; Burnsville and
Cahill, Minneapolis, Minnesota; and Springbrook, Seattle, Washington. One of the
Properties shall be referred to herein as a "Property."

Proposal -- Proposals to be presented at the Special Meeting to approve and
adopt the Merger Agreement.

Record Date -- February 28, 1994, the date established by the Trust for
determining Shareholders entitled to notice of and to vote at the Special
Meeting.

REIT -- A real estate investment trust as that term is defined in sections
856 through 860 of the Code.

Restricted Shares -- Common Stock of the Company awarded pursuant to the
Omnibus Plan.

SARs -- Stock appreciation rights issued pursuant to the Omnibus Plan.

Securities Act -- The Securities Act of 1933, as amended.

Shareholders -- Persons holding Shares in the Trust.

Shares -- Shares of beneficial interest in the Trust.

Special Meeting -- A meeting of the Shareholders of the Trust which has
been called to consider and to vote on the Proposal.

Stockholders -- Persons holding shares of Common Stock of the Company.

Trust -- American Industrial Properties REIT, a Texas real estate
investment trust.

UBTI -- Unrelated business taxable income.

54
<PAGE> 58

AMERICAN INDUSTRIAL PROPERTIES REIT, INC.

INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF AMERICAN INDUSTRIAL PROPERTIES REIT. INC.:
Independent Auditors' Report........................................................ F-2
Balance Sheet as of January 17, 1994................................................ F-3
Notes to Balance Sheet.............................................................. F-4
FINANCIAL STATEMENTS OF AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS):
Independent Auditors' Report........................................................ F-6
Financial Statements:
Statements of Operations for the nine months ended September 30, 1993 and 1992
and for the years ended December 31, 1992, 1991, and 1990....................... F-7
Balance Sheets as of September 30, 1993 and December 31, 1992 and 1991........... F-8
Statements of Changes in Shareholders' Equity for the nine months ended
September 30, 1993 and for the years ended December 31, 1992, 1991, and 1990.... F-9
Statements of Cash Flows for the nine months ended September 30, 1993 and 1992
and for the years ended December 31, 1992, 1991, and 1990....................... F-10
Notes to Financial Statements.................................................... F-11
Financial Statement Schedules:
VIII Valuation and Qualifying Accounts........................................... F-20
XI Real Estate and Accumulated Depreciation...................................... F-21
Notes to Schedule XI............................................................. F-22
</TABLE>

All other financial statements and schedules not listed have been omitted since
the required information is either included in the Financial Statements and the
Notes thereto as included herein or is not applicable or required. Because the
entities to be merged are under common control, this transaction will be
accounted for as a pooling of interests. PRO FORMA FINANCIAL STATEMENT
PRESENTATIONS OF THE MERGED ENTITIES HAVE NOT BEEN INCLUDED AS THERE IS NOT
EXPECTED TO BE ANY MATERIAL ADJUSTMENTS TO THE HISTORICAL OPERATIONS OF AMERICAN
INDUSTRIAL PROPERTIES REIT AS A RESULT OF THE MERGER OTHER THAN THE INCURRENCE
OF TEXAS FRANCHISE TAX LIABILITY IN AN IMMATERIAL AMOUNT WHICH IS EXPECTED TO BE
OFFSET BY A DECREASE IN THE COST OF DIRECTOR AND OFFICER LIABILITY INSURANCE.

F-1
<PAGE> 59

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholder of
American Industrial Properties REIT, Inc.

We have audited the accompanying balance sheet of American Industrial
Properties REIT, Inc. (a Maryland corporation and a wholly-owned subsidiary of
American Industrial Properties REIT, a Texas real estate investment trust) (the
"Company") as of January 17, 1994. This balance sheet is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial condition of American Industrial Properties
REIT, Inc. as of January 17, 1994, in conformity with generally accepted
accounting principles.

Dallas, Texas

F-2
<PAGE> 60

AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN INDUSTRIAL PROPERTIES REIT)

BALANCE SHEET
JANUARY 17, 1994

ASSETS

<TABLE>
<S> <C>
Cash................................................................................ $1,000
------
------
LIABILITIES AND STOCKHOLDER'S EQUITY
Stockholder's Equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; none outstanding... $ --
Common stock, $.01 par value; 50,000,000 shares authorized; 100 shares issued
and outstanding................................................................ 1
Additional paid-in capital........................................................ 999
------
$1,000
------
------
</TABLE>

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

F-3
<PAGE> 61

AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN INDUSTRIAL PROPERTIES REIT)

NOTES TO BALANCE SHEET
JANUARY 17, 1994

NOTE 1 ORGANIZATION

American Industrial Properties REIT, Inc., a Maryland corporation (the
"Company", a wholly-owned subsidiary of American Industrial Properties REIT, a
Texas real estate investment trust, the "Trust") was incorporated on January 12,
1994. The Company has no operations to date, but has issued 100 shares of Common
Stock to the Trust for consideration of $1,000.

NOTE 2 FEDERAL INCOME TAXES

The Company intends to qualify as a real estate investment trust under the
Internal Revenue Code at the earliest possible date. As such, the Company will
not be subject to federal income taxes on amounts distributed to stockholders
provided that it distributes at least 95% of its real estate investment trust
taxable income to its stockholders and meets certain other conditions.

NOTE 3 PREFERRED STOCK

No shares of preferred stock are outstanding. Preferred stock may be issued
from time to time without stockholder approval with terms and conditions
established by the Board of Directors of the Company.

NOTE 4 PROPOSED MERGER

The Trust has announced its intent to merge with the Company which will
involve the exchange of shares of the Trust's Shares of Beneficial Interest for
the Company's Common Stock, in a ratio of one share of Common Stock for every
five Shares of Beneficial Interest tendered. The proposed merger must be voted
on by the Trust's shareholders and receive approval from the holders of at least
66 2/3% of the outstanding Shares of Beneficial Interest in order for the merger
to be consummated.

NOTE 5 EMPLOYEE BENEFIT PLANS

Stock Option Plan

Effective January 12, 1994, the Company adopted an Omnibus Common Stock
Incentive Plan (the "Omnibus Plan"). A maximum of 185,000 shares of Common Stock
of the Company have been reserved for issuance under the Omnibus Plan for the
exercise of incentive and non-incentive stock options (collectively "Options"),
stock appreciation rights ("SARs") and the award of shares of the Company's
common stock subject to forfeiture, and limitations on transferability
("restricted stock"). Options granted under the Omnibus Plan are exercisable at
the "fair market value" of the shares of Common Stock at the date of grant as
established by the Board of Directors of the Company.

Effective January 12, 1994, the Board has granted the officers of the
Company options to purchase 136,000 shares of Common Stock at an exercise price
equivalent to the "fair market value" of the Trust's Shares of Beneficial
Interest at their close on the New York Stock Exchange on the date of grant
multiplied by the exchange ratio for the shares of Common Stock in connection
with the proposed merger. Each of these Options vests at 20% per year over five
years and are exercisable for a period of ten years from the date of grant.

Employment Agreements

The Company has entered into separate employment agreements with the
President and Chief Executive Officer, the Vice-President and Chief Operating
Officer and the Vice-President and Chief Financial Officer effective as of
January 12, 1994. In the event that any of these employees are terminated,
voluntarily or

F-4
<PAGE> 62

involuntarily, as a result of a change in control of the Company, the employee
will be entitled to receive severance compensation in an amount equal to three
times the average total cash compensation, inclusive of base salary and cash
bonuses, received by such employee during each of the preceding five calendar
years.

The employment agreements also provide for annual incentive bonuses
calculated as a percentage of base salary for the year, based upon the
achievement of certain objectives to be established annually by the Company's
Compensation Committee.

Retirement Plan

The Company will assume the American Industrial Properties REIT Retirement
and Profit Sharing Plan which qualifies under section 401(k) of the Internal
Revenue Code. All initial employees of the Company will be eligible to
participate. Eligible employees can make voluntary contributions to the Plan of
up to 15% of their pay into the Plan, subject to other limitations, in which
they are fully vested. The Company has the option to make annual voluntary
contributions to the Plan which are allocated based on employees base
compensation.

F-5
<PAGE> 63

INDEPENDENT AUDITORS' REPORT

To the Trust Managers and Shareholders of
American Industrial Properties REIT:

We have audited the Financial Statements and the Financial Statement
Schedules of American Industrial Properties REIT (formerly Trammell Crow Real
Estate Investors) (the "Trust") listed in the Index on page F-I of this Proxy
Statement/Prospectus. These financial statements and schedules are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement and schedule presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Industrial
Properties REIT as of December 31, 1992 and 1991, and the results of its
operations and its cash flows for the years ended December 31, 1992, 1991 and
1990 in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedules referred to above, when
considered in relation to the financial statements taken as a whole, present
fairly in all material respects, the information required to be set forth
therein.

{SIG}

KENNETH LEVENTHAL & COMPANY

Dallas, Texas
March 5, 1993, except for the first
and last paragraph of Note 1
as to which the date is January 17, 1994

F-6
<PAGE> 64
AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ----------------------------------
1993 1992 1992 1991 1990
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Rents............................... $ 5,649 $ 9,149 $ 11,908 $ 12,995 $ 14,578
Tenant Reimbursements............... 1,739 2,188 3,001 3,210 2,921
Interest Income..................... 414 124 230 283 245
-------- -------- -------- -------- --------
7.802 11,461 15,139 16,488 17,744
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Real Estate Expenses
Amortization of original issue
discount on Zero Coupon Notes due
1997............................. 1,031 2,766 3,356 8,456 8,842
Depreciation and amortization....... 2,338 3,105 4,190 4,267 4,674
Interest on 8.8% notes payable
due 1997......................... 2,978 2,457 4,024 --
Interest on mortgages payable....... 522 1,064 1,370 1,528 1,939
Property taxes...................... 1,145 1,694 2,139 2,140 2,179
Property management fees, including
payments to affiliates of the
Advisor of $598, $686, and $773
in 1992, 1991 and 1990,
respectively..................... 313 469 621 686 773
Utilities........................... 336 402 549 489 515
Repairs and maintenance............. 748 858 1,183 1,147 1,131
Other property operating expenses... 472 731 1,011 842 948
-------- -------- -------- -------- --------
9,883 13,546 18,443 19,555 21,001
-------- -------- -------- -------- --------
Loss from real estate operations...... (2,081) (2,085) (3,304) (3,067) (3,257)
-------- -------- -------- -------- --------
Provisions for permanent impairments
in value of real estate............. -- 2,836 14,094 9,371 --
-------- -------- -------- -------- --------
Administrative Expenses
Fees paid to Advisor................ 716 324 565 594 624
Trust administration and overhead... 1,125 601 756 754 603
-------- -------- -------- -------- --------
1,841 925 1,321 1,348 1,227
-------- -------- -------- -------- --------
Loss before gain (loss) on sales of
real estate and extraordinary
gain................................ (3,922) (5,846) (18,719) (13,786) (4,484)
Gain (loss) on sales of real
estate........................... (205) (360) (784) 304 1,858
Extraordinary gain from partial
repurchase of Zero Coupon
Notes Payable.................... -- 116 1,910 4,320 --
-------- -------- -------- -------- --------
Net Loss.............................. $ (4,127) $ (6,090) $(17,593) $ (9,162) (2,626)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per Share Data
Loss before gain (loss) on sales
of real estate and
extraordinary gain............... $ (0.43) $ (0.64) $ (2.06) $ (1.52) $ (0.49)
Gain (loss) on sales of real
estate........................... (0.02) (0.04) (0.09) 0.03 0.20
Extraordinary gain from partial
repurchase of Zero Coupon Notes
Payable.......................... -- 0.01 0.21 0.48 --
-------- -------- -------- -------- --------
Net Loss............................ $ (0.45) $ (0.67) $ (1.94) $ (1.01) $ (0.29)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Distributions Paid.................. $ 0.12 $ 0.16 $ 0.20 $ 0.42 $ 0.70
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Number of shares outstanding........ 9,075,400 9,075,400 9,075,400 9,075,400 9,075,400
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>

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

F-7
<PAGE> 65

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------
1993 1992 1991
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Real Estate:
Operating properties:
Held for investment............................... $ 100,277 $ 88,530 $ 128,996
Held for sale..................................... -- 25,601 36,700
Allowance for possible losses on real estate held
for sale........................................ -- (6,095) (5,855)
------------- ------------- -------------
100,277 108,036 159,841
Accumulated depreciation............................. (18,592) (18,036) (20,804)
------------- ------------- -------------
Net real estate........................................ 81,685 90,000 139,037
------------- ------------- -------------
Cash and Cash Equivalents:
Unrestricted......................................... 2,914 5,893 4,374
Restricted........................................... 13,608 11,886 --
------------- ------------- -------------
16,522 17,779 4,374
------------- ------------- -------------
Other Assets:
Issuance costs of Zero Coupon Notes due 1997, net.... 152 169 1,477
Other assets, net.................................... 2,727 2,498 2,989
------------- ------------- -------------
$ 101,086 $ 110,446 $ 147,877
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
8.8% Notes payable due 1997.......................... $ 45,239 $ 45,239 $ --
Zero Coupon Notes payable due 1997 ($19,956, $20,011,
and $145,401 principal amount at maturity,
respectively), net of unamortized original issue
discount.......................................... 12,265 11,267 73,015
Mortgage notes payable............................... 7,242 12,072 14,126
Accrued interest on 8.8% Notes payable............... 1,374 371 --
Accounts payable, accrued expenses and other
liabilities....................................... 1,548 2,835 2,468
Tenant security deposits............................. 464 491 689
------------- ------------- -------------
Total Liabilities............................ 68,132 72,275 90,298
------------- ------------- -------------
Shareholders' Equity:
Shares of Beneficial Interest; authorized 10,000,000
Shares; issued and outstanding 9,075,400 Shares... 125,513 125,513 125,513
Accumulated distributions............................ (57,366) (56,276) (54,461)
Accumulated loss from operations and extraordinary
gains............................................. (36,366) (32,444) (15,635)
Accumulated net gain on sales of real estate......... 1,173 1,378 2,162
------------- ------------- -------------
Total Shareholders' Equity................... 32,954 38,171 57,579
------------- ------------- -------------
$ 101,086 $ 110,446 $ 147,877
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

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

F-8
<PAGE> 66

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED NET
LOSS GAIN
FROM ON
SHARES OF BENEFICIAL OPERATIONS SALES
INTEREST AND OF
--------------------- ACCUMULATED EXTRAORDINARY REAL
NUMBER AMOUNT DISTRIBUTIONS GAIN ESTATE TOTAL
-------- -------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1989... 9,075,400 $125,513 $(44,342) $ (1,685) $ -- $ 79,486
Loss before gain on sales of
real estate............... -- (4,484) (4,484)
Gain on sales of real
estate.................... -- -- 1,858 1,858
Distributions to
Shareholders.............. (6,353) -- -- (6,353)
-------- -------- -------- -------- ------ --------
Balance at December 31, 1990... 9,075,400 125,513 (50,695) (6,169) 1,858 70,507
Loss before gain on sales of
real estate and
extraordinary gain........ -- (13,786) -- (13,786)
Gain on sales of real
estate.................... -- -- 304 304
Extraordinary gain on partial
repurchases of Zero Coupon
Notes..................... -- 4,320 -- 4,320
Distributions to
Shareholders.............. (3,766) -- -- (3,766)
-------- -------- -------- -------- ------ --------
Balance at December 31, 1991... 9,075,400 125,513 (54,461) (15,635) 2,162 57,579
Loss before loss on sales of
real estate and
extraordinary gain........ -- (18,719) -- (18,719)
Loss on sales of real
estate.................... -- -- (784) (784)
Extraordinary gain on partial
repurchases of Zero Coupon
Notes..................... -- 1,910 -- 1,910
Distributions to
Shareholders.............. (1,815) -- -- (1,815)
-------- -------- -------- -------- ------ --------
Balance at December 31, 1992... 9,075,400 125,513 (56,276) (32,444) 1,378 38,171
(1993 activity is unaudited)
Loss before loss on sales of
real estate............... -- (3,922) -- (3,922)
Loss on sales of real
estate.................... -- -- (205) (205)
Distributions to
Shareholders.............. (1,090) -- -- (1,090)
-------- -------- -------- -------- ------ --------
Balance at September 30, 1993
(unaudited).................. 9,075,400 $125,513 $(57,366) $(36,366) $1,173 $ 32,954
-------- -------- -------- -------- ------ --------
-------- -------- -------- -------- ------ --------
</TABLE>

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

F-9
<PAGE> 67

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER 31,
------------------- ----------------------------------
1993 1992 1992 1991 1990
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss................................. $(4,127) $(6,090) $(17,593) $ (9,162) $ (2,626)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Amortization of original issue
discount on Zero Coupon Notes due
1997................................ 1,031 2,766 3,356 8,456 8,842
Depreciation and amortization......... 2,338 3,105 4,190 4,267 4,674
Deferred interest on 8.8% Notes
payable............................. -- 2,604 -- -- --
Provision for permanent impairments in
value of real estate................ -- 2,836 14,094 9,371 --
Decrease (increase) in other assets... (117) 271 435 (150) 448
Increase (decrease)in accounts
payable, accrued expenses and other
liabilities and tenant security
deposits............................ (311) 37 539 (403) 246
Extraordinary gain from partial
repurchases of Zero Coupon Notes
payable............................. -- (116) (1,910) (4,320) --
Loss on sale of real estate........... 205 360 784 (304) (1,858)
------- ------- -------- -------- --------
Net Cash Provided By (Used In) Operating
Activities............................... (981) 5,773 3,895 7,755 9,726
------- ------- -------- -------- --------
Cash Flows From Investing Activities:
Net proceeds from sales of real estate... 6,749 1,255 34,125 304 12,304
Capitalized improvements and leasing
commissions, including payments to
affiliates of the Advisor of
approximately $1,041, $764, and $975
in 1992, 1991 and
1990, respectively.................... (1,105) (2,508) (3,995) (1,383) (2,003)
------- ------- -------- -------- --------
Net Cash Provided By (Used In) Investing
Activities............................... 5,644 (1,253) 30,130 (1,079) 10,301
------- ------- -------- -------- --------
Cash Flows From Financing Activities:
Partial repayment of 8.8% note payable... -- -- (7,995) -- --
Debt issuance costs (increase in other
assets)............................... -- (191) (11) (5) --
Partial repurchase of Zero Coupon Notes
payable............................... -- (237) (8,745) (11,107) --
Principal repayments on mortgage notes
payable............................... (4,830) (251) (2,054) (160) (4,518)
Distributions to Shareholders............ (1,090) (1,453) (1,815) (3,766) (6,353)
------- ------- -------- -------- --------
Net Cash Provided By (Used In) Financing
Activities............................... (5,920) (2,132) (20,620) (15,038) (10,871)
------- ------- -------- -------- --------
Net Increase in Cash and Cash
Equivalents.............................. (1,257) 2,388 13,405 (8,362) 9,156
Cash and Cash Equivalents at Beginning of
Period................................... 17,779 4,374 4,374 12,736 3,580
------- ------- -------- -------- --------
Cash and Cash Equivalents at End
of Period................................ $16,522 $ 6,762 $ 17,779 $ 4,374 $ 12,736
------- ------- -------- -------- --------
------- ------- -------- -------- --------
Cash Paid for Interest..................... $ 2,497 $ 1,064 $ 5,023 $ 1,528 $ 1,939
------- ------- -------- -------- --------
------- ------- -------- -------- --------
</TABLE>

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

F-10
<PAGE> 68

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:

General. American Industrial Properties REIT (formerly Trammell Crow Real
Estate Investors) (the "Trust") is an equity real estate investment trust which,
as of December 31, 1992, owned and operated 15 commercial real estate properties
consisting of 14 industrial properties and one retail property. The Trust was
formed September 26, 1985, by issuing 13,400 shares to Trammell Crow Company,
Inc. for $201,000. On November 27, 1985, the Trust issued 9,062,000 Shares of
Beneficial Interest (the "Shares") and commenced operations.

Update As of September 30, 1993 (Unaudited). On April 13, 1993, the
Independent Trust Managers gave formal Notice of the Trust's intent to terminate
the Advisory Agreement with Trammell Crow Ventures, Ltd. (the "Advisor", see
Note 2). The Trust converted to self-management effective June 13, 1993 and
began operating under the name American Industrial Properties REIT. Pursuant to
the Trust's 1993 Annual Meeting of Shareholders, the Trust's Shareholders
approved amendments to the Trust's Declaration of Trust and By-Laws which,
amongst other things, officially changed the name of the Trust from Trammell
Crow Real Estate Investors to American Industrial Properties REIT and removed
the Trust's limited term restriction, converting the Trust from a finite life
entity scheduled to liquidate in 1997, to a perpetual life entity.

Interim Unaudited Financial Information. The accompanying interim financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and generally accepted accounting principles
applicable to interim financial statements. The interim financial information
included herein has been prepared in accordance with the Trust's customary
accounting practices and has not been audited. In the opinion of management, the
information presented reflects all adjustments necessary for a fair presentation
of interim results. All such adjustments are of a normal and recurring nature.

Real Estate and Provision for Possible Losses on Real Estate. The Trust
carries its real estate at historical cost net of depreciation, writedowns for
permanent impairment and allowances for possible losses. Writedowns for
permanent impairment are recorded when management determines the recorded value
of real estate held for long-term investment ("Held for Investment") will not be
fully recovered over the assets holding period or to reduce the depreciated cost
of real estate held for sale ("Held for Sale") to the lower of cost or net
realizable value. Real estate Held for Investment is reclassified to real estate
Held for Sale when management determines that there is a reasonable probability
that the asset will no longer be held for long-term investment and activities
begin to offer the property for sale. Any provisions for possible losses to
reduce the depreciated cost of the asset to net realizable value are made when
the reclassification occurs.

Property improvements are capitalized while maintenance and repairs are
expensed as incurred. Depreciation of buildings and capital improvements is
computed using the straight-line method over forty years. Depreciation of tenant
improvements is computed using the straight-line method over ten years.

Cash and Cash Equivalents and Restricted Cash. Cash equivalents include
demand deposits and all highly liquid debt instruments purchased with an
original maturity of three months or less. According to the terms of the
Indenture (the "Indenture") securing the Trust's Zero Coupon Notes payable due
1997 (the "Zero Coupon Notes"), upon the sale or refinancing of any property
prior to the defeasance commencement date (November 27, 1993), the Trust is
required to deposit into a Property Acquisition Account such portion of the net
proceeds received by the Trust that the Trust Managers shall deem necessary or
appropriate to protect the interests of the Holders of the Zero Coupon Notes
(see Notes 5 and 8). Such deposits are shown as restricted cash on the
accompanying balance sheet. After November 27, 1993, any proceeds held in the
Property Acquisition Account must be placed in another restricted account and be
used solely to defease the holders of the remaining Zero Coupon Notes.

F-11
<PAGE> 69

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Update As of September 30, 1993 (Unaudited). Subsequent to September 30,
1993, the funds held in the Property Acquisition Account were reinvested by the
Trust into short-term commercial paper and Treasury Bills which are pledged as
collateral to the Zero Coupon Noteholders.

Formation Costs. The Trust capitalized the costs related to organizing the
Trust. These organization costs were fully amortized in 1990. The costs related
to issuing the shares were charged to Shareholders' equity.

Issuance Costs of Zero Coupon Notes Payable. The issuance costs of the
outstanding Zero Coupon Notes are being amortized over 12 years (the life of the
Zero Coupon Notes) and include the difference between the proceeds from the
underwriters and the subsequent offering price to the public for the Zero Coupon
Notes.

Rents and Tenant Reimbursements. The Trust leases its retail and industrial
properties to tenants under operating leases with expiration dates ranging from
1993 to 2005. Several tenants in the retail property are also required to pay as
rent a percentage of their gross sales volume, to the extent such percentage
exceeds their base rents. In addition to paying base and percentage rents, most
tenants are required to reimburse the Trust for operating expenses in excess of
a negotiated base. Contractual rent increases or delayed rent starts are
recognized ratably over the lease term.

Income Tax Matters. The Trust qualifies as a real estate investment trust
under federal income tax law as long as it meets certain asset, income, and
ownership tests and it distributes 95% of its taxable income annually. Since the
Trust made distributions to Shareholders and had a taxable loss, no provision
for federal income tax was required for 1992, 1991 or 1990. The amount of
distributions taxable as dividend income to Shareholders is based on the
earnings and profits of the Trust, another tax method of determining net income
(see Note 9). Distributions in excess of earnings and profits, not in excess of
a Shareholder's basis, are a nontaxable return of capital. To the extent
cumulative cash distributions in excess of earnings and profits exceed a
Shareholder's basis in the shares, a taxable gain is recognized by the
Shareholder.

The Trust has a net operating loss carryforward from 1992 and prior years
of approximately $14,000,00. No tax benefit relating to the utilization of the
loss has been recorded. The losses may be carried forward for up to 15 years.
The present losses will expire beginning in the year 2004. Additionally, the
Trust has not adopted Statement of Financial Accounting Standards ("FAS") No.
109, which is effective for fiscal years beginning after December 15, 1992. It
is Management's opinion that the adoption of FAS No. 109 would not result in any
material changes to the financial statements.

Reclassification. The Trust has reclassified certain items in the
accompanying financial statements in order to (i) present amounts paid directly
to the Advisor separately from Trust administration and overhead costs and
general and administrative costs related to property operations, (ii) separately
present accrued interest on the 8.8% Notes payable, and (iii) reflect the
portion of the principal paydown related to deferred interest on the 8.8% Notes
payable as an interest payment rather than a principal reduction in the 1992
statement of cash flows.

NOTE 2 -- TRANSACTIONS WITH PARTIES IN INTEREST:

Parties in Interest. Trammell Crow Ventures, Ltd. acts as advisor (the
"Advisor") to the Trust. Owners of the Advisor are associated with a group of
entities engaged in various real estate businesses under the name "Trammell Crow
Company" (collectively, the "TCC Entities").

Advisory Fees. For its services under an advisory agreement, in 1992, 1991,
and 1990, the Advisor received an annual advisory fee equal to .4375% of the sum
of (1) the estimated value of the Trust's real estate investments, as reviewed
by an independent appraiser, less the original mortgage balances upon
acquisition, and (2) the proceeds from the sale of real estate pending
reinvestment. Through December 31, 1992, the Advisor was also entitled to an
incentive advisory fee in varying degrees if distributabIe cash exceeded

F-12
<PAGE> 70

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

$11,600,000. For the year commencing January 1, 1993, the Trust Managers have
established an advisory fee of $500,000 per year. As in previous years, the
Advisor is also entitled to reimbursement for costs of providing legal,
accounting and financial reporting services. Also effective January 1, 1993, the
Advisory Agreement has been amended to eliminate all incentive advisory fees.

Total advisory fees paid to the Advisor including reimbursements were
$565,000 in 1992, $633,000 in 1991 and $654,000 in 1990.

Disposition Fees. The Trust pays the Advisor a real estate disposition fee
equal to 2% of net cash proceeds realized by the Trust from the sale or
disposition of any Trust real estate asset, after deduction for any real estate
commission paid by the Trust. Disposition fees paid to the Advisor and charged
against the gain or loss on sales of real estate were $711,000 in 1992, $8,000
in 1991, and $259,000 in 1990.

Management Fees. Most of the Trust's real estate assets are managed by
various TCC Entities (the "TCC Property Managers"). For their services, the TCC
Property Managers receive base management fees of approximately 4% of gross
income, as defined in the Property Management Agreements, from industrial
properties and approximately 5% of gross income, as defined, from the retail
property. Approximately $598,000 in management fees were paid to the TCC
Property Managers in 1992. Additionally, the TCC Property Managers are entitled
to receive incentive management fees of 5% of net cash flow, as defined, in
excess of a 10% annual return on the Trust's investment in each property. The
TCC Property Managers also receive leasing commissions based on prevailing
market rates of 2% to 5% of future rentals to be collected from new tenants and
1% to 4.5% of future rentals from renewal tenants. Approximately $485,000 in
leasing commissions were paid to the TCC Property Managers in 1992. Tenant
improvements to the properties of approximately $556,000 were completed by
entities affiliated with some of the TCC Property Managers.

Incentive Disposition Fee. Each TCC Property Manager is entitled to an
incentive disposition fee equal to (i) 5% of the excess of the amount, if any,
by which the net cash proceeds realized by the Trust from any sale or
disposition of the managed property, after deduction for any real estate
commissions paid by the Trust and any fees payable to the Advisor on the sale or
disposition, exceed the amount necessary to produce a 10% IRR on the Trust
property but less than a 13.5% IRR and (ii) 10% of the excess of the amount, if
any, by which the net cash proceeds exceed the amount necessary to produce
greater than a 13.5% IRR on such Trust property. No incentive disposition fees
were paid to TCC Property Managers in 1992. Incentive disposition fees earned by
TCC Property Managers were $19,000 in 1991 and $7,000 in 1990.

Other Fees. The Advisor may also receive fees for services provided to the
Trust that are not required pursuant to the terms of the Advisory Agreement. For
its services rendered in connection with the acquisition and refinancing of the
Zero Coupon Notes on February 27, 1992 (see Note 4), the Trust Managers approved
and the Trust paid to the Advisor a fee equal to 1% of the amount paid for the
Zero Coupon Notes. This amount, $532,340, was charged against the extraordinary
gain from partial repurchase of the Zero Coupon Notes.

Update As of September 30, 1993 (Unaudited). Effective June 13, 1993, the
Trust terminated the Advisory Agreement with the Advisor. Pursuant to the terms
of the Advisory Agreement, the Trust paid to the Advisor a one-time termination
fee of $435,000 in the second quarter. No additional amounts are due the
Advisor. Certain TCC Entities continue to manage twelve of the Trust's fourteen
properties, however these are no longer considered to be related party or party
in interest relationships by the Trust.

F-13
<PAGE> 71

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- REAL ESTATE, PERMANENT IMPAIRMENT OF REAL ESTATE, AND ALLOWANCES FOR
POSSIBLE LOSSES ON REAL ESTATE:

Real estate, permanent impairment of real estate, and allowances for
possible losses on real estate consist of the following ($ in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1991
-------- --------
<S> <C> <C>
Real Estate Held for Investment, at cost....................... $101,929 $132,512
Less: Accumulated depreciation............................... (14,416) (16,258)
Permanent impairment of value............................. (13,399) (3,516)
-------- --------
74,114 112,738
-------- --------
Real Estate Held for Sale, at cost............................. 25,601 36,700
Less: Accumulated depreciation............................... (3,620) (4,546)
Allowance for possible losses............................. (6,095) (5,855)
-------- --------
15,886 26,299
-------- --------
Net real estate................................................ $ 90,000 $139,037
-------- --------
-------- --------
</TABLE>

REAL ESTATE HELD FOR INVESTMENT;

At December 31, 1992, 11 of the Trust's properties were held for
investment. The Trust has recorded writedowns for permanent impairment of value
related to real estate Held for Investment of $9,883,000 and $3,516,000 in 1992
and 1991, respectively. These writedowns are a reduction of the recorded value
of the related assets to estimated market value. The writedowns for permanent
impairment on real estate are based on estimates and, accordingly, actual losses
may vary from current estimates. Writedowns for permanent impairment of real
estate Held for Investment are recorded as a direct reduction of the property's
basis when management determines it is probable that the recorded value of the
asset will not be fully recovered over the asset's or Trust's remaining life.
These writedowns are reviewed periodically and any additional writedown
determined to be necessary is recorded in the period in which it becomes
reasonably estimable. During 1992, one of the Trust's real estate assets which
was classified as Held for Investment at December 31, 1991 was reclassified to
real estate Held for Sale and subsequently sold. At the time of reclassification
of the asset, the Trust recorded an allowance for possible losses on real estate
Held for Sale of $2,836,000. Upon sale of the asset, the Trust recognized a gain
on sale of $158,000.

Among the various significant factors in determining writedowns for
permanent impairment is the ability of the Trust to hold the property until such
time as the depreciated cost can be recovered. If other factors should cause a
reclassification of the Trust's real estate Held for Investment to Held for
Sale, significant adjustments to reduce the depreciated cost of real estate Held
for Investment to estimated market value could be required. As of December 31,
1992, management estimates that the difference between the depreciated cost (net
of writedowns for permanent impairment) and the estimated market value for these
assets is approximately $12,666,000.

REAL ESTATE HELD FOR SALE:

At December 31, 1992, four of the Trust's properties were Held for Sale.
Valuation allowances are provided for possible losses on real estate Held for
Sale when the depreciated cost of the property exceeds the Trust's estimate of
net realizable value. Numerous factors are considered when estimating net
realizable value, including market evaluations, the cost of capital, operating
cash flow from the property during the projected holding period, and expected
capitalization rates applied to the estimated stabilized net operating income of

F-14
<PAGE> 72

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the specific property. Management believes the market value estimates of the
Trust's real estate Held for Sale at December 31, 1992 and 1991 approximate
their net realizable value and has used such market value estimates in
determining the allowance for possible losses on these assets.

Management has determined that the depreciated cost of all of the Trust's
real estate Held for Sale in 1992 and 1991 exceed their net realizable value
and, therefore, valuation allowances of $6,095,000 and $5,855,000 were reflected
as of December 31, 1992 and 1991, respectively. These allowances are based on
estimates and, accordingly, actual losses may vary from current estimates.

Update As of September 30, 1993 (Unaudited). As of September 30, 1993, none
of the Trust's properties are Held for Sale. Valuation allowances recorded
associated with the properties Held for Sale were netted against the properties
as writedowns for permanent impairment upon reclassification of these assets to
Real Estate Held for Investment.

NOTE 4 -- 8.8% NOTES PAYABLE:

To finance the February 27, 1992 repurchase of $106,322,000 principal
amount at stated maturity ("Face Amount") of Zero Coupon Notes (see Note 5), the
Trust issued $53,234,000 of unsecured notes payable due November 1997 (the "8.8%
Notes Payable"). These notes bear interest at 8.8% per annum, with interest for
the period February 27, 1992 through November 27, 1992 (totalling $3,558,000)
deferred and added to the principal balance, and interest thereafter ($371,000
as of December 31, 1992) payable semiannually commencing May 27, 1993. An
$8,000,000 mandatory principal repayment would have been required on November
27, 1993. The terms of the 8.8% Notes Payable allow for prepayment, in full or
in part, at any time prior to maturity without penalty.

On December 31, 1992, the Trust used $11,648,000 of the net sales proceeds
from the 1992 sales of real estate (see Note 8) to repay $11,553,000 principal
amount of the 8.8% Notes Payable. This repayment included the $8,000,000
mandatory repayment which was due in November 1993, $3,553,000 of principal
which was due in November 1997, and $95,000 of accrued interest.

NOTE 5 -- ZERO COUPON NOTES PAYABLE:

The balance of the Zero Coupon Notes payable due November 27, 1997
increases annually in an amount equal to the amortization of the original issue
discount, which is computed at 12% compounding semiannually; the balance is
reduced for any Zero Coupon Note repurchases. The Zero Coupon Notes are
collateralized by first and second mortgages on the Trust's properties and a
security interest in the Trust's partnership interest in one property. The
issuance costs of the outstanding Zero Coupon Notes are amortized over 12 years
(the life of the Zero Coupon Notes) and as of December 31, 1992, the remaining
accumulated amortization was $243,000.

On March 18, 1991, in two separate transactions, the Trust repurchased an
aggregate of $31,297,000 Face Amount of Zero Coupon Notes having an accreted
value of $14,415,000 for an aggregate purchase price of $10,060,000. Amounts
previously deposited into the Property Acquisition Account (restricted cash of
$7,863,000 at December 31, 1990 plus interest earned) from the December 30, 1990
sale of two properties were used to repurchase $24,800,000 Face Amount of the
Zero Coupon Notes. Pursuant to the terms of the Indenture, this portion of the
Zero Coupon Notes is pledged to the Indenture trustee for the security of the
remaining Noteholders. Cash on hand was used for the remainder of the
repurchase. The Trust also acquired an option to repurchase an additional
$21,371,000 Face Amount of Zero Coupon Notes at a discount rate of 17.75%
compounded semiannually, exercisable in whole or in part prior to December 31,
1992. On May 30, 1991, the Trust repurchased $3,000,000 Face Amount of Zero
Coupon Notes having an accreted value of $1,407,000 for an aggregate purchase
price of $993,000, pursuant to the option.

F-15
<PAGE> 73

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Trust recognized extraordinary gains of $4,320,000 from the 1991
repurchases of Zero Coupon Notes, determined as follows ($ in thousands):

<TABLE>
<S> <C>
Accreted balance of Zero Coupon Notes repurchased................. $ 15,822
Cash paid to repurchase Zero Coupon Notes......................... (11,053)
Bond issuance costs, net of accumulated amortization.............. (395)
Expenses related to repurchases................................... (54)
--------
Extraordinary gain from partial repurchase of Zero Coupon Notes... $ 4,320
--------
--------
</TABLE>

On February 27, 1992, the Trust repurchased an aggregate of $106,322,000
Face Amount of Zero Coupon Notes for a purchase price of $53,234,000. The
accreted balance of the Zero Coupon Notes was approximately $54,401,000. The
entire purchase price was financed by issuing new 8.8% Notes Payable (see Note
4) to the seller of the Zero Coupon Notes. Pursuant to the terms of the
Indenture, approximately $21,629,000 Face Amount of these repurchased Zero
Coupon Notes are also pledged to the Indenture trustee for the security of the
remaining Noteholders. Additionally, in four other separate transactions during
February and April 1992, the Trust used cash on hand to repurchase $697,000 Face
Amount of Zero Coupon Notes having an accreted value of $356,000 for an
aggregate purchase price of $237,000.

On December 30, 1992, the Trust exercised its remaining option to
repurchase an additional $18,371,000 Face Amount of Zero Coupon Notes. These
Zero Coupon Notes, having an accreted value of $10,341,000, were repurchased
using the proceeds of the 1992 property sales for an aggregate purchase price of
$7,968,000. Pursuant to the terms of the Indenture, these Zero Coupon Notes are
also pledged to the Indenture trustee for the security of the remaining
Noteholders.

The Trust recognized extraordinary gains totaling $1,910,000 from the 1992
repurchases of the Zero Coupon Notes, determined as follows ($ in thousands):

<TABLE>
<S> <C>
Accreted balance of Zero Coupon Notes repurchased................. $ 65,103
Principal amount of 8.8% Notes Payable............................ (53,234)
Cash paid to repurchase Zero Coupon Notes......................... (8,205)
Bond issuance costs, net of amortization.......................... (1,214)
Expenses related to repurchases................................... (540)
--------
Extraordinary gain from partial repurchases of Zero Coupon
Notes........................................................... $ 1,910
--------
--------
</TABLE>

The By-laws of the Trust, the Indenture, and the Note Purchase Agreement
related to the 8.8% Notes Payable contain various borrowing restrictions and
operating performance covenants. As of December 31, 1992, the Trust is in
compliance with all of these restrictions and covenants.

NOTE 6 -- MORTGAGES PAYABLE:

Certain of the Trust's properties are subject: to first mortgage notes
bearing interest at annual rates of 8 1/2% to 12 3/4%, requiring monthly
payments of principal and interest aggregating $131,000 in 1992, and coming due
in various years through 2010. Interest paid in 1992, 1991 and 1990 was
$1,370,000, $1,543,000 and $2,007,000, respectively. Principal payments due for
the next five years (excluding the mortgages on the Royal Lane property, which
was sold January 8, 1993) are $115,000 in 1993, $126,000 in 1994, $2,224,000 in
1995, $154,000 in 1996 and $169,000 in 1997. Effective April 30, 1992, the Trust
extended, for three years, the maturity date of the loan on one of its
Minneapolis properties. In accordance with the applicable loan agreement, the
Trust paid to the Lender $92,000 of deferred accrued interest at the date of the
Note extension. The principal amount of this mortgage as of December 31, 1992
was $2,141,000. The payoff of this

F-16
<PAGE> 74

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

loan is included in the total principal payments due in 1995. In addition to
being secured by a mortgage on the property, this note is recourse to the Trust.

NOTE 7 -- RENTAL INCOME:

Minimum future rentals on noncancellable leases at December 31, 1992 were
as follows ($ in thousands):

<TABLE>
<CAPTION>
YEAR
-------
<S> <C>
1993....................................................... $ 6,997
1994....................................................... 5,876
1995....................................................... 4,630
1996....................................................... 3,697
1997....................................................... 2,783
Thereafter................................................. 3,706
-------
$27,689
-------
-------
</TABLE>

NOTE 8 -- GAIN (LOSS) ON SALES OF REAL ESTATE:

For the year ended December 31, 1990, the Trust operated with 19
properties. The Trust sold two of its California industrial properties on
December 31, 1990. In connection with the property sales, the Trust was
required, through May 1, 1991, to guarantee certain leases of the properties,
enter into a space lease for all vacant space, and agree to lease certain space
upon expiration of the current leases. To secure these obligations, $732,000 of
the sales proceeds were deposited into an escrow account. Release of this escrow
to the Trust was conditioned upon achieving leasing objectives prior to May 1,
1991. Accordingly, a portion of the gain was deferred at December 31, 1990 in an
amount equal to the sales proceeds deposited to the escrow account. The net
sales proceeds after repayment of $4,300,000 of first mortgages on the
properties and the related transaction costs totalled approximately $7,900,000.
This amount was reflected as restricted cash at December 31, 1990 pursuant to
the provisions of the Indenture. In 1991, $355,000 of the $732,000 escrow was
released to the Trust since a portion of the required leasing objectives were
achieved. The following is a summary of the gains recognized in 1990 and 1991 on
the California property sales ($ in thousands):

<TABLE>
<S> <C>
1990:
Gross selling price............................................... $ 15,040
Structural and leasing costs...................................... (1,350)
Cost, net of accumulated depreciation............................. (10,442)
Selling expenses.................................................. (658)
--------
Gain on sales of real estate...................................... 2,590
Deferred gain on sales of real estate............................. (732)
--------
Gain recognized in 1990........................................... 1,858
--------
1991:
Deferred gain on sales of real estate............................. 355
Additional selling expenses....................................... (51)
--------
Gain recognized in 1991........................................... 304
--------
Total gain on sales of real estate as of December 31, 1991........ $ 2,162
--------
--------
</TABLE>

F-17
<PAGE> 75

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In the second quarter of 1992, the Trust sold one of the 13 buildings in
the Woodland Industrial Park in Charlotte, North Carolina. In the fourth quarter
of 1992, the Trust sold its Southland Industrial property located in Houston,
Texas and the remaining 12 buildings in the Woodland Industrial Park. The net
loss recognized in 1992 on these sales is summarized below ($ in thousands):

<TABLE>
<S> <C>
Gross selling price............................................... $ 35,823
Cost, net of accumulated depreciation and allowance for possible
losses.......................................................... (35,328)
Selling expenses.................................................. (1,279)
--------
Loss on sales of real estate...................................... $ (784)
--------
--------
</TABLE>

The total net sales proceeds after repayment of the $1,800,000 first
mortgage on the Southland property and the related transaction costs were
approximately $32,000,000. Pursuant to the terms of the Indenture, these
proceeds were deposited in the Trust's Property Acquisition Account. A portion
of the proceeds were subsequently used to repurchase a portion of the Trust's
Zero Coupon Notes through the exercise of the remaining repurchase option (see
Note 5) and to repay a portion of the 8.8% Notes Payable (see Note 4). The
remaining net proceeds are held as restricted cash and, prior to November 27,
1993, may be used to acquire additional investments, including the acquisition
of additional real estate assets and the repurchase of additional Zero Coupon
Notes.

NOTE 9 -- TAXABLE LOSS:

The reconciliation of financial loss to taxable loss and to earnings and
profits income (loss) of the Trust is as follows ($ in thousands):

<TABLE>
<CAPTION>
1992 1991 1990
-------- ------- -------
<S> <C> <C> <C>
Net loss..................................................... $(17,593) $(9,162) $(2,626)
Provision for possible losses on real estate................. 14,094 9,371 --
Tax depreciation in excess of financial reporting
depreciation............................................... (505) (575) (747)
Rental income received, recognized in prior periods (due in
future periods)............................................ (70) 28 117
Difference in property basis of assets sold.................. (5,038) -- 188
Other differences............................................ (138) 57 --
-------- ------- -------
Taxable loss................................................. $ (9,250) $ (281) $(3,068)
Effect of difference in depreciation methods................. 256 378 615
Difference in property basis of assets sold.................. (923) -- (136)
Other differences............................................ -- 25 --
-------- ------- -------
Earnings and profits income (loss)........................... $ (9,917) $ 122 $(2,589)
-------- ------- -------
-------- ------- -------
</TABLE>

The Trust's distributions of $1,815,000 ($.20 per Share) in 1992 and $6,353,000
($.70 per Share) in 1990 represented a return of capital to Shareholders, to the
extent of a Shareholder's basis in the shares. Of the Trust's total
distributions of $3,766,000 ($.415 per Share) in 1991, $122,000 ($0.014 per
Share) represented taxable income to Shareholders and $3,644,000 ($.401 per
Share) represented a return of capital to Shareholders, to the extent of a
Shareholder's basis in the shares.

NOTE 10 -- PER SHARE DATA:

Net income per Share is based on 9,075,400 Shares outstanding during all
years presented.

F-18
<PAGE> 76

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- SUBSEQUENT EVENTS:

On January 8, 1993, the Trust sold the Royal Lane Business Park property
(one of its real estate assets Held for Sale) located in Dallas, Texas. The net
sales proceeds totalled approximately $1,800,000 after repayment of
approximately $4,650,000 of first mortgages on the property and the related
transaction costs. Pursuant to the Indenture, these net proceeds were deposited
in the Trust's Property Acquisition Account. The estimated net loss on the sale
of Royal Lane Business Park of $931,000 has been reflected in the December 31,
1992 financial statements.

F-19
<PAGE> 77

SCHEDULE VIII

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
($ IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE
AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END OF
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS PERIOD
- ------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1992
Allowance for possible losses on real estate
held for sale............................... $ 5,855 $4,211 $3,971 $ 6,095
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Allowance for doubtful accounts................ $ 281 $ 136 $ 384 $ 33
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
1991
Allowance for possible losses on real estate
held for sale............................... $ -- $5,855 $ -- $ 5,855
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Allowance for doubtful accounts................ $ 161 $ 172 $ 52 $ 281
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
1990
Allowance for doubtful accounts................ $ 203 $ 149 $ 191 $ 161
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
</TABLE>

F-20
<PAGE> 78

SCHEDULE XI
AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1992
($ IN THOUSANDS)
<TABLE>
<CAPTION>

GROSS
AMOUNT
GROSS AMOUNT CARRIED CARRIED
AT ACQUISITION SUBSEQUENT RETIREMENTS AT
--------------------- COSTS --------------------- WRITEDOWNS DECEMBER
BUILDINGS CAPITALIZED BUILDINGS DUE TO 31, 1992
ENCUMBRANCES AND ------------ AND PERMANENT -------
DESCRIPTION AT 12/31/92 LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS IMPAIRMENT LAND
- ------------------------------------------------- ------- ------------ ------------ ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
TEXAS --
Commerce Park North................ $ 1,108 $ 4,431 $ 301 $ 1,108
Westchase.......................... 697 2,787 139 (46) 697
Plaza Southwest.................... 1,312 5,248 402 (1) 1,312
Southland I & II................... 2,182 8,727 292 (2,182) (9,019) 0
Beltline Center.................... 1,303 5,213 286 (3,516) 600
Gateway 5 & 6...................... 935 3,741 466 (1,861) 563
Northgate II....................... 2,153 8,612 585 (4,122) 1,329
Royal Lane Park.................... 4,654 2,122 8,489 318 2,122
CALIFORNIA --
Huntington Drive................... 1,559 6,237 400 1,559
NORTH CAROLINA --
Woodland........................... 6,522 26,087 1,576 (6,522) (27,663) 0
MARYLAND --
Patapsco I & II.................... 1,461 1,147 4,588 190 1,147
MINNESOTA --
Cahill............................. 625 2,498 283 625
Burnsville......................... 2,140 761 3,045 307 (1,563) 448
WASHINGTON --
Springbrook........................ 1,008 4,032 215 1,008
WISCONSIN --
Northwest.......................... 1,359 1,296 5,184 348 (131) 1,296
FLORIDA --
Quadrant........................... 1,200 1,137 4,549 69 (63) (2,337) 670
RETAIL PROPERTY:
COLORADO --
Tamarac Square..................... 1,258 6,799 27,194 3,652 6,799
------------ ------- ------------ ------ ------- ------------ ---------- -------
12,072 $32,666 $130,662 $9,829 $(8,704) $(36,923) $(13,399) $21,282
------- ------------ ------ ------- ------------ ---------- -------
------- ------------ ------ ------- ------------ ---------- -------
ZERO COUPON NOTES.................... 11,267
8.8% NOTES PAYABLE................... 45,239
------------
$ 68,578
------------
------------
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT BUILDINGS &
CARRIED AT CAPITAL TENANT
DECEMBER 31, 1992 IMPROVEMENTS IMPROVEMENTS
----------------- LIFE ON LIFE ON
BUILDINGS WHICH WHICH
AND ACCUMULATED DATE OF DATE DEPRECIATION DEPRECIATION
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED IS COMPUTED
- ------------------------------------- ------------ -------- ----------- ------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
TEXAS --
Commerce Park North................ $ 4,732 $ 5,840 $ 813 1984 1985 40 10
Westchase.......................... 2,880 3,577 511 1983 1985 40 10
Plaza Southwest.................... 5,649 6,961 1,043 1970-74 1985 40 10
Southland I & II................... 0 0 0 1975-78 1985 40 10
Beltline Center.................... 2,686 3,286 925 1984 1985 40 10
Gateway 5 & 6...................... 2,718 3,281 753 1984-85 1985 40 10
Northgate II....................... 5,899 7,228 1,652 1982-83 1985 40 10
Royal Lane Park.................... 8,807 10,929 1,548 1980-81 1985 40 10
CALIFORNIA --
Huntington Drive................... 6,637 8,196 1,156 1984-85 1985 40 10
NORTH CAROLINA --
Woodland........................... 0 0 0 1981-85 1985 40 10
MARYLAND --
Patapsco I & II.................... 4,778 5,925 849 1980-84 1985 40 10
MINNESOTA --
Cahill............................. 2,781 3,406 523 1981 1986 40 10
Burnsville......................... 2,102 2,550 612 1984 1986 40 10
WASHINGTON --
Springbrook........................ 4,247 5,255 748 1984 1986 40 10
WISCONSIN --
Northwest.......................... 5,401 6,697 948 1983-86 1986 40 10
FLORIDA --
Quadrant........................... 2,685 3,355 713 1984-86 1986 40 10
RETAIL PROPERTY:
COLORADO --
Tamarac Square..................... 30,846 37,645 5,242 1976-79 1985 40 10
------------ -------- -----------
$ 92,849 $114,131 $18,036
------------ -------- -----------
------------ -------- -----------
ZERO COUPON NOTES....................
8.8% NOTES PAYABLE...................
</TABLE>

F-21
<PAGE> 79

AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS)

NOTES TO SCHEDULE XI
DECEMBER 31, 1992

(1) ACQUISITIONS:

All of the real estate on Schedule XI was acquired for cash, subject to
certain encumbrances shown therein, from TCC Entities.

(2) RECONCILIATION OF REAL ESTATE:

The following table reconciles the Trust's real estate for the years ended
December 31, 1992 and 1991.

<TABLE>
<CAPTION>
($ IN THOUSANDS)
----------------------
1992 1991
--------- ---------
<S> <C> <C>
Balance at beginning of period................................. $ 165,696 $ 168,100
Additions during period:....................................... 3,945 1,112
--------- ---------
Improvements................................................. 169,641 169,212
Deductions during period:
Cost of real estate sold..................................... 45,386 --
Writedowns for permanent impairment of value................. 9,883 3,516
Other -- asset retirements................................... 241 --
--------- ---------
Balance at close of period..................................... $ 114,131 $ 165,696
--------- ---------
--------- ---------
</TABLE>

(3) REAL ESTATE, WRITEDOWNS FOR PERMANENT IMPAIRMENT AND PROVISION FOR
POSSIBLE LOSSES ON REAL ESTATE.

The Trust carries its real estate at historical cost net of depreciation,
writedowns for permanent impairment and allowances for possible losses.
Writedowns for permanent impairment are recorded when management determines the
recorded value of real estate Held for Investment will not be recovered over the
asset's or the Trust's remaining life or to reduce the depreciated cost of real
estate Held for Sale to net realizable value. Real estate Held for Investment is
reclassified to real estate Held for Sale when management determines that there
is a reasonable probability that an asset will no longer be held for long-term
investment and activities begin to offer the property for sale. Any provisions
for possible losses to reduce the depreciated cost of the property to net
realizable value are made when the reclassification occurs. For the years ended
December 31, 1992 and 1991, provisions of $14,094,000 and $9,371,000,
respectively, have been recorded.

(4) RECONCILIATION OF ACCUMULATED DEPRECIATION:

The following table reconciles the accumulated depreciation for the years
ended December 31, 1992 and 1991.

<TABLE>
<CAPTION>
($ IN THOUSANDS)
--------------------
1992 1991
-------- --------
<S> <C> <C>
Balance at beginning of period................................... $ 20,804 $ 17,133
Additions during period:......................................... 3,721 3,671
-------- --------
Depreciation provision for period.............................. 24,525 20,804
Deductions during period:
Accumulated depreciation of real estate sold................... 6,426 --
Other -- asset retirements..................................... 63 --
-------- --------
Balance at close of period....................................... $ 18,036 $ 20,804
-------- --------
-------- --------
</TABLE>

F-22
<PAGE> 80

(5) TAX BASIS:

The cost basis of the Trust's real estate for tax purposes at December 31,
1992 is $135,786,000. The basis reported under generally accepted accounting
principles has been reduced by the aggregate amounts collected under developers'
leases, less management fees paid on such developers' leases, and by reductions
for the permanent impairment of real estate Held for Investment and allowances
for possible losses on real estate Held for Sale.

F-23
<PAGE> 81

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement") dated as
of , 1994, is entered into by and between American Industrial
Properties REIT, Inc., a Maryland corporation (the "Company") and American
Industrial Properties REIT, a real estate investment trust formed under the
Texas Real Estate Investment Trust Act (the "Trust").

RECITALS

1. The Company is a corporation duly organized on January 12, 1994, and
existing under the laws of the State of Maryland. The principal office of the
Company in Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Baltimore City County, Maryland 21202.

2. The Trust is a real estate investment trust duly organized on September
26, 1985, and existing under the laws of the State of Texas. The predecessor of
the Trust, Trammell Crow Real Estate Investors, was qualified to do business in
Maryland on November 25, 1985. The principal office of the Trust in Maryland is
c/o The Prentice-Hall Corporation, 11 East Chase Street, Baltimore, Maryland
21202-0000. The Trust owns property in Baltimore City County, Maryland.

3. On the date of this Merger Agreement, the Company has authority to issue
50,000,000 shares of Common Stock, $.01 par value per share, (the "Common
Stock"), of which 100 shares are issued and outstanding and 10,000,000 of
Preferred Stock, $.01 par value per share, none of which are issued or
outstanding. The aggregate par value of all the shares of all classes is
$600,000.

4. On the date of this Merger Agreement, the Trust has authority to issue
10,000,000 shares of beneficial interest, $.01 par value per share, (the
"Shares"), with 9,475,400 Shares issued and outstanding.

5. The Board of Directors of the Company and the Trust Managers have
determined that it is advisable and in the best interests of the stockholders
and the shareholders, respectively, that the Trust merge with and into the
Company upon the terms and subject to the conditions of this Merger Agreement
for the purpose of effecting the incorporation of the Trust in the State of
Maryland.

6. The Board of Directors of the Company and the Trust Managers have, by
resolutions duly adopted, approved this Merger Agreement. The Trust, acting
through the Trust Managers, has approved this Merger Agreement as the sole
stockholder of the Company. The Trust Managers have directed that this Merger
Agreement be submitted to a vote of its Shareholders, 66 2/3% of whom must
approve this Merger Agreement for it to become effective.

7. The parties intend by this Merger Agreement to effect a "reorganization"
under Section 368 of the Internal Revenue Code of 1986, as amended.

AGREEMENT

In consideration of the promises and agreements set forth herein, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

1. Merger. The Trust shall be merged with and into the Company (the
"Merger"), and the Company shall be the surviving corporation (hereinafter
sometimes referred to as the "Surviving Corporation"). The name of the Surviving
Corporation shall remain the same and shall be American Industrial Properties
REIT, Inc., which is the name currently set forth in the Charter of the
Surviving Corporation. The Merger shall become effective upon the time and date
of issuance of a Certificate of Merger by the Secretary of State of the State of
Maryland and the filing of such other documents as may be required under
applicable law (the "Effective Time").

A-1
<PAGE> 82

2. Governing Documents.

(a) The Charter of the Company, as it may be amended or restated, and
as in effect immediately prior to the Effective Time, shall be the Charter
of the Surviving Corporation without further change or amendment until
thereafter amended in accordance with the provisions thereof and applicable
law.

(b) The Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation without
change or amendment until thereafter amended in accordance with the
provisions thereof and applicable law.

3. Officers and Directors. The persons who are executive officers of the
Company immediately prior to the Effective Time shall, after the Effective Time,
be the executive officers of the Surviving Corporation, without change until
their successors have been duly elected and qualified. Mr. Raymond H. Hay and
two of the Trust Managers of the Trust, Messrs. Charles W. Wolcott and W.H.
Bricker, will serve as directors of the Surviving Corporation. The directors
shall be classified into three classes in accordance with the Charter and Bylaws
of the Surviving Corporation.

4. Succession. At the Effective Time, the separate corporate existence of
the Trust shall cease, and the Surviving Corporation shall possess all the
rights, privileges, powers and franchise of a public and private nature and be
subject to all the restrictions, disabilities and duties of the Trust; and all
rights, privileges, powers and franchises of the Trust, and all property, real,
personal and mixed, and all debts due to the Trust on whatever account, as well
as for Share subscriptions and all other things in action, shall be vested in
the Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter the property of
the Surviving Corporation as they were of the Trust, and the title to any real
estate vested by deed or otherwise shall not revert or be in any way impaired by
reason of the Merger; but all rights of creditors and all liens upon any
property of the Trust shall be preserved unimpaired, and all debts, liabilities
and duties of the Trust shall thenceforth attach to the Surviving Corporation
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it. All acts, plans, policies,
agreements, arrangements, approvals and authorizations of the Trust, its
Shareholders, Trust Managers and committees thereof, officers and agents which
were valid and effective immediately prior to the Effective Time, shall be taken
for all purposes as the acts, plans, policies, agreements, arrangements,
approvals and authorizations of the Surviving Corporation and shall be as
effective and binding thereon as the same were with respect to the Trust. The
employees and agents of the Trust shall become the employees and agents of the
Surviving Corporation and shall continue to be entitled to the same rights and
benefits which they enjoyed as employees and agents of the Trust.

5. Further Assurances. From time to time, as and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of the Trust such deeds, assignments and other
instruments, and there shall be taken or caused to be taken by it all such
further and other action, as shall be appropriate or necessary in order to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation the
title to and possession of all property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of the Trust and otherwise to carry
out the purposes of this Merger Agreement, and the officers and directors of the
Surviving Corporation are fully authorized in the name and on behalf of the
Trust or otherwise, to take any and all such action and to execute and deliver
any and all such deeds, assignments and other instruments.

6. Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof:

(a) Each five Shares outstanding immediately prior to the Effective
Time shall be changed and converted into and shall be one fully paid and
nonassessable share of Common Stock.

(b) Persons that will hold a fractional share in the Company after the
Merger must either (i) pay to the Company an amount equal to the fraction
necessary to round upward to a whole share of Common Stock times the
opening price of the Company's Common Stock on the first trading date after
the consummation of the Merger (the "Opening Price") and the fractional
share shall be rounded upward to the nearest whole share of Common Stock or
(ii) permit the Company to repurchase the fractional share at a price equal
to the fraction owned times the Opening Price.

A-2
<PAGE> 83

(c) Persons holding fewer than 10 shares of Common Stock after the
Merger must either (i) be cashed out by the Company at a price equal to the
number of shares of Common Stock owned times the Opening Price or (ii)
purchase from the Company the number of shares of Common Stock necessary to
bring the Stockholder's ownership up to 10 shares of Common Stock, at a
purchase price per share equal to the Opening Price.

(d) The 100 shares of Common Stock issued and outstanding in the name
of the Trust shall be cancelled and retired and resume the status of
authorized and unissued shares of Common Stock.

7. Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented Shares shall be deemed for all purposes to evidence ownership of,
and to represent shares of, Common Stock into which the Shares formerly
represented by such certificates have been converted as herein provided. The
registered owner on the books and records of the Trust or its transfer agent of
any such outstanding stock certificate shall, until such certificate shall have
been surrendered for transfer or otherwise accounted for to the Surviving
Corporation or its transfer agent, have and be entitled to exercise any voting
and other rights with respect to and to receive any dividends and other
distributions upon the shares of Common Stock evidenced by such outstanding
certificate as above provided.

8. 401(k) Plan. As of the Effective Time, the Surviving Corporation hereby
assumes all obligations of the Trust under the Trust's Retirement and Profit
Sharing Plan in effect as of the Effective Time.

9. Conditions. Consummation of the Merger and related transactions is
subject to satisfaction of the following conditions prior to the Effective Time:

(a) The Merger shall have been approved by the requisite number of
holders of Trust Shares and the Company Stock and all necessary action
shall have been taken to authorize the execution, delivery and performance
of this Merger Agreement by the Trust and the Company.

(b) All regulatory approvals necessary in connection with the
consummation of the Merger and the transactions contemplated thereby shall
have been obtained.

(c) No suit, action, proceeding or other litigation shall have been
commenced or threatened to be commenced which, in the opinion of the Trust
or the Company would pose a material restriction on or impair consummation
of the Merger, performance of this Merger Agreement or the conduct of the
business of the Company after the Effective Time, or create a risk of
subjecting the Trust or the Company, or their respective Shareholders,
Stockholders, officers, or directors, to material damages, costs, liability
or other relief in connection with the Merger or this Merger Agreement.

(d) The shares of Common Stock to be issued or reserved for issuance
shall, if required, have been approved for listing on the New York Stock
Exchange or such other national securities exchange or national market
system as the Board of Directors of the Company may designate, upon
official notice of issuance by such exchange.

10. Governing Law. This Merger Agreement was negotiated in and is
performable in the State of Texas and shall be governed by and construed in
accordance with the laws of the State of Texas applicable to contracts entered
into and to be performed within the State of Texas, except to the extent that
the laws of the State of Maryland are mandatorily applicable to the Merger.

11. Amendment. Subject to applicable law and subject to the rights of the
Shareholders further to approve any amendment which would have a material
adverse effect on the Shareholders, this Merger Agreement may be amended,
modified or supplemented by written agreement of the parties hereto at any time
prior to the Effective Time with respect to any of the terms contained herein.

12. Deferral or Abandonment. At any time prior to the Effective Time and in
accordance with the provisions of Maryland and Texas law, this Merger Agreement
may be terminated and the Merger may be abandoned or the time of consummation of
the Merger may be deferred for a reasonable time by the Board of Directors of
the Company or the Trust Managers or both, notwithstanding approval of this
Merger Agreement by the Shareholders or the Stockholders of the Company, or
both, if circumstances arise which, in the opinion

A-3
<PAGE> 84

of the Board of Directors of the Company or the Trust Managers, make the Merger
inadvisable or such deferral of the time of consummation advisable.

13. Counterparts. This Merger Agreement may be executed in any number of
counterparts each of which when taken alone shall constitute an original
instrument and when taken together shall constitute but one and the same
Agreement.

14. Assurances. The Trust and the Company agree to execute any and all
documents, and to perform such other acts, which may be necessary or expedient
to further the purposes of this Merger Agreement.

IN WITNESS WHEREOF, the Trust and the Company have caused this Merger
Agreement to be signed by their respective duly authorized officers and
delivered this day of , 1994.

AMERICAN INDUSTRIAL PROPERTIES REIT

Charles W. Wolcott,
President and Chief Executive Officer

AMERICAN INDUSTRIAL PROPERTIES REIT, INC.

Charles W. Wolcott,
President

A-4
<PAGE> 85

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

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROXY
STATEMENT/PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN
OFFER TO BUY, THE SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proxy Statement/Prospectus Summary............ 5
Risk Factors.................................. 12
The Proposal.................................. 16
The Special Meeting........................... 19
The Company................................... 20
The Properties................................ 23
Policies With Respect to Certain Activities... 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 29
Security Ownership of Certain Beneficial
Owners and Managers......................... 33
Management.................................... 33
Summary Comparison of Shares of Beneficial
Interest and Common Stock................... 38
The Company's Securities...................... 40
Certain Statutory and Charter Provisions...... 44
Federal Income Tax Considerations............. 47
Experts....................................... 52
Legal Matters................................. 52
Stockholder Proposals......................... 52
Additional Information........................ 52
Glossary...................................... 53
Index to Financial Statements................. F-1
Agreement and Plan of Merger.................. A-1
</TABLE>

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

UNTIL , 1994 (25 DAYS AFTER THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROXY STATEMENT/PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROXY STATEMENT/PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

AMERICAN INDUSTRIAL
PROPERTIES REIT, INC.

1,915,080 SHARES
OF COMMON STOCK

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

PROXY STATEMENT/PROSPECTUS

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

, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 86

PART II

INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Articles of Incorporation (the "Articles") and Bylaws of the Company
(the "Bylaws") provide certain limitations on the liability of the Company's
directors and officers for monetary damages. The Articles and the Bylaws
obligate the Company to indemnify its directors and officers, and permit the
Company to indemnify its employees and other agents, against certain liabilities
incurred in connection with their service in such capacities. These provisions
could reduce the legal remedies available to the Company and the Stockholders
against these individuals.

The Articles require it to indemnify (a) any person or former director or
officer who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of his service in that
capacity, against reasonable expenses incurred by him in connection with the
proceeding; and (b) any present or former director or officer against any claim
or liability unless it is established that (i) his act or omission was committed
in bad faith or was the result of active or deliberate dishonesty; (ii) he
actually received an improper personal benefit in money, property or services;
or (iii) in the case of a criminal proceeding, he had reasonable cause to
believe that his act or omission was unlawful. In addition, the Articles require
it to pay or reimburse, in advance of final disposition of a proceeding,
reasonable expenses incurred by a director or officer made a party to a
proceeding by reason of his service as a director or officer under procedures
provided for under the Maryland General Corporation Law ("MGCL") and the Bylaws
also (i) permit the Company to provide indemnification and advance expenses to a
present or former director or officer who served a predecessor of the Company in
such capacity, and to any employee or agent of the Company or a predecessor of
the Company; (ii) provide that any indemnification or payment or reimbursement
of the expenses permitted by the Bylaws shall be furnished in accordance with
the procedures provided for indemnification and payment or reimbursement of
expenses under Section 2-418 of the MGCL for directors of Maryland corporations;
and (iii) permit the Company to provide such other and further indemnification
or payment or reimbursement of expenses as may be permitted by Section 2-418 of
the MGCL for directors of Maryland corporations.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
*3.1 -- Articles of Incorporation the Company
*3.2 -- Bylaws of the Company
4.1 -- Form of Certificate representing Common Stock of the Company
*5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to
legality of the Common Stock
*8.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to certain
tax matters
10.1 -- Employment Agreement between the Company and Charles W. Wolcott
10.2 -- Employment Agreement between the Company and Mark A. O'Brien
10.3 -- Employment Agreement between the Company and David B. Warner
10.5 -- Omnibus Common Stock Incentive Plan
*10.6 -- Indenture dated as of November 15, 1985, between the Trust and IBJ
Schroder Bank & Trust Company
10.7 -- 401(K) Retirement and Profit Sharing Plan
*10.8 -- Note Purchase Agreement dated February 27, 1992, between the Trust
and Manufacturers Life Insurance Company
*24.2 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in
Exhibit 5.1)
*24.3 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in
Exhibit 8.1)
</TABLE>

II-1
<PAGE> 87

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
*24.4 -- Consent of Kenneth Leventhal & Company, independent accountants
*25.1 -- Power of Attorney (included on the signature pages of the
Registration Statement)
*28.1 -- Form of Proxy Card
*28.2 -- Notice of Special Meeting
</TABLE>

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

* Filed herewith.

(b) Financial Statement Schedules.

None.

None Required.

ITEM 22. UNDERTAKINGS.

(1) The undersigned registrant hereby undertakes:

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

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

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and

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

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

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

(2) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through the use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
person who may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.

(3) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such

II-2
<PAGE> 88

indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(5) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

(6) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-3
<PAGE> 89

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on January 20, 1994.

AMERICAN INDUSTRIAL PROPERTIES REIT, INC.

/s/ CHARLES W. WOLCOTT
Charles W. Wolcott,
President and Chief Executive Officer,
Director

KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of American Industrial Properties REIT, Inc. hereby severally
constitute Charles W. Wolcott and Mark A. O'Brien and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly, to
sign for us and in our names in the capacities indicated below the Registration
Statement filed herewith and any and all amendments to said Registration
Statement, and generally to do all such things in our names and in our
capacities as officers and directors to enable American Industrial Properties
REIT, Inc. to comply with the Securities Act of 1933, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------------- ---------------------------- -----------------
<C> <S> <C>
/s/ CHARLES W. WOLCOTT President and Chief January 19, 1994
Charles W. Wolcott Executive Officer, Director
(principal executive
officer)
/s/ DAVID B. WARNER Vice President and Chief January 19, 1994
David B. Warner Operating Officer
/s/ MARK A. O'BRIEN Vice President and Chief January 19, 1994
Mark A. O'Brien Financial Officer, Secretary
and Treasurer (principal
financial officer)
Director January 19, 1994
W. H. Bricker
/s/ RAYMOND H. HAY Director January 19, 1994
Raymond H. Hay
</TABLE>

II-4
<PAGE> 90

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------------------------------------------------------------------------------- -----------
<S> <C> <C>
*3.1 -- Articles of Incorporation CE
*3.2 -- Bylaws of the Company CE
4.1 -- Form of Certificate representing Common Stock of the
Company
*5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as
to legality of the Common Stock CE
*8.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as
to certain tax matters CE
10.1 -- Employment Agreement between the Company and Charles W.
Wolcott
10.2 -- Employment Agreement between the Company and Mark A.
O'Brien
10.3 -- Employment Agreement between the Company and David B.
Warner
10.5 -- Omnibus Common Stock Incentive Plan
*10.6 -- Indenture dated as of November 15, 1985, between the Trust
and IBJ Schroder Bank & Trust Company CE
10.7 -- 401(K) Retirement and Profit Sharing Plan
*10.8 -- Note Purchase Agreement dated February 27, 1992, between
the Trust and Manufacturers Life Insurance Company CE
*24.2 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
(included in Exhibit 5.1) CE
*24.3 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
(included in Exhibit 8.1) CE
*24.4 -- Consent of Kenneth Leventhal & Company, independent
accountants CE
*25.1 -- Power of Attorney (included on the signature pages of the
Registration Statement) CE
*28.1 -- Form of Proxy Card CE
*28.2 -- Notice of Special Meeting CE
</TABLE>

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

* Filed herewith.

<PAGE> 1

EXHIBIT 3.1

STATE OF MARYLAND

DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201

DATE: JANUARY 13, 1994

THIS IS TO ADVISE YOU THAT THE ARTICLES OF INCORPORATION FOR AMERICAN
INDUSTRIAL PROPERTIES REIT, INC. WERE RECEIVED AND APPROVED FOR RECORD ON
JANUARY 12, 1994 AT 10:17 AM.

FEE PAID: 170.00

{STATE SEAL}
PAUL B. ANDERSON
CORPORATE ADMINISTRATOR
AT5-031
<PAGE> 2
ARTICLES OF INCORPORATION

AMERICAN INDUSTRIAL PROPERTIES REIT, INC.

ARTICLE I

INCORPORATION

The undersigned, Audrey T. Andrews, whose office address is 2200 Ross
Avenue, Suite 900, Dallas, Texas 75201, being at least eighteen (18) years of
age, does hereby form a corporation (the "Corporation") under the general laws
of the State of Maryland.

ARTICLE II

NAME

The name of the Corporation is American Industrial Properties REIT, Inc.

ARTICLE III

PURPOSES

3.1 General Purpose. The purpose for which the Corporation is formed and
the business or objects to be carried on and promoted by it, within the State
of Maryland or elsewhere, is to engage in any lawful act or activity for which
corporations may be formed under the Maryland General Corporation Law, as
amended from time to time (the "MGCL").

3.2 REIT Purpose. Without limiting the generality of the foregoing
purpose, business and objects, at such time or times as the Board of Directors
of the Corporation (the "Board of Directors") determines that it is in the
interests of the Corporation and its stockholders that the Corporation engage
in the business of, and conduct its business and affairs so as to qualify as, a
real estate investment trust (as that phrase is defined in the Internal Revenue
Code of 1986, as amended (the "Code")), the purpose of the Corporation shall
include engaging in the business of a real estate investment trust ("REIT").
This reference to such purpose shall not make unlawful or unauthorized any
otherwise lawful act or activity that the Corporation may take that is
inconsistent with such purpose.

ARTICLE IV

PRINCIPAL OFFICE ADDRESS

The address of the principal office of the Corporation in the State of
Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202.
<PAGE> 3
ARTICLE V

RESIDENT AGENT

The Resident Agent of the Corporation is The Corporation Trust
Incorporated, whose address is 32 South Street, Baltimore, Maryland 21202.
Said Resident Agent is a Maryland corporation.

ARTICLE VI

BOARD OF DIRECTORS

6.1 Number of Directors. The Corporation shall have a Board of Directors
consisting of three (3) Directors, which number may be increased or decreased
in accordance with the Bylaws of the Corporation, but shall not be less than
the number required by Section 2-402 of the MGCL. The following individuals
shall act as Directors until the first annual meeting of the stockholders of
the Corporation or until their successors are duly elected and qualified:

W. H. Bricker
Raymond H. Hay
Charles W. Wolcott

6.2 Classification of Directors. The Board of Directors of the
Corporation shall be divided into three classes, each class to consist as
nearly as possible of one-third of the Directors. The term of office of one
class of Directors shall expire each year. The initial term of office of the
first class shall expire at the 1995 annual meeting of stockholders. The
initial term of office of the second class shall expire at the 1996 annual
meeting of stockholders. The initial term of office of the third class shall
expire at the 1997 annual meeting of stockholders. Commencing with the 1995
annual meeting of stockholders, the Directors of the class elected at each
annual meeting of stockholders shall hold office for a term of three years.
Vacancies occurring by resignation, enlargement of the Board of Directors or
otherwise shall be filled as specified in the Bylaws of the Corporation.

ARTICLE VII

AUTHORIZED CAPITAL STOCK; RIGHTS AND
PREFERENCES; ISSUANCE OF STOCK

7.1 Authorized Capital Stock. The total number of shares of stock which
the Corporation has authority to issue (the "Stock") is sixty million
(60,000,000) shares, consisting of (i) fifty million (50,000,000) shares of
common stock, par value $.01 per share ("Common Stock") (or shares of one or
more classes of "Excess Common Stock" as provided in Section 9.5); and (ii) ten
million (10,000,000) shares of preferred stock, par value $.01 per share
("Preferred Stock") (or one or more classes of "Excess Preferred Stock" as
provided in Section 9.5). Excess Common Stock and Excess Preferred Stock shall
be collectively referred to herein as "Excess Stock." The aggregate par value
of all the shares of all classes of stock is $600,000.

- 2 -
<PAGE> 4

7.2 Common Stock.

7.2.1 Dividend Rights. The holders of shares of Common Stock shall be
entitled to receive such dividends as may be declared by the Board of
Directors out of funds legally available therefor.

7.2.2 Rights Upon Liquidation. Subject to the rights of the holders
of any shares of any series of Preferred Stock, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, each holder of shares of
Common Stock shall be entitled to receive, ratably with each other holder
of shares of Common Stock or Excess Common Stock, that portion of the
assets of the Corporation available for distribution to the holders of its
Common Stock and Excess Common Stock as the number of shares of Common
Stock held by such holder bears to the total number of shares of Common
Stock and Excess Common Stock then outstanding.

7.2.3 Voting Rights. The holders of shares of Common Stock shall be
entitled to vote on all matters submitted to the holders of Common Stock
for a vote, at all meetings of stockholders, and each holder of shares of
Common Stock shall be entitled to one vote for each share of Common Stock
held by such stockholder.

7.3 Preferred Stock. The Board of Directors may issue the Preferred Stock
in such one or more series consisting of such numbers of shares and having such
preferences, conversion and other rights, voting powers, restrictions and
limitations as to dividends, qualifications and terms and conditions of
redemption of stock as the Board of Directors may from time to time determine
when designating such series.

7.4 Classification of Stock. The Board of Directors may classify or
reclassify any unissued shares of Stock from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of those shares of Stock, including, but not limited
to, the reclassification of unissued shares of Common Stock to shares of
Preferred Stock or unissued shares of Preferred Stock to shares of Common Stock
or the issuance of any rights plan or similar plan.

7.5 Issuance of Stock. The Board of Directors may authorize the issuance
from time to time of shares of Stock of any class, whether now or hereafter
authorized, or securities or rights convertible into shares of Stock, or share
splits or share dividends for such consideration as the Board of Directors may
deem advisable (or without consideration in the case of a share split or share
dividend), and without any action by the stockholders, subject to such
restrictions or limitations, if any, as may be set forth in the Bylaws of the
Corporation.

- 3 -
<PAGE> 5
7.6 Stock Legend. All certificates representing shares of Stock issued by
the Corporation shall bear a legend referencing the restrictions on ownership
and transfer set forth in this Charter.

ARTICLE VIII

LIMITATION ON PREEMPTIVE RIGHTS

No stockholder shall have any preferential or preemptive right to acquire
additional shares of Stock, except to the extent that, and on such terms as,
the Board of Directors from time to time may determine in its sole discretion.

ARTICLE IX

LIMITATIONS ON TRANSFER AND OWNERSHIP

9.1 Limitations on Transfer. The shares of Stock (other than Excess
Stock) shall be freely transferable by the record owner thereof, subject to the
provisions of Section 9.2 hereof and provided that any purported acquisition or
transfer of Stock that would result in (a) the Common Stock being owned
directly or indirectly by fewer than 100 persons (determined without reference
to the rules of attribution under Section 544 of the Code) or (b) the
Corporation being "closely held" within the meaning of Section 856(h) of the
Code shall be void ab initio. Subject to the provisions of Section 9.5 hereof,
any purported transfer of Stock that, if effective, would result in a violation
of Section 9.2 hereof (unless excepted from the application of such Section 9.2
pursuant to Section 9.6 hereof) shall be void ab initio as to the transfer of
that number of shares of Stock that would otherwise be beneficially owned by a
stockholder in violation of Section 9.2 hereof, the intended transferee of such
shares shall acquire no rights therein and the transfer of such shares will not
be reflected on the Corporation's stock record books. For purposes of this
Article IX, a "transfer" of shares of Stock shall mean any sale, transfer,
gift, hypothecation, pledge, assignment or other disposition, whether voluntary
or involuntary, by operation of law or otherwise.

9.2 Limitations on Ownership. Commencing on the date of the exchange of
shares of Common Stock pursuant to the Corporation's first effective
registration statement on Form S-4 filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Effective Date"),
or such earlier time as the Board of Directors may determine, except as
provided by Section 9.6 hereof, no person shall at any time directly or
indirectly acquire or hold beneficial ownership of shares of Stock with an
aggregate value in excess of 9.8% of the aggregate value of all outstanding
Stock (the "Ownership Limit").

For purposes of this Article IX, (a) the value of any share of Stock
shall be reasonably determined in the manner established by the Board of
Directors and (b) a person (which includes natural persons, corporations,
trusts, partnerships and other entities) shall be deemed to be the beneficial
owner of the Stock that such person (i) actually owns, (ii) constructively owns
after applying the rules of Section 544 of the Code, as modified in the case of
a REIT by Section 856(h) of the Code, and (iii) has the right to acquire upon
exercise of

- 4 -
<PAGE> 6
outstanding rights, options and warrants, and upon conversion of any securities
convertible into Stock, if any.

9.3 Stockholder Information. Each stockholder shall, upon demand of the
Corporation, disclose to the Corporation in writing such information with
respect to his or its direct and indirect beneficial ownership of the Stock as
the Board of Directors in its discretion deems necessary or appropriate in
order that the Corporation may fully comply with all provisions of the Code
relating to REITs and all regulations, rulings and cases promulgated or decided
thereunder (the "REIT Provisions") and to comply with the requirements of any
taxing authority or governmental agency. All persons who have acquired or who
hold, directly or indirectly, beneficial ownership of shares of Stock with an
aggregate value in excess of 9.8% of the aggregate value of all outstanding
Stock must disclose in writing such ownership information to the Corporation no
later than January 31 of each year.

9.4 Transferee Information. No later than the 50th day prior to any
transfer which, if effected, would result in the intended transferee owning
shares in excess of the Ownership Limit, the intended transferee shall provide
to the Board if Directors an affidavit setting forth the number of shares of
Stock already beneficially owned by such intended transferee. In addition,
whenever the Board of Directors deems it reasonably necessary to protect the
tax status of the Corporation as a REIT under the REIT Provisions, the Board of
Directors may require a statement or affidavit from each stockholder setting
forth the number of shares of Stock beneficially owned by such stockholder.
Subject to the terms of Section 9.10 hereof, if, in the opinion of the Board of
Directors, any proposed transfer may jeopardize the qualification of the
Corporation as a REIT, the Board of Directors shall have the right, but not the
duty, to refuse to permit the transfer of such Stock to the proposed
transferee. All contracts for the sale or other transfer of stock shall be
subject to this Section 9.4.

9.5 Excess Stock.

9.5.1 Creation of Excess Stock. If, notwithstanding the other
provisions contained in this Article IX, at any time after the Effective
Date there is a purported transfer of Stock or a change in the capital
structure of the Corporation (including any redemption of Excess Stock
pursuant to subsection 9.5.7 hereof) such that any person would
beneficially own Stock in excess of the Ownership Limit then, except as
otherwise provided in Section 9.6 hereof, such shares of Stock in excess of
the Ownership Limit (rounded up to the nearest whole share), shall be
automatically deemed an equal number of shares of Excess Stock.

9.5.2 Ownership in Trust. Upon any purported transfer of Stock that
results in Excess Stock pursuant to subsection 9.5.1 hereof, such Excess
Stock shall be deemed to have been transferred to the Corporation, as
trustee of a separate trust for the exclusive benefit of the person or
persons to whom such Excess Stock can ultimately be transferred without
violating the Ownership Limit. Shares of Excess Stock so held in trust
shall be issued and outstanding Stock of the Corporation under the MGCL.
The purported transferee of Excess Stock shall have no rights in such
Excess Stock, except the right to

- 5 -
<PAGE> 7
designate a transferee of its interest in the trust created under this
subsection 9.5.2 upon the terms specified in subsection 9.5.6 hereof. If
any of the restrictions on transfer set forth in this Article IX are
determined to be void, invalid or unenforceable by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
Excess Stock may be deemed, at the option of the Corporation, to have acted
as an agent on behalf of the Corporation in acquiring the Excess Stock and
to hold the Excess Stock on behalf of the Corporation.

9.5.3 Dividend Rights. Excess Stock shall not be entitled to any
dividends. Any dividend or distribution paid prior to the discovery by the
Corporation that shares of Stock have been deemed Excess Stock shall be
repaid to the Corporation upon demand, and any dividend or distribution
declared but unpaid shall be rescinded as void ab initio with respect to
such shares of Excess Stock.

9.5.4 Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution
of the assets of, the Corporation, each holder of shares of Excess Common
Stock shall be entitled to receive, ratably with each other holder of
shares of Common Stock or Excess Common Stock, that portion of the assets
of the Corporation available for distribution to the holders of shares of
Excess Common Stock as the number of shares of Excess Common Stock held by
such holder bears to the total number of shares of Common Stock and Excess
Common Stock then outstanding. In the event of any voluntary liquidation,
dissolution or winding up of, or any distribution of the assets of, the
Corporation, each holder of shares of Excess Preferred Stock shall be
entitled to receive the pro rata share of the assets of the Corporation
available for distribution to the holders of Preferred Stock of the series
from which such Excess Stock was created. The Corporation, as the holder
of all Excess Stock in one or more trusts, or, if the Corporation shall
have been dissolved, any trustee appointed by the Corporation prior to its
dissolution, shall distribute to each transferee of an interest in such a
trust pursuant to subsection 9.5.6 hereof, when determined, any assets
received in any liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation in respect of the Excess
Stock held in such trust and represented by the trust interest transferred
to such transferee.

9.5.5 Voting Rights. No stockholder may vote any shares of Excess
Stock. The shares of Excess Stock will not be considered for purposes of
any stockholder vote or for purposes of determining a quorum for such a
vote.

9.5.6 Restrictions on Transfer. Excess Stock shall not be
transferable. The purported transferee of any shares of Stock that are
deemed Excess Stock pursuant to subsection 9.5.1 hereof (the "Initial
Transferee") may freely designate a transferee (the "Subsequent
Transferee") of the interest in the trust that represents such shares of
Excess Stock, if (a) the shares of Excess Stock held in the trust and
represented by the trust interest to be transferred would not be Excess
Stock in the hands of the Subsequent Transferee, and (b) the Initial
Transferee does not receive a price for the trust interest in excess of (i)
the price the Initial Transferee paid for the Stock in the purported
transfer of Stock that resulted in the Excess Stock represented by the
trust interest or (ii) if the

- 6 -
<PAGE> 8
Initial Transferee did not give value for such Stock (e.g., the shares were
received through a gift, devise or other transaction), a price equal to the
aggregate Market Price (as defined in subsection 9.5.7 hereof) for all
shares of the Stock that were deemed Excess Stock on the date of the
purported transfer that resulted in the Excess Stock. No interest in a
trust may be transferred unless the Initial Transferee of such interest has
given advance written notice to the Corporation of the designation of the
Subsequent Transferee. Upon the transfer of an interest in a trust in
compliance with this subsection 9.5.6, the corresponding shares of Excess
Stock that are represented by the transferred interest in the trust shall
be automatically deemed an equal number of shares of Stock of the same
class and series from which the corresponding shares of Excess Stock were
originally created, such shares of Stock shall be transferred of record to
the Subsequent Transferee, and the interest in the trust representing such
Excess Stock shall automatically terminate.

9.5.7 Corporation's Redemption Right. All shares of Excess Stock
shall be deemed to have been offered by the Initial Transferee for sale to
the Corporation, or its designee, at a price per share equal to the lesser
of (a) the price per share of Stock in the transaction that created such
Excess Stock (or, in the case of devise or gift, the Market Price per share
of such Stock at the time of such devise or gift) or (b) the Market Price
per share of Stock of the class of Stock for which such Excess Stock was
created on the date the Corporation or its designee, accepts such offer.
The Corporation shall have the right to accept such offer for a period
ending on the earlier of (i) ninety (90) days after (a) the date of the
purported transfer that resulted in such Excess Stock if the Initial
Transferee notified the Corporation of such purported transfer within ten
(10) days thereof or (b) the date on which the Board of Directors
determines in good faith that the purported transfer resulting in Excess
Stock occurred if the Corporation was not notified of the purported
transfer by the Initial Transferee and (ii) the date on which the Initial
Transferee gives notice of its intent to transfer its trust interest to a
Subsequent Transferee. For purposes of this Article IX, "Market Price"
means for any share of Stock, the average daily per share closing sales
price of a share of such Stock if shares of such Stock are listed on a
national securities exchange or quoted on the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ
NMS"), and if such shares are not so listed or quoted, the Market Price
shall be the mean between the average per share closing bid prices and the
average per share closing asked prices, in each case during the 30 calendar
day period ending on the business day prior to the redemption date, or if
there have been no sales on a national securities exchange or on the NASDAQ
NMS and no published bid and asked quotations with respect to shares of
such Stock during such 30 calendar day period, the Market Price shall be
the price determined by the Board of Directors in good faith. Payment of
all of the amount determined as the redemption payment for Stock redeemed
in accordance with this subsection 9.5.7 shall be made within 30 days of
the date on which the Corporation shall have notified the Initial
Transferee in writing of the Corporation's intent to exercise its
redemption rights. No interest shall accrue on any redemption payment with
respect to the period subsequent to the redemption date to the date of the
redemption payment. Notwithstanding anything in this subsection 9.5.7 to
the contrary,

- 7 -
<PAGE> 9
the Corporation's redemption rights with respect to any Excess Stock shall
terminate upon any transfer of the trust interest relating thereto to a
Subsequent Transferee.

9.6 Exceptions to Certain Ownership and Transfer Limitations. The
Ownership Limit set forth in Section 9.2 hereof shall not apply to the
following shares of Stock and such shares shall not be deemed to be Excess
Stock at the times and subject to the terms and conditions set forth in this
Section 9.6:

9.6.1 Exemption by Board of Directors. Subject to the provisions of
Section 9.7 hereof, shares of Stock which the Board of Directors in its
sole discretion may exempt from the Ownership Limit while owned by a person
who has provided the Corporation with evidence and assurances acceptable to
the Board of Directors that the qualification of the Corporation as a REIT
would not be jeopardized thereby.

9.6.2 Stock Held by Underwriters. Subject to the provisions of
Section 9.7 hereof, shares of Stock acquired and held by an underwriter in
a public offering of Stock, or in any transaction involving the issuance of
Stock by the Corporation in which the Board of Directors determines that
the underwriter or other person or party initially acquiring such Stock
will make a timely distribution of such Stock to or among other holders
such that, at all times prior to and following such distribution, the
Corporation will continue to be in compliance with the REIT Provisions.

9.6.3 All Cash Tender Offers. Subject to the provisions of Article
XIII hereof, shares of Stock acquired pursuant to an all cash tender offer
made for all outstanding shares of Stock of the Corporation in conformity
with applicable federal and state securities laws where not less than
two-thirds of the outstanding Stock (not including Stock or securities
convertible into Stock held by the tender offeror and/or any "affiliates"
or "associates" thereof within the meaning of the Securities Exchange Act
of 1934, as amended) is duly tendered and accepted pursuant to the cash
tender offer and where the tender offeror commits to such tender offer, if
the tender offer is so accepted by holders of such two-thirds of the
outstanding Stock, as promptly as practicable thereafter to give any
holders who did not accept such tender offer a reasonable opportunity to
put their Stock to the tender offeror at a price not less than the price
per share paid for Stock tendered pursuant to the tender offer.

9.6.4 Shares Issued to Texas REIT. Shares of Stock issued by the
Corporation to American Industrial Properties REIT, a Texas real estate
investment trust (the "Texas REIT").

9.7 Authority to Revoke Exceptions to Limitations. The Board of
Directors, in its sole discretion, may at any time revoke any exception
pursuant to subsection 9.6.1 or 9.6.2 hereof in the case of any stockholder,
and upon such revocation, the provisions of Sections 9.2 and 9.5 hereof shall
immediately become applicable to such stockholder and all Stock of which such
stockholder may be the beneficial owner. A decision to exempt or refuse to
exempt from the Ownership Limit the ownership of certain designated shares of
Stock, or to revoke an exemption previously granted, shall be made by the Board
of Directors in its sole discretion,

- 8 -
<PAGE> 10
based on any reason whatsoever, including, but not limited to, the preservation
of the Corporation's qualification as a REIT.

9.8 Severability. If any provision of this Article IX or any application
of any such provision is determined to be invalid by any federal or state court
having jurisdiction, the validity of the remaining provisions of this Article
IX shall not be affected and other applications of such provision shall be
affected only to the extent necessary to comply with the determination of such
court. To the extent this Article IX may be inconsistent with any other
provision of this Charter, this Article IX shall be controlling.

9.9 Authority of the Board of Directors. Subject to Section 9.10 hereof,
nothing contained in this Article IX or in any other provisions of this Charter
shall limit the authority of the Board of Directors to take such action as it
deems necessary or advisable to protect the Corporation and the interests of
the stockholders by preservation of the Corporation's qualification as a REIT
under the REIT Provisions, provided that no such action may be taken to amend
or delete Section 9.10 hereof. In applying the provisions of this Article IX,
the Board of Directors may take into account the lack of certainty in the REIT
Provisions relating to the ownership of stock that may prevent a corporation
from qualifying as a REIT and may make interpretations concerning the Ownership
Limit, Excess Stock, beneficial ownership and related matters as conservatively
as the Board of Directors deems advisable to minimize or eliminate uncertainty
as to the Corporation's continued qualification as a REIT. Notwithstanding any
other provisions of this Charter, if the Board of Directors determines that it
is no longer in the best interests of the Corporation and the stockholders to
continue to have the Corporation qualify as a REIT, the Board of Directors may
revoke or otherwise terminate the Corporation's REIT election pursuant to
Section 856(g) of the Code.

9.10 New York Stock Exchange. Nothing in this Article IX shall
preclude the settlement of any transaction entered into through the facilities
of the New York Stock Exchange.

ARTICLE X

RIGHTS AND POWERS OF CORPORATION,
BOARD OF DIRECTORS AND OFFICERS

In carrying on its business, or for the purpose of attaining or furthering
any of its objects, the Corporation shall have all of the rights, powers and
privileges granted to a corporation by the laws of the State of Maryland, as
well as the power to do any and all acts and things that a natural person or
partnership could do as now or hereafter authorized by law, either alone or in
partnership or conjunction with others. In furtherance and not in limitation of
the powers conferred by statute, the powers of the Corporation and of the
Directors and stockholders shall include the following:

10.1 Certain Contracts. Any Director or officer individually, or any firm
of which any Director or officer may be a member, or any corporation or
association of which any Director or officer may be a director or officer or in
which any Director or officer may be interested as

- 9 -
<PAGE> 11
the holder of any amount of its capital stock or otherwise, may be a party to,
or may be pecuniarily or otherwise interested in, any contract or transaction
of the Corporation, and in the absence of fraud, no contract or other
transaction shall be thereby affected or invalidated; provided, however, that
(a) such fact shall have been disclosed or shall have been known to the Board
of Directors or the committee thereof that authorized, approved or ratified
such contract or transaction and such contract or transaction shall have been
approved or satisfied by the affirmative vote of a majority of the
disinterested Directors, or (b) such fact shall have been disclosed or shall
have been known to the stockholders entitled to vote, and such contract or
transaction shall have been authorized, approved or ratified by a majority of
the votes cast by the stockholders entitled to vote, other than the votes of
shares owned of record or beneficially by the interested Director or
corporation, firm or other entity, or (c) the contract or transaction is fair
and reasonable to the Corporation. Any Director of the Corporation who is also
a director or officer of or interested in such other corporation or
association, or who, or the firm of which he is a member, is so interested, may
be counted in determining the existence of a quorum at any meeting of the Board
of Directors which shall authorize any such contract or transaction, with like
force and effect as if he were not such director or officer of such other
corporation or association or were not so interested or were not a member of a
firm so interested.

10.2 Charter Amendments. The Corporation reserves the right, from time
to time, to make any amendment of this Charter, now or hereafter authorized by
law, including any amendment which alters the contract rights, as expressly set
forth in this Charter, of any outstanding Stock.

10.3 Powers of Board of Directors. Except as otherwise provided in
this Charter or the Bylaws of the Corporation, as amended from time to time,
the business of the Corporation shall be managed by its Board of Directors. The
Board of Directors shall have and may exercise all the rights, powers and
privileges of the Corporation except only for those that are by law, this
Charter or the Bylaws of the Corporation, conferred upon or reserved to the
stockholders. Additionally, the Board of Directors is hereby specifically
authorized and empowered from time to time in its discretion:

10.3.1 Borrowing Money and Issuance of Indebtedness. To borrow and
raise money, without limit and upon any terms for any corporate purposes;
and, subject to applicable law, to authorize the creation, issuance,
assumption, or guaranty of bonds, debentures, notes or other evidences of
indebtedness for money so borrowed, to include therein such provisions as
to redeemability, convertibility or otherwise, as the Board of Directors,
in its sole discretion, determines, and to secure the payment of principal,
interest or sinking fund in respect thereof by mortgage upon, or the pledge
of, or the conveyance or assignment in trust of, all or any part of the
properties, assets and goodwill of the Corporation then owned or thereafter
acquired.

10.3.2 Bylaws. To make, alter, amend, change, add to or repeal the
Bylaws of the Corporation in accordance with the terms of the Bylaws
adopted by the Board of Directors pursuant to Section 2-109 of the MGCL.

- 10 -
<PAGE> 12
10.3.3 Dividends. To the extent permitted by law, to declare and pay
dividends or other distributions to the stockholders from time to time out
of the earnings, earned surplus, paid-in surplus or capital of the
Corporation, notwithstanding that such declaration may result in the
reduction of the capital of the Corporation. In connection with any
dividends or other distributions upon the Stock, the Corporation need not
reserve any amount from such dividend or other distributions to satisfy any
preferential rights of any stockholder.

10.4 Stockholder Vote Required. Notwithstanding any provision of law
requiring the authorizing of any action by a greater proportion than a majority
of the total number of shares of all classes of capital stock or of the total
number of shares of any class of capital stock, such action shall be valid and
effective if authorized by the affirmative vote of the holders of a majority of
the total number of shares of all classes of Stock outstanding and entitled to
vote thereon, except as otherwise provided in this Charter.

ARTICLE XI

INDEMNIFICATION

The Corporation shall indemnify (a) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the fullest
extent required or permitted by the General Laws of the State of Maryland now
or hereafter in force, including the advancement of expenses and to the fullest
extent permitted by law and (b) other employees and agents to such extent as
shall be authorized by the Board of Directors or the Corporation's Bylaws and
be permitted by law. The foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is necessary to carry
out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such Bylaws, resolutions or contracts
implementing such provisions or such further indemnification arrangements as
may be permitted by law. No amendment of the charter of the Corporation or
repeal of any of its provisions shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or omissions occurring
prior to such amendment or repeal.

ARTICLE XII

LIMITATION OF LIABILITY

To the fullest extent permitted by Maryland statutory or decisional law, as
amended or interpreted, no Director or officer shall be personally liable to
the Corporation or its stockholders for money damages. Neither the amendment
or the repeal of this Article XII, nor the adoption of any other provision in
this Charter inconsistent with this Article XII, shall eliminate or reduce the
protection afforded by this Article XII to a Director or officer of the
Corporation with respect to any matter which occurred, or any cause of action,
suit or claim which but for this Article XII would have accrued or arisen,
prior to such amendment, repeal or adoption.

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<PAGE> 13
ARTICLE XIII

SPECIAL VOTING REQUIREMENTS

Pursuant to Section 3-603(e)(l)(iii) of the MGCL, the Corporation expressly
elects not to be governed by the provisions of Section 3-602 of the MGCL with
respect to any business combination (as defined in Section 3-601 of the MGCL)
involving the Texas REIT, or any present or future affiliates or associates (as
such terms are defined in Section 3-601 of the MGCL) of the Texas REIT.

The provisions of Title 3, Subtitle 7 of the MGCL shall not apply to the
voting rights of Stock presently or in the future owned or acquired by the
Texas REIT or any present or future affiliates or associates (as such terms are
defined in Section 3-601 of the MGCL) of the Texas REIT.

ARTICLE XIV

DURATION

The duration of the Corporation shall be perpetual.

ARTICLE XV

INDEMNIFICATION OF INCORPORATOR

The Corporation shall indemnify and hold the undersigned incorporator of
the Corporation harmless from and against any and all loss, cost, damage,
expense (including, without limitation, attorneys' fees and expenses) for
liability caused by, resulting from or arising out of any action taken or
authorized by the incorporator of the Corporation in respect of the
incorporation and organization of the Corporation in what she deemed to be in
or not opposed to the best interests of the Corporation.

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<PAGE> 14
IN WITNESS WHEREOF, these Articles of Incorporation were signed by Audrey
T. Andrews on this 11th day of January, 1994.

/s/ AUDREY T. ANDREWS
__________________________________
Audrey T. Andrews
Liddell, Sapp, Zivley,
Hill & LaBoon, L.L.P.
2200 Ross Avenue
Suite 900
Dallas, Texas 75201

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<PAGE> 1
EXHIBIT 3.2

BYLAWS
OF
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
<PAGE> 2
BYLAWS
OF
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I MEETINGS OF STOCKHOLDERS
1.01 Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.04 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.05 Scope of Notice . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.06 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.07 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.08 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.09 Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Tabulation of Votes . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Informational Action by Stockholders . . . . . . . . . . . . . . 3
1.12 Voting by Ballot . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE II DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.01 General Powers . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.02 Number, Tenure and Qualification . . . . . . . . . . . . . . . . 3
2.03 Nomination of Directors . . . . . . . . . . . . . . . . . . . . . 4
2.04 Annual and Regular Meetings . . . . . . . . . . . . . . . . . . . 4
2.05 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . 4
2.06 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.07 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.08 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.09 Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Removal of Directors . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Informal Action by Directors . . . . . . . . . . . . . . . . . . 5
2.14 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE III COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.01 Number, Tenure and Qualification . . . . . . . . . . . . . . . . 6
3.02 Delegation of Power . . . . . . . . . . . . . . . . . . . . . . . 6
3.03 Quorum and Voting . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>

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<PAGE> 3
TABLE OF CONTENTS
(Continued)

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.04 Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . 6
3.05 Informal Action by Committees . . . . . . . . . . . . . . . . . . 6

ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.01 Powers and Duties . . . . . . . . . . . . . . . . . . . . . . . . 7
4.02 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.03 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.04 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . 7
4.05 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.06 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.07 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.08 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.09 Assistant Secretaries and Assistant
Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.10 Subordinate Officers . . . . . . . . . . . . . . . . . . . . . . 8
4.11 Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE V SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.01 No Certificates for Stock . . . . . . . . . . . . . . . . . . . . 9
5.02 Election to Issue Certificates . . . . . . . . . . . . . . . . . 9
5.03 Stock Ledger . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.04 Recording Transfers of Stock . . . . . . . . . . . . . . . . . . 10
5.05 Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . 10
5.06 Fixing of Record Date . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE VI DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . 11
6.01 Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.02 Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE VII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 11

7.01 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.02 Non-Exclusive Right to Indemnify; Heirs
and Personal Representatives . . . . . . . . . . . . . . . . . 11
7.03 No Limitations . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE VIII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

-ii-
<PAGE> 4
TABLE OF CONTENTS
(Continued)

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
8.02 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE IX MISCELLANEOUS
9.01 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . 12
9.02 Inspection of Bylaws and Corporate
Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.03 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.04 Checks, Drafts, etc. . . . . . . . . . . . . . . . . . . . . . . 12
9.05 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.06 Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.07 Bylaws Severable . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE X AMENDMENT OF BYLAWS
10.01 By Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.02 By Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.03 Amendment of Indemnification Provisions . . . . . . . . . . . . . 13
</TABLE>

-iii-
<PAGE> 5
ARTICLE I

MEETINGS OF STOCKHOLDERS

1.01. PLACE. All meetings of the holders of the issued and
outstanding capital stock of the Corporation (the "Stockholders") shall be held
at the principal executive office of the Corporation or such other place within
the United States as shall be stated in the notice of the meeting.

1.02. ANNUAL MEETING. An annual meeting of Stockholders of the
Corporation shall be held in May of each year at such date and at such time as
shall be designated from time to time by the Board of Directors and stated in
the notice of meeting or a duly executed waiver of notice of such meeting. At
each annual meeting, the Stockholders shall elect directors and transact such
other business as may properly be brought before the meeting. The first annual
meeting of the Corporation shall be held in May of 1995 on a date designated by
the Board of Directors.

1.03. SPECIAL MEETINGS. The Chairman of the Board, the President or
a majority of the Board of Directors may call special meetings of the
Stockholders. Special meetings of Stockholders shall also be called by the
Secretary upon the written request of the holders of shares entitled to cast
25% or more of the votes entitled to be cast at such meeting. Such request
shall state the purpose or purposes of such meeting and the matters proposed to
be acted on at such meeting. The date, time, place and record date for any
special meeting, including a special meeting called at the request of
Stockholders, shall be established by the Board of Directors or officer calling
the special meeting.

1.04. NOTICE. Not less than 30 nor more than 90 calendar days
before the date of every meeting of Stockholders, written or printed notice of
such meeting shall be given, in accordance with Article VIII of these Bylaws,
to each Stockholder entitled to vote or entitled to notice by statute, stating
the time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by statute, the purpose or purposes for which the
meeting is called. Notice is given to a Stockholder when it is personally
delivered to him, left at his residence or usual place of business or mailed to
him at his address as it appears on the records of the Corporation.
Notwithstanding the foregoing provisions, each person who is entitled to notice
waives notice if before or after the meeting he signs a waiver of the notice
which is filed with the records of Stockholders' meetings, or is present at the
meeting in person or by proxy.

1.05. SCOPE OF NOTICE. No business shall be transacted at a special
meeting of Stockholders except as specifically designated in the notice of the
meeting. Any business of the Corporation may be transacted at the annual
meeting without being specifically designated in the notice, except such
business as is required by statute to be stated in such notice.

1.06. QUORUM. At any meeting of Stockholders, the presence in
person or by proxy of Stockholders entitled to cast a majority of the votes
shall constitute a quorum; but this Section 1.06 shall not affect any
requirement under any statute or the Articles of Incorporation of the
Corporation, as amended and/or restated (the "Charter"), for the vote necessary
for the adoption
<PAGE> 6
of any measure. If, however, a quorum is not present at any meeting of
Stockholders, the Stockholders present in person or by proxy shall have the
power to adjourn the meeting from time to time without notice other than
announcement at the meeting until a quorum is present and the meeting so
adjourned may be reconvened without further notice. At any adjourned meeting
at which a quorum is present, any business may be transacted that might have
been transacted at the meeting as originally notified. The Stockholders
present at a meeting which has been duly called and convened and at which a
quorum is present at the time counted may continue to transact business until
adjournment, notwithstanding the withdrawal of enough Stockholders to leave
less than a quorum.

1.07. VOTING. A majority of the votes cast at a meeting of
Stockholders duly called and at which a quorum is present shall be sufficient
to take or authorize action upon any matter which may properly come before the
meeting, unless more than a majority of the votes cast is specifically required
by statute, the Charter or these Bylaws and except that a plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
Director. Stock directly or indirectly owned by the Corporation shall not be
voted in any meeting and shall not be counted in determining the total number
of outstanding stock entitled to vote at any given time, but shares of its own
voting stock held by it in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares of stock at any
given time.

1.08. PROXIES. A Stockholder may vote the Stock owned of record by
him or her, either in person or by proxy executed in writing by the Stockholder
or by his or her duly authorized attorney in fact. Such proxy shall be filed
with the Secretary of the Corporation before or at the time of the meeting. No
proxy shall be valid after 11 months from the date of its execution, unless
otherwise provided in the proxy.

1.09. CONDUCT OF MEETINGS. The Chairman of the Board, or, in the
absence of the Chairman, the President or, in the absence of the Chairman and
the President, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated at the time of their
election or, in the absence of any such designation, then in order of their
election) or, in the absence of the Chairman, President and any Vice President,
a presiding officer elected at the meeting shall preside over meetings of the
Stockholders. The Secretary of the Corporation, or, in the absence of the
Secretary and Assistant Secretaries, the person appointed by the presiding
officer at the meeting shall act as secretary of the meeting.

1.10. TABULATION OF VOTES. At any annual or special meeting of
Stockholders, the presiding officer shall be authorized to appoint a teller for
such meeting (the "Teller"). The Teller may, but need not, be an officer or
employee of the Corporation. The Teller shall be responsible for tabulating or
causing to be tabulated shares voted at the meeting and reviewing or causing to
be reviewed all proxies. In tabulating votes, the Teller shall be entitled to
rely in whole or in part on tabulations and analyses made by personnel of the
Corporation, its counsel, its transfer agent, its registrar or such other
organizations that are customarily employed to provide such services. The
Teller shall be authorized to determine the legality and sufficiency of all
votes cast and proxies delivered under the Charter, these Bylaws and applicable
law. The

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presiding officer may review all determinations made by the Teller hereunder,
and in doing so the presiding officer shall be entitled to exercise his or her
sole judgment and discretion and he or she shall not be bound by any
determination made by the Teller.

1.11. INFORMAL ACTION BY STOCKHOLDERS. An action required or
permitted to be taken at any meeting of Stockholders (other than the annual
meeting of Stockholders) may be taken without a meeting if a consent in
writing, setting forth such action, is signed by all the Stockholders entitled
to vote on the subject matter thereof and any other Stockholders entitled to
notice of a meeting of Stockholders (but not to vote thereat) have waived in
writing any rights which they may have to dissent from such action, and such
consents and waivers are filed with the minutes of proceedings of the
Stockholders. Such consents and waivers may be signed by different
Stockholders on separate counterparts.

1.12. VOTING BY BALLOT. Voting on any question or in any election
may be by voice vote unless the presiding officer shall order or any
Stockholder shall demand that voting be by ballot.

ARTICLE II

DIRECTORS

2.01. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors, except as
conferred on or reserved to the Stockholders by statute, the Charter or these
Bylaws.

2.02. NUMBER, TENURE AND QUALIFICATION. The number of Directors of
the Corporation shall be that number set forth in the Charter or such other
number as may be designated from time to time by resolution of a majority of
the entire Board of Directors; provided, however, that the number of Directors
shall never be less than the number required by Section 2-402 of the Maryland
General Corporation Law (the "MGCL"), as amended from time to time, and further
provided that the tenure of office of a Director shall not be affected by any
decrease in the number of Directors. The Board of Directors shall be divided
into such classes as are set forth in the Charter, with each class to consist
as nearly as possible of one-third of the Directors. Each Director shall serve
for the term set forth in the Charter and until his or her successor is elected
and qualified. No person shall be eligible to serve as a Director of the
Corporation if such person is seventy-five years of age or older. Upon the
seventy-fifth birthday of any Director (or if that day is not a business day
for the Corporation, the next business day), such Director shall resign, such
resignation shall create a vacancy on the Board of Directors, and the vacancy
shall be filled in accordance with Section 2.12.

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2.03. NOMINATION OF DIRECTORS. Nominations of candidates for
election as Directors of the Corporation at any annual meeting of Stockholders
may be made by, or at the direction of, a majority of the Board of Directors or
by any committee of the Board of Directors established for such purpose.

2.04. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors may be held immediately after and at the same place as the annual
meeting of Stockholders, or at such other time and place, either within or
without the State of Maryland, as is selected by resolution of the Board of
Directors, and no notice other than this Bylaw or such resolution shall be
necessary. The Board of Directors may provide, by resolution, the time and
place, either within or without the State of Maryland, for the holding of
regular meetings of the Board of Directors without other notice other than such
resolutions.

2.05. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, or a majority
of the Directors then in office. The person or persons authorized to call
special meetings of the Board of Directors may fix any place, either within or
without the State of Maryland, as the place for holding any special meeting of
the Board of Directors called by them.

2.06. NOTICE. Notice of any special meeting to be provided herein
shall be given by written notice delivered personally, telegraphed or
telecopied to each Director at his or her business or residence at least 48
hours, or by mail at least 5 calendar days, prior to the meeting. Neither the
business to be transacted at, nor the purpose of, any annual, regular or
special meeting of the Board of Directors need be specified in the notice,
unless specifically required by statute, the Charter or these Bylaws.

2.07. QUORUM. One-third of the Board of Directors then in office
constitutes a quorum for the transaction of business at any meeting of the
Board of Directors; provided, however, that a quorum for the transaction of
business with respect to any matter in which any Director (or affiliate of such
Director) who is not an independent Director has any interest shall consist of
a majority of the Directors that includes a majority of the independent
Directors in the office. If less than a majority of the Board of Directors is
present at said meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice. Notwithstanding the
foregoing, if at any time the Board of Directors consists of two or three
Directors, two Directors shall constitute a quorum, and if at any time the
Board of Directors consists of one Director, that one Director shall constitute
a quorum.

2.08. VOTING. The act of a majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of
Directors, unless the concurrence of a greater proportion is required for such
action by applicable statute, the Charter or these Bylaws; provided, however,
that no act relating to any matter in which a Director (or affiliate of such
Director) who is not an independent Director has any interest shall be the act
of the Board of Directors unless such act has been approved by a majority of
the Board of Directors that

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includes a majority of the independent Directors. Notwithstanding the
foregoing, if at any time the Board of Directors consists of two Directors, the
act of both Directors shall be required to constitute the act of the Board of
Directors.

2.09. CONDUCT OF MEETINGS. All meetings of the Board of Directors
shall be called to order and presided over by the Chairman of the Board, or in
the absence of the Chairman of the Board, by the President (if a member of the
Board of Directors) or, in the absence of the Chairman of the Board and the
President, by a member of the Board of Directors selected by the members
present. The Secretary of the Corporation, or in the absence of the Secretary,
any Assistant Secretary, shall act as Secretary at all meetings of the Board of
Directors, and in the absence of the Secretary and Assistant Secretaries, the
presiding officer of the meeting shall designate any person to act as secretary
of the meeting. Members of the Board of Directors may participate in meetings
of the Board of Directors by conference telephone or similar communications
equipment by means of which all Directors participating in the meeting can hear
each other at the same time, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for all purposes
of these Bylaws.

2.10. RESIGNATIONS. Any Director may resign from the Board of
Directors or any committee thereof at any time. Such resignation shall be made
in writing and shall take effect at the time specified therein, or if no time
be specified, at the time of the receipt of notice of such resignation by the
President or the Secretary of the Corporation.

2.11. REMOVAL OF DIRECTORS. Consistent with the Charter, the
Stockholders may, at any time, remove any Director, with or without cause, by
the affirmative vote of a majority of all the votes entitled to be cast on the
matter, and may elect a successor to fill any resulting vacancy for the balance
of the term of the removed director.

2.12. VACANCIES. The Stockholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a Director.
Any vacancy created by a resignation of a Director on his or her seventy-fifth
birthday as required by Section 2.02 or any vacancy created by any cause other
than by reason of an increase in the number of Directors, may be filled by a
majority vote of the remaining Directors, although such majority is less than a
quorum. Any vacancy occurring in the Board of Directors by reason of an
increase in the number of Directors may be filled by a majority vote of the
entire Board of Directors. A Director elected by the Board of Directors to
fill a vacancy shall hold office until the next annual meeting of Stockholders
at which the term of the class of Directors to which such Director is elected
expires or until his or her successor is elected and qualified.

2.13. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting at the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by all the
Directors and such written consent is filed with the minutes of the Board of
Directors. Such consents may be signed by different Directors on separate
counterparts.

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2.14. COMPENSATION. A fee for service and payment for expenses of
attendance of each meeting of the Board of Directors, or of any committee
thereof, may be allowed to any Director by resolution of the Board of
Directors.

ARTICLE III

COMMITTEES

3.01. NUMBER, TENURE AND QUALIFICATION. The Board of Directors may
appoint from among its members an executive committee and other committees,
composed of two or more Directors, to serve at the pleasure of the Board of
Directors. If any committee may take or authorize any act as to any matter in
which any Director (or affiliate of such Director) who is an employee of the
Corporation has or may have any interest, a majority of the members of such
committee shall be Directors who are not employees of the Corporation, except
that any such committee consisting of only two Directors may have one Director
who is not an employee of the Corporation and one Director who is an employee
of the Corporation.

3.02. DELEGATION OF POWER. The Board of Directors may delegate to
those committees in the intervals between meetings of the Board of Directors
any of the powers of the Board of Directors to manage the business and affairs
of the Corporation, except those powers which the Board of Directors is
specifically prohibited from delegating pursuant to Section 2-411 of the MGCL.

3.03. QUORUM AND VOTING. A majority of the members of any committee
shall constitute a quorum for the transaction of business by such committee,
and the act of a majority of the quorum shall constitute the act of the
committee, except that no act relating to any matter in which any Director (or
affiliate of such Director) who is not an independent Director has any interest
shall be the act of any committee unless a majority of the independent
Directors on the committee votes for such act. Notwithstanding the foregoing,
if at any time any committee consists of two members, both members shall be
necessary to constitute a quorum and the act of both members shall be required
to constitute the act of the committee.

3.04. CONDUCT OF MEETINGS. Each committee shall designate a
presiding officer of such committee, and if not present at a particular
meeting, the committee shall select a presiding officer for such meeting.
Members of any committee may participate in meetings of such committee by
conference telephone or similar communications equipment by means of which all
members participating in the meeting can hear each other at the same time, and
participation in a meeting in accordance herewith shall constitute presence in
person at such meeting for all purposes of these Bylaws. Each committee shall
keep minutes of its meetings, and report the results of any proceedings at the
next succeeding annual or regular meeting of the Board of Directors.

3.05. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a

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meeting, if a written consent to such action is signed by all members of the
committee and such written consent is filed with the minutes of proceedings of
such committee. Such consents may be signed by different members on separate
counterparts.

ARTICLE IV

OFFICERS

4.01. POWERS AND DUTIES. The officers of the Corporation shall be
elected annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of Stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until his
successor is duly elected and qualified or until his earlier death, resignation
or removal in the manner hereinafter provided. Any two or more offices except
President and Vice President may be held by the same person. Election or
appointment of an officer or agent shall not of itself create contract rights
between the Corporation and such officer or agent.

4.02. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation would be served thereby, that
the consequences of any such removal shall be subject to any contractual
arrangement, if any, that such officer or agent may have with the Corporation.
The fact that a person is elected to an office, whether or not for a specified
term, shall not by itself constitute any undertaking or evidence of any
employment obligation of the Corporation to that person.

4.03. VACANCIES. A vacancy in any office may be filled by the Board
of Directors for the unexpired portion of the term of such office.

4.04. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the Stockholders and of the Board of Directors. In
general, the Chairman of the Board shall perform all duties incident to the
office of Chairman of the Board and such other duties as may be prescribed by
the Board of Directors from time to time.

4.05. PRESIDENT. Unless the Board of Directors shall otherwise
determine, the President shall in general supervise and control all the
business and affairs of the Corporation. In the absence of the Chairman of the
Board, the President shall preside at all meetings of the Stockholders and the
Board of Directors (if a member of the Board of Directors). The President may
sign any deeds, mortgages, bonds, contracts or other obligations or instruments
on behalf of the Corporation except in cases where the execution thereof shall
be expressly delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the Corporation or shall be required by law to be
otherwise signed and executed. In general, the President shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.

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4.06. VICE PRESIDENTS. The Board of Directors may appoint one or
more Vice Presidents. In the absence of the President or in the event of a
vacancy in such office, the Vice President (or in the event there be more than
one Vice President, the Vice Presidents in the order designated at the time of
their election, or in the absence of any designation, then in order of their
election) shall perform the duties of the President and when so acting shall
have all the powers of and be subject to all the restrictions upon the
President. Every Vice President shall perform such duties as from time to time
may be assigned to him or her by the President or the Board of Directors.

4.07. SECRETARY. The Secretary shall (a) keep the minutes of the
proceedings of the Stockholders and Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporate records of the Corporation; (d) unless a transfer
agent is appointed, keep a register of the post office address of each
Stockholder that shall be furnished to the Secretary by such Stockholder and
have general charge of the stock ledger of the Corporation (as hereinafter
defined); (e) when authorized by the Board of Directors or the President,
attest to or witness all documents requiring the same; (f) perform all duties
as from time to time may be assigned to him or her by the President or by the
Board of Directors; and (g) perform all the duties generally incident to the
office of Secretary of a Corporation.

4.08. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositaries as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
the regular meetings of the Board of Directors or whenever they may require it,
an account of all his or her transactions as Treasurer and of the financial
condition of the Corporation. The Board of Directors may engage a custodian to
perform some or all of the duties of the Treasurer, and if a custodian is so
engaged then the Treasurer shall be relieved of the responsibilities set forth
herein to the extent delegated to such custodian and, unless the Board of
Directors otherwise determines, shall have general supervision over the
activities of such custodian. The custodian shall not be an officer of the
Corporation.

4.09. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Board of
Directors may appoint one or more Assistant Secretaries or Assistant
Treasurers. The Assistant Secretaries and Assistant Treasurers (a) shall have
all the power and shall perform all the duties of the Secretary and the
Treasurer, respectively, in such respective officer's absence and (b) shall
perform such duties as shall be assigned to him or her by the Secretary or
Treasurer, respectively, or by the President or the Board of Directors.

4.10. SUBORDINATE OFFICERS. The Corporation shall have such
subordinate officers as the Board of Directors may from time to time elect.
Each such officer shall hold

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office for such period and perform such duties as the Board of Directors, the
President or any designated committee or officer may prescribe.

4.11. SALARIES. The salaries, if any, of the officers shall be
fixed from time to time by the Board of Directors. No officer shall be
prevented from receiving such salary, if any, by reason of the fact that he or
she is also a Director of the Corporation.

ARTICLE V

SHARES OF STOCK

5.01. NO CERTIFICATES FOR STOCK. Unless the Board of Directors
authorizes the issuance of certificates pursuant to Section 5.02, none of the
Stock shall be represented by certificates.

5.02. ELECTION TO ISSUE CERTIFICATES. The Board of Directors may
authorize the issuance of certificates representing some or all of the shares
of any or all of the classes or series of Stock. If the Board of Directors so
authorizes certificates, such certificates shall be of such form, not
inconsistent with the Charter, as shall be approved by the Board of Directors.
All certificates, if issued, shall be signed by the Chairman of the Board, the
President or a Vice President and countersigned by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary. Any signature or
countersignature may be either a manual or a facsimile signature. All
certificates, if issued, for each class of Stock shall be consecutively
numbered.

5.03. STOCK LEDGER. The Corporation shall maintain at its principal
executive office, at the office of its transfer agent or at such other place
designated by the Board of Directors an original or duplicate Stock ledger
containing the names and addresses of all the Stockholders and the number of
shares of each class of Stock held by each Stockholder (the "Stock Ledger").
The Stock Ledger shall be maintained pursuant to a system that the Corporation
shall adopt allowing for the issuance, recordation and transfer of its Stock
and by electronic or other means that can be readily converted into written
form for visual inspection and not involving any issuance of certificates.
Such system shall include provisions for notice to inquirers of Stock (whether
upon issuance or transfer of Stock) in accordance with Sections 2-210 and 2-211
of the MGCL, and Section 8-408 of the Commercial Law Article of the Code of the
State of Maryland. The Corporation shall be entitled to treat the holder of
record of any share or shares as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
the State of Maryland. Until a transfer is duly effective on the Stock Ledger,
the Corporation shall not be effected by any notice of such transfer, either
actual or constructive. Nothing herein shall impose upon the Corporation, the
Board of Directors or officers or their agents and representatives a duty or
limit their rights to inquire as to the actual ownership of shares.

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5.04. RECORDING TRANSFERS OF STOCK. If transferred in accordance
with any restrictions on transfer contained in the Charter, these Bylaws or
otherwise, shares of Stock shall be recorded as transferred in the Stock Ledger
upon provision to the Corporation or the transfer agent of the Corporation of
an executed Stock power duly guaranteed and any other documents reasonably
requested by the Corporation, and the surrender of the certificate or
certificates, if any, representing such shares of Stock. Upon receipt of such
documents, the Corporation shall issue the statements required by Sections
2-210 and 2-211 of the MGCL and Section 8-408 of the Commercial Law Article of
the Code of the State of Maryland and shall issue, as needed, a new certificate
or certificates (if the transferred shares were certificated) to the persons
entitled thereto, cancel any old certificates and record the transaction upon
its books.

5.05. LOST CERTIFICATE. The Board of Directors may direct a new
certificate to be issued in the place of any certificate theretofore issued by
the Corporation alleged to have been stolen, lost or destroyed upon the making
of an affidavit of that fact by the person claiming the certificate of Stock to
be stolen, lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such stolen, lost or
destroyed certificate or his legal representative to advertise the same in such
manner as it shall require and/or to give a bond, with sufficient surety, to
the Corporation to indemnify it against any loss or claim which may arise by
reason of the issuance of a new certificate.

5.06. FIXING OF RECORD DATE.

(a) The Board of Directors may fix, in advance, a date as the record
date for the purpose of determining Stockholders entitled to notice of, or to
vote at, any meeting of Stockholders, or Stockholders to receive payment of any
dividend or the allotment of any rights, or in order to make a determination of
Stockholders for any other proper purpose. Such date, in any case, shall not
be prior to the close of business on the day the record date is fixed and shall
be not more than 90 calendar days, and in case of a meeting of Stockholders not
less than 30 days, prior to the date on which the meeting or particular action
requiring such determination of Stockholders is to be held or taken.

(b) If no record date is fixed, (i) the record date for the
determination for Stockholders entitled to notice of, or to vote at, a meeting
of Stockholders shall be at the close of business on the later of the day on
which the notice of meeting is mailed or the 30th calendar day before the
meeting; and (ii) the record date for the determination of Stockholders
entitled to receive payment of a dividend or an allotment of any rights shall
be at the close of business on the day on which the resolution of the Board of
Directors, declaring the dividend or allotment of rights, is adopted.

(c) When a determination of Stockholders entitled to vote at any
meeting of Stockholders has been made as provided in this Section 5.06, such
determination shall apply to any adjournment thereof, except where the
determination has been made through the closing of the Stock transfer books and
the stated period of closing has expired.

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ARTICLE VI

DIVIDENDS AND DISTRIBUTIONS

6.01. DECLARATION. Dividends and other distributions upon the Stock
may be declared by the Board of Directors as set forth in the applicable
provisions of the Charter and any applicable law, at any meeting, limited only
to the extent of Section 2-311 of the MGCL. Dividends and other distributions
upon the Stock may be paid in cash, property or Stock of the Corporation,
subject to the provisions of law and of the Charter.

6.02. CONTINGENCIES. Before payment of any dividends or other
distributions upon the Stock, there may be set aside (but there is no duty to
set aside) out of any funds of the Corporation available for dividends or other
distributions such sum or sums as the Board of Directors may from time to time,
in its absolute discretion, think proper as a reserve fund to meet
contingencies, for repairing or maintaining any property of the Corporation or
for such other purpose as the Board of Directors shall determine to be in the
best interests of the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.

ARTICLE VII

INDEMNIFICATION

7.01. INSURANCE. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person to whom indemnification is
provided by the Corporation pursuant to the terms of the Charter (an
"Indemnified Person") against any liability, whether or not the Corporation
would have the power to indemnify him or her against such liability.

7.02. NON-EXCLUSIVE RIGHT TO INDEMNIFY; HEIRS AND PERSONAL
REPRESENTATIVES. The rights to indemnification set forth in the Charter are in
addition to all rights which any Indemnified Person may be entitled to as a
matter of law, and shall inure to the benefit of the heirs and personal
representatives of each Indemnified Person.

7.03. NO LIMITATIONS. In addition to any indemnification permitted
by the Charter, the Board of Directors shall, in its sole discretion, have the
power to grant such indemnification as it deems in the best interests of the
Corporation to the fullest extent permitted by law.

ARTICLE VIII

NOTICES

8.01. NOTICES. Except as otherwise specifically provided herein,
notice required to be given pursuant to the MGCL, the Charter or these Bylaws
shall be given by either written notice personally served against written
receipt, or notice in writing transmitted by mail, by

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depositing the same in a post office box or letter box, in a post-paid sealed
wrapper, addressed, if to the Corporation, 6220 North Beltline, Suite 205,
Irving, Texas 75063-2656 (or any subsequent address selected by the Board of
Directors), attention: President, or if to a Stockholder, Director or officer,
at the address of such person as it appears on the books of the Corporation or
in default of any other address at the general post office situated in the city
or county of his or her residence. Unless otherwise specified, notice sent by
mail shall be deemed to be given at the time mailed.

8.02. WAIVER OF NOTICE. Whenever any notice is required to be given
pursuant to the Charter or these Bylaws or pursuant to applicable law, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Neither the business to be transacted at or other
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any meeting
whether in person or by proxy, shall constitute a waiver of notice of such
meeting, except where such person attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully held or convened.

ARTICLE IX

MISCELLANEOUS

9.01. BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its Stockholders and Board of Directors meetings and of its
executive or other committees when exercising any of the powers or authority of
the Board of Directors. The books and records of the Corporation may be in
written form or in any other form that be converted within a reasonable time
into written form for visual inspection. Minutes shall be recorded in written
form, but may be maintained in the form of a reproduction.

9.02. INSPECTION OF BYLAWS AND CORPORATE RECORDS. These Bylaws, the
accounting books and records of the Corporation, the minutes of proceedings of
the Stockholders, the Board of Directors and the Committees thereof, the annual
statement of affairs and any voting trust agreements on record shall be open to
inspection upon written demand delivered to the Corporation by any Stockholder
at any reasonable time during usual business hours, for a purpose reasonably
related to such holder's interest as a Stockholder to the extent permitted by
the MGCL.

9.03. CONTRACTS. The Board of Directors may authorize any
officer(s) or agent(s) to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.

9.04. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall

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be signed by such officers or agents of the Corporation and in such manner as
shall from time to time be determined by resolution of the Board of Directors.

9.05. FISCAL YEAR. The Board of Directors shall have the power,
from time to time, to fix the fiscal year of the Corporation by duly adopted
resolution, and, in the absence of such resolution, the fiscal year shall be
the period ending December 31.

9.06. ANNUAL REPORT. No later than 120 calendar days after the
close of each fiscal year, the Board of Directors of the Corporation shall
cause to be sent to the Stockholders an annual report in such form as may be
deemed appropriate by the Board of Directors.

9.07 BYLAWS SEVERABLE. The provisions of these Bylaws are
severable, and if any provision shall be held invalid or unenforceable, that
invalidity or unenforceability shall attach only to that provision and shall
not in any manner effect or render invalid or unenforceable any other provision
of these Bylaws, and these Bylaws shall be carried out as if the invalid or
unenforceable provision were not contained herein.

ARTICLE X

AMENDMENT OF BYLAWS

10.01 BY DIRECTORS. The Board of Directors shall have the power, at
any annual or regular meeting, or at any special meeting if notice thereof is
included in the notice of such special meeting, to alter or repeal any Bylaws
of the Corporation and to make new Bylaws.

10.02 BY STOCKHOLDERS. The Stockholders, by affirmative vote of a
majority of the shares of common stock of the Corporation, shall have the
power, at any annual meeting (subject to the requirements of Section 1.03 of
these Bylaws), or at any special meeting if notice thereof is included in the
notice of special meeting, to alter or repeal any Bylaws of the Corporation and
to make new Bylaws.

10.03 AMENDMENT OF INDEMNIFICATION PROVISIONS. Neither the Board of
Directors nor the Stockholders may amend the indemnification provisions set
forth in Article VII without the consent of the persons whose right to
indemnification under these Bylaws would be adversely affected by the
amendment.

The foregoing are certified as the Bylaws of the Corporation adopted
by the Board of Directors on January 12, 1994.

/s/ MARK A. O'BRIEN
_______________________________________
SECRETARY

<PAGE> 1

EXHIBIT 5.1
<TABLE>
<S> <C> <C>
LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
A REGISTERED LIMITED LIABILITY PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS

ATTORNEYS

3400 TEXAS COMMERCE TOWER 2200 ROSS AVENUE 700 LAVACA
HOUSTON, TEXAS 77002-3004 SUITE 800
(713) 226-1200 SUITE 900 AUSTIN, TEXAS 78701-3102
TELEX 76-2616 (512) 404-2000
TELECOPIER (713) 223-3717 DALLAS, TEXAS 75201-2774 TELECOPIER (512) 404-2099

(214) 220-4800

TELECOPIER (214) 220-4899
</TABLE>

January 18, 1994

American Industrial Properties REIT, Inc.
6220 N. Beltline
Suite 205
Irving, Texas 75063

Gentlemen:

We have acted as counsel to American Industrial Properties REIT, Inc., a
Maryland corporation (the "Company"), in connection with the Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission regarding the registration under the Securities Act of
1933, as amended (the "Act"), of 1,915,080 shares of common stock, $0.01 par
value per share (the "Common Stock"), in connection with the merger (the
"Merger") of American Industrial Properties REIT, a Texas real estate
investment trust (the "Trust"), with and into the Company.

We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable in connection with this opinion, including (a) the
Articles of Incorporation of the Company and the Bylaws of the Company, as
amended, and (b) the Registration Statement. In our examination, we have
assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies, the authenticity of the originals of such copies and the
authenticity of telegraphic or telephonic confirmations of public officials and
others. As to facts material to our opinion, we have relied upon certificates
or telegraphic or telephonic confirmations of public officials and
certificates, documents, statements and other information of the Company or
representatives or officers thereof.

The opinions set forth herein are subject to the qualification that we are
admitted to practice law in the State of Texas and we express no opinion as to
laws other than the law of the State of Texas, the General Corporation Law of
Maryland and the federal law of the United States of America.
<PAGE> 2
American Industrial Properties REIT, Inc.
January 18, 1994
Page 2

Based upon the foregoing, and subject to the Registration Statement
becoming effective, we are of the opinion that the Common Stock, when issued,
exchanged and delivered in the manner and for the consideration stated in the
Proxy Statement/Prospectus constituting part of the Registration Statement,
will be validly issued, fully paid and nonassessable.

We consent to the reference to our Firm under the heading "Legal Matters"
in the Proxy Statement/Prospectus included in the Registration Statement, and
to the filing of this opinion as Exhibit 5.1 to the Registration Statement. By
so consenting, we do not thereby admit that our Firm's consent is required by
Section 7 of the Securities Act of 1933, as amended, or any comparable
provision of the securities laws of any state or other jurisdiction.

This opinion is rendered as of the date hereof, and we undertake no, and
disclaim any, obligation to advise you of any change in or any new development
that might affect any matters or opinions set forth herein.

This opinion is furnished by us to you as counsel to you in connection with
the Merger and is solely for your benefit and not for the benefit of any other
person. Without our prior written consent, this opinion may not be used,
circulated, quoted or otherwise referred to in whole or in part for any other
purpose.

Very truly yours,

/s/ LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
________________________________________________
LIDDELL, SAPP, ZIVLEY, HILL & LaBOON, L.L.P.

<PAGE> 1

THIS DOCUMENT IS A COPY OF THE FORM S-4 FILED ON JANUARY 21, 1994 PURSUANT TO A
RULE 201 TEMPORARY HARDSHIP EXEMPTION.

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1994

FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------

AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
(Exact name of registrant as specified in its charter)

6220 NORTH BELTLINE, SUITE 205, DALLAS, TEXAS 75063
(214) 550-6053

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

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

CHARLES W. WOLCOTT
6220 NORTH BELTLINE, SUITE 205
DALLAS, TEXAS 75063
(214) 550-6053
(Name, address, including zip code, and telephone number of agent for service of
process)

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

Copies to:

BRYAN L. GOOLSBY
GINA E. BETTS
LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
2200 ROSS AVENUE, SUITE 900
DALLAS, TEXAS 75201
(214) 220-4800
---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.

CALCULATION OF REGISTRATION FEE

(2) Estimated solely for the purpose of calculating the registration fee.
---------------------

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

<PAGE> 1
EXHIBIT 10.6
________________________________________________________________________________
________________________________________________________________________________

TRAMMELL CROW REAL ESTATE INVESTORS

J. HENRY SCHRODER BANK & TRUST COMPANY,
Trustee

_______________

INDENTURE

Dated as of November 15, 1985

_______________

________________________________________________________________________________
________________________________________________________________________________
<PAGE> 2
Trammell Crow Real Estate Investors

Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of November 15, 1985*

<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
SECTION 310 (a)(1) ............................... 709
(a)(2) ............................... 709
(a)(3) ............................... Not Applicable
(a)(4) ............................... Not Applicable
(b) .................................. 708
Section 311 (a) .................................. 713(a)
(b) .................................. 713(b)
(b)(2) ............................... 803(a)(2); 803(b)
Section 311 (c) .................................. Not Applicable
Section 312 (a) .................................. 801; 802(a)
(b) .................................. 802(b)
(c) .................................. 802(c)
Section 313 (a) .................................. 803(a)
(b) .................................. 803(b)
(c) .................................. 803(c)
(d) .................................. 803(d)
Section 314 (a) .................................. 804
(b) .................................. 1110
(c)(1) ............................... 102
(c)(2) ............................... 102
(c)(3) ............................... Not Applicable
(d) .................................. 403; 1302
(e) .................................. 102
Section 315 (a) .................................. 701(a)
(b) .................................. 702; 803
(c) .................................. 701(b)
(d) .................................. 701(c)
(d)(1) ............................... 701(a)(1)
(d)(2) ............................... 701(c)(2)
(d)(3) ............................... 701(c)(3)
(e) .................................. 614
Section 316 (a) .................................. 101
(a)(1)(A) ............................. 612
(a)(1)(B) ............................. 613
(a)(2) ............................... Not Applicable
(b) .................................. 608
Section 317 (a)(1) ............................... 603
(a)(2) ............................... 604
(b) .................................. 1103
Section 318 (a) .................................. 107
</TABLE>

- ---------------
* This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS*

________________

<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES ............................................................ 1
RECITALS OF THE REIT ............................................... 1

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 101. Definitions:
Acceleration Amount ................................... 3
Account .............................................. 3
Act .................................................. 3
Additional Investments ................................ 3
Advisor .............................................. 3
Affiliate ............................................ 3
Appraised Value ...................................... 3
Appraiser ............................................ 3
Authenticating Agent ................................. 3
Business Day ......................................... 4
By-Laws .............................................. 4
Code ................................................. 4
Collateral ........................................... 4
Commission ........................................... 4
Corporate Trust Office ............................... 4
Corporation .......................................... 4
Debt Service ......................................... 4
Declaration of Trust ................................. 4
Defeasance Account ................................... 4
Defeasance Commencement Date ......................... 4
Distributable Cash ................................... 4
Eligible Securities .................................. 5
Event of Default ..................................... 5
Government Obligations ............................... 5
Holder ............................................... 6
Indenture ............................................ 6
Independent .......................................... 6
Insurance Costs ....................................... 6
Maturity ............................................. 6
Mortgage ............................................. 6
Note Register and Note Registrar ..................... 7
Officers' Certificate ................................ 7
Opinion of Counsel .................................... 7
Optional Notes ....................................... 7
</TABLE>

- ---------------
* This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.

i
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C>
Other Secured Debt .................................... 7
Outstanding ........................................... 7
Overallotment Investments ............................. 8
Paying Agent .......................................... 8
Permitted Liens ....................................... 8
Person ................................................ 9
Predecessor Note ...................................... 9
Prior Lien ............................................ 9
Prior Lien Obligations ................................ 9
Property .............................................. 10
Property Acquisition Account .......................... 10
Property Acquisition Costs ............................ 10
Redemption Account .................................... 10
Redemption Date ....................................... 10
Redemption Price ...................................... 10
REIT .................................................. 10
REIT Request; REIT Order .............................. 10
Resolution of Trust Managers .......................... 10
Responsible Officer ................................... 10
Secured Debt .......................................... 11
Security .............................................. 11
Shares ................................................ 11
Short-Term Indebtedness ............................... 11
Specified Investments ................................. 11
Stated Maturity ....................................... 11
TCC Entity ............................................ 11
Transfer Agent ........................................ 11
Trust Indenture Act ................................... 11
Trust Managers ........................................ 11
Trustee ............................................... 11
Working Capital Payments .............................. 12
SECTION 102. Compliance Certificates and Opinions .................. 12
SECTION 103. Form of Documents Delivered to Trustee ................ 13
SECTION 104. Acts of Holders of Notes .............................. 13
SECTION 105. Notices, Etc., to Trustee and the REIT ................ 14
SECTION 106. Notice to Holders; Waiver ............................. 15
SECTION 107. Conflict with Trust Indenture Act ..................... 15
SECTION 108. Effect of Headings
and Table of Contents ............................... 16
SECTION 109. Successors and Assigns ................................ 16
SECTION 110. Separability Clause; Limitations
on Interest ......................................... 16
SECTION 111. Benefits of Indenture ................................. 16
SECTION 112. Governing Law ......................................... 17
SECTION 113. Legal Holidays ........................................ 17
SECTION 114. Limitation of Liability ............................... 17
</TABLE>

ii
<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE TWO

THE NOTE FORM

SECTION 201. Form Generally ..................................... 17
SECTION 202. Form of Notes ...................................... 18
SECTION 203. Form of Trustee's Certificate of
Authentication ................................... 23

ARTICLE THREE

THE NOTES

SECTION 301. Titles and Terms ................................... 24
SECTION 302. Denominations ...................................... 25
SECTION 303. Execution, Authentication, Delivery
and Dating ....................................... 25
SECTION 304. Temporary Notes .................................... 26
SECTION 305. Registration, Registration of Transfer
and Exchange ..................................... 27
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Notes ............................................ 28
SECTION 307. Persons Deemed Owners .............................. 29
SECTION 308. Cancellation ....................................... 29

ARTICLE FOUR

ACCOUNTS

SECTION 401. Establishment of Accounts .......................... 30
SECTION 402. Payments into Property Acquisition Account .......... 30
SECTION 403. Use of Moneys Deposited into Property
Acquisition Account .............................. 31
SECTION 404. Defeasance Account ................................. 34
SECTION 405. Redemption Account ................................. 36
SECTION 406. Investment of Accounts ............................. 37
SECTION 407. Trustee's Reliance ................................. 37

ARTICLE FIVE

SATISFACTION AND DISCHARGE

SECTION 501. Satisfaction and Discharge of Indenture
and Mortgages ................................... 37
SECTION 502. Application of Trust Money;
Indemnification ................................. 39
</TABLE>

iii
<PAGE> 6
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE SIX

REMEDIES

SECTION 601. Events of Default .................................... 40
SECTION 602. Acceleration of Maturity; Rescission
and Annulment ...................................... 42
SECTION 603. Collection of Indebtedness and Suits for
Enforcement by Trustee ............................. 43
SECTION 604. Trustee May File Proofs of Claim ..................... 44
SECTION 605. Trustee May Enforce Claims Without
Possession of Notes ................................ 45
SECTION 606. Application of Money Collected ....................... 45
SECTION 607. Limitation on Suits .................................. 46
SECTION 608. Unconditional Right of Holders to Receive
Payment ............................................ 47
SECTION 609. Restoration of Rights and Remedies ................... 47
SECTION 610. Rights and Remedies Cumulative ....................... 47
SECTION 611. Delay or Omission Not Waiver ......................... 48
SECTION 612. Control by Holders of Notes .......................... 48
SECTION 613. Waiver of Past Defaults .............................. 48
SECTION 614. Undertaking for Costs ................................ 49
SECTION 615. Waiver of Stay or Extension Laws ..................... 49

ARTICLE SEVEN

THE TRUSTEE

SECTION 701. Certain Duties and Responsibilities ................. 50
SECTION 702. Notice of Defaults .................................. 51
SECTION 703. Certain Rights of Trustee ........................... 52
SECTION 704. Not Responsible for Recitals or Issuance
of Notes .......................................... 53
SECTION 705. May Hold Notes ...................................... 53
SECTION 706. Money Held in Trust ................................. 53
SECTION 707. Compensation and Reimbursement ...................... 54
SECTION 708. Disqualification; Conflicting Interests............... 54
SECTION 709. Corporate Trustee Required; Eligibility............... 60
SECTION 710. Resignation and Removal; Appointment of
Successor ......................................... 61
SECTION 711. Acceptance of Appointment by Successor .............. 62
SECTION 712. Merger, Conversion, Consolidation or
Succession to Business ............................ 63
SECTION 713. Preferential Collection of Claims
Against the REIT .................................. 63
SECTION 714. Appointment of Mortgage Trustees .................... 68
</TABLE>

<PAGE> 7
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE EIGHT

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND REIT

SECTION 801. REIT to Furnish Trustee Names
and Addresses of Holders ........................... 68
SECTION 802. Preservation of Information; Communications
to Holders ......................................... 69
SECTION 803. Reports by Trustee ................................... 71
SECTION 804. Reports by REIT ...................................... 73

ARTICLE NINE

CONSOLIDATION, MERGER, CONVEYANCE, OR TRANSFER

SECTION 901. The REIT May Consolidate, Etc., Only on
Certain Terms ...................................... 74
SECTION 902. Successor Substituted ................................ 75

ARTICLE TEN

SUPPLEMENTAL INDENTURES

SECTION 1001. Without Consent of Holders ........................... 75
SECTION 1002. With Consent of Holders .............................. 76
SECTION 1003. Execution of Supplemental Indentures ................. 78
SECTION 1004. Effect of Supplemental Indentures .................... 78
SECTION 1005. Conformity with Trust Indenture Act .................. 78
SECTION 1006. Notice of Supplemental Indentures .................... 78
SECTION 1007. Reference in Notes to
Supplemental Indentures ............................ 79

ARTICLE ELEVEN

COVENANTS

SECTION 1101. Payment of Principal and Interest .................... 79
SECTION 1102. Maintenance of Offices or Agencies ................... 79
SECTION 1103. Money for Note Payment to be Held
in Trust ........................................... 80
SECTION 1104. To Keep Books; Access ................................ 81
SECTION 1105. Trust Existence ...................................... 82
SECTION 1106. Indebtedness ......................................... 82
SECTION 1107. Payment of Taxes and Claims .......................... 83
</TABLE>

<PAGE> 8

<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1108. Sales of Certain Properties ............... 83
SECTION 1109. Statement as to Compliance ................ 83
SECTION 1110. Further Assurances; Recording ............. 84
SECTION 1111. Waiver of Certain Covenants ............... 84
SECTION 1112. Defeasance of Certain Obligations ......... 85
SECTION 1113. Uninsured Losses .......................... 86
SECTION 1114. Distributions ............................. 86
SECTION 1115. Maintenance of Title Insurance ............ 86

ARTICLE TWELVE

REDEMPTION OF NOTES

SECTION 1201. Right of Redemption ...................... 87
SECTION 1202. Notice to Trustee ........................ 87
SECTION 1203. Selection by Trustee of Notes to
be Redeemed ............................ 87

SECTION 1204. Notice of Redemption ..................... 88
SECTION 1205. Deposit of Redemption Price .............. 88
SECTION 1206. Notes Payable on Redemption Date ......... 88
SECTION 1207. Notes Redeemed in Part ................... 89

ARTICLE THIRTEEN

RELEASES

SECTION 1301. Possession by the REIT;
Dispositions without Release ........... 89
SECTION 1302. Releases ................................. 90
SECTION 1303. Powers Exercisable Notwithstanding
Default ................................ 91
SECTION 1304. Powers Exercisable by Trustee or
Receiver ............................... 91
SECTION 1305. Purchaser Protected ...................... 92
TESTIMONIUM ............................................ 92
SIGNATURES .............................................. 92
ACKNOWLEDGEMENTS ........................................ 93

SCHEDULE I ............................... Specified Investments
SCHEDULE II .................................. List of Mortgages
ANNEX A ......................................... Form of Mortgage
</TABLE>

<PAGE> 9
INDENTURE, dated as of November 15, 1985, between Trammell
Crow Real Estate Investors, a real estate investment trust duly
organized and existing under the laws of the State of Texas,
(herein called the "REIT"), having its principal office at 3500
LTV Center, Dallas, Texas 75201, and J. Henry Schroder Bank &
Trust Company, a banking corporation duly organized and existing
under the laws of the State of New York as Trustee (herein
called the "Trustee") having its Corporate Trust Office at One
State Street Plaza, New York, New York 10015.

RECITALS OF THE REIT

The REIT has duly authorized the creation of an issue of its
Zero Coupon Notes due 1997 (the "Notes"); and to secure the
Notes and to provide for their authentication and delivery by
the Trustee, the REIT has duly authorized the execution and
delivery of this Indenture.

All things necessary to make the Notes, when executed by the
REIT, authenticated and delivered hereunder and duly issued by
the REIT, the valid obligations of the REIT and to make this
Indenture a valid agreement of the REIT in accordance with their
and its respective terms, have been done.

GRANTING CLAUSES

NOW, THEREFORE, the REIT, in consideration of the premises
and the acceptance by the Trustee of the trust hereby created
and of the purchase and acceptance of the Notes by the Holders,
and in order to secure the payment of the Notes according to
their tenor and effect and to secure the performance and
observance by the REIT of all the covenants and obligations
expressed or implied herein and in the Notes, does hereby grant,
alienate, bargain, sell, convey, transfer, assign, mortgage and
pledge unto or for the benefit of the Trustee, and its
successors in trust and assigns forever, all right, title, and
interest of the REIT in all moneys and securities from time to
time held by the Trustee under the terms of this Indenture
(other than any part thereof which is specifically stated herein
not to be deemed part of the Collateral), all property described
in the Mortgages listed on Schedule II hereto, subject to
Permitted Liens and Prior Liens and any substitutions of,
additions to or proceeds arising from any of the foregoing.

<PAGE> 10
TO HAVE AND TO HOLD all and singular said property, whether
now owned or hereafter acquired, unto the Trustee and its
respective successors in trust and assigns forever.

IN TRUST NEVERTHELESS, upon the terms and trusts herein set
forth for the equal and ratable benefit, security, and
protection of all present and future Holders of the Notes issued
under and secured by this Indenture without privilege, priority,
or distinction as to the lien or otherwise (except as herein
expressly provided) of any of the Notes over any of the other
Notes.

THIS INDENTURE FURTHER WITNESSETH, and it is expressly
declared, that all Notes issued and secured hereunder are to be
issued, authenticated and delivered, and all said property,
rights, and interests, including, without limitation, the
amounts hereby assigned, are to be dealt with and disposed of,
under, upon and subject to the terms, conditions, stipulations,
covenants, agreements, trusts, uses and purposes hereinafter
expressed, and that the REIT has agreed and covenanted, and does
hereby agree and covenant with the Trustee and with the
respective owners, from time to time, of said Notes, or any part
thereof, as follows:

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION

SECTION 101. Definitions.

For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:

(1) the terms defined in this Article have the
meanings assigned to them in this Article and include the
plural as well as the singular;

(2) all other terms used herein which are defined in
the Trust Indenture Act, either directly or by reference
therein, have the meanings assigned to them therein;

(3) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with
generally accepted accounting principles, and, except as
otherwise herein expressly provided, the term "generally
accepted accounting principles" with respect to any

-2-
<PAGE> 11
computation required or permitted hereunder shall mean such
accounting principles as are generally accepted at the date
of such computation; and

(4) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other
subdivision.

Certain terms, used principally in Article Seven, are
defined in that Article.

"Acceleration Amount" has the meaning specified in the form
of Note set forth in Section 202.

"Account" means the Property Acquisition Account, the
Defeasance Account or the Redemption Account.

"Act", when used with respect to any Holder of a Note, has
the meaning specified in Section 104.

"Additional Investments" means any investment permitted by
the By-Laws other than the Specified Investments or
Overallotment Investments.

"Advisor" means Trammell Crow Ventures, Ltd., a Texas
limited partnership acting through its general partner, Trammell
Crow Ventures, Inc., a Texas corporation, or such other Person
as to whom the REIT may give written notice to the Trustee.

"Affiliate" of the Trustee means any other Person directly
or indirectly controlling or controlled by or under direct or
indirect common control with the Trustee. For the purposes of
this definition, "control" when used with respect to the Trustee
means the power to direct the management and policies of the
Trustee, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.

"Appraised Value" means fair market value as determined by
an Appraiser selected by the REIT.

"Appraiser" means an Independent engineer, appraiser or
other expert who may be employed by the REIT or the Advisor on
behalf of the REIT.

"Authenticating Agent" means the Trustee.

-3-
<PAGE> 12
"Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking
institutions in the State of New York are authorized or
obligated by law to close.

"By-Laws", means the By-Laws of the REIT, as amended from
time to time.

"Code" means the Internal Revenue Code of 1954, as amended.

"Collateral" means all money, instruments and other property
subject to the lien of this Indenture or any of the Mortgages.

"Commission" means the Securities and Exchange Commission,
as from time to time constituted, created under the Securities
Exchange Act of 1934, or, if at any time after the execution of
this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act,
then the body performing such duties at such time.

"Corporate Trust Office" means the principal office of the
Trustee in the Borough of Manhattan, the City of New York, at
which at any particular time its corporate trust business shall
be administered, which office at the date of the original
execution of this Indenture is located at One State Street
Plaza, New York, New York 10015.

"Corporation" includes corporations, associations, companies
and business trusts.

"Debt Service" means, for any period, the sum of
(i) interest expense (other than amortization of original issue
discount) actually payable on all indebtedness of the REIT for
such period and (ii) the principal amount of indebtedness of the
REIT that matured on, or was by its terms due to be repaid or
renewed during such period.

"Declaration of Trust" means that certain Declaration of
Trust of the REIT, dated as of September 26, 1985, as amended
from time to time.

"Defeasance Account" means the account of that name
established pursuant to Section 401 of this Indenture.

"Defeasance Commencement Date" means November 27, 1993.

"Distributable Cash" for any period means operating income
of the REIT less tenant improvements, leasing commissions,

-4-
<PAGE> 13
advisory and incentive management fees and administrative
expenses, plus interest income.

"Eligible Securities" means such of the following
obligations or securities maturing (or redeemable at the option
of the Trustee) or marketable prior to the maturities thereof,
at such time or time as to enable disbursements to be made from
the Account in which such investment is held in accordance with
the terms hereof:

(a) Government Obligations;

(b) interest-bearing deposit accounts (which may be
represented by certificates of deposit) of one or more national
or state banks insured by the Federal Deposit Insurance
Corporation (which may include the Trustee or the Paying Agent);

(c) prime commercial paper rated P-1 by Moody's Investors
Service, Inc. or A-1+ by Standard & Poor's Corporation and
secured by interests in mortgages on real property;

(d) bonds, debentures, notes or other evidences of
indebtedness issued by any of the following federal agencies:
Bank for Cooperatives; Export-Import Banks of the United States;
Federal Financing Banks; Federal Intermediate Credit Banks;
Federal Home Loan Banks; Federal Home Loan Mortgage Corporation;
Federal Land Banks; the Government National Mortgage
Association; the Tennessee Valley Authority; the United States
Postal Service; or any agency or instrumentality of the United
States of America which shall be established for the purpose of
acquiring the obligations of any of the foregoing or otherwise
providing financing therefor; and

(e) repurchase agreements (including those issued by the
Trustee or the Paying Agent) under which Government Obligations
are sold to and deposited with the Trustee or a custodian on
behalf of the Trustee.

"Event of Default" has the meaning specified in Section 601.

"Government Obligations" means securities which are
(i) direct obligations of the United States for the payment of
which its full faith and credit is pledged, or (ii) obligations
of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States the payment of which is
unconditionally guaranteed as a full faith and credit obligation
by the United States, which, in either case are not callable or
redeemable at the option of the issuer thereof. Government

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<PAGE> 14
Obligations shall also include a depositary receipt issued by a
bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or
principal of any such Government Obligation held by such
custodian for the account of the holder of a depositary receipt;
provided, however, that (except as required by law) such
custodian is not authorized to make any deduction from the
amount payable to the holder of such depositary receipt from any
amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal
of the Government Obligation evidenced by such depositary.
receipt.

"Holder", when used with respect to any Note, means the
Person in whose name the Note is registered in the Note Register.

"Indenture" means this instrument as originally executed or
as it may from time to time be supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof.

"Independent" when used with respect to any specified Person
means such a Person who (i) is not a TCC entity, (ii) does not
own any interest in a TCC Entity, and (iii) does not perform any
other services for the REIT or any TCC Entity except in the
capacity in which he is performing services for the REIT and
with respect to which such Person's independence is at issue.
Whenever it is herein provided that any independent Person's
opinion or certificate shall be furnished to the Trustee, such
Person shall be appointed by a REIT Order and approved by the
Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read this definition
and that the signer is independent within the meaning hereof.

"Issuance Costs" mean costs incurred by or on behalf of the
REIT in connection with the issuance of the Notes, directly or
indirectly.

"Maturity", when used with respect to any Note, means the
date on which the principal of such Note becomes due and payable
as therein or herein provided, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise.

"Mortgage" means the mortgage, deed of trust, security
agreement or other security instrument, as applicable under
local law, substantially in the forms of Annex A to be executed
by the REIT in favor or for the benefit of the Trustee for the
ratable benefit of the Holders, which creates a valid, prior and

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<PAGE> 15
enforceable lien on the Property of the REIT described therein
subject only to Permitted Liens and Prior Liens, as the same may
be from time to time amended or supplemented, and which contains
such other provisions as may be required by local law in the
opinion of counsel, to grant such valid, prior and enforceable
lien.

"Note Register" and "Note Registrar" have the respective
meanings specified in Section 305.

"Officers' Certificate" means a certificate signed by any
Trust Manager or any authorized officer of the REIT or by the
Advisor on behalf of the REIT and delivered to the Trustee.

"Opinion of Counsel" means a written opinion of counsel, who
may be counsel employed by the REIT, or any TCC Entity, and who
shall be reasonably acceptable to the Trustee.

"Optional Notes" means up to an aggregate of $23,439,000
principal amount at Stated Maturity of Notes that may be issued
and sold in conjunction with the exercise of an overallotment
option on the Shares.

"Other Secured Debt" means all secured indebtedness of the
REIT for borrowed money other than Secured Debt.

"Outstanding", when used with respect to Notes means, as of
the date of determination, all Notes theretofore authenticated
and delivered under this Indenture, except:

(i) Notes theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;

(ii) Notes for whose payment or redemption money in the
necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the REIT) in trust
or in the Redemption Account or set aside and segregated in
trust by the REIT (if the REIT shall act as its own Paying
Agent) for the Holders of such Notes; provided that, if such
Notes are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made; and

(iii) Notes which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture,
other than any such Notes in respect of which there shall
have been presented to the Trustee proof satisfactory to it

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<PAGE> 16
that such Notes are held by a bona fide purchaser in whose
hands such Notes are valid obligations of the REIT;

provided, however, that in determining whether the Holders of
the requisite principal amount of the Outstanding Notes have
given any request, demand, authorization, direction, notice,
consent or waiver hereunder or are present at a meeting of
Holders of Notes for quorum purposes, Notes owned by the REIT or
by any Person directly or indirectly cotrolling or controlled by
or under direct or indirect common control with the REIT, shall
be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice,
consent or waiver or upon any such determination as to the
presence of a quorum, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have
been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that
the pledgee is not the REIT or any TCC Entity.

"Overallotment Investments" means the interests in any one
or more real estate investments (i) approved by a majority of
the Independent Trust Managers, (ii) located outside Texas,
(iii) of the same general types and quality as the Specified
Investments, (iv) developed and owned by TCC Entities, and
(v) acquired with the proceeds of the Optional Notes and the
Shares sold pursuant to an overallotment option thereon.

"Paying Agent" means any Person authorized by the REIT to
pay the principal of or interest, if any, on any Notes on behalf
of the REIT.

"Permitted Liens" means (i) liens for taxes and assessments,
both general and special, not yet due and payable or which are
due and payable but not yet delinquent or which are currently
being contested in good faith by appropriate proceedings;
(ii) liens of mechanics, materialmen, warehousemen, carriers or
other like liens for services or materials for which payment is
not yet due or which is being contested in good faith by
appropriate proceedings; (iii) landlords' liens for rentals not
yet due and payable; (iv) liens in respect of judgments or
awards with respect to which the REIT shall in good faith
currently be prosecuting an appeal or proceedings for review and
with respect to which the REIT shall have secured a stay of
execution pending such appeal or proceedings for review,
provided the REIT shall have set aside on its books adequate
reserves with respect thereto; (v) easements and rights granted
by any predecessor in title of the REIT; (vi) easements, leases,

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<PAGE> 17
reservations or other rights of others in any Property of the
REIT for streets, roads, bridges, pipes, pipe lines, railroads,
electric transmission and distribution lines, telegraph and
telephone lines, the removal of oil, gas, coal or other minerals
and for other similar purposes, flood rights, river control and
development rights, sewage and drainage rights, none of which
impair the use of the Property by the REIT in the operation of
its business; (vii) liens or privileges of any employees of the
REIT for salary or wages earned but not yet payable, (viii) any
lien or privilege vested in any lessor, licensor or permittor
for rent to become due or for other obligations or acts to be
performed, the payment of which rent or the performance of which
other obligations or acts is required under leases, subleases,
licenses or permits, so long as the payment of such rent or the
performance of such other obligations or acts is not delinquent;
(ix) encumbrances and restrictions consisting of zoning
restrictions, assessments or other restrictions on the use of
real property, none of which impair the use of the Property by
the REIT in the operation of its business; (x) any other
conditions, covenants, restrictions or exceptions to the title
of the Property specified in any title insurance policy obtained
by the REIT upon acquisition of the Property; and (xi) leases
affecting any Property prior to or simultaneously with its
acquisition by the REIT.

"Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or
political subdivision thereof.

"Predecessor Note" of any particular Note means every
previous Note evidencing all or a portion of the same debt as
that evidenced by such particular Note; and, for the purposes of
this definition, any Note authenticated and delivered under
Section 306 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Note shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Note.

"Prior Lien" means any mortgage, lien, charge or encumbrance
on or pledge of a security interest in any Property which exists
at the time of its acquisition by the REIT which is prior to or
on a parity with the lien of this Indenture, other than
Permitted Liens.

"Prior Lien Obligations" means any indebtedness and the
evidence thereof, if any, secured by a Prior Lien.

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<PAGE> 18
"Property" means the interests of the Trust in (i) the
Specified Investments, (ii) the Overallotment Investments, if
any, and (iii) the Additional Investments, if any.

"Property Acquisition Account" means the account of that
name established pursuant to Section 401 of this Indenture.

"Property Acquisition Costs" means costs incurred by or on
behalf of the REIT in connection with the acquisition of or
investment in any Property, directly or indirectly, or to
repair, rebuild, replace or restore any Property destroyed or
damaged.

"Redemption Account" means the account of that name
established pursuant to Section 401 of this Indenture.

"Redemption Date", when used with respect to any Note to be
redeemed, means the date fixed for such redemption by or
pursuant to this Indenture.

"Redemption Price", when used with respect to any Note to be
redeemed, means its principal amount at Stated Maturity.

"REIT" means the Person named as the "REIT" in the first
paragraph of this Indenture until a successor trust shall have
become such pursuant to the applicable provisions of this
Indenture, and thereafter "REIT" shall mean such successor trust.

"REIT Request" or "REIT Order" means a written request or
order signed in the name of the REIT by any of its Trust
Managers, authorized officers or by the Advisor on behalf of the
REIT and delivered to the Trustee.

"Resolution of the Trust Managers" means a copy of a
resolution certified by a Trust Manager to have been duly
adopted by the Trust Managers of the REIT and to be in full
force and effect on the date of such certification, and
delivered to the Trustee.

"Responsible Officer", when used with respect to the
Trustee, means the chairman or vice-chairman of the board of
directors of the Trustee, the chairman or vice-chairman of the
executive committee of said board, the president, any
vice-president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant
cashier, any trust officer or assistant trust officer, the
controller, any assistant controller or any other officer of the
Trustee customarily performing functions similar to those

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<PAGE> 19
performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any
other officer of the Trustee to whom such matter is referred
because of his knowledge of and familiarity with the particular
subject.

"Secured Debt" shall mean the then-accreted amount of the
Notes secured pursuant to this Indenture.

"Security" shall have the same meaning as in Section 2(1)
of the Securities Act of 1933, as amended.

"Shares" shall mean the shares of beneficial interest, par
value $0.10 per share, of the REIT.

"Short-Term Indebtedness" means indebtedness of the REIT for
borrowed money which by its terms is payable on demand or
matures not more than one year from the date of its incurrence.

"Specified Investments" means (i) the fee simple interest in
each of the real estate investments listed on Schedule I hereto
and (ii) the 99.99% interests in each of Crow-Maryland #2, a
Texas limited partnership, and Crow-Patapsco Service Center #2
Ltd., a Texas limited partnership.

"Stated Maturity" when used with respect to any Note, means
the date specified in such Note as the fixed date on which the
principal of such Note is due and payable.

"TCC Entity" means the general partnerships, limited
partnerships, joint ventures and corporations that operate under
the name "Trammell Crow Company" and the individuals who are
members of the Management Board of, or are designated as
Partners in the Firm or Regional Partners of Trammell Crow
Company.

"Transfer Agent" means any Person, which may be the REIT or
the Advisor, authorized by the REIT to exchange or register the
transfer of Notes.

"Trust Indenture Act" means the Trust Indenture Act of 1939
as in force at the date as of which this instrument was executed.

"Trust Managers" means the persons named as Trust Managers
in the Declaration of Trust.

"Trustee" means the Person named as the "Trustee" in the
first paragraph of this instrument until a successor Trustee

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<PAGE> 20
shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean or include
each Person who is then a Trustee hereunder.

"Working Capital Payments" means, in the aggregate, up to an
amount, if any, by which the amount initially deposited into the
Property Acquisition Account pursuant to Section 402(a) hereof
exceeds the aggregate gross purchase price (less assumed debt)
be paid by the REIT under purchase agreements for each of the
Specified Investments.

SECTION 102. Compliance Certificates and Opinions.

Upon any application or request by the REIT to the Trustee
take any action under any provision of this Indenture, the
REIT shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent, if any, provided for in
this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any,
have been complied with, except that in the case of any such
application or request as to which the furnishing of such
documents is specifically required by any provision of this
Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.

Every Officer's Certificate or Opinion of Counsel with
respect to compliance with a condition or covenant provided for
in this Indenture shall include

(1) a statement that the Person signing such
certificate or opinion has read such covenant or condition
and the definitions herein relating thereto;

(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;

(3) a statement that, in the opinion of such Person,
he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and

(4) a statement as to whether, in the opinion of such
Person, such condition or covenant has been complied with.

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<PAGE> 21
SECTION 103. Form of Documents Delivered to Trustee.

In any case where several matters are required to be
certified by, or covered by an opinion of, any specified
Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some
matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such
matters in one or several documents.

Any certificate or opinion of an officer of the REIT may be
based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel,
unless such officer knows, or in the exercise of reasonable
care should know, that the certificate or opinion or
representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such
certificate or Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of,
or representations by, an officer or officers of the REIT
stating that the information with respect to such factual
matters is in the possession of the REIT, unless such counsel
knows, or in the exercise of reasonable care should know, that
the certificate or opinion or representations with respect to
such matters are erroneous.

Where any Person is required to make, give or execute two
or more applications, requests, consents, certificates,
statements, opinions or other instruments under this Indenture,
they may, but need not, be consolidated and form one instrument.

SECTION 104. Acts of Holders of Notes.

(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor
signed by such Holders in person or by agent duly appointed in
writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is
hereby expressly required, to the REIT. Such instrument or
instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the
Holder or Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing

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<PAGE> 22
appointing any such agent shall be sufficient for any purpose
of this Indenture and (subject to Section 701) conclusive in
favor of the Trustee and the REIT, if made in the manner
provided in this Section. At any time prior to (but not after)
the evidencing to the Trustee, as provided in this Section, of
the Act of the Holders of the percentage in aggregate principal
amount of the Notes specified in this Indenture in connection
with such Act, any Holder of a Note who is shown by the
evidence to be one of the Holders who consented to such Act
may, by filing written notice with the Trustee at its Corporate
Trust Office and upon proof of holding as provided in this
Section, revoke such Act so far as concerns such Holder's Note.

(b) The fact and date of the execution by any Person of
any such instrument or writing may be proved in any manner
reasonably acceptable to the Trustee.

(c) The principal amount and serial numbers of Notes held
by any Person, and the date of holding the same, shall be
proved by the Note Register.

(d) Any request, demand, authorization, direction, notice,
consent, election, waiver or other Act of the Holder of any
Note shall bind every future Holder of the same Note and the
Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect
of anything done, omitted or suffered to be done by the Trustee
or the REIT in reliance thereon, whether or not notation of
such action is made upon such Note.

(e) The Trustee shall not be bound to recognize any person
as a Holder of a Note unless title to such Note is proved by
the Note Register.

SECTION 105. Notices, Etc., to Trustee and the REIT.

Any request, demand, authorization, direction, notice,
consent, election, waiver or Act of Holders or other document
provided or permitted by this Indenture to be made upon, given
or furnished to, or filed with,

(1) the Trustee by any Holder or by the REIT shall be
sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, Attention: Corporate Trust
Department, or

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<PAGE> 23
(2) the REIT by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if in writing and mailed,
first-class postage prepaid, or telexed or telecopied and
confirmed by mail first-class postage prepaid, addressed to
it at the address of its principal office specified in the
first paragraph of this instrument, to the attention of the
Advisor, or at any other address previously furnished in
writing to the Trustee by the REIT.

SECTION 106. Notice to Holders; Waiver.

Except as otherwise expressly provided herein, where this
Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given if in writing and mailed,
first-class postage prepaid, to each Holder affected by such
event, at his address as it appears in the Note Register, not
later than the latest date and not earlier than the earliest
date prescribed for the giving of such notice.

In case by reason of the suspension of regular mail service
or by reason of any other cause it shall be impracticable to
give such notice by mail, then such notification to Holders as
shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder. In any
case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency
of such notice with respect to other Holders.

Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of
notice by Holders of Notes shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.

SECTION 107. Conflict with Trust Indenture Act.

If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in
this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.

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<PAGE> 24
SECTION 108. Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the
construction hereof.

SECTION 109. Successors and Assigns.

All covenants and agreements in this Indenture by the REIT
shall bind its successors and assigns, whether so expressed or
not.

SECTION 110. Separability Clause; Limitations on Interest

In case any provision in this Indenture o[ the Notes shall
be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any
way be affected or impaired thereby. Furthermore, all
agreements of the REIT whether now existing or hereafter
arising and whether written or oral, are expressly limited so
that in no contingency or event whatsoever shall the amount
paid, or agreed to be paid to the Holders for the use,
forebearance or detention of the indebtedness evidenced by the
Notes or for the performance or payment of any covenant or
obligation contained herein, exceed the maximum amount
permissible under applicable law from time to time in effect.
If for any reason whatsoever fulfillment of any provision
hereof or of any other document evidencing, securing or
pertaining to this Indenture, including but not limited to the
Mortgages, at the time performance of such provision shall be
due, shall involve transcending the limit of validity; and if
under any such cirumstances the REIT shall ever receive
anything of value deemed interest under applicable law from
time to time in effect which would exceed interest at the
highest lawful rate, such amount that would be excessive
interest shall be applied to the reduction of the principal
amount owing under the Notes and not to the payment of
interest, or if such amount that would be excessive interest
exceeds the unpaid balance of principal of the Notes, such
excess shall be refunded to the Holders.

SECTION 111. Benefits of Indenture.

Nothing in this Indenture, the Mortgages or the Notes,
express or implied, shall give to any Person, other than the
parties hereto and thereto, their successors hereunder and
thereunder and the Holders, any benefit or any legal or
equitable right, remedy or claim under this Indenture or the
Mortgages.

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<PAGE> 25
SECTION 112. Governing Law.

This Indenture and the Notes shall be governed by and
construed in accordance with the internal laws of the State of
New York, without giving effect to the principles of conflict
of laws thereof except to the extent the internal real property
laws and secured transactions laws of the states in which the
Properties are located must necessarily control.

SECTION 113. Legal Holidays.

In any case where any Redemption Date or the Stated
Maturity of the Notes shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of
the Notes) payment of principal need not be made on such day,
but may be made on the next succeeding Business Day with the
same force and effect as if made on the Redemption Date or at
the Stated Maturity; provided that no interest shall accrue for
the period from and after such Redemption Date or Stated
Maturity, as the case may be.

SECTION 114. Limitation of Liability.

Any obligation or liability whatsoever of the REIT which
may arise at any time under this Indenture, the Mortgages or
the Notes, or any obligation or liability incurred by it
pursuant to any other instrument, transaction or undertaking
contemplated by this Indenture, the Mortgages or the Notes,
shall be satisfied, if at all, out of the REIT's property
only. No such obligation or liability shall be personally
binding upon nor shall there be any resort for the enforcement
thereof to the private property of any of its Trust Managers,
shareholders, officers, employees or agents, regardless of
whether such obligations or liability is in the nature of
contract, tort or otherwise.

ARTICLE TWO

THE NOTE FORM

SECTION 201. Form Generally.

The Notes shall be in substantially the form set forth in
this Article with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted
by this Indenture, and may have such letters, numbers or other
marks of identification and such legends or endorsements placed

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<PAGE> 26
thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be
determined by the Trust Managers executing such Notes, as
evidenced by their execution.

The Trustee's certificates of authentication shall be in
substantially the form set forth in this Article.

The Notes shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner
permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the Trust Managers
executing such Notes, as evidenced by their execution of such
Notes.

SECTION 202. Form of Notes.

{Form of Face}

FOR PURPOSES OF SECTION 1273 OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1954, AS AMENDED, THE ISSUE PRICE OF THIS
SECURITY IS % OF ITS PRINCIPAL AMOUNT AND THE ISSUE DATE IS
NOVEMBER 27, 1985.

TRAMMELL CROW REAL ESTATE INVESTORS
Zero Coupon Note Due 1997

No. $

Trammell Crow Real Estate Investors, a real estate
investment trust duly organized and existing under the laws of
the State of Texas (herein called the "REIT", which term
includes any successor to the REIT under the Indenture referred
to on the reverse hereof), for value received, hereby promises
to pay to , or registered assigns, the
principal sum of Dollars on November 27,
1997. The principal of this Note shall not bear interest
except in the case of a default in payment of principal upon
acceleration, upon redemption or at Stated Maturity and in each
such case the overdue principal of this Note shall bear
interest at the rate of 14.70% per annum (to the extent that
the payment of such interest shall be legally enforceable),
which shall accrue from the date of such default in payment to
the date payment of such principal has been made or duly
provided for. Interest on any overdue principal shall be
payable on demand. Payment of the principal of and any such
interest on this Note shall be made at the office of the Paying
Agent, who initially shall be the Trustee, in the Borough of

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<PAGE> 27
Manhattan, the City of New York. All such payments shall be
made in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public
and private debts.

Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth in
this place.

Unless the certificate of authentication hereon has been
executed by the Trustee by the manual signature of one of its
authorized officers, this Note shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.

IN WITNESS WHEREOF, the REIT has caused this Note to be
duly executed.

Dated:

Trammell Crow Real Estate Investors

By ________________________________
Trust Manager

{Form of Reverse}

This Note is one of a duly authorized issue of securities of
the REIT designated as its Zero Coupon Notes due 1997 (herein
called the "Notes"), limited in aggregate principal amount at
Stated Maturity to $156,259,000 (plus up to an aggregate
additional principal amount at Stated Maturity of $23,439,000)
issued and to be issued pursuant to an Indenture, dated as of
November 15, 1985 (herein called the "Indenture"), between the
REIT and J. Henry Schroder Bank & Trust Company, as Trustee
(herein called the "Trustee", which term includes any successor
trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights,
duties and immunities thereunder of the REIT, the Trustee and
the Holders of the Notes, of the terms upon which the Notes are,
and are to be, authenticated and delivered and for a statement
of the nature and extent of the security for the Notes. The
Notes will be equally and ratably secured pursuant to the
Indenture.

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<PAGE> 28
The Notes are subject to redemption, in whole or in part,
from time to time after November 27, 1995, at 100% of the
principal amount at Stated Maturity of the Notes, at the
election of the REIT, upon mailing a notice of such redemption
not less than 30 nor more than 60 days prior to the date fixed
for redemption to the Holders of the Notes at their addresses as
they appear on the Note Register. In the event of redemption of
this Note in part only, a new Note or Notes for the unredeemed
portion hereof will be issued in the name of the Holder hereof
upon the cancellation hereof.

The Indenture contains provisions for the defeasance of all
portion of the Notes upon the satisfaction of certain
conditions. Upon defeasance of all Outstanding Notes, the REIT
shall not be required to comply with certain restrictive
covenants and certain events shall no longer constitute Events
of Default with respect to the Notes.

If an Event of Default shall occur and be continuing, an
amount of principal of the Notes (the "Acceleration Amount") may
be declared due and payable on demand. Interest, if any, on any
principal not punctually paid or duly provided for shall be
calculated as provided in the Indenture and shall be payable to
the person in whose name the Note is registered at the close of
business on a record date for the payment of interest, if any,
to be fixed by the Trustee as provided in the Indenture, notice
of which shall be mailed to the Holder of the Note not less than
10 days prior to such record date, or may be payable in any
other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed. Any
Interest on the Notes shall cease to accrue on the payment date
fixed by the Trustee. In case of a declaration of acceleration
on or before November 27, 1985 or on the twenty-seventh day of
May or November in any year, the Acceleration Amount per $1,000
principal amount at Stated Maturity of the Notes shall be equal
to the amount set forth in respect of such date below:

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<PAGE> 29
<TABLE>
<CAPTION>
Acceleration
Amount
per $1,000
principal
amount at
Stated
Date of declaration Maturity
------------------- -------------
<S> <C>
On or before November, 1985 $ 228.19
May, 1986 242.68
November, 1986 258.09
May, 1987 274.48
November, 1987 291.91
May, 1988 310.45
November, 1988 330.16
May, 1989 351.13
November, 1989 373.42
May, I990 397.13
November, 1990 422.35
May, 1991 449.17
November, 1991 477.69
May, 1992 508.03
November, 1992 540.29
May, 1993 574.60
November, 1993 611.08
May, 1994 649.89
November, 1994 691.15
May, 1995 735.04
November, 1995 781.72
May, 1996 831.36
November, 1996 884.15
May, 1997 940.29
At Stated Maturity $ 1,000.00
</TABLE>

and in case of a declaration of acceleration on any other date,
the Acceleration Amount shall be equal to the Acceleration
Amount as of the next preceding date set forth in the table
above, plus accrued original issue discount (computed by the
REIT using the interest method) from such next preceding date to
the date of declaration, calculated at the yield to maturity.
For the purpose of this computation the yield to maturity is
12.70%, compounding semi-annually on the twenty-seventh day of
each May and November calculated on the basis of the actual
number of days elapsed on the basis of a 360-day year. Upon
payment (i) of the Acceleration Amount so declared due and
payable and (ii) of interest on any overdue principal (to the
extent that the payment of such interest shall be legally
enforceable), all of the REIT's obligations in respect of the
payment of the principal of and interest, if any, on the Notes
shall terminate.

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<PAGE> 30
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the
rights and obligations of the REIT and the rights of the Holders
of the Notes under the Indenture at any time by the REIT and the
Trustee with the consent of the Holders of 66-2/3% of the
aggregate principal amount at Stated Maturity of the Notes at
the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in principal
amount at Stated Maturity of the Notes at the time Outstanding,
on behalf of the Holders of all the Notes, to waive compliance
by the REIT with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any
such consent or waiver by the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future
Holders of this Note and of any security issued upon the
registration of transfer hereof or in lieu hereof, whether or
not notation of such consent or waiver is made upon this Note or
such other Note.

No reference herein to the Indenture and no provision of
this Note or of the Indenture shall alter or impair the
obligation of the REIT, which is absolute and unconditional, to
pay the principal at Stated Maturity of and interest, if any, on
this Note at the times, places and rate, and in the coin or
currency, herein prescribed as provided in the Indenture.

As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note is
registrable on the Note Register upon surrender of this Note for
registration of transfer at the office or agency of the REIT in
the Borough of Manhattan, the City of New York, duly endorsed
by, or accompanied by a written instrument of transfer in form
satisfactory to the REIT and the Note Registrar duly executed
by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will
be issued to the designated transferee or transferees.

The Notes are issuable only in registered form without
coupons in denominations as provided in the Indenture. As
provided in the Indenture and subject to certain limitations
therein set forth, Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized
denomination, as requested by the Holder surrendering the same.

No service charge shall be made for any such registration of
transfer or exchange, but the REIT may require payment of a sum
sufficient to cover any tax or other governmental charge payable
in connection therewith.

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<PAGE> 31
Prior to due presentment of this Note for registration of
transfer, the REIT, the Trustee and any agent of the REIT or the
Trustee may treat the Person in whose name this Note is
registered as the owner thereof for all purposes, whether or not
this Note be overdue, and neither the REIT, the Trustee nor any
such agent shall be affected by notice to the contrary.

Recourse for the payment of the principal of this Note or
interest on any such principal that is overdue, or for any claim
based herein or otherwise in respect hereof, and recourse under
or upon any obligation, covenant or agreement of the REIT under
the Indenture or this Note shall be satisfied, if at all, out of
the REIT's property only. No such obligation or liability shall
be personally binding upon nor shall recourse be had to, the
private property of its Trust Managers, shareholders, officers,
employees or agents, regardless of whether such obligation or
liability is in the nature of contract, tort or otherwise.

The Indenture and the Notes shall be governed by and
construed in accordance with the internal laws of the State of
New York, without giving effect to the principles of conflict of
laws thereof except to the extent the internal real property
laws and secured transactions laws of the states in which the
REIT's properties are located must necessarily control.

All terms used in this Note which are defined in the
Indenture shall have the meanings assigned to them in the
Indenture.

SECTION 203. Form of Trustee's Certificate of Authentication.

This is one of the Notes referred to in the within
mentioned Indenture.

J. Henry Schroder Bank & Trust
Company

By ______________________________
Authorized Officer

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<PAGE> 32
ARTICLE THREE

THE NOTES

SECTION 301. Titles and Terms.

(a) The aggregate principal amount at Stated Maturity of
Notes which may be authenticated and delivered under this
Indenture is limited to $156,259,000, plus such amount of
Optional Notes up to an aggregate principal amount at Stated
Maturity of $23,439,000 which shall be authenticated and
delivered upon REIT Order, except for Notes authenticated and
delivered upon registration of transfer of, or in exchange for,
or in lieu of, other Notes pursuant to Sections 304, 305, 306
or 1207.

(b) The Notes shall be known and designated as, and the
principal of and interest, if any, on the Notes shall be
payable as provided herein and in, the form of Notes set forth
in Section 202.

(c) If principal on any Note is not punctually paid or
provided for at Maturity, then interest on such principal shall
be payable at the rate of 14.70% per annum (to the extent that
the payment of such interest shall be legally enforceable).
Interest, if any, shall be paid as provided below:

(1) The REIT shall notify the Trustee in writing of the
amount of interest, if any, due on the Notes and the
date of the proposed payment, and at the same time the
REIT shall deposit with the Trustee an amount off money
equal to the aggregate amount proposed to be paid in
respect of interest, if any, thereon or shall make
arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment,
such money when so deposited to be held in trust for
the benefit of the persons entitled to such unpaid
amounts as in this Subsection provided. Thereupon,
the Trustee shall fix a record date for the payment of
interest, if any, which shall be not more than 20 nor
less than 10 days prior to the date of the proposed
payment. The Trustee shall promptly notify the REIT
of such record date and, in the name and at the
expense of the REIT, shall cause notice of the
proposed payment of interest, if any, and the record
date therefor to be mailed, first-class, postage
prepaid, to each Holder at the Holder's address as it
appears on the Note Register not less than 10 days
prior to the proposed payment date. Notice of the
proposed payment of interest, if any, and the record

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<PAGE> 33
date therefor having been mailed as aforesaid,
interest, if any, shall be paid to the persons in
whose names the Notes are registered at the close of
business on such record date, and shall no longer be
payable pursuant to the following Subsection (2). Any
Interest shall cease to accrue on such payment date.

(2) The REIT may make payment of interest, if any, in any
other lawful manner not inconsistent with the
requirements of any Securities exchange on which the
Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by
the REIT to the Trustee of the proposed payment
pursuant to this Subsection, such payment shall be
deemed practicable by the Trustee.

(d) The REIT shall notify the Trustee in writing of the
Acceleration Amount proposed to be paid on each Note and the
date of the proposed payment. The principal of the Notes shall
be payable at the office or agency of the Paying Agent upon
presentation and surrender of the Note at such office or
agency. All such payments shall be made in such coin or
currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.

(e) The Notes shall be redeemable as provided in Article
Twelve.

SECTION 302. Denominations.

The Notes shall be issuable in denominations of $1,000 and
integral multiples thereof.

SECTION 303. Execution, Authentication, Delivery and Dating.

The Notes shall be executed on behalf of the REIT by any of
its Trust Managers. The signature of any of the Trust Managers
on the Notes may be manual or facsimile.

Notes bearing the manual or facsimile signatures of
individuals who were at any time Trust Managers of the REIT
shall bind the REIT, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the
authentication and delivery of such Notes or did not hold such
offices at the date of such Notes.

At any time and from time to time after the execution and
delivery of this Indenture, the REIT may deliver Notes executed
by the REIT to the Trustee for authentication, together with a
REIT Order for the authentication and delivery of such Notes;

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<PAGE> 34
and the Trustee in accordance with the REIT Order shall
authenticate and deliver such Notes as in this Indenture
provided and not otherwise.

Each Note shall be dated the date of its authentication.

No Note shall be secured by or entitled to any benefit
under this Indenture or the benefit of the lien of any of the
Mortgages or be valid or obligatory for any purpose unless
there appears on such Note a certificate of authentication
substantially in the form provided for herein executed by the
Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such
Note has been duly authencicated and delivered hereunder and is
entitled to the benefits of this Indenture.

SECTION 304. Temporary Notes.

Pending the preparation of definitive Notes, the REIT may
execute, and upon REIT Order the Trustee shall authenticate and
deliver, temporary Notes which are printed, lithographed,
type-written, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other
variations as the Trust Managers executing such Notes may
determine, as evidenced by their execution of such Notes.

If temporary Notes are issued, the REIT will cause
definitive Notes to be prepared without unreasonable delay.
After the preparation of definitive Notes, the temporary Notes
shall be exchangeable for definitive Notes upon surrender of
the temporary Notes at any office or agency of the REIT
designated pursuant to Section 1102, without service charge to
the Holder; provided however that, the REIT may require payment
of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Upon surrender for
cancellation of any one or more temporary Notes the REIT shall
execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Notes
of authorized denominations. Until so exchanged the temporary
Notes shall in all respects be entitled to the same benefits
under this Indenture as definitive Notes.

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<PAGE> 35
SECTION 305. Registration, Registration of Transfer and
Exchange.

The REIT shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in
such office and in any other office or agency of the REIT being
herein sometimes collectively referred to as the "Note
Register") in which, subject to such reasonable regulations as
the REIT may prescribe, the REIT shall provide for the
registration of the Notes and of transfers of the Notes. The
Trustee is hereby initially appointed "Note Registrar" for the
purpose of registering the Notes and transfers of the Notes as
herein provided.

Upon surrender for registration of transfer of any Note at
an office or agency maintained by the REIT for such purpose,
the REIT shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or
transferees, one or more new Notes, of any authorized
denominations and of a like aggregate principal amount.

At the option of the Holder, the Notes may be exchanged for
other Notes of any authorized denominations and of a like
aggregate principal amount, upon surrender of the Notes to be
exchanged at any office or agency maintained by the REIT for
such purpose. Whenever any Notes are so surrendered for
exchange, the REIT shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.

All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the REIT,
evidencing the same debt, and entitled to the same security and
benefits under this Indenture and the Mortgages, as the Notes
surrendered upon such registration of transfer or exchange.

Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the REIT or
the Note Registrar) be duly endorsed, or be accompanied by a
written instrument of transfer in form satisfactory to the REIT
and the Note Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.

No service charge shall be made for any registration of
transfer or exchange of Notes, but the REIT may require payment
of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration
of transfer or exchange of Notes, other than exchanges pursuant
to Sections 304 and 1207 not involving any transfer.

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<PAGE> 36
The REIT shall not be required (i) to issue, register the
transfer of or exchange Notes during a period beginning at the
opening of business 15 calendar days before any selection of
Notes to be redeemed and ending at the close of business on the
day of the mailing of the relevant notice of redemption or, if
there is no mailing, the first publication of the relevant
notice of redemption or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed
in part.

SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.

If any mutilated Note is surrendered to the Trustee, the
REIT shall execute and the Trustee shall authenticate and
deliver in exchange therefor a new Note of like tenor and
principal amount and bearing a number not contemporaneously
outstanding.

If there shall be delivered to the REIT and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft
of any Note and (ii) such security or indemnity as may be
required by them to save each of them and any agent of either of
them harmless, then, in the absence of notice to the REIT or the
Trustee that such Note has been acquired by a bona fide
purchaser, the REIT shall execute and upon the REIT's request
the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Note a new Note of like tenor and
principal amount and bearing a number not contemporaneously
outstanding.

In case any such mutilated, destroyed, lost or stolen Note
has become or is about to become due and payable, the REIT in
its discretion may, instead of issuing a new Note, pay such Note
(without surrender thereof, except in the case of a mutilated
Note), if the Person seeking such payment shall furnish the REIT
and the Trustee with such security and indemnity as each may
require to hold-each of them harmless, and in the case of
destruction, loss or theft, evidence to the satisfaction of the
REIT and the Trustee of the destruction, loss or theft of such
Note and the ownership thereof.

Upon the issuance of any new Note under this Section, the
REIT may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses
of the Trustee) connected therewith.

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<PAGE> 37
Every new Note issued pursuant to this Section in lieu of
any destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the REIT, whether or not
the destroyed, lost or stolen Note shall be at any time
enforceable by anyone, and any such new Note shall be entitled
to all the benefits of this Indenture and the Mortgages equally
and proportionately with any and all other Notes duly issued
hereunder.

The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies
with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Notes.

SECTION 307. Persons Deemed Owners.

Prior to due presentment of a Note for registration of
transfer, the REIT, the Trustee and any agent of the REIT or the
Trustee may treat the Person in whose name such Note is
registered as the owner of such Registered Note for the purpose
of receiving payment of principal of and interest, if any, on
such Note and for all other purposes whatsoever, whether or not
such Note be overdue, and neither the REIT, the Trustee nor any
agent of the REIT or the Trustee shall be affected by notice to
the contrary.

SECTION 308. Cancellation.

All Notes surrendered for payment, redemption, registration
of transfer or exchange shall, if surrendered to any Person
other than the Trustee, be delivered to the Trustee. All Notes
so delivered shall be promptly cancelled by the Trustee. The
REIT may at any time deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder which the
REIT may have acquired in any manner whatsoever, and all Notes
so delivered shall be promptly cancelled by the Trustee. No
Notes shall be authenticated in lieu of or in exchange for any
Notes cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Notes held by the
Trustee shall be destroyed (and the Trustee shall deliver to the
REIT a certificate in respect of such destruction), unless the
Trustee is otherwise directed by a REIT Order. If the REIT
shall acquire any of the Notes, however, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness
represented by such Notes, which shall be considered outstanding
for purposes of this Section only unless and until the same are
delivered or surrendered to the Trustee for cancellation.

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<PAGE> 38
ARTICLE FOUR

ACCOUNTS

SECTION 401. Establishment of Accounts.

There are hereby created the following trust accounts which
shall be held in trust by the Trustee: the Property Acquisition
Account, the Defeasance Account and the Redemption Account.
Each such Account shall be maintained by the Trustee as a
separate and distinct trust account to be held, invested,
disbursed and administered as provided in this Indenture. All
money deposited in such Accounts and pursuant to Section 501
shall be used solely for the purposes set forth in this
Indenture and shall be segregated from and not commingled with
any other funds held by the Trustee.

SECTION 402. Payments into Property Acquisition Account.

(a) The REIT shall deliver to the Trustee, and the Trustee
shall deposit into the Property Acquisition Account at the time
of the issuance of the Shares sold in the public offering
thereof, the gross proceeds of the sale of the Notes, together
with the net proceeds of the public offering of the Shares.

(b) The REIT shall deliver to the Trustee, and the Trustee
shall deposit into the Property Acquisition Account, the gross
proceeds of the issuance and delivery of any Optional Notes,
together with the net proceeds of additional Shares issued in
conjunction with an overallotment option thereon.

(c) Upon the sale or refinancing of any Property prior to
the Defeasance Commencement Date, the REIT shall deliver to the
Trustee, and the Trustee shall deposit into the Property
Acquisition Account, such portion of the net proceeds received
by the Trustee therefor as the Trust Managers shall deem
necessary or appropriate to protect the interests of the Holders
hereunder, which amount shall be specified in an Officer's
Certificate delivered by the REIT to the Trustee; provided,
however, that notwithstanding the foregoing, the Trust Managers
shall be entitled to deduct and set aside from the net proceeds
of any such sale or refinancing an amount which they deem
sufficient to pay any taxes thereon.

(d) Prior to the Defeasance Commencement Date, the Trustee
shall deposit into the Property Acquisition Account such portion
of the net proceeds of insurance (other than business
interruption insurance) or from any condemnation proceedings

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<PAGE> 39
received by the Trustee in respect of any Property as the Trust
Managers shall deem necessary or appropriate to protect the
interests of the Holders hereunder, which amount shall be
specified in an Officer's Certificate delivered by the REIT to
the Trustee; provided, however, that notwithstanding the
foregoing, the Trust Managers shall be entitied to deduct and
set aside from the net proceeds of any such insurance or
condemnation proceedings an amount which they deem sufficient
(A) to pay any taxes thereon or (B) to repair or restore the
Property as specified in a certificate of Appraiser delivered by
the REIT to the Trustee. Any such deduction and any excess
proceeds shall be paid by the Trustee to the REIT, as specified
in the Officer's Certificate. Any appraisal or adjustment of
any loss or damage of or to any part of any Property or any
settlement in respect thereof which may be agreed upon between
the REIT, any insurer or any other Person and which is otherwise
in compliance with the applicable Mortgage, as evidenced by an
Officers' Certificate, shall be accepted by the Trustee and
applied as provided herein.

SECTION 403. Use of Moneys Deposited into Property Acquisition
Account.

(a) All amounts deposited into the Property Acquisition
Account pursuant to Section 402(a) hereof shall be disbursed by
the Trustee to, or at the direction of, the REIT upon receipt by
the Trustee of an Officers' Certificate stating (i) the amounts
to be paid and the name of the Persons to whom payments are to
be made, (ii) that such amounts have been expended, or are being
expended concurrently therewith, for Issuance Costs, for
Property Acquisition Costs related to a Specified Investment (or
in the event of a failure of a condition of a purchase agreement
for a Specified Investment, an Additional Investment to be
acquired as a substitute for such Specified Investment) or as a
Working Capital Payment, (iii) that no other Officers'
Certificate in respect of such disbursements is being or
previously has been delivered to the Trustee, (iv) that no Event
of Default exists, and (v) that all conditions precedent herein
provided for relating to such disbursements have been complied
with, including the provisions of Section 403(d).

(b) Any amounts deposited into the Property Acquisition
Account pursuant to Section 402(b) hereof shall be disbursed by
the Trustee to, or at the direction of, the REIT upon receipt by
the Trustee of an Officers' Certificate stating (i) the amounts
to be paid and the name of the Persons to whom and amounts in
which payments are to be made, (ii) that such amounts have been
expended, or are being expended concurrently therewith, for

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<PAGE> 40
Issuance Costs or for Property Acquisition Costs related to an
Overallotment Investment, (iii) that no other Officers'
Certificate in respect of such disbursements is being or
previously has been delivered to the Trustee, (iv) that no Event
of Default exists, and (v) that all conditions precedent herein
provided for relating to such disbursements have been complied
with, including the provisions of Section 403(d).

(c) Any amounts deposited into the Property Acquisition
Account pursuant to Sections 402(c) and (d) hereof shall be
disbursed by the Trustee to, or at the direction of, the REIT
upon receipt by the Trustee of an Officers' Certificate stating
(i) the amounts to be paid and the name of the Persons to whom
payments are to be made, (ii) that such amounts have been
expended, or are being expended concurrently therewith, for
Property Acquisition Costs related to an Additional Investment,
(iii) that no other Officers' Certificate in respect of such
disbursements is being or previously has been delivered to the
Trustee, (iv) that no Event of Default exists, and (v) that all
conditions precedent herein provided for relating to such
disbursements have been complied with, including the provisions
of Section 403(d).

(d) As conditions precedent to the disbursement of any
moneys to pay Property Acquisition Costs of any Property
pursuant to Section 402(a), (b), (c) or (d), the REIT shall
cause to be delivered to the Trustee with respect to such
Property each of the following:

(i) a duly executed and delivered Mortgage, with
confirmation (which may be oral or in writing) of
the proper recording and filing thereof;

(ii) if the Property is real property, a standard form
of title commitment for a mortgagee policy of
title insurance in use in the jurisdiction in
which the Property is located, which shall be an
ALTA form if it is available, together with
written confirmation from the title company that
the mortgagee policy shall be issued subject only
to those exceptions specified in Schedule B of
the title commitment and excluding any exceptions
which may arise subsequent to the date of the
title commitment, upon the disbursement of the
moneys for such Property in favor of the Trustee
for the benefit of the Holders in an amount equal
to the lesser of the most recent Appraised Value
of the Property or the maximum amount available
pursuant to applicable title insurance

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<PAGE> 41
requirements with respect to the amount of the
Secured Debt;

(iii) an Opinion of Counsel (A) which states that,
subject to the assumptions and customary
exceptions reasonably acceptable to the Trustee
specified therein, the Mortgage has been properly
recorded, registered and filed or has been
received for record, filing or registration, to
the extent necessary under applicable local law
to make effective the lien intended to be created
hereby and thereby, (B) which recites the details
of such action or refers to prior Opinions of
Counsel in which such details are given, and
(C) which states that, subject to the assumptions
and customary exceptions reasonably acceptable to
the Trustee specified therein, (1) upon
execution, delivery, recordation and filing of
the Mortgage and appropriate financing
statements, the Mortgage, including any security
agreement as it relates to the personalty
included in the Collateral, grants to the Trustee
a valid and perfected first or second lien,
(2) the Mortgage constitutes a legal, valid and
binding agreement of the REIT, and upon payment
of applicable fees and taxes, if any, relating
thereto, is enforceable in accordance with its
terms, subject as to enforcement to bankruptcy,
insolvency, reorganization and other laws of
general applicability relating to or affecting
creditors' rights and general equity principles,
(3) the execution, delivery, recordation and
filing of the Mortgage are within the power and
authority of the REIT, have been duly authorized,
will not violate any provision of or constitute a
default under any agreement or instrument to
which the REIT is a party or by which it is bound
and will not require the consent, approval,
authorization or order of any person, court or
governmental agency or body except as have been
obtained by the REIT, and (4) all conditions
precedent to disbursements pursuant to this
Section have been complied with; and

(iv) with respect to any Property Acquisition Costs to
be expended pursuant to Sections 403(b) and (c)
for real property, a certificate of an Appraiser
as to the fair value of the Property which is the
subject of such Property Acquisition Costs.

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<PAGE> 42
(e) Upon the occurrence of an Event of Default and
acceleration of the Maturity of the Notes in accordance with
this Indenture, the balance of the Property Acquisition Account,
if any, shall be applied in accordance with Section 606.

(f) The Trustee shall transfer to the Defeasance Account
any amounts deposited into the Property Acquisition Account
pursuant to Section 402(a) or (b) which shall not have been used
to purchase Properties pursuant to Sections 403(a) or (b),
respectively, within 18 months after the date of the original
issuance of Notes.

(g) From and after the Defeasance Commencement Date, any
amounts deposited in the Property Acquisition Account remaining
therein shall be transferred by the Trustee to the Defeasance
Account.

(h) Pending disbursement of the amounts on deposit in the
Property Acquisition Account, the Trustee is hereby directed to
invest and reinvest such amounts in Eligible Securities promptly
upon receipt of, and, subject to the limitations set forth in
this Article, in accordance with the instructions of the REIT
set forth in an Officers' Certificate. All such investments
shall be credited to the Property Acquisition Account and all
losses thereon shall be charged against the Property Acquisition
Account. Net income and profits on such investments shall not
be deemed a part of the Collateral and shall be held by the
Trustee on behalf of the REIT and shall be paid by the Trustee,
upon delivery of an Officers' Certificate if such Officers'
Certificate states that no Event of Default exists hereunder, to
the Advisor on behalf of the REIT on the last Business Day of
each fiscal year of the REIT or at such other times, upon
delivery of an Officer's Certificate; provided that, if the
Officers' Certificate states that an Event of Default exists,
such income and profits shall become a part of the Collateral
and shall not be paid by the Trustee to the REIT, but shall be
held by the Trustee for the benefit of the Holders. As amounts
invested are needed for disbursement from the Account, the
Trustee shall cause a sufficient amount of the investments
credited to the Account to be redeemed or sold and converted
into cash to the credit of the Account.

(i) If there exists excess funds as specified in Section
502(c) which would permit the Trustee to pay to the REIT such
amounts as are specified in and in accordance with such Section,
then the Trustee shall also pay to the REIT any amounts
remaining in the Property Acquisition Account, upon receipt of a
REIT Request.

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SECTION 404. Defeasance Account.

(a) From and after the Defeasance Commencement Date, upon
the sale or refinancing of any Property, the REIT shall deliver
to the Trustee, and the Trustee shall deposit into the
Defeasance Account, such portion of the net proceeds received by
the Trustee therefor as the Trust Managers shall deem necessary
or appropriate to protect the interests of the Holders hereunder
as specified in an Officers' Certificate; provided, however,
that notwithstanding the foregoing, the Trust Managers shall be
entitled to deduct and set aside from the net proceeds of any
such sale or refinancing an amount which they deem sufficient to
pay any taxes thereon.

(b) From and after the Defeasance Commencement Date, the
Trustee shall deposit into the Defeasance Account such portion
of the net proceeds of insurance, (other than business
interruption insurance) or from any condemnation proceedings
received by the Trustee in respect of any Property as the Trust
Managers shall deem necessary or appropriate to protect the
interests of the Holders hereunder as specified in an Officers'
Certificate; provided, however, that notwithstanding the
foregoing, the Trust Managers shall be entitled to deduct and
set aside from the net proceeds of any such insurance or
condemnation proceedings an amount which they deem sufficient to
pay any taxes thereon, and any such deduction and any excess
proceeds shall be paid by the Trust to the REIT, as specified in
the Officers' Certificate; provided that, if the Officers'
Certificate states that an Event of Default exists, such income
and profit shall become a part of the Collateral and shall not
be paid by the Trustee to the REIT, but shall be held by the
Trustee for the benefit of the Holders. Any appraisal or
adjustment of any loss or damage of or to any part of any
Property or any settlement in respect thereof which may be
agreed upon between the REIT and any insurer or any other
Person, as evidenced by an Officers' Certificate, shall be
accepted by the Trustee and applied as provided herein.

(c) If the REIT has given a notice of redemption of the
Notes in accordance with Article Twelve, then the Trustee shall
transfer amounts in the Defeasance Account to the Redemption
Account upon and in accordance with a REIT Request.

(d) Any amounts in the Defeasance Account in excess of the
amount necessary to cause a defeasance of the Notes pursuant to
Section 1112 hereof shall be paid by the Trustee to the REIT in
accordance with Section 502(c).

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(e) Upon satisfaction of each of the conditions set forth
in subclause (C) of clause (1) of Section 501, the Trustee shall
transfer any amounts in the Defeasance Account to an account
established for the purposes of Section 501 by the Trustee, upon
REIT Request.

(f) If there exists excess funds as specified in
Section 502(c), which would permit the Trustee to pay to the
REIT such amounts as are specified in and in accordance with
Section 502(c), then the Trustee shall pay to the REIT any
amounts remaining in the Defeasance Account, upon REIT Request.

(g) The Trustee shall deposit into the Defeasance Account
any moneys or Government Obligations delivered to the Trustee by
the REIT for deposit pursuant to Section 1112 together with any
moneys or securities permitted or required to be deposited
therein pursuant to the terms of this Indenture. In the event
of a prepayment of any Government Obligation on deposit in the
Defeasance Account, the Trustee promptly shall give notice
thereof to the REIT, and upon delivery to the Trustee of an
Officers' Certificate to such effect the Trustee shall invest
the amount of any prepaid principal in Government Obligation
which through the payment of principal in respect thereof in
accordance with their terms will provide not later than one day
before the due date of any payment of principal money in an
amount sufficient to pay and discharge the principal of and
interest, if any, on the Notes Outstanding at the Stated
Maturity of such principal.

(h) Net income and profits on investments of amounts in the
Defeasance Account shall not be deemed a part of the Collateral
and shall be held by the Trustee on behalf of the REIT and,
shall be paid by the Trustee, upon delivery of an Officers'
Certificate, if such Officers' Certificate states that no Event
of Default exists hereunder, to the Advisor on behalf of the
REIT on the last Business Day of each fiscal year of the REIT
or at such other times, pursuant to an Officers' Certificate.
When amounts invested are needed for disbursement from the
Defeasance Account, the Trustee shall cause a sufficient amount
of the investments credited to the Defeasance Account to be
redeemed or sold and converted into cash to the credit of the
Defeasance Account.

(i) Upon the occurrence of an Event of Default and
acceleration of the Maturity of the Notes in accordance with
this Indenture, the amounts in the Defeasance Account shall be
applied in accordance with Section 606.

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SECTION 405. Redemption Account.

All amounts required to be deposited with the Trustee
pursuant to Section 1205 of this Indenture shall be credited to
the Redemption Account to be held in trust for the benefit of
the Persons entitled thereto but shall not be deemed part of the
Collateral. Moneys on deposit in the Redemption Account shall
be applied solely to pay the Redemption Price of Notes to be
redeemed in accordance with Article Twelve. The Trustee shall
deposit into the Redemption Account any amounts in the
Defeasance Account directed pursuant to this Indenture to be
deposited into the Redemption Account. On and after any
Redemption Date, the Trustee shall apply or hold funds on
deposit in the Redemption Account in accordance with the last
paragraph of Section 1103 and this Section 405.

SECTION 406. Investment of Accounts.

The Trustee shall not be liable or responsible for any loss
resulting from any such investment or reinvestment as herein
authorized; except that the Trustee shall be liable for any loss
resulting from its willful or negligent failure, within a
reasonable time after receiving the direction from the REIT to
make any investment or reinvestment in the manner provided for
herein at the REIT's direction. If the Trustee is unable, after
reasonable effort and within a reasonable time, to make any such
investment or reinvestment, it shall so notify in writing the
REIT and thereafter the Trustee shall be relieved of all
responsibility with respect thereto.

SECTION 407. Trustee's Reliance.

The Trustee shall be entitled conclusively to rely on
Officers' Certificates delivered pursuant to this Article and
shall be under no duty to examine the accuracy of the facts
stated therein.

ARTICLE FIVE

SATISFACTION AND DISCHARGE

SECTION 501. Satisfaction and Discharge of Indenture and
Mortgages.

This Indenture and the Mortgages and the lien, rights and
interests created hereby and thereby shall cease to be of
further effect and the Trustee, at the expense of the REIT,
shall execute, record and file proper instruments acknowledging

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satisfaction and discharge of this Indenture and the Mortgages
and shall pay, assign, transfer and deliver to the REIT or upon
REIT Order all Property held by it hereunder and under the
Mortgages as part of the Collateral; provided that, the
following conditions have been satisfied:

(1) either

(A) all Notes theretofore authenticated and
delivered (other than Notes which have been destroyed,
lost or stolen and which have been replaced or paid as
provided in Section 306, and Notes for whose payment
money or Government Obligations have theretofore been
deposited in trust or segregated and held in trust by
the REIT and thereafter repaid to the REIT or
discharged from such trust, as provided in
Section 1103) have been delivered to the Trustee for
cancellation, or

(B) all such Notes not theretofore delivered to
the Trustee for cancellation

(i) have become due and payable, or

(ii) will become due and payable at their
Stated Maturity within one year, or

(iii) are to be called for redemption within one
year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by
the Trustee in the name, and at the expense, of
the REIT, and

(C) the REIT, in the case of (i), (ii) or (iii)
above, has deposited or caused to be deposited with the
Trustee, as trust funds in trust for the purpose, an
amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to
the Trustee for cancellation, for principal and
interest, if any, to the date of such deposit (in the
case of Notes which have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may
be;

(2) the REIT has paid or caused to be paid all other
sums payable hereunder or under the Mortgages; and

(3) the REIT has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all

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conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture and
the Mortgages have been complied with.

Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the REIT to the Trustee under
Sections 502(b) or 707 and, if money shall have been deposited
with the Trustee pursuant to subclause (C) of clause (1) of this
Section, the obligations of the Trustee under Section 502 and
the last paragraph of Section 1103 shall survive.

SECTION 502. Application of Trust Money; Indemnification.

(a) Subject to the provisions of the last paragraph of
Section 1103, all money and Government Obligations deposited
with the Trustee pursuant to Section 501 and 1112 and all money
received by the Trustee in respect of Government Obligations
deposited with the Trustee pursuant to Section 501 and 1112,
shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the REIT
acting as its own Paying Agent) as the Trustee may determine, to
the Persons entitled thereto, of the principal and interest, if
any, for whose payment such money has been deposited with or
received by the Trustee or analogous payments as contemplated by
Sections 501 or 1112.

(b) The REIT shall pay and shall indemnify the Trustee
against any tax, fee or other charge imposed on or assessed
against Government Obligations deposited pursuant to
Sections 501 or 1112 or the interest and principal received in
respect of such obligations other than any payable by or on
behalf of the Holders.

(c) The Trustee shall deliver or pay to the REIT from time
to time upon REIT Request any Government Obligations or money
held by it as provided in Sections 501 and 1122 which, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof
delivered to the Trustee, are then in excess of the amount
thereof which then would have been required to be deposited for
the purpose for which such Government Obligations or money were
deposited or received.

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ARTICLE SIX

REMEDIES

SECTION 601. Events of Default.

"Event of Default", wherever used herein with respect to the
Notes, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental
body):

(a) default in the payment of the principal of any
Note at its Maturity; or

(b) default in the performance or breach of the REIT's
obligations to pay taxes, to maintain insurance or to
perform any other monetary obligations under any of the
Mortgages for a period of 30 calendar days after there has
been given by registered or certified mail to the REIT by
the Trustee or to the REIT and the Trustee by the Holders of
at least 10% in principal amount of the Outstanding Notes a
written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is
a "Notice of Default" hereunder;

(c) default in the performance, or breach, of any
other covenant or of any warranty of the REIT under this
Indenture or any Mortgage (other than a covenant or
warranty, the default or breach of which is elsewhere
specifically dealt with in this Section) and continuance of
such default or breach for a period of 30 calendar days
after there has been given, by registered or certified mail,
to the REIT by the Trustee or to the REIT and the Trustee by
the Holders of at least 10% in principal amount of the
Outstanding Notes a written notice specifying such default
or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; provided
that, such cure period will be extended for another single
30-day period if the default or breach has not been cured
within that period but the REIT has commenced efforts to
cure the default or breach and thereafter proceeds to cure
same with due diligence; or

(d) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the REIT or

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under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the REIT
(excluding this Indenture or any of the Mortgages), whether
such indebtedness now exists or shall hereafter be created,
which default shall constitute a failure to pay any portion
of the principal of, or interest, if any, on such
indebtedness when due and payable after the expiration of
any applicable grace period with respect thereto or shall
have resulted in such principal amount of indebtedness
becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable,
without such indebtedness having been discharged, or such
acceleration having been rescinded, stayed, annulled, or
waived within a period of 20 calendar days after there shall
have been given, by registered or certified mail, to the
REIT by the Trustee or to the REIT and the Trustee by the
Holders of at least 10% in principal amount of the
Outstanding Notes, a written notice specifying such default
and requiring the REIT to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or
annulled and stating that it is a "Notice of Default"
hereunder;

(e) the entry by a court having jurisdiction in the
premises of (i) a decree or order for relief in respect of
the REIT in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree or
order adjudging the REIT a bankrupt or insolvent, or
approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or
in respect of the REIT under any applicable Federal or State
law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of
the REIT or of any substantial part of the REIT's property,
or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree or order for relief
or any such other decree or order unstayed and in effect for
a period of 60 consecutive calendar days; or

(f) the commencement by the REIT of a voluntary case
or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law
or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of
a decree or order for relief in respect of the REIT in an
involuntary case or proceeding under any applicable Federal

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or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by
it of a petition or answer or consent seeking reorganization
or relief under any applicable Federal or State law, or the
consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or
similar official of the REIT or of any substantial part of
the REIT's property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they
become due.

Nothing in this Section shall preclude the holder of a Prior
Lien with respect to Overallotment Investments or Specified
Investments from curing any default described in this Section to
the extent that the REIT is entitled to cure such default
hereunder; provided that, nothing herein shall be construed to
grant such holders of Prior Liens any rights under this
Indenture.

SECTION 602. Acceleration of Maturity; Rescission and
Annulment.

If an Event of Default occurs and is continuing, then in
every such case the Trustee or the Holders of not less than 25%
in principal amount of the Outstanding Notes may declare the
Acceleration Amount of all of the Notes to be due and payable
immediately, by a notice in writing to the REIT (and to the
Trustee if given by Holders), and upon any such declaration such
Acceleration Amount shall become immediately due and payable.

At any time after such a declaration of acceleration with
respect to the Notes has been made and before a judgment or
decree for payment of the money due has been obtained by the
Trustee as hereinafter in this Article provided, the Holders of
a majority in principal amount of the Outstanding Notes, by
written notice to the REIT and the Trustee, may rescind and
annul such declaration and its consequences if

(a) the REIT has paid or deposited with the Trustee a
sum sufficient to pay

(i) the principal of any Notes which have become
due otherwise than by such declaration of acceleration
and interest thereon from the date such principal
became due at the rates prescribed therefor in such

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Notes (to the extent that payment of such is
enforceable under applicable law); and

(ii) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents
and counsel, including those sums due to the Trustee or
advanced pursuant to Section 707; and

(b) all Events of Default other than the non-payment
of the principal of Notes which have become due solely by
such declaration of acceleration, have been cured or waived
as provided in Section 613.

No such rescission shall affect any subsequent default or impair
any right consequent thereon.

SECTION 603. Collection of Indebtedness and Suits for
Enforcement by Trustee.

The REIT covenants that if default is made in the payment of
the principal of any Note at the Maturity thereof, the REIT
will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of the Notes, the whole amount then due
and payable on the Notes and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue
principal at the rate or rates prescribed therefor in such
Notes, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements
and advances by the Trustee, its agents and counsel pursuant to
Section 707, and including any debt incurred by or on behalf of
the Trustee pursuant to any Mortgage.

If the REIT fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an
express trust, may exercise its rights and remedies hereunder
and under the Mortgages and may institute a judicial proceeding
for the collection of the sums so due and unpaid, may prosecute
such proceeding to judgment or final decree and may enforce the
same against the REIT or any other obligor upon such Notes and
collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the REIT or any
other obligor upon such Notes, wherever situated.

If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights
and the rights of the Holders hereunder and under the Mortgages

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by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or
agreement in this Indenture or the Mortgages or in aid of the
exercise of any power granted herein or therein, or to enforce
any other proper remedy; provided, however, that the Trustee
shall use its best efforts first to exercise its rights and
remedies hereunder and under Mortgages covering Properties not
subject to Prior Liens on the Specified Investments before
exercising its rights and remedies under Mortgages covering
other Properties. Nothing herein however, shall be construed to
prevent the Trustee from exercising its rights and remedies
under Mortgages covering Properties subject to Prior Liens if
the Trustee determines in its sole discretion that such action
would be in the best interest of the Holders, and nothing herein
shall be construed to require the Trustee to exhaust its
remedies under Mortgages covering Properties not subject to
Prior Liens prior to exercising its rights and remedies under
the other Mortgages.

In the event the Trustee is not the mortgagee under a
particular Mortgage, the Trustee shall proceed to protect and
enforce its rights and the rights of the Holders hereunder and
under such Mortgage by directing the mortgagee thereunder to
exercise its rights and remedies under the Mortgage.

SECTION 604. Trustee May File Proofs of Claim.

In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to
the REIT or the property of the REIT or its creditors, the
Trustee (irrespective of whether the principal of the Notes
shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the REIT for the payment of
overdue principal or interest) shall be entitled and empowered,
by intervention in such proceeding or otherwise,

(i) to file and prove a claim for the whole amount of
principal and interest, if any, owing and unpaid in respect
of the Notes and to file such other papers or documents as
may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed
in such judicial proceeding, and

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(ii) to collect and receive any moneys or other
property payable or deliverable on any such claims and to
distribute the same;

and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the
Holders, to pay the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, and any other amounts
due the Trustee under Section 707.

Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of
any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder of a Note in any such
Proceeding.

SECTION 605. Trustee May Enforce Claims Without Possession
of Notes.

All rights of action and claims under this Indenture, the
Mortgages or the Notes may be prosecuted and enforced by the
Trustee without the possession of any of the Notes or the
production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery
of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, be for the ratable
benefit of the Holders of the Notes in respect of which such
judgment has been recovered.

SECTION 606. Application of Money Collected.

Any money collected by the Trustee pursuant to this
Article, including exercise of its rights and remedies under
the Mortgages, shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal or interest,
if any, upon presentation of the Notes, or both, as the case
may be, and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:

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FIRST: To the payment of all amounts due the Trustee
under Section 707 and under any Mortgage;

SECOND: To the payment of the amounts then due and
unpaid for principal of and interest, if any, on the Notes
in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority
of any kind, according to the amounts due and payable on
such Notes for principal and interest, if any, respectively;

THIRD: To the payment of any other amounts due under
this Indenture or any of the Mortgages; and

FOURTH: To the payment of the remainder, if any, to
the REIT or to whomsoever may be lawfully entitled to
receive the same or as a court of competent jurisdiction
may direct.

SECTION 607. Limitation on Suits.

No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this
Indenture or the Mortgages, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:

(1) such Holder has previously given written notice
to the Trustee of a continuing Event of Default;

(2) the Holders of not less than 25% in principal
amount of the Outstanding Notes shall have made written
request to the Trustee to institute proceedings in respect
of such Event of Default in its own name as Trustee
hereunder;

(3) such Holder or Holders have offered to the
Trustee reasonable indemnity against the costs, expenses
and liabilities to be incurred in compliance with such
request;

(4) the Trustee for 60 calendar days after its
receipt of such notice, request and offer of indemnity has
failed to institute any such proceeding; and

(5) no direction inconsistent with such written
request has been given to the Trustee during such 60-day
period by the Holders of a majority in principal amount of
the Outstanding Notes;

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it being understood and intended that no one or more of such
Holders shall have any right in any manner whatever by virtue
of, or by availing of, any provision of this Indenture or any
Mortgage to affect, disturb or prejudice the rights of any
other of such Holders, or to obtain or to seek to obtain
priority or preference over any other of such Holders or to
enforce any right under this Indenture or any Mortgage, except
in the manner herein provided and for the equal and ratable
benefit of all of such Holders.

SECTION 608. Unconditional Right of Holders to Receive
Payment.

Notwithstanding any other provision in this Indenture or
any Mortgage, the Holder of any Note shall have the right,
which is absolute and unconditional, to receive payment of the
principal or interest, if any, of such Note on the Stated
Maturity or Maturities expressed in such Note (or, in the case
of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment and such rights shall
not be impaired without the consent of the Holder, except to
the extent that the institution or prosecution of suit or the
entry of judgment therein would, under applicable law, result
in the surrender, impairment, waiver or loss of the lien of the
Indenture or any Mortgage upon the Collateral.

SECTION 609. Restoration of Rights and Remedies.

If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Indenture or the
Mortgages and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case,
subject to any determination in such proceeding, the REIT, the
Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereunder
and thereafter all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been
instituted.

SECTION 610. Rights and Remedies Cumulative.

Except as otherwise provided with respect to the
replacement or payment of mutilated, destroyed, lost or stolen
Notes in the last paragraph of Section 306, no right or remedy
herein or in the Mortgages conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the

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extent permitted by law, be cumulative and in addition to every
other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.

SECTION 611. Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder to
exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every
right and remedy given by this Article or by law to the Trustee
or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.

SECTION 612. Control by Holders of Notes.

The Holders of a majority in principal amount of the
Outstanding Notes shall have the right to direct the time,
method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power
conferred on the Trustee under the Indenture or any Mortgage;
provided that such direction shall not be in conflict with any
rule of law or with this Indenture or any Mortgage which would
be unduly prejudicial to the rights of the Holders not joining
therein and shall not require the Trustee to incur any financial
liability if the Trustee shall have no reasonable grounds for
believing that adequate indemnity against such liability is not
reasonably assured to it and the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent
with such direction.

SECTION 613. Waiver of Past Defaults.

The Holders of not less than a majority in principal amount
of the Outstanding Notes may on behalf of the Holders of all the
Notes waive any past default hereunder or under the Mortgages
and the consequences thereof, except a default

(a) in the payment of the principal of any Note, or

(b) in respect of a covenant or provision hereof which
under Article Ten cannot be modified or amended without the
consent of the Holder of each Outstanding Note.

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Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have
been cured, for every purpose of this Indenture or the
Mortgages, but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.

SECTION 614. Undertaking for Costs.

All parties to this Indenture agree, and each Holder of any
Note by his acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture or
under any of the Mortgages, or in any suit against the Trustee
for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the REIT, to
any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more
than 10% in principal amount of the Outstanding Notes, or to any
suit instituted by any Holder of any Note for the enforcement of
the payment of the principal of or interest, if any, on any Note
on or after the Stated Maturity expressed in such Note (or, in
the case of redemption, on or after the Redemption Date).

SECTION 615. Waiver of Stay or Extension Laws.

The REIT covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the
performance of this Indenture or any Mortgage; and the REIT (to
the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been
enacted.

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ARTICLE SEVEN

THE TRUSTEE

SECTION 701. Certain Duties and Responsibilities.

(a) Except during the continuance of an Event of Default,

(1) the Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this
Indenture and the Mortgages, and no implied covenants or
obligations shall be read into this Indenture against the
Trustee; and

(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this
Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.

(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture or by any of the
Mortgages, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.

(c) No provision of this Indenture or in any of the
Mortgages shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that

(1) this Subsection shall not be construed to limit
the effect of Subsection (a) of this Section;

(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless
it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;

(3) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of a

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majority in principal amount of the Outstanding Notes,
determined as provided in Section 612, relating to the time,
method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture with
respect to the Notes; and

(4) no provision of this Indenture or the Mortgages
shall require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably
assured to it.

(d) Whether or not therein expressly so provided, every
provision of this Indenture and the Mortgages relating to the
conduct or affecting the liability of or affording protection to
the Trustee shall be subject to the provisions of this Section.

SECTION 702. Notice of Defaults.

Within 90 calendar days after the occurrence of any default
hereunder with respect to the Notes, the Trustee shall transmit
by mail to all Holders of Notes entitled to receive reports
pursuant to Section 803(c), notice of such default hereunder
known to the Trustee, unless such default shall have been cured
or waived; provided, however, that, except in the case of a
default in the payment of the principal of or interest, if any,
on any Note, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive
committee or a trust committee of directors or Responsible
Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders of
Notes; and provided, further, that in the case of any default of
the character specified in Section 601(d) with respect to Notes,
no such notice to Holders shall be given until at least 20
calendar days after the occurrence thereof, and, in the case of
any default of the character specified in Section 601(b) and (c)
with respect to the Notes, no such notice to the Holders shall
be given until at least 30 calendar days after the occurrence
thereof. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or
both would become, an Event of Default with respect to the Notes.

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SECTION 703. Certain Rights of Trustee.

Subject to the provisions of Section 701:

(a) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice
request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or
presented by the proper party or parties including, but not
limited to, copies of any insurance policies or certificate
of insurance delivered to it pursuant to any Mortgage;

(b) any request or direction of the REIT mentioned
herein shall be sufficiently evidenced by a REIT Request or
REIT Order and any Resolution of the Trust Managers;

(c) whenever in the administration of this Indenture
the Trustee shall deem it desirable that a matter be proved
or established prior to taking, suffering or omitting any
action hereunder, the Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;

(d) the Trustee may consult with counsel and the
written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;

(e) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request or direction of any of the Holders
of Notes pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or
direction;

(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other
paper or document, including, but not limited to, the
examination of insurance policies either as to coverage or
as to value insured, but the Trustee, in its discretion, may

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make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises
of the REIT, personally or by agent or attorney; and

(g) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys and the
Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed
with due care by it hereunder.

(h) the Trustee shall not be liable for any action
suffered or omitted by it in good faith and believed by it
be authorized or within the discretion or rights or power
conferred upon it by this Indenture.

SECTION 704. Not Responsible for Recitals or Issuance of
Notes.

The recitals contained herein and in the Notes (except the
Trustee's certificates of authentication) shall be taken as the
statements of the REIT, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this
Indenture or of the Notes. The Trustee or any Authenticating
Agent shall not be accountable for the use or application by the
REIT of Notes or the proceeds thereof except as provided in this
Indenture.

SECTION 705. May Hold Notes.

The Trustee, any Paying Agent, any Note Registrar, any
Transfer Agent or any other agent of the REIT, in its individual
or any other capacity, may become the owner or pledgee of Notes
and, subject to Sections 708 and 713, may otherwise deal with
the REIT with the same rights it would have if it were not
Trustee, Authenticating Agent, Paying Agent, Note Registrar,
Transfer Agent or such other agent.

SECTION 706. Money Held in Trust.

Money held by the Trustee in trust hereunder shall be
segregated from and shall not be commingled with any other funds
held by the Trustee. The Trustee shall be under no liability
for interest on any money received by it hereunder except as
otherwise specifically provided in this Indenture.

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SECTION 707. Compensation and Reimbursement.

The REIT agrees

(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder and
under the Mortgages (which compensation shall not be limited
by any provision of law in regard to the compensation of a
trustee of an express trust);

(b) to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or
made by the Trustee in accordance with any provision of this
Indenture or any Mortgage (including the reasonable
compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad
faith; and

(c) to indemnify the Trustee for, and to hold it
harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of
the trust or trusts hereunder, including the costs and
expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its
powers or duties hereunder.

The obligations of the REIT under this Section 707 to
compensate the Trustee and to pay or reimburse the Trustee for
such expenses and disbursements shall constitute additional
indebtedness hereunder. Such additional indebtedness shall be
secured by a lien prior to that of the Notes upon all property
and funds held or collected by the Trustee as such, except funds
held in trust for the benefit of the Holders of particular Notes.

SECTION 708. Disqualification; Conflicting Interests.

(a) If the Trustee has or shall acquire any conflicting
interest, as defined in this Section, with respect to the Notes,
it shall, within 90 calendar days after ascertaining that it has
such conflicting interest, either eliminate such conflicting
interest or resign with respect to the Notes in the manner and
with the effect hereinafter specified in this Article.

(b) In the event that the Trustee shall fail to comply with
the provisions of Subsection (a) of this Section with respect to
the Notes, the Trustee shall, within 10 calendar days after the

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expiration of such 90-day period, transmit, in the manner and to
the extent provided in Section 803(c), to all Holders of Notes
notice of such failure.

(c) For the purposes of this Section, the Trustee shall be
deemed to have a conflicting interest with respect to the Notes if

(1) the Trustee is trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of the
REIT are outstanding, unless such other indenture is a
collateral trust indenture under which the only collateral
consists of Notes issued under this Indenture, provided that
there shall be excluded from the operation of this
paragraph, or any indenture or indentures under which other
securities, or certificates of interest or participation in
other securities, of the REIT are outstanding, if the REIT
shall have sustained the burden of proving, on application
to the Commission and after opportunity for hearing thereon,
that trusteeship under this Indenture with respect to the
Notes or such other indenture or indentures is not so likely
to involve a material conflict of interest as to make it
necessary in the public interest or for the protection of
investors to disqualify the Trustee from acting as such
under this Indenture with respect to the Notes or under such
other indenture or indentures;

(2) the Trustee or any of its directors or executive
officers is an obligor upon the Notes or an underwriter for
the REIT;

(3) the Trustee directly or indirectly controls or is
directly or indirectly controlled by or is under direct or
indirect common control with the REIT or an underwriter for
the REIT;

(4) the Trustee or any of its directors or executive
officers is a director, officer, partner, employee,
appointee or representative of the REIT, or of an
underwriter (other than the Trustee itself) for the REIT who
is currently engaged in the business of underwriting, except
that (i) one individual may be a director or an executive
officer, or both, of the Trustee and a director or an
executive officer, or both, of the REIT but may not be at
the same time an executive officer of both the Trustee and
the REIT; (ii) if and so long as the number of directors of

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the Trustee in office is more than nine, one additional
individual may be a director or an executive officer, or
both, of the Trustee and a director of the REIT; and
(iii) the Trustee may be designated by the REIT or by any
underwriter for the REIT to act in the capacity of transfer
agent, registrar, custodian, paying agent, fiscal agent,
escrow agent or depositary, or in any other similar
capacity, or, subject to the provisions of paragraph (1) of
this Subsection, to act as trustee, whether under an
indenture or otherwise;

(5) 10% or more of the voting securities of the
Trustee is beneficially owned either by the REIT or by any
director, partner, executive officer or Trust Manager
thereof, or 20% or more of such voting securities is
beneficially owned, collectively, by any two or more of such
persons; or 10% or more of the voting securities of the
Trustee is beneficially owned either by an underwriter for
the REIT or by any director, partner, executive officer or
Trust Manager thereof, or is beneficially owned,
collectively, by any two or more such persons;

(6) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is in default
(as hereinafter in this Subsection defined), (i) 5% or more
of the voting securities, or 10% or more of any other class
of security, of the REIT not including the Notes issued
under this Indenture and securities issued under any other
indenture under which the Trustee is also trustee, or
(ii) 10% or more of any class of security of an underwriter
for the REIT;

(7) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is in default
(as hereinafter in this Subsection defined), 5% or more of
the voting securities of any person who, to the knowledge of
the Trustee, owns 10% or more of the voting securities of,
or controls directly or indirectly or is under direct or
indirect common control with, the REIT;

(8) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is in default
(as hereinafter in this Subsection defined), 10% or more of
any class of security of any person who, to the knowledge of
the Trustee, owns 50% or more of the voting securities of
the REIT; or

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(9) the Trustee owns, on May 15 in any calendar year,
in the capacity of executor, administrator, testamentary or
inter vivos trustee, guardian, committee or conservator, or
in any other similar capacity, an aggregate of 25% or more
of the voting securities, or of any class of security, of
any person, the beneficial ownership of a specified
percentage of which would have constituted a conflicting
interest under paragraph (6), (7) or (8) of this
Subsection. As to any such securities of which the Trustee
acquired ownership through becoming executor, administrator
or testamentary trustee of an estate which included them,
the provisions of the preceding sentence shall not apply,
for a period of two years from the date of such acquisition,
to the extent that such securities included in such estate
do not exceed 25% of such voting securities or 25% of any
such class of security. Promptly after May 15 in each
calendar year, the Trustee shall make a check of its
holdings of such securities in any of the above-mentioned
capacities as of such May 15. If the REIT fails to make
payment in full of the principal of or interest on any of
the Notes when and as the same becomes due and payable, and
such failure continues for 30 calendar days thereafter, the
Trustee shall make a prompt check of its holdings of such
securities in any of the above-mentioned capacities as of
the date of the expiration of such 30-day period, and after
such date, notwithstanding the foregoing provisions of this
paragraph, all such securities so held by the Trustee, with
sole or joint control over such securities vested in it,
shall, but only so long as such failure shall continue, be
considered as though beneficially owned by the Trustee for
the purposes of paragraphs (6), (7) and (8) of this
Subsection.

The specification of percentages in paragraphs (5) to (9),
inclusive, of this Subsection shall not be construed as
indicating that the ownership of such percentages of the
securities of a person is or is not necessary or sufficient to
constitute direct or indirect control for the purposes of
paragraph (3) or (7) of this Subsection.

For the purposes of paragraphs (6), (7), (8) and (9) of this
Subsection only, (i) the terms "security" and "securities" shall
include only such securities as are generally known as corporate
securities, but shall not include any note or other evidence of
indebtedness issued to evidence an obligation to repay moneys
lent to a person by one or more banks, trust companies or
banking firms, or any certificate of interest or participation
in any such note or evidence of indebtedness; (ii) an obligation

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shall be deemed to be "in default" when a default in payment of
principal shall have continued for 30 calendar days or more and
shall not have been cured; and (iii) the Trustee shall not be
deemed to be the owner or holder of (A) any security which it
holds as collateral security, as trustee or otherwise, for an
obligation which is not in default as defined in clause
(ii) above, or (B) any security which it holds as collateral
security under this Indenture, irrespective of any default
hereunder, or (C) any security which it holds as agent for
collection, or as custodian, escrow agent or depositary, on in
any similar representative capacity.

(d) For the purposes of this Section:

(1) The term "underwriter", when used with reference
to the REIT, means every person who, within three years
prior to the time as of which the determination is made, has
purchased from the REIT with a view to, or has offered or
sold for the REIT in connection with, the distribution of
any security of the REIT outstanding at such time, or has
participated or has had a direct or indirect participation
in any such undertaking, or has participated or has had a
participation in the direct or indirect underwriting of any
such undertaking, but such term shall not include a person
whose interest was limited to a commission from an
underwriter or dealer not in excess of the usual and
customary distributors' or sellers' commission.

(2) The term "director" means any director of a
corporation or any individual performing similar functions
with respect to any organization, whether incorporated or
unincorporated.

(3) The term "person" means an individual, a
corporation, a partnership, an association, a joint-stock
company, a trust, an unincorporated organization or a
government or political subdivision thereof. As used in
this paragraph, the term "trust" shall include only a trust
where the interest or interests of the beneficiary or
beneficiaries are evidenced by a security.

(4) The term "voting security" means any security
presently entitling the owner or holder thereof to vote in
the direction or management of the affairs of a person, or
any security issued under or pursuant to any trust,
agreement or arrangement whereby a trustee or trustees or
agent or agents for the owner or holder of such security are
presently entitled to vote in the direction or management of
the affairs of a person.

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(5) The term "REIT" means any obligor upon the Notes.

(6) The term "executive officer" means the president,
every vice president, every trust officer, the cashier, the
secretary and the treasurer of a corporation, and any
individual customarily performing similar functions with
respect to any organization whether incorporated or
unincorporated, but shall not include the chairman of the
board of directors.

(e) The percentages of voting securities and other
securities specified in this Section shall be calculated in
accordance with the following provisions:

(1) A specified percentage of the voting securities of
the Trustee, the REIT or any other person referred to in
this Section (each of whom is referred to as a "person" in
this paragraph) means such amount of the outstanding voting
securities of such person as entitles the holder or holders
thereof to cast such specified percentage of the aggregate
votes which the holders of all the outstanding voting
securities of such person are entitled to cast in the
direction or management of the affairs of such person.

(2) A specified percentage of a class of securities of
a person means such percentage of the aggregate amount of
securities of the class outstanding.

(3) The term "amount", when used in regard to
securities, means the principal amount if relating to
evidences of indebtedness, the number of shares if relating
to capital shares and the number of units if relating to any
other kind of security.

(4) The term "outstanding" means issued and not held
by or for the account of the issuer. The following
securities shall not be deemed outstanding within the
meaning of this definition:

(i) securities of an issuer held in a sinking
fund relating to securities of the issuer of the same
class;

(ii) securities of an issuer held in a sinking
fund relating to another class of securities of the
issuer, if the obligation evidenced by such other
class of securities is not in default as to principal
or interest or otherwise;

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(iii) securities pledged by the issuer thereof as
security for an obligation of the issuer not in
default as to principal or interest or otherwise; and

(iv) securities held in escrow if placed in
escrow by the issuer thereof;

provided, however, that any voting securities of an issuer
shall be deemed outstanding if any person other than the
issuer is entitled to exercise the voting rights thereof.

(5) A security shall be deemed to be of the same
class as another security if both securities confer upon
the holder or holders thereof substantially the same rights
and privileges; provided, however, that, in the case of
secured evidences of indebtedness, all of which are issued
under a single indenture, differences in the interest rates
or maturity dates of various series thereof shall not be
deemed sufficient to constitute such series different
classes and provided, further, that, in the case of
unsecured evidences of indebtedness, differences in the
interest rates or maturity dates thereof shall not be
deemed sufficient to constitute them securities of
different classes, whether or not they are issued under a
single indenture.

SECTION 709. Corporate Trustee Required; Eligibility.

There shall at all times be a Trustee hereunder which shall be a
Corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000 subject to supervision or examination by Federal or
State authority and having its Corporate Trust Office in the Borough of
Manhattan, the City of New York. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.

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SECTION 710. Resignation and Removal; Appointment of Successor.

(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article
shall become effective until the acceptance of appointment by
the successor Trustee in accordance with the applicable
requirements of Section 711.

(b) The Trustee may resign at any time with respect to the
Notes by giving written notice thereof to the REIT. If the
instrument of acceptance by a successor Trustee required by
Section 711 shall not have been delivered to the Trustee within
30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with
respect to the Notes.

(c) The Trustee may be removed at any time with respect to
the Notes by Act of the Holders of a majority in principal
amount of the Outstanding Notes delivered to the Trustee and to
the REIT.

(d) If at any time:

(1) the Trustee shall fail to comply with Section
708(a) after written request therefor by the REIT or by any
Holder of a Note who has been a bona fide Holder of a Note
for at least six months, or

(2) the Trustee shall cease to be eligible under
Section 709 and shall fail to resign after written request
therefor by the REIT or by any such Holder, or

(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee
or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,

then, in any such case, (i) the REIT by a Resolution of Trust
Managers may remove the Trustee with respect to all Notes, or
(ii) subject to Section 614, any Holder of a Note who has been
a bona fide Holder of a Note for at least six months may, on
behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the removal of the
Trustee with respect to all Notes and the appointment of a
successor Trustee.

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(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office
of Trustee for any cause, with respect to the Notes, the REIT,
by a Resolution of the Trust Managers, shall promptly appoint a
successor Trustee or Trustees with respect to the Notes and
shall comply with the applicable requirements of Section 711.
If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor
Trustee with respect to the Notes shall be appointed by Act of
the Holders of a majority in principal amount of the
Outstanding Notes delivered to the REIT and the retiring
Trustee, the successor Trustee so appointed shall, forthwith
upon its acceptance of such appointment in accordance with the
applicable requirements of Section 711, become the successor
Trustee with respect to the Notes and to that extent supersede
the successor Trustee appointed by the REIT. If no successor
Trustee with respect to the Notes shall have been so appointed
by the REIT or the Holders of Notes and accepted appointment in
the manner required by Section 711, any Holder of a Note who
has been a bona fide Holder of Note for at least six months
may, on behalf of himself and all others similarly situated,
petition any court of competition jurisdiction for the
appointment of a successor Trustee with respect to the Notes.

(f) The REIT shall give notice of each resignation and
each removal of the Trustee with respect to the Notes and each
appointment of a successor Trustee with respect to the Notes by
mailing written notice of such event by first-class mail,
postage prepaid, to all Holders of Notes, as their names and
addresses appear in the Note Register. Each notice shall
include the name of the successor Trustee with respect to the
Notes and the name of its Corporate Trust Office.

SECTION 711. Acceptance of Appointment by Successor.

(a) In case of the appointment hereunder and under any
Mortgage of a successor Trustee, every such successor Trustee
so appointed shall execute, acknowledge and deliver to the REIT
and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of
the retiring Trustee; but, on the request of the REIT or the
successor Trustee, such retiring Trustee shall, upon payment of
all amounts then due under the Indenture, execute and deliver
an instrument transferring to such successor Trustee all the
rights, power and trusts of the retiring Trustee and shall duly

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assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder and
under each Mortgage.

(b) Upon request of any such successor Trustee under the
Indenture or under the Mortgages, the REIT shall execute any
and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers
and trusts referred to in paragraph (a) of this Section. Any
trustee ceasing to act shall retain a lien on all property or
funds held or collected by such trustee to secure any amount
then due it pursuant to the provisions of Section 707.

(c) No successor Trustee shall accept its appointment
unless at the time of such acceptance such successor Trustee
shall be qualified and eligible under this Article.

SECTION 712. Merger, Conversion, Consolidation or Succession
to Business.

Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the
corporate trust business of the Trustee, shall be the successor
of the Trustee hereunder, provided such corporation shall be
otherwise qualified and eligible under this Article, without
the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall
have been authenticated, but not delivered, by the Trustee then
in office, any successor by merger, conversion or consolidation
to such authenticating Trustee may adopt such authentication
and deliver the Notes so authenticated with the same effect as
if such Trustee had itself authenticated such Notes.

SECTION 713. Preferential Collection of Claims Against the
REIT.

(a) Subject to Subsection (b) of this Section, if the
Trustee shall be or shall become a creditor, directly or
indirectly, secured or unsecured, of the REIT within four
months prior to a default, as defined in Subsection (c) of this
Section, or subsequent to such a default, then, unless and
until such default shall be cured, the Trustee shall set apart
and hold in a special account for the benefit of the Trustee
individually, the Holders of the Notes and the holders of other
indenture securities, as defined in Subsection (c) of this
Section:

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(1) an amount equal to any and all reductions in the
amount due and owing upon any claim as such creditor in
respect of principal or interest, effected after the
beginning of such four months' period and valid as against
the REIT and its other creditors, except any such reduction
resulting from the receipt or disposition of any property
described in paragraph (2) of this Subsection, or from the
exercise of any right of set-off which the Trustee could
have exercised if a petition in bankruptcy had been filed
by or against the REIT upon the date of such default; and

(2) all property received by the Trustee in respect
of any claims as such creditor, either as security
therefor, or in satisfaction or composition thereof, or
otherwise, after the beginning of such four months' period,
or an amount equal to the proceeds of any such property, if
disposed of, subject, however, to the rights, if any, of
the REIT and its other creditors in such property or such
proceeds.

Nothing herein contained, however, shall affect the right of
the Trustee:

(A) to retain for its own account (i) payments made
on account of any such claim by any Person (other than the
REIT) who is liable thereon, and (ii) the proceeds of the
bona fide sale of any such claim by the Trustee to a third
Person, and (iii) distributions made in cash, securities or
other property in respect of claims filed against the REIT
in bankruptcy or receivership or in proceedings for
reorganization pursuant to the Federal Bankruptcy Act or
applicable State law;

(B) to realize, for its own account, upon any
property held by it as securities for any such claim, if
such property was so held prior to the beginning of such
four months' period;

(C) to realize, for its own account, but only to the
extent of the claim hereinafter mentioned, upon any
property held by it as security for any such claim, if such
claim was created after the beginning of such four months'
period and such property was received as security therefor
simultaneously with the creation thereof, and if the
Trustee shall sustain the burden of proving that at the
time such property was so received the Trustee had no
reasonable cause to believe that a default, as defined in
Subsection (c) of this Section, would occur within four
months; or

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(D) to receive payment on any claim referred to in
paragraph (B) or (C), against the release of any property
held as security for such claim as provided in
paragraph (B) or (C), as the case may be, to the extent of
the fair value of such property.

For the purposes of paragraphs (B), (C) and (D), property
substituted after the beginning of such four months' period for
property held as security at the time of such substitution
shall, to the extent of the fair value of the property
released, have the same status as the property released, and,
to the extent that any claim referred to in any of such
paragraphs is created in renewal of or in substitution for or
for the purpose of repaying or refunding any pre-existing claim
of the Trustee as such creditor, such claim shall have the same
status as such pre-existing claim.

If the Trustee shall be required to account, the funds and
property held in such special account and the proceeds thereof
shall be apportioned among the Trustee, the Holders of Notes
and the holders of other indenture securities in such manner
that the Trustee, the Holders of Notes and the holders of other
indenture securities realize, as a result of payments from such
special account and payments of dividends on claims filed
against the REIT in bankruptcy or receivership or in
proceedings for reorganization pursuant to the Federal
Bankruptcy Act or applicable State law, the same percentage of
their respective claims, figured before crediting to the claim
of the Trustee anything on account of the receipt by it from
the REIT of the funds and property in such special account and
before crediting to the respective claims of the Trustee and
the Holders of Notes and the holders of other indenture
securities dividends on claims filed against the REIT in
bankruptcy or receivership or in proceedings for reorganization
pursuant to the Federal Bankruptcy Act or applicable State law,
but after crediting thereon receipts on account of the
indebtedness represented by their respective claims from all
sources other than from such dividends and from the funds and
property so held in such special account. As used in this
paragraph, with respect to any claim, the term "dividends"
shall include any distribution with respect to such claim, in
bankruptcy or receivership or in proceedings for reorganization
pursuant to the Federal Bankruptcy Act or applicable State law,
whether such distribution is made in cash, securities or other
property, but shall not include any such distribution with
respect to the secured portion, if any, of such claim. The
court in which such bankruptcy, receivership or proceeding for
reorganization is pending shall have jurisdiction (i) to

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apportion among the Trustee, the Holders of Notes and the
holders of other indenture securities, in accordance with the
provisions of this paragraph, the funds and property held in
such special account and proceeds thereof, or (ii) in lieu of
such apportionment, in whole or in part, to give to the
provisions of this paragraph due consideration in determining
the fairness of the distributions to be made to the Trustee and
the Holders of Notes and the holders of other indenture
securities with respect to their respective claims, in which
event it shall not be necessary to liquidate or to appraise the
value of any securities or other property held in such special
account or as security for any such claim, or to make a
specific allocation of such distributions as between the
secured and unsecured portions of such claims, or otherwise to
apply the provisions of this paragraph as a mathematical
formula.

Any Trustee which has resigned or been removed after the
beginning of such four months' period shall be subject to the
provisions of this Subsection as though such resignation or
removal had not occurred. If any Trustee has resigned or been
removed prior to the beginning of such four months' period, it
shall be subject to the provisions of this Subsection if and
only if the following conditions exist:

(i) the receipt of property or reduction of claim,
which would have given rise to the obligation to account, if
such Trustee had continued as Trustee, occurred after the
beginning of such four months' period; and

(ii) such receipt of property or reduction of claim
occurred within four months after such resignation or
removal.

(b) There shall be excluded from the operation of
Subsection (a) of this Section a creditor relationship arising
from:

(1) the ownership or acquisition of securities issued
under any indenture, or any security or securities having a
maturity of one year or more at the time of acquisition by
the Trustee;

(2) advances authorized by a receivership or
bankruptcy court of competent jurisdiction or by this
Indenture, for the purpose of preserving any property which
shall at any time be subject to the lien of this Indenture
or of discharging tax liens or other prior liens or

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encumbrances thereon, if notice of such advances and of the
circumstances surrounding the making thereof is given to the
Holders of Notes at the time and in the manner provided in
this Indenture;

(3) disbursements made in the ordinary course of
business in the capacity of trustee under an indenture,
transfer agent, registrar, custodian, paying agent, fiscal
agent or depositary, or other similar capacity;

(4) an indebtedness created as a result of services
rendered or premises rented; or an indebtedness created as a
result of goods or securities sold in a cash transaction, as
defined in Subsection (c) of this Section;

(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a)
of the Federal Reserve Act, as amended, which is directly or
indirectly a creditor of the REIT; and

(6) the acquisition, ownership, acceptance or
negotiation of any drafts, bills of exchange, acceptances or
obligations which fall within the classification of
self-liquidating paper, as defined in Subsection (c) of this
Section.

(1) the term "default" means any failure to make
payment in full of the principal of or interest on any of
the Notes or upon the other indenture securities when and as
such principal or interest becomes due and payable;

(2) the term "other indenture securities" means
securities upon which the REIT is an obligor outstanding
under any other indenture (i) under which the Trustee is
also trustee, (ii) which contains provisions substantially
similar to the provisions of this Section, and (iii) under
which a default exists at the time of the apportionment of
the funds and property held in such special account;

(3) the term "cash transaction" means any transaction
in which full payment for goods or securities sold is made
within seven days after delivery of the goods or securities
in currency or in checks or other orders drawn upon banks or
bankers and payable upon demand;

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(4) the term "self-liquidating paper" means any draft,
bill of exchange, acceptance or obligation which is made,
drawn, negotiated or incurred by the REIT for the purpose of
financing the purchase, processing, manufacturing, shipment,
storage or sale of goods, wares or merchandise and which is
secured by documents evidencing title to, possession of, or
a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods,
wares or merchandise previously constituting the security,
provided the security is received by the Trustee
simultaneously with the creation of the creditor
relationship with the REIT arising from the making, drawing,
negotiating or incurring of the draft, bill of exchange,
acceptance or obligation;

(5) the term "REIT" means any obligor upon the Notes;
and

(6) the term "Federal Bankruptcy Act" means the
Bankruptcy Act or Title 11 of the United States Code.

SECTION 714. Appointment of Mortgage Trustees.

(a) In the event the Trustee is not qualified under
applicable state law to act as Trustee under a Mortgage, a
mortgage trustee shall be appointed by the REIT and the Trustee
to act as a mortgage trustee under that Mortgage for the benefit
of the Trustee in accordance with the directions of the Trustee
or of the Holders where permitted by this Indenture. Pursuant
to such appointment, the mortgage trustee shall agree to act and
shall be entitled to indemnity to the same extent as the Trustee
pursuant to this Indenture. The Trustee and any mortgage
trustee shall not be jointly and severally liable for any
actions taken under this Indenture or the Mortgages and any
liability hereunder or thereunder shall be several only.

(b) The Trustee may, from time to time by written
instrument appoint a substitute trustee to act as a mortgage
trustee under any Mortgage, to act thereunder on behalf of the
trustee, as provided in subparagraph (a) hereof.

ARTICLE EIGHT

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND REIT

SECTION 801. REIT to Furnish Trustee Names and Addresses of
Holders.

The REIT will furnish or cause to be furnished to the Trustee

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(a) semi-annually, not later than June 30 and
December 31 in each year, a list, in such form as the
Trustee may reasonably require, containing all the
information in the possession or control of the REIT, any of
its Paying Agents other than the Trustee, or the Note
Registrar, if other than the Trustee, as to the names and
addresses of the Holders of Notes as of the preceding
June 15 or December 15, as the case may be, and

(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the REIT of any
such request, a list of similar form and content as of a
date not more than 15 days prior to the time such list is
furnished;

excluding from any such list any names and addresses received by
the Trustee in its capacity as Note Registrar (if it is then
serving as such).

SECTION 802. Preservation of Information; Communications to
Holders.

(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders of
Notes (i) contained in the most recent list furnished to the
Trustee as provided in Section 801, (ii) received by the Trustee
in its capacity as Note Registrar (if it is then serving as
such), and (iii) filed with it within the two preceding years
pursuant to Section 803(c)(2). The Trustee may (i) destroy any
list furnished to it as provided in Section 801 upon receipt of
a new list so furnished, (ii) destroy any information received
by it as Paying Agent (if so acting) hereunder upon delivering
to itself as Trustee, not earlier than June 30 or December 31 in
each year, a list containing the names and addresses of the
Holders of Notes obtained from such information since the
delivery of the next previous list, if any, (iii) destroy any
list delivered to itself as Trustee which was compiled from
information received by it as Paying Agent (if so acting)
hereunder upon the receipt of a new list so delivered, and
(iv) destroy not earlier than two years after filing, any
information filed with it pursuant to Section 803(c)(2).

(b) If three or more Holders of Notes (herein referred to
as "applicants") apply in writing to the Trustee, and furnish to
the Trustee reasonable proof that each such applicant has owned
a Note for a period of at least six months preceding the date of
such application, and such application states that the
applicants desire to communicate with other Holders of Notes

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with respect to their rights under this Indenture or under the
Notes and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then
the Trustee shall, within five business days after the receipt
of such application, at its election, either:

(i) afford such applicants access to the information
preserved at the time by the Trustee in accordance with
Section 802(a), or

(ii) inform such applicants as to the approximate
number of Holders of Notes whose names and addresses appear
in the information preserved at the time by the Trustee in
accordance with Section 802(a), and as to the approximate
cost of mailing to such Holders the form of proxy or other
communication, if any, specified in such application.

If the Trustee shall elect not to afford such applicants access
to such information, the Trustee shall, upon the written request
of such applicants, mail to each Holder whose name and address
appear in the information preserved at the time by the Trustee
in accordance with Section 802(a) a copy of the form of proxy or
other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the
payment, of the reasonable expenses of mailing, unless within
five days after such tender the Trustee shall mail to such
applicants and file with the Commission, together with a copy of
the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be
contrary to the best interest of the Holders or would be in
violation of applicable Law. Such written statement shall
specify the basis of such opinion. If the Commission, after
opportunity for a hearing upon the objections specified in the
written statement so filed, shall enter an order refusing to
sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission
shall find, after notice and opportunity for hearing, that all
the objections so sustained have been met and shall enter an
order so declaring, the Trustee shall mail copies of such
material to all such Holders with reasonable promptness after
the entry of such order and the renewal of such tender.

(c) Every Holder, by receiving and holding the same, agrees
with the REIT and the Trustee that neither the REIT nor the
Trustee nor any agent of either of them shall be held
accountable by reason of the disclosure of any such information
as to the names and addresses of the Holders in accordance with

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Section 802(b), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under Section 802(b).

SECTION 803. Reports by Trustee.

(a) Within 60 calendar days after May 15 of each year commencing with the
year 1986, the Trustee shall transmit by mail to the Holders, as provided in
Subsection (c) of this Section, a brief report dated as of such May 15 with
respect to:

(1) its eligibility under Section 709 and its qualifications under
Section 708, or in lieu thereof, if to the best of its knowledge it has
continued to be eligible and qualified under said Sections, a written
statement to such effect;

(2) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof)
made by the Trustee (as such) which remain unpaid on the date of such
report, and for the reimbursement of which it claims or may claim a lien
or charge, prior to that of the Notes, on any property or funds held or
collected by it as Trustee, except that the Trustee shall not be required
(but may elect) to report such advances if such advances so remaining
unpaid aggregate not more than 1/2 of 1% of the principal amount of the
Notes Outstanding on the date of such report;

(3) the amount, interest rate and maturity date of all other
indebtedness owing by the REIT (or by any other obligor on the Notes) to
the Trustee in its individual capacity, on the date of such report,
with a brief description of any property held as collateral security
therefor, except any indebtedness based upon a creditor relationship
arising in any manner described in Section 713(b)(2), (3), (4) or (6);

(4) the property and funds, if any, in any of the Accounts or
otherwise physically in the possession of the Trustee as such on the date
of such report;

(5) any release, or release and substitution, of Collateral securing
the Notes (and the consideration therefor, if any) which it has not
previously reported;

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(6) any additional issue of Notes which the Trustee
has not previously reported; and

(7) any action taken by the Trustee in the performance
of its duties hereunder which it has not previously reported
and which in its opinion materially affects the Notes or the
Collateral, except action in respect of a default, notice of
which has been or is to be withheld by the Trustee in
accordance with Section 702.

(b) The Trustee shall transmit to the Holders, as provided in Subsection
(c) of this Section, a brief report with respect to the release, or release
and substitution, of the Collateral securing the Notes (and the consideration
therefor, if any) unless the fair value of such property as set forth in the
certificate or opinion required by Section 1302 hereof, is less than 10% of
the accreted value of the Notes Outstanding at the time of such release, or
such release and substitution, and with respect to the character and amount of
any advances (and if the Trustee elects to so state, the circumstances
surrounding the making thereof) made by the Trustee (as such) since the date
of the last report transmitted pursuant to Subsection (a) of this Section (or
if no such report has yet been so transmitted, since the date of execution of
this instrument) for the reimbursement of which it claims or may claim a lien
or charge, prior to that of the Notes or the Collateral, on property or funds
held or collected by it as Trustee and which it has not previously reported
pursuant to this Subsection, except that the Trustee shall not be required
(but may elect) to report such advances if such advances remaining unpaid at
any time aggregate 10% or less of the principal amount of the Notes Outstanding
at such time, such reports to the transmitted within 90 calendar days after
such time.

(1) To all Holders, as the names and addresses of such
Holders appear in the Note Register;

(2) to all Holders who, within the two years
immediately preceding the transmission of such reports, have
filed their addresses with the Trustee for the purpose of
receiving the reports; and

(3) except in the case of reports pursuant to
Subsection (b) of this Section, to each Holder whose name
and address is preserved at the time by the Trustee, as
provided in Section 802(a).

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(d) A copy of each such report shall, at the time of such
transmission to Holders of Notes, be filed by the Trustee with
each stock exchange upon which any Notes are listed, with the
Commission and with the REIT. The REIT will notify the Trustee
when any Notes are listed on any stock exchange.

SECTION 804. Reports by REIT. The REIT shall:

(a) file with the Trustee, within 15 calendar days after the REIT is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the REIT may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the REIT is not required to file
information, documents or reports pursuant to either of said Sections,
then it shall file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
of the supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Securities Exchange Act of
1934 in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules
and regulations;

(b) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance
by the REIT with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and

(c) transmit, within 30 calendar days after the filing thereof
with the Trustee, to the Holders of Notes, in the manner and to the extent
provided in Section 803(c) with respect to reports pursuant to Section
803(a), such summaries of any information, documents and reports required
to be filed by the REIT pursuant to paragraphs (1) and (2) of this Section
as may be required by rules and regulations prescribed from time to time by
the Commission.

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ARTICLE NINE

CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER

SECTION 901. The REIT May Consolidate, Etc., Only on Certain Terms.

The REIT shall not consolidate with or merge into any other Person or
convey of transfer its properties and assets substantially as an entirety to
any Person, unless:

(a) in case the REIT shall consolidate with or merge into another
entity or convey or transfer its properties and assets substantially as an
entirety to any Person, such consolidation, merger, conveyance or
transfer shall be in such terms as shall fully preserve the lien and
security hereof and of the Mortgages and the rights and powers of the
Trustee and the Holders hereunder and thereunder, the entity formed by
such consolidation or into which the REIT is merged or the Person which
acquired by conveyance or transfer the properties and assets of the REIT
substantially as an entirety shall be a trust or corporation organized and
existing under the laws of the United States of America, any State thereof
or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto and amendment to Mortgage complying with the
requirements of Article X, executed by such successor and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual
payment of the principal on all the Notes and the performance of every
covenant of this Indenture and the Mortgages on the part of the REIT to be
performed or observed;

(b) immediately after giving effect to such transaction no Event of
Default and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing; and

(c) the REIT or successor Person has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with.

For purposes of this Section, the REIT shall not be deemed to have
consolidated with or merged into or conveyed or transferred its properties or
assets substantially as an entirety if it has acted in accordance with a plan
of liquidation.

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SECTION 902. Successor Substituted.

Upon any consolidation by the REIT with or merger by the
REIT into any other entity or any conveyance or transfer of
properties and assets of the REIT substantially as an entirety
to any Person in accordance with Section 901, the successor
Person formed by such consolidation or into which the REIT is
merged or to which such conveyance or transfer is made shall
succeed to, and be substituted for, and may exercise every right
and power of, the REIT under this Indenture or any Mortgage with
the same effect as if such successor Person had been named as
the REIT herein, and thereafter, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture,
the Mortgages and the Notes.

ARTICLE TEN

SUPPLEMENTAL INDENTURES

SECTION 1001. Without Consent of Holders.

Without the consent of any Holders, the REIT, when
authorized by a Resolution of the Trust Managers, and the
Trustee, at any time and from time to time, may enter into one
or more indentures supplemental hereto or one or more amendments
to any Mortgages, in form reasonably satisfactory to the
Trustee, for any of the following purposes:

(1) to evidence the succession of another trust or
corporation to the REIT and the assumption by any such
successor of the covenants of the REIT herein, in the
Mortgages and in the Notes; or

(2) to add to the covenants of the REIT for the
benefit of the Holders, or to surrender any right or power
conferred herein upon the REIT; or

(3) to further secure the Notes; or

(4) to evidence and provide for the acceptance of
appointment under any of the Mortgages by a successor or
substitute trustee with respect to the Mortgages and to add
to or change any of the provisions of this Indenture or any
of the Mortgages as shall be necessary to provide for or
facilitate the administration of the trusts thereunder by
more than one trustee; or

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(5) to cure any ambiguity, to correct or supplement
any provision herein or in any of the Mortgages which may be
defective or inconsistent with any other provision herein,
or to make any other provisions with respect to matters or
questions arising under this Indenture or under any Mortgage,
provided such amendment or additional provisions shall not
adversely affect the interests of the Holders of Notes in any
material respect; or

(6) to add or to change any of the provisions of this
Indenture in any manner that may be necessary to permit the
qualification of this Indenture under the Trust Indenture
Act; or

(7) to correct or amplify the description of any
property at any time subject to the lien of this Indenture
or any of the Mortgages, or better to assure, convey and
confirm unto the Trustee any property subject or required to
be subjected to the lien of this Indenture or the Mortgages,
or to subject to the lien of this Indenture or the Mortgages
additional Property; or

(8) to change Schedule II to add or delete Collateral
as contemplated hereunder or to otherwise effect any release
of Collateral hereunder or under any Mortgage pursuant to
Section 1302; or

(9) to modify the terms of any Mortgage in a manner
that is not adverse in any material respect to the interest
of the Holders.

SECTION 1002. With Consent of Holders.

With the consent of the Holders of not less than a 66-2/3%
in principal amount at Stated Maturity of the Outstanding Notes
by Act of said Holders delivered to the REIT and the Trustee,
the REIT, when authorized by a Resolution of the Trust Managers,
and the Trustee may enter into an indenture or indentures
supplemental hereto or an amendment to any of the Mortgages for
the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of any of the
Mortgages or this Indenture or modifying in any manner the
rights of the Holders under this Indenture or under any of the
Mortgages; Provided, however, that no such supplemental
indenture or amendment to a Mortgage shall, without the consent
of the Holder of each Outstanding Note affected thereby

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(1) change the Stated Maturity of, or reduce the
principal amount of any Note, reduce the amount of the
principal of the Notes that would be due and payable upon a
declaration of acceleration of the Stated Maturity thereof
pursuant to Section 602 or at the Redemption Date, the rate
of interest borne after Maturity or change the place of
payment where, or the coin or currency in which, any Note or
the interest, if any, thereon is payable, or impair the
right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or in the
case of redemption, on or after the Redemption Date), or

(2) change any obligation of the REIT to maintain an
office or agency in the Borough of Manhattan in the City of
New York, or

(3) modify any of the provisions of this Section,
Section 613 or Section 1111 except to increase any such
percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected
thereby; or

(4) permit the creation of any lien ranking prior to
or on a parity with the lien of this Indenture and the
Mortgages with respect to any of the Collateral or terminate
the lien of this Indenture or any of the Mortgages on any
property at any time subject hereto, other than Prior Liens
or Permitted Liens, or

(5) reduce the percentage in principal amount of the
Outstanding Notes, the consent of whose Holders is required
for any such supplemental indenture, or the consent of whose
Holders is required for any waiver (of compliance with
certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this
Indenture;

It shall not be necessary for any Act of Holders of Notes under
this Section to approve the particular form of any proposed
supplemental indenture or amendment to any Mortgage, but it
shall be sufficient if such Act shall approve the substance
thereof. The Trustee may in its discretion determine whether or
not any Notes are affected by a supplemental indenture and any
such determination shall be conclusive upon the Holders.

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SECTION 1003. Execution of Supplemental Indentures.

In executing, or accepting the additional trusts created by,
any supplemental indenture by this Article or the modifications
thereby of the trusts created by this Indenture or any of the
Mortgages, the Trustee shall be entitled to receive, and
(subject to Section 701) shall be fully protected in relying
upon, an Opinion of Counsel and an Officer's Certificate stating
that the execution of such supplemental indenture and amendment
to any Mortgages is authorized or permitted by this Indenture,
that the supplemental indenture or amendment to mortgage is not
inconsistent herewith and that the supplemental indenture or
amendment to mortgage upon due execution, delivery and
recordation or filing thereof, as the case may be, will be a
legal, valid and binding obligation of the REIT enforceable in
accordance with its terms. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture or
amendment to any Mortgage which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.

SECTION 1004. Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture or
amendment to a Mortgage under this Article, this Indenture or
such Mortgage, as the case may be, shall be modified in
accordance therewith, and such supplemental indenture or
amendment shall form a part of this Indenture or such Mortgage,
as the case may be, for all purposes; and every Holder of Notes
theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.

SECTION 1005. Conformity with Trust Indenture Act.

Every supplemental indenture executed pursuant to this
Article shall conform to the requirements of the Trust Indenture
Act as then in effect.

SECTION 1006. Notice of Supplemental Indentures.

Promptly after the execution by the REIT and the Trustee of
any supplemental indenture or amendment to a Mortgage pursuant
to the provisions of Section 1002, the REIT shall give notice,
setting forth in general terms the substance of such supplemental
indenture or amendment, in the manner provided in Section 106.
Any failure of the REIT to give such notice, or any defect
therein, shall not in any way impair or affect the validity of
any such supplemental indenture or amendment.

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SECTION 1007. Reference in Notes to Supplemental Indentures.

Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the REIT shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
REIT, to any such supplemental indenture may be prepared and executed by the
REIT and authenticated and delivered by the Trustee in exchange for Outstanding
Notes but any such exchange shall not be necessary to make such modification
effective as to the Outstanding Notes.

ARTICLE ELEVEN

COVENANTS

SECTION 1101. Payment of Principal and Interest.

The REIT will duly and punctually pay the principal of and interest, if
any, on the Notes in accordance with the terms of the Notes and this
Indenture.

SECTION 1102. Maintenance of Offices or Agencies.

The REIT hereby appoints the Trustee as its agent in the Borough of
Manhattan, the City of New York where the Notes may be presented or
surrendered for payment, where Notes may be surrendered for registration of
transfer or exchange, and where notices and demands to or upon the Company in
respect of the Notes, this Indenture and the Mortgages may be served.

The REIT may at any time and from time to time vary or terminate the
appointment of any such agent, or, appoint any additional agents for any or
all of such purposes; provided, however, that the REIT will maintain in the
Borough of Manhattan, the City of New York, an office or agency where Notes
may be presented or surrendered for payment, where Notes may be surrendered
for registration of transfer or exchange, and where notices and demands to or
upon the REIT in respect of the Notes and this Indenture may be served. The
REIT will give prompt written notice to the Trustee of the appointment or
termination of any such agent and of the location and any change in the
location of any such office or agency.

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If at any time the REIT shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof,
presentations and surrenders may be made and notices and demands may be served
at the Corporate Trust Office of the Trustee, and the REIT hereby appoints the
same as its agent to receive such presentations, surrenders, notices and
demands.

SECTION 1103. Money for Note Payment to Be Held in Trust.

If the REIT shall at any time act as its own Paying Agent with respect to
the Notes, it will, on or before the due date of the principal of the Notes,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal becoming due until such sums shall be paid
to such Persons or otherwise disposed of as herein provided, and will promptly
notify the Trustee of its action or failure so to act.

Whenever the REIT shall have one or more Paying Agents for the Notes, it
will, prior to the due date of the principal of the Notes, deposit with a
Paying Agent a sum sufficient to pay the principal becoming due, such sum to
be held in trust for the benefit of the Persons entitled to such principal,
and (unless such Paying Agent is the Trustee) the REIT will promptly notify
the Trustee of its action or failure so to act.

Moneys so segregated or deposited and held in trust shall not be a part of
the Collateral but shall constitute a separate trust fund for the benefit of
the Persons entitled to such principal. Except in the case of monies so
segregated when acting as its own Paying Agent, monies held in trust by the
Trustee or any other Paying Agent for the payment of the principal on the Notes
need not be segregated from other funds, except to the extent required by law.

The REIT will cause each Paying Agent for the Notes other than the Trustee
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:

(1) hold all sums held by it for the payment of the principal of the
Notes in trust for the benefit of Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein provided;

(2) give the Trustee notice of any default by the REIT (or any
other obligor upon the Notes) in the making of any payment of principal on
the Notes; and

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(3) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith
pay to the Trustee all sums so held in trust by such Paying
Agent.

The REIT may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture and the Mortgages
or for any other purpose, pay, or by REIT Order direct any
Paying Agent to pay, to the Trustee all sums held in trust by
the REIT or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were
held by the REIT or such Paying Agent; and, upon such payment by
any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such money.

Any money deposited with the Trustee or any Paying Agent, or
then held by the REIT, in trust for the payment of the principal
at Stated Maturity and interest, if any, of any Note and
remaining unclaimed for three years after such principal has
become due and payable shall be repaid to the REIT on REIT
Request, or (if then held by the REIT) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the REIT for payment
thereof, and all liability of the Trustee or such Paying Agent
with respect to such trust money, and all liability of the REIT
as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to
make any such repayment, may at the expense of the REIT mail to
all Holders notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30
days from the date of such mailing, any unclaimed balance of
such money then remaining will be repaid to the REIT.

SECTION 1104. To Keep Books; Access.

The REIT will keep proper books of record and account, in
which entries in reasonable detail shall be made of all dealings
or transactions of or in relation to the Notes and the
properties, business and affairs of the REIT in accordance with
generally accepted accounting principles. The REIT shall
furnish to the Trustee any and all information and permit the
Trustee reasonable access during customary business hours to its
books, records and Properties as the Trustee may reasonably
request with respect to the performance by the REIT of its
covenants in this Indenture and the Mortgages.

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SECTION 1105. Trust Existence.

Subject to Article Nine and the terms of the Declaration of
Trust, the REIT will do or cause to be done all things necessary
to preserve and keep in full force and effect its trust
existence, rights (charter and statutory) and franchises;
provided, however, that the REIT shall not be required to
preserve any such right or franchise if the Trust Managers shall
determine that the preservation thereof is no longer desirable
in the conduct of the business of the REIT and that the loss
thereof is not disadvantageous in any material respect to the
Holders.

SECTION 1106. Indebtedness.

The REIT shall not issue, incur or create any Other Secured
Debt or Prior Lien Obligations unless immediately thereafter and
after giving effect thereto, the aggregate amount of all
outstanding Other Secured Debt, Secured Debt and Prior Lien
Obligations would not exceed 50% of the sum of the Appraised
Value of all of the Properties which are real property (which
shall include the amount of any Prior Liens on such Collateral
and shall be as set forth in the most recent report of the
Appraised Value of the REIT's real property owned directly or
indirectly by the REIT), and the gross value of all of the
REIT's other assets.

The REIT shall not issue, incur or create any Short-Term
Indebtedness unless immediately thereafter and after giving effect
thereto, (A) the aggregate amount outstanding of Other Secured Debt,
Short-Term Indebtedness, Secured Debt and Prior Lien Obligations would
not exceed 60% of the Appraised Value of all of the Property (which
shall include the amount of any Prior Liens on such Collateral and
shall be as set forth in the most recent report of the Appraised Value
of the real property, owned directly or indirectly by the REIT) and the
gross value of all of the REIT's other assets, and (B) the REIT's
Distributable Cash for the 12 months immediately preceding such date of
determination was equal to or greater than 300% of the sum of Debt
Service payable for the next succeeding 12-month period and interest
expense on the Short-Term Indebtedness to be incurred.

During each year after 1985, the REIT shall be free from Short-Term
Indebtedness for a period of at least 30 consecutive calendar days.

Any Other Secured Debt and Short-Term Indebtedness issued, incurred
or created by the REIT shall be expressly subordinated to the lien of
this Indenture and the Mortgages.

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SECTION 1107. Payment of Taxes and Claims.

The REIT will pay, when due, all taxes, assessments and
governmental charges or levies imposed upon it, the income of
the Trust, the Collateral or the proceeds arising from the
disposition of the Collateral, and all claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and
other like Persons which, if unpaid, might result in the
creation of a lien upon the income of the Trust, the Collateral
or the proceeds arising from the disposition of the Collateral;
provided that items of the foregoing description need not be
paid while being contested in good faith and by appropriate
proceedings.

SECTION 1108. Sales of Certain Properties.

To the extent that all of the Notes have not been redeemed
or defeased in full in accordance with this Article, Article
Five or Article Twelve herein by November 27, 1996 and the REIT
shall not have, prior to such date, obtained refinancing
commitments from bona fide creditors, in an amount sufficient to
repay at Stated Maturity the remaining Outstanding Notes not
previously discharged, redeemed or defeased, the REIT shall sell
as soon as reasonably practicable such of its Properties as is
necessary in order to obtain funds sufficient to retire the
Notes at their Stated Maturity. The proceeds of any such sale
shall be forthwith delivered to the Trustee for deposit in the
Defeasance Account.

SECTION 1109. Statement as to Compliance.

The REIT shall deliver to the Trustee, within 120 calendar
days after the end of each fiscal year of the REIT (which on the
date of this Indenture is the calendar year) ending after the
date hereof, an Officers' Certificate, stating whether or not to
the knowledge of the signers thereof the REIT is in default in
the performance and observance of any of the terms, provisions
and conditions of this Indenture or any of the Mortgages and if
the REIT shall be in default, specifying all such defaults and
the nature and status thereof of which they may have knowledge.

The REIT shall deliver to the Trustee, within five Business
Days after the occurrence thereof, notice of any event which,
with the giving of notice or passage of time or both, would
constitute an Event of Default.

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SECTION 1110. Further Assurances; Recording.

The REIT will cause this Indenture and all supplemental
indentures and other instruments of further assurance, including
all financing statements and continuation statements covering
security interests in personal property and all Mortgages to be
promptly recorded, registered and filed, and at all times to be
kept recorded, registered and filed, and will execute and file
such financing statements and cause to be issued and filed such
continuation statements, all in such manner and in such places
as may be required by law fully to preserve and to protect the
rights of the Holders and the Trustee hereunder and thereunder
to all property comprising the Collateral. The REIT will
furnish to the Trustee within 30 days after the end of each year
beginning with the year 1986, an Opinion of Counsel, dated as of
such date, either stating that, subject to certain assumptions
and customary exceptions reasonably acceptable to the Trustee
set forth therein in the opinion of such counsel, such action
has been taken with respect to the recording, registering,
filing, re-recording, re-registering and re-filing of this
instrument, the Mortgages, and of all supplemental indentures,
financing statements, continuation statements or other
instruments of further assurances as is necessary to maintain
the lien hereof and thereof and reciting the details of such
action or referring to prior Opinions of Counsel in which such
details are given, and stating that all financing statements and
continuation statements have been executed and filed that are
necessary fully to preserve and protect the rights of the
Noteholders and the Trustee hereunder, or stating that, in the
opinion of such Counsel, no such action is necessary to maintain
such lien.

SECTION 1111. Waiver of Certain Covenants.

The REIT may omit in any particular instance to comply with
any term, provision or condition set forth in Sections 1106,
1108 and 1113, if before the time for such compliance the
Holders of at least 66-2/3% in principal amount of the
Outstanding Notes shall, by Act of such Holders, either waive
such compliance in such instance or generally waive compliance
with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to
the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the REIT and the duties of
the Trustee in respect of any such term, provision or condition
shall remain in full force and effect.

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SECTION 1112. Defeasance of Certain Obligations.

The REIT may omit to comply with any term, provision or
condition set forth in Sections 1106, 1107, 1108, 1113, 1114 and
1115 and Sections 601(b) and 601(c) with respect to each of such
Sections shall be deemed not to be an Event of Default; provided
that, the following conditions have been satisfied:

(a) With reference to this Section 1112, the REIT has
deposited or caused to be deposited irrevocably
(irrespective of whether the conditions in paragraphs (b),
(c), (d) and (e) below have been satisfied) in the
Defeasance Account, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of the
Notes, (i) money in an amount, or (ii) Government
Obligations which through the payment of principal in
respect thereof in accordance with their terms will provide
not later than one day before the due date of any payment of
Principal money in an amount or (iii) a combination thereof,
sufficient to pay and discharge the principal of and
interest, if any, on the Notes Outstanding at the Stated
Maturity of such principal;

(b) Such deposit will not result in an Event of
Default hereunder;

(d) The REIT has delivered to the Trustee an Opinion
of Counsel to the effect that the Holders of the Notes will
not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance of
certain obligations and will be subject to federal income
tax on the same amount and in the same manner and at the
same times, as would have been the case if such deposit and
defeasance had not occurred;

(e) The REIT has delivered to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the
defeasance contemplated by this Section have been complied
with; and

(f) The REIT has delivered to the Trustee its
reasonable fees and expenses incurred hereunder and under
any Mortgage.

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SECTION 1113. Uninsured Losses.

From and after the Defeasance Commencement Date, in the
event an uninsurable loss occurs with respect to any of the
Property, the REIT shall deliver to the Trustee for deposit into
the Defeasance Account an amount equal to the purchase price
paid by the REIT for the Property less the amount of debt
assumed by the REIT on the Property at the time of its
acquisition.

SECTION 1114. Distributions.

During the period commencing on the fourth anniversary of
the original issuance of the Notes and ending on the eleventh
anniversary thereof, the REIT shall not make distributions to
Shareholders out of the net proceeds of the sale or refinancing
of any Property, insurance payment or condemnation proceeding,
if the principal amount of the Notes at Stated Maturity (reduced
by the amount, if any, of the Collateral in the Defeasance
Account and the amount, if any, in the Redemption Account or
held pursuant to Section 501) would be greater than 100% of the
sum of the most recent Appraised Value of all of the Properties
which are real property owned directly or indirectly by the REIT
(reduced by the amount of the Prior Lien Obligations on all the
Property and the amount attributable to the gain on the proposed
sale, based on the most recent Appraised Value of such Property,
or to the gain from the insurance payment or condemnation
proceeding) and the gross value of all of the REIT's other
assets. Notwithstanding the foregoing, nothing in this Section
1114 shall prevent the REIT from making any distributions to
Shareholders deemed necessary by the Trust Managers to maintain
the REIT's qualification as a real estate investment trust under
the Code.

SECTION 1115. Maintenance of Title Insurance.

On or before the delivery in each year of the Officer's
Certificate required pursuant to Section 1109, the REIT shall
obtain and deliver to the Trustee evidence that the mortgagee
policies of title insurance in force on the Properties are in an
aggregate amount equal to the lesser of the amount of the
Secured Debt as of the immediately preceding December 31 or the
maximum amount available pursuant to applicable title insurance
requirements with respect to the amount of the Secured Debt.

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ARTICLE TWELVE

REDEMPTION OF NOTES

SECTION 1201. Right of Redemption.

The Notes may be redeemed at the election of the REIT, as a
whole or, from time to time, in part, at any time on or after
November 27, 1995 at the Redemption Price specified in the form
of Note hereinbefore set forth.

SECTION 1202. Notice to Trustee.

In case of any redemption at the election of the REIT
pursuant to a Resolution of Trust Managers of less than all the
Notes, the REIT shall, at least 60 calendar days prior to the
Redemption Date fixed by the REIT (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Notes to be
redeemed.

SECTION 1203. Selection by Trustee of Notes to Be
Redeemed.

If less than all the Outstanding Notes are to be redeemed,
the particular Notes to be redeemed shall be selected not more
than 60 calendar days prior to the Redemption Date by the
Trustee, from the Outstanding Notes not previously called for
redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for
redemption of the principal amount of the Notes of a
denomination larger than the minimum authorized denomination.
For the purpose of any such selection, the REIT will, upon
request of the Trustee, close for a period of 15 days proceeding
the mailing of any notice of redemption the Note Register of the
REIT with respect to the Notes.

The Trustee shall promptly notify the REIT in writing of the
Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to
be redeemed.

For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of
Notes shall relate, in the case of any Notes redeemed or to be
redeemed only in part, to the portion of the principal amount of
such Notes which has been or is to be redeemed.

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SECTION 1204. Notice of Redemption.

Notice of redemption shall be given in the manner provided
in Section 106 to the Holders of Notes to be redeemed not less
than 30 calendar nor more than 60 calendar days prior the
Redemption Date.

All notices of redemption shall state:

(1) the Redemption Date,

(2) the Redemption Price,

(3) if less than all the Outstanding Notes are to be
redeemed, the identification (and, in the case of partial
redemption, the principal amounts) of the particular Notes
to be redeemed,

(4) that on the Redemption Date the Redemption Price
will become due and payable upon each such Note to be
redeemed, and

(5) the place or places where such Notes are to be
surrendered for payment of the Redemption Price.

Notice of redemption of Notes to be redeemed at the election of
the REIT shall be given by the REIT or, at the REIT's request,
by the Trustee in the name and at the expense of the REIT.

SECTION 1205. Deposit of Redemption Price.

Prior to any Redemption Date, the REIT shall deposit with
the Trustee in trust in the Redemption Account or with a Paying
Agent (or, if the REIT is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1103) an
amount of money sufficient to pay the Redemption Price of all
the Notes which are to be redeemed. Such money shall be held
in trust for the benefit of the Persons entitled to such
Redemption Price and shall not be deemed part of the Collateral.

SECTION 1206. Notes Payable on Redemption Date.

Notice of redemption having been given as aforesaid, the
Notes so to be redeemed shall, on the Redemption Date, become
due and payable at the Redemption Price therein specified.
Upon surrender of any such Note for redemption in accordance
with said notice, such Note shall be paid by the REIT at the
Redemption Price. If any Note called for redemption shall not

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be so paid upon surrender thereof for redemption, the principal
shall until paid, bear interest from the Redemption Date at the
rate of interest payable on overdue principal as indicated in
the Note.

SECTION 1207. Notes Redeemed in Part.

Any Note which is to be redeemed only in part shall be
surrendered at an office or agency of the REIT (with, if the
REIT or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the REIT
and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing), and the REIT shall
execute, and the Trustee shall authenticate and deliver to the
Holder of such Note, without service charge, a new Note or
Notes, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Note so
surrendered.

ARTICLE THIRTEEN

RELEASES

SECTION 1301. Possession by the REIT; Dispositions without
Release.

So long as no Event of Default shall have occurred and be
continuing, the REIT shall be suffered and permitted, subject
to the provisions of this Article, to possess, use, manage,
operate and enjoy the Collateral (other than any cash and
securities constituting part of the Collateral and deposited
with the Trustee) and to collect, receive, use, invest and
dispose of the rents, issues, tolls, profits, revenues and
other income from the Collateral, with power, in the ordinary
course of business, freely and without hindrance on the part of
the Trustee or of the Holders, to use, consume and dispose,
subject to the provisions of this Indenture and except as
contemplated in the Mortgages, of any thereof, and to alter,
repair and change the position of any of its Collateral,
provided that, such alterations, repairs or changes shall not
diminish the value thereof or impair the lien of this Indenture
and the Mortgages thereon or affect materially the income from
such Collateral and to deal with, exercise any and all rights
under, receive and enforce performance under, and adjust and
settle all matters relating to current performance of, choses
in action, leases and contracts, in accordance with the By-Laws

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of the REIT and the leasing and management and leasing
guidelines adopted from time to time by the Trust Managers.

SECTION 1302. Releases.

The REIT shall have the right, from time to time, to sell
or otherwise dispose of any part of the Collateral (except
cash, securities and other personal property held by, or
required to be deposited or pledged with, the Trustee
hereunder) and the Trustee shall, from time to time, release
the Collateral so sold or disposed of from the lien hereof and
the related Mortgages, but only upon receipt by the Trustee of
the following:

(a) A Resolution of the Trust Managers requesting such
release and describing the Collateral to be released.

(b) An Officers' Certificate (together with a certificate
of Appraiser as to the matters contained in items (iv) and (v)
below) setting forth in substance as follows:

(i) that the REIT has sold or disposed of or has
contracted to sell or dispose of the Collateral so
requested to be released and the amount of the net proceeds
from such sale or disposition;

(ii) the portion of the net proceeds which the Trust
Managers deem necessary or appropriate to protect the
interest of the Holders;

(iii) that no Event of Default exists;

(iv) that, in the opinion of the signers, the proposed
release will not impair the security under this Indenture
and the Mortgages in contravention of the Provisions hereof
and thereof and that all conditions precedent herein
provided for relating to such release have been complied
with; and

(v) the fair value of the Collateral to be released
at the date of the Officer's Certificate.

(c) Delivery to the Trustee for deposit in accordance with the terms of
the Officer's Certificate an amount equal to the amount of the net proceeds
specified in Subsection (b)(ii) above, which shall in no event be less than the
Property Acquisition Costs less the Prior Lien Obligations related thereto as
specified in such Officer's Certificate.

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(d) An Opinion of Counsel stating that all conditions
precedent to the release of the Collateral have been complied
with.

Notwithstanding the foregoing, upon a defeasance of the
Notes pursuant to Section 1112 or a satisfaction and discharge
pursuant to Section 501, the Trustee shall release or cause to
be released the liens of the Mortgages upon receipt of the
items referred to in subsections (a), (b) (with respect to
clause (v) thereof) and (d) above, together with satisfaction
of each of the conditions necessary pursuant to Section 1112 or
501, respectively.

SECTION 1303. Powers Exercisable Notwithstanding Default.

While in possession of all or substantially all of the
Collateral (other than any cash and securities constituting a
part thereof and deposited with the Trustee), the REIT may
exercise the powers conferred upon it in the Sections of this
Article even though it is prohibited from doing so while an
Event of Default exists as provided therein, if the Trustee in
its discretion, or the Holders of not less than 66-2/3% in
principal amount of the Notes Outstanding shall consent to such
action, in which event none of the instruments required to be
furnished to the Trustee under any of such Sections as a
condition to the exercise of such powers needs state that no
Event of Default exists as provided therein.

SECTION 1304. Powers Exercisable by Trustee or Receiver.

In case all or substantially all of the Collateral (other
than any cash and securities constituting part thereof and
deposited with the Trustee) shall be in the possession of a
trustee or receiver lawfully appointed, the powers hereinbefore
in this Article conferred upon the REIT with respect to the
sale or other disposition and release of Collateral may be
exercised by such trustee or receiver (with the consent of the
Trustee or Noteholders specified in Section 1303),in which
case a written request signed by such receiver or trustee shall
be deemed the equivalent of any Resolution of the Trust
Managers required by this Article and a certificate signed by
such trustee or receiver shall be deemed the equivalent of any
Officers' Certificate required by this Article and such
certificate need not state that no Event of Default exists. If
the Trustee shall be in possession of the Collateral under any
of the Mortgages, such powers may be exercised by the Trustee
in its discretion.

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SECTION 1305. Purchaser Protected.

No purchaser in good faith of Collateral purporting to be
released herefrom shall be bound to ascertain the authority of
the Trustee to execute the release or to inquire as to the
existence of any conditions herein prescribed for the exercise
of such authority; nor shall any purchaser or grantee of any
property or rights permitted by this Article to be sold or
otherwise disposed of by the REIT be under any obligation to
ascertain or inquire into the authority of the REIT to make any
such sale or other disposition. Any release executed by the
Trustee under this Article shall be sufficient for the Purpose
of this Indenture and the related Mortgage and shall constitute
a good and valid release of the Collateral from the lien hereof
and thereof.

IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and with respect to the Trustee,
its seal to be hereunto affixed and attested, all as of the day
and year first above written.

TRAMMELL CROW REAL ESTATE INVESTORS

By
------------------------------------

Attest:

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

J. HENRY SCHRODER BANK & TRUST
COMPANY, Trustee

By
------------------------------------

Attest:

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

-92-

<PAGE> 101
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the 27th day of November, 1985, before me personally
came , to me known, who, being by me
duly sworn, did depose and say that he is of
Trammell Crow Real Estate Investors, a real estate investment trust
described in and which executed the foregoing instrument; and that he
signed his name thereto by like authority.

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

STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the 27th day of November, 1985, before me personally came George R.
Sievers, to me known, who, being by me duly sworn, did depose and say that
he is Senior Vice President of J. Henry Schroder Bank & Trust Company, a
banking corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed
by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.

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

-93-

<PAGE> 1
EXHIBIT 10.8

NOTE PURCHASE AGREEMENT

Note Purchase Agreement (the "Agreement"), dated as of
February 27, 1992, between TRAMMELL CROW REAL ESTATE INVESTORS,
a real estate investment trust duly organized and existing
under the laws of the State of Texas (the "REIT"), and
MANUFACTURERS LIFE INSURANCE COMPANY, a corporation duly
organized and existing under the laws of Canada (together with
its successors and permitted assigns, "MLI").

RECITALS

A. MLI is the holder of an aggregate of $106,322,000
principal amount at stated maturity of Zero Coupon Notes due
1997 (the "MLI Notes") issued by the REIT pursuant to the
Indenture, dated as of November 15, 1985 (together with all
indentures supplemental thereto, the "Indenture"), between the
REIT and J. Henry Schroder Bank & Trust Company (now known as
IBJ Schroder Bank & Trust Company), as Trustee (the "Trustee").

B. MLI has agreed to sell to the REIT, and the REIT has
agreed to purchase from MLI, the MLI Notes.

C. The REIT and MLI desire to set forth the terms and
conditions of the sale of the MLI Notes by MLI and the purchase
thereof by the REIT.

Accordingly, the REIT and MLI hereby agree as follows:

I. SALE AND PURCHASE OF MLI NOTES.

1.1. Sale and Purchase of MLI Notes. Subject to the terms
and conditions, and in reliance upon the representations and
warranties, set forth in this Agreement, MLI agrees to sell,
convey and assign to the REIT, and the REIT agrees to purchase
and accept from MLI (a) an aggregate of $21,629,000 principal
amount at Stated Maturity of the MLI Notes (the "Investment MLI
Notes") in consideration of (i) an Unsecured Promissory Note
Due November 27, 1997, in the principal sum of $4,889,425.08,
in the form attached as Exhibit A-1 hereto ("Note A-1"), and
(ii) an Unsecured Promissory Note Due November 27, 1997, in the
principal sum of $5,939,866.34, in the form attached as
Exhibit A-2 hereto ("Note A-2"), and (b) an aggregate of
$84,693,000 principal amount at Stated Maturity of the MLI
Notes (the "Cancellation MLI Notes") in consideration of (i) an

<PAGE> 2

Unsecured Promissory Note Due November 27, 1997, in the
principal sum of $19,143,646.92 in the form attached as
Exhibit B-1 hereto ("Note B-1"), and (ii) an Unsecured
Promissory Note Due November 27, 1997, in the principal sum of
$23,261,317.66, in the form attached as Exhibit B-2 hereto
("Note B-2").

1.2. Closing. The closing of the sale and purchase of the
MLI Notes shall take place on the Closing Date at the office of
Jones, Day, Reavis & Pogue, 2300 Trammell Crow Center, 2001
Ross Avenue, Dallas, Texas 75201, at 10:00 a.m., Dallas, Texas
time, or such other place and time as the parties may agree.

II. CONDITIONS OF CLOSING.

2.1. Conditions to the REIT's Obligations. The REIT's
obligation to purchase the MLI Notes hereunder is subject to
the satisfaction, on or before the Closing Date, of the
following conditions:

(a) Representations and Warranties. The
representations and warranties of MLI contained in
Article IV of this Agreement shall be true and correct on
and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as
of the Closing Date, except to the extent of changes caused
by the transactions herein contemplated.

(b) Performance of Agreements. MLI shall have
performed and complied with all agreements and conditions
contained in this Agreement required to be performed or
complied with by MLI prior to or on the Closing Date.

(c) Compliance Certificate. MLI shall have delivered
to the REIT an Officer's Certificate, dated the Closing
Date, certifying that the conditions specified in Sections
2.1(a) and (b) hereof have been fulfilled.

(d) Authority. MLI shall have delivered to the REIT
evidence satisfactory to the REIT and its counsel of the
authority of MLI to execute and deliver this Agreement,
enter into the transactions contemplated hereby and perform
its obligations hereunder, and a certificate of incumbency
of the Person executing this Agreement on behalf of MLI.

(e) Delivery of MLI Notes. MLI shall have delivered
to the REIT all of the MLI Notes duly endorsed in blank.

-2-
<PAGE> 3

(f) Permitted by Applicab]e Laws. The purchase of
the MLI Notes and the issuance of the Notes by the REIT on
the Closing Date on the terms and conditions herein
provided shall not violate any applicable law or
governmental regulation (including, without limitation,
Section 5 of the Securities Act) and shall not subject the
REIT to any tax, penalty, liability or other onerous
condition under or pursuant to any applicable law or
governmental regulation.

(g) Proceedings Satisfactory. All proceedings taken
by MLI in connection with the sale of the MLI Notes and the
consummation of the transactions contemplated hereby and
all documents and papers relating thereto shall be
satisfactory in substance and form to the REIT and its
counsel, and the REIT and its counsel shall have received
all such counterpart originals or certified or other copies
of such documents as the REIT and its counsel may
reasonably request.

2.2. Conditions to MLI's Obligations. MLI's obligation to
sell the MLI Notes hereunder is subject to the satisfaction, on
or before the Closing Date, of the following conditions:

(a) Representations and Warranties; No Default. The
representations and warranties of the REIT contained in
Article III of this Agreement shall be true and correct on
and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as
of the Closing Date, except to the extent of changes caused
by the transactions herein contemplated, and there shall
exist on the Closing Date no Event of Default or Default
hereunder and no default or event of default under the
Indenture.

(b) Performance of Agreements. The REIT shall have
performed and complied with all agreements and conditions
contained in this Agreement and the Indenture required to
be performed or complied with by the REIT prior to or on
the Closing Date.

(c) Compliance Certificate. The REIT shall have
delivered to MLI an Officer's Certificate, dated the
Closing Date, certifying that the conditions specified in
Sections 2.2(a) and (b) hereof have been fulfilled.

-3-
<PAGE> 4

(d) Authority. The REIT shall have delivered to MLI
(i) an Officer's Certificate certifying as to the Trust
Manager resolutions authorizing the REIT to execute and
deliver this Agreement and the Notes, enter into the
transactions contemplated hereby and perform its
obligations hereunder and thereunder, and (ii) a
certificate as to the incumbency of the Person executing
this Agreement and the Notes on behalf of the REIT.

(e) Purchase Price. The REIT shall have delivered to
MLI the Notes, duly executed and dated the Closing Date.

(f) Permitted by Applicable Laws. The sale of the
MLI Notes and the issuance of the Notes by the REIT on the
Closing Date on the terms and conditions herein provided
shall not violate any applicable law or governmental
regulation (including, without limitation, Section 5 of the
Securities Act) and shall not subject MLI to any tax,
penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation.

(g) Proceedings Satisfactory. All proceedings taken
by the REIT in connection with the purchase of the MLI
Notes, the issuance of the Notes and the consummation of
the transactions contemplated hereby and all documents and
papers relating thereto shall be satisfactory in substance
and form to MLI and its counsel, and MLI and its counsel
shall have received all such counterpart originals or
certified or other copies of such documents as MLI and its
counsel may reasonably request.

III. REPRESENTATIONS OF THE REIT.

3.1. Organization of the REIT. The REIT has been duly
formed and is validly existing as an unincorporated real estate
investment trust in good standing under the laws of the State
of Texas, with full real estate investment trust power and
authority to own its properties and conduct its business as
presently being conducted, and has been duly qualified for the
transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any
such jurisdiction.

3.2. Issuance of the Notes. The Notes have been duly
authorized, and upon issuance and delivery pursuant to this
Agreement, will have been duly executed, issued and delivered

-4-
<PAGE> 5

and will constitute the valid and legally binding obligation of
the REIT. This Agreement has been duly authorized, executed
and delivered by the REIT, and constitutes a valid and legally
binding instrument, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity
principles.

3.3. Conflicting Agreements and Other Matters. The
issuance of the Notes by the REIT and the compliance by the
REIT with all provisions of this Agreement and the Notes and
the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the REIT is a party
or by which the REIT is bound or to which any of the property
or assets of the REIT is subject, nor will such action result
in any violation of the provisions of the Declaration of Trust
or the By-Laws or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction
over the REIT or any of its properties; and no consent,
approval, authorization, order, registration or qualification
of or with any such court or governmental agency or body is
required for the issuance of the Notes or the consummation by
the REIT of the transactions contemplated by this Agreement.

3.4. Actions Pending. Other than as set forth in
Schedule I hereto, there are no legal or governmental
proceedings pending to which the REIT is a party or of which
any property of the REIT is the subject which, if determined
adversely to the REIT, would individually or in the aggregate
have a material adverse effect on the financial position,
shareholders' equity or results of operations of the REIT, and,
to the REIT's actual knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others.

3.5. Financial Statements. The balance sheets of the REIT
as of December 31, 1990 and September 30, 1991 and the
statements of earnings and of changes in financial position for
the 12 months ended on December 31, 1990 and the nine months
ended on September 30, 1991, respectively, as included in the
reports filed by the REIT with the Commission, have been
prepared in accordance with generally accepted accounting
principles (except as noted therein), and present fairly the
financial condition of the REIT as of such dates and the

-5-
<PAGE> 6

results of its operations for such periods, subject in the case
of unaudited statements to changes resulting from year-end
adjustments which will not in the aggregate be materially
adverse to the business, properties, assets or condition
(financial or otherwise) of the REIT.

IV. REPRESENTATIONS OF MLI.

4.1. Organization. MLI has been duly formed and is
validly existing as a corporation under the laws of Canada,
with full power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby and to carry
out the terms of this Agreement.

4.2. Legal, Valid and Binding Instrument. This Agreement
has been duly authorized, executed and delivered by MLI, and
constitutes a valid and legally binding instrument, enforceable
in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, and other laws of
general applicability relating to or affecting creditors'
rights and to general equity principles.

4.3. Conflicting Agreements and Other Matters. The
compliance by MLI with all provisions of this Agreement and the
consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material
agreement or instrument to which MLI is a party or by which MLI
is bound or to which any of the property or assets of MLI is
subject, nor will such action result in any violation of the
provisions of the organizational documents of MLI or any
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over MLI or any
of its properties; and no consent, approval, authorization,
order, registration or qualification of or with any such court
or governmental agency or body is required for the consummation
by MLI of the transactions contemplated by this Agreement.

4.4. Purchase for Investment. MLI is acquiring the Notes
for investment for its own account and with no present
intention of distributing or reselling the Notes or any part
thereof, but without prejudice, however, to MLI's right at all
times to sell or otherwise dispose of all or any part of the
Notes under the terms and conditions set forth in this
Agreement, and subject to any requirement of law that the
disposition of the Notes shall at all times be within the
control of the owner thereof.

-6-
<PAGE> 7

MLI acknowledges that it has received all the information
it considers necessary or appropriate for deciding whether to
acquire the Notes, and has had an opportunity to ask questions
and receive answers from the REIT regarding the terms and
conditions of the offering of the Notes. MLI has been made
aware that the REIT has purchased, and in the future may
purchase, Secured Debt from certain holders thereof under
varying terms and prices. MLI is able to bear the economic
risk of its investment and has such knowledge and experience in
financial and business matters that it is capable of evaluating
the merits and risks of its investment. MLI understands that
the Notes purchased by MLI are "restricted securities" within
the meaning of the Securities Act and as such cannot be resold
without registration under the Securities Act and applicable
state securities laws unless exemptions from registration under
the Securities Act and such laws are available. In this
connection, MLI is familiar with Rules 144 and 144A promulgated
pursuant to the Securities Act and the resale limitations
imposed thereby. MLI understands that no public market is
likely to develop for the Notes.

4.5. Owner and Holder. MLI is the legal and beneficial
owner and holder of the MLI Notes, free and clear of any and
all Liens. No joinder-of any other Person is required to make
the terms hereof fully binding and enforceable against MLI.

V. COVENANTS OF THE REIT.

5.1. Payment of Principal and Interest. The REIT shall
duly and punctually pay the principal of and interest on the
Notes in accordance with the terms of the Notes and this
Agreement. Except for mandatory prepayments pursuant to
Section 5.14 hereof, all payments, including voluntary
prepayments, with respect to the Notes shall be made on a
prorata basis.

5.2. Maintenance of Offices or Agencies. The Notes may be
presented or surrendered for payment or surrendered for
registration of transfer or exchange at the offices of the
REIT, at 3500 Trammell Crow Center, 2001 Ross Avenue, Dallas,
Texas 75201. Notices and demands to or upon the REIT in
respect of the Notes and this Agreement may be served at the
offices of the REIT in Dallas, Texas.

The REIT may at any time and from time to time appoint,
vary or terminate the appointment of any agent for any or all
of such purposes. The REIT will give prompt written notice to
MLI of the appointment or termination of any such agent and of
the location and any change in the location of any such office
or agency.

-7-

<PAGE> 8

5.3. Money for Note Payments to Be Held in Trust. If the
REIT shall at any time act as its own Paying Agent with respect
to the Notes, it will, on or before the due date of the
interest or principal of the Notes, segregate and hold in trust
for the benefit of MLI a sum sufficient to pay the interest or
principal becoming due until such sums shall be paid to MLI or
otherwise disposed of as herein provided.

Whenever a Person other than the REIT acts as Paying Agent
for the Notes, the REIT will, on or before the due date of the
interest or principal of the Notes, deposit with the Paying
Agent a sum sufficient to pay the interest or principal
becoming due, such sum to be held in trust for the benefit of
MLI.

Moneys so segregated or deposited and held in trust shall
constitute a separate trust fund for the benefit of MLI.
Except in the case of monies so segregated when acting as its
own Paying Agent, monies held in trust by any Paying Agent for
the payment of the interest or outstanding principal on the
Notes need not be segregated from other funds, except to the
extent required by law.

Whenever a Person other than the REIT acts as Paying Agent
for the Notes, the REIT will cause the Paying Agent to execute
and deliver to the REIT an instrument in which the Paying Agent
shall agree with the REIT, subject to the provisions of this
Section 5.3, that the Paying Agent will:

(a) hold all sums held by it for the payment of the
interest or outstanding principal of the Notes in trust for
the benefit of MLI until such sums shall be paid to MLI or
otherwise disposed of as herein provided;

(b) give MLI notice of any default by the REIT (or
any other obligor upon the Notes) in the making of any
payment of interest or outstanding principal on the Notes;
and

(c) at any time during the continuance of any such
default, upon the written request of any holder of the
Notes, forthwith pay to MLI all sums so held in trust by
the Paying Agent.

The REIT may at any time, for the purpose of obtaining the
satisfaction and discharge of this Agreement or for any other
purpose, pay, or direct the Paying Agent to pay, to MLI all
sums held in trust by the REIT or the Paying Agent, such sums

-8-
<PAGE> 9

to be held by MLI upon the same trusts as those upon which such
sums were held by the REIT or the Paying Agent; and, upon such
payment by the Paying Agent to MLI, the Paying Agent shall be
released from all further liability with respect to such money.

Any money deposited with MLI or the Paying Agent, or then
held by the REIT, in trust for the payment of the principal at
Stated Maturity and interest of any Notes and remaining
unclaimed for three years after such principal or interest has
become due and payable shall be repaid to the REIT on request,
or (if then held by the REIT) shall be discharged from such
trust; and MLI shall thereafter look only to the REIT for
payment thereof, and all liability of the Paying Agent with
respect to such trust money, and all liability of the REIT as
trustee thereof, shall thereupon cease; provided, however, that
the Paying Agent, before being required to make any such
repayment, may at the expense of the REIT mail to MLI notice
that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from
the date of such mailing, any unclaimed balance of such money
then remaining will be repaid to the REIT.

5.4. To Keep Books; Access. The REIT shall keep proper
books of record and account, in which entries in reasonable
detail shall be made of all dealings or transactions of or in
relation to the Notes and the properties, business and affairs
of the REIT in accordance with generally accepted accounting
principles. The REIT shall furnish to MLI any and all
information and permit MLI reasonable access during customary
business hours to its books, records and properties as MLI may
reasonably request with respect to the performance by the REIT
of its covenants in this Agreement.

5.5. Trust Existence. Subject to Section 5.11 hereof and
the terms of the Declaration of Trust, the REIT shall do or
cause to be done all things necessary to preserve and keep in
full force and effect its trust existence, rights (charter and
statutory) and franchises; provided, however, that the REIT
shall not be required to preserve any such right or franchise
if the Trust Managers shall determine that the preservation
thereof is no longer desirable in the conduct of the business
of the REIT and that the loss thereof is not disadvantageous in
any material respect to MLI.

5.6. Indebtedness. The REIT shall not issue, incur or
create any Other Secured Debt, other than Other Secured Debt
incurred in connection with the refinancing of any Secured
Debt, Other Secured Debt or Prior Lien Obligations and which is

-9-
<PAGE> 10

in a principal amount not in excess of the Secured Debt, Other
Secured Debt or Prior Lien Obligations being refinanced, unless
immediately thereafter and after giving effect thereto, the
aggregate principal amount outstanding of all Other Secured
Debt, Secured Debt, Prior Lien Obligations and the Notes would
not exceed 50% of the sum of the Appraised Value of all of the
Properties which are real property (which shall include the
amount of any Prior Liens on such Collateral and shall be as
set forth in the most recent report of the Appraised Value of
the REIT's real property owned directly or indirectly by the
REIT), and the gross value of all of the REIT's other tangible
assets.

The REIT shall not issue, incur or create any Short-Term
Indebtedness, other than Short-Term Indebtedness incurred in
connection with the refinancing of any other Short-Term
Indebtedness or Long-Term Indebtedness and which is in a
principal amount not in excess of the Short-Term Indebtedness
or Long-Term Indebtedness being refinanced, unless immediately
thereafter and after giving effect thereto, (a) the aggregate
principal amount outstanding of Other Secured Debt, Short-Term
Indebtedness, Secured Debt, Prior Lien Obligations and the
Notes would not exceed 60% of the Appraised Value of all of the
Property (which shall include the amount of any Prior Liens on
such Collateral and shall be as set forth in the most recent
report of the Appraised Value of the real property, owned
directly or indirectly by the REIT) and the gross value of all
of the REIT's other tangible assets, and (b) the REIT's
Distributable Cash for the 12 months immediately preceding such
date of determination was equal to or greater than 300% of the
sum of Debt Service payable for the next succeeding 12-month
period and interest expense on the Short-Term Indebtedness to
be incurred.

During each year, the REIT shall be free from Short-Term
Indebtedness for a period of at least 30 consecutive calendar
days.

Any Other Secured Debt and Short-Term Indebtedness issued,
incurred or created by the REIT shall be expressly subordinated
to the payment of the Lien of the Indenture and the Mortgages
executed in connection therewith.

The REIT shall not issue, incur or create any Long-Term
Indebtedness in excess of $2,000,000 outstanding in the
aggregate at any time, other than Long-Term Indebtedness
incurred in connection with the refinancing of any other
Long-Term Indebtedness, Short-Term Indebtedness, Secured Debt,

-10-

<PAGE> 11
Other Secured Debt or Prior Lien Obligations and which is in a
principal amount not in excess of the Long-Term Indebtedness,
Short-Term Indebtedness, Secured Debt, Other Secured Debt or
Prior Lien Obligations being refinanced, unless such Long-Term
Indebtedness shall be expressly subordinated to the payment of
the Notes or the holders of the Notes shall have consented
thereto.

5.7. Payment of Taxes and Claims. The REIT shall pay,
when due, all taxes, assessments and governmental charges or
levies imposed upon it, the income of the REIT, the Collateral
or the proceeds arising from the disposition of the Collateral,
and all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons which, if
unpaid, might result in the creation of a Lien upon the income
of the REIT, the Collateral or the proceeds arising from the
disposition of the Collateral; provided that items of the
foregoing description need not be paid while being contested in
good faith and by appropriate proceedings.

5.8. Sales of Certain Properties. To the extent that the
Notes have not been redeemed or paid in full in accordance with
this Agreement by November 27, 1996 and the REIT shall not
have, prior to such date, obtained refinancing commitments from
bona fide creditors, in an amount sufficient to repay at Stated
Maturity the remaining outstanding principal balance of the
Notes, subject to the terms and provisions of the Indenture,
the REIT shall sell as soon as reasonably practicable such of
its Properties as is necessary in order to obtain funds
sufficient to retire the Notes at Stated Maturity.

5.9. Statement as to Compliance. The REIT shall deliver
to MLI, within 120 calendar days after the end of each calendar
year of the REIT ending after the date hereof, an Officer's
Certificate, stating whether or not to the knowledge of the
signer thereof the REIT is in default in the performance and
observance of any of the terms, provisions and conditions of
this Agreement and if the REIT shall be in default, specifying
all such defaults and the nature and status thereof of which it
may have knowledge.

The REIT shall deliver to MLI, within five Business Days
after the occurrence thereof, notice of any event which, with
the giving of notice or passage of time or both, would
constitute an Event of Default.

5.10. Distributions. The REIT shall not make
distributions to shareholders out of the Net Sales Proceeds of

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<PAGE> 12
the sale or refinancing of any Property, insurance payment or
condemnation proceeding, if the sum of the principal amount of
the Notes issued and outstanding hereunder and the principal
amount at Stated Maturity of the Zero Coupon Notes due 1997
issued and outstanding under the Indenture (reduced by the
amount, if any, of the Collateral in the Defeasance Account
described in the Indenture and the amount, if any, in the
Redemption Account described in the Indenture or held pursuant
to Section 501 of the Indenture) would be greater than 100% of
the sum of the most recent Appraised Value of all of the
Properties which are real property owned directly or indirectly
by the REIT (reduced by the amount of the Prior Lien
Obligations on all the Property and the amount attributable to
the gain on the proposed sale, based on the most recent
Appraised Value of such Property, or to the gain from the
insurance payment or condemnation proceeding) and the gross
value of all of the REIT's other tangible assets.
Notwithstanding the foregoing, nothing in this Section 5.10
shall prevent the REIT from making any distributions to
shareholders deemed necessary by the Trust Managers to maintain
the REIT's qualification as a real estate investment trust
under the Internal Revenue Code of 1986, as amended.

5.11. Merqer; Sale of Assets. The REIT shall not
consolidate with or merge into any other Person or convey or
transfer its properties and assets substantially as an
entirety, except as permitted under the Indenture. Subject to
the terms of the Indenture, upon any consolidation by the REIT
with or merger by the REIT into any other entity or any
conveyance or transfer of the REIT's properties and assets
substantially as an entirety in one transaction to one
purchaser, the REIT shall provide prompt written notice thereof
to MLI, and, subject to the terms of the Indenture, for a
period of 30 days following receipt of such notice, MLI shall
have the right, by delivering to the REIT a written demand for
redemption, to require the REIT to redeem the Notes at the
Redemption Price within 60 days following receipt by the REIT
of such demand by MLI.

5.12. Appraised Value to Debt Ratio. If at the end of any
calendar quarter of the REIT occurring during any of the
periods set forth below, the ratio of the sum of the Appraised
Value of the Properties and the gross value of all of the
REIT's other tangible assets to Total Outstanding Debt shall be
less than the ratio set forth opposite such period below, and
the REIT does not deliver to MLI, within 60 calendar days
thereafter, an Officer's Certificate certifying that on the
date of such Officer's Certificate such ratio is greater than

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<PAGE> 13
or equal to the applicable ratio, then subject to the terms of
the Indenture, MLI shall have the right, for a period of 30
days following the expiration of such 60-day period, by
delivering to the REIT a written demand for redemption, to
require the REIT to redeem the Notes at the Redemption Price
within 60 days following receipt by the REIT of such demand by
MLI.

<TABLE>
<CAPTION>
Period Ratio
------ -----

<S> <C>
February 27, 1992 through 1.10:1
November 27, 1993

November 28, 1993 through 1.15:1
November 27, 1995

November 28, 1995 until 1.20:1
payment of all outstanding
principal under the Notes
</TABLE>

5.13. Ratio of Operating Cash Flow to Operating Debt
Service. The REIT will maintain, as of the end of each
calendar year, a ratio of Operating Cash Flow to Operating Debt
Service during each time period as set forth below:

<TABLE>
<CAPTION>
Period Ratio
------ -----

<S> <C>
January 1, 1992 to 1.10:1
December 31, 1993

January 1, 1994 to 1.20:1
December 31, 1995

January 1, 1996 until the 1.30:1
payment of all outstanding
principal and interest
under the Notes
</TABLE>

If such ratio is not maintained, and as of June 30th of the
next calendar year, the REIT is not then in compliance with the
ratio in effect as of December 31st of the preceding year for
such six month period, then within 90 days after such
June 30th, the REIT will notify MLI, and MLI shall have the
right, for a period of 30 days following the expiration of such
90-day period, by delivering to the REIT a written demand for
redemption, to require the REIT to redeem the Notes at the
Redemption Price within 60 days following receipt by the REIT
of such demand by MLI.

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<PAGE> 14
5.14. Mandatory Prepayments. If prior to November 27,
1993, the REIT shall consummate the sale of any Property and
the Trust Managers shall make a determination not to use all of
the Net Proceeds of any such sale to either (i) hold as a
reserve in connection with the payments due on November 27,
1993 under Note A-1 and Note A-2, or (ii) make an Additional
Investment comprised of Zero Coupon Notes due 1997 or Prior
Lien Obligations prior to November 27, 1993, the Trust Managers
shall notify MLI of such determination and, in such event, MLI
shall have the right, by delivering written demand for
prepayment to the REIT, to cause the REIT to use any unutilized
net proceeds from any such sale or sales to make additional
prepayments, on a pro rata basis, with respect to Note A-1 and
Note A-2. If prior to November 27, 1993, the Trust Managers
shall make any Additional Investment in Zero Coupon Notes due
1997 using net proceeds from the sale of any Property, the REIT
agrees that the purchase price for such Zero Coupon Notes shall
be an amount less than or equal to the principal amount of such
Zero Coupon Notes at Stated Maturity discounted at 15 percent
semi-annually, determined as of the closing date of any such
purchase.

5.15. Treatment of MLI Notes. The Cancellation MLI Notes
shall be cancelled and shall not be treated as outstanding for
any purposes. The Investment MLI Notes shall remain
outstanding, but so long as the REIT is the holder of the
Investment MLI Notes, for purposes of Sections 5.6, 5.10, 5.12
and 5.13 hereof, the Investment MLI Notes shall not be included
in the determination of the Appraised Value of the Properties
or the gross value of the REIT's other tangible assets, and
notwithstanding that the REIT is not surrendering the
Investment MLI Notes to the Trustee under the Indenture for
cancellation, for purposes of this Agreement, the Investment
MLI Notes shall not be treated as outstanding in determining
outstanding Secured Debt, Other Secured Debt, Prior Lien
Obligations, Short-Term Indebtedness, Long-Term Indebtedness
and Total Outstanding Debt.

5.16. Use of Proceeds. The REIT shall use the proceeds
arising from any sale of any Property or any refinancing of any
indebtedness outstanding on the Properties only in accordance
with the terms and conditions of the Indenture and this
Agreement. Any operating income not applied or reserved by the
REIT to the payment of operating expenses, capital expenditures
or outstanding debt or not distributed by the REIT to its
shareholders shall be invested by the REIT only in the manner
permitted under the By-Laws and under the Indenture.

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<PAGE> 15
5.17. Copies of Reports and Other Information. The REIT
shall furnish or cause to be furnished to MLI, within 15
calendar days after the REIT is required to file the same with
the Commission, copies of the periodic information, documents
and other reports which the REIT is required to file with the
Commission pursuant to Section 13(a) of the Exchange Act. If
the REIT ceases to be required to file information, documents
and other reports pursuant to Section 13 of the Exchange Act,
it shall remain obligated to furnish the same information,
documents and reports otherwise required under Section 13(a) of
the Exchange Act to MLI within 15 days after the REIT would
have been required to file the same with the Commission.

The REIT shall also furnish or cause to be furnished to
MLI, within 15 calendar days after the effective date thereof,
copies of any amendment or modification to the By-Laws,
Declaration of Trust or Indenture.

5.18. Related Party Transactions. The REIT shall not at
any time engage in any transaction with its Trust Managers,
except as permitted in the By-Laws.

VI. EVENTS OF DEFAULT; REMEDIES.

6.1. Events of Default. "Event of Default", wherever used
herein with respect to the Notes, means any one of the
following events (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any
administrative or governmental body):

(a) a default in the payment of any principal of any
of the Notes when the same shall become due or a default in
the payment of any interest on any of the Notes and
continuance of such default for a period of five Business
Days after there has been given, by registered or certified
mail, to the REIT by the holder of such Note a written
notice specifying such default and requiring it to be
remedied and stating that such notice is a "Notice of
Default" hereunder;

(b) a default in the performance, or breach, of any
other covenant or of any representation and warranty of the
REIT under this Agreement (other than a covenant or
representation and warranty, the default or breach of which
is elsewhere specifically dealt with in this Section 6.1)
and continuance of such default or breach for a period of
30 consecutive calendar days after there has been given, by

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<PAGE> 16
registered or certified mail, to the REIT by any holder of
the Notes a written notice specifying such default or
breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; provided,
however, that such cure period will be extended for another
single 30-day period if the default or breach has not been
cured within that period but the REIT has commenced efforts
to cure the default or breach and thereafter proceeds to
cure same with due diligence;

(c) a default under any bond, debenture, note or
other evidence of indebtedness for money borrowed by the
REIT or under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured
or evidenced any indebtedness for money borrowed by the
REIT (excluding this Agreement), whether such indebtedness
now exists or shall hereafter be created, which default
shall constitute a failure to pay any portion of the
principal of, or interest, if any, on such indebtedness
when due and payable after the expiration of any applicable
grace period with respect thereto or shall have resulted in
such principal amount of indebtedness becoming or being
declared due and payable prior to the date on which it
would otherwise have become due and payable, without such
indebtedness having been discharged, or such acceleration
having been rescinded, stayed, annulled, or waived within a
period of 20 calendar days after there shall have been
given, by registered or certified mail, to the REIT by any
holder of the Notes, a written notice specifying such
default and requiring the REIT to cause such indebtedness
to be discharged or cause such acceleration to be rescinded
or annulled and stating that it is a "Notice of Default"
hereunder;

(d) the entry by a court having jurisdiction in the
premises of (i) a decree or order for relief in respect of
the REIT in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree or
order adjudging the REIT a bankrupt or insolvent, or
approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of
or in respect of the REIT under any applicable Federal or
State law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official
of the REIT or of any substantial part of the REIT's
property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and
in effect for a period of 60 consecutive calendar days; or

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<PAGE> 17
(e) the commencement by the REIT of a voluntary case
or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law
or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of
a decree or order for relief in respect of the REIT in an
involuntary case or proceeding under any applicable Federal
or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by
it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or
State law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the REIT or of any
substantial part of the REIT's property, or the making by
it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its
debts generally as they become due.

6.2. Remedies.

(a) Acceleration. If an Event of Default shall have
occurred and be continuing under Section 6.1(a) hereof, MLI
may declare any or all Notes to be due and payable
immediately, by notice in writing to the REIT, and upon any
such declaration, such Note or Notes shall thereupon become
immediately due and payable. If any other Event of Default
shall have occurred and be continuing, any holder of the
Notes may declare the Notes to be due and payable
immediately, by notice in writing to the REIT, and upon any
such declaration, such Notes shall thereupon become
immediately due and payable.

The provisions of this Section 6.2(a) are subject,
however, to the condition that if, at any time after such a
declaration of acceleration with respect to any Note has
been made and before a judgment or decree for payment of
the money due has been obtained as hereinafter in this
Article IV provided, the REIT shall pay all arrears of
interest on such Note and all payments on account of the
principal of and premium (if any) on such Note which shall
have become due otherwise than by acceleration and all
Events of Default (other than nonpayment of principal of
and accrued interest on such Note due and payable solely by
virtue of acceleration) shall be remedied then, and in
every such case, the holder of such Note, by written notice

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<PAGE> 18
to the REIT, may rescind and annul any such acceleration
and its consequences; but no such action shall affect any
subsequent Default or Event of Default or impair any right
consequent thereof.

(b) Collection of Indebtedness and Suits for
Enforcement by MLI. The REIT covenants that if default is
made in the payment of the principal of any Note at the
maturity thereof, the REIT will, upon demand of the holder
of such Note, pay to MLI the whole amount then due and
payable on such Note and, to the extent that payment of
such interest shall be legally enforceable, interest on any
overdue principal at the rate prescribed therefor in such
Note, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of
collection.

If the REIT fails to pay such amounts forthwith upon
such demand, MLI may exercise its rights and remedies
hereunder and may institute a judicial proceeding for the
collection of the sums so due and unpaid, may prosecute
such proceeding to judgment or final decree and may enforce
the same against the REIT or any other obligor upon such
Note and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property
of the REIT or any other obligor upon such Note, wherever
situated.

If an Event of Default occurs and is continuing, MLI
may in its discretion proceed to protect and enforce its
rights hereunder by such appropriate judicial proceedings
as MLI shall deem most effectual to protect and enforce any
such right, whether for the specific enforcement of any
covenant or agreement in this Agreement or in aid of the
exercise of any power granted herein, or to enforce any
other proper remedy.

(c) Other Remedies. If any Event of Default shall
occur and be continuing, MLI may proceed to protect and
enforce its rights under the Notes and under this Agreement
by exercising such remedies as are available to it in
respect thereof under applicable law, either by suit in
equity or by action at law, or both, whether for specific
performance of any covenant or the exercise of any power
granted in this Agreement. No remedy conferred in this
Agreement upon MLI is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative
and shall be in addition to every other remedy conferred
herein or now or hereafter existing at law or in equity or
by statute or otherwise.

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<PAGE> 19
VII. DEFINITIONS.

7.1. Defined Terms. For the purpose of this Agreement, unless
otherwise defined herein, the following terms shall have the meanings
specified with respect thereto below and shall include the plural as well as
the singular:

"Additional Investments" shall mean any investment
permitted by the By-Laws, other than the Specified
investments or Overallotment Investments.

"Advisor" shall mean Trammell Crow Ventures, Ltd., a
Texas limited partnership acting through its general
partner, Trammell Crow Ventures, Inc., a Texas corporation,
or such other Person as to whom the REIT may give written
notice to MLI.

"Agreement" shall mean this Note Purchase Agreement,
as amended or supplemented from time to time.

"Appraised Value" shall mean fair market value as
determined by an Appraiser selected by the REIT.

"Appraiser" shall mean an Independent engineer,
appraiser or other expert who may be employed by the REIT
or the Advisor on behalf of the REIT.

"Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which
banking institutions in the State of Texas are authorized
or obligated by law to close.

"By-Laws" shall mean the By-Laws of the REIT, as
amended from time to time.

"Cancellation MLI Notes" shall have the meaning
ascribed to it in Section 1.1 of this Agreement.

"Closing Date" shall mean February 27, 1992.

"Collateral" shall mean all money, instruments and
other property subject to the lien of the Indenture or any
of the mortgages executed in connection therewith.

"Commission" shall mean the Securities and Exchange
Commission, as from time to time constituted, created under
the Exchange Act, or, if at any time after the execution of
this Agreement such Commission is not existing and
performing the duties now assigned to it under the Trust

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<PAGE> 20
Indenture Act of 1939, as amended, then the body performing
such duties at such time.

"Debt Service" shall mean, for any period, the sum of
(a) interest expense (other than amortization of original
issue discount) actually payable on all indebtedness of the
REIT for such period, and (b) the principal amount of
indebtedness of the REIT that matured on, or was by its
terms due to be repaid or renewed during such period.

"Declaration of Trust" shall mean that certain
Declaration of Trust of the REIT, dated as of September 26,
1985, as amended from time to time.

"Default" shall mean any Event of Default whether or
not any requirement for the giving of notice, or the lapse
of time, or the happening of any further condition, event
or act has been satisfied.

"Distributable Cash" for any period shall mean
operating income of the REIT less tenant improvements,
leasing commissions, advisory and incentive management fees
and administrative expenses, plus interest income.

"Event of Default" shall mean any of the events
specified in Section 6.1 of this Agreement, provided that
there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time,
or the happening of any further condition, event or act.

"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.

"Indenture" shall have the meaning ascribed to it in
Recital A of this Agreement.

"Independent" when used with respect to any specified
Person shall mean such a Person who (a) is not MLI, an MLI
Affiliate or a TCC Entity, (b) does not own any interest in
MLI, an MLI Affiliate or a TCC Entity, and (c) does not
perform any other services for the REIT, MLI, any MLI
Affiliate or any TCC Entity except in the capacity in which
he is performing services for the REIT or MLI, as
applicable, and with respect to which such Person's
independence is at issue. Whenever it is herein provided
that any independent Person's opinion or certificate shall
be furnished by the REIT such Person shall be appointed by
a REIT Order and shall have been approved by the Trustee
under the Indenture in the exercise of reasonable care (or

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<PAGE> 21
by MLI if the Indenture is no longer in effect), and such
opinion or certificate shall state that the signer has read
this definition and that the signer is independent within
the meaning hereof.

"Investment MLI Notes" shall have the meaning ascribed
to it in Section 1.1 of this Agreement.

"Lien" shall mean any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind
(including any agreement to give any of the foregoing), any
conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement
to give any financing statement under the Uniform
Commercial Code of any jurisdiction.

"Long-Term Indebtedness" shall mean unsecured
indebtedness of the REIT for borrowed money which by its
terms is payable or matures more than one year from the
date of its incurrence, including without limitation the
Notes.

"MLI" shall have the meaning ascribed to it in the
first paragraph of this Agreement.

"MLI Affiliate" shall mean any Person directly or
indirectly controlling or controlled by or under direct or
indirect common control with MLI.

"MLI Notes" shall have the meaning ascribed to it in
Recital A of this Agreement.

"Net Proceeds" shall mean the gross sales price
received by the REIT from the sale of all or any portion of
the Properties, less Selling Expenses and less the amount
of any Prior Lien Obligations assumed by the purchaser or
repaid in connection with any such sale of any Property.

"Net Sales Proceeds" shall mean the gross sales price
received by the REIT from the sale of all or any portion of
the Properties, less Selling Expenses; provided, however,
that with respect to a sale of a Property for which
purchase money financing is provided by the REIT, such
purchase money financing shall be converted to a cash
equivalent based upon comparable loans having similar
maturities.

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<PAGE> 22
"Note A-1" shall have the meaning ascribed to it in
Section 1.1 of this Agreement, and shall include each note
delivered in substitution or exchange therefor.

"Note A-2" shall have the meaning ascribed to it in
Section 1.1 of this Agreement, and shall include each note
delivered in substitution or exchange therefor.

"Note B-1" shall have the meaning ascribed to it in
Section 1.1 of this Agreement, and shall include each note
delivered in substitution or exchange therefor.

"Note B-2" shall have the meaning ascribed to it in
Section 1.1 of this Agreement, and shall include each note
delivered in substitution or exchange therefor.

"Notes" shall mean Note A-1, Note A-2, Note B-1 and
Note B-2, and where applicable, shall include the singular
number as well as the plural.

"Officer's Certificate" shall mean with respect to the
REIT, a certificate signed by any Trust Manager or any
authorized officer of the REIT or by the Advisor on behalf
of the REIT and delivered to MLI.

"Operating Cash Flow" shall mean, for any period, the
excess of (i) cash receipts from the operation of the
Properties or from the sale of any Property (provided that
the net proceeds from any such sale are used to reduce
indebtedness of the REIT), including interest earned on
such receipts, less (ii) cash operating expenses (which
shall not include any capital expenditures) paid in
connection with the direct operation of each of the
Properties, other than interest expense paid with respect
to any Prior Lien Obligations with respect to any of the
Properties.

"Operating Debt Service" shall mean, for any period,
the sum of (a) interest expense (other than amortization of
original issue discount) required to be paid on all
indebtedness of the REIT in such period, and (b) the
principal amount of indebtedness of the REIT that was
repaid during such period, excluding any such repayment
with respect to any indebtedness that was renewed during
the period, the repayment of indebtedness arising from the
repurchase by REIT of any of its Zero Coupon Notes due 1997
pursuant to this Agreement or otherwise or the repayment of
the indebtedness associated with Note A-1 or Note A-2.

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<PAGE> 23
"Optional Notes" shall mean an aggregate of
$23,439,000 principal amount at stated maturity of Zero
Coupon Notes due 1997 that were issued under the Indenture
and sold in conjunction with the exercise of an
overallotment option on the Shares.

"Other Secured Debt" shall mean all secured
indebtedness of the REIT for borrowed money other than
Secured Debt.

"Overallotment Investments" shall mean the interests
in any one or more real estate investments (a) approved by'
a majority of the Independent Trust Managers, (b) located
outside Texas, (c) of the same general types and quality as
the Specified Investments, (d) developed and owned by TCC
Entities, and (e) acquired with the proceeds of the Optional
Notes and the Shares sold pursuant to an overallotment option
thereon.

"Paying Agent" shall mean any Person authorized by the
REIT to pay the principal of and interest on the Notes on
behalf of the REIT.

"Permitted Liens" shall mean (a) Liens for taxes and
assessments, both general and special, not yet due and
payable or which are due and payable but not yet delinquent
or which are currently being contested in good faith by
appropriate proceedings; (b) Liens of mechanics,
materialmen, warehousemen, carriers or other like Liens for
services or materials for which payment is not yet due or
which is being contested in good faith by appropriate
proceedings; (c) landlords' Liens for rentals not yet due
and payable; (d) Liens in respect of judgments or awards
with respect to which the REIT shall in good faith
currently be prosecuting an appeal or proceedings for
review and with respect to which the REIT shall have
secured a stay of execution pending such appeal or
proceedings for review, provided that the REIT shall have
set aside on its books adequate reserves with respect
thereto; (e) easements and rights granted by any
predecessor in title of the REIT; (f) easements, leases,
reservations or other rights of others in any Property of
the REIT for streets, roads, bridges, pipes, pipe lines,
railroads, electric transmission and distribution lines,
telegraph and telephone lines, the removal of oil, gas,
coal or other minerals and for other similar purposes,
flood rights, river control and development rights, sewage
and drainage rights, none of which impair the use of the

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<PAGE> 24
Property by the REIT in the operation of its business;
(g) Liens or privileges of any employees of the REIT for
salary or wages earned but not yet payable; (h) any Lien or
privilege vested in any lessor, licensor or permittor for
rent to become due or for other obligations or acts to be
performed, the payment of which rent or the performance of
which other obligations or acts is required under leases,
subleases, licenses or permits, so long as the payment of
such rent or the performance of such other obligations or
acts is not delinquent; (i) encumbrances and restrictions
consisting of zoning restrictions, assessments or other
restrictions on the use of real property, none of which
impair the use of the Property by the REIT in the operation
of its business; (j) any other conditions, covenants,
restrictions or exceptions to the title of the Property
specified in any title insurance policy obtained by the
REIT upon acquisition of the Property; and (k) leases
affecting any Property prior to or simultaneously with its
acquisition by the REIT.

"Person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a joint-stock
company, a trust, an association, an unincorporated
organization and a government or any department or agency
thereof.

"Prior Lien" shall mean any Lien in any Property which
exists at the time of its acquisition by the REIT which is
prior to or on a parity with the lien of the Indenture,
other than Permitted Liens.

"Prior Lien Obligations', shall mean any indebtedness
and the evidence thereof, if any, secured by a Prior Lien.

"Property", shall mean the interests of the REIT in
(a) the Specified Investments, (b) the Overallotment
Investments, if any, and (c) the Additional Investments, if
any.

"Qualified Institutional Investor" shall mean a
"qualified institutional buyer" as defined in Rule 144A
promulgated under the Securities Act.

"Redemption Price shall mean the sum of (a) the
principal amount of the Note being redeemed, and (b) all
interest accrued on the principal amount being prepaid.

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<PAGE> 25
"REIT" shall have the meaning ascribed to it in the
first paragraph of this Agreement.

"REIT Order" shall mean a written order signed in the
name of the REIT by any of its Trust Managers, authorized
officers or by the Advisor on behalf of the REIT and
delivered to MLI.

"Secured Debt" shall mean the then-accreted amounts of
the Zero Coupon Notes due 1997 issued and outstanding
pursuant to the Indenture.

"Securities Act" shall mean the Securities Act of
1933, as amended.

"Selling Expenses" shall mean all costs, fees and
expenses incurred by the REIT in connection with the sale
of a Property, including without limitation all transfer,
gains and sales taxes, sales commissions, finder's fees,
incentive management and advisory fees, title policy
premiums, endorsement charges, escrow fees, legal and
accounting fees, survey expenses, and title company charges.

"Shares" shall mean the shares of beneficial interest,
par value $0.10 per share, of the REIT.

"Short-Term Indebtedness" shall mean unsecured
indebtedness of the REIT for borrowed money which by its
terms is payable on demand or matures not more than one
year from the date of its incurrence.

"Specified Investments" shall mean (a) the fee simple
interest in each of the real estate investments listed on
Schedule I to the Indenture and (b) the 99.99% interests in
each of Crow-Maryland #2, a Texas limited partnership, and
Crow-Patapsco Service Center #2 Ltd., a Texas limited
partnership.

"Stated Maturity" when used with respect to any Notes,
shall mean the date specified in such Note as the fixed
date on which the principal of such Note is due and payable.

"TCC Entity" shall mean the general partnerships,
limited partnerships, joint ventures and corporations that
operate under the name "Trammell Crow Company" and the
individuals who are members of the Management Board of, or
are designated as Partners or Managing Directors in,
Trammell Crow Company or Chief Executive Officers of the
regional operating subsidiaries of Trammell Crow Company.

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<PAGE> 26
"Total Outstanding Debt" shall mean the aggregate
principal amount of indebtedness of the REIT for borrowed
money outstanding from time to time, including without
limitation the then-accreted amount of Secured Debt,
determined in accordance with generally accepted accounting
principles.

"Transferee" shall mean any direct or indirect
transferee of all or any part of any Note or any Person who
purchases a participation in such Note from MLI.

"Trustee" shall have the meaning ascribed to it in
Recital A of this Agreement.

"Trust Managers" shall mean the persons named as Trust
Managers in the Declaration of Trust.

7.3. Knowledge. "To the knowledge of" or words of similar
import shall mean the actual knowledge of any individual
officer of the REIT.

7.3. Accounting Terms. All accounting terms not otherwise
defined herein shall have the meanings assigned to them in
accordance with generally accepted accounting principles, and,
except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such
accounting principles as are generally accepted at the date of
such computation.

VIII. MISCELLANEOUS.

8.1. Form of Documents Delivered to MLI. In any case
where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by
the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters
in one or several documents.

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<PAGE> 27
care should know, that the certificate or opinion or
representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such
certificate or opinion of counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of,
or representations by, an officer or officers of the REIT
stating that the information with respect to such factual
matters is in the possession of the REIT, unless such counsel
knows, or in the exercise of reasonable care should know, that
the certificate or opinion or representations with respect to
such matters are erroneous.

Where any Person is required to make, give or execute two
or more applications, requests, consents, certificates,
statements, opinions or other instruments under this Agreement,
they may, but need not, be consolidated and form one instrument.

8.2. Consents to Amendments. This Agreement may be
amended, or the observance of any term of this Agreement may be
waived, with the written consent of the holder of any Note.
Such holder shall be bound by any consent authorized by this
Section 8.2, whether or not such Note shall have been marked to
indicate such consent, but any Note issued thereafter may bear
a notation referring to any such consent. No course of dealing
between the REIT and MLI or the holder of any Note nor any
delay in exercising any rights hereunder or under such Note
shall operate as a waiver of any rights of MLI or such holder.

8.3. Persons Deemed Owners; Participation; Restriction on
Transferees. Prior to due presentment for registration of
transfer, the REIT may treat the Person in whose name any Note
is registered as the owner and holder of such Note for the
purpose of receiving payment of principal of and premium, if
any, and interest on such Note and for all other purposes
whatsoever, whether or not such Note shall be overdue, and the
REIT shall not be affected by notice to the contrary. Subject
to the preceding sentence and only with the prior written
consent of the REIT (which consent shall not be unreasonably
withheld), (a) MLI and each other holder of any Note may from
time to time grant participations in all or any part of such
Note to any Person, on such terms and conditions as may be
determined by such holder in its sole and absolute discretion,
and (b) MLI and the holder of any Note may from time to time
transfer all of its interest in such Note to a Person which is
either (i) a subsidiary or affiliate of such holder or (ii) a
Qualified Institutional Investor; provided, however, that if
the Transferee has a significant lending, financial or other
relationship with the REIT or its Advisor, the REIT shall have

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<PAGE> 28
no obligation, reasonable or otherwise, to consent to such
transfer. Each holder agrees to pay and save the REIT harmless
from and against liability for the payment of any taxes in
connection with the transfer of any Note. Notwithstanding
anything contained in this Agreement or the Notes to the
contrary, if on or after the Closing Date MLI shall grant
participations in all or any part of, or transfer, any Note,
the REIT shall only be obligated to deliver to MLI any notices,
demands, requests, documents and other information required to
be delivered hereunder or under the Notes by the REIT, and MLI
shall, promptly upon receipt thereof, distribute to each
Transferee such notices, demands, requests, demands and other
information.

8.4. Survival of Representations and Warranties; Entire
Agreement. All representations and warranties contained herein
or made in writing by MLI or the REIT in connection herewith
shall survive the execution and delivery of this Agreement and
the Notes, the transfer of any Note or interest therein and the
payment of any Note, and may be relied upon by any Transferee,
regardless of any investigation made at any time by or on
behalf of MLI or any Transferee. Subject to the preceding
sentence, this Agreement and the Notes embody the entire
agreement and understanding between MLI and the REIT and
supersede all prior agreements and understandings relating to
the subject matter hereof.

8.5. Successors and Assigns. All covenants and other
agreements in this Agreement contained by or on behalf of any
of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto.

8.6. Disclosure to Other Persons. The REIT acknowledges
that MLI or a holder of any Note may deliver copies of any
financial statements and other documents delivered to MLI or
such holder and disclose any other information disclosed to MLI
or such holder by or on behalf of the REIT in connection with
or pursuant to this Agreement to (a) MLI's or such holder's
directors, officers, employees, agents and professional
consultants, (b) any Person to which MLI or such holder offers
to sell any Note, (c) any Person to which MLI or such holder
sells or offers to sell a participation in all or any part of
any Note, (d) any federal or state regulatory authority having
jurisdiction over MLI or such holder, (e) the National
Association of Insurance Commissioners or any similar
organization, or (f) any other Person to which such delivery or
disclosure may be necessary or appropriate (i) in compliance
with any law, rule, regulation or order applicable to MLI or

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<PAGE> 29
such holder, (ii) in response to any subpoena or other legal
process, (iii) in connection with any litigation to which MLI
or such holder is a party, or (iv) in order to protect MLI's or
such other holder's investment in the Note.

8.7. Notices. Any notice or demand permitted or required
hereby shall be made in writing and shall be effective and
deemed delivered and received upon the earlier of (a) the day
of actual receipt via telex, telecopy, telegram or hand
delivery (including, without limitation, Federal Express and
other overnight courier service) of the written notice or
demand by the party to whom the notice or demand is given or
(b) three days after the written notice or demand is deposited
in the United States mail postage paid, first class, certified
or registered mail with return receipt requested and addressed
to the party to whom the notice or demand is being given at the
address provided herein for notices (whether or not the notice
or demand is actually received). The address for notices to
MLI shall be the address stated herein for payments and the
address for notices to the REIT shall be 3500 Trammell Crow
Center, 2001 Ross Avenue, Dallas, Texas 75201, Attention:
Managing Partner, Trammell Crow Ventures; provided that either
party may change its address for notices to any other location
within the continental United States by notifying the other
party of the new address in the manner provided herein for the
giving of notices, with such change to become effective 10 days
after notice of the change of address is given.

8.8. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the
construction hereof.

8.9. Reproduction of Documents. This Agreement and all
documents relating hereto, including without limitation
(a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by MLI on the Closing Date
(except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter
furnished to MLI or any holder of any Note, may be reproduced
by any photographic, photostatic, microfilm, micro-card,
miniature photographic or other similar process and MLI or such
holder may destroy any original document so reproduced. The
REIT agrees and stipulates that any such reproduction shall, to
the extent permitted by applicable law, be admissible in
evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in
existence) and that any enlargement, facsimile or further
reproduction of the reproduction shall likewise be admissible

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<PAGE> 30
in evidence, whether or not such reproduction was made by MLI
or such holder in the regular course of business and, in the
case of any such further reproduction, whether or not the
original reproduction is in existence and available for
inspection at the time of any such proceedings.

8.10. Separability Clause; Limitations on Interest. In
case any provision in this Agreement or the Notes shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby. Furthermore, all agreements
of the REIT whether now existing or hereafter arising and
whether written or oral, are expressly limited so that in no
contingency or event whatsoever shall the amount paid, or
agreed to be paid to MLI for the use, forbearance or detention
of the indebtedness evidenced by the Notes or for the
performance or payment of any covenant or obligation contained
herein, exceed the maximum amount permissible under applicable
law from time to time in effect. If for any reason whatsoever
fulfillment of any provision hereof or of any other document
evidencing, securing or pertaining to this Agreement at the
time performance of such provision shall be due, shall involve
transcending the limit of validity, and if under any such
circumstances MLI shall ever receive anything of value deemed
interest under applicable law from time to time in effect which
would exceed interest at the highest lawful rate, such amount
that would be excessive interest shall be applied to the
reduction of the principal amount owing under the Notes and not
to the payment of interest, or if such amount that would be
excessive interest exceeds the unpaid balance of Principal of
the Notes, such excess shall be refunded to the REIT.

8.11. Benefits of Agreement. Nothing in this Agreement or
the Notes, express or implied, shall give to any Person, other
than the parties hereto and thereto, their successors hereunder
and thereunder, any benefit or any legal or equitable right,
remedy or claim under this Agreement or the Notes.

8.12. Brokers and Finders. Neither party has had any
contact or dealings with respect to the Notes, or any
communication in connection with the subject matter of this
transaction, through any broker or other Person who can claim a
right to a commission or finder's fee in connection with the
sale contemplated herein. In the event that any broker or
finder perfects a claim for a commission or finder's fee based
upon any such contact, dealings or communication, the party
through whom the broker or finder makes its claim shall be

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<PAGE> 31
responsible for said commission or fee and all costs and
expenses (including reasonable attorneys' fees) incurred by the
other party in defending against the same.

8.13. Governing Law; Venue. This Agreement and the Notes
shall be governed by and construed in accordance with the
internal laws of the State of Texas, without giving effect to
the principles of conflict of laws thereof. Any legal suit,
action or proceeding against the REIT or MLI arising out of or
relating to this Agreement or the Notes shall be instituted in
any federal or state court in Dallas, Texas, and each of the
REIT and MLI waives any objection which it may now or hereafter
have to the laying of venue of any such suit, action or
proceeding.

8.14. Legal Holidays. In any case where any payment date
or the Stated Maturity of any Note shall not be a Business Day,
then (notwithstanding any other provision of this Agreement or
of the Notes) payment of principal need not be made on such
day, but may be made on the next succeeding Business Day with
the same force and effect as if made on such payment date or at
the Stated Maturity; provided that no interest shall accrue for
the period from and after the Stated Maturity.

8.15. Limitation of Liability. Any obligation or
liability whatsoever of the REIT which may arise at any time
under this Agreement or the Notes, or any obligation or
liability incurred by it pursuant to any other instrument,
transaction or undertaking contemplated by this Agreement or
the Notes, shall be satisfied, if at all, out of the REIT's
property only. No such obligation or liability shall be
personally binding upon nor shall there be any resort for the
enforcement thereof to the private property of any of its Trust
Managers, shareholders, officers, employees or agents,
regardless of whether such obligations or liability is in the
nature of contract, tort or otherwise.

8.16. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one
such counterpart.

8.17. No Joint Venture. The REIT and MLI intend that the
relationship created under this Agreement and the Notes be
solely that of debtor and creditor. Nothing herein or in the
Notes is intended to create a joint venture, partnership,

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<PAGE> 32
tenancy-in-common or joint tenancy relationship between the
REIT and MLI, nor to grant MLI any interest in the Properties
or the REIT itself other than that of creditor.

IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first written above.

TRAMMELL CROW REAL ESTATE INVESTORS

By: /s/ JAMES S. WASSEL
___________________________________
James S. Wassel, Vice President

MANUFACTURERS LIFE INSURANCE COMPANY

By /s/ RAYMOND L. BRITT, JR.
___________________________________
Name: RAY BRITT
________________________________
Title: INVESTMENT V.P.
________________________________

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<PAGE> 33
SCHEDULE I

Actions Pending

1. Teressa L. Marks v. TCREI and Westinghouse Electric
Corp. This is an alleged negligence (personal injury) action
in which TCREI was wrongly named as a party; TCREI does not own
the property in question. TCREI is expected to be removed as
the defendant. A settlement conference has been scheduled for
March 12, 1992.

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<PAGE> 34
Exhibit A-1

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND IS SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFERABILITY AS SET FORTH HEREIN
AND IN A NOTE PURCHASE AGREEMENT, DATED AS OF FEBRUARY 27,
1992, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE REIT.
THIS NOTE MAY NOT BE TRANSFERRED IN VIOLATION OF THE SECURITIES
ACT, ANY STATE SECURITIES LAWS OR THE RULES AND REGULATIONS
UNDER ANY OF THEM, OR THE PROVISIONS OF THIS NOTE OR OF THE
NOTE PURCHASE AGREEMENT.

Unsecured Promissory Note Due November 27, 1997

$4,889,425.08 February 27, 1992

TRAMMELL CROW REAL ESTATE INVESTORS, a real estate
investment trust duly organized and existing under the laws of
the State of Texas (the "REIT"), for value received, hereby
promises to pay to the order of GERLACH & CO. or its permitted
assigns ("MLI") at Citibank, N.A., 111 Wall Street 14th
Floor/Zone 5, New York, New York 10043, ABA No. 021000089 (Fed.
Wire: CITIBANK NYC/CUST/CONCENTRATION ACCT #36858201 FOR FURTHER
CREDIT TO ACCT #846194) (or such other party or place as MLI may
from time to time designate in writing to the REIT) the
principal sum of FOUR MILLION, EIGHT HUNDRED EIGHTY-NINE
THOUSAND, FOUR HUNDRED TWENTY-FIVE AND 08/100THS DOLLARS
($4,889,425.08), together with interest on the principal hereof
from time to time remaining unpaid at the interest rates
hereinafter stated, at such times and on such terms and
conditions as are hereinafter set forth. All capitalized terms
used in this Note which are used but not defined herein shall
have the respective meanings ascribed to them in the Note
Purchase Agreement, dated as of February 27, 1992, between the
REIT and MLI (as amended, modified, supplemented, renewed or
extended from time to time, the "Note Purchase Agreement").

1. Rate and Computation of Interest.

(a) Interest Rate. The unpaid principal balance of
this Note from time to time outstanding shall bear interest
from the date hereof until this Note shall have been paid in
full at a rate of 8.80% per annum, but in no event higher

<PAGE> 35
than the maximum rate of interest permitted under applicable
law.

(b) Default Rate. Notwithstanding any other
provisions hereof, upon an Event of Default in the payment
of the principal balance hereof, such unpaid principal shall
bear interest at the rate of 11.7% per annum, but in no
event higher than the maximum rate of interest permitted
under applicable law.

(c) Computation. All interest hereunder shall be
computed on the basis of a year of 365 or 366 days, as
applicable, for the actual number of days elapsed.

2. Payment of Principal and Interest. Payments of
principal and interest shall be due and payable as follows:

(a) Interest. The accrued but unpaid interest on the
outstanding principal balance of this Note as of May 27,
1992 and November 27, 1992 shall, in each case, be deferred
and added to the outstanding principal balance of this Note
on such dates. Upon any such deferral and addition to the
outstanding principal balance of this Note, at the written
request of MLI, the REIT will issue a new note for the
then-outstanding principal balance hereof in exchange for
this Note. The accrued but unpaid interest on the
outstanding principal balance of this Note shall be due and
payable semi-annually in arrears on the 27th day of each May
and November in each year, commencing May 27, 1993, and on
the Maturity Date. All interest which accrues at the
Default Rate shall be due and payable on demand.

(b) Principal. $3,612,000 shall be due and payable to
MLI on or before November 27, 1993, and shall be applied to
the reduction of principal. The remaining outstanding
principal balance of this Note, together with accrued but
unpaid interest thereon shall be due and payable to MLI on
November 27, 1997 or on such earlier date as may be required
or permitted under this Note (the "Maturity Date").

(c) Manner of Payment and Application of Funds. All
sums payable hereunder shall be payable by the REIT to MLI
on the day when due in such coin or currency of the United
States of America as at the time of payment is legal tender
for payment of public and private debts. Subject to the
provisions hereof regarding legal interest limitations and
except as otherwise provided herein, any amount paid to MLI
by the REIT pursuant to this Note shall be applied first to

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<PAGE> 36
the payment of any costs and expenses of collection of this
Note, second to accrued but unpaid interest and third to the
reduction of principal.

(d) Payment on Business Days. If any payment to be
made hereunder shall become due on a day other than a
Business Day, such payment shall be made on the Business Day
immediately following the day on which such payment would
otherwise have been due.

4. Prepayment.

(a) Voluntary. This Note may be voluntarily prepaid,
in whole or in part, without premium or penalty, upon 10
days prior written notice by the REIT to MLI, specifying the
date and amount of prepayment. Any voluntary prepayment
shall be accompanied by all interest accrued on the
principal amount being prepaid. In the event of voluntary
prepayment of this Note in part only, a new note or notes
for the unpaid portion hereof will be issued.

(b) Mandatory. Pursuant to Section 5.14 of the Note
Purchase Agreement, MLI may cause the REIT to make a
mandatory prepayment on this Note in accordance with the
provisions of such Section. In the event of mandatory
prepayment of this Note in part only, a new note or notes
for the unpaid portion hereof will be issued.

5. Redemption. In the event that the REIT shall breach its
obligations under Sections 5.12, 5.13 or 5.14 of the Note
Purchase Agreement, and any such breach is not cured within the
time period specified in the applicable Section, MLI shall have
the right, by delivering to the REIT a written demand for
redemption, to require the REIT to redeem this Note at the then
applicable Redemption Price. The REIT shall redeem this Note by
delivery to MLI of the Redemption Price within 60 days following
receipt by the REIT of such demand by MLI for redemption.

6. Default. The occurrence of any Event of Default under
the Note Purchase Agreement shall be an "Event of Default"
hereunder.

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<PAGE> 37
and pursue any and all other remedies available to MLI at law or
equity or pursue any combination of the above, all remedies
hereunder or under the Note Purchase Agreement being
cumulative. The failure to exercise any of the foregoing
options upon the happening of one or more Events of Default
shall not constitute a waiver of the right to exercise the same
at any subsequent time in respect of the same Event of Default
or any other Event of Default. The acceptance by MLI of any
payment hereunder which is late or is less than the payment in
full of all amounts due and payable an the time of such payment
shall not (a) constitute a waiver of the right to exercise any
of the foregoing options at that time or at any subsequent time
or nullify any prior exercise of such options, (b) constitute a
waiver of the right to receive timely payments in the future, or
(c) constitute a waiver of the right to receive payment in full
of all amounts due and payable at the time of such payment.

8. Waiver. Except as may be specifically otherwise
provided herein or in the Note Purchase Agreement, the REIT and
any endorsers or guarantors hereof severally waive notice,
grace, presentment and demand for payment, notice of dishonor,
notice of intent to accelerate maturity, notice of acceleration
of maturity, protest and notice of protest and non-payment or
bringing of suit and diligence in taking any action to collect
any sums owing hereunder. The REIT and any endorsers or
guarantors hereof agree that from time to time and without
notice, MLI may extend the time for any payments hereunder and
accept partial payments of this Note, both before and after the
Maturity Date, all without in any manner affecting the liability
of the REIT or any endorser or guarantor under or with respect
to this Note, even though the REIT or such endorser or guarantor
is not a party to such agreement.

9. Collection Expenses. The REIT agrees to pay upon
demand, any and all costs incurred in collecting any amounts due
under this Note, including, but not limited to, all reasonable
attorneys' fees, expenses and court costs, whether or not any
legal action shall be instituted to enforce this Note in
bankruptcy court, probate court or any other court, or in any
other manner.

10. Note Purchase Agreement. This Note is issued pursuant
to the Note Purchase Agreement, to which reference is made for a
statement of the rights and obligations of MLI and the duties
and obligations of the REIT.

11. Applicable Law; Venue. The Note Purchase Agreement and
this Note shall be governed by and construed in accordance with

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<PAGE> 38
the internal laws of the State of Texas, without giving effect
to the Principles of conflict of laws thereof. Any legal suit,
action or proceeding against the REIT or MLI arising out of or
relating to this Note shall be instituted in any federal or
state court in Dallas, Texas, and each of the REIT and MLI
waives any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding.

12. Legal Interest Limitations. All agreements of the REIT
whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event
whatsoever shall the amount paid, or agreed to be paid to MLI
for the use, forbearance or detention of the indebtedness
evidenced by this Note or for the performance or payment of any
covenant or obligation contained herein, exceed the maximum
amount permissible under applicable law from time to time in
effect. If for any reason whatsoever fulfillment of any
provision hereof or of any other document evidencing, securing
or pertaining to this Note, including but not limited to the
Note Purchase Agreement, at the time performance of such
provision shall be due, shall involve transcending the limit of
validity, and if under any such circumstances MLI shall ever
receive anything of value deemed interest under applicable law
from time to time in effect which would exceed interest at the
highest lawful rate, such amount that would be excessive
interest shall be applied to the reduction of the principal
amount owing under this Note and not to the payment of interest,
or if such amount that would be excessive interest exceeds the
unpaid balance of principal of this Note, such excess shall be
refunded to the REIT.

13. Notices. Any notice or demand permitted or required
hereby shall be made in writing and shall be effective and
deemed delivered and received upon the earlier of (a) the day of
actual receipt via telex, telecopy, telegram or hand delivery
(including, without limitation, Federal Express and other
overnight courier service) of the written notice or demand by
the Person to whom the notice or demand is given or (b) three
days after the written notice or demand is deposited in the
United States mail postage paid, first class, certified or
registered mail with return receipt requested and addressed to
the Person to whom the notice or demand is being given at the
address provided herein for notices (whether or not the notice
or demand is actually received). The address for notices to MLI
shall be the address stated herein for payments and the address
for notices to the REIT shall be 3500 Trammell Crow Center, 2001
Ross Avenue, Dallas, Texas 75201, Attention: Managing Partner,
Trammell Crow Ventures, provided that each of MLI and the REIT

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<PAGE> 39
may change its address for notices to any other location within
the continental United States by notifying the other of the new
address in the manner provided herein for the giving of notices,
with such change to become effective 10 days after notice of the
change of address is given.

14. Non-Recourse Obligation. Recourse for the payment of
the principal of this Note or interest on any such principal
that is overdue, or for any claim based herein or otherwise in
respect hereof, and recourse under or upon any obligations,
covenant or agreement of the REIT under the Note Purchase
Agreement or this Note shall be satisfied, if at all, out of the
REIT's property only. No such obligation or liability shall be
personally binding upon, nor shall recourse be had to, the
private property of its Trust Managers, shareholders, officers,
employees or agents, regardless of whether such obligation or
liability is in the nature of contract, tort or otherwise.

EXECUTED as of the day and year first above written.

TRAMMELL CROW REAL ESTATE INVESTORS

By:___________________________________
James S. Wassel, Vice President

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<PAGE> 40
Exhibit A-2

Unsecured Promissory Note Due November 27, 1997

$5,939,866.34 February 27, 1992

TRAMMELL CROW REAL ESTATE INVESTORS, a real estate
investment trust duly organized and existing under the laws of
the State of Texas (the "REIT"), for value received, hereby
promises to pay to the order of GERLACH & CO. or its permitted
assigns ("MLI") at Citibank, N.A., 111 Wall Street 14th
Floor/Zone 5, New York, New York 10043, ABA No. 021000089 (Fed.
Wire: CITIBANK NYC/CUST/CONCENTRATION ACCT #36858201 FOR FURTHER
CREDIT TO ACCT #845978) (or such other party or place as MLI may
from time to time designate in writing to the REIT) the
principal sum of FIVE MILLION, NINE HUNDRED THIRTY-NINE
THOUSAND, EIGHT HUNDRED SIXTY-SIX AND 34/100THS DOLLARS
($5,939,866.34), together with interest on the principal hereof
from time to time remaining unpaid at the interest rates
hereinafter stated, at such times and on such terms and
conditions as are hereinafter set forth. All capitalized terms
used in this Note which are used but not defined herein shall
have the respective meanings ascribed to them in the Note
Purchase Agreement, dated as of February 27, 1992, between the
REIT and MLI (as amended, modified, supplemented, renewed or
extended from time to time, the "Note Purchase Agreement").

1. Rate and Computation of Interest.

<PAGE> 41
than the maximum rate of interest permitted under applicable
law.

(c) Computation. All interest hereunder shall be
computed on the basis of a year of 365 or 366 days, as
applicable, for the actual number of days elapsed.

2. Payment of Principal and Interest. Payments of
principal and interest shall be due and payable as follows:

(a) Interest. The accrued but unpaid interest on the
outstanding principal balance of this Note as of May 27, 1992 and
November 27, 1992 shall, in each case, be deferred and added to the
outstanding principal balance of this Note on such dates. Upon any
such deferral and addition to the outstanding principal balance of
this Note, at the written request of MLI, the REIT will issue a new
note for the then-outstanding principal balance hereof in exchange for
this Note. The accrued but unpaid interest on the outstanding
principal balance of this Note shall be due and payable
semi-annually in arrears on the 27th day of each May and November in each
year, commencing May 27, 1993, and on the Maturity Date. All interest
which accrues at the Default Rate shall be due and payable on demand.

(b) Principal. $4,388,000 shall be due and payable to MLI on
or before November 27, 1993, and shall be applied to the reduction of
principal. The remaining outstanding principal balance of this Note,
together with accrued but unpaid interest thereon shall be due and
payable to MLI on November 27, 1997 or on such earlier date as may
be required or permitted under this Note (the "Maturity Date").

(c) Manner of Payment and Application of Funds. All sums payable
hereunder shall be payable by the REIT to MLI on the day when due in such
coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts. Subject to the
provisions hereof regarding legal interest limitations and except as
otherwise provided herein, any amount paid to MLI by the REIT pursuant to
this Note shall be applied first to

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<PAGE> 42
the payment of any costs and expenses of collection of this
Note, second to accrued but unpaid interest and third to the
reduction of principal.

4. Prepayment.

6. Default. The occurrence of any Event of Default under
the Note Purchase Agreement shall be an "Event of Default"
hereunder.

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<PAGE> 43
and pursue any and all other remedies available to MLI at law or equity
or pursue any combination of the above, all remedies hereunder or under the
Note Purchase Agreement being cumulative. The failure to exercise any of the
foregoing options upon the happening of one or more Events of Default shall not
constitute a waiver of the right to exercise the same at any subsequent time in
respect of the same Event of Default or any other Event of Default. The
acceptance by MLI of any payment hereunder which is late or is less than the
payment in full of all amounts due and payable at the time of such payment
shall not (a) constitute a waiver of the right to exercise any of the
foregoing options at that time or at any subsequent time or nullify any prior
exercise of such options, (b) constitute a waiver of the right to receive
timely payments in the future, or (c) constitute a waiver of the right to
receive payment in full of all amounts due and payable at the time of such
payment.

8. Waiver. Except as may be specifically otherwise provided herein
or in the Note Purchase Agreement, the REIT and any endorsers or guarantors
hereof severally waive notice, grace, presentment and demand for payment,
notice of dishonor, notice of intent to accelerate maturity, notice of
acceleration of maturity, protest and notice of protest and non-payment or
bringing of suit and diligence in taking any action to collect any sums owing
hereunder. The REIT and any endorsers or guarantors hereof agree that from
time to time and without notice, MLI may extend the time for any payments
hereunder and accept partial payments of this Note, both before and after the
Maturity Date, all without in any manner affecting the liability of the REIT
or any endorser or guarantor under or with respect to this Note, even though
the REIT or such endorser or guarantor is not a party to such agreement.

11. Applicable Law; Venue. The Note Purchase Agreement and
this Note shall be governed by and construed in accordance with

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<PAGE> 44
the internal laws of the State of Texas, without giving effect to the
principles of conflict of laws thereof. Any legal suit, action or proceeding
against the REIT or MLI arising out of or relating to this Note shall be
instituted in any federal or state court in Dallas, Texas, and each of the REIT
and MLI waives any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding.

12. Legal Interest Limitations. All agreements of the REIT whether
now existing or hereafter arising and whether written or oral, are expressly
limited so that in no contingency or event whatsoever shall the amount paid,
or agreed to be paid to MLI for the use, forbearance or detention of the
indebtedness evidenced by this Note or for the performance or payment of any
covenant or obligation contained herein, exceed the maximum amount permissible
under applicable law from time to time in effect. If for any reason
whatsoever fulfillment of any provision hereof or of any other document
evidencing, securing or pertaining to this Note, including but not limited to
the Note Purchase Agreement, at the time performance of such provision shall be
due, shall involve transcending the limit of validity, and if under any such
circumstances MLI shall ever receive anything of value deemed interest under
applicable law from time to time in effect which would exceed interest at the
highest lawful rate, such amount that would be excessive interest shall be
applied to the reduction of the principal amount owing under this Note and not
to the payment of interest, or if such amount that would be excessive interest
exceeds the unpaid balance of principal of this Note, such excess shall be
refunded to the REIT.

13. Notices. Any notice or demand permitted or required hereby
shall be made in writing and shall be effective and deemed delivered and
received upon the earlier of (a) the day of actual receipt via telex,
telecopy, telegram or hand delivery (including, without limitation, Federal
Express and other overnight courier service) of the written notice or demand
by the Person to whom the notice or demand is given or (b) three days after
the written notice or demand is deposited in the United States mail postage
paid, first class, certified or registered mail with return receipt requested
and addressed to the Person to whom the notice or demand is being given at the
address provided herein for notices (whether or not the notice or demand is
actually received). The address for notices to MLI shall be the address
stated herein for payments and the address for notices to the REIT shall be
3500 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, Attention:
Managing Partner, Trammell Crow Ventures, provided that each of MLI and the
REIT

-5-
<PAGE> 45
may change its address for notices to any other location within the
continental United States by notifying the other of the new address in the
manner provided herein for the giving of notices, with such change to become
effective 10 days after notice of the change of address is given.

14. Non-Recourse Obligation. Recourse for the payment of the
principal of this Note or interest on any such principal that is overdue, or
for any claim based herein or otherwise in respect hereof, and recourse under
or upon any obligations, covenant or agreement of the REIT under the Note
Purchase Agreement or this Note shall be satisfied, if at all, out of the
REIT's property only. No such obligation or liability shall be personally
binding upon, nor shall recourse be had to, the private property of its Trust
Managers, shareholders, officers, employees or agents, regardless of whether
such obligation or liability is in the nature of contract, tort or otherwise.

EXECUTED as of the day and year first above written.

TRAMMELL CROW REAL ESTATE INVESTORS

By:
--------------------------------
James S. Wassel, Vice President

-6-

<PAGE> 46
Exhibit B-1

Unsecured Promissory Note Due November 27, 1997

$19,143,646.92 February 27, 1992

TRAMMELL CROW REAL ESTATE INVESTORS, a real estate
investment trust duly organized and existing under the laws of
the State of Texas (the "REIT"), for value received, hereby
promises to pay to the order of GERLACH & CO. or its permitted
assigns ("MLI") at Citibank, N.A., 111 Wall Street 14th
Floor/Zone 5, New York, New York 10043, ABA No. 021000089 (Fed.
Wire: CITIBANK NYC/CUST/CONCENTRATION ACCT #36858201 FOR FURTHER
CREDIT TO ACCT #846194) (or such other party or place as MLI may
from time to time designate in writing to the REIT) the
principal sum of NINETEEN MILLION, ONE HUNDRED FORTY-THREE
THOUSAND, SIX HUNDRED FORTY-SIX AND 92/100THS DOLLARS
($19,143,646.92), together with interest on the principal hereof
from time to time remaining unpaid at the interest rates
hereinafter stated, at such times and on such terms and
conditions as are hereinafter set forth. All capitalized terms
used in this Note which are used but not defined herein shall
have the respective meanings ascribed to them in the Note
Purchase Agreement, dated as of February 27, 1992, between the
REIT and MLI (as amended, modified, supplemented, renewed or
extended from time to time, the "Note Purchase Agreement").

1. Rate and Computation of Interest.

<PAGE> 47
but in no event higher than the maximum rate of interest
permitted under applicable law.

(c) Computation. All interest hereunder shall be
computed on the basis of a year of 365 or 366 days, as
applicable, for the actual number of days elapsed.

2. Payment of Principal and Interest. Payments of
principal and interest shall be due and payable as follows:

(a) Interest. The accrued but unpaid interest on the
outstanding principal balance of this Note as of May 27,
1992 and November 27, 1992 shall, in each case, be deferred
and added to the outstanding principal balance of this Note
on such dates. The accrued but unpaid interest on the
outstanding principal balance of this Note shall be due and
payable semi-annually in arrears on the 27th day of each May
and November in each year, commencing May 27, 1993, and on
the Maturity Date. All interest which accrues at the
Default Rate shall be due and payable on demand.

(b) Principal. The entire outstanding principal
balance of this Note, together with accrued but unpaid
interest thereon shall be due and payable to MLI on
November 27, 1997 or on such earlier date as may be required
or permitted under this Note (the "Maturity Date").

(d) Payment on Business Days. If any payment to be
made hereunder shall become due on a day other than a

- 2 -

<PAGE> 48
Business Day, such payment shall be made on the Business Day
immediately following the day on which such payment would
otherwise have been due.

4. Prepayment. This Note may be voluntarily prepaid, in
whole or in part, without premium or penalty, upon 10 days prior
written notice by the REIT to MLI, specifying the date and
amount of prepayment. Any voluntary prepayment shall be
accompanied by all interest accrued on the principal amount
being prepaid. In the event of voluntary prepayment of this
Note in part only, a new note or notes for the unpaid portion
hereof will be issued.

6. Default. The occurrence of any Event of Default under
the Note Purchase Agreement shall be an "Event of Default"
hereunder.

7. Acceleration and Other Remedies. Upon the occurrence
and continuance of an Event of Default, the holder of this Note
at its option, may declare the entire principal balance hereof
and all accrued and unpaid interest due and payable at once,
without presentment, demand, protest, notice or grace, all of
which are specifically hereby waived. MLI may sue on this Note
and pursue any and all other remedies available to MLI at law or
equity or pursue any combination of the above, all remedies
hereunder or under the Note Purchase Agreement being
cumulative. The failure to exercise any of the foregoing
options upon the happening of one or more Events of Default
shall not constitute a waiver of the right to exercise the same
at any subsequent time in respect of the same Event of Default
or any other Event of Default. The acceptance by MLI of any
payment hereunder which is late or is less than the payment in
full of all amounts due and payable at the time of such payment
shall not (a) constitute a waiver of the right to exercise any
of the foregoing options at that time or at any subsequent time
or nullify any prior exercise of such options, (b) constitute a
waiver of the right to receive timely payments in the future, or
(c) constitute a waiver of the right to receive payment in full
of all amounts due and payable at the time of such payment.

- 3 -

<PAGE> 49
8. Waiver. Except as may be specifically otherwise
provided herein or in the Note Purchase Agreement, the REIT and
any endorsers or guarantors hereof severally waive notice,
grace, presentment and demand for payment, notice of dishonor,
notice of intent to accelerate maturity, notice of acceleration
of maturity, protest and notice of protest and non-payment or
bringing of suit and diligence in taking any action to collect
any sums owing hereunder. The REIT and any endorsers or
guarantors hereof agree that from time to time and without
notice, MLI may extend the time for any payments hereunder and
accept partial payments of this Note, both before and after the
Maturity Date, all without in any manner affecting the liability
of the REIT or any endorser or guarantor under or with respect
to this Note, even though the REIT or such endorser or guarantor
is not a party to such agreement.

11. Applicable Law; Venue. The Note Purchase Agreement and
this Note shall be governed by and construed in accordance with
the internal laws of the State of Texas, without giving effect
to the principles of conflict of laws thereof. Any legal suit,
action or proceeding against the REIT or MLI arising out of or
relating to this Note shall be instituted in any federal or
state court in Dallas, Texas, and each of the REIT and MLI
waives any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding.

- 4 -

<PAGE> 50
provision hereof or of any other document evidencing, securing
or pertaining to this Note, including but not limited to the
Note Purchase Agreement, at the time performance of such
provision shall be due, shall involve transcending the limit of
validity, and if under any such circumstances MLI shall ever
receive anything of value deemed interest under applicable law
from time to time in effect which would exceed interest at the
highest lawful rate, such amount that would be excessive
interest shall be applied to the reduction of the principal
amount owing under this Note and not to the payment of interest,
or if such amount that would be excessive interest exceeds the
unpaid balance of principal of this Note, such excess shall be
refunded to the REIT.

-5-

<PAGE> 51
EXECUTED as of the day and year first above written.

TRAMMELL CROW REAL ESTATE INVESTORS

By:
--------------------------------
James S. Wassel, Vice President

-6-

<PAGE> 52
Exhibit B-2

Unsecured Promissory Note Due November 27, 1997

$23,261,317.66 February 27, 1992

TRAMMELL CROW REAL ESTATE INVESTORS, a real estate
investment trust duly organized and existing under the laws of
the State of Texas (the "REIT"), for value received, hereby
promises to pay to the order of GERLACH & CO. or its permitted
assigns ("MLI") at Citibank, N.A., 111 Wall Street 14th
Floor/Zone 5, New York, New York 10043, ABA No. 021000089 (Fed.
Wire: CITIBANK NYC/CUST/CONCENTRATION ACCT #36858201 FOR FURTHER
CREDIT TO ACCT #845978) (or such other party or place as MLI may
from time to time designate in writing to the REIT) the
principal sum of TWENTY-THREE MILLION, TWO HUNDRED SIXTY-ONE
THOUSAND, THREE HUNDRED SEVENTEEN AND 66/100THS DOLLARS
($23,261,317.66), together with interest on the principal hereof
from time to time remaining unpaid at the interest rates
hereinafter stated, at such times and on such terms and
conditions as are hereinafter set forth. All capitalized terms
used in this Note which are used but not defined herein shall
have the respective meanings ascribed to them in the Note
Purchase Agreement, dated as of February 27, 1992, between the
REIT and MLI (as amended, modified, supplemented, renewed or
extended from time to time, the "Note Purchase Agreement").

1. Rate and Computation of Interest.

<PAGE> 53
but in no event higher than the maximum rate of interest
permitted under applicable law.

(c) Computation. All interest hereunder shall be
computed on the basis of a year of 365 or 366 days, as
applicable, for the actual number of days elapsed.

2. Payment of Principal and Interest. Payments of
principal and interest shall be due and payable as follows:

(a) Interest. The accrued but unpaid interest on the
outstanding principal balance of this Note as of May 27,
1992 and November 27, 1992 shall, in each case, be deferred
and added to the outstanding principal balance of this Note
on such dates. The accrued but unpaid interest on the
outstanding principal balance of this Note shall be due and
payable semi-annually in arrears on the 27th day of each May
and November in each year, commencing May 27, 1993, and on
the Maturity Date. All interest which accrues at the
Default Rate shall be due and payable on demand.

(d) Payment on Business Days. If any payment to be
made hereunder shall become due on a day other than a

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<PAGE> 54
Business Day, such payment shall be made on the Business Day
immediately following the day on which such payment would
otherwise have been due.

6. Default. The occurrence of any Event of Default under
the Note Purchase Agreement shall be an "Event of Default"
hereunder.

-3-

<PAGE> 55

8. Waiver. Except as may be specifically otherwise
provided herein or in the Note Purchase Agreement, the REIT and
any endorsers or guarantors hereof severally waive notice,
grace, presentment and demand for payment, notice of dishonor,
notice of intent to accelerate maturity, notice of acceleration
of maturity, protest and notice of protest and non-payment or
bringing of suit and diligence in taking any action to collect
any sums owing hereunder. The REIT and any endorsers or
guarantors hereof agree that from time to time and without
notice, MLI may extend the time for any payments hereunder and
accept partial payments of this Note, both before and after the
Maturity Date, all without in any manner affecting the liability
of the REIT or any endorser or guarantor under or with respect
no this Note, even though the REIT or such endorser or guarantor
is not a party to such agreement.

- 4 -
<PAGE> 56
provision hereof or of any other document evidencing, securing
or pertaining to this Note, including but not limited to the
Note Purchase Agreement, at the time performance of such
provision shall be due, shall involve transcending the limit of
validity, and if under any such circumstances MLI shall ever
receive anything of value deemed interest under applicable law
from time to time in effect which would exceed interest at the
highest lawful rate, such amount that would be excessive
interest shall be applied to the reduction of the principal
amount owing under this Note and not to the payment of interest,
or if such amount that would be excessive interest exceeds the
unpaid balance of principal of this Note, such excess shall be
refunded to the REIT.

13. Notices. Any notice or demand permitted or required hereby
shall be made in writing and shall be effective and deemed delivered and
received upon the earlier of (a) the day of actual receipt via telex,
telecopy, telegram or hand delivery (including, without limitation, Federal
Express and other overnight courier service) of the written notice or demand by
the Person to whom the notice or demand is given or (b) three days after the
written notice or demand is deposited in the United States mail postage paid,
first class, certified or registered mail with return receipt requested and
addressed to the Person to whom the notice or demand is being given at the
address provided herein for notices (whether or not the notice or demand is
actually received). The address for notices to MLI shall be the address
stated herein for payments and the address for notices to the REIT shall be
3500 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, Attention:
Managing Partner, Trammell Crow Ventures, provided that each of MLI and the
REIT may change its address for notices to any other location within the
continental United States by notifying the other of the new address in the
manner provided herein for the giving of notices, with such change to become
effective 10 days after notice of the change of address is given.

14. Non-Recourse Obliqation. Recourse for the payment of
the principal of this Note or interest on any such principal
that is overdue, or for any claim based herein or otherwise in
respect hereof, and recourse under or upon any obligations,
covenant or agreement of the REIT under the Note Purchase
Agreement or this Note shall be satisfied, if at all, out of the
REIT's property only. No such obligation or liability shall be
personally binding upon, nor shall recourse be had to, the
private property of its Trust Managers, shareholders, officers,
employees or agents, regardless of whether such obligation or
liability is in the nature of contract, tort or otherwise.

-5-

<PAGE> 57
EXECUTED as of the day and year first above written.

TRAMMELL CROW REAL ESTATE INVESTORS

By:
--------------------------------
James S. Wassel, Vice President

<PAGE> 1
EXHIBIT 24.4

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of American Industrial
Properties REIT, Inc. on Form S-4 of our report on the consolidated financial
statement schedules of American Industrial Properties REIT (formerly Trammell
Crow Real Estate Investors) dated March 5, 1993, except for the first and
last paragraph of Note 1 as to which the date is January 17, 1994, appearing
on pages F-7 through F-23 in the Proxy Statement/Prospectus which is part of
this Registration Statement. We also consent to the reference to us under the
heading "Experts" in giving said report in such Proxy Statement/Prospectus.

Kenneth Leventhal & Company

Dallas, Texas
January 20, 1994

<PAGE> 1
EXHIBIT 28.1

PRELIMINARY PROXY MATERIALS

AMERICAN INDUSTRIAL PROPERTIES REIT

THIS PROXY IS SOLICITED ON BEHALF OF THE TRUST MANAGERS OF
AMERICAN INDUSTRIAL PROPERTIES REIT
SPECIAL MEETING APRIL 28, 1994

The undersigned hereby appoints W. H. Bricker and Charles W. Wolcott, or
either of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes either of them to represent and to vote all of the
undersigned's Shares of Beneficial Interest in the Trust, held of record on
February 28, 1994, at the Special Meeting of Shareholders to be held on
April 28, 1994 or at any adjournments thereof, on the proposal (the "Proposal")
below, as directed.

(1) THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
THEREUNDER OF AMERICAN INDUSTRIAL PROPERTIES REIT (THE "TRUST")
WITH AND INTO A MARYLAND CORPORATION WHICH IS A WHOLLY-OWNED
SUBSIDIARY OF THE TRUST.

/ / FOR: / / AGAINST: / / ABSTAIN:

(2) IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENTS THEREOF.

/ / FOR: / / AGAINST: / / ABSTAIN:

This Proxy, when properly executed, will be voted in the manner
described above. If no direction is made, this Proxy will be voted FOR the
Proposal. Please sign exactly as your name appears on your Share certificate.
When Shares are held in more than one name, all parties should sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate name
by an authorized officer. If a partnership, please sign in partnership name
by an authorized person.

_________________________ ______
Signature of Shareholder Date

_________________________ ______
Signature if Shares held Date
in more than one name

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.

<PAGE> 1
EXHIBIT 28.2

PRELIMINARY PROXY MATERIALS

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held April 28, 1994

TO THE SHAREHOLDERS OF AMERICAN INDUSTRIAL PROPERTIES REIT:

You are cordially invited to attend a Special Meeting of Shareholders which
will be held at the , Dallas, Texas, on April 28, 1994, at 9:00 a.m.
Dallas time, to consider and act upon the following matters:

(1) The adoption and approval of the Merger Agreement and the merger
thereunder of the Trust with and into a Maryland corporation which
is a wholly-owned subsidiary of the Trust.

(2) Such other business as may properly come before the Special Meeting
or any adjournments thereof.

Only holders of record of Shares of Beneficial Interest of the Trust on
February 28, 1994 will be entitled to notice of and to vote at the Special
Meeting or any adjournments thereof.

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES OF BENEFICIAL INTEREST YOU HOLD. YOU ARE
INVITED TO ATTEND THE MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND,
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR
PROXY AND VOTE YOUR SHARES OF BENEFICIAL INTEREST IN PERSON.

BY ORDER OF THE TRUST MANAGERS

_________________________
Charles W. Wolcott
President and Chief Executive Officer

6220 N. Beltline
Suite 205
Irving, TX 75063
(214) 550-6053
, 1994