BANYAN STRATEGIC REALTY TRUST, 10-Q, 1997-11-14

BANYAN STRATEGIC REALTY TRUST
10-Q, 1997-11-14
REAL ESTATE INVESTMENT TRUSTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .

Commission File Number 0-15465

Banyan Strategic Realty Trust
(Exact name of Registrant as specified in its charter)

Massachusetts 36-3375345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

150 South Wacker Drive, Chicago, IL 60606
(Address of principal executive offices) (Zip Code)

Registrant's telephone number including area code (312) 553-9800

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X . NO .

Shares of beneficial interest outstanding as of Nov. 13, 1997: 13,210,852

<PAGE>

<TABLE>
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)

<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,343,253 $ 3,805,260
Restricted Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,239,741 529,112
Interest Receivable on Investments . . . . . . . . . . . . . . . . . . . . . . 12,060 46,313
Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,318,596 1,194,425
------------ ------------
6,913,650 5,575,110
------------ ------------

Investment in Real Estate, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,733,379 16,956,094
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,627,578 85,210,415
Building Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,763,611 5,015,673
------------ ------------
152,124,568 107,182,182
Less: Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . (5,712,588) (4,692,455)
------------ ------------
146,411,980 102,489,727
------------ ------------

Investment in Real Estate Venture. . . . . . . . . . . . . . . . . . . . . . . -- 5,713,759

Deferred Financing Costs (Net of Accumulated Amortization
of $937,395 and $722,925, respectively). . . . . . . . . . . . . . . . . . . 920,867 1,326,489
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400,545 1,429,120
------------ ------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $156,647,042 $116,534,205
============ ============

<PAGE>

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (CONTINUED)
(UNAUDITED)

SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
Accounts Payable and Accrued Expenses. . . . . . . . . . . . . . . . . . . . . $ 1,347,987 $ 2,481,253
Accrued Real Estate Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,371,111 763,238
Mortgage Loans Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,403,616 48,181,023
Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,960,035 10,900,000
Accrued Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,209 237,922
Unearned Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,067 248,748
Security Deposit Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 705,444 473,758
------------ ------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,364,469 63,285,942
------------ ------------

Minority Interest in Consolidated Partnerships . . . . . . . . . . . . . . . . 2,414,248 2,313,825

Shareholders' Equity
Shares of Beneficial Interest, No Par Value,
Unlimited Authorization; 12,540,409 and 12,001,620 Shares
Issued, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,213,622 106,694,912
Accumulated Deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,979,348) (48,394,525)
Treasury Shares at Cost, 1,522,649 Shares. . . . . . . . . . . . . . . . . . . (7,365,949) (7,365,949)
------------ ------------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . 52,868,325 50,934,438
------------ ------------
Total Liabilities and Shareholders' Equity . . . . . . . . . . . . . . . . . . $156,647,042 $116,534,205
============ ============

Book Value Per Share of Beneficial Interest
(11,017,760 and 10,478,971 Shares Outstanding,
respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.80 $ 4.86
============ ============

<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)

<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
REVENUE
Rental Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,986,266 $13,742,193
Operating Cost Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,814,751 1,446,692
Miscellaneous Tenant Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 617,686 166,095
Interest and Amortized Discount on Mortgage Loans. . . . . . . . . . . . . . . . . -- 441,725
Income on Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,855 105,667
----------- -----------
Total Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,515,558 15,902,372
----------- -----------
EXPENSES
Operating Property Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,913,623 3,147,342
Repairs and Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,815,755 1,636,915
Real Estate Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,479,892 1,272,835
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,649,172 2,976,172
Ground Lease Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669,595 648,025
Depreciation and Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,501,022 1,760,892
General and Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,030,990 2,390,725
Amortization of Deferred Loan Fees and Financing Costs . . . . . . . . . . . . . . 526,737 351,963
Recovery of Losses on Loans, Notes and Interest Receivable . . . . . . . . . . . . -- (14,059)
----------- -----------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,586,786 14,170,810

Income Before Minority Interest, Income (Loss) from Operations
of Real Estate Venture and Nonrecurring Gains . . . . . . . . . . . . . . . . . . 1,928,772 1,731,562

Minority Interest in Consolidated Partnerships . . . . . . . . . . . . . . . . . . . (463,473) (349,390)
Income (Loss) from Operations of Real Estate Venture . . . . . . . . . . . . . . . . 37,126 (77,365)
Gain on Disposition of Investment in Real Estate, Disposition of Investment
in Real Estate Venture and Disposition of Partnership Interest . . . . . . . . . . 1,075,646 --
----------- -----------
Net Income $ 2,578,071 $ 1,304,807
=========== ===========
Earnings Per Share of Beneficial Interest (10,555,616 and 10,478,222
Weighted Average Number of Shares Outstanding, respectively) . . . . . . . . . . $ 0.24 $ 0.12
=========== ===========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)

<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
REVENUE
Rental Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,859,924 $ 4,761,231
Operating Cost Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . 634,996 347,556
Miscellaneous Tenant Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,572 49,301
Interest and Amortized Discount on Mortgage Loans. . . . . . . . . . . . . . . . . -- 85,824
Income on Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,638 41,030
----------- -----------
Total Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,875,130 5,284,942
----------- -----------
EXPENSES
Operating Property Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,599,181 1,138,109
Repairs and Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646,581 584,437
Real Estate Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 531,258 377,823
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,878,137 996,667
Ground Lease Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,657 218,286
Depreciation and Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . 945,566 614,509
General and Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,023,012 769,279
Amortization of Deferred Loan Fees and Financing Costs . . . . . . . . . . . . . . 198,720 129,983
Recovery of Losses on Loans, Notes and Interest Receivable . . . . . . . . . . . . -- (14,059)
----------- -----------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,051,112 4,815,034
----------- -----------
Income Before Minority Interest, Income (Loss) from Operations
of Real Estate Venture and Nonrecurring Gains . . . . . . . . . . . . . . . . . . 824,018 469,908

Minority Interest in Consolidated Partnerships . . . . . . . . . . . . . . . . . . . (151,747) (128,903)
Income (Loss) from Operations of Real Estate Venture . . . . . . . . . . . . . . . . (13,656) 19,649
Gain on Disposition of Investment in Real Estate,
Disposition of Investment in Real Estate Venture and
Disposition of Partnership Interest . . . . . . . . . . . . . . . . . . . . . . . 1,071,858 --
----------- -----------
Net Income $ 1,730,473 $ 360,654
=========== ===========
Earnings Per Share of Beneficial Interest (10,706,379 and 10,478,971
Weighted Average Number of Shares Outstanding, respectively) . . . . . . . . . . . $ 0.16 $ 0.03
=========== ===========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)

Shares of
Beneficial Interest
---------------------------- Accumulated Treasury
Shares Amount Deficit Shares Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shareholders' Equity,
December 31, 1996. . . . . . 12,001,620 $106,694,912 $(48,394,525) $(7,365,949) $50,934,438

Net Income . . . . . . . . . -- -- 2,578,071 -- 2,578,071

Issuance of Shares . . . . . 43,154 199,416 -- -- 199,416

Award Shares Issued. . . . . 495,635 2,319,294 -- -- 2,319,294

Distributions Paid . . . . . -- -- (3,162,894) -- (3,162,894)
----------- ------------ ----------- ----------- -----------

Shareholders' Equity,
September 30, 1997 . . . . . 12,540,409 $109,213,622 $(48,979,348) $(7,365,949) $52,868,325
=========== ============ ============ =========== ===========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,578,071 $ 1,304,807
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Gain on Disposition of Investment in Real Estate, Disposition of Investment
in Real Estate Venture and Disposition of Partnership Interest. . . . . . . . . . (1,075,646) --
Recovery of Losses on Loans, Notes and Interest Receivable . . . . . . . . . . . . -- (14,059)
Depreciation and Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,027,759 2,112,855
Amortization of Discount on Mortgage Loans Receivable. . . . . . . . . . . . . . . -- (34,547)
Net (Income) Loss From Operation of Real Estate Ventures . . . . . . . . . . . . . (37,126) 77,365
Minority Interest Participation in Consolidated Partnerships . . . . . . . . . . . 463,473 349,390
Incentive Compensation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 913,098 538,387
Net Change In:
Restricted Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (294,470) (39,188)
Interest Receivable on Investments . . . . . . . . . . . . . . . . . . . . . . . . 34,253 116,349
Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (115,219) (508,567)
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (311,589) (277,239)
Accounts Payable and Accrued Expenses. . . . . . . . . . . . . . . . . . . . . . . (3,059) 102,482
Accrued Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,163 (93,325)
Accrued Real Estate Taxes Payable. . . . . . . . . . . . . . . . . . . . . . . . . 458,367 468,356
Unearned Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,953 47,990
Security Deposit Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,078 6,275
------------ ------------
Net Cash Provided By Operating Activities. . . . . . . . . . . . . . . . . . . . . . 5,857,106 4,157,331
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Real Estate Assets. . . . . . . . . . . . . . . . . . . . . . . . . (55,912,339) (5,021,535)
Investment In Real Estate Ventures, Net. . . . . . . . . . . . . . . . . . . . . . 28,285 (151,488)
Additions to Investment in Real Estate . . . . . . . . . . . . . . . . . . . . . . (1,844,326) (1,438,552)
Proceeds From Sale of Mortgage Loans Receivable. . . . . . . . . . . . . . . . . . -- 5,440,047
Proceeds From Sale of Investment in Real Estate. . . . . . . . . . . . . . . . . . 6,141,719 --
Proceeds from Sale of Investment in Real Estate Venture. . . . . . . . . . . . . . 5,457,402 --
Payment of Liabilities Assumed at Acquisition of Real Estate Assets. . . . . . . . 101,301 (315,000)
Recovery of Losses on Loans, Notes and Interest Receivable . . . . . . . . . . . . -- 14,059
Purchase of Investment Securities. . . . . . . . . . . . . . . . . . . . . . . . . -- (839,679)
Proceeds From Sale and Maturities of Investment Securities . . . . . . . . . . . . -- 817,314
Proceeds From Sale of Partnership Interest . . . . . . . . . . . . . . . . . . . . 884,507 --
Principal Payments on Investment Securities. . . . . . . . . . . . . . . . . . . . -- 22,365
Principal Collections on Mortgage Loans Receivable . . . . . . . . . . . . . . . . -- 14,742
----------- ------------
Net Cash Used In Investing Activities . . . . . . . . . . . . . . . . . . . . . . . (45,143,451) (1,457,727)
----------- ------------

<PAGE>

BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (CONTINUED)
(UNAUDITED)

1997 1996
------------ -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Bonds and Mortgage Loans Payable . . . . . . . . . . . . . . . . . . 65,386,216 11,545,000
Distributions to Minority Partners . . . . . . . . . . . . . . . . . . . . . . . . (417,495) (199,207)
Deferred Financing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (577,317) (636,983)
Principal Payments on Bonds and Mortgage Loans Payable . . . . . . . . . . . . . . (21,603,588) (11,182,176)
Distributions Paid to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . (3,162,894) (3,143,508)
Shares Issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,416 --
------------ ------------
Net Cash Provided By (Used In) Financing Activities . . . . . . . . . . . . . . . 39,824,338 (3,616,874)
------------ ------------
Net Increase (Decrease) In Cash and Cash Equivalents . . . . . . . . . . . . . . . 537,993 (917,270)

Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . . . . . 3,805,260 5,500,215
------------ ------------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . . . . . $ 4,343,253 $ 4,582,945
============ ============

<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

<PAGE>

BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)

Readers of this quarterly report should refer to Banyan Strategic
Realty Trust's (the "Trust") audited consolidated financial statements for
the year ended December 31, 1996 which are included in the Trust's 1996
Annual Report and Form 10-K, as certain footnote disclosures which would
substantially duplicate those contained in such audited statements have
been omitted from this report.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the
accounts of the Trust, its wholly-owned subsidiaries and its controlled
partnerships. All intercompany balances and transactions have been
eliminated in consolidation. Investment in Real Estate Venture was
accounted for on the equity method.

FINANCIAL STATEMENT PRESENTATION

Certain reclassifications have been made to the previously reported
1996 consolidated financial statements in order to provide comparability
with the 1997 consolidated financial statements. In the opinion of
management, all adjustments necessary for a fair presentation have been
made to the accompanying consolidated financial statements as of September
30, 1997. All adjustments made to the financial statements, as presented,
are of a normal recurring nature to the Trust. Net income for the nine and
three months ended September 30, 1996 have been reduced by $487,500 and
$162,500, respectively, from amounts originally reported to reflect the
adjusted incentive compensation earned by the Trust's president which was
recorded during the fourth quarter of 1996. This allocation adjustment had
no effect on net income for the year ended December 31, 1996. No other
allocation adjustments have been made to the 1996 operating results.

EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Trust will be required to change the
method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The
management believes there is no material impact of Statement No. 128 on the
consolidated financial statements.

2. MORTGAGE LOANS PAYABLE

LINE OF CREDIT

On December 13, 1994, the Trust executed a loan agreement which
provides for a revolving line of credit with American National Bank of
Chicago ("ANB") in the amount of $15,000,000. On December 15, 1995, the
Trust and ANB entered into an amendment to the aforesaid loan agreement,
modifying the revolving line of credit by increasing the amount the Trust
was permitted to borrow from $15,000,000 to $30,000,000. On January 7,
1997, the Trust and ANB entered into a further amendment to the loan
agreement modifying the line of credit by decreasing the amount that the
Trust was permitted to borrow from $30,000,000 to $20,000,000 (the
"Modified Line"). As of December 31, 1996, the Trust had utilized
$8,400,000 of the $20,000,000 available under the Modified Line. On
January 15, 1997, the Trust borrowed $5,500,000 under the Modified Line for

<PAGE>

the acquisition of the Phoenix Business Park property. On February 19,
1997, the Trust borrowed $1,200,000 under the Modified Line for general
corporate needs of the Trust. On March 11, 1997, the Trust sold its
interest in the Hallmark Village Apartments ("Hallmark"). (See Note 6 for
details). On March 19, 1997, the Trust used a portion of its share of the
Hallmark net sales proceeds to pay down $5,720,000 of the Modified Line.
On April 29, 1997, the Modified Line was revised with ANB increasing the
amount that the Trust is permitted to borrow from $20,000,000 to
$30,000,000 (the "Amended Line"). Pursuant to the Amended Line, the term
was extended from May 31, 1997 to November 30, 1997 and on November 13,
1997, the Trust exercised its option to extend for an additional six months
until May 31, 1998. Upon expiration, the Amended Line will convert to a
one year, interest only, term loan. The Trust paid the bank an extension
fee of $87,500 at the closing of the Amended Line and paid an additional
$37,500 upon exercising the option to extend the term for six months. On
April 30, 1997, the Trust borrowed $14,400,000 under the Amended Line
primarily for the acquisition of the Butterfield Office Plaza property. On
May 22, 1997, the Trust borrowed $4,180,000 under the Amended Line
primarily for the acquisition of the four apartment complexes located in
Oklahoma. On July 30 and August 26, 1997, the Trust borrowed $4,450,000,
$2,475,000 and $565,000 under the Amended Line primarily for the
acquisition of the Southlake Corporate Center, University Square Business
Center and Technology Center properties, respectively. On September 5,
1997, the Trust borrowed an additional $1,000,000 under the Amended Line to
replenish cash reserves utilized to acquire the Technology Center as
discussed above. (See Note 4 below for further detail regarding the
Trust's 1997 acquisitions.) On April 18, 1997, the Trust paid down
$1,000,000 of the Amended Line with funds resulting primarily from the
March 20, 1997 sale of a portion of the H Street Assemblage. On July 29,
1997, the Trust paid down $4,450,000 of the Amended Line with funds
resulting primarily from the July 29, 1997 sale of the remaining portion of
the H Street Assemblage. (See Note 7 for further details.) On August 29,
1997, the Trust paid down $9,945,000 of the Amended Line from loan proceeds
received pursuant to the mortgage refinancing of the Butterfield Office
Plaza property. (See Note 5 for further details.)

As a result of the above transactions, as of September 30, 1997, the
Trust had an outstanding balance of $21,055,000 of the $30,000,000
available under the Amended Line.

3. TRANSACTIONS WITH AFFILIATES

Effective January 1, 1997, the Trust began paying employees directly
in contrast to the prior practice of reimbursing Banyan Management Corp.
("BMC") on an hourly basis for the services of its personnel. In prior
years, these payroll costs along with administrative costs were allocated
to the Trust and other entities to which BMC provided administrative
services based upon the actual number of hours spent by BMC personnel on
matters related to that particular entity in relation to the total number
of BMC personnel hours. Through September 30, 1997, the Trust continues to
share certain administrative items such as office rent and office expenses
with other companies for which BMC provides services. These costs were
shared based upon the total hours worked by employees of the Trust relative
to total hours worked by employees of BMC and the Trust combined. The
Trust's allocable share of costs for the nine months ended September 30,
1997 and 1996 aggregated $403,100 and $985,820, respectively. As one of
its administrative services, BMC serves as the paying agent for general and
administrative costs of the Trust. As of September 30, 1997, the Trust had
a net receivable due from BMC of $96,400. The net receivable is included
in Other Assets in the Trust's Consolidated Balance Sheet.

<PAGE>

4. INVESTMENT IN REAL ESTATE

PHOENIX BUSINESS PARK

On January 15, 1997, the Trust acquired a 100% fee ownership interest
in a three-building office/industrial complex known as Phoenix Business
Park located in northeast Atlanta, Georgia, for a purchase price of
approximately $5,494,000. At acquisition, the Trust assumed liabilities of
approximately $33,000. The three buildings contain approximately 110,600
square feet of gross leasable area. The Phoenix Business Park property was
constructed in 1979 and was 100% occupied with thirteen tenants at the time
of acquisition. The Trust funded the acquisition price by making a draw
upon its line of credit.

BUTTERFIELD OFFICE PLAZA

On April 30, 1997, the Trust acquired a 100% fee ownership interest in
a three-story office building known as Butterfield Office Plaza located in
Oak Brook, Illinois (metropolitan Chicago) for a purchase price of
approximately $15,056,000. At acquisition, the Trust assumed liabilities
of approximately $653,000. The office building is situated on ten acres of
land and contains approximately 200,800 square feet of gross leasable area.

The Butterfield Office Plaza was constructed in 1974 and was 92% occupied
with fifty tenants at the time of acquisition. The Trust funded the
acquisition price by drawing upon its line of credit.

WOODRUN VILLAGE APARTMENTS

On May 22, 1997, the Trust acquired a 100% fee ownership interest in a
garden style apartment complex known as Woodrun Village Apartments (the
"Woodrun property") located in Yukon, Oklahoma (approximately twenty miles
south of Oklahoma City) for a purchase price of approximately $4,582,000.
At acquisition, the Trust assumed liabilities of approximately $31,000,
paid deferred financing costs of approximately $24,000 and funded
approximately $22,000 into an escrow account for real estate taxes and
insurance reserves. The Woodrun property was built in 1985 and consists of
192 rental units in twelve buildings and one clubhouse on a total of
approximately eight acres of land. The unit mix is 144 one-bedroom units
and forty-eight two-bedroom units. The Woodrun property is 99% occupied as
of September 30, 1997. The Trust utilized approximately $74,000 of cash
reserves for the acquisition and assumed Oklahoma Housing Financing Agency
Revenue bond financing with a combination of fixed rate, tax-exempt and
taxable bonds, with an outstanding principal balance totaling approximately
$3,622,000. The remaining balance of the acquisition price was provided
for by a draw upon the Trust's line of credit in the amount of
approximately $901,000.

The bonds mature on October 1, 2025 and require monthly payment of
principal and interest at a fixed interest rate of 7.3% until the bonds are
remarketed in November of 2005. A prepayment penalty exists on the bonds
for any unscheduled principal payments made prior to September 30, 2005.
The prepayment penalty is currently approximately 9.8% of the total
outstanding principal balance and decreases each year through September
2005 by approximately one percent. There is no prepayment penalty after
September 30, 2005.

COUNTRY CREEK APARTMENTS

<PAGE>

property was built in 1985 and consists of 320 rental units in twenty
buildings and one clubhouse on a total of approximately twelve acres of
land. The unit mix is 240 one-bedroom units and eighty two-bedroom units.
The Country Creek property is 99% occupied as of September 30, 1997. The
Trust utilized approximately $74,000 of cash reserves for the acquisition
and assumed Oklahoma Housing Financing Agency Revenue bond financing with a
combination of fixed rate, tax-exempt and taxable bonds with an outstanding
principal balance totaling approximately $5,931,000. The remaining balance
of the acquisition price was provided for by a draw upon the Trust's line
of credit in the amount of approximately $1,509,000.

WILLOWPARK APARTMENTS

On May 22, 1997, the Trust acquired a 100% fee ownership interest in a
garden style apartment complex known as Willowpark Apartments (the
"Willowpark property") located in Lawton, Oklahoma (approximately ninety
miles southwest of Oklahoma City) for a purchase price of approximately
$4,470,000. At acquisition, the Trust assumed liabilities of approximately
$28,000, paid deferred financing costs of approximately $23,000 and funded
approximately $20,000 into an escrow account for real estate taxes and
insurance reserves. The Willowpark property was built in 1985 and consists
of 160 rental units in ten buildings and one clubhouse on a total of
approximately six acres of land. The unit mix is 120 one-bedroom units and
forty two-bedroom units. The Willowpark property is 98% occupied as of
September 30, 1997. The Trust utilized approximately $74,000 of cash
reserves for the acquisition and assumed Oklahoma Housing Financing Agency
Revenue bond financing with a combination of fixed rate, tax-exempt and
taxable bonds, with an outstanding principal balance totaling approximately
$3,533,000. The remaining balance of the acquisition price was provided
for by a draw upon the Trust's line of credit in the amount of
approximately $878,000.

WINCHESTER RUN APARTMENTS

On May 22, 1997, the Trust acquired a 100% fee ownership interest in a
garden style apartment complex known as Winchester Apartments (the
"Winchester property") located in Oklahoma City, Oklahoma for a purchase
price of approximately $4,506,000. At acquisition, the Trust assumed
liabilities of approximately $30,000, paid deferred financing costs of
approximately $24,000 and funded approximately $23,000 into an escrow
account for real estate taxes and insurance reserves. The Winchester
property was built in 1985 and consists of 192 rental units in twelve
buildings and one clubhouse on a total of approximately seven acres of
land. The unit mix is 144 one-bedroom units and forty-eight two-bedroom
units. The Winchester property is 99% occupied as of September 30, 1997.
The Trust utilized approximately $74,000 of cash reserves for the
acquisition and assumed Oklahoma Housing Financing Agency Revenue bond
financing with a combination of fixed rate, tax-exempt and taxable bonds,
with an outstanding principal balance totaling approximately $3,563,000.
The remaining balance of the acquisition price was provided for by a draw
upon the Trust's line of credit in the amount of approximately $886,000.

<PAGE>

SOUTHLAKE CORPORATE CENTER

On July 30, 1997, the Trust acquired a 100% fee ownership interest of
a three-story office building known as Southlake Corporate Center located
in Morrow, Georgia (suburban Atlanta). The building contains approximately
56,200 square feet of gross leasable area. The Southlake Corporate Center
was constructed in 1989 and was 100% occupied with sixteen tenants upon
acquisition. The Southlake Corporate Center was acquired for a purchase
price of $4,450,000. At acquisition, the Trust assumed liabilities of
approximately $35,000. The Trust funded the acquisition by utilizing a
draw upon its line of credit.

UNIVERSITY SQUARE BUSINESS CENTER

On August 26, 1997, the Trust acquired a 100% fee ownership interest
of the University Square Business Center located in Huntsville, Alabama.
The property consists of six one-story buildings totaling approximately
184,700 square feet of gross leasable area. The buildings were constructed
from 1984 through 1987. The property was acquired by the Trust for a
purchase price of approximately $7,300,000. At acquisition, the Trust also
assumed approximately $131,000 of trade liabilities, paid deferred
financing costs of approximately $9,000, and paid approximately $181,000
into escrow for real estate taxes, insurance and tenant improvements. In
addition, at acquisition, the Trust assumed an existing mortgage loan with
an outstanding principal balance of approximately $4,963,000. The mortgage
loan matures in January 2007, bears interest at a fixed rate of 8.89% per
annum and requires monthly payments of principal and interest based upon a
twenty-five year amortization schedule with a balloon payment of
approximately $3,989,000 due upon maturity. The Trust funded the balance
of the acquisition price by utilizing a draw upon its line of credit. The
property was 91% occupied with 57 tenants upon acquisition.

TECHNOLOGY CENTER

On August 26, 1997, the Trust acquired a 100% ground lessee's interest
in the Technology Center located in Huntsville, Alabama. The property
consists of a three-story office building containing approximately 48,500
square feet of gross leasable area. The Technology Center was constructed
in 1990. The property was acquired for a purchase price of approximately
$2,500,000. The Trust funded the acquisition from its cash reserves as
well as by utilizing a draw upon its line of credit. The Technology Center
property was 100% occupied at acquisition and is leased to two tenants.
The property is subject to a ground lease from the Industrial Development
Board of the City of Huntsville. There are no rental payments due under
the lease agreement through 2002. The lease provides for a purchase option
on January 1, 2003 for approximately $50,000. Real estate taxes are abated
during the term of the lease.

5. MORTGAGE LOANS PAYABLE

On August 29, 1997, the Trust executed a nonrecourse first mortgage
loan collateralized by the Butterfield Office Plaza. The loan, in the
amount of $10,000,000, bears interest at a fixed rate of 7.67% per annum,
matures on September 1, 2004 and requires monthly payments of principal and
interest based upon a thirty year amortization schedule with a balloon
payment of approximately $9,206,000 due upon maturity. The net loan
proceeds after loan costs were utilized to reduce borrowing under the
Trust's Amended Line of Credit with American National Bank in the amount of
$9,945,000. See Note 2 for further details.

<PAGE>

6. DISPOSITION OF INVESTMENT IN REAL ESTATE

HALLMARK VILLAGE APARTMENTS

On September 28, 1993, BSRT Hallmark Village Limited Partnership,
("BHVLP"), a limited partnership consisting of the Trust, a subsidiary of
the Trust and HVA General Partnership, acquired the Hallmark Village
Apartments for a purchase price of approximately $6,000,000. On March 11,
1997, BHLVLP sold the Hallmark property to an unaffiliated third party for
a sales price of approximately $6,500,000, after credits allowed to the
purchaser at closing. The Trust and its subsidiary received net sales
proceeds of approximately $6,142,000 of which a portion was used to pay
down the Trust's revolving line of credit (see Note 2 above for details).
The Trust recognized a gain on disposition of approximately $3,800 as a
result of the sale.

7. DISPOSITION OF INVESTMENT IN REAL ESTATE VENTURE

The Trust had a 53% interest in the Venture while BSLFII owned the
remaining 47%. This property consists of 36,100 square feet of undeveloped
land in downtown Washington, D.C. plus an approximately 55,900 square foot
office building known as the Victor Building.

On March 20, 1997, the Venture sold approximately 3,500 square feet of
the Venture's land to the United States General Services Administration on
behalf of the United States of America ("GSA") for a purchase price of
$1,680,000. GSA also paid the Venture $150,000 as reimbursement of
expenses that the Venture incurred in anticipation of this transaction.
The Venture received net proceeds of approximately $1,827,000 of which
approximately $968,000 was distributed to the Trust. The Trust recognized
no gain or loss on the sale.

On July 29, 1997, the Venture sold the remaining land and the Victor
Building to an unaffiliated third party for $9,000,000. The Trust received
net sales proceeds of approximately $4,489,000 and recognized a gain on
disposition of approximately $134,000. As of July 29, 1997, the Trust has
no further ownership interest in the H Street Assemblage property.

8. DISPOSITION OF PARTNERSHIP INTEREST

COLONIAL COURTS OF WESTLAND APARTMENTS

On June 17, 1993, BSRT Colonial Courts Limited Partnership, a limited
partnership consisting of the Trust, a subsidiary of the Trust and PHC
General Partnership ("PHC"), acquired the Colonial Courts of Westland
Apartments (the "Colonial Courts" property) located in Columbus, Ohio for a
purchase price of approximately $3,698,000. The Trust and its subsidiary
held a 75% ownership interest and PHC held the remaining 25% ownership
interest. On September 25, 1997, the Trust sold its 75% interest in the
Colonial Courts property to Colonial L.L.C., an entity affiliated with PHC.

The Trust received net cash sales proceeds of approximately $885,000, after
credits allowed to Colonial L.L.C. at closing. Additionally, upon closing
the Trust received a distribution of its percentage ownership interest in
the Partnership's cash reserves in the amount of $335,000, which, when
added to net closing proceeds, results in a total payment to the Trust of
$1.2 million. The sale resulted in the Trust's recognition of a gain on
disposition of approximately $938,000. As of September 25, 1997, the Trust
has no further interest in the Colonial Courts property or BSRT Colonial
Courts Limited Partnership.

<PAGE>

9. OMNIBUS STOCK AND INCENTIVE PLAN

On May 14, 1997, the Board of Trustees (the "Board") adopted and on
July 8, 1997, the shareholders of the Trust approved, the 1997 Omnibus
Stock and Incentive Plan (the "Plan") which allows the Trust to make stock-
based awards as part of its employee and Trustee compensation program.
Under the Plan, the Trust is authorized to issue up to one million shares
of the Trust's beneficial interest in the form of incentive stock options,
non-statutory stock options, stock appreciation rights, performance shares
and units.

Under the Plan, each person serving as a Trustee on the tenth business
day after the final adjournment of the Trust's annual meeting will receive
options to acquire 2,000 shares. Stock options granted to the Trustees
will vest and be exercisable in installments as follows: (i) 50% of the
number of shares commencing on the first anniversary of the date of grant;
and (ii) the remainder commencing on the second anniversary of the date of
grant. On July 22, 1997, each of the three Trustees received options to
acquire 2,000 shares at $4.50 per share (the closing price on the day of
the grant of the options).

The Board administers the Plan and has the authority to determine,
among other things, the individuals to be granted options, the exercise
price at which shares may be acquired, the number of shares subject to
options and the exercise period of each option. The Board is granted
discretion to determine the term of each option granted under the Plan to
employees, executives and Trustees, but in no event will the term exceed
ten years and one day from the date of the grant. On July 8, 1997, the
Board granted initial options to purchase a total of 41,000 shares at an
exercise price of $4.08 per share (the closing price on the day of the
grant of the options) to various executives and employees of the Trust
exclusive of Leonard G. Levine, who receives performance based compensation
pursuant to his Employment Agreement. Pursuant to the terms of the Plan,
options for all shares granted under the Plan to executives and employees
will generally be exercisable and vest in installments as follows: (i)
33.3% of the number of shares commencing on the first anniversary of the
date of grant; (ii) an additional 33.3% of the shares commencing on the
second anniversary of the date of the grant; and (iii) the remainder of the
shares commencing on the third anniversary of the date of grant.

10. DISTRIBUTION REINVESTMENT AND SHARE PURCHASE PLAN

On April 23, 1997, the Trust filed a Registration Statement on Form S-
3 under the Securities Act of 1933 in order to register the Trust's Shares
issuable pursuant to its Distribution Reinvestment and Share Purchase Plan
(the "DRIP Plan"). The DRIP Plan allows shareholders of the Trust to: (i)
automatically reinvest the cash distributions on all, or part, of the
shares registered in their names and (ii) make cash investments of not less
than $5.00 per investment nor more than $120,000 per calendar year. Shares
purchased pursuant to the DRIP Plan will be issued directly by the Trust at
either (i) 97% of the average closing sales price of the shares as reported
on the NASDAQ National Market on the last five business days preceding the
relevant investment date in the case of reinvested cash distributions or
(ii) 100% of the aforementioned average closing price in the case of cash
investments. For the nine months ended September 30, 1997, the Trust
issued 521, 38,079 and 4,554 shares of beneficial interest at $4.08, $4.55,
and $5.31 per share, respectively, pursuant to the DRIP Plan.

<PAGE>

11. AWARD SHARES AND WEIGHTED AVERAGE SHARES OUTSTANDING

Pursuant to the March 19, 1997 Amendment and the September 3, 1997
Second Amendment to the Second Amended and Restated Employment Agreement of
Leonard G. Levine, the Trust's president, and in accordance with the
shareholder approval which was received at the Trust's July 8, 1997 annual
meeting, all incentive compensation earned by Mr. Levine on the performance
of the Trust's assets acquired subsequent to January 1, 1993 ("Reinvestment
Activities") for the fiscal years ended December 31, 1996 and 1997 has been
paid in shares of the Trust's stock ("Award Shares").

On July 9, 1997, the Trust issued 95,635 Award Shares effective
retroactively to March 15, 1997 to Mr. Levine, representing Mr. Levine's
incentive compensation earned on Reinvestment Activities for the fiscal
year ending December 31, 1996 (the "1996 Award Shares"). On September 4,
1997, the Trust issued 400,000 Award Shares representing final payment and
settlement of Mr. Levine's compensation earned on Reinvestment Activities
for the fiscal year ending December 31, 1997 and for Cumulative Incentive
Compensation for the period January 1, 1993 through December 31, 1997 (the
"Final Award Shares"). Prior to the September 3, 1997 Amendment, Mr.
Levine would have been entitled to receive shares in respect of additional
compensation which would have been determined as of December 31, 1997 and
issued no later than March 1998. The issuance of the Final Award Shares
fixes the amount of compensation that the Trust has been accruing through
December 31, 1997. The 95,635 Award Shares were valued at $4.125 per
share, or $394,494. The 400,000 Final Award Shares were valued at $4.812
per share, or $1,924,800 of which $650,000 was expensed in 1996, and the
balance will be ratably expensed during 1997. The 1996 Award Share price
of $4.125 was based upon the average closing price of the Trust's shares
for the five business days ending December 31, 1996. The Final Award
Shares price of $4.812 was based on the average closing price of the
Trust's shares for the five business days ending August 31, 1997. The 1996
Award Shares and Final Award Shares are included in the total shares
outstanding of the Trust when calculating Net Income Per Share of
Beneficial Interest Based on Weighted Average Number of Shares Outstanding.

All of the Award Shares issued prior to January 1, 1997 and 20% of
Award Shares issued for the fiscal year ended December 31, 1996 were held
in escrow by the Trust, through the vesting date, September 29, 1997.
Subsequent to that date, Mr. Levine became fully vested and the Award
Shares may immediately be transferred or pledged or are otherwise freely
alienated in compliance with registration requirements of the federal and
state securities laws or exemptions therefrom.

12. SUBSEQUENT EVENTS

DIVIDEND AND DISTRIBUTIONS PAID

On October 1, 1997, the Trust declared a cash distribution for the
quarter ended September 30, 1997 of $0.10 per share payable November 20,
1997 to shareholders of record on October 21, 1997.

SHARE PURCHASE AGREEMENT AND CONVERTIBLE TERM LOAN AGREEMENT

On October 14, 1997, the Trust entered into a Share Purchase Agreement
(the "Agreement") with a group of purchasers (the "Purchasers") related to
Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens"). The Agreement
provided for the sale and issuance by the Trust of 2,192,501 shares of
beneficial interest at $5.00 per share to the Purchasers. The sale of the
shares of beneficial interest resulted in the Trust's receipt of
approximately $10,000,000 in cash proceeds, net of brokerage commission and
closing costs, which proceeds were used to repay existing indebtedness and
for general working capital. The proceeds will further be utilized for the
acquisition of additional real estate property interests. The shares are
included for quotation on the NASDAQ National Market System but have not
been registered under the Securities Act of 1933, as amended. In addition,

<PAGE>

with the execution of the Agreement, the Purchasers also extended an
existing standstill agreement whereby the Purchasers agreed not to acquire
any additional shares of beneficial interest of the Trust in the open
market for a period of one year ending October 10, 1998.

Simultaneously with the execution of the Agreement, the Trust also
entered into a Convertible Term Loan Agreement (the "Morgens Loan
Agreement") with the Purchasers as Lenders and Morgens, Waterfall,
Vintiadis & Company, Inc., as Agent (collectively, the "Lenders") whereby
the Lenders agreed to provide an unsecured convertible loan to the Trust in
the amount of $20,000,000 of which $10,000,000 must be borrowed by March
31, 1998 and the remainder by October 14, 1998. Cash advances pursuant to
the Morgens Loan Agreement must be in an amount not less than $1,000,000
with increments of $250,000 thereafter. Loan proceeds may be used by the
Trust only for the purchase of real estate property interests. For real
estate interests purchased using funds drawn pursuant to the Morgens Loan
Agreement, the Trust is prohibited from borrowing in excess of 75% of the
purchase price from third parties, exclusive of the Lenders. The Morgens
Loan Agreement further requires that the Trust maintain a ratio of
indebtedness to consolidated net worth of less than 3.00:1.00, a minimum
consolidated net worth of greater than $52,500,000 and a debt coverage
ratio of not less than 1.5:1.00. The terms include payment of interest
only, quarterly on the last day of the calendar quarter, at 12% per annum.
Upon the issuance of the loan commitment pursuant to the Morgens Loan
Agreement, a loan fee of $200,000 was paid by the Trust. The Morgens Loan
Agreement also provides for a loan fee of 2% of the outstanding loan
balance to be paid on each anniversary of the closing and fee of 0.50% of
the maximum loan balance outstanding at any time, payable upon repayment in
full or final conversion of the loan (see below). Upon execution of the
Loan Agreement, the Trust also paid a brokerage fee to Leveraged Equity
Management, Inc. of $800,000. The loan has a maturity of September 30,
2002 with no prepayment of the loan permitted prior to September 30, 1999,
although the loan may be accelerated by Morgens upon the sale of
substantially all of the assets of the Trust.

Under the terms of the Morgens Loan Agreement, the Trust is required
to attempt to obtain shareholder approval of: (i) the issuance of
preferred shares of beneficial interest; (ii) the issuance of in excess of
19.9% of the common shares of beneficial interest through direct sale or
conversion from unsecured indebtedness under the Morgens Loan Agreement or
preferred shares and (iii) amendments to the Declaration of Trust to
authorize the Trust to issue preferred shares and to change the life of the
Trust from finite to perpetual. It is currently anticipated that these
issues will be submitted for a vote to the shareholders during the next six
to nine months.

At any time after shareholder approval and until September 30, 2002
(or if the Trust gives notice to pre-pay the loan, then for thirty days
following receipt of that notice), the Lenders can convert all or part of
their debt (but not less than $1,000,000 at any one time unless the total
debt is less than $1,000,000) to preferred stock at a conversion price of
$100 per share or to Common Stock at a conversion price of $5.15 per share.

Preferred shares are further convertible to common shares at a price of
$5.15 per share. The convertible preferred shares will be entitled to
receive, upon declaration by the Trust's Board of Trustees, cash
distributions at an annual rate of 10% per annum calculated on their stated
value. Distributions on preferred shares will be cumulative from the date
of issuance whether or not there are funds legally available for the
payment thereof. Finally, for thirty days after expiration of the loan
commitment under the Morgens Loan Agreement, the Lenders may purchase
preferred shares to the extent that any part of the $20,000,000 loan is not
then outstanding. Prior to shareholder approval, the Lenders may also
convert loans outstanding under the Morgens Loan Agreement to Common Stock
at any time, if that conversion will not cause total shareholdings of the
Lenders to exceed 19.9% of the issued and outstanding shares.

<PAGE>

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

GENERAL

The Registrant, Banyan Strategic Realty Trust, is a Massachusetts
business trust. The Trust is a diversified real estate investment trust
that focuses on industrial, suburban office and apartment properties
throughout the country, where management sees strong local economies and
investment opportunities. As of September 30, 1997, the Trust's portfolio
contained twenty-one properties, which are located chiefly in the Midwest
and the Southeast United States. The Trust's current business plan is to
invest its cash equivalents and cash proceeds generated by financing
secured by existing property interests into additional real estate assets
and to manage these real estate assets in a manner which will increase the
Trust's cash flow over time.

Certain statements in this quarterly report that are not historical
fact constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Without limiting the
foregoing, words such as "anticipates," "expects," "intends," "plans" and
similar expressions are intended to identify forward-looking statements.
These statements are subject to a number of risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements. The Trust undertakes no obligation to update these forward-
looking statements to reflect future events or circumstances. See below
"Factors Affecting the Trust's Business Plan" for further discussion.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents consist of cash and short-term investments.
The Trust's cash and cash equivalents balance at September 30, 1997 and
December 31, 1996 was $4,343,253 and $3,805,260, respectively. The
increase in total cash and cash equivalents of $537,993 is due to
$5,857,106 of cash provided from operating activities and $39,824,338 of
cash provided by financing activities which exceed the $45,143,451 of cash
used in investing activities.

Cash Flows From Operating Activities: Net cash provided by operating
activities increased by $1,699,775 for the nine months ended September 30,
1997 to $5,857,106 from $4,157,331 for the same period in 1996 due
primarily to the Trust's acquisitions of nine real estate assets in the
first nine months of 1997. (See below for detail.) See Results of
Operations below for further discussion of the operations of the Trust's
real estate assets.

The Trust's objective is to provide cash distributions to its
shareholders from cash generated from the Trust's operations. Cash flow
generated from operations is not equivalent to the Trust's net operating
income as determined under generally accepted accounting principles
("GAAP"). The unique operating characteristic of a real estate company is
that in accordance with GAAP, it is required to record depreciation and
amortization related to its real estate assets while in fact these assets
generally appreciate in value. As a result of this, the National
Association of Real Estate Investment Trusts ("NAREIT") industry has
adopted a standard which it believes more accurately reflects operating
property performance. Funds From Operations ("FFO") is defined by NAREIT
as net income computed in accordance with generally accepted accounting
principles, less extraordinary, unusual and nonrecurring items, excluding
gains (or losses) from debt restructuring and sales of property plus
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures in which the REIT holds an interest. The
Trust cautions shareholders that the calculation of FFO may vary from
entity to entity and as such the presentation of FFO by the Trust may not
be comparable to other similarly titled measures of other reporting
companies. FFO is not intended to be a measure of the cash generated by a

<PAGE>

REIT nor the REIT's capacity to pay distributions. However, a REIT's
distribution may be analyzed in comparison to FFO in a similar manner as a
company that is not a REIT would compare its distribution to net operating
income.

For the nine months ended September 30, 1997 and 1996, the Trust's
operations generated FFO of $3,843,556 and $2,933,266, respectively. FFO
increased for the nine months ended September 30, 1997 primarily from the
effect of the Trust's property acquisitions in mid-1996 and 1997. For the
three months ended September 30, 1997 and 1996, the Trust's operations
generated FFO of $1,543,529 and $914,759, respectively.

FFO for the nine months ended September 30, 1997 and 1996 is
calculated as follows:

1997 1996
---------- ----------

Net Income . . . . . . . . . . . . . . . . $2,578,071 $1,304,807

Plus:
Depreciation expense . . . . . . . . . . 2,360,823 1,702,221
Depreciation included in
Operations of Real Estate
Ventures . . . . . . . . . . . . . . . 15,238 22,856
Lease Commission Amortization. . . . . . 140,199 58,671

Less:
Minority Interest Share of
Depreciation Expense . . . . . . . . . (197,578) (163,491)
Minority Interest Share of
Lease Commission
Amortization . . . . . . . . . . . . . (15,051) (7,739)
Other . . . . . . . . . . . . . .. . . -- (14,059)

Franchise Tax Fees Accrued . . . . . . . . 37,500 30,000

Gain on Disposition of
Investment in Real Estate. . . . . . . . (1,075,646) --
---------- ----------
Funds From Operations. . . . . . . . . . . $3,843,556 $2,933,266
========== ==========

Cash Flows From Investing Activities: During the nine months ended
September 30, 1997, the Trust utilized $45,143,451 from investing
activities compared to utilizing $1,457,727 from investing activities for
the same period in 1996. Cash flow was utilized during the nine months
ended September 30, 1997 to acquire the Phoenix Business Park property in
January 1997, the Butterfield Office Plaza in April 1997, the four Oklahoma
apartment complexes in May 1997, the Southlake Corporate Center in July
1997 and the University Square Business Center and Technology Center in
August 1997 for an aggregate use of cash from investing activities of
approximately $55.9 million. In addition, The Trust used cash to make
capital improvements at its various properties in the amount of
approximately $1,844,000 during the same nine month period in 1997. These
outflows of cash were partially offset by the $6,142,000 in proceeds
received from the March 11, 1997 sale of the Trust's interest in the
Hallmark Village property, approximately $5,457,000 received from the sale
of the H Street Assemblage land parcel and the Victor Building during the
second and third quarters of 1997 and approximately $885,000 received from
the September 25, 1997 sale of its interest in the Colonial Courts
Apartments. During the same period in 1996, the Trust acquired the Midwest
Office Center property for approximately $5,022,000, made capital
improvements of approximately $1,439,000 and paid approximately $315,000 of
liabilities assumed at the acquisition of various real estate assets.
These outflows of cash for the nine months ended September 30, 1996 were
offset by the receipt of approximately $5,440,000 as a result of the sale
of the Trust's interest in the Karfad Loan Portfolio. See below for
further discussion of the assets purchased or sold during 1997.

<PAGE>

On September 28, 1993, BSRT Hallmark Village Limited Partnership,
("BHVLP"), a limited partnership consisting of the Trust, a subsidiary of
the Trust and HVA General Partnership, acquired the Hallmark Village
Apartments for a purchase price of approximately $6,000,000. On March 11,
1997, BHLVLP sold the Hallmark property to an unaffiliated third party for
a sales price of approximately $6.5 million, after credits allowed to the
purchaser at closing. The Trust and its subsidiary received net sales
proceeds of approximately $6,142,000 of which a portion was used to pay
down the Trust's revolving line of credit (See below for details). The
Trust recognized a gain on disposition of approximately $3,800 as a result
of the sale.

On April 30, 1997, the Trust acquired a 100% fee ownership interest in
a three-story office building known as Butterfield Office Plaza located in
Oak Brook, Illinois (metropolitan Chicago), for a purchase price of
approximately $15,056,000. At acquisition, the Trust assumed liabilities
of approximately $653,000. The office building is situated on ten acres of
land and contains approximately 200,800 square feet of gross leasable area.

The Butterfield Office Plaza was constructed in 1974 and was 92% occupied
with fifty tenants at the time of acquisition. The Trust funded the
acquisition price by drawing upon its line of credit. On August 29, 1997,
the Trust obtained a new financing from Allstate Life Insurance Company for
Butterfield Office Plaza in the amount of $10,000,000, and repaid its
borrowing under the Trust's Amended Line of Credit with American National
Bank in the amount of $9,945,000.

<PAGE>

On May 22, 1997, the Trust acquired a 100% fee ownership interest in a
garden style apartment complex known as Country Creek Apartments (the
"Country Creek property") located in Oklahoma City, Oklahoma for a purchase
price of approximately $7,487,000. At acquisition, the Trust assumed
liabilities of approximately $59,000, paid deferred financing costs of
approximately $36,000 and funded approximately $50,000 into an escrow
account for real estate taxes and insurance reserves. The Country Creek
property was built in 1985 and consists of 320 rental units in twenty
buildings and one clubhouse on a total of approximately twelve acres of
land. The unit mix is 240 one-bedroom units and eighty two-bedroom units.
The Country Creek property is 99% occupied as of September 30, 1997. The
Trust utilized approximately $74,000 of cash reserves for the acquisition
and assumed Oklahoma Housing Financing Agency Revenue bond financing with a
combination of fixed rate, tax-exempt and taxable bonds with an outstanding
principal balance totaling approximately $5,931,000. The remaining balance
of the acquisition price was provided for by a draw upon the Trust's line
of credit in the amount of approximately $1,509,000.

<PAGE>

units. The Winchester property is 99% occupied as of September 30, 1997.
The Trust utilized approximately $74,000 of cash reserves for the
acquisition and assumed Oklahoma Housing Financing Agency Revenue bond
financing with a combination of fixed rate, tax-exempt and taxable bonds,
with an outstanding principal balance totaling approximately $3,563,000.
The remaining balance of the acquisition price was provided for by a draw
upon the Trust's line of credit in the amount of approximately $886,000.

On December 11, 1990, the Trust acquired title to the property known
as the Victor Building located in Washington D.C. pursuant to an agreement
with Banyan Strategic Land Fund II ("BSLFII"). On June 5, 1992, the Trust
and BSLFII executed a formal joint venture agreement (the "Venture"). The
Trust had a 53% interest in the Venture while BSLFII owned the remaining
47%. This property consists of 36,100 square feet of undeveloped land in
downtown Washington D.C. plus an approximately 55,900 square foot office
building known as the Victor Building.

On July 30, 1997, the Trust acquired a 100% fee ownership interest of
a three-story office building known as Southlake Corporate Center located
in Morrow, Georgia for a purchase price of $4,450,000. The building
contains approximately 56,200 square feet of gross leasable area and was
100% occupied with sixteen tenants upon acquisition. The Southlake
Corporate Center was constructed in 1989 and is situated on approximately
three acres of land. At acquisition, the Trust assumed liabilities of
approximately $35,000. The Trust funded the acquisition by utilizing a
draw upon its line of credit.

On August 26, 1997, the Trust acquired a 100% fee ownership interest
of the University Square Business Center located in Huntsville, Alabama.
The property consists of six one-story buildings totaling approximately
184,700 square feet of gross leasable area. The buildings were constructed
from 1984 through 1987. The property was acquired by the Trust for a
purchase price of approximately $7,300,000 and the Trust also assumed
approximately $131,000 of trade liabilities at acquisition. In addition,
at acquisition, the Trust assumed an existing mortgage loan with an
outstanding principal balance of approximately $4,963,000. The mortgage
loan matures in January 2007, bears interest at a fixed rate of 8.89% per
annum and requires monthly payments of principal and interest based upon a
twenty-five year amortization schedule with a balloon payment of
approximately $3,989,000 due upon maturity. The Trust funded the balance
of the acquisition price by utilizing a draw upon its line of credit. The
property was 91% occupied with 57 tenants upon acquisition.

<PAGE>

On August 26, 1997, the Trust acquired a 100% ground lessee's interest
in the Technology Center located in Huntsville, Alabama. The property
consists of a three-story office building containing approximately 48,500
square feet of gross leasable area. The Technology Center was constructed
in 1990. The property was acquired for a purchase of approximately
$2,500,000. The Trust funded the acquisition from its cash reserves as
well as by utilizing a draw upon its line of credit. The Technology Center
property was 100% occupied at acquisition and is leased to two tenants.
The property is subject to a ground lease from the Industrial Development
Board of the City of Huntsville. There are no rental payments due under
the lease agreement through 2002. The lease provides for a purchase option
on January 1, 2003 for approximately $50,000. Real estate taxes are abated
during the term of the lease.

On June 17, 1993, BSRT Colonial Courts Limited Partnership, a limited
partnership consisting of the Trust, a subsidiary of the Trust and PHC
General Partnership ("PHC"), acquired the Colonial Courts of Westland
Apartments (the "Colonial Courts" property) located in Columbus, Ohio for a
purchase price of approximately $3,698,000. The Trust and its subsidiary
held a 75% ownership interest and PHC holds the remaining 25% ownership
interest. On September 25, 1997, the Trust sold its 75% interest in the
Colonial Courts property to Colonial L.L.C., an entity affiliated with PHC.

The Trust received net cash sales proceeds of approximately $885,000, after
credit allowed to Colonial L.L.C. at property closing. Additionally, upon
closing, the Trust received a distribution of its percentage ownership
interest in the Partnership's cash reserves in the amount of $335,000,
which, when added to net closing proceeds, results in a total payment to
the Trust of $1.2 million. The sale resulted in the Trust's recognition of
a gain on disposition of approximately $938,000. As of September 25, 1997,
the Trust has no further interest in the Colonial Courts property or BSRT
Colonial Courts Limited Partnership.

Cash Flows From Financing Activities: For the nine months ended
September 30, 1997, the Trust generated cash flow from financing activities
of $39,824,338 compared to utilizing $3,616,874 for the same period in
1996. The cash flow provided by financing activities for the nine months
ended September 30, 1997 was primarily due to the receipt of approximately
$65,386,000 of proceeds from mortgage loans and bonds payable, which
represents draws upon the Trust's line of credit with ANB primarily used to
purchase the Phoenix Business Park property, the Butterfield Office Plaza,
the Oklahoma Apartment Portfolio, Southlake Corporate Center, University
Square Business Center and Technology Center for approximately $33.8
million (see below for details), the assumption of approximately $16.6
million of bonds payable pursuant to the acquisitions of the Oklahoma
Apartment Portfolio, the assumption of an approximately $5.0 million first
mortgage collateralized by the University Square Business Center and
refinancing of Butterfield Office Plaza pursuant to a $10,000,000 first
mortgage loan collateralized by the property. The net cash proceeds
received from the Butterfield Office Plaza refinancing were utilized to pay
down the Trust's line of credit with ANB in the amount of approximately
$9,945,000 as described below. Partially offsetting these sources was the
payment of principal on bonds and mortgage loans in the amount of
approximately $21,604,000, $21,115,000 of which represents payments against
the Trust's line of credit as follows: (i) $5,720,000 as a result of the
sales proceeds received from the Hallmark property sale in March 1997; (ii)
$5,450,000 as a result of the H Street Assemblage property sales proceeds
received in March and July 1997; (iii) $9,945,000 as a result of the
Butterfield Office Plaza refinancing and the balance representing principal
payments in respect to other bonds and mortgage loans. In addition, the
Trust paid distributions aggregating approximately $3,163,000 and paid
approximately $577,000 of deferred financing costs. The cash flow used for
financing activities for the nine months ended September 30, 1996 was
primarily for principal payments on mortgage loans in the amount of
approximately $11.2 million, $10.9 million of which represented a paydown
of the Trust's line of credit and the balance represented principal
payments of other mortgage loans. In addition, the Trust paid $636,983 of

<PAGE>

deferred financing costs and paid distributions to shareholders of
approximately $3.1 million. Offsetting these uses was the receipt of
approximately $11.5 million of proceeds from mortgage loans payable,
approximately $7.3 million of which consisted of proceeds from a first
mortgage loan on the Woodcrest property, approximately $3.3 million of
which consisted of proceeds from a first mortgage loan on the Midwest
property and the balance of which was drawn upon the Trust's line of
credit. During the period, the Trust also executed a first mortgage loan
collateralized by the Florida Power and Light building in the amount of
$6.2 million and utilized these proceeds to reduce its borrowing on its
line of credit.

On April 23, 1997, the Trust filed a Registration Statement on Form S-
3 under the Securities Act of 1933 in order to register the Trust's Shares
issuable pursuant to its Distribution Reinvestment and Share Purchase Plan
(the "DRIP Plan"). The DRIP Plan allows shareholders of the Trust to: (i)
automatically reinvest the cash distributions on all, or part, of the
shares registered in their names and (ii) make cash investments of not less
than $5.00 per investment nor more than $120,000 per calendar year. Shares
purchased pursuant to the DRIP Plan will be issued directly by the Trust at
either (i) 97% of the average closing sales price of the shares as reported
on the NASDAQ National Market on the last five business days preceding the
relevant investment date in the case of reinvested cash distributions or
(ii) 100% of the aforementioned average closing price in the case of cash
investments. For the nine months ended September 30, 1997, the Trust
issued 521, 38,079 and 4,554 shares of beneficial interest at $4.08, 4.55,
and 5.31 per share, respectively, pursuant to the DRIP Plan.

On April 29, 1997, the Trust modified its loan agreement which
provides for a revolving line of credit with American National Bank of
Chicago and Trust Company ("ANB") in the amount of $30,000,000, as modified
(the "Amended Line"). Pursuant to the Amended Line, the term was extended
from May 31, 1997 to November 30, 1997 and on November 13, 1997 the Trust
exercised its option to extend for an additional six months until May 31,
1998. Upon expiration, the Amended Line will convert to a one year,
interest only, term loan. The Trust paid the bank a one time extension fee
of $87,500 at the closing of the Amended Line and paid an additional
$37,500 upon exercising the option to extend the term for six months. As
of December 31, 1996, the Trust had utilized approximately $8,400,000 under
the line of credit. On January 15, 1997, the Trust borrowed $5,500,000
under the line of credit for the acquisition of the Phoenix Business Park
property. On February 19, 1997, the Trust borrowed $1,200,000 under the
line of credit for general corporate needs of the Trust. On March 11,
1997, the Trust sold its interest in the Hallmark Village Apartments
("Hallmark"). (See above for details). On March 19, 1997, the Trust used a
portion of its share of the Hallmark net sales proceeds to pay down
$5,720,000 of the line of credit. On April 30, 1997, the Trust borrowed
$14,400,000 under the Amended Line for the acquisition of the Butterfield
Office Plaza property. On May 22, 1997, the Trust borrowed $4,180,000
under the Amended Line primarily for the acquisition of the four apartment
complexes located in Oklahoma. On July 30 and August 26, 1997, the Trust
borrowed $4,450,000, $2,475,000 and $565,000 under the Amended Line
primarily for the acquisition of the Southlake Corporate Center, University
Square Business Center and Technology Center properties, respectively. On
September 5, 1997, the Trust borrowed $1,000,000 under the Amended Line for
general corporate needs of the Trust and to replenish cash reserves
utilized pursuant to the August property acquisitions (See above for
further detail regarding the Trust's 1997 acquisitions). On April 18,
1997, the Trust paid down $1,000,000 of the Amended Line with funds
resulting primarily from the March 20, 1997 sale of a portion of the H
Street Assemblage. On July 29, 1997, the Trust paid down $4,450,000 of the
Amended Line with funds resulting primarily from the July 29, 1997 sale of
the remaining portion of the H Street Assemblage. On August 29, 1997, the
Trust paid down $9,945,000 of the Amended Line from loan proceeds received
pursuant to its mortgage refinancing of the Butterfield Office Plaza
property. See Results of Operations below for further details.

<PAGE>

As a result of the above transactions, as of September 30, 1997, the
Trust had an outstanding balance of $21,055,000 of the $30,000,000
available under the Amended Line.

The Trust expects to fund its future liquidity needs with the cash
flow obtained from its operating properties, cash proceeds derived from
mortgage financing either on a long term basis or utilizing the Amended
Line secured by certain of the Trust's properties which serve as collateral
for the Amended Line (Colonial Penn Building, Phoenix Business Park,
Lexington Business Center, Newtown Distribution Center, Southlake Corporate
Center and Technology Center properties), interest earned on the Trust's
short-term investments and the receipt of funds pursuant to the Trust's
Distribution Reinvestment and Share Purchase Plan (the "DRIP Plan"). See
Liquidity and Capital Resources for further details regarding the Plan.
The Trust believes that these sources, as well as the Trust's cash and cash
equivalents, are sufficient to meet the Trust's reasonably anticipated
needs for liquidity and capital resources in the near future and to provide
cash proceeds for distributions to shareholders.

The Trust's ability to make future distributions at levels per share
consistent with historical per share distributions to its shareholders is
dependent upon, among other things: (i) sustaining the operating
performance of its existing real estate investments through scheduled
increases in base rents under existing leases and through general
improvement in the real estate markets where the Trust's properties are
located reflected in changes in base rents attributable to new or
replacement leases; (ii) the Trust's level of operating expenses and (iii)
the operating performance of future acquisitions. The continuation of the
Trust's acquisition of real estate assets is dependent upon its ability to
(i) reinvest proceeds, including gains as a result of appreciation in
value, from the disposition of selective properties in the Trust's
portfolio; (ii) borrow cash proceeds from mortgage financing either on a
long-term basis or utilizing the Amended Line and (iii) access additional
sources of acquisition capital in order to continue to grow.

RESULTS OF OPERATIONS

At September 30, 1997, the Trust owned seven industrial complexes
aggregating 1,361,100 square feet of gross leasable area, four apartment
complexes consisting of an aggregate 864 units, nine commercial office
properties consisting of 1,106,000 square feet of gross leasable area and
one retail center which contains 321,800 square feet of gross leasable
area. On April 18 and November 19, 1996, the Trust acquired interests in
the Midwest Office Center and 6901 Riverport Drive properties,
respectively. During June and July of 1996, the Trust sold its interest in
the Karfad loan portfolio to an unaffiliated third party. During the nine
months ended September 30, 1997, the Trust acquired an ownership interest
in the Phoenix Business Park, Butterfield Office Plaza, the entire interest
in the Oklahoma Apartment Portfolio, Southlake Corporate Center, University
Square Business Center, and Technology Center properties. On March 11,
1997, the Trust sold its interest in the Hallmark Village Apartments
property. On March 20, 1997 and July 29, 1997, the H Street Venture, a
partnership between the Trust and Banyan Strategic Land Fund II owning the
H Street Assemblage, sold the entire interest in the property. In
addition, on September 25, 1997, the Trust sold its interest in the
Colonial Courts Apartments property. For further discussion regarding the
assets purchased or sold during the first nine months of 1997, see
Liquidity and Capital Resources above.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996

Real estate net operating income before interest expense (herein
defined as total revenue excluding income on investments less operating
property expenses, repairs and maintenance, real estate taxes, ground lease
expense and depreciation and amortization) increased by approximately
$2,708,000 or 36.9% from $7,330,696 in 1996 to $10,038,816 in 1997. The
Trust's acquisitions during 1996 and 1997 described above accounted for
approximately $2,920,000 of this increase during the first nine months of

<PAGE>

1997. Negatively impacting this increase was the elimination of
approximately $442,000 in interest income and amortized discount on
mortgage loans realized during 1996 on the Karfad loans and approximately
$199,000 decrease due to properties sold in 1997. See below for further
discussions of the changes in revenues and expenses for the period.

Total revenues increased by approximately $4,613,000 or 29.0% to
$20,515,558 from $15,902,372, due primarily to the acquisition and sale of
certain properties after January 1, 1996 which, when combined, accounted
for approximately $4,129,000 or 89.5% of this increase. On a "same-store"
basis (comparing the results of operations of the properties owned during
the nine months ended September 30, 1997, with the results of operations of
the same real estate assets owned during the nine months ended September
30, 1996), total property revenues increased by approximately $934,000 or
7.5% to $13,351,958 from $12,417,534. This increase in same store
properties is due in part to an increase in total revenue at the Trust's
Lexington property of approximately $310,000 as a result of a new lease
signed in 1996 for approximately 46,900 square feet of gross leasable area.

In addition, operating costs reimbursements increased by approximately
$222,000. The remainder of the increase is due to an increase in weighted
average occupancy and an increase in rental rates. Partially offsetting
these increases in total revenues was a decrease in interest and amortized
discount on mortgage loan of approximately $442,000 and a decrease in
income on investments of approximately $9,000.

Total operating expenses which include Operating Property Expenses,
Repairs and Maintenance, Real Estate Taxes and Ground Lease Expense,
increased by approximately $1,174,000 to $7,878,865 from $6,705,117 due
primarily to the 1996 and 1997 acquisitions mentioned above, net of
properties sold, which accounted for approximately $874,000 or 74.4% of
this increase. The same store properties accounted for approximately
$300,000 or 25.6% of the increase.

Interest expense increased by approximately $1,673,000 primarily due
to additional loans obtained to finance new acquisitions.

The total increase in depreciation and amortization of approximately
$740,000 consists of an increase of approximately $206,000 for a "same-
store" properties, and approximately $534,000 for new properties, net of
properties sold. The increase for same store properties relates to
additional improvements and lease commissions paid for these properties.

An increase in amortization of deferred loan fees and financing costs
of approximately $175,000 relates primarily to costs of obtaining new loans
to finance new acquisitions.

Total general and administrative expenses increased by approximately
$640,000 due to higher legal fees and payroll costs due to additional
staffing required as a result of acquiring and managing the additions to
the Trust's real estate portfolio and an increase in incentive compensation
earned by Mr. Levine, the Trust's president, reflecting an increase in
estimated unrealized gain on the Trust's assets.

During the nine months ended September 30, 1997, the Trust realized
net income from the operation of real estate venture of $37,126 compared to
a net loss of ($77,365) for the same period in 1996. The net income from
operations of real estate venture for the nine months ended September 30,
1997 represents the income realized from the Trust's 53% interest in the
real estate venture known as the H Street Venture. The H Street Venture
owned a 55,900 square foot office building (the "Victor Building") and an
adjacent land parcel consisting of 36,100 square feet (the "H Street
Assemblage") located in Washington, D.C. On March 20, 1997, the H Street
Venture sold approximately 3,500 square feet of the H Street Venture's land
to the United States General Services Administration on behalf of the
United States of America ("GSA") for a purchase price of $1,680,000. GSA
also paid the H Street Venture $150,000 as reimbursement of expenses that
the H Street Venture incurred in anticipation of this transaction. The H
Street Venture received net proceeds of approximately $1,827,000, of which

<PAGE>

approximately $968,000 was distributed to the Trust. The Trust recognized
no gain or loss on this sale. The H Street Venture obtained all required
approvals from various governmental agencies for the modifications
necessary to the existing approved design for the proposed building on the
H Street Venture's remaining property that had been necessitated by this
sale. On July 29, 1997, the H Street Venture sold the remaining land and
the Victor Building to an unaffiliated third party for $9,000,000. The
Trust received net sales proceeds of approximately $4,489,000 and
recognized a gain on disposition of approximately $134,000. The sales
proceeds generated as a result of this sale will be used to acquire new
real estate investments.

The factors discussed above resulted in consolidated net income of
$2,578,071 or $0.24 per share for the nine months ended September 30, 1997
as compared to consolidated net income of $1,304,807 or $0.12 per share for
the nine months ended September 30, 1996.

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS
ENDED SEPTEMBER 30, 1996

<PAGE>

expense and depreciation and amortization) increased from $2,310,748 in
1996 to $3,895,249 in 1997 or by approximately $1,585,000. The Trust's
acquisitions during 1996 and 1997 described above, net of dispositions,
accounted for approximately $1,523,000 of this increase during 1997.
Negatively impacting this increase was the elimination of approximately
$86,000 in interest income and amortized discount on mortgage loans which
resulted from the sale of the Karfad loans during 1996 as described above.
See below for further discussions of the changes in revenues and expenses
for the period.

Total revenues increased by approximately $2,590,000 or 49% to
$7,875,130 from $5,284,942 due primarily to the acquisition of certain
properties after January 1, 1996, net of properties sold, accounting for
approximately $2,303,000 or 88.9% of this increase. On a "same-store" basis
(comparing the results of operations of the properties owned during the
three months ended September 30, 1997, with the results of operations of
the same real estate assets owned during the three months ended September
30, 1996), total property revenues increased by approximately $385,000 or
8.9% to $4,707,362 from $4,322,178. This increase in same store properties
is due in part to an increase in total revenue at the Trust's Lexington
property of approximately $98,000 as a result of a new lease signed in 1996
for approximately 46,900 square feet of gross leasable area. The remainder
of the increase is mainly due to an increase in operating costs
reimbursements.

Total operating expenses increased by approximately $687,000 or 29.6%
to $3,005,677 from $2,318,655 due primarily to the 1996 and 1997
acquisitions mentioned above, net of properties sold, which accounted for
approximately $522,000 or 76.0% of this increase. The same store
properties accounted for approximately $165,000 or 24.0% of this increase.

Interest expense increased by approximately $881,000 primarily due to
financing of new acquisitions.

Depreciation and amortization expenses increased by approximately
$331,000. The same store properties accounted for approximately $76,000 of
this increase, with the remaining increase of approximately $255,000
relating to new acquisitions, net of properties sold.

General and administrative expenses increased by approximately
$254,000 due primarily to an increase in the incentive compensation earned
by Mr. Levine, the Trust's president, reflecting an increase in estimated
unrealized gain on the Trust's real estate assets, and an increase in legal
fees and payroll costs due to staffing required as a result of acquiring
and managing the additions to the Trust's real estate portfolio.

The factors discussed above resulted in consolidated net income of
$1,730,473 or $0.16 per share for the three months ended September 30, 1997
as compared to consolidated net income of $360,654 or $0.03 per share for
the three months ended September 30, 1996.

The Trust paid distributions equal to $0.10 per share on August 20,
1997 and August 20, 1996 each for the second quarter of 1997 and 1996,
respectively. On October 7, 1997, the Trust declared a cash distribution
for the third quarter of 1997 of $0.10 per share payable November 20, 1997
to shareholders of record on October 21, 1997.

FACTORS AFFECTING THE TRUST'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL FACTORS AFFECTING SHARE PRICE. The market price of the Trust's
Shares may fluctuate in response to a variety of factors, including but
not limited to: (i) variations in the Trust's quarterly operating results
including changes in FFO; (ii) the gain or loss of tenants at Trust
properties; (iii) general risks, changes or trends in the real estate
industry; (iv) increased competition with other entities or persons engaged

<PAGE>

in the same business; (v) legislative or regulatory changes; and (vi) a
change in management of the Trust. In addition, the stock market has in the
past experienced extreme price and volume fluctuations which have affected
the market price of securities of companies for reasons frequently
unrelated to the operating performance of these companies. These broad
market fluctuations may adversely affect the market price of the Shares.

FACTORS AFFECTING OPERATING RESULTS. In addition to the factors
discussed above in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," other factors may affect the Trust's
liquidity and capital resources as well as results of operations including
but not limited to: (i) the Trust's ability to secure mortgage financing
for its Colonial Penn Building, Lexington Business Court, Newtown
Distribution Center, Phoenix Business Park, Southlake Corporate Center and
Technology Center properties on terms acceptable to the Trust; (ii) the
Trust's ability to deploy cash available for investment in operating
properties generating yields greater than the interest rate paid by the
Trust on its indebtedness; (iii) the continued occupancy by, and the
financial solvency of, the major tenants at the Trust's Colonial Penn
Building, Florida Power and Light Building, Woodcrest Office Park, 6901
Riverport Drive and Technology Center properties; (iv) ability to re-lease
space as leases expire on terms at least as favorable as the terms of
existing leases since approximately 20% of the tenant leases at the Trust's
properties are scheduled to expire by December 31, 1998; and (v) market
conditions and rental rates where the Trust's properties are located.

GENERAL REAL ESTATE INVESTMENT RISKS. Real property investments are
subject to certain risks that may not always be predicted or controlled.
The cash flow generated by, and capital appreciation realized from, real
property investments may be adversely affected by the national and regional
economic climate (which, in turn, may be adversely impacted by plant
closings, industry slow-downs, income tax rates, interest rates,
demographic changes and other factors), local real estate conditions (such
as oversupply of, or reduced demand for rental space in the area), the
attractiveness of the properties, zoning and other regulatory restrictions,
competition from other land developers or developments, increased operating
costs (including maintenance costs, insurance premiums and real estate
taxes), perceptions by tenants or potential buyers of the safety,
convenience and attractiveness of the property and the willingness of the
owner of the property to provide capable management and adequate
maintenance. In light of the foregoing factors, there can be no assurance
that the cash flow generated by, and capital appreciation realized from,
the Trust's properties will be sufficient to cover expenses or recover
costs.

The cash flow generated by, or capital appreciation from, real
property investments may also be adversely affected by changes in
governmental regulations, zoning or tax laws, potential environmental or
other legal liabilities and changes in interest rates. Real estate
investments are also relatively illiquid. Therefore, the Trust's ability to
vary its portfolio promptly in response to changes in economic or other
conditions is limited, which may result in losses if the Trust is forced to
sell a property.

RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF MANY OF THE
PROPERTIES; LACK OF OPERATING HISTORY. The Trust acquired all of its
properties within the last five years, and acquired seventeen of its
properties since June 1995. The most recently acquired properties may have
characteristics or deficiencies unknown to the Trust that may impact their
value or revenue potential. It is also possible that the operating
performance of the most recently acquired properties may decline under the
Trust's management.

<PAGE>

The Trust is currently experiencing a period of rapid growth. As the
Trust acquires additional properties, the Trust will be subject to risks
associated with managing new properties, including lease-up and tenant
retention. In addition, the Trust's ability to manage its growth
effectively will require it to successfully integrate its new acquisitions
into its existing management structure. No assurances can be given that
the Trust will be able to successfully integrate such properties or
effectively manage additional properties, or that newly acquired properties
will perform as expected.

POTENTIAL INABILITY TO REPAY OR REFINANCE INDEBTEDNESS AT MATURITY.
The Trust is subject to risks normally associated with debt financing,
including the risk that the Trust's cash flow will be insufficient to meet
required payments of principal and interest, the risk that any indebtedness
will not be able to be refinanced or that the terms of any such refinancing
will be less favorable than the terms of the expiring indebtedness.

POTENTIAL EFFECT OF RISING INTEREST RATES ON TRUST'S VARIABLE RATE
DEBT. Advances under the Amended Line bear interest at variable rates and
the interest rate payable on bonds issued for the benefit of the Trust are
subject to periodic adjustments based on the then current market interest
rates. In addition, the Trust may incur other variable rate indebtedness
in the future. Increases in interest rates on such indebtedness would
increase the Trust's interest expense, which could adversely affect the
Trust's financial condition and results of operations. See "--Liquidity
and Capital Resources" above.

CONCENTRATION OF TENANTS AT SIGNIFICANT PROPERTIES. At each of the
Trust's Colonial Penn Building, Florida Power and Light Building, Riverport
and Technology Center properties, one or two tenants occupy all or a
substantial majority of the leased space. If one or more of the tenants at
these properties were to default on its lease or file for bankruptcy or
reorganization, the Trust's revenues could be reduced, particularly if the
Trust were unable to re-lease the vacant space on comparable terms and
conditions. Therefore, the bankruptcy or default by one of these tenants
could have an adverse effect on the Trust's financial condition and results
of operations.

COMPETITION FOR TENANTS. The Trust competes with numerous other
entities in attracting tenants to lease its space. Some of the competing
properties may be newer, better located or owned by parties better
capitalized than the Trust. An increase in the number of competitive
properties in a particular area could have a material adverse effect on:
(i) the ability to lease space in the properties (or in newly acquired or
developed properties); and (ii) the rents charged.

COMPETITION IN ACQUIRING PROPERTY. In seeking to acquire additional
property, the Trust competes with many other entities, some of which have
greater financial and managerial resources than the Trust. There can be no
assurance that the Trust will be able to acquire additional properties on
terms and conditions which are consistent with the Trust's business plan,
if at all.

RESTRICTIONS ON RE-LEASING SPACE. Tenant leases often grant tenants
the exclusive right to sell certain types of merchandise or provide certain
types of services within a property, or limit other tenants' right to sell
such merchandise or provide such services. Certain leases at Northlake
Tower Shopping Center contain these types of restrictions, which may limit
the number and types of prospective tenants for vacant space at this
property.

<PAGE>

SUBSTANTIAL DEBT OBLIGATIONS. As of September 30, 1997, the Trust's
indebtedness aggregated approximately $97,364,000 and the ratio of debt to
net assets for the Trust was 67%. The Trust's ability to service its debts
and other obligations when they become due depends on, among other things,
the Trust's ability to secure additional capital and the properties'
ability to generate sufficient cash flow to meet the Trust's cash needs for
operating expenses and debt service payments. Certain expenditures, such as
loan payments and real estate taxes, are not necessarily decreased by
events adversely affecting revenues or expenses at the property level. If
the Trust fails to make required payments on its indebtedness, the Trust
could lose the property securing these obligations, which would have a
material adverse effect on the Trust's financial condition and results of
operations.

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT -- TAX
LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT. The Trust
has elected to be taxed as a REIT under Sections 856 through 860 of the
Code, and the Trust believes that it has been organized and has operated in
such a manner so as to qualify as a REIT for federal income tax purposes.
Although the Trust believes that it will remain organized and will continue
to operate so as the qualify as a REIT, no assurance can be given that the
Trust has so qualified or will be able to remain so qualified. Qualifica-
tion as a REIT involves the satisfaction of numerous requirements (in
certain instances, on an annual and quarterly basis) set forth in highly
technical and complex Code provisions for which there are only limited
judicial and administrative interpretations, and may be affected by various
factual matters and circumstances not entirely within the Trust's control.
In the case of a REIT, such as the Trust, that holds a substantial portion
of its assets in partnership form, the complexity of these Code provisions
and the applicable Treasury Regulations that have been promulgated
thereunder is even greater. Further, no assurance can be given that future
legislation, new Treasury Regulations, administrative interpretations or
court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. The Trust, however, is not aware of any pending proposal to
amend the tax laws that would materially and adversely affect its ability
to operate in such a manner so as to qualify as a REIT.

If the Trust were to fail to qualify as a REIT with respect to any
taxable year, the Trust would not be allowed a deduction in computing its
taxable income from amounts distributed to its stockholders, and would be
subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. As a result, any
net earnings of the Trust available for investment or distribution to
stockholders would be reduced for the year or years involved because of the
Trust's additional tax liability, and distributions to stockholders would
no longer be required to be made. Moreover, unless entitled to relief
under certain statutory provisions, the Trust would also be ineligible for
qualification as a REIT for the four taxable years following the year
during which such qualification was lost. Although the Trust believes it
has operated and currently intends to operate in a manner designed to allow
it to continue to qualify as a REIT, future economic, market, legal, tax or
other considerations may cause it to determine that it is in the best
interests of the Trust and its stockholders to revoke the REIT election.

EFFECT OF REIT DISTRIBUTION REQUIREMENTS. To maintain its status as a
REIT for federal income tax purposes, the Trust generally will be required
each year to distribute to its stockholders at least 95% of its taxable
income (excluding any net capital gain and after certain adjustments). In
addition, the Trust will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to
any calendar year are less than the sum of 85% of its ordinary income for
such year plus 95% of its capital gain net income for such year plus 100%
of its undistributed income from prior taxable years.

<PAGE>

The Trust intends to make distributions to its stockholders to comply
with the 95% distribution requirement of the Code and to avoid the
nondeductible excise tax described above. The Trust anticipates that cash
flow from operations, will be sufficient to enable it to pay its operating
expenses and meet the distribution requirements of a REIT, but no
assurances can be given that this will be the case. In addition,
differences in timing between: (i) the actual receipt of income and the
actual payments of expenses; and (ii) the inclusion of such income and the
deduction of such expenses in arriving at taxable income of the Trust could
leave the Trust without sufficient cash to enable it to meet the REIT
distribution requirements. Accordingly, the Trust could be required to
borrow funds or liquidate investments on adverse terms to comply with such
requirements. The requirement to distribute a substantial portion of the
Trust's taxable income could also cause the Trust to have to distribute
amounts that would otherwise be spent on future acquisitions, unanticipated
capital expenditures or repayment of debt, which would require additional
borrowings or sales of assets to fund the costs of such items and could
restrict the Trust's ability to expand at a pace necessary to remain
competitive.

FINITE LIFE OF THE TRUST. The Trust is a finite life entity. Under
the Declaration of Trust, the Trustees are required to use reasonable
efforts to terminate the Trust by October 17, 2001; provided that the
Trustees are required to determine in good faith that the termination is in
the shareholders' best interest. Unless the Declaration of Trust is amended
to either extend the termination date or to eliminate the termination date
entirely, the Trust: (i) may be unable to obtain capital, either debt or
equity or renew existing financing on terms and conditions acceptable to
the Trust, if at all; (ii) may be forced soon after the termination date to
liquidate properties at prices below those which might prevail if the Trust
was not forced to liquidate its portfolio. Any of these factors could have
an adverse effect on the Trust's financial condition and results of
operations.

POTENTIAL INCREASES IN CERTAIN TAXES AND REGULATORY COMPLIANCE COSTS.
Increases in income, service or transfer taxes are generally not passed
through to tenants under leases and may, therefore, adversely affect the
Trust's cash flow and its ability to make distributions to stockholders.
The Trust's properties are also subject to various federal, state and local
regulatory requirements, such as those imposed by the Americans with
Disabilities Act (the "ADA"), which require all public accommodations and
commercial facilities to meet certain federal standards related to access
and use by disabled persons, and state and local fire and life safety
standards. Failing to comply with the ADA could result in the imposition
of fines by governmental authorities or an award of damages to private
litigants. The Trust believes that its existing properties are in
substantial compliance with these regulatory requirements. However,
existing statutes or rules may be amended or new statutes or rules may be
adopted, each of which may have an adverse effect on the Trust's financial
condition and results of operations.

POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state and
local environmental laws, ordinances and regulations, a current or previous
owner or operator of real estate may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases at the
property and may be held liable to a governmental entity or to third
parties for property damage and for investigation and clean-up costs that
these parties incur in connection with the contamination. These laws
typically impose clean-up responsibility and liability without regard to
whether the owner knew of or caused the presence of the contaminants, and
the liability under these laws has been interpreted to be joint and several
unless the harm is divisible and there is a reasonable basis for allocating
responsibility. The costs of investigating, remediating or removing
substances may be substantial, and the presence of these substances, or the

<PAGE>

failure to properly remediate the contamination on a property, may
adversely affect the owner's ability to sell or rent the property or to
borrow using the property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances at a disposal or
treatment facility also may be liable for the costs of removing or
remediating a release of hazardous or toxic substances at the disposal or
treatment facility, whether or not the person owns or operates the
facility. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs incurred
in connection with the contamination. 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 such site.

The Trust is not aware of any environmental liability that the Trust
believes would have a material adverse effect on the Trust's business,
assets or results of operations taken as a whole. There can be no
assurance, however, that the Trust would have knowledge of all conditions
giving rise to potential environmental liabilities subsequent to its
acquisition of a property since the Trust has ordered Phase I Environmental
Assessments only as part of its acquisition due diligence for each of its
properties and has only ordered Phase II Environmental Assessments in
limited circumstances when necessitated. Moreover, there can be no
assurance that: (i) future laws, ordinances or regulations will not impose
any material environmental liability; or (ii) the current environmental
condition of the Trust's properties will not be affected by tenants, by the
condition of land or operations in the vicinity of the Trust's properties
(such as the presence of underground storage tanks), or by third parties
unrelated to the Trust. Any expenditures associated with environmental
liabilities of the Trust could have an adverse effect on the Trust's
financial condition and results of operations.

SUBSEQUENT EVENT

SHARE PURCHASE AGREEMENT AND CONVERTIBLE TERM LOAN AGREEMENT

<PAGE>

consolidated net worth of greater than $52,500,000 and a debt coverage
ratio of not less than 1.5:1.00. The terms include payment of interest
only, quarterly on the last day of the calendar quarter, at 12% per annum.
Upon the issuance of the loan commitment pursuant to the Morgens Loan
Agreement, a loan fee of $200,000 was paid by the Trust. The Morgens Loan
Agreement also provides for a loan fee of 2% of the outstanding loan
balance to be paid on each anniversary of the closing and fee of 0.50% of
the maximum loan balance outstanding at any time, payable upon repayment in
full or final conversion of the loan (see below). Upon execution of the
Loan Agreement, the Trust also paid a brokerage fee to Leveraged Equity
Management, Inc. of $800,000. The loan has a maturity of September 30,
2002 with no prepayment of the loan permitted prior to September 30, 1999,
although the loan may be accelerated by Morgens upon the sale of
substantially all of the assets of the Trust.

OTHER INFORMATION

The following supplemental information has been provided by the Trust
to furnish the reader of this report an expanded understanding of the
properties owned as of September 30, 1997.

<PAGE>

<TABLE>
SUPPLEMENTAL INFORMATION
BANYAN STRATEGIC REALTY TRUST
PORTFOLIO SUMMARY AS OF
September 30, 1997
<CAPTION>
Scheduled
Lease
Expirations
----------------------
Net Carrying Value Occu- 10/1-
Square ------------------- pancy 12/31/ After
Location Footage Dollars Sq.Ft. % 1997 1998 1998
-------- ------- ----------- ------ ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Milwaukee Industrial
Portfolio. . . . . . . . . Milwaukee, Wisconsin 235,800 $ 5,660,000 $24.00 87% 5% 28% 54%
Elmhurst Metro Court . . . . Elmhurst, Illinois 140,800 5,075,000 36.04 90% 13% 30% 47%
Willowbrook Court. . . . . . Willowbrook, Illinois 84,300 3,841,000 45.56 100% 0% 55% 45%
Quantum Business Center. . . Louisville, Kentucky 182,200 4,976,000 27.31 91% 8% 40% 43%
Riverport Industrial . . . . Louisville, Kentucky 322,100 9,823,000 30.50 100% 0% 0% 100%
Lexington Business Center. . Lexington, Kentucky 308,800 7,223,000 23.39 95% 0% 6% 89%
Newtown Distribution
Center . . . . . . . . . . Lexington, Kentucky 87,100 3,460,000 39.72 85% 38% 34% 13%
--------- ----------- ------ ---- ---- ---- ----
Sub-Total. . . . . . 1,361,100 40,058,000 29.43 93% 6% 20% 67%
--------- ----------- ------ ---- ---- ---- ----
OFFICE
Colonial Penn Insurance. . . Tampa, Florida 79,200 7,906,000 99.82 100% 0% 0% 100%
Florida Power & Light. . . . Sarasota, Florida 83,100 9,441,000 113.61 99% 0% 0% 99%
Woodcrest Office Park. . . . Tallahassee, Florida 265,900 11,408,000 42.90 93% 4% 15% 74%
Midwest Office Center. . . . Oakbrook, Illinois 77,000 5,072,000 65.87 96% 13% 14% 69%
Phoenix Business Center. . . Atlanta, Georgia 110,600 5,446,000 49.24 100% 6% 7% 87%
Butterfield Office Plaza . . Oak Brook, Illinois 200,800 15,050,000 74.95 93% 3% 12% 78%
Southlake Corporate Center. Morrow, Georgia 56,200 4,455,000 79.27 100% 4% 8% 88%
University Square Business
Center. . . . . . . . . . . Huntsville, Alabama 184,700 7,314,000 39.60 90% 17% 22% 51%
Technology Center. . . . . . Huntsville, Alabama 48,500 2,508,000 51.71 100% 0% 0% 100%
--------- ----------- ------ ---- ---- ---- ----
Sub-Total. . . . . . 1,106,000 68,600,000 62.03 95% 6% 12% 77%
--------- ----------- ------ ---- ---- ---- ----
RETAIL
Northlake Tower Festival
Shopping Center. . . . . . Atlanta, Georgia 321,800 16,847,000 52.35 99% 1% 1% 97%
--------- ----------- ------ ---- ---- ---- ----
Total/
Weighted Average . 2,788,800 $125,505,000 $45.00 95% 5% 15% 75%
========= ============ ====== ==== ==== ==== ====
</TABLE>

<PAGE>

<TABLE>

BANYAN STRATEGIC REALTY TRUST
PORTFOLIO SUMMARY AS OF September 30, 1997 - CONTINUED

<CAPTION>
Net Carrying Value
Residen- ------------------------- Occu-
tial Per pancy
Location Units Dollars Unit %
-------- -------- ----------- ------ -----
<S> <C> <C> <C> <C> <C>
RESIDENTIAL
- -----------

Country Creek. . . . . . . . Oklahoma City, Oklahoma 320 7,440,000 23,250 99%
Willowpark . . . . . . . . . Lawton, Oklahoma 160 4,441,000 27,756 98%
Winchester Run . . . . . . . Oklahoma City, Oklahoma 192 4,476,000 23,313 99%
Woodrun Village. . . . . . . Yukon, Oklahoma 192 4,550,000 23,698 99%
----- ------------ ------- ---

Total/Weighted
Average. . . . . . 864 $ 20,907,000 $24,198 99%
===== ============ =======
---
Portfolio Total. . . $146,412,000 95%
============ ===

</TABLE>

<PAGE>

BANYAN STRATEGIC REALTY TRUST
COMPARISON OF AVERAGE "IN PLACE" AND MARKET RENTS
AS OF September 30, 1997

AVERAGE AVERAGE
SQUARE "IN PLACE" MARKET
FOOTAGE BASE BASE
(NOTE 1) RENTS RENTS
-------- ---------- --------
Industrial . . . . . . . . . . 1,335,700 $4.35 $ 4.49
Office . . . . . . . . . . . . 1,026,800 8.04 9.48
Retail . . . . . . . . . . . . 321,800 8.48 10.14
--------- ----- ------
Total/
Weighted Average . . . . 2,684,300 $6.26 $ 7.08
========= ===== ======

AVERAGE AVERAGE
"IN PLACE" MARKET
RENTS RENTS
--------- --------
RESIDEN-
TIAL PER UNIT
PROPERTY TYPE UNITS (NOTE 2) PER UNIT
- ------------- --------- --------- --------

Residential. . . . . . . . . . 864 $386 $426

- -------

Note 1 - The "In Place" Rents for approximately 105,000 square feet of
the portfolio have been excluded from the above calculation because the
lease terms relative to that space are unique compared to the market. It
is the Trust's view that inclusion of these rents in the above computation
would make the analysis less meaningful.

Note 2 - A portion of the difference between the above "In Place"
Rents and Market Rents per unit is attributable to the difference in the
size of the Trust's rental units compared to the size of other similar
units in the market place. The Trust's "In Place" Rents adjusted for the
size differential are 5% to 7% below Market Rent.

<PAGE>

PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

1. Shares of Beneficial Interest

Date of Shares Price Total Amount
Sale Sold per Share Sold Notes
- --------- ------- --------- ------------ ---------

07/09/96 95,635 $4.125 $394,494 (1),(5)
09/03/97 400,000 $4.812 $1,924,800 (2),(5)

2. Option to Purchase Stock

Date of Option for Price per Total Potential
Grant (# shares) Share Amount Notes
- ------- ---------- --------- --------------- ----------

07/22/97 6,000 $ 4.50 $27,000 (3),(5)
07/09/97 41,000 $ 4.08 $167,280 (4),(5)

(1) The shares were issued in respect of incentive compensation earned
by Leonard G. Levine, President of the Registrant, pursuant to the March
19, 1997 Amendment to his Second Amended and Restated Employment Agreement.

Twenty percent (20%) of the shares issued were held in escrow by the
Registrant, through the vesting date, September 29, 1997.

(2) The shares were issued in respect of incentive compensation earned
by Mr. Levine pursuant to the September 3, 1997 Second Amendment to his
Second Amended and Restated Employment Agreement.

(3) Pursuant to the Omnibus Stock and Incentive Plan which was adopted
by the Board of Trustees of the Registrant on May 14, 1997 and approved by
the shareholders on July 8, 1997, options to acquire 2,000 shares were
granted to each person serving as trustee on the tenth business day after
adjournment of the Registrant's annual meeting. The option price per share
was based on the closing price of the shares on the date of grant. Options
will be exercisable and vest as follows: 50% of the shares commencing on
the first anniversary of the date of grant and 50% on the second
anniversary of the date of grant.

(4) Pursuant to the above referenced Omnibus Stock and Incentive Plan,
the Board of Trustees of the Registrant granted options to purchase 41,000
shares to various executives and employees of the Trust as part of the
Trust's employee compensation program. Options will be exercisable and
vest as follows: 33.3% of the number of shares commencing on the first
anniversary of the date of grant and 33.3% on each of the second and third
anniversaries of the date of grant.

(5) In issuing the above shares, the Registrant is relying upon the
exemption provided in Section 4 (2) which exempts transactions by an issuer
not involving any pubic offering.

<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Trust held its 1996 Annual Meeting of Shareholders on July 8,
1997. There were five proposals considered at the Meeting:

Proposal #1 was to elect three Class A Trustees to hold office for one
year or otherwise as provided in the Trust's amended and restated
Declaration of Trust.

Proposal #2 was to concur in the selection of Ernst & Young LLP as the
Trust's independent public accountants for the fiscal year ended December
31, 1997.

Proposal #3 was to authorize the issuance of shares of the Trust's
beneficial interest to Leonard G. Levine, President, pursuant to the terms
of an agreement between the Trust and Mr. Levine.

Proposal #4 was to amend Section 3.3 of the Trust's Amended and
Restated Declaration of Trust to increase compensation and other
remuneration payable to the Class A Trustees.

Proposal #5 was to adopt the Trust's 1997 Omnibus Stock and Incentive
Plan.

Following are the vote totals in connection with the proposals:

PROPOSAL #1

FOR WITHHELD
SLATE OF TRUSTEES ELECTED

Walter E. Auch, Sr. 5,103,155 2,164,813
Norman M. Gold 5,110,611 2,157,357
Marvin A. Sotoloff 5,109,120 2,158,848
(all elected)

FOR AGAINST ABSTAIN

PROPOSAL #2 7,086,505 70,340 111,123
(carried)

FOR AGAINST ABSTAIN

PROPOSAL #3 3,457,429 2,527,370 314,584
(carried)

FOR AGAINST ABSTAIN

PROPOSAL #4 3,969,702 2,846,416 357,116
(not carried)

FOR AGAINST ABSTAIN

PROPOSAL #5 3,258,203 2,607,610 338,837
(carried)

<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are filed as part of this report:

Exhibit Number Description

Exhibit 10(i) Second Amendment to Second Amended and Restated
Employment Agreement

Exhibit (27) Financial Data Schedule

The following exhibits are incorporated by reference from the
Trust's Registration Statement on Form S-11 (file number 33-4169),
referencing the exhibit number used in such Registration Statement.

Exhibit (3)(b) By-Laws dated March 13, 1986.

(3)(c)
and (3)(d) Amended and Restated Declaration of Trust dated as
of August 8, 1986, as amended on March 8, 1991 and May 1, 1993.

(10) Material Contracts

(i) Amended Employment Agreement of Leonard G.
Levine dated January 1, 1990.

Second Amended and Restated Employment
Contract of Leonard G. Levine dated December 31, 1992.

Amendment to Second Amended and Restated
Employment Agreement of Leonard G. Levine dated March 19, 1997.

(ii) Amendment to Loan Agreement dated December
1, 1994; Second Amendment to Loan Agreement dated December 21, 1994; Third
Amendment to Loan Agreement dated December 18, 1995; and Fourth Amendment
to Loan Agreement dated January 7, 1997 regarding the Registrant's
Revolving Line of Credit with American National Bank and Trust Company of
Chicago.

(iii) First Amendment to Note dated December 18,
1995 and Second Amendment to Note dated January 7, 1997 regarding the
Registrant's Revolving Line of Credit with American National Bank and Trust
Company of Chicago.

(iv) Fifth Amendment to Loan Agreement dated
March 7, 1997 and Sixth Amendment to Loan Agreement dated April 29, 1997
regarding the Registrant's Revolving Line of Credit with American National
Bank and Trust Company of Chicago.

(v) Amended and Restated Note ($20,000,000)
dated April 29, 1997 and Note ($10,000,000) dated April 29, 1997 regarding
the Registrant's Revolving Line of Credit with American National Bank and
Trust Company of Chicago.

<PAGE>

(vi) Seventh Amendment to Loan Agreement dated
July 29, 1997 regarding the Registrant's Revolving Line of Credit with
American National Bank and Trust Company of Chicago.

(vii) 1997 Omnibus Stock and Incentive Plan dated
July 9, 1997.

(viii) Convertible Term Loan Agreement dated as of
October 10, 1997 among Banyan Strategic Realty Trust, as Borrower, and the
Lenders listed therein, as Lenders

(ix) Share Purchase Agreement by and among
Banyan Strategic Realty Trust and the Purchasers listed on the signature
page attached thereto dated as of October 10, 1997

(x) Registration Rights Agreement dated as of
October 10, 1997 between Banyan Strategic Realty Trust and the Purchasers
listed on the Signature Page attached thereto

Exhibit (21) Subsidiaries of the Trust

(b) The following reports on Form 8-K were filed during the quarter
ended September 30, 1997:

A report on Form 8-K/A was filed on June 26, 1997 wherein Item

7 disclosed Financial Statements and Pro Forma Financial Information
for Butterfield Office Plaza and Phoenix Business Park.

A report on Form 8-K/A was filed on July 15, 1997 wherein Item
7 disclosed Financial Statements and Pro Forma Financial Information
for Oklahoma Properties.

A report on Form 8-K was filed on September 10, 1997 wherein
Item 2 disclosed the Registrant's acquisition of the Southlake Corporate
Center, University Square Business Center and Technology Center properties.

<PAGE>

SIGNATURES

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

BANYAN STRATEGIC REALTY TRUST

By: /s/ Leonard G. Levine Date: November 14, 1997
Leonard G. Levine, President

By: /s/ Joel L. Teglia Date: November 14, 1997
Joel L. Teglia, Vice President and
Chief Financial Officer

<PAGE>

SIGNATURES

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

BANYAN STRATEGIC REALTY TRUST

By: __________________________________ Date: November 14, 1997
Leonard G. Levine, President

By: __________________________________ Date: November 14, 1997
Joel L. Teglia, Vice President and
Chief Financial Officer

EXHIBIT (10)(i)
- ---------------

SECOND AMENDMENT
TO
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This second amendment to Second Amended and Restated Employment
Agreement (this "Amendment") is made and entered into as of September 3,
1997 by and between Leonard G. Levine (the "Executive") and Banyan
Strategic Realty Trust (the "Fund").

R E C I T A L S

A. The parties previously entered into a Seconded Amended and
Restated Employment Agreement made as of December 31, 1992 and as amended
as of March 19, 1997 (the "Employment Agreement").

B. The parties desire to amend certain provisions of the
Employment Agreement and to incorporate these amendments into the
Employment Agreement.

C. Terms not otherwise defined herein shall have the same meaning
as ascribed to such terms in the Employment Agreement.

NOW THEREFORE, in consideration of the promises, mutual covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Fund and
the Executive agree as follows:

1. AMENDMENT OF EMPLOYMENT AGREEMENT. Subject to the conditions
set forth in Section 2 hereof, the Employment Agreement is amended as
follows:

(a) SECTION 3 is deleted in its entirety and replaced by the
following:

The term of employment under this Agreement shall remain in effect
until expiration of the "Notice Period" as defined below (the "Employment
Period"). Either party may terminate this Agreement upon six (6) months
(the "Notice Period") written notice to the other party (the "Notice
Termination") and unless so terminated, the Executive shall continue to be
employed by the Fund on the terms and conditions set forth in the
Employment Agreement, as amended, except that the Additional Compensation
described in SECTION 6 shall be determined as of the date set forth in that
section and shall not be part of the Executive's Compensation after August
31, 1997, except as provided herein or by mutual agreement of the parties.

(b) SECTION 4 shall be amended and restated in its entirety as
follows:

For the services to be rendered by the Executive hereunder, the Fund
shall pay the Executive an annual base salary of $175,000 effective October
1, 1992 subject CPI Adjustment described below ("Salary"). If either party
exercises its right of Notice Termination, the Fund shall continue to make
payments of Salary to the Executive through the end of the Notice Period
provided that such Salary shall be increased to $25,000 per month for
services rendered by the Executive during any Notice Period running on or
after January 1, 1998. All Salary payable to Executive during the Notice
Period is subject to the condition that Executive provide the Fund with
substantially the

<PAGE>

same services during the Notice Period as provided prior to Notice
Termination. All Salary payable hereunder, including any salary payable
during the Notice Period, shall be paid in the manner and frequency in
which the payroll of the Fund is customarily handled. The Salary, except
for salary payable to the Executive after the date of Notice Termination,
shall be subject to annual increases (but not decreases) due to cost of
living ("CPI Adjustment") as follows: the Salary shall be increased
effective January 1 of each year beginning 1994 by multiplying the Salary
for the year just ended by a fraction, the numerator of which is the Index
(as defined below) for November of the year just ended, and the denominator
of which is the Index for November of the immediately prior year. For
purposes of this Agreement, the term "Index" shall mean the Chicago All
Items Consumer Price Index--All Urban Consumers (1982-84 base) as released
by the U.S. Bureau of Labor Statistics.

For each calendar year beginning on January 1, 1993 through the
calendar year beginning on January 1, 1996 and for the period January 1,
1997 through and including August 31, 1997 (the "1997 Measuring Period"),
the Fund shall pay the Executive $500 for each basis point by which the
Rate of Return exceeds the Index Rate for that year or period, up to 500
basis points ($250,000) and $250 for each basis point by which the Rate of
Return exceeds the sum of the Index Rate plus 500 basis points.

(d) SECTION 6(c) is deleted in its entirety and replaced by the
following:

Except for Additional Compensation earned for periods commencing
after December 31, 1997, if any, payment of the Additional Compensation
computed under this Section 6 shall be made on March 15 of the year
following the period for which the award is made, except that Additional
Compensation for the 1997 Measuring Period shall be paid as soon as
practicable after September 3, 1997. One hundred percent (100%) of the
Additional Compensation shall be paid in shares of the Fund ("Award
Shares"); provided that for fiscal years ended prior to January 1, 1996,
the Additional Compensation shall be paid eighty percent (80%) in cash and
twenty percent (20%) in Award Shares. The Award Shares issued pursuant to
this Section 6(c) shall not be transferred prior to September 29, 1997 (the
"Vesting Date"); provided that eighty percent (80%) of the Award Shares
distributed to the Executive in respect of Additional Compensation earned
for the fiscal year ended December 31, 1996 shall immediately vest upon
Stockholder Approval as defined in SECTION 2 of the Amendment to Second
Amended and Restated Employment Agreement dated as of March 19, 1997 (the
"Additional Incentive Shares") and may be immediately transferred, pledged
or otherwise freely alienated in compliance with the registration
requirements of federal and state securities law or exemptions therefrom
following such Stockholder Approval. The Award Shares, except for the
Additional Incentive Shares, shall be subject to forfeiture in accordance
with the provisions of Section 6(d) and any certificate representing all or
any portion of the Award Shares shall bear an appropriate legend and shall
be held by the Fund in trust for the Executive pending the lapse of the
forfeiture provisions under Section 6(d). At the request of Executive, the
Additional Incentive Shares may be separately certificated. The number of
Award Shares distributable to the Executive shall be based upon the average
closing price of the Fund's stock for the five (5) business days ended
prior to December 31 of the calendar year for which the payments are made,
except that Award Shares distributable to the Executive in respect of the
1997 Measuring Period shall be based upon the average closing price of the
Fund's stock for the five

<PAGE>

(5) business days ended August 31, 1997. Subject to the provisions
of Section 2(b)(iii)-(iv) of the Amendment to Second Amended and Restated
Employment Agreement dated as of March 19, 1997 (the "March 19th
Amendment"), the Executive shall be entitled to receive and retain all
dividends paid on the Award Shares held by him, including those shares held
in trust by the Fund for the Executive. The Fund, at its sole cost, shall
take all reasonable steps necessary to cause the filing of a registration
statement and listing application to be effective as soon as after the
Vesting Date as practicable, with respect to the Award Shares, with the
appropriate regulatory bodies, on terms more fully set forth in the
Registration Rights Agreement described in Section 3 of the March 19th
Amendment.

(e) SECTION 6(d) is amended by removing the reference to "December"
in the first line thereof and substituting in its place "August".

(f) SECTION 6(d)(ii) is amended by removing the first comma in line
4 thereof.

(g) SECTION 6(d)(iii) is deleted in its entirety and replaced by
the following:

Payment of the Additional Compensation computed under this Section
(d) shall be made no later than the Vesting Date. Except as provided
herein, all of the Additional Compensation under this Section (d) shall be
payable in Award Shares. The number of Final Award Shares to be issued
pursuant to Section 6(d)(i) above shall be calculated by dividing the
Additional Compensation computed under Section (d) by the average closing
price of the Fund's stock for the five (5) business days ended August 31,
1997 (the "August Price"); provided, however, that if, at any time, the
Fund issues or sells any shares of its common stock in exchange for
consideration less than the August Price (or issues any warrant, option or
other security permitting the holder to acquire any share in exchange for
consideration less than the August Price), except for options, warrants or
other awards under the Fund's 1997 Omnibus Stock and Incentive Plan, then
the number of Final Award Shares issuable pursuant to Section 6(d)(i) to
the Executive shall be automatically increased such that the product of the
number of Final Award Shares immediately after such sale, transfer or
issuance, multiplied by the Diluted Value, is equal to the product of the
number of Final Award Shares immediately before such sale, transfer or
issuance multiplied by the August Price. For purposes of this provision,
"Diluted Value" shall mean the lowest price per share consideration at
which the Fund issues, transfers or sells, or agrees to issue, transfer or
sell, any of its Shares. For these purposes, consideration shall include
both cash and the fair market value of any property actually received or to
be received as consideration by the Fund upon such sale, transfer or
issuance; provided, however, that if any adjustment is made pursuant to
this section upon issuance of any such option, warrant or other security,
and if such option, warrant or right to acquire shares expires on exercise
or unconverted, then such adjustment shall be promptly cancelled and
reversed. The Fund shall notify the Executive promptly and, in any event,
within seven (7) days (or any cancellation thereof) required to be made
pursuant to this section. The Final Award Shares shall: (A) bear
appropriate legend; and (B) be transferrable only in compliance with the
registration requirements of federal and state securities laws or
exemptions therefrom.

(h) SECTION 13 is amended by deleting subsection (d)(i) and
subsection (e) in their entirety.

<PAGE>

2. MISCELLANEOUS PROVISIONS.

(a) GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the internal laws (and not the law of
conflicts) of the State of Illinois.

(b) FURTHER ASSURANCES. Each party agrees to execute and deliver
such additional instruments and documents and to take all such other
actions as any of the other parties may reasonably request from time to
time in order to effect the provisions, purposes and intent of this
Amendment.

(c) ENTIRE AGREEMENT; EFFECT ON OTHER AGREEMENTS. This Amendment
constitutes the entire understanding of the parties with respect to the
amendment of the Employment Agreement and may be modified only in
accordance with the provision of the Employment Agreement governing
amendments. Upon execution of this Amendment, all references in the
Employment Agreement, and any document executed or delivered in connection
therewith, shall be deemed to be references to the Employment Agreement as
amended, supplemented or modified by this Amendment.

(d) SEVERABILITY. If any provision of this Amendment shall, for
any reason, be held unenforceable, such provision shall be severed from
this Amendment unless, as a result of such severance, this Amendment fails
to reflect the basic intent of the parties. If this Amendment continues to
reflect the basic intent of the parties, then the invalidity of such
specific provision shall not affect the enforceability of any other
provision herein, and the remaining provisions shall remain in full force
and effect.

(e) COUNTERPARTS. This Amendment may be executed in two or more
counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one
and the same Amendment.

(f) HEADINGS. The descriptive headings of this Amendment are
inserted for convenience only and do not constitute a part of this
Amendment.

(g) NO STRICT CONSTRUCTION. This Amendment has been mutually
negotiated and drafted by the parties and no presumption or rule of
contract construction or interpretation by or against a party shall be made
on the basis of the party which might otherwise be charged with drafting
this Amendment.

(h) REFERENCES. As used herein, all provisions shall include the
masculine, feminine, neuter, singular and plural thereof, wherever the
context and facts require such construction.

(i) RECITALS. The recitals set forth in this Amendment are
incorporated by reference herein and made a part hereof, as if fully
rewritten.

<PAGE>

IN WITNESS WHEREOF, this Amendment is entered into on the day and
year first written above.

BANYAN STRATEGIC REALTY TRUST

BY: /s/ ROBERT G. HIGGINS
------------------------------------

NAME: Robert G. Higgins
------------------------------------

Title: Vice President and General Counsel
------------------------------------

EXECUTIVE

/s/ LEONARD S. LEVINE
------------------------------
Leonard G. Levine

"This schedule contains summary financial information extracted from Banyan
Strategic Realty Trust's Form 10-Q for the nine months ended September 30,
1997 and is qualified in its entirety by reference to such Form 10-Q."
</LEGEND>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,343,253
<SECURITIES> 0
<RECEIVABLES> 1,330,656
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,673,909
<PP&E> 152,124,568
<DEPRECIATION> 5,712,588
<TOTAL-ASSETS> 156,647,042
<CURRENT-LIABILITIES> 3,295,374
<BONDS> 21,960,035
<COMMON> 52,868,325
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 156,647,042
<SALES> 0
<TOTAL-REVENUES> 20,515,558
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,937,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,649,172
<INCOME-PRETAX> 2,578,071
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,578,071
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24

</TABLE>