CB COMMERCIAL HOLDINGS INC, 10-Q, 1996-11-14

CB COMMERCIAL HOLDINGS INC
10-Q, 1996-11-14
REAL ESTATE

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<PAGE>

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, 1996

_____ 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 - 18525

CB COMMERCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware 52-1616016
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)

533 South Fremont Avenue
Los Angeles, California 90071-1798
(Address of principal executive offices) (Zip Code)

(213) 613 - 3123 Not Applicable
(Registrant's telephone (Former name, former
number, including area code) address and formal
fiscal year if changed
since last report)

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
--- ---

Number of shares of common stock outstanding at November 13, 1996:
<TABLE>

<S> <C>
Class B-1... 1,854,573
Class B-2... 6,620,154
Class C-1... 800,000
Class C-R... 800,000
Class J..... 2
</TABLE>

1
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q

SEPTEMBER 30, 1996

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
PART I - FINANCIAL INFORMATION

Item 1. Consolidated Condensed Financial Statements

Consolidated Balance Sheets as of September 30, 1996 (Unaudited) and December 31, 1995............. 3

Unaudited Consolidated Statements of Operations for the three months ended
September 30, 1996, and 1995, and for the nine months ended September 30, 1996,
and 1995........................................................................................... 4

Unaudited Consolidated Condensed Statements of Cash Flows for the three months
ended September 30, 1996, and 1995, and for the nine months ended September 30, 1996,
and 1995........................................................................................... 5

Notes to Consolidated Condensed Financial Statements............................................... 7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 13

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K................................................................... 25

Signatures......................................................................................... 26

</TABLE>

2
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>

September 30, December 31,
1996 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................. $ 24,903 $ 23,045
Receivables, less allowance of $3,959 and $4,400 for doubtful
accounts at September 30, 1996 and December 31, 1995, respectively....... 30,741 28,322
Deferred taxes............................................................ 3,983 765
Prepaid expenses and other................................................ 7,498 4,889
--------- ---------
Total current assets..................................................... 67,125 57,021
Property and equipment, net................................................ 41,795 44,500
Goodwill, net of accumulated amortization of $6,949 and $5,194 as of
September 30, 1996 and December 31, 1995, respectively.................... 62,999 59,491
Other intangible assets, net of accumulated amortization of $251,690 and
$249,726 as of September 30, 1996 and December 31, 1995, respectively..... 12,138 10,783
Inventoried property....................................................... 7,355 7,355
Deferred taxes............................................................. 34,562 -
Other assets, net.......................................................... 6,601 11,804
--------- ---------
Total assets............................................................. $ 232,575 $ 190,954
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Compensation and employee benefits........................................ $ 28,489 $ 28,324
Accounts payable and accrued expenses..................................... 17,931 19,245
Senior revolving credit lines............................................. 8,000 -
Reserve for bonus and profit sharing...................................... 11,292 12,997
Current maturities of long-term debt...................................... 16,541 8,250
Current portion of capital lease obligations.............................. 2,669 2,592
--------- ---------
Total current liabilities................................................ 84,922 71,408
--------- ---------
Long-term debt, less current maturities:
Senior term loans......................................................... 142,101 160,394
Senior subordinated term loans............................................ 78,462 78,963
Inventoried property loan................................................. 7,470 7,470
Other long-term debt...................................................... 3,953 3,315
--------- ---------
Total long-term debt..................................................... 231,986 250,142
--------- ---------
Other long-term liabilities................................................ 22,561 24,092
--------- ---------
Total liabilities........................................................ 339,469 345,642
--------- ---------

Commitments and contingencies

Stockholders' Equity (Deficit):
Preferred stock, $.01 par value........................................... 40 40
Common stock, $.01 par value.............................................. 101 93
Additional paid-in capital................................................ 117,826 110,326
Notes receivable from sale of stock....................................... (5,109) -
Accumulated deficit....................................................... (219,752) (265,147)
--------- ---------
Total stockholders' equity (deficit)..................................... (106,894) (154,688)
--------- ---------
Total liabilities and stockholders' equity (deficit)..................... $ 232,575 $ 190,954
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

3
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)

Three Months Ended Nine Months Ended
September 30, September 30.
---------------------------- -------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>

Revenue..................................................... $ 147,168 $ 116,603 $ 390,863 $ 324,890

Costs and Expenses:
Commissions, fees and other incentives................... 74,196 57,804 195,465 167,569
Operating, administrative and other...................... 56,042 47,803 159,196 134,839
Depreciation and amortization............................ 3,431 3,546 9,749 8,173
----------- ----------- ----------- -----------

Operating income............................................ 13,499 7,450 26,453 14,309
Interest income............................................. 286 345 1,035 1,228
Interest expense............................................ 6,196 6,428 17,883 16,944
----------- ----------- ----------- -----------

Income (loss) before provision (benefit) for income taxes... 7,589 1,367 9,605 (1,407)

Provision for income tax.................................... 4,220 138 4,610 238
Reduction of valuation allowances........................... (40,400) - (40,400) -
----------- ----------- ----------- -----------

Net provision (benefit) for income tax...................... (36,180) 138 (35,790) 238
----------- ----------- ----------- -----------

Net income (loss)........................................... $ 43,769 $ 1,229 $ 45,395 $ (1,645)
=========== =========== =========== ===========

Per share data:
Net income (loss) per common and common
equivalent share outstanding........................... $ 3.11 $ 0.09 $ 3.29 $ (0.14)
=========== =========== =========== ===========

Weighted average common and common
equivalent shares outstanding.......................... 14,060,957 13,518,104 13,815,434 11,732,012
=========== =========== =========== ===========

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

4
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
--------- -------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>

Cash flows from operating activities:
Net income (loss).................................... $ 43,769 $ 1,229 $ 45,395 $ (1,645)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 3,431 3,546 9,749 8,173
Deferred interest................................. 2,248 1,059 6,515 4,946
Deferred taxes.................................... (36,906) - (36,906) -
Net change in other operating assets and
liabilities....................................... 9,608 2,309 (583) (10,923)
-------- ------- -------- --------

Net cash provided by operating activities......... 22,150 8,143 24,170 551
-------- ------- -------- --------

Cash flows from investing activities:
Purchases of property and equipment.................. (790) (499) (2,302) (1,798)
Disposition of property and equipment................ 9 80 10 94
Acquisitions of businesses including net assets
acquired, intangibles and goodwill................ (8,625) (184) (8,625) (20,049)
Proceeds from collections on notes receivable........ 5 - 2,721 205
Other investing activities, net...................... - 8 (1,321) (412)
-------- ------- -------- --------

Net cash used in investing activities............. (9,401) (595) (9,517) (21,960)
-------- ------- -------- --------

Cash flows from financing activities:
Proceeds from senior revolving credit line........... 2,677 1,000 21,000 14,000
Repayment of senior revolving credit line............ (11,000) (4,000) (13,000) (4,000)
Proceeds from senior subordinated term loans......... - - - 10,000
Repayment of senior term loans....................... (5,875) (5,060) (18,233) (14,797)
Other financing activities, net...................... (1,099) (617) (2,562) (1,722)
-------- ------- -------- --------

Net cash provided (used in) by financing
activities...................................... (15,297) (8,677) (12,795) 3,481
-------- ------- -------- --------

Net increase (decrease) in cash and cash equivalents... (2,548) (1,129) 1,858 (17,928)

Cash and cash equivalents, at beginning of period...... 27,451 11,971 23,045 28,770
-------- ------- -------- --------

Cash and cash equivalents, at end of period............ $ 24,903 $10,842 $ 24,903 $ 10,842
======== ======= ======== ========

</TABLE>

5
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS CONTINUED
(Dollars in thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------
1996 1995 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (none capitalized).................... $3,315 $ 3,239 $9,981 $ 9,585
Federal and state income taxes................. 302 128 622 364

Non-cash investing and financing activities:
Portion of Westmark acquisition financed by
notes payable.................................. - 20,283 - 20,283
Portion of L.J. Melody acquisition financed by
notes payable.................................. 3,667 - 3,667 -
Equipment acquired under capital lease............ 348 894 1,255 2,658

</TABLE>

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

6
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. ORGANIZATION AND ACQUISITIONS

ORGANIZATION. CB Commercial Holdings, Inc. ("CB Holdings") was organized to
acquire Coldwell Banker Commercial Group, Inc. and had no operations prior to
the acquisition on April 19, 1989 (the "Acquisition"). In 1991 Coldwell Banker
Commercial Group, Inc. was renamed CB Commercial Real Estate Group, Inc. CB
Holdings is a holding company that conducts its operations solely through CB
Commercial Real Estate Group, Inc. and its subsidiaries (collectively, the
"Company"). Concurrently with the closing of the Stock Offering (see Note 2),
CB Holdings will be renamed CB Commercial Real Estate Services Group, Inc.

NATURE OF OPERATIONS. The Company provides a full range of services to
commercial real estate tenants, owners, and investors including: (i) brokerage
(facilitating sales and leases), investment properties (acquisitions and sales
on behalf of investors), corporate services, property management, and real
estate market research (collectively, "Property and User Services"), and (ii)
mortgage banking (mortgage loan origination and servicing), investment
management and advisory services and valuation and appraisal services
(collectively, "Investor Services"). The Company's diverse client base includes
local, national and multinational corporations, financial institutions, pension
funds and other tax exempt entities, local, state and national governmental
entities, and individuals.

A significant portion of the Company's revenue is transactional in nature and
seasonal. Historically, this seasonality has caused the Company's revenue,
operating income and net income to be lower in the first two calendar quarters
and higher in the third and fourth calendar quarters of each year. The results
of operations for the nine months ended September 30, 1996 are not necessarily
indicative of results to be expected for the entire year ending December 31,
1996 or for any future period.

ACQUISITIONS. Effective July 1, 1996, CB Commercial Mortgage Company, Inc. ("CB
Mortgage"), a wholly-owned subsidiary of the Company, acquired all of the
outstanding capital stock of L.J. Melody & Company, a Texas corporation, and
L.J. Melody & Company of California, a Texas corporation ("LJMCal"). On July 9,
1996, CB Mortgage merged into L.J. Melody & Company. As a result, LJMCal is a
wholly-owned subsidiary of L.J. Melody & Company. L.J. Melody & Company and
LJMCal (collectively "L.J. Melody") are commercial mortgage banking firms
engaged in mortgage loan origination and servicing. L.J. Melody is
headquartered in Houston, Texas. The purchase consideration for L.J. Melody was
$15.0 million, including a $2.3 million note to the principal seller bearing
10.0% interest with principal payments starting in 1998, $9.0 million in cash
and $3.7 million in additional notes to sellers. The notes bear interest of
10.0% per annum, with maturities through June 2001. The $2.3 million note will
be accounted for as compensation over the term of the note as the payment of
this note is contingent upon the principal seller's continued employment with
the Company.

The acquisition was accounted for as a purchase. The Company allocated
approximately $3.7 million of the total purchase price to identifiable
intangible assets, consisting of loan servicing and asset management contracts,
trade name, a covenant not to compete and other intangibles. The remaining $9.0
million and a $1.5 million deferred tax liability resulting from the acquisition
were recorded to goodwill. The intangibles are being amortized over their
estimated useful lives or the lives of the underlying contracts, as applicable,
over periods ranging from three to 13 years. Goodwill is being amortized on a
straight line basis over 30 years.

On June 30, 1995, CB Commercial Real Estate Group, Inc., through a general
partnership ("WREAP") in which it directly or indirectly owns all of the
partnership interests, acquired Westmark Realty Advisors L.L.C. ("Westmark").
Westmark is an investment management and advisory business headquartered in Los
Angeles. The purchase price consisted of an aggregate initial purchase price of
$37.5 million plus $2.9 million in net liabilities assumed and an additional
$1.0 million in costs related to the Westmark acquisition. Approximately $20.0
million of the $37.5 million is payable to the sellers ("Westmark Senior Notes")
over periods ranging from one to five years. The sellers may also be entitled
to a supplemental purchase price based on the operating results of Westmark
payable over a period of six years and subject to a maximum aggregate payment of
$18.0 million. The supplemental purchase price will be recorded as additional
goodwill, if and when earned. As of December 31, 1995, approximately $0.9
million was earned and was paid to the sellers on March 31, 1996. Approximately
$17.5 million of the purchase price was paid in cash using $7.5 million
contributed to WREAP by CB Commercial Real Estate Group, Inc. and $10.0 million
of

7
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND ACQUISITIONS (CONTINUED)

proceeds from a senior subordinated loan ("Westmark Senior Subordinated Loan")
bearing interest at 20.0% per annum issued to WREAP, which is nonrecourse to CB
Commercial Real Estate Group, Inc. (except for a portion of the interest
payable). In November 1996, the terms of the Westmark Senior Subordinated Loan
were amended to provide for interest to be payable quarterly on a current basis
at a rate of 11.0%, effective June 30, 1995, and to provide for quarterly
amortization payments by the Company of $500,000. As amended, interest will
accrue on the Senior Subordinated Loan at the original interest rate of 20.0%,
but interest in excess of 11.0% will be forgiven upon the payment of the Senior
Subordinated Loan in full. If the Company defaults on its payment obligations
under the loan at any time, such excess interest will not be forgiven and the
Senior Subordinated Loan will bear interest at the rate of 20.0% from June 30,
1995. The terms of the Senior Subordinated Loan originally provided for the
interest to be deferred until the debt payable to the Westmark sellers was paid
or cash collateralized in full.

The Westmark acquisition was accounted for as a purchase. The Company has
allocated approximately $6.9 million of the total initial purchase price of
$41.4 million to identifiable intangible assets acquired, consisting of asset
management contracts, employment agreements and trade name and the remaining
$34.5 million was recorded as goodwill. The intangibles will be amortized over
their estimated useful lives of 6 years, 5 years, and 10 years, respectively.
Based on the nature of the business, Westmark's market position, its workforce
and other factors, management estimates that the goodwill resulting from this
acquisition has a useful life of approximately 30 years and will be amortized on
a straight line basis over this period. Based upon future experience, this
useful life could be decreased. In that event, the charge for intangibles and
goodwill would be increased and earnings decreased.

On April 11, 1995, the Company acquired certain assets of Langdon Rieder
Corporation, a tenant advisory business. The purchase price consisted of a
closing payment of $1.5 million in cash and a deferred payment of $1.9 million
payable over three years ($633,333 payable on each of January 2, 1997, 1998 and
1999), plus interest on the entire outstanding portion of the deferred payment
at an annual rate of 8.0%. The deferred payment is subject to forfeiture under
certain circumstances. The purchase price has largely been allocated to
intangibles and goodwill, which will be amortized on a straight line basis over
their useful lives ranging from three to seven years.

The assets and liabilities of the acquired companies, along with the related
goodwill, intangibles and indebtedness, are reflected in the accompanying
consolidated financial statements as of September 30, 1996. The results of
operations of the acquired companies are included in the consolidated results
from the dates they were acquired, and were not material to the Company's
results for the nine months ended September 30, 1996. The pro forma results of
operations of the Company for the nine months ended September 30, 1996 and 1995
and for the three months ended September 30, 1995, assuming the acquisitions had
occurred on January 1, 1995, would have been as follows:
<TABLE>
<CAPTION>

(Amounts in thousands)
Nine Months Ended Three Months Ended
September 30, September 30, 1995
-------------------- ------------------
1996 1995
--------------------
<S> <C> <C> <C>
Revenues................................. $394,280 $341,050 $118,158

Net income (loss)........................ 44,190 (5,445) 571

Net income (loss) per common and
common equivalent share outstanding... 3.20 (0.46) 0.04
</TABLE>

2. STOCK OFFERING AND DEBT MODIFICATIONS

8
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

2. STOCK OFFERING AND DEBT MODIFICATIONS (CONTINUED)

and subordinated indebtedness. The Company also announced a recapitalization
which will be contingent upon and executed in conjunction with the IPO and which
will help to provide liquidity to its common stockholders. The following
summarizes the terms of the recapitalization:

. Class B-1 and B-2 common stock of the Company will be converted into the
common stock to be issued in the IPO ("Common Stock") on a one-for-one
basis;

. Class C-1 common stock of the Company will be converted into Common Stock at
a conversion ratio based on the initial public offering price per share;

. The Company will acquire all issued and outstanding shares of the Class C-R
and Class J common stock at $.01 per share;

. The Preferred Stock will be convertible into Common Stock at the holder's
option after the completion of the IPO at a ratio based upon the per share
market price of the Common Stock, ranging from .60 shares of Common Stock
per share of Preferred Stock at a market price of $30.00 or more per share
of Common Stock to .78 shares of Common Stock per share of Preferred Stock
at a market price of $10.00 to $21.99 per share of Common Stock. No
conversion of the Preferred Stock is permitted when the market price of the
Common Stock is below $10.00 per share.

DEBT MODIFICATIONS. In connection with and conditional upon the IPO, the
Company's senior secured lenders have agreed to amend the terms of the senior
secured indebtedness effective upon consummation of the IPO. As amended, the
senior secured indebtedness will bear interest at the rate of LIBOR plus 2.5%,
all of which interest will be payable currently, will have a final maturity date
of December 31, 2001 and will provide for quarterly principal repayments of
$2.625 million with a final payment of $2.2 million on September 30, 2001. A
$10.0 million line of credit will be established for the purpose of funding
acquisitions. It will bear interest at LIBOR plus 3.0% payable quarterly.
Quarterly principal payments are required but may be borrowed back in full until
the line expires on December 31, 1999, at which time it must be repaid in full.

The terms of the Company's senior subordinated indebtedness will also be amended
effective upon consummation of the IPO. As amended, from January 1, 1997
through December 31, 1998, the senior subordinated indebtedness will bear
interest at a rate of LIBOR plus 1.25%, all of which interest will be payable
currently. The interest rate will increase to LIBOR plus 2.0% during 1999,
LIBOR PLUS 3.0% during 2000 and LIBOR plus 4.0% during 2001 and subsequent
periods. Interest in excess of LIBOR plus 1.25% would be deferred and added to
the principal balance of the senior subordinated indebtedness until the final
maturity of the senior subordinated indebtedness. The senior subordinated
indebtedness will have a final maturity date of July 23, 2002. The senior
subordinated indebtedness may be prepaid at any time without penalty.

3. OTHER ASSETS

Included in other assets at December 31, 1995 were two notes receivable totaling
$5.0 million. The notes were secured by first mortgage liens on hotel
properties bearing interest at 9.0% and 9.5% due at maturity in July 1997.
During the second quarter of 1996 payment in full on one note totaling $2.7
million was received. The remaining note has been reclassified to current.

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill at September 30, 1996 consisted of $41.9 million related to the 1995
and 1996 acquisitions which is being amortized over an estimated useful life of
30 years and $21.1 million related to the Company's original acquisition in 1989
which is being amortized over an estimated useful life of 40 years.

9
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

4. GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)

Other intangible assets at September 30, 1996 included approximately $3.7
million of deferred financing costs and $8.5 million of intangibles stemming
from the Westmark, Langdon Rieder and L.J. Melody acquisitions.

The Company periodically evaluates the recoverability of the carrying amounts of
goodwill and other intangible assets. In this assessment the Company considers
the expected useful lives of its goodwill and intangibles and the estimated
future cash flows associated with these assets. If any of the significant
assumptions inherent in the estimated future cash flows change in a material way
due to market, economic and/or other factors, the recoverability is assessed
based on the revised assumptions, and any resulting impairment would be recorded
in the period such changes occur.

5. DEFERRED COMPENSATION PLAN

Under the Company's Deferred Compensation Plan (the "DCP"), a select group of
management and highly compensated employees can defer the payment of all or a
portion of their compensation (including any bonus). The DCP permits
participating employees to make an irrevocable election at the beginning of each
year to receive amounts deferred at a future date either in cash, which accrues
at a rate of interest determined in accordance with the DCP and is an unsecured
long term liability of the Company, or in newly issued shares of Class B-2
common stock of the Company which elections are recorded as additions to
Stockholders' Equity. From DCP inception through September 30, 1996,
approximately $1.5 million (including interest) and $2.8 million have been
deferred in cash and stock, respectively, all of which was charged to expense in
the period of deferral.

6. INCOME TAXES

Beginning in 1992 the Company implemented Statement of Financial Accounting
Standards No. 109, the modified liability method of accounting for income taxes.
Until the third quarter of 1996, the resulting net deferred tax asset had been
fully reserved except for utilization against earnings as realized. Such asset
was being recognized to the extent of the tax effect of current taxable
earnings.

10
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES

The Company is a party to a number of pending or threatened lawsuits arising out
of, or incident to, its ordinary course of business. Management believes that
any liability to the Company, net of insurance proceeds, that may result from
resolution of these lawsuits will not have a material effect on the consolidated
financial position or results of operations of the Company.

8. STOCKHOLDER'S EQUITY

During the first and second quarters of 1996 the Company issued 95,833 and 1,084
shares, respectively, of its Class B-2 common stock in connection with the
Deferred Compensation Plan (including bonuses deferred in stock). In March 1996
the Company also issued 125,389 shares of its Class B-2 common stock with a
stated value of approximately $1,047,000 to the Company's Capital Accumulation
Plan for the year ended December 31, 1995, and 8,501 shares were issued to sales
professionals who elected to receive a portion of their annual premium on
earnings payments in stock rather than cash.

The Company has a restricted stock purchase plan covering certain key employees
including senior management. A total of 550,000 shares of Class B-2 common
stock have been reserved for issuance under the 1996 Equity Incentive Plan of CB
Holdings. The shares may be issued to senior executives for a purchase price
equal to the greater of $10 per share or fair market value. The purchase price
for shares under this plan must be paid either in cash or by delivery of a full
recourse promissory note. As of September 30, 1996, the Company had issued
510,906 shares of Class B-2 common stock to certain key employees at $10 per
share. The related promissory notes are also included in stockholders' equity.

A total of 90,750 shares of Class B-2 common stock have been reserved for
issuance under the L.J. Melody Acquisition Stock Option Plan, which was adopted
by the Board of Directors in September 1996. Options for all such shares have
been issued at an exercise price of $10 per share and vest over a period of five
years at the rate of five percent per quarter. Options for 90,750 shares of
Class B-2 common stock are outstanding as of September 30, 1996.

As of September 30, 1996, 6,620,154 shares of Class B-2 stock were outstanding.

11
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

9. PER SHARE INFORMATION

Earnings per share is calculated based on weighted average common shares and
dilutive stock options outstanding. When the Company is in a net loss position
for a particular reporting period, the Class C-1 and Class C-R shares, as well
as the stock options outstanding, are excluded as they are anti-dilutive. This
may result in variations in the weighted average number of shares outstanding
between periods.

Weighted average common and common equivalent shares outstanding are comprised
of the following:
<TABLE>
<CAPTION>

Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1996 1995 1996 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Preferred stock:
Series A-1.......... 1,000,000 1,000,0OO 1,000,000 1,000,000
Series A-2.......... 2,000,000 2,000,000 2,000,000 2,000,000
Series A-3.......... 1,000,000 1,000,000 1,000,000 1,000,000

Common stock:
Class B-1........... 1,854,126 1,850,000 1,854,113 1,850,000
Class B-2........... 6,324,782 5,781,929 6,079,259 5,636,550
Class C-1........... 800,000 800,000 800,000 -
Class C-R........... 800,000 800,000 800,000 -
Promotional shares... 245,462 245,462 245,462 245,462

Stock options........ 36,587 40,713 36,600 -
---------- --------- ---------- ----------

14,060,957 13,518,104 13,815,434 11,732,012
========== ========== ========== ==========
</TABLE>

10. NEW ACCOUNTING PRONOUNCEMENTS

The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," SFAS No. 122, "Accounting for Mortgage Servicing
Rights" and SFAS No. 123, "Accounting for Stock-Based Compensation," on January
1, 1996. These statements did not have a material impact on the financial
statements.

In June 1996 the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities.
This statement is required to be adopted by the Company in 1997. Management of
the Company has not yet determined the impact, if any, that the adoption of this
statement will have on the Company's financial position or results of
operations.

11. RESTATEMENT

Certain reclassifications, which do not have any effect on net income, have been
made to the September 1995 financial statements and to the December 31, 1995
balance sheet to conform to the September 1996 presentation.

12
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

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

INTRODUCTION -

CB Commercial Holdings, Inc. ("CB Holdings") was organized in 1989 to acquire
Coldwell Banker Commercial Group, Inc., and had no operations prior to the
acquisition on April 19, 1989 (the "Acquisition"). In 1991 Coldwell Banker
Commercial Group, Inc. was renamed CB Commercial Real Estate Group, Inc. ("CB
Commercial"). CB Holdings is a holding company that conducts its operations
solely through CB Commercial and its subsidiaries (collectively, the "Company").
Concurrently with the closing of the IPO as defined below, CB Holdings will be
renamed CB Commercial Real Estate Services Group, Inc.

The integrated real estate services provided by the Company include (i)
Property and User Services, consisting of brokerage (facilitating sales and
leases), investment properties (acquisitions and sales on behalf of investors),
corporate services, property management, and real estate market research, and
(ii) Investor Services, consisting of mortgage banking (mortgage origination and
servicing) through L.J. Melody, investment management and advisory services
through Westmark, and valuation and appraisal services.

During the third quarter of 1996, the Company projected, on a more likely
than not basis, that a portion of its net operating loss carryforwards ("NOL")
would be realizable in future periods and, accordingly, reduced its existing
deferred tax asset valuation allowances by $45.7 million of which $5.3 million
has been allocated to the purchase price of L.J. Melody based on its estimated
future potential to generate taxable income, and the remaining $40.4 million has
been recorded as a tax benefit (a reduction in income tax provision). With the
recognition of deferred tax assets, the current and future period provisions for
income tax will be recorded at the full effective tax rate excluding the impact
of other adjustments, if any, to valuation allowances. For the nine months
ended September 30, 1996, a $4.6 million provision for income taxes has been
recorded. Net income for the nine months ended September 30, 1996 was $45.4
million ($3.29 per share of common stock), which includes the net benefit for
income tax of $35.8 million. Net income for the nine months ended September 30,
1996 would have been $8.8 million ($.64 per share of common stock) if the
Company had not recorded tax benefits related to projected future taxable
income. An additional $16.3 million reduction of valuation allowances and
related tax benefit is expected to be recorded in the fourth quarter of 1996 as
a result of the IPO (see "Stock Offering") and related reduction in future
interest expense. The $40.4 million recognized tax benefit has a material
effect on the reported net income for the nine months ended September 30, 1996.
This $40.4 million tax benefit is a non-recurring item and is unrelated to the
Company's performance and should not be used in evaluating the Company's
prospects or future performance. See "Net Operating Losses" below.

Revenue from Property and User Services, which constitutes a substantial
majority of the Company's revenue, is largely transactional in nature and
subject to economic cycles. However, the Company's significant size, geographic
coverage, number of transactions and large client base tend to minimize the
impact of economic cycles on annual revenue. Due in large part to acquisitions,
revenue from Investor Services, a significant portion of which is non-
transactional in nature, has grown more rapidly than revenue from Property and
User Services. Approximately 54.0% of the costs and expenses associated with
Property and User Services are directly correlated to revenue while
approximately 25.0% of the costs and expenses of Investor Services are directly
correlated to revenue.

The Company has recently completed three strategic acquisitions and is
continually assessing acquisition opportunities as part of its growth strategy.
Because of the substantial non-cash goodwill and intangible amortization charges
incurred by the Company in connection with acquisitions subject to purchase
accounting, management anticipates that future acquisitions may result in a
decrease in net income. Management's strategy is to pursue acquisitions that
are expected to be accretive before interest expense and provision for
amortization of goodwill and intangibles, if any, resulting from the
acquisitions and to operating cash flows after all integration costs.

13
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

The purchase consideration for L.J. Melody was $15.0 million, including a
$2.3 million note to the principal seller bearing 10.0% interest with principal
payments starting in 1998, $9.0 million in cash and $3.7 million in additional
notes to the sellers. The notes bear interest of 10.0% per annum, with
maturities through June 2001. The $2.3 million note will be accounted for as
compensation over the term of the note as the payment of this note is contingent
upon the principal seller's continued employment with the Company. The
acquisition was accounted for as a purchase. The Company allocated
approximately $3.7 million of the total purchase price to identifiable
intangible assets acquired, consisting of loan servicing and asset management
contracts, trade name, a covenant not to compete and other intangibles. The
remaining $9.0 million and a $1.5 million deferred tax liability resulting from
the acquisition were recorded to goodwill. The intangibles are being amortized
over their estimated useful lives or the lives of the underlying contracts, as
applicable, over periods ranging from three to 13 years. Goodwill is being
amortized on a straight line basis over 30 years.

On June 30, 1995, CB Commercial, through a general partnership ("WREAP") in
which it directly or indirectly owns all of the partnership interests, acquired
Westmark Realty Advisors L.L.C. ("Westmark"). Westmark is an investment
management and advisory business headquartered in Los Angeles. The purchase
price consisted of an aggregate initial purchase price of $37.5 million plus
$2.9 million in net liabilities assumed and an additional $1.0 million in costs
related to the Westmark acquisition. Approximately $20.0 million of the $37.5
million is payable to the sellers ("Westmark Senior Notes") over periods ranging
from one to five years. The sellers may also be entitled to a supplemental
purchase price based on the operating results of Westmark payable over a period
of six years and subject to a maximum aggregate payment of $18.0 million. The
supplemental purchase price will be recorded as additional goodwill, if and when
earned. As of December 31, 1995, approximately $0.9 million was earned and was
paid to the sellers on March 31, 1996. Approximately $17.5 million of the
purchase price was paid in cash using $7.5 million contributed to WREAP by CB
Commercial and $10.0 million of proceeds from a senior subordinated loan
("Westmark Senior Subordinated Loan") bearing interest at 20.0% per annum issued
to WREAP, which is nonrecourse to CB Commercial (except for a portion of the
interest payable). In November 1996, the terms of the Westmark Senior
Subordinated Loan were amended to provide for interest to be payable quarterly
on a current basis at a rate of 11.0%, effective June 30, 1995, and to provide
for quarterly amortization payments by the Company of $500,000. As amended,
interest will accrue on the Senior Subordinated Loan at the original interest
rate of 20.0%, but interest in excess of 11.0% will be forgiven upon the payment
of the Senior Subordinated Loan in full. If the Company defaults on its payment
obligations under the loan at any time, such excess interest will not be
forgiven and the Senior Subordinated Loan will bear interest at the rate of
20.0% from June 30, 1995. The terms of the Senior Subordinated Loan originally
provided for the interest to be deferred until the debt payable to the Westmark
sellers was paid or cash collateralized in full.

STOCK OFFERING. During September 1996 the Company announced its intent to
raise additional capital in an initial public offering ("IPO"). The proceeds
from the IPO will be used to repay a portion of the Company's senior secured and
subordinated indebtedness. The Company also announced a recapitalization which
will be contingent upon and executed in conjunction with the IPO and which will
provide liquidity to its common stockholders. The following summarizes the
terms of the recapitalization:

. Class B-1 and B-2 common stock of the Company will be converted into the
common stock to be issued in the IPO ("Common Stock") on a one-for-one basis;

. Class C-1 common stock of the Company will be converted into Common Stock at
a conversion ratio based on the initial public offering price per share;

. The Company will acquire all issued and outstanding shares of the Class C-R
and Class J common stock at $.01 per share;

14
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

. The Preferred Stock will be convertible into Common Stock at the holder's
option after the completion of the IPO at a ratio based upon the per share
market price of the Common Stock, ranging from .60 shares of Common Stock per
share of Preferred Stock at a market price of $30.00 or more per share of
Common Stock to .78 shares of Common Stock per share of Preferred Stock at a
market price of $10.00 to $21.99 per share of Common Stock. No conversion of
the Preferred Stock is permitted when the market price of the Common Stock is
below $10.00 per share.

The terms of the Company's senior subordinated indebtedness will also be
amended effective upon consummation of the IPO. As amended, from January 1,
1997 through December 31, 1998, the senior subordinated indebtedness will bear
interest at a rate of LIBOR plus 1.25%, all of which interest will be payable
currently. The interest rate will increase to LIBOR plus 2.0% during 1999,
LIBOR PLUS 3.0% during 2000 and LIBOR plus 4.0% during 2001 and subsequent
periods. Interest in excess of LIBOR plus 1.25% would be deferred and added to
the principal balance of the senior subordinated indebtedness until the final
maturity of the senior subordinated indebtedness. The senior subordinated
indebtedness will have a final maturity date of July 23, 2002. The senior
subordinated indebtedness may be prepaid at any time without penalty.

RESULTS OF OPERATIONS -

The following unaudited table sets forth items derived from the Company's
consolidated statements of operations for each of the periods presented in
dollars and as a percentage of revenue.
<TABLE>
<CAPTION>

Quarter Ended September 30, Nine Months Ended September 30,
------------------------------------- -------------------------------------------
1996 1995 1996 1995
----------------- ---------------- ----------------- ----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... $147,168 100.0% $116,603 100.0% $390,863 100.0% $324,890 100.0%
Costs and Expenses:
Commissions, fees and other
incentives................ 74,196 50.4 57,804 49.6 195,465 50.1 167,569 51.6
Operating, administrative
and other.................. 56,042 38.1 47,803 41.0 159,196 40.7 134,839 41.5
Depreciation and
amortization............... 3,431 2.3 3,546 3.0 9,749 2.4 8,173 2.5
-------- ----- -------- ----- -------- ----- -------- -----

Operating income............. 13,499 9.2 7,450 6.4 26,453 6.8 14,309 4.4
Interest income.............. 286 0.2 345 0.3 1,035 0.2 1,228 0.3
Interest expense............. 6,196 4.2 6,428 5.5 17,883 4.5 16,944 5.2
-------- ----- -------- ----- -------- ----- -------- -----

Income (loss) before
provision (benefit) for
income tax.................. 7,589 5.2 1,367 1.2 9,605 2.5 (1,407) (0.5)

Provision for income tax..... 4,220 2.9 138 0.1 4,610 1.2 238 0.0
Reduction of valuation
allowances.................. (40,400) (27.5) - 0.0 (40,400) (10.3) - -
-------- ----- -------- ----- -------- ----- -------- -----

Net provision (benefit) for
income tax.................. (36,180) (24.6) 138 0.1 (35,790) (9.1) 238 0.0
-------- ----- -------- ----- -------- ----- -------- -----

Net income (loss)............ $ 43,769 29.7% $ 1,229 1.1% $ 45,395 11.6% $ (1,645) (0.5)%
======== ===== ======== ===== ======== ===== ======== =====

</TABLE>

15
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

The following unaudited tables summarize the revenue, cost and expenses, and
operating income by operating segment for the quarter months ended September
1996 and 1995 and the nine months ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>

Quarter Ended September 30, Nine Months Ended eptember 30,
---------------------------------------- -------------------------------------------
1996 1995 1996 1995
----------------- ----------------- ----------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY AND USER SERVICES
Revenue:
Brokerage.................. $ 82,768 63.9% $ 72,191 70.0% $227,756 66.7% $208,913 70.8%
Investment Properties...... 33,105 25.6 21,502 20.9 80,406 23.5 58,520 19.9
Corporate Services......... 8,032 6.2 4,569 4.4 17,436 5.1 13,524 4.6
Property Management........ 5,040 3.9 4,568 4.4 14,705 4.3 13,139 4.5
Real Estate Market Research 518 0.4 254 0.3 1,198 0.4 627 0.2
-------- ----- -------- ------ -------- ----- -------- ------
129,463 100.0 103,084 100.0 341,501 100.0 294,723 100.0

Costs and expenses:
Commissions, fees and other
incentives................ 69,400 53.6 55,040 53.4 183,951 53.9 159,475 54.1
Operating, administrative
and other................. 46,333 35.8 39,073 37.9 130,764 38.3 116,085 39.4
Depreciation and
amortization.............. 2,202 1.7 2,342 2.3 6,830 2.0 6,617 2.2
-------- ----- -------- ------ -------- ----- -------- ------

Operating income............ $ 11,528 8.9% $ 6,629 6.4% $ 19,956 5.8% $ 12,546 4.3%
======== ===== ======== ====== ======== ===== ======== ======

INVESTOR SERVICES
Mortgage Banking
Revenue..................... $ 6,790 100.0% $ 2,357 100.0% $ 14,035 100.0% $ 6,533 100.0%
Costs and expenses:
Commissions, fees and other
incentives................ 2,772 40.8 975 41.3 5,611 40.0 2,663 40.8
Operating, administrative
and other................. 3,191 47.0 1,681 71.3 6,409 45.6 4,823 73.8
Depreciation and
amortization.............. 254 3.6 63 2.6 386 2.8 184 2.8
-------- ----- -------- ------ -------- ----- -------- ------

Operating income (loss)..... $ 573 8.6% $ (362) (15.2)% $ 1,629 11.6% $ (1,137) (17.4)%
======== ===== ======== ====== ======== ===== ======== ======

Investment Management and
Advisory
Revenue..................... $ 6,238 100.0% $ 7,081 100.0% $ 22,239 100.0% $ 11,575 100.0%
Costs and expenses:
Operating, administrative
and other................. 4,719 75.6 5,161 72.9 16,351 73.5 8,451 73.0
Depreciation and
amortization.............. 832 13.3 1,061 14.9 2,207 9.9 1,126 9.7
-------- ----- -------- ------ -------- ----- -------- ------

Operating income............ $ 687 11.1% $ 859 12.2% $ 3,681 16.6% $ 1,998 17.3%
======== ===== ======== ====== ======== ===== ======== ======

Valuation and Appraisal
Services
Revenue..................... $ 4,677 100.0% $ 4,081 100.0% $ 13,088 100.0% $ 12,059 100.0%
Costs and expenses:
Commissions, fees and other
incentives................ 2,024 43.3 1,789 43.8 5,903 45.1 5,431 45.1
Operating, administrative
and other................. 1,799 38.5 1,888 46.3 5,672 43.3 5,480 45.4
Depreciation and
amortization.............. 143 3.0 80 1.9 326 2.5 246 2.0
-------- ----- -------- ------ -------- ----- -------- ------

Operating income............ $ 711 15.2% $ 324 8.0% $ 1,187 9.1% $ 902 7.5%
======== ===== ======== ====== ======== ===== ======== ======

TOTAL INVESTOR SERVICES
Revenue..................... $ 17,705 100.0% $ 13,519 100.0% $ 49,362 100.0% $ 30,167 100.0%
Costs and expenses:
Commissions, fees and other
incentives................ 4,796 27.0 2,764 20.4 11,514 23.3 8,094 26.8
Operating, administrative
and other................. 9,709 54.8 8,730 64.6 28,432 57.6 18,754 62.2
Depreciation and
amortization.............. 1,229 6.9 1,204 8.8 2,919 5.9 1,556 5.2
-------- ----- -------- ------ -------- ----- -------- ------

Operating income............ $ 1,971 11.3% $ 821 6.2% $ 6,497 13.2% $ 1,763 5.8%
======== ===== ======== ====== ======== ===== ======== ======

</TABLE>

16
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

QUARTER ENDED SEPTEMBER 30, 1996, COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
1995

REVENUE on a consolidated basis for the quarter ended September 30, 1996 was
$147.2 million, an increase of $30.6 million or 26.2% from $116.6 million for
the quarter ended September 30, 1995. The overall increase in revenue, compared
to the same period in 1995, reflected a continued improvement in the commercial
real estate markets in most areas of the United States. This improvement
reflected increasing investor confidence, increasing prices and a more liquid
market than in prior periods resulting from declining vacancy levels and the
return of some bargaining power to landlords.

Property and User Services revenue was $129.5 million for the quarter ended
September 30, 1996, an increase of $26.4 million or 25.5% from $103.1 million
for the quarter ended September 30, 1995. Brokerage revenue accounted for $82.8
million, an increase of $10.6 million or 14.7% from $72.2 million, and
investment properties revenue accounted for $33.1 million, an increase of $11.6
million or 54.0% from $21.5 million. These increases resulted in part from an
increase in the total number and size of brokerage and investment properties
sale transactions closed during the quarter ended September 30, 1996 compared to
transactions closed during the quarter ended September 30, 1995. Although the
number of lease transactions declined from the quarter ended September 30, 1995
to the quarter ended September 30, 1996, the average commission amount for lease
transactions increased resulting in an overall increase in revenue from leasing.
Property management revenue was $5.1 million, an increase of $0.5 million or
10.3% from $4.6 million, and corporate services revenue was $8.0 million, an
increase of $3.5 million or 75.8% from $4.5 million.

Investor Services revenue was $17.7 million for the quarter ended September
30, 1996, an increase of $4.2 million or 31.0% from $13.5 million for the
quarter ended September 30, 1995. This increase was primarily the result of the
L.J. Melody acquisition together with increased sales and refinancing activity.
Mortgage banking revenue was $6.8 million, an increase of $4.4 million or 188.1%
from $2.4 million. Valuation and appraisal services revenue accounted for $4.7
million, an increase of $0.6 million or 14.6% from $4.1 million.

COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis for the
quarter ended September 30, 1996 were $74.2 million, an increase of $16.4
million or 28.4% from $57.8 million for the quarter ended September 30, 1995.
The increase in these costs is directly correlated to the increase in revenue
since most of the Company's sales professionals are compensated based on
revenue. As a percentage of revenue, commissions, fees and other incentives
increased from 49.6% to 50.4% as a result of the L.J. Melody acquisition.

Property and User Services commissions, fees and other incentives were $69.4
million for the quarter ended September 30, 1996, an increase of $14.4 million
or 26.1% from $55.0 million for the quarter ended September 30, 1995 and a
slight increase as a percentage of revenue from 53.4% to 53.6%.

Investor Services commissions, fees and other incentives were $4.8 million
for the quarter ended September 30, 1996, an increase of $2.0 million or 73.5%
from $2.8 million for the quarter ended September 30, 1995 and an increase as a
percentage of revenue from 20.5% to 27.1%, primarily as a result of the L.J.
Melody acquisition.

OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis for the quarter
ended September 30, 1996 was $56.0 million, an increase of $8.2 million or 17.2%
from $47.8 million for the quarter ended September 30, 1995, and decreased as a
percentage of revenue for such periods from 41.0% to 38.1%.

Property and User Services operating, administrative and other was $46.3
million for the quarter ended September 30, 1996, an increase of $7.3 million or
18.6% from $39.0 million for the quarter ended September 30, 1995. This
increase was primarily associated with increased operating activities.

Investor Services operating, administrative and other was $9.7 million for
the quarter ended September 30, 1996, an increase of $1.0 million or 11.2% from
$8.7 million for the quarter ended September 30, 1995 as a result of the L.J.
Melody acquisition.

DEPRECIATION AND AMORTIZATION on a consolidated basis for the quarter ended
September 30, 1996 was $3.4 million, a decrease of $0.1 million or 3.3% from
$3.5 million for the quarter ended September 30, 1995.

Property and User Services depreciation and amortization was $2.2 million for
the quarter ended September 30, 1996, a decrease of $0.1 million or 6.0% from
$2.3 million for the quarter ended September 30, 1995.

Investor Services depreciation and amortization was $1.2 million for the
quarter ended September 30, 1996 and 1995.

17
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

QUARTER ENDED SEPTEMBER 30, 1996, COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
1995 (CONTINUED)

OPERATING INCOME on a consolidated basis for the quarter ended September 30,
1996 was $13.5 million, an increase of $6.0 million or 81.2% from $7.5 million
for the quarter ended September 30, 1995. The increase in operating income
resulted from an increase in revenue of $30.6 million or 26.2% partially offset
by a related increase in commission expense of $16.4 million or 28.4%, and a
$8.2 million or 17.2% increase in operating expenses as described above.

Property and User Services operating income was $11.5 million for the quarter
ended September 30, 1996, an increase of $4.9 million or 73.9% from $6.6 million
for the quarter ended September 30, 1995. The increase in Property and User
Services operating income resulted from an increase in Property and User
Services revenue of $26.4 million or 25.5% partially offset by a related
increase in commission expense of $14.4 million or 26.1%, and a $7.3 million or
18.6% increase in operating expenses as described above.

Investor Services operating income was $1.9 million for the quarter ended
September 30, 1996, an increase of $1.1 million or 140.1% from $0.8 million for
the quarter ended September 30, 1995. The increase in Investor Services
operating income resulted from an increase in Investor Services revenue of $4.2
million or 31.0% partially offset by a related increase in commission expense of
$2.0 million or 73.5%, and a $1.0 million or 11.2% increase in operating
expenses as described above.

INTEREST EXPENSE on a consolidated basis for the quarter ended September 30,
1996 was $6.2 million, a decrease of $0.2 million or 3.6% from $6.4 million for
the quarter ended September 30, 1995 as a result of paydowns on the debt.

NET PROVISION (BENEFIT) FOR INCOME TAX on a consolidated basis for the
quarter ended September 30, 1996 was ($36.2) million, compared to a charge of
$0.1 million for the quarter ended September 30, 1995. During the third quarter
of 1996, the Company projected, on a more likely than not basis, that a portion
of its NOL would be realizable in future periods and, accordingly, reduced its
existing deferred tax asset valuation allowances by $45.7 million of which $5.3
million has been allocated to the purchase price of L.J. Melody based on its
estimated future potential to generate taxable income, and the remaining $40.4
million has been recorded as a tax benefit (a reduction in income tax
provision). With the recognition of deferred tax assets, the current and future
period provisions for income tax will be recorded at the full effective tax rate
excluding the impact of other adjustments, if any, to valuation allowances. For
the quarter ended September 30, 1996, a $4.2 million provision for income taxes
has been recorded. Net income for the quarter ended September 30, 1996 was $43.8
million ($3.11 per share of common stock), which includes the net benefit for
income tax of $36.2 million. Net income for the quarter ended September 30,
1996 would have been $6.9 million ($0.49 per share of common stock) if the
Company had not recorded tax benefits related to projected future taxable
income. An additional $16.3 million reduction of valuation allowances and
related tax benefit is expected to be recorded in the fourth quarter of 1996 as
a result of the IPO and related reduction in future interest expense. The $40.4
million recognized tax benefit has a material effect on the reported net income
for the quarter ended September 30, 1996. This $40.4 million tax benefit is a
non-recurring item and is unrelated to the Company's performance and should not
be used in evaluating the Company's prospects or future performance.

NET INCOME on a consolidated basis for the quarter ended September 30, 1996
was $43.8 million ($3.11 per share of common stock), after giving effect to the
tax benefit resulting from the reduction of valuation allowances of $40.4
million ($2.92 per share of common stock) an improvement of $42.5 million from
$1.2 million ($0.09 per share of common stock) for the quarter ended September
30, 1995. Net income for the quarter ended September 30, 1996 would have been
$6.9 million ($0.49 per share of common stock) if the Company had not recorded
tax benefits related to projected future taxable income. The improvement also
resulted from a revenue increase of $30.6 million or 26.2% which was partially
offset by a related increase in commission expense of $16.4 million or 28.4%,
and a $8.2 million or 17.2% increase in operating expenses as described above.

18
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1995

REVENUE on a consolidated basis for the nine months ended September 30, 1996
was $390.9 million, an increase of $66.0 million or 20.3% from $324.9 million
for the nine months ended September 30, 1995. The overall increase in revenue,
compared to the same period in 1995, reflected a continued improvement in the
commercial real estate markets in most areas of the United States. This
improvement reflected increasing investor confidence, increasing prices and a
more liquid market than in prior periods resulting from declining vacancy levels
and the return of some bargaining power to landlords.

Property and User Services revenue was $341.5 million for the nine months
ended September 30, 1996, an increase of $46.8 million or 15.9% from $294.7
million for the nine months ended September 30, 1995. Brokerage revenue
accounted for $227.8 million, an increase of $18.8 million or 9.0% from $208.9
million, and investment properties revenue accounted for $80.4 million, an
increase of $21.9 million or 37.4% from $58.5 million. These increases resulted
in part from an increase in the total number and size of brokerage and
investment properties sale transactions closed during the nine months ended
September 30, 1996 compared to transactions closed during the nine months ended
September 30, 1995. Although the number of lease transactions declined from the
nine months ended September 30, 1995 to the nine months ended September 30,
1996, the average commission amount for lease transactions increased from the
nine months ended September 30, 1995 to the nine months ended September 30,
1996, resulting in an overall increase in revenue from leasing. Property
management revenue was $14.7 million, an increase of $1.6 million or 11.9% from
$13.1 million and corporate services revenue was $17.4 million, an increase of
$3.9 million or 28.9% from $13.5 million.

Investor Services revenue was $49.4 million for the nine months ended
September 30, 1996, an increase of $19.2 million or 63.6% from $30.2 million for
the nine months ended September 30, 1995. This increase was primarily due to an
increase in investment management and advisory revenue to $22.2 million from
$11.6 million, resulting from the Westmark acquisition. Valuation and appraisal
services revenue accounted for $13.1 million, an increase of $1.0 million or
8.5% from $12.1 million, and mortgage banking revenue was $14.0 million, an
increase of $7.5 million or 114.8% from $6.5 million, primarily as a result of
the Melody acquisition together with increased sales and refinancing activity.

COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis for the nine
months ended September 30, 1996 were $195.5 million, an increase of $27.9
million or 16.6% from $167.6 million for the nine months ended September 30,
1995. The increase in these costs is directly correlated to the increase in
revenue since most of the Company's sales professionals are compensated based on
revenue. As a percentage of revenue, commissions, fees and other incentives
decreased from 51.6% to 50.0%. The decrease in commissions, fees and other
incentives as a percentage of revenue is primarily due to the acquisition of
Westmark, which significantly increased the revenue of investment management and
advisory which does not incur this type of revenue-based expense. Excluding
investment management and advisory, commissions, fees and other incentives, on a
consolidated basis, were relatively flat as a percentage of revenue decreasing
to 53.0% for the nine months ended September 30, 1996 from 53.5% for the nine
months ended September 30, 1995.

Property and User Services commissions, fees and other incentives were $184.0
million for the nine months ended September 30, 1996, an increase of $24.5
million or 15.3% from $159.5 million for the nine months ended September 30,
1995 and a decrease as a percentage of revenue from 54.1% to 53.9%.

Investor Services commissions, fees and other incentives were $11.5 for the
nine months ended September 30, 1996, an increase of $3.4 million or 42.3% from
$8.1 million for the nine months ended September 30, 1995 and a decrease as a
percentage of revenue from 26.8% to 23.3%.

OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis for the nine
months ended September 30, 1996 was $159.2 million, an increase of $24.4 million
or 18.1% from $134.8 million for the nine months ended September 30, 1995, and
decreased as a percentage of revenue for such periods from 41.5% to 40.7%.

Property and User Services operating, administrative and other was $130.8
million for the nine months ended September 30, 1996, and increase of $14.7
million or 12.6% from $116.1 million for the nine months ended September 30,
1995. This increase was primarily associated with increased operating
activities.

Investor Services operating, administrative and other was $28.4 million for
the nine months ended September 30, 1996, an increase of $9.7 million or 51.6%
from $18.8 million for the nine months ended September 30, 1995, primarily
resulting from the Westmark acquisition.

19
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1995 (CONTINUED)

DEPRECIATION AND AMORTIZATION on a consolidated basis for the nine months
ended September 30, 1996 was $9.7 million, an increase of $1.5 million or 19.3%
from $8.2 million for the nine months ended September 30, 1995, resulting
primarily from the Westmark and Melody acquisitions.

Property and User Services depreciation and amortization was $6.8 million for
the nine months ended September 30, 1996, an increase of $0.2 million or 3.2%
from $6.6 million for the nine months ended September 30, 1995.

Investor Services depreciation and amortization was $2.9 million for the nine
months ended September 30, 1996, an increase of $1.4 million or 87.6% from $1.6
million for the nine months ended September 30, 1995.

OPERATING INCOME on a consolidated basis for the nine months ended September
30, 1996 was $26.5 million, an increase of $12.2 million or 84.9% from $14.3
million for the nine months ended September 30, 1995. The increase in operating
income resulted from an increase in revenue of $66.0 million or 20.3% partially
offset by a related increase in commission expense of $27.9 million or 16.6%, a
$24.4 million or 18.1% increase in operating expenses and a $1.5 million or
19.3% increase in depreciation and amortization as described above.

Property and User Services operating income was $20.0 million for the nine
months ended September 30, 1996, an increase of $7.4 million or 59.1% from $12.5
million for the nine months ended September 30, 1995. The increase in Property
and User Services operating income resulted from an increase in Property and
User Services revenue of $46.8 million or 15.9% partially offset by a related
increase in commission expense of $24.5 million or 15.3%, a $14.7 million or
12.6% increase in operating expenses and a $0.2 million or 3.2% increase in
depreciation and amortization as described above.

Investor Services operating income was $6.5 million for the nine months ended
September 30, 1996, an increase of $4.7 million or 268.5% from $1.8 million for
the nine months ended September 30. 1995. The increase in Investor Services
operating income resulted from an increase in Investor Services revenue of $19.2
million or 63.6% partially offset by a related increase in commission expense of
$3.4 million or 41.5%, a $9.7 million or 51.6% increase in operating expenses
and a $1.4 million or 87.6% increase in depreciation and amortization as
described above.

INTEREST INCOME on a consolidated basis for the nine months ended September
30, 1996 was $1.0 million, a decrease of $0.2 million or 15.7% from $1.2 million
for the nine months ended September 30, 1995.

INTEREST EXPENSE on a consolidated basis for the nine months ended September
30, 1996 was $17.9 million, an increase of $1.0 million or 5.5% from $16.9
million for the nine months ended September 30, 1995, primarily resulting from
additional debt incurred with respect to the Westmark and Melody acquisitions,
offset by reduced average bank borrowing levels on other Company indebtedness
and a decline in interest rates on bank debt.

NET PROVISION (BENEFIT) FOR INCOME TAX on a consolidated basis for the nine
months ended September 30, 1996 was ($35.8) million, compared to a charge of
$0.2 million for the nine months ended September 30, 1995. During the third
quarter of 1996, the Company projected, on a more likely than not basis, that a
portion of its NOL would be realizable in future periods and, accordingly,
reduced its existing deferred tax asset valuation allowances by $45.7 million of
which $5.3 million has been allocated to the purchase price of L.J. Melody based
on its estimated future potential to generate taxable income, and the remaining
$40.4 million has been recorded as a tax benefit (a reduction in income tax
provision). With the recognition of deferred tax assets, the current period and
the future periods provisions for income tax will be recorded at the full
effective tax rate excluding the impact of other adjustments, if any, to
valuation allowances. For the nine months ended September 30, 1996, a $4.6
million provision for income taxes has been recorded. Net income for the nine
months ended September 30, 1996 was $45.4 million ($3.29 per share of common
stock), which includes the net benefit for income tax of $35.8 million. Net
income for the nine months ended September 30, 1996 would have been $8.8 million
($0.64 per share of common stock) if the Company had not recorded tax benefits
related to projected future taxable income. An additional $16.3 million
reduction of valuation allowances and related tax benefit is expected to be
recorded in the fourth quarter of 1996 as a result of the Offering and related
reduction in future interest expense. The $40.4 million recognized tax benefit
has a material effect on the reported net income for the nine months ended
September 30, 1996. This $40.4 million tax benefit is a non-recurring item and
is unrelated to the Company's performance and should not be used in evaluating
the Company's prospects or future performance.

20
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1995 (CONTINUED)

NET INCOME on a consolidated basis for the nine months ended September 30,
1996 was $45.4 million ($3.29 per share of common stock), after giving effect to
the tax benefit resulting from the reduction of valuation allowances of $40.4
million ($2.92 per share of common stock) an improvement of $47.0 million from a
net loss of $1.6 million ($0.14 per share of common stock) for the nine months
ended September 30, 1995. The improvement also resulted from a revenue increase
of $66.0 million or 20.3% which was partially offset by a related increase in
commission expense of $27.9 million or 16.6%, a $24.4 million or 18.1% increase
in operating expenses and a $1.5 million or 19.3% increase in deprecation and
amortization as described above.

LIQUIDITY AND CAPITAL RESOURCES -

The Company has historically financed its operations and non-acquisition
related capital expenditures primarily with internally generated funds,
operating leases and, to a much lesser extent, capital leases, and borrowings
under a revolving credit facility. In order to finance the acquisition of CB
Commercial Real Estate Group, Inc. and related expenses, in April 1989 the
Company incurred borrowings of $251.0 million, which included $170.0 million
under a senior secured credit agreement (the "Senior Secured Credit Agreement")
and $81.0 million under a senior subordinated credit agreement (the "Senior
Subordinated Credit Agreement"). As of September 30, 1996, the Company had
outstanding $139.8 million, including $4.8 million of deferred interest, under
the Senior Secured Credit Agreement and $8.0 million under a revolving credit
facility ("Revolving Credit Facility A"), no amounts outstanding under its
second revolving credit facility ("Revolving Credit Facility B" and together
with Revolving Credit Facility A, the "Revolving Credit Facilities") and $71.0
million (including $9.0 million of deferred interest) under the Senior
Subordinated Credit Agreement. The outstanding amount under the Senior Secured
Credit Agreement reflects principal repayments of $41.3 million since June 30,
1994. In addition, as of September 30, 1996 the Company had outstanding other
long-term indebtedness, consisting primarily of acquisition debt, totaling
approximately $45.7 million. Consistent with the seasonality of the Company's
revenue, as of October 31, 1996 all outstanding borrowings under the Revolving
Credit Facility A have been repaid.

Based on initial estimates of proceeds from the IPO, assuming the IPO occurs
as planned, the Company expects to pay down $79.9 million of the Senior Secured
Credit Agreement and $9.0 million will be used to pay accrued and unpaid
interest on the Senior Subordinated Credit Agreement. As proposed, effective
upon completion of the IPO, the Revolving Credit Facility B will be converted
into a facility for acquisitions and will bear interest at LIBOR plus 300 basis
points.

In connection with and conditional upon the IPO, the senior secured lenders
have agreed to amend the terms of the Senior Secured Credit Agreement. As
amended, the Company will be required to make quarterly principal payments of
$2.625 million commencing March 31, 1997 with a final payment of $2.2 million on
September 30, 2001. Revolving Credit Facility A permits maximum borrowings of
$20.0 million which must be paid off in full for at least 30 consecutive days in
each year commencing with 1997.

Also in connection and conditional upon the IPO, the senior subordinated
lenders have agreed to amend the terms of the Senior Subordinated Credit
Agreement. As amended, interest will be payable on a current basis commencing
January 1, 1997 and the entire amount outstanding under the Senior Subordinated
Credit Agreement will be due on July 23, 2002. Interest payments on the amounts
outstanding under Senior Subordinated Credit Agreement had been deferred since
June 1994 until the payment in full of amounts outstanding under the Senior
Secured Credit Agreement.

The Company expects to have capital expenditures of approximately $4.0
million in 1997 exclusive of acquisitions. In connection with the Westmark
acquisition, the sellers may be entitled to a supplemental purchase price based
on the operating results of Westmark payable over a period of six years and
subject to a maximum aggregate payment of $18.0 million. The Company expects to
use net cash provided by operating activities for the next several years
primarily to fund acquisitions, including earnout payments, and to make required
principal payments under the Company's outstanding indebtedness. The Company
believes that it can satisfy these obligations as well as working capital
requirements from internally generated cash flow, borrowings under the Revolving
Credit Facilities and, with respect to acquisitions, seller financing and third-
party borrowing.

21
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

Effective October 1996, and conditional upon the IPO, a dividend on the
Company's preferred stock will be reinstated. The 2.5% quarterly dividend on
the Company's Preferred Stock, which will accrue from October 1, 1996, will
result, if and when paid, in a cost of $1.0 million per quarter. The Company
currently expects to pay dividends on the Preferred Stock out of working capital
generated from operating cash flow after it has completed its acquisition
program.

The Company anticipates that its existing sources of liquidity, including
cash flow from operations, will be sufficient to fund its operations for at
least the next twelve months.

The Company's earnings before interest, income taxes, depreciation and
amortization ("EBITDA") was $16.9 million, $11.0 million, $36.2 million and
$22.5 million for the quarters ended September 30, 1996 and 1995 and for the
nine months ended September 30, 1996 and 1995, respectively. The improvement in
EBITDA in the quarter and nine months ended September 30, 1996 reflects the
overall period to period revenue growth discussed above.

EBITDA effectively removes the impact of certain non-cash charges on income
such as depreciation and amortization of intangible assets relating to
acquisitions and federal income taxes (in the case of income tax, only until the
NOL is fully utilized). Management believes that the presentation of EBITDA will
enhance a reader's understanding of the Company's operating performance and
ability to service debt as it provides a measure of cash generated that can be
used by the Company to service its debt and other required or discretionary
purposes. Net cash that will be available to the Company for discretionary
purposes represents remaining cash, after debt service and other cash
requirements, such as capital expenditures, are deducted from EBITDA. EBITDA
should not be considered as an alternative to (i) operating income determined in
accordance with GAAP or (ii) operating cash flow determined in accordance with
GAAP.

CASH FLOWS

Net cash provided by operating activities was $22.2 million for the quarter
ended September 30, 1996 compared to $8.1 million for the quarter ended
September 30, 1995. The increase primarily resulted from an improvement in net
income, excluding the tax benefit from the reduction of the valuation
allowances, offset in part by changes in components of operating assets and
liabilities. (See "Net Operating Losses.")

Net cash used in investing activities was $9.4 million for the quarter ended
September 30, 1996 compared to $0.6 million for the quarter ended September 30,
1996 as a result of the L.J. Melody acquisition in July 1996.

Net cash used in financing activities was $15.3 million for the quarter ended
September 30, 1996 compared to $8.7 million for the quarter ended September 30,
1995. The $6.6 million increase in cash used in financing activities resulted
from the $2.7 million proceeds from the senior revolving credit line during the
quarter ended September 30, 1996 compared to $1.0 million during the quarter
ended September 30, 1995, together with the $11.0 million repayment of the
senior revolving credit line during the quarter ended September 30, 1996 as
compared to repayments of $4.0 million for the quarter ended September 30, 1995,
and the $5.9 million repayment of the senior term loan during the quarter ended
September 30, 1996 as compared to $5.1 million during the quarter ended
September 30, 1995.

Net cash provided by operating activities for the nine months ended September
30, 1996 was $24.2 million, an increase of $24.8 million from ($0.6) million for
the nine months ended September 30, 1995. The increase resulted primarily from
an improvement in net income, excluding the tax benefit from the reduction of
valuation allowances. See "Net Operating Losses" below. Additionally, non-cash
charges, consisting of depreciation, amortization and deferred compensation and
interest, included in net income for the nine months ended September 30, 1996,
were $3.6 million higher than for the nine months ended September 30, 1995. Net
cash provided by operating activities was also impacted by changes in components
of other operating assets and liabilities which provided a net increase to net
cash provided by operating activities of $9.5 million.

Net cash used in investing activities was $9.5 million for the nine months
ended September 30, 1996, compared to $22.0 million for the nine months ended
September 30, 1995 as a result of the Westmark acquisition in June 1995 and the
L.J. Melody acquisition in July 1996.

22
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

Net cash provided by (used in) financing activities was $(12.8) million for
the nine months ended September 30, 1996, compared to $3.5 million for the nine
months ended September 30, 1995. The $16.3 million difference between years
resulted from $18.2 million repayment of amounts outstanding under the Senior
Secured Credit Agreement as compared to $14.8 million repayment for the nine
months ended September 30, 1995, $21.0 million proceeds offset by $13.0 million
repayment from the Revolving Credit Facility A during the nine months ended
September 30, 1996 as compared to $14.0 million proceeds offset by $4.0 million
repayment for the nine months ended September 30, 1995, a $0.7 million reduction
in capital lease repayments and $10.0 million proceeds from senior subordinated
loans in connection with the Westmark acquisition during the nine months ended
September 30, 1995.

NET OPERATING LOSSES

The Company had NOLs of approximately $221.0 million as of December 31, 1995,
corresponding to $77.6 million of the Company's $87.5 million in net deferred
tax assets, all of which were reserved through valuation allowances. The
valuation allowances were based on management's conclusion regarding the
realizability of this deferred tax asset on a more likely than not basis, as
defined in SFAS No. 109. In reaching this conclusion, management considered the
Company's past operating results, the current year events and trends, including
the impact, if any, of the acquisitions that were concluded during the year and
other factors.

Management evaluates the appropriateness of all or part of these valuation
allowances on a periodic basis and if the Company concludes there is a change
with respect to realizability, any necessary adjustments are made at that time.
As of September 30, 1996, the company has experienced continuing profitability
due to a variety of reasons, including the strength of the commercial real
estate markets. In addition, the Company has operated Westmark for one full
year since acquiring Westmark in June 1995, and as a result has concluded that
Westmark should make a positive contribution to the Company's consolidated
taxable income. Finally, the acquisition of L.J. Melody in July 1996 is also
expected to make a positive contribution to the Company's consolidated taxable
income. As a result of these factors, during the third quarter of 1996, the
Company projected, on a more likely than not basis, that a portion of its NOL
would be realizable in future periods and, accordingly, reduced its existing
deferred tax asset valuation allowances by $45.7 million of which $5.3 million
has been allocated to the purchase price of L.J. Melody based on its estimated
future potential to generate table income, and the remaining $40.4 million has
been recorded as a tax benefit (a reduction in income tax provision). With the
recognition of deferred tax assets, the current and future period provisions for
income tax will be recorded at the full effective tax rate excluding the impact
of other adjustments, if any, to valuation allowances. For the nine months
ended September 30, 1996, a $4.6 million provision for income taxes has been
recorded. Net income for the nine months ended September 30, 1996 was $45.4
million ($3.29 per share of common stock), which includes the net benefit for
income tax of $35.8 million. Net income for the nine months ended September 30,
1996 would have been $8.8 million ($.64 per share of common stock) if the
Company had not recorded tax benefits related to projected future taxable
income. An additional $16.3 million reduction of valuation allowances and
related tax benefit is expected to be recorded in the fourth quarter of 1996 as
a result of the IPO and related reduction in future interest expense. The $40.4
million recognized tax benefit has a material effect on the reported net income
for the nine months ended September 30, 1996. This $40.4 million tax benefit is
a non-recurring item and is unrelated to the Company's performance and should
not be used in evaluating the Company's prospects or future performance. The
Company would have to generate future taxable income of approximately $110.0
million to realize the deferred tax assets recorded on the consolidated balance
sheet as of September 30, 1996. The Company's taxable income has historically
been higher than pretax income for financial reporting primarily due to certain
charges in the financial statements that were not deductible for tax purposes.
The Company expects its full year 1996 taxable income to be higher than its full
year pretax earnings for financial reporting purposes. The Company believes
that its future taxable income will be adequate to realize the deferred tax
assets on the September 30, 1996 balance sheet.

The ability of the Company to utilize NOLs may also be limited in the future
if an "ownership change" within the meaning of Section 382 of the Internal
Revenue Code of 1986, as amended, were deemed to occur. Such an ownership
change may be deemed to occur if the Company engages in certain transactions
involving the issuance of shares of Common Stock, including the issuance of
shares of Common Stock in connection with an acquisition or otherwise or by
reason of a sale of capital stock by an existing shareholder. If an ownership
change were to occur, Section 382 would impose an annual limit on the amount of
NOLs the Company could utilize. The Company believes

23
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES (CONTINUED)

that the IPO and related recapitalization will not result in an ownership
change. An ownership change may not be within the control of the Company,
however, and therefore there is no assurance that an ownership change will not
occur in the future. The availability of NOLs is, in any event, subject to
uncertainty since their validity is not reviewed by the Internal Revenue Service
until such time as they are utilized to offset income.

INFLATION

The Company's operations are directly affected by various national and
economic conditions, including interest rates, the availability of credit to
finance commercial real estate transactions and the impact of tax laws. To
date, the Company does not believe that general inflation has had a material
impact upon its operations. Revenues, commissions and other variable costs
related to revenues are primarily affected by real estate market supply and
demand versus general inflation.

NEW ACCOUNTING PRONOUNCEMENTS

In 1993, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions and SFAS No. 112, Employers' Accounting for Postemployment Benefits.
These standards did not have a material impact on the Company's financial
statements.

Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
SFAS No. 122, Accounting for Mortgage Servicing Rights and SFAS No. 123,
Accounting for Stock-Based Compensation. These standards did not have a
material impact on the Company's financial statements.

In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. This statement
is required to be adopted by the Company in 1997. Management of the Company has
not yet determined the impact, if any, that the adoption of this statement will
have on the Company's financial position or results of operations.

24
<PAGE>

CB COMMERCIAL HOLDINGS, INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

Exhibit 27 Financial Data Schedule

(B) REPORTS ON FORM 8-K

A Current Report on Form 8-K dated July 3, 1996 was filed during the
quarter for which this report is filed to report the acquisition by CB
Commercial Real Estate Group, Inc. of L.J. Melody & Company (LJMCo")
and L.J. Melody & Company of California ("LJMCal"). Such report and
Amendment No. 1 thereto included the financial statements for LJMCo for
the year ended December 31, 1995 and for the six months ended June 30,
1996 and 1995, and a pro forma combined balance sheet as of June 30,
1996 and statements of operations for the year ended December 31, 1995
and the six months ended June 30, 1996.

25
<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.

CB COMMERCIAL HOLDINGS, INC.

Date: November 13, 1996
/s/ Ronald J. Platisha
____________________________
Ronald J. Platisha
Executive Vice President,
Principal Accounting Officer

<PAGE>

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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 24,903
<SECURITIES> 0
<RECEIVABLES> 34,700
<ALLOWANCES> 3,959
<INVENTORY> 0
<CURRENT-ASSETS> 67,125
<PP&E> 81,202
<DEPRECIATION> 39,407
<TOTAL-ASSETS> 232,575
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<SALES> 390,863
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