CARRAMERICA REALTY CORP, 424B5, 1997-08-11

CARRAMERICA REALTY CORP
424B5, 1997-08-11
REAL ESTATE INVESTMENT TRUSTS

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PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED AUGUST 5, 1997
7,000,000 SHARES

[LOGO]

CARRAMERICA REALTY CORPORATION
8.57% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK
(PAR VALUE $.01 PER SHARE)
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
------------------------
CarrAmerica Realty Corporation (the "Company") is a publicly traded real
estate investment trust that focuses primarily on the acquisition, development,
ownership and operation of office properties in select suburban markets across
the United States.

Dividends on the Company's Series B Cumulative Redeemable Preferred Stock,
par value $.01 per share (the "Series B Preferred Shares"), offered by this
Prospectus Supplement (the "Offering") will be cumulative from the date of
original issue and will be payable quarterly in arrears on the last day of
February, May, August and November of each year (or, if such day is not a
business day, the next business day), commencing on August 31, 1997, at the rate
of 8.57% of the liquidation preference per annum. See "Description of Series B
Preferred Shares--Dividends."

The Series B Preferred Shares are not redeemable prior to August 12, 2002.
On and after such date, the Series B Preferred Shares may be redeemed, in whole
or in part, at the option of the Company, at a redemption price of $25.00 per
share, plus all accrued and unpaid dividends. The Series B Preferred Shares will
not be subject to any sinking fund or mandatory redemption and will not be
convertible into any other securities of the Company. See "Description of Series
B Preferred Shares--Redemption." Subject to certain limited exceptions,
ownership of more than 5% of the Series B Preferred Shares is restricted in
order to preserve the Company's status as a REIT for federal income tax
purposes. In addition, the Company's charter documents contain certain
restrictions on ownership of capital stock of the Company by foreign investors.
See "Description of Preferred Stock--Restrictions on Transfer" and "Risk
Factors--Special Considerations for Foreign Investors" in the accompanying
Prospectus.

The Company intends to file an application to list the Series B Preferred
Shares on the New York Stock Exchange, although there can be no assurance that
the Series B Preferred Shares will be approved for listing.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
------------------ ------------ --------------
<S> <C> <C> <C>
Per Share..................................... $25.00 $.7875 $24.2125
Total(4)...................................... $175,000,000 $5,512,500 $169,487,500
</TABLE>
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(1) Plus accrued dividends, if any, from the date of original issue.

(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."

(3) Before deducting expenses payable by the Company estimated at $400,000.

(4) The Company has granted the several Underwriters an option for 30 days to
purchase up to 1,050,000 additional Series B Preferred Shares at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments, if any. If the option is exercised in full, the
Initial Public Offering Price, Underwriting Discount and Proceeds to Company
will be $201,250,000, $6,339,375 and $194,910,625, respectively. See
"Underwriting."
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The Series B Preferred Shares are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the Series B Preferred Shares will be ready for delivery in New York, New
York on or about August 12, 1997, against payment therefor in immediately
available funds.

GOLDMAN, SACHS & CO.
LEGG MASON WOOD WALKER
INCORPORATED
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
------------------------
The date of this Prospectus Supplement is August 7, 1997.

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<PAGE>

[Map of CarrAmerica Headquarters and Market Offices.
Locations and address supplied.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES B PREFERRED
SHARES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF SERIES B
PREFERRED SHARES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THE ACTIVITIES, SEE "UNDERWRITING."

S-2

<PAGE>

PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus Supplement or the accompanying Prospectus
or incorporated herein or therein by reference. Unless indicated otherwise, the
information contained in this Prospectus Supplement assumes that the
Underwriters' overallotment option is not exercised. As used herein, (i) the
term "Company" includes CarrAmerica Realty Corporation, a Maryland corporation,
and/or one or more of its subsidiaries, as appropriate, (ii) "Series B Preferred
Shares" refers to the shares of Series B Cumulative Redeemable Preferred Stock,
par value $.01 per share and liquidation preference $25.00 per share, of the
Company, and (iii) "Common Stock" refers to the common stock, par value $.01 per
share, of the Company. All references to square footage herein are to rentable
square feet (excluding storage space). Certain discussions in this Prospectus
Supplement contain forward-looking statements within the meaning of the federal
securities laws. Although the Company believes that the expectations reflected
in such forward-looking statements are based upon reasonable assumptions, there
can be no assurance that these expectations will be realized. See "Risk Factors"
beginning on page 3 of the accompanying Prospectus for further discussion of
these and other risks that could cause actual results to differ materially from
current expectations.

THE COMPANY

The Company is a publicly traded real estate investment trust ("REIT") that
focuses primarily on the acquisition, development, ownership and operation of
office properties in select suburban markets across the United States. As of
July 31, 1997, the Company owned interests in 216 operating properties
containing approximately 16.8 million square feet of office space located in 13
markets, nine properties under construction that it intends to own and operate
that will contain approximately 1.2 million square feet of office space, and
land and options to acquire land that will support the development of up to 5.6
million square feet of office space. The operating properties owned by the
Company as of June 30, 1997 were 96.1% leased as of that date.

The Company has maintained a strategic alliance with Security Capital U.S.
Realty, a European real estate operating company (together with its wholly-owned
subsidiary, "SC-USREALTY") since November 1995. As of June 30, 1997, SC-USREALTY
owned approximately 42.6% of the outstanding Common Stock of the Company (38.3%
on a fully diluted basis). The Company is the exclusive strategic investment of
SC-USREALTY in the commercial office property business in the United States.

The Company and its predecessor, The Oliver Carr Company ("OCCO"), have
been in the real estate business in the Washington, D.C. metropolitan area for
more than 35 years. In late 1995, the Company shifted its focus from downtown
Washington, D.C. to a national business strategy. The Company provides a full
range of real estate services through a staff of over 700 employees located
throughout the United States.

BUSINESS STRATEGY

The Company's primary business objective is to achieve long-term
sustainable per share cash flow growth through a strategy of (i) acquiring,
developing, owning and operating office properties primarily in suburban markets
throughout the United States that exhibit strong, long-term growth
characteristics and (ii) developing a national operating system that satisfies
and capitalizes on the financial and operational demands of corporate office
space users. The Company seeks to acquire or develop properties characterized by
highly functional physical environments, strategic suburban locations in close
proximity to key transportation arteries, residential areas and other amenities,
and low initial and long-term costs of occupancy.

S-3
<PAGE>
RECENT DEVELOPMENTS

Between April 1 and July 31, 1997, the Company acquired 37 operating
properties containing approximately 2.7 million square feet of office space for
an aggregate purchase price of approximately $297 million. As of July 31, 1997,
the Company had entered into one binding contract (subject to certain
conditions) and one non-binding letter of intent to acquire an additional six
operating properties containing approximately 643,000 rentable square feet for
an aggregate purchase price of approximately $73 million. The Company expects to
close these transactions within 60 days, although there can be no assurance that
any of these pending transactions will be consummated. In addition, as of July
31, 1997, the Company had nine office properties under construction that it
intends to own and operate. These nine properties will contain approximately 1.2
million square feet.

RECENT FINANCING ACTIVITY

Since June 1996, the Company has completed four separate offerings of
shares of Common Stock to the public and SC-USREALTY for aggregate net proceeds
of approximately $767 million. In October 1996, the Company sold shares of
preferred stock to institutional investors and SC-USREALTY for net proceeds of
approximately $43 million. In addition, in June 1997, the Company sold unsecured
notes to institutional investors for net proceeds of approximately $272 million.

PORTFOLIO BY MARKET

The Company's recent investments have provided it with a geographically
diverse portfolio of properties throughout the United States. The following
table provides an overview of the Company's portfolio by market as of July 31,
1997:

<TABLE>
<CAPTION>
SQUARE % OF TOTAL FUTURE
NUMBER OF FOOTAGE OF PORTFOLIO SQUARE BUILDABLE
OPERATING OPERATING SQUARE FOOTAGE UNDER SQUARE
MARKET PROPERTIES PROPERTIES FOOTAGE(1) CONSTRUCTION FOOTAGE(2)
- ---------------------------------------------- --------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Northern California........................... 50 3,351,000 19.9% 300,000 413,000
Metropolitan Washington, D.C.
Downtown.................................... 10 2,403,000 14.3 -- 231,000
Suburban.................................... 7 1,273,000 7.6 -- --
Suburban Atlanta.............................. 43 1,891,000 11.3 128,000 192,000
Suburban Chicago.............................. 10 1,570,000 9.4 -- 707,000
Southern California........................... 33 1,462,000 8.7 -- 175,000
Southeast Denver.............................. 11 1,016,000 6.0 427,000 562,000
Austin, Texas................................. 11 971,000 5.8 220,000 1,401,000
Suburban Dallas............................... 10 964,000 5.7 -- 530,000
Suburban Seattle.............................. 17 741,000 4.4 91,000 555,000
Suburban Salt Lake City....................... 8 461,000 2.7 -- --
Suburban Phoenix.............................. 4 457,000 2.7 -- 260,000
Florida....................................... 1 160,000 1.0 -- 574,000
Suburban Portland, Oregon..................... 1 81,000 0.5 46,000 --
--------- ---------- ---------- ------------- ----------
Total....................................... 216 16,801,000 100.0% 1,212,000 5,600,000
=== ========== ===== ========= =========

</TABLE>
- ------------------
(1) Represents the percentage of total square footage of the consolidated
properties.
(2) Represents buildable square footage of land (including land subject to
options and excluding square footage under construction) that is held for
development.

S-4
<PAGE>
THE OFFERING

For a more complete description of the terms of the Series B Preferred
Shares, including definitions of capitalized terms used but not defined in this
summary, see "Description of Series B Preferred Shares" in this Prospectus
Supplement.

<TABLE>
<S> <C>
Securities Offered........................ 7,000,000 Series B Preferred Shares.

Use of Proceeds........................... The net proceeds to the Company from the Offering (approximately
$169.1 million) will be used to fund acquisition and development
activities, either through direct payments or repayment of borrowings
under the Company's unsecured line of credit incurred to fund such
activities, and for general corporate purposes. See "Use of
Proceeds."

Ranking................................... With respect to the payment of dividends and amounts upon
liquidation, the Series B Preferred Shares will rank equally with the
Company's Series A Preferred Shares and senior to the Common Stock.
See "Description of Series B Preferred Shares--Ranking."

Dividends................................. Dividends on the Series B Preferred Shares will be cumulative from
the date of original issue and will be payable quarterly in arrears
on the last day of February, May, August and November of each year
(or, if such day is not a business day, the next business day),
commencing on August 31, 1997, at the rate of 8.57% of the
liquidation preference per annum (equivalent to $2.1425 per share per
annum). Dividends on the Series B Preferred Shares will accrue
whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends and whether
or not such dividends are declared. See "Description of Series B
Preferred Shares--Dividends."

Liquidation Rights........................ The liquidation preference for each Series B Preferred Share is
$25.00. Upon liquidation, holders will be entitled to be paid the
liquidation preference plus an amount equal to accrued and unpaid
dividends thereon out of the assets available for such payment. See
"Description of Series B Preferred Shares--Liquidation Rights."

Redemption................................ The Series B Preferred Shares are not redeemable prior to August 12,
2002. On and after August 12, 2002, the Series B Preferred Shares
will be redeemable at the option of the Company, in whole or in part,
at a redemption price of $25.00 per share, plus accrued and unpaid
dividends thereon. The redemption price (other than the portion
thereof consisting of accrued and unpaid dividends) is payable solely
out of proceeds from the sale of other capital stock of the Company.
See "Description of Series B Preferred Shares--Redemption."

Voting Rights............................. If dividends on the Series B Preferred Shares are in arrears for six
or more consecutive quarterly periods, holders of Series B Preferred
Shares (voting separately as a class with all other series of
preferred stock upon which like voting rights have been conferred and
are exercisable) will be entitled to vote for the election of two
additional directors to serve on the Board of
</TABLE>

S-5
<PAGE>

<TABLE>
<S> <C>
Directors of the Company until all such dividend arrearages are
eliminated. See "Description of Series B Preferred Shares--Voting
Rights."

Conversion................................ The Series B Preferred Shares are not convertible into or
exchangeable for any other property or security of the Company.

Ownership Limits.......................... Ownership of more than 5% of the Series B Preferred Shares is
restricted in order to maintain the Company's ability to qualify as a
REIT for federal income tax purposes. This ownership limit may be
increased to a greater percentage (but not greater than 9.8%) as may
be determined by the Company's Board of Directors. See "Description
of Preferred Shares--Restrictions on Transfer; Ownership Limits."

Trading................................... The Company intends to file an application to list the Series B
Preferred Shares on the New York Stock Exchange, although there can
be no assurance that the Series B Preferred Shares will be approved
for listing.
</TABLE>

S-6
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION

The following table sets forth selected financial and operating information
for the Company as of and for the years ended December 31, 1996, 1995 and 1994.
This information is derived from and should be read in conjunction with the
audited financial statements of the Company, which statements have been audited
by KPMG Peat Marwick LLP, independent public accountants. In addition, the
following table sets forth selected financial and operating information for the
Company as of March 31, 1997 and for the three months ended March 31, 1997 and
1996, which information is derived from the unaudited financial statements of
the Company.

The following table also sets forth pro forma financial information for the
Company as of and for the three months ended March 31, 1997 and for the year
ended December 31, 1996, giving effect to (i) the completion of the Offering and
the application of the net proceeds therefrom, (ii) the acquisitions of office
properties and land that have been consummated since the beginning of the
periods presented and the acquisitions of other office properties and land that
the Company expects to consummate in the near future, (iii) the sales of Common
Stock, preferred stock and unsecured notes during 1996 and 1997, and (iv) the
repayment of certain outstanding indebtedness. In management's opinion, all
material adjustments necessary to reflect the transactions described above are
presented in the pro forma adjustments columns, which are further described in
the notes to the unaudited pro forma financial information incorporated by
reference herein.

The following selected financial and operating information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained herein or incorporated herein by reference:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------------- -------------------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
---------- ----------------------- --------- -----------------------
1997 1997 1996 1996 1996 1995
---------- ---------- -------- --------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Real estate operating revenue:
Rental revenue........................... $ 83,527 $ 66,289 $ 25,350 $297,684 $ 154,165 $ 89,539
Real estate service revenue.............. 4,178 4,178 2,726 12,512 12,512 11,315
Real estate operating expenses:
Property operating expenses.............. 28,311 23,643 8,991 100,918 51,927 31,579
Interest expense......................... 11,215 11,257 6,532 51,766 31,630 21,873
General and administrative expenses...... 5,156 5,156 2,748 15,228 15,228 10,711
Depreciation and amortization............ 19,063 15,916 5,484 69,680 38,264 18,495
Net income................................ 22,398 13,259 3,335 66,753 24,318(1) 12,067(1)
Dividends paid to common stockholders..... 21,320 5,914 42,914 23,344
PER SHARE DATA:
Net income before extraordinary item...... $ 0.31 $ 0.26 $ 0.25 $ 0.86 $ 0.90 $ 0.90
Dividends paid to common stockholders..... 0.4375 0.4375 1.75 1.75
Weighted average shares outstanding (2)... 57,169 47,477 13,575 56,931 31,999 13,338
BALANCE SHEET DATA (AT PERIOD END):
Real estate, before accumulated
depreciation............................. $2,268,560 $1,763,758 $647,825 $1,539,998 $480,589
Total assets.............................. 2,261,823 1,757,316 635,358 1,536,564 458,860
Mortgages payable......................... 482,515 465,060 324,957 440,449 317,374
Other indebtedness........................ 363,372 270,000 172,000 215,000 0
Total indebtedness........................ 845,887 735,060 496,957 655,449 317,374
Minority interest......................... 67,620 54,797 34,876 50,597 34,850
Total stockholders' equity................ 1,293,215 916,012 93,507 787,478 95,543
OTHER DATA:
Net cash provided by operating
activities............................... $ 27,667 $ 9,001 $ 82,300 $ 35,277
Net cash used by investing activities..... (180,153) (169,496) (876,947) (81,635)
Net cash provided by financing
activities............................... 152,297 171,511 813,067 37,113
Funds from operations before minority
interest of the Unitholders of Carr
Partnerships(3).......................... $ 42,313 $ 29,701 $ 9,501 $138,896 $ 64,496(1) $ 33,190(1)
Weighted average shares and Units
outstanding(4)........................... 64,600 54,472 18,184 64,362 32,263 18,157
Number of properties (at period end)...... 222 184 36 222 159 13
Square footage (in thousands, at period
end)..................................... 17,446 15,433 6,479 17,446 12,430 3,326
Percent leased (at period end)............ 94.9% 95.1% 93.6% 93.5%
EBITDA(5)................................. $ 54,719 $ 42,149 $ 16,741 $193,964 $ 99,428 $ 57,652
Ratio of EBDITA to interest expense....... 4.88x 3.74x 2.56x 3.75x 3.14x 2.64x
Ratio of earnings to combined fixed
charges and preferred stock dividends.... 1.65x 1.85x 1.64x(6) 1.44x 1.71x 1.91x(6)

</TABLE>

<PAGE>
1994
--------

OPERATING DATA:
Real estate operating revenue:
Rental revenue........................... $ 82,665
Real estate service revenue.............. 8,890
Real estate operating expenses:
Property operating expenses.............. 29,707
Interest expense......................... 21,366
General and administrative expenses...... 9,535
Depreciation and amortization............ 14,419
Net income................................ 12,097
Dividends paid to common stockholders..... 20,204
PER SHARE DATA:
Net income before extraordinary item...... $ 1.06
Dividends paid to common stockholders..... 1.75
Weighted average shares outstanding (2)... 11,387
BALANCE SHEET DATA (AT PERIOD END):
Real estate, before accumulated
depreciation............................. $429,537
Total assets.............................. 407,948
Mortgages payable......................... 254,933
Other indebtedness........................ 0
Total indebtedness........................ 254,933
Minority interest......................... 38,644
Total stockholders' equity................ 106,042
OTHER DATA:
Net cash provided by operating
activities............................... $ 29,908
Net cash used by investing activities..... (67,046)
Net cash provided by financing
activities............................... 32,652
Funds from operations before minority
interest of the Unitholders of Carr
Partnerships(3).......................... $ 30,640
Weighted average shares and Units
outstanding(4)........................... 15,878
Number of properties (at period end)...... 11
Square footage (in thousands, at period
end)..................................... 2,706
Percent leased (at period end)............ 95.9%
EBITDA(5)................................. $ 53,606
Ratio of EBDITA to interest expense....... 2.51x
Ratio of earnings to combined fixed
charges and preferred stock dividends.... 1.81x(6)
- ------------------
(1) Net income and funds from operations include non-recurring deductions of
approximately $2.3 million and $1.9 million in 1996 and 1995, respectively,
related to the write-off of the unamortized purchase price of certain third
party real estate service contracts that were terminated in 1996 and the
termination of an agreement to acquire the development business of The Evans
Company in 1995.
(2) Weighted average shares outstanding used in calculating net income (loss)
per share includes Common Stock and, when dilutive, stock equivalents, stock
options and units of partnership interest.
(3) The Company believes that funds from operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to incur
and service debt, to make capital expenditures and to fund other cash needs.
In accordance with the final National Association of Real Estate Investment
Trusts (NAREIT) White Paper on Funds From Operations as approved by the
Board of Governors of NAREIT on March 3, 1995, funds from operations
represents net income (loss) (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring
or sales of property, plus depreciation and amortization of assets uniquely
significant to the real estate industry and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect
funds from operations on the same basis. The Company computes funds from
operations in accordance with standards established by NAREIT, which may not
be comparable to funds from operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. The
Company's funds from operations in 1994 have been restated to conform to the
NAREIT definition of funds from operations. Funds from operations does not
represent net income or cash flow generated from operating activities in
accordance with generally accepted accounting principles and, as such,
should not be considered an alternative to net income as an indication of
the Company's performance or to cash flow as a measure of liquidity or the
Company's ability to make distributions.

<PAGE>

(4) Includes shares of Common Stock and convertible preferred stock outstanding
plus units of partnership interest in the CarrAmerica Realty, L.P. and Carr
Realty, L.P. that the holders thereof have a right to have redeemed for cash
equal to the value of a share of Common Stock for each unit redeemed or, at
the option of the Company, for shares of Common Stock on a one-for-one
basis. Such units include non-dividend paying units.
(5) EBITDA is calculated as net operating income before minority and
extraordinary items, plus interest expense, depreciation and amortization,
and income taxes, if any.
(6) Prior to October 1996, the Company did not have any preferred stock issued
and outstanding. Therefore, the ratio of earnings to combined fixed charges
and preferred stock dividends for these periods was identical to the ratio
of earnings to fixed charges.

S-7

<PAGE>

THE COMPANY

The Company is a publicly traded REIT that focuses primarily on the
acquisition, development, ownership and operation of office properties in select
suburban markets across the United States. As of July 31, 1997, the Company
owned interests in 216 operating properties containing approximately 16.8
million square feet of office space located in 13 markets, nine properties under
construction that it intends to own and operate that will contain approximately
1.2 million square feet of office space, and land and options to acquire land
that will support the development of up to 5.6 million square feet of office
space. The operating properties owned by the Company as of June 30, 1997 were
96.1% leased as of that date.

The Company has maintained a strategic alliance with SC-USREALTY since
November 1995. As of June 30, 1997, SC-USREALTY owned approximately 42.6% of the
outstanding Common Stock of the Company (38.3% on a fully diluted basis). The
Company is the exclusive strategic investment of SC-USREALTY in the commercial
office property business in the United States.

The Company and its predecessor, OCCO, have been in the real estate
business in the Washington, D.C. metropolitan area for more than 35 years. In
late 1995, the Company shifted its focus from downtown Washington, D.C. to a
national business strategy. The Company provides a full range of real estate
services through a staff of over 700 employees located throughout the United
States.

The Company is a Maryland corporation that was formed in July 1992. The
principal executive offices of the Company are located at 1700 Pennsylvania
Avenue, N.W., Washington, D.C. 20006, and its telephone number is (202)
624-7500.

BUSINESS STRATEGY

The Company's primary business objective is to achieve long-term
sustainable per share cash flow growth through a strategy of (i) acquiring,
developing, owning and operating office properties primarily in suburban markets
throughout the United States that exhibit strong, long-term growth
characteristics and (ii) developing a national operating system that satisfies
and capitalizes on the financial and operational demands of corporate office
space users. The Company believes that many growth-oriented companies are
relocating to and expanding in suburban locations that offer lower operating
costs, greater convenience and a higher quality of life than traditional central
business districts. The Company seeks to provide suburban office space that will
meet the changing needs of these corporate users of office space.

Target Markets. The Company has focused its acquisition and development
activity in the Pacific, Mountain, Central and Southeast regions of the United
States, regions which generally possess strong growth characteristics. Within
these regions, the Company is targeting specific submarkets in which operating
costs for businesses are relatively low, long-term population and job growth
generally are expected to exceed the national average, large, well-educated
employment pools exist, and barriers to entry exist for new supplies of office
space. The Company has established a local presence in each of its existing
target markets through its investment activity and through the relationships
established by its experienced market officers. The Company's target markets
include the following: Northern California; metropolitan Washington, D.C.;
suburban Atlanta; Southern California; Southeast Denver; Austin, Texas; suburban
Chicago; suburban Seattle; suburban Phoenix; suburban Dallas; suburban Portland,
Oregon; suburban Salt Lake City; and Florida.

For each identified target market, the Company has established a set of
general guidelines and physical characteristics to evaluate investment
opportunities. All investment decisions are driven by real estate research,
focusing on variables such as economic base analysis, job growth and supply and
demand fundamentals. The Company's goal is to become one of the major owners and
operators of office space in each of its selected target markets. By achieving
such critical mass, the Company believes that it will be able to better serve
its customers' needs and realize certain operating efficiencies.

Acquisitions of Operating Properties. The Company has implemented a major
initiative to acquire operating properties in order to establish the operating
platform for its national business strategy. Between January 1, 1996 and July
31, 1997, the Company acquired 203 operating properties

S-8
<PAGE>

containing approximately 13.5 million square feet of office space, resulting in
a more than 400% increase in the total square footage of operating properties in
which the Company has a majority interest. These properties were acquired for an
aggregate purchase price of approximately $1.5 billion. See "Recent
Developments--Recent Acquisitions and Development Activity."

Development Program. The Company's development program is becoming an
increasingly important component of its growth strategy as a result of the
influx of capital into the office property market. The Company believes that
long-term investment returns resulting from developing office properties
generally will exceed those from acquiring office properties, and without the
Company assuming significantly increased investment risks. The Company minimizes
its development risk by employing extensively trained and experienced
development personnel, by not assuming significant entitlement risk in
conjunction with land acquisitions and by entering into guaranteed maximum price
(GMP) construction contracts with seasoned and credible contractors. Most
importantly, the Company carefully analyzes the supply and demand
characteristics of its target markets before commencing inventory development in
a given market. In general, the Company will only undertake inventory
development (which excludes properties under construction that have been
substantially pre-leased) in markets with strong real estate fundamentals, and
then the Company will construct prototypical office buildings attractive to a
wide range of office users. Furthermore, because the Company's inventory
development projects will typically be between 125,000 and 150,000 square feet
in size, these projects individually are not significant to the Company. The
Company does not intend to have concentrations of inventory development
exceeding 250,000 rentable square feet in any of its target markets at any given
time. Although the Company has no pre-set leasing guidelines for inventory
development, on average, the Company expects that its development projects, in
the aggregate, at any time will be between 60% and 75% leased or committed. The
Company's research-driven development program enables it to tailor its
development activities in each target market, from inventory development to
build-to-suit projects to holding raw land for future opportunities.

To implement its national development program, the Company acquired a
substantial economic interest in CarrAmerica Development & Construction, Inc.
and its experienced development staff in May 1996 and has since employed
additional development professionals in the Company's market offices where
development is taking place. The Company's development team currently consists
of approximately 40 persons who have an average of over 15 years of experience
in developing office properties across the United States. Since January 1, 1997,
the Company placed in service one development property containing approximately
101,000 rentable square feet. In addition, as of July 31, 1997, the Company had
nine office properties under construction (with an estimated development cost of
$159 million) that it intends to own and operate. The nine properties will
contain approximately 1.2 million rentable square feet. As of July 31, 1997,
these nine properties were 69% pre-leased. See "Recent Developments--Recent
Acquisitions and Development Activity."

Investments in Land for Future Development. Owning a sufficient inventory
of land for future development is critical to the Company's development program;
therefore, the Company will continue to invest in land for future development.
The Company's goal is to allocate approximately 5% of its invested capital to
investments in land. In addition to its portfolio of operating properties and
projects currently under development, the Company owned or controlled, as of
July 31, 1997, 256 acres of land for future development in twelve of its target
markets. The Company also had, as of July 31, 1997, entered into binding
agreements (subject to certain conditions) and non-binding letters of intent to
acquire an additional 97 acres of land for future development in five of its
target markets. No assurance can be given that any of these potential land
acquisitions will be consummated. The Company believes that acquiring land to
support future development provides it with a competitive advantage in
responding to customers' needs for office space in markets with low vacancy
rates.

Asset Optimization. As a component of the Company's business strategy, it
may sell assets that are inconsistent with its long-term strategic or return
objectives or where market conditions for sale are favorable, and redeploy the
proceeds into other office properties (utilizing tax-deferred exchanges where
possible). Consistent with this strategy, the Company recently sold its 2%
interest in the limited partnership that owned 1575 Eye Street, Washington, D.C.
and its 5% interest in the limited partnership

S-9
<PAGE>

that owns 1776 Eye Street, Washington, D.C. The Company also may consider
selling additional properties or interests in properties, some of which may be
significant.

National Operating System. As part of its business strategy, the Company
is implementing a national operating system to provide nationally coordinated
customer service, marketing and development. The Company's national operating
system consists of three components: (i) a Market Officer Group, currently
consisting of ten market officers focused on developing and maintaining strong
local relationships with the Company's customers and the brokerage community and
identifying investment opportunities for the Company; (ii) a National Marketing
Group, which, is dedicated to marketing the Company's products and services to a
targeted list of major corporate users of office space; and (iii) a National
Development Group, which is responsible for developing suburban office
properties, build-to-suit facilities and business parks. The Company's national
operating system is designed to satisfy and capitalize on the financial and
operational demands of corporate office space users. The Company believes that
through its existing portfolio of operating properties, property development
opportunities and land acquired for future development, the Company can generate
incremental demand through the relocation and expansion needs of many of its
customers, both within a target market and in multiple target markets.

FINANCING STRATEGY

In order to meet its capital requirements at a reasonable cost, the Company
will require access to diverse sources of capital, including the common and
preferred stock markets, the private market for operating partnership units, and
the public and private debt markets. In order to ensure access to these capital
sources, the Company's financial strategy is predicated on conservative
financial policies.

Common Stock, including operating partnership units that may be exchanged
for shares of Common Stock, is and will continue to be the largest component of
the Company's capital structure. Since January 1996, the Company has raised more
than $1.0 billion from the sale of shares of Common Stock (including
SC-USREALTY's initial $250 million investment in the Company) and $35.6 million
from the issuance of operating partnership units. Of the total Common Stock sold
since SC-USREALTY's initial investment in the Company, SC-USREALTY has purchased
$232 million, or 30.0%. The Company currently expects that SC-USREALTY will
continue to participate in future Common Stock offerings, although it is not
obligated to do so.

To date, preferred stock has been only a small component of the Company's
capital structure. As of July 31, 1997, the Company had approximately 1.7
million shares of Series A Cumulative Convertible Redeemable Preferred Stock
outstanding. The Company plans to increase its preferred stock capitalization
through the Offering and through future offerings; however, the Company
currently does not expect that its preferred stock capitalization will exceed
20% of its total equity capitalization.

Debt from the public and private debt markets is also a key component of
the Company's capital structure. In June 1997, the Company sold to institutional
investors unsecured notes for net proceeds of approximately $272 million. In
formulating its debt capitalization strategy, the Company considers a number of
factors, including the benefits of Company-based financings versus
asset-specific financings, floating rate debt exposure, debt maturity
management, coverage ratios and total debt outstanding as compared to asset
values. Although the Company may from time to time assume mortgage debt in
connection with property acquisitions, the Company, in accordance with its debt
capitalization strategy, plans to primarily utilize Company-based financings in
the form of long-term, unsecured, fixed rate bonds, rather than asset-specific
mortgage financings. The maturities of bonds issued will be staggered in order
to produce normalized maturities and therefore mitigate refinancing risk. For
short-term debt capitalization, the Company will continue to utilize its
unsecured, floating rate, revolving line of credit to provide the necessary
capital for acquisitions and development. With respect to floating rate debt
exposure, the Company plans to keep its average unhedged floating rate debt
outstanding to an amount less than 10% of total asset value. The Company expects
to continue operating with adequate debt service coverage ratios and to continue
maintaining a sufficient pool of unencumbered assets to service the Company's
unsecured debt.

The Company's financing strategy may be changed from time to time by its
Board of Directors without the consent of its stockholders or other
securityholders.

S-10
<PAGE>
REAL ESTATE SERVICES

The Company generally provides real estate operating services for its
properties. In certain circumstances, however, such as during a transitional
period following the acquisition of a property, the Company may use a
third-party real estate service provider. As of July 31, 1997, the Company
provided its own real estate operating services for approximately 16 million
square feet (or 98%) of its portfolio. The Company, through certain
subsidiaries, also provides fee-based real estate services for related and
unrelated parties.

RECENT DEVELOPMENTS

RECENT ACQUISITIONS AND DEVELOPMENT ACTIVITY

Operating Property Acquisitions. Between April 1 and July 31, 1997, the
Company acquired 37 operating office properties containing approximately 2.7
million square feet for an aggregate purchase price of approximately $297
million.

The following table provides summary information on these properties:

<TABLE>
<CAPTION>
PURCHASE PERCENT
MONTH OF PRICE RENTABLE LEASED AS OF
MARKET/PROPERTY SUBMARKET ACQUISITION (IN MILLIONS) SQUARE FEET JUNE 30, 1997
- -------------------------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Suburban Atlanta
2400 Lake Park Drive.......... Northwest April $ 7.4 100,000 98.2%
680 Engineering Drive......... Northwest April 4.3 62,000 100.0
Embassy Row................... Central Perimeter April 45.9 466,000 99.7
Suburban Dallas
Tollhill East & West.......... LBJ/North Dallas April 21.7 238,000 87.3
Two Mission Park.............. Richardson/Plano July 5.1 76,000 91.1
Suburban Salt Lake City
Sorenson Research Park........ 5300 South & I-15 April 28.1 283,000 100.0
Draper Park North............. Draper June 18.7 178,000 100.0
Northern California
Foster City Technology
Center...................... Silicon Valley May 9.7 67,000 100.0
150 River Oaks................ North San Jose May 15.1 100,000 100.0
San Mateo II & III............ San Mateo July 25.3 141,000 97.6
3571 North First Street....... North San Jose July 15.1 116,000 100.0
Southern California
Westlake Corporate
Center...................... Westlake/Thousand Oaks May 6.1 71,000 91.1
Lightspan..................... San Diego July 7.8 65,000 100.0
Von Karman.................... Irvine July 16.2 104,000 100.0
Suburban Seattle
Willow Creek
(formerly Data I/O)......... Redmond May 8.7 96,000 100.0
Canyon Park................... Botthel June 31.2 247,000 100.0
Suburban Phoenix
Highland Park................. Scottsdale May 7.6 78,000 100.0
Suburban Chicago
Bannockburn IV................ Northbrook/TriState June 14.3 108,000 83.7
Summit Oaks................... Oakbrook June 8.4 92,000 93.3
------------- ----------- ------
Total/Weighted Average $ 296.7 2,688,000 97.3%
======= ========= ====

</TABLE>

As of July 31, 1997, the Company had entered into one binding contract
(subject to certain conditions) and one non-binding letter of intent to acquire
an additional six operating office properties containing approximately 643,000
rentable square feet for an aggregate purchase price of approximately $73
million. The closing of these pending acquisitions is subject to the Company's
due diligence and certain other closing conditions. The Company expects to close
the transactions within 60 days, although there can be no assurance that any of
these transactions will be consummated.

Development. Since January 1, 1997, the Company placed in service one
development property containing approximately 101,000 square feet. In addition,
as of July 31, 1997, the Company had nine office properties under construction
(with an estimated development cost of $159 million) that it intends

S-11
<PAGE>
to own and operate. Once completed, the nine properties will contain
approximately 1.2 million rentable square feet.

The following table sets forth certain information regarding the nine
office properties under construction that the Company intends to own and
operate, as of July 31, 1997:

<TABLE>
<CAPTION>
EXPECTED
FIRST-YEAR
STABILIZED
UNLEVERAGED
ESTIMATED RETURN ON EXPECTED
RENTABLE COST (IN DEVELOPMENT PERCENT COMPLETION
PROPERTY UNDER CONSTRUCTION MARKET SQUARE FEET THOUSANDS) COSTS (1) LEASED DATE
- ------------------------------- ------------------- ----------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Spalding Ridge................. Suburban Atlanta 128,000 $ 15,500 10.3% 73% 3Q 1997
Panorama Corporate
Center II.................... Southeast Denver 101,000 11,900 10.5 80 3Q 1997
JD Edwards Building............ Southeast Denver 189,000 28,800 9.9 100 3Q 1997
City View Centre............... Austin, Texas 128,000 18,200 10.4 100 4Q 1997
Riata.......................... Austin, Texas 92,000 11,200 10.3 0(2) 2Q 1998
Baytech Business Park.......... Northern California 300,000 38,600 12.7 100 4Q 1997
RadiSys........................ Suburban Portland 46,000 5,900 10.4 100 4Q 1997
Redmond Hilltop................ Suburban Seattle 91,000 11,300 10.2 0(3) 4Q 1997
Panorama Corporate
Center III................... Southeast Denver 137,000 17,100 10.1 0(3) 1Q 1998
----------- ---------- ----- -------
Total/Weighted Average 1,212,000 $158,500 10.8% 69%
========= ======== ==== ==
</TABLE>
- ------------------
(1) Equals the expected net operating income of the project on a cash basis,
assuming 7% vacancy, divided by the total expected development costs,
including capitalized carrying costs during construction.
(2) The construction start date for the project was July 1997.
(3) The construction start date for the project was April 1997.

Land Held for Development. From January 1 to July 31, 1997, the Company
acquired 122 acres of land in eight of its target markets that will support
future development of up to 2.9 million rentable square feet of office space.
The Company also has entered into five binding agreements (subject to certain
conditions) and one non-binding letter of intent to acquire an additional 97
acres of land for future development in five of its target markets. No assurance
can be given that any of these potential acquisitions of developable land will
be consummated.

The following table shows the land and options to acquire land that were
owned by the Company as of July 31, 1997 and land that the Company expects to
acquire within the next 60 days.

<TABLE>
<CAPTION>
OWNED OR PENDING LAND
CONTROLLED LAND ACQUISITIONS
------------------ ------------------
BUILDABLE BUILDABLE
SQUARE SQUARE
REGION/PROPERTY MARKET ACRES FOOTAGE ACRES FOOTAGE
- ------------------------------------------- ------ ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Pacific Region:
Willow Creek Corporate Centre............ Suburban Seattle 23 321,000 -- --
Eastgate Technology Park................. Southern California 8 175,000 -- --
Oakmead West............................. Northern California 21 413,000 -- --
Canyon Park.............................. Suburban Seattle 6 234,000 -- --
Valley Technology Centre (formerly
Ferrara Site).......................... Northern California -- -- 21 333,000
Watkins Johnson.......................... Northern California -- -- 15 254,000
----- --------- ----- ---------
Subtotal............................. 58 1,143,000 36 587,000
----- --------- ----- ---------
Mountain Region:
Panorama Corporate Center IV-VII......... Southeast Denver 25 462,000 -- --
Gateway Plaza............................ Suburban Phoenix 7 260,000 -- --
Quorum................................... Southeast Denver 4 100,000 -- --
Draper Park North........................ Suburban Salt Lake City -- -- 9 125,000
----- --------- ----- ---------
Subtotal............................. 36 822,000 9 125,000
----- --------- ----- ---------
Central Region:
Mopac at Braker
(formerly Aubrey Smith)................ Austin, Texas 30 750,000 -- --
Riata.................................... Austin, Texas 45 651,000 -- --
</TABLE>

S-12
<PAGE>
<TABLE>
<CAPTION>
OWNED OR PENDING LAND
CONTROLLED LAND ACQUISITIONS
------------------ ------------------
BUILDABLE BUILDABLE
SQUARE SQUARE
REGION/PROPERTY MARKET ACRES FOOTAGE ACRES FOOTAGE
- ------------------------------------------- ------ ----- --------- ----- ---------
Parkway North............................ Suburban Chicago 30 707,000 -- --
<S> <C> <C> <C> <C> <C>
Cedar Maple.............................. Suburban Dallas 1 38,000 -- --
Tollway Plaza I & II..................... Suburban Dallas 8 357,000 -- --
Tollway Plaza III........................ Suburban Dallas 4 135,000 -- --
Rosewood................................. Suburban Dallas -- -- 22 518,000
----- --------- ----- ---------
Subtotal............................. 118 2,638,000 22 518,000
----- --------- ----- ---------
Southeast Region:
Embassy Row Land......................... Suburban Atlanta 11 192,000 -- --
Peninsula Executive Center
(formerly Glades Site)................. Florida 6 187,000 -- --
Peninsula Corporate Center
(formerly Knight Site)................. Florida 26 387,000 -- --
1201 F Street............................ Downtown Washington, DC 1 231,000 -- --
Reston Crossing.......................... Suburban Washington, DC -- -- 16 332,000
Preston Ridge............................ Suburban Atlanta -- -- 14 100,000
----- --------- ----- ---------
Subtotal............................. 44 997,000 30 432,000
----- --------- ----- ---------
Total............................. 256 5,600,000 97 1,662,000
=== ========= == =========
</TABLE>

RECENT FINANCING ACTIVITY

Since June 1996, the Company has completed four separate offerings of
shares of Common Stock to the public and SC-USREALTY for aggregate net proceeds
of approximately $767 million. In October 1996, the Company sold shares of
preferred stock to institutional investors and SC-USREALTY for net proceeds of
approximately $43 million. In June 1997, the Company sold unsecured notes to
institutional investors for net proceeds of approximately $272 million. The net
proceeds of all of these offerings were used to pay down indebtedness and to
acquire operating office properties and land held for development.

In January 1997, the Company entered into a secured credit facility
pursuant to which it could borrow up to a maximum of $150 million. As of June
30, 1997, $86 million was outstanding under the Company's secured credit
facility. On July 1, 1997, the Company used a portion of the proceeds from the
sale of its unsecured notes to repay the secured credit facility in full. The
secured facility was subsequently terminated on July 3, 1997.

In March 1997, certain modifications were made to the Company's unsecured
line of credit and, as a result, the full commitment amount of $325 million
became available to the Company. Additionally, on June 4, 1997, the interest
rate for advances under the Company's unsecured line of credit was reduced to
1.125% over LIBOR concurrent with the Company receiving two investment grade
ratings. As of July 31, 1997, $166 million was outstanding under the Company's
line of credit.

USE OF PROCEEDS

The net proceeds to the Company from the Offering are estimated to be
approximately $169.1 million ($194.5 million if the Underwriters' over-allotment
option is exercised in full). The Company intends to use the net proceeds of the
Offering to fund acquisition and development activities, either through direct
payments or repayment of unsecured line of credit borrowings incurred to fund
acquisition or development activities, and for general corporate purposes. The
Company expects to make additional borrowings under its unsecured line of credit
following the Offering. Pending application to such uses, the net proceeds may
be invested in short-term, income-producing investments such as commercial
paper, government securities or money market funds that invest in government
securities. See "Plan of Distribution."

S-13
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1997 on an historical basis and on a pro forma basis, giving effect to
(i) the completion of the Offering and the application of the net proceeds
therefrom, (ii) the acquisitions of office properties and land that have been
consummated since the beginning of the periods presented and the acquisitions of
other office properties and land that the Company expects to consummate in the
near future, (iii) the sales of Common Stock, preferred stock and unsecured
notes during 1996 and 1997, and (iv) the repayment of certain outstanding
indebtedness.

<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
HISTORICAL PRO FORMA
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Mortgage debt...................................................................... $ 465,060 $ 482,515
Lines of credit.................................................................... 270,000 88,372
Notes due 2004 and 2007............................................................ -- 275,000
Other liabilities.................................................................. 51,447 55,101
---------- ----------
Total liabilities................................................................ 786,507 900,988
---------- ----------
Minority interest.................................................................. 54,797 67,620
Stockholders' equity:
Preferred Stock, $.01 par value; 15,000,000 shares authorized:
Series A Preferred Shares; 1,740,000 issued and outstanding................... 17 17
Series B Preferred Shares; 7,000,000 issued and outstanding on a pro forma
basis........................................................................ -- 70
Common Stock, $.01 par value, 90,000,000 shares authorized; 48,777,835 shares
issued and outstanding; 56,992,120 shares issued and outstanding on a pro
forma basis................................................................... 487 569
Additional paid-in capital......................................................... 974,662 1,351,713
Cumulative dividends paid in excess of net income.................................. (59,154) (59,154)
---------- ----------
Total stockholders' equity....................................................... 916,012 1,293,215
---------- ----------
Total capitalization............................................................. $1,757,316 $2,261,823
========== ==========
</TABLE>

S-14

<PAGE>

PROPERTIES

GENERAL

The following table sets forth certain information about each operating
property owned by the Company as of June 30, 1997.

<TABLE>
<CAPTION>
COMPANY'S
EFFECTIVE NET TOTAL ANNUALIZED AVERAGE BASE
PROPERTY RENTABLE AREA PERCENT BASE RENT(3) RENT PER LEASED
PROPERTY OWNERSHIP (SQUARE FEET)(1) LEASED(2) (IN THOUSANDS) SQUARE FEET(4)
- --------------------------------- --------- ---------------- --------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED PROPERTIES
SOUTHEAST REGION
DOWNTOWN WASHINGTON, D.C.:
International Square
(3 Properties)............... 100.0% 1,017,669 96.0% $ 32,422 $ 33.19
1730 Pennsylvania Avenue....... 100.0 229,292 99.3 8,676 38.10
2550 M Street.................. 100.0 187,931 100.0 6,301 33.53
1775 Pennsylvania Avenue(6).... 100.0 143,981 99.1 3,122 21.88
900 19th Street................ 100.0 100,907 84.1 2,574 30.33
1747 Pennsylvania Avenue....... 89.7(7) 152,119 84.5 3,853 29.97
1255 23rd Street............... 75.0(8) 304,538 97.3 8,055 27.19
2445 M Street.................. 74.0(7) 266,902 90.1 6,902 28.69
SUBURBAN WASHINGTON, D.C.:
One Rock Spring Plaza(6)....... 100.0 205,298 100.0 4,575 22.29
Tycon Courthouse............... 100.0 416,195 99.0 8,148 19.78
Three Ballston Plaza........... 100.0 302,875 99.5 7,304 24.25
Sunrise Corporate Center
(formerly Reston Quadrangle)
(3 Properties)............... 100.0 260,643 99.9 5,279 20.28
Parkway One.................... 100.0 87,842 100.0 1,366 15.55
SUBURBAN ATLANTA:
Veridian (22 Properties)....... 100.0 187,833 94.5 2,270 12.78
Glenridge...................... 100.0 64,431 96.0 940 15.20
Century Springs West........... 100.0 94,765 99.5 1,414 14.99
Holcomb Place.................. 100.0 72,823 100.0 1,113 15.28
DeKalb Tech (5 Properties)..... 100.0 163,159 87.6 1,265 8.85
Midori......................... 100.0 99,900 97.6 1,722 17.67
Crestwood...................... 100.0 88,186 97.0 1,420 16.60
Parkwood....................... 100.0 151,020 87.5 2,369 17.93
Lakewood....................... 100.0 80,338 98.2 1,126 14.27
The Summit..................... 100.0 178,382 100.0 2,212 12.40
Triangle Parkway (formerly
Spalding Triangle II) (3
Properties).................. 100.0 82,102 100.0 1,085 13.22
2400 Lake Park................. 100.0 99,580 98.2 1,372 14.03
680 Engineering Drive.......... 100.0 62,154 100.0 544 8.75
Embasy Row (3 Properties)...... 100.0 466,240 99.7 6,898 14.84
FLORIDA:
Peninsula Plaza (formerly Lake
Wyman Plaza)................. 100.0 159,921 98.8 2,091 13.24
---------------- --------- -------- -------
SOUTHEAST REGION SUBTOTAL........ 5,727,026 96.7 126,418 22.82

<PAGE>

<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- --------------------------------- --------------------------------------------------------------------------
<S> <C>
CONSOLIDATED PROPERTIES
SOUTHEAST REGION
DOWNTOWN WASHINGTON, D.C.:
International Square
(3 Properties)............... International Monetary Fund (43%)
1730 Pennsylvania Avenue....... Federal Deposit Insurance Corporation (52%), King & Spalding (26%)
2550 M Street.................. Patton Boggs L.L.P. (86%), Pocket Communications (10%)
1775 Pennsylvania Avenue(6).... Citibank F.S.B. (81%), Foley, Lardner (16%)
900 19th Street................ America's Community Bankers (29%), Lucent Technologies (11%)
1747 Pennsylvania Avenue....... Legg Mason Wood Walker (16%)
1255 23rd Street............... Academy for Educational Development (18%), Peabody & Brown (11%),
Chronicle of Higher Education (16%), Seabury & Smith (16%)
2445 M Street.................. Wilmer, Cutler & Pickering (77%).
SUBURBAN WASHINGTON, D.C.:
One Rock Spring Plaza(6)....... Sybase (27%), Caterair (22%)
Tycon Courthouse............... Siemens Rolm (19%), GSA-FINCEN (16%), Vie de France (11%)
Three Ballston Plaza........... CACI (50%), Eastman Kodak (20%), Nixon & Vanderhye, PC (11%)
Sunrise Corporate Center
(formerly Reston Quadrangle)
(3 Properties)............... Software AG (67%), Lucas (14%), LaFarge Corporation (11%)
Parkway One.................... EIS International (89%)
SUBURBAN ATLANTA:
Veridian (22 Properties)....... GE Capital Corporation (32%)
Glenridge...................... Industrial Computer Corp. (37%), Crawford & Co. (27%)
Century Springs West........... Retirement Care Associates (27%)
Holcomb Place.................. Prudential (24%), Intercept Holdings, Inc. (16%), The Progeni Corp. (13%)
DeKalb Tech (5 Properties)..... Lucent Technologies (21%), Moreland & Altobelli (21%)
Midori......................... National Consumer Services Corp. (43%), UPS (21%), NCR (14%)
Crestwood...................... EBC Gwinnet Enterprises (23%), Everready Battery Co. (12%)
Parkwood....................... Columbian Chemicals Company (32%)
Lakewood....................... Paychex (25%), ISS (25%), Hickson Corp. (23%), Morrison's (17%)
The Summit..................... Unisys Corp. (73%), GE Claims Service (14%), Construction Market Data,
Inc. (13%)
Triangle Parkway (formerly
Spalding Triangle II) (3 Injoy, Inc. (28%), UNI Distribution Corp. (18%), Wakefield/Beasley &
Properties).................. Associates (16%)
2400 Lake Park................. Computer Language Research (22%), GSA (23%), United Healthcare Services,
Inc. (20%)
680 Engineering Drive.......... EMS Technologies (43%), Financial Software Inc. (24%), Tie/Communications,
Inc. (12%), Loral Aerospace Corporation (12%)
Embasy Row (3 Properties)...... Ceridian Corporation (25%), Cabot Corporation (10%)
FLORIDA:
Peninsula Plaza (formerly Lake
Wyman Plaza)................. Motorola (16%)
SOUTHEAST REGION SUBTOTAL........
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
COMPANY'S
EFFECTIVE NET TOTAL ANNUALIZED AVERAGE BASE
PROPERTY RENTABLE AREA PERCENT BASE RENT(3) RENT PER LEASED
PROPERTY OWNERSHIP (SQUARE FEET)(1) LEASED(2) (IN THOUSANDS) SQUARE FEET(4)
- --------------------------------- --------- ---------------- --------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
PACIFIC REGION
SOUTHERN CALIFORNIA:
Scenic Business Park
(4 Properties)................ 100.0 138,141 100.0 1,514 10.96
Harbor Corporate Park
(4 Properties)................ 100.0 148,523 84.6 1,824 14.52
Plaza PacifiCare................ 100.0 104,377 100.0 960 9.20
Katella Corporate Center........ 100.0 79,917 96.4 1,250 16.22
Warner Center (12 Properties)... 100.0 342,866 99.0 7,872 23.19
Del Mar Corporate Plaza
(2 Properties)................ 100.0 123,142 100.0 1,756 14.26
South Coast Executive Center
(2 Properties)................ 100.0 161,301 95.6 3,106 20.15
Wateridge Pavilion.............. 100.0 62,194 100.0 866 13.93
Warner Premier.................. 100.0 61,553 100.0 1,354 21.99
Westlake Corporate (2
Properties)................... 100.0 71,419 91.1 1,139 17.50
NORTHERN CALIFORNIA:
AT&T Center (6 Properties)...... 100.0 949,281 100.0 18,456 19.44
Sunnyvale Research Plaza
(3 Properties)................ 100.0 126,000 100.0 1,629 12.93
Rio Robles (7 Properties)....... 100.0 368,178 100.0 4,065 11.04
Valley Business Park II
(formerly San Jose Orchard
Business Park--B) (6
Properties)................... 100.0 166,928 100.0 1,643 9.84
Bayshore Centre (formerly
Orchard Bayshore Center) (2
Properties)................... 100.0 195,249 100.0 2,643 13.53
Rincon Centre (formerly Orchard
Rincon Centre) (3
Properties)................... 100.0 201,178 100.0 1,885 9.37
Valley Centre II (formerly
Orchard Office Centre II) (4
Properties)................... 100.0 212,082 100.0 2,385 11.25
Valley Office Centre (formerly
Orchard Office Centre)
(2 Properties)................ 100.0 68,731 100.0 1,434 20.86
Valley Centre (formerly Orchard
Centre) (2 Properties)........ 100.0 102,291 100.0 979 9.57
Valley Business Park I (formerly
San Jose Orchard Business
Park--A) (2 Properties)....... 100.0 67,784 91.2 576 9.33
3745 North First Street......... 100.0 67,582 100.0 852 12.60
Mission Plaza (2 Properties).... 100.0 102,687 100.0 1,083 10.55
North San Jose Technology Park
(formerly Fortran) (4
Properties)................... 100.0 299,233 100.0 2,767 9.25
Foster City Technology Center
(2 Properties)................ 100.0 66,869 100.0 930 13.91
150 River Oaks.................. 100.0 100,024 100.0 1,320 13.20
SUBURBAN PORTLAND:
RadiSys......................... 100.0 80,525 100.0 822 10.21
SUBURBAN SEATTLE:
Redmond East (10 Properties).... 100.0 398,230 99.9 4,602 11.57
Willow Creek.................... 100.0 96,179 100.0 981 10.20
Canyon Park (6 Properties)...... 100.0 246,565 100.0 3,145 12.75
---------------- --------- ------ -----
PACIFIC REGION SUBTOTAL.......... 5,209,029 99.1 73,838 14.31

<PAGE>

<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- --------------------------------- ------------------------------------------------------------------------
<S> <C>
PACIFIC REGION
SOUTHERN CALIFORNIA:
Scenic Business Park
(4 Properties)................ FHP (56%), So. Cal Blood & Tissue (12%)
Harbor Corporate Park
(4 Properties)................ Delmas (24%), Clayton Environmental (11%), Texaco Refining & Marketing
(12%)
Plaza PacifiCare................ Pacificare Health Systems (100%)
Katella Corporate Center........ Friendly Hills Healthcare (19%), Harris & Assoc. (11%)
Warner Center (12 Properties)... El Camino Resources (18%), General Services Administration (17%)
Del Mar Corporate Plaza
(2 Properties)................ Peregrine Systems, Inc. (77%), Newgen Results Company (23%)
South Coast Executive Center
(2 Properties)................ State Compensation Insurance Fund (32%)
Wateridge Pavilion.............. Stellcom, Inc. (37%). Platinum Solutions, Inc. (19%), Wateridge
Insurance Services (18%), TCS Mortgage, Inc. (14%)
Warner Premier.................. Panorama Software (34%), RSL COM, USA (27%), Paging Network of L.A.
(12%)
Westlake Corporate (2
Properties)................... Pacific Central Mortgage, Inc. (10%)
NORTHERN CALIFORNIA:
AT&T Center (6 Properties)...... AT&T (53%), PeopleSoft (20%)
Sunnyvale Research Plaza
(3 Properties)................ Cadence Design Systems (68%), AEA Credit Union (27%)
Rio Robles (7 Properties)....... Fujitsu (41%), KLA Instruments (31%), NEC Systems Laboratory (23%)
Valley Business Park II
(formerly San Jose Orchard
Business Park--B) (6
Properties)................... Computer Training Academy (20%), Pericom (16%)
Bayshore Centre (formerly
Orchard Bayshore Center) (2
Properties)................... Clarify, Inc. (51%), Alantec (49%)
Rincon Centre (formerly Orchard
Rincon Centre) (3
Properties)................... Ontrak Systems (44%), Toshiba America Electronic (38%), Future
Electronics (18%)
Valley Centre II (formerly
Orchard Office Centre II) (4
Properties)................... Boston Scientific (100%)
Valley Office Centre (formerly
Orchard Office Centre)
(2 Properties)................ Bank of America (21%), Quadrep (20%)
Valley Centre (formerly Orchard
Centre) (2 Properties)........ Seagate Technology (40%), Gregory Associates (38%), Winbond Electronics
(22%)
Valley Business Park I (formerly
San Jose Orchard Business
Park--A) (2 Properties)....... Leybold-Heraeus (35%), Tylan General (17%), Arcom Electronics (15%)
3745 North First Street......... Comdisco, Inc. (100%)
Mission Plaza (2 Properties).... Intel Corp (62%), Deskin Research (38%)
North San Jose Technology Park
(formerly Fortran) (4
Properties)................... AG Associates (38%), Reply Corp. (27%), Elexsys International (22%),
Novellus Systems (13%)
Foster City Technology Center
(2 Properties)................ Nortel Communications System (46%), Storybook Heirlooms (30%), Genomyx
Inc. (20%)
150 River Oaks.................. Seiko-Epson Corporation (100%)
SUBURBAN PORTLAND:
RadiSys......................... RadiSys Corp. (100%)
SUBURBAN SEATTLE:
Redmond East (10 Properties).... Digital Systems International (21%), Incontrol, Inc. (17%), Edmark Corp.
(15%), Genetic Systems (14%), Trigon Packaging (10%)
Willow Creek.................... Dato I/O Corporation (100%)
Canyon Park (6 Properties)...... Cellpro Inc. (27%), Board of Regents of UWA (22%), Federal Express
(13%), ITT Educational Services (11%)
PACIFIC REGION SUBTOTAL..........
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
COMPANY'S TOTAL AVERAGE
EFFECTIVE NET ANNUALIZED BASE RENT
PROPERTY RENTABLE AREA PERCENT BASE RENT(3) PER LEASED
PROPERTY OWNERSHIP (SQUARE FEET)(1) LEASED(2) (IN THOUSANDS) SQUARE FOOT(4)
- --------------------------------- --------- ---------------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CENTRAL REGION
AUSTIN, TEXAS:
Norwood Tower.................. 100.0 111,994 72.7 740 9.09
Littlefield Complex (2
Properties) (6).............. 100.0 120,815 77.0 835 8.98
First State Bank Tower......... 100.0 258,344 69.8 1,875 10.40
Great Hills Plaza.............. 100.0 135,333 100.0 2,073 15.31
Balcones Center................ 100.0 75,761 83.5 970 15.33
Park North (2 Properties)...... 100.0 132,778 95.3 2,033 16.07
The Settings (3 Properties).... 100.0 136,183 95.3 2,166 16.69
SUBURBAN CHICAGO:
Parkway North (2 Properties)... 100.0 508,394 95.1 7,470 15.45
Unisys (2 Properties).......... 100.0 355,331 95.8 5,651 16.60
The Crossings (2 Properties)... 100.0 296,624 100.0 5,033 16.97
Bannockburn I & II (2
Properties).................. 100.0 209,900 98.6 3,209 15.50
Bannockburn IV................. 100.0 108,476 83.7 1,444 15.91
Summit Oaks.................... 100.0 91,601 93.3 1,347 15.76
DALLAS, TEXAS:
Greyhound...................... 100.0 92,890 100.0 845 9.10
Search Plaza................... 100.0 151,048 96.5 2,383 16.34
Quorum North................... 100.0 117,790 81.4 1,484 15.49
Quorum Place................... 100.0 176,562 80.6 1,882 13.23
Cedar Maple (3 Properties)..... 100.0 112,177 92.0 1,798 17.42
Tollhill East & West (2
Properties).................. 100.0 237,894 87.3 2,758 13.28
---------------- --------- -------------- -------
CENTRAL REGION SUBTOTAL.......... 3,429,895 90.4 45,996 14.83
MOUNTAIN REGION
SOUTHEAST DENVER:
Harlequin Plaza (2
Properties).................. 100.0 323,258 91.4 3,941 13.34
Quebec Court I & II (2
Properties).................. 100.0 285,829 100.0 2,877 10.07
The Quorum (2 Properties)...... 100.0 123,895 95.6 1,741 14.71
Greenwood Center............... 100.0 75,866 94.2 1,097 15.34
Quebec Center (3 Properties)... 100.0 106,796 95.6 1,362 13.34
Panorama Corporate Center I.... 100.0 100,619 96.4 1,969 20.31
PHOENIX, ARIZONA:
Camelback Lakes (2
Properties).................. 100.0 200,561 98.2 3,354 17.04
Pointe Corridor IV............. 100.0 178,373 92.9 2,602 15.71
Highland Park.................. 100.0 77,873 100.0 1,211 15.56
SALT LAKE CITY, UTAH:
Sorensen Research Park
(5 Properties)............... 100.0 282,534 100.0 3,255 11.52
Draper Park North (3
Properties).................. 100.0 178,098 100.0 2,020 11.34
---------------- --------- -------------- -------
MOUNTAIN REGION SUBTOTAL......... 1,933,702 96.8 25,429 13.59
---------------- --------- -------------- -------
TOTAL CONSOLIDATED PROPERTIES: 16,299,652 $271,681
---------------- --------------
WEIGHTED AVERAGE: 96.1% $17.34
--------- -------

<PAGE>

<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- --------------------------------- --------------------------------------------------------------------------
<S> <C>
CENTRAL REGION
AUSTIN, TEXAS:
Norwood Tower.................. City of Austin (21%), George, Donaldson & Ford (19%)
Littlefield Complex (2
Properties) (6).............. Businessuites (Greatfields) (19%), Excel Fitness (13%)
First State Bank Tower......... Southern Union Gas Company (12%), First State Bank (10%)
Great Hills Plaza.............. First USA Management, Inc. (48%), Blue Cross (24%), Skjerven, Morrill,
Macpherson (13%), Executive Suites (11%)
Balcones Center................ Medianet (37%), Austin Diagnostic Clinic (15%), Amil International Ins.
(11%)
Park North (2 Properties)...... Samsung Austin Semiconductor (10%)
The Settings (3 Properties).... Holt, Rinehart & Winston (76%), Barter Exchange (13%)
SUBURBAN CHICAGO:
Parkway North (2 Properties)... Fujisawa USA (33%), Kraft Foodservice (21%), Baxter Healthcare Corporation
(13%)
Unisys (2 Properties).......... Unisys (21%), PNC Mortgage (16%), Sears Logistical (14%)
The Crossings (2 Properties)... Allstate Ins. Co. (19%), Abercrombie & Kent (11%)
Bannockburn I & II (2
Properties).................. Deutsche Credit Corp. (36%), IMC Global (36%)
Bannockburn IV................. Odesta Systems (23%), Abbott Laboratories (11%)
Summit Oaks.................... GSA (18%), BMG Music (14%), Master Printer Credit Union (14%), National
Truck Leasing Suite (12%)
DALLAS, TEXAS:
Greyhound...................... Greyhound Lines (100%)
Search Plaza................... Basic Capital Management (30%)
Quorum North................... Digital Matrix Systems (20%), HQ Dallas Quorum North (13%)
Quorum Place................... VHA Southwest, Inc. (22%)
Cedar Maple (3 Properties)..... Fidelity National Bank (13%)
Tollhill East & West (2
Properties).................. Digital Equipment Corporation (22%)
CENTRAL REGION SUBTOTAL..........
MOUNTAIN REGION
SOUTHEAST DENVER:
Harlequin Plaza (2
Properties).................. Bellco First Federal Credit Union (12%)
Quebec Court I & II (2 Intelligent Electronics (45%), Alert Centre (37%), TCI Digital Satellite
Properties).................. (17%)
The Quorum (2 Properties)...... Chatfield Dean (21%), Colorado Mortgage Prof. (16%)
Greenwood Center............... General Motors Corp. (33%), Wakefield & Assoc. (14%)
Quebec Center (3 Properties)... Gordon Gumeeson & Associates (12%), Walberg & Dagner (11%)
Panorama Corporate Center I.... Teleport Communications Group (70%), Sprint Spectrum, LP (11%)
PHOENIX, ARIZONA:
Camelback Lakes (2
Properties).................. Vanguard Group (38%), Humana Health Plan (14%)
Pointe Corridor IV............. Jostens Learning Corp (26%), Aetna Life Insurance Company (22%), Jennifer
Loomis Associates, Inc. (16%)
Highland Park.................. Mastering Computers, Inc. (26%), Ryland Group, Inc. (17%)
SALT LAKE CITY, UTAH:
Sorensen Research Park
(5 Properties)............... Foundation Health Corp (24%), Matrix Marketing, Inc. (22%), Datachem
Laboratories, Inc. (20%), Dayna Communications, Inc. (15%), ITT
Educational Services (12%)
Draper Park North (3 Advanta Financial Corp (28%), Times Mirror Training, Inc. (23%), Fonix
Properties).................. Corp. (14%), Keytex Corp (14%), Novus Credit Services, Inc. (12%)
MOUNTAIN REGION SUBTOTAL.........
TOTAL CONSOLIDATED PROPERTIES:
WEIGHTED AVERAGE:
</TABLE>

<PAGE>

WEIGHTED AVERAGE: 96.3% $18.21
==== ======

<CAPTION>
PROPERTY SIGNIFICANT TENANTS(5)
- --------------------------------- -------------------------------------------------------
<S> <C>
UNCONSOLIDATED PROPERTIES
DOWNTOWN WASHINGTON, D.C.:
AARP Headquarters.............. American Association of Retired Persons (99%)
Bond Building.................. General Services Administration--Dept of Justice (93%)
Willard Office/Hotel........... Vinson & Elkins (27%), Hale & Dorr (17%)
SUBURBAN WASHINGTON, D.C.:
Booz-Allen & Hamilton
Building..................... Booz-Allen & Hamilton (100%)
TOTAL UNCONSOLIDATED PROPERTIES:
WEIGHTED AVERAGE:
ALL OPERATING PROPERTIES
TOTAL:
WEIGHTED AVERAGE:
</TABLE>

- ------------------
<TABLE>
<S> <C>
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that had been executed and commenced as of June 30, 1997.
(3) Total annualized base rent is based on executed and commenced leases as of June 30, 1997. Total annualized base rent equals
total original base rent, including historical contractual increases and excluding (i) percentage rents, (ii) additional rent
payable by tenants such as common area maintenance, real estate taxes and other expense reimbursements, (iii) future
contractual or contingent rent escalations, and (iv) parking rents.
(4) Calculated as total annualized base rent divided by net rentable area leased as of June 30, 1997.
(5) Includes tenants leasing 10% or more of rentable square footage (with the percentage of rentable square footage in
parentheses).
(6) The Company owns the improvements on the property and has a leasehold interest in all or a portion of the underlying land.
(7) The Company holds a general and limited partner interest in a partnership that owns the property.
(8) The Company holds a 50% joint venture interest in the joint venture that owns this property and a 50% joint venture interest
in another joint venture, which holds the remaining 50% interest in the joint venture that owns the property. As a result of
preferential rights to annual distributions from another venture, the Company will receive distributions of less than 75%
(but in no event less than 50%) of the total amount distributed with respect to this property in each year until the
preferential distribution requirements are satisfied, but will receive 100% of any subsequent distributions during the year
until its aggregate distributions equal 75% of the cumulative distributions with respect to the property since inception of
the partnership. Thereafter, the Company will receive 75% of the distributions made during the year with respect to the
property. Upon sale of the property, the Company will receive 75% of the distributions until the Company receives its
preference amount, 50% until the remaining venturer receives its preference amount, and 75% of the distributions thereafter.
(9) The Company holds an effective 24% interest in the property by virtue of a 48% general partner interest in a partnership that
owns a 50% general partner interest in the property.
(10) The Company holds an effective 15% interest in the property by virtue of a 30.6% limited partner interest in a partnership
that has a 49% limited partner interest in the property.
(11) The Company held an effective 5% interest in the property by virtue of a 7.85% limited partner interest in a partnership that
owns a 63.7% limited partner interest in the property. The partnership in which the Company holds an interest owns the
improvements on the property and has a leasehold interest in the underlying land.
(12) The Company holds a 50% joint venture interest, and is the managing partner.
</TABLE>

<PAGE>

TENANT INFORMATION

The following table sets forth the ten largest tenants at the 209
properties that were owned by the Company as of June 30, 1997 and consolidated
for financial statement purposes:

<TABLE>
<CAPTION>
PERCENT
OF TOTAL ANNUALIZED PERCENT OF
ANNUALIZED BASE RENT(1) LEASED SQUARE SQUARE
TENANT NAME BASE RENT (IN THOUSANDS) FOOTAGE(2) FOOTAGE
- ------------------------------------------------ ------------- -------------- ---------------- ---------
<S> <C> <C> <C> <C>
AT&T............................................ 6.8% $ 18,456 6.1% 949,281
International Monetary Fund..................... 5.4 14,752 2.8 432,310
Wilmer, Cutler & Pickering...................... 2.1 5,697 1.3 205,816
Patton Boggs L.L.P.............................. 2.1 5,638 1.0 161,228
Federal Deposit Insurance
Corporation................................... 1.7 4,678 0.7 119,700
General Services
Administration................................ 1.5 4,035 1.1 173,610
Unisys Corporation.............................. 1.4 3,752 1.3 205,267
CACI............................................ 1.2 3,330 1.0 152,798
Software AG of North America.................... 1.2 3,309 1.1 173,419
Fujisawa USA, Inc............................... 1.0 2,763 0.9 135,286
----- -------- ----- ---------
Total.................................... 24.4% $ 66,410 17.3% 2,708,715
==== ======== ==== =========
</TABLE>

- ------------------
(1) Annualized Base Rent is based on executed and commenced leases as of June
30, 1997. Annualized Base Rent equals total original base rent, including
historical contractual increases and excluding (i) percentage rents, (ii)
additional rent payable by tenants such as common area maintenance, real
estate taxes, and other expense reimbursements, (iii) future contractual or
contingent rent escalations, and (iv) parking rents.
(2) Excludes 628,985 square feet of space vacant as of June 30, 1997.

The following table sets forth a schedule of lease expirations for executed
leases as of June 30, 1997, for each of the 10 years beginning with 1997, for
the 209 operating properties consolidated for financial statement purposes,
assuming that no tenants exercise renewal options:

<TABLE>
<CAPTION>
PERCENT OF TOTAL
NET RENTABLE AREA LEASED SQUARE FOOTAGE
YEAR OF SUBJECT TO EXPIRING REPRESENTED BY
LEASE EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES(1)
- ----------------------------------- -------------------- ---------------------
<S> <C> <C>
1997............................... 1,253,294 8.0%
1998............................... 2,271,541(2) 14.5
1999............................... 1,758,585 11.2
2000............................... 2,000,138 12.8
2001............................... 2,003,722 12.8
2002............................... 1,513,840 9.7
2003............................... 1,279,342 8.2
2004............................... 867,868 5.5
2005............................... 540,858 3.4
2006 and thereafter................ 2,181,479 13.9
</TABLE>

- ------------------
(1) Excludes 628,985 square feet of space vacant as of June 30, 1997.
(2) Included in lease year 1998 expirations is 349,358 square feet for AT&T. As
of June 30, 1997, new leases have been executed to move the expiration of
this square footage into lease years 2002 and 2008 for the AT&T space.

DEBT FINANCING

As of June 30, 1997, certain of the 209 operating office properties that
were consolidated for financial statement purposes were subject to existing
mortgage indebtedness in an aggregate principal amount of approximately $568
million (encumbering 77 of such properties), and unsecured indebtedness of
approximately $272 million, which bore a floating interest rate. As of June 30,
1997, the Company's fixed rate debt (comprising an aggregate principal amount of
$482 million) bore an effective

S-19
<PAGE>

weighted average interest rate of 8.3% and had a weighted average maturity of
5.6 years (assuming loans callable before maturity are called as early as
possible). The existing mortgage indebtedness for the consolidated operating
office properties as of June 30, 1997 is set forth in the table below:
<TABLE>
<CAPTION>
ANNUAL
PRINCIPAL DEBT
INTEREST BALANCE SERVICE MATURITY
PROPERTY RATE (IN THOUSANDS) (IN THOUSANDS) DATE
- ------------------------------------------------- -------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
|
|
|
International Square |
1850 K Street |
1825 Eye Street | 8.80% $ 93,500 $ 8,228 2/1/03
1875 Eye Street | 7.75 40,000 3,100 2/1/03
1730 Pennsylvania Avenue |
1255 23rd Street |
|
|
International Square Land 7.55 40,000 3,020 2/1/03
International Square Land 8.00 10,000 800 2/1/03
900 19th Street 8.25 16,826 1,656 7/15/19(2)
1747 Pennsylvania Avenue 9.50 15,487 1,730 7/10/17(3)
2445 M Street 8.90 37,604 4,646 6/1/02
1775 Pennsylvania Avenue 7.50 6,297 586 2/1/99
Redmond East 8.38 27,883 2,648 1/1/06
Warner Center 7.40 26,000 1,924 12/1/00
First State Bank Tower 7.38 9,549 868 3/1/99
Parkway North I 7.96 29,250 2,328 12/1/03
|
|
|
Valley Business Park (formerly |
San Jose Orchard Business Park--A) |
Valley Office Centre (formerly Orchard Office |
Centre) | 8.25 40,610 4,655 12/10/01
Valley Centre II (formerly Orchard Centre II) |
Rincon Centre (formerly Orchard Rincon Centre) |
Bayshore Centre (formerly Orchard |
Bayshore Centre) |
|
|
|
Century Springs West |
Glenridge |
Crestwood | 7.20 21,748 2,126 1/1/06
Lakewood |
Parkwood |
|
South Coast Executive Center 9.01 10,279 1,015 5/31/99
Quorum North 8.27 6,709 640 12/1/01
Quorum Place 6.99 7,781 665 11/15/00
Wateridge Pavilion 8.25 3,553 338 11/1/06
Bannockburn I & II 9.52 20,930 2,801 8/31/01
|
The Crossings |
Rio Robles Technology Center | (8) 86,000 (8) 7/28/97
Unisys Center |
|
RadiSys 5.00 926 46 12/31/97
Sorensen Research Park 7.75 2,803 328 7/1/11
Sorensen Research Park 8.88 1,699 182 5/1/17
Draper Park North 8.15 12,932 1,220 1/2/07
---- ------ ----- - - --
Total $568,366 $ 45,550
======== ========
</TABLE>

<PAGE>

ESTIMATED
BALANCE
DUE AT
MATURITY
PROPERTY (IN THOUSANDS)
- ------------------------------------------------- --------------
International Square
1850 K Street
1825 Eye Street $87,164(1)
1875 Eye Street 36,981(1)
1730 Pennsylvania Avenue
1255 23rd Street
International Square Land 36,781(1)
International Square Land 9,243(1)
900 19th Street (2)
1747 Pennsylvania Avenue (3)
2445 M Street 26,925(4)
1775 Pennsylvania Avenue 6,098(4)
Redmond East 24,022(5)
Warner Center 26,000(4)
First State Bank Tower 9,259(4)
Parkway North I 29,250(6)
Valley Business Park (formerly
San Jose Orchard Business Park--A)
Valley Office Centre (formerly Orchard Office
Centre) 37,873(4)
Valley Centre II (formerly Orchard Centre II)
Rincon Centre (formerly Orchard Rincon Centre)
Bayshore Centre (formerly Orchard
Bayshore Centre)
Century Springs West
Glenridge
Crestwood 15,209(7)
Lakewood
Parkwood
South Coast Executive Center 10,103(4)
Quorum North 6,258(4)
Quorum Place 7,327(4)
Wateridge Pavilion 2,921(4)
Bannockburn I & II 16,835(4)
The Crossings
Rio Robles Technology Center 86,000(9)
Unisys Center
RadiSys 926(4)
Sorensen Research Park 0
Sorensen Research Park 0
Draper Park North 10,569(4)
Total

- ------------------
(1) Prepayable after November 1, 1997 at the rates stated in the loan documents.
(2) Note is callable by the lender after July 1, 2004. The estimated principal
balance at July 1, 2004 will be $14,262,000.
(3) Note is callable by the lender after June 30, 2002. The estimated principal
balance at June 30, 2002 will be $13,840,000.
(4) Currently prepayable at the rates stated in the loan documents.
(5) Prepayable after December 19, 2005 at the rates stated in the loan
documents.
(6) Prepayable after December 1, 1999 at the rates stated in the loan documents.
(7) Prepayable after January 2001 at the rates stated in the loan documents.
(8) Either prime lending rate plus 50 basis points or 162.5 basis points over
LIBOR, based on the Company's option at the time of draw.
(9) Note was repaid in full and cancelled on July 3, 1997.

S-20
<PAGE>

The Company has a revolving line of credit that provides for unsecured
borrowings of up to $325 million. As of July 31, 1997, the Company had drawn
$166 million on the line of credit and $159 million was available for draw.
Borrowings under the line of credit bear interest at a floating rate of 112.5
basis points over LIBOR. The line of credit contains a number of financial and
other covenants with which the Company must comply, including, but not limited
to, covenants relating to ratios of annual EBITDA (earnings before interest,
taxes, depreciation and amortization) to interest expense, annual EBITDA to debt
service, and total debt to tangible fair market value of the Company's assets,
and restrictions on the ability of the Company to make dividend distributions in
excess of 90% of funds from operations. Availability under the line of credit is
also limited to a specified percentage of the Company's unsecured properties.

In June 1997, the Company sold to institutional investors an aggregate
principal amount of $275 million of its long-term debt, in the form of $150
million aggregate principal amount of 7.20% unsecured notes yielding 7.249% due
2004 and $125 million aggregate principal amount of 7.375% unsecured notes
yielding 7.422% due 2007. The notes contain various covenants, including the
following: (i) neither the Company nor any Subsidiary (as defined in the
indenture relating to the notes (the "Indenture")) will incur any Indebtedness
(as defined in the Indenture) if, after giving effect thereto, the aggregate
principal amount of all outstanding Indebtedness of the Company and its
Subsidiaries on a consolidated basis is greater than 60% of Adjusted Total
Assets (as defined in the Indenture); (ii) neither the Company nor any
Subsidiary will incur any Indebtedness secured by any Encumbrance (as defined in
the Indenture) upon the property of the Company or any Subsidiary if,
immediately after giving effect to the incurrence of the additional
Indebtedness, the aggregate amount of all outstanding Indebtedness of the
Company and its Subsidiaries on a consolidated basis which is secured by any
Encumbrance on property of the Company or any Subsidiary is greater than 40% of
Adjusted Total Assets; (iii) neither the Company nor any Subsidiary will incur
any Indebtedness if Consolidated Income Available for Debt Service (as defined
in the Indenture) for the four consecutive fiscal quarters most recently ended
prior to the date of the incurrence of the Indebtedness, on a pro forma basis,
would be less than 1.5 times the Annual Service Charge (as defined in the
Indenture) on all Indebtedness outstanding immediately after the incurrence of
the Indebtedness; and (iv) the Company and its Subsidiaries will not at any time
own Total Unencumbered Assets (as defined in the Indenture) equal to less than
150% of the aggregate outstanding principal amount of the Unsecured Indebtedness
(as defined in the Indenture) of the Company and its Subsidiaries on a
consolidated basis. The notes are unconditionally guaranteed by CarrAmerica
Realty, L.P.

S-21
<PAGE>

As of June 30, 1997, the scheduled maturities of mortgages and notes
payable for years ended December 31 are as follows (in thousands):

1997..................................... $ 89,485(1)
1998..................................... 279,077(2)
1999..................................... 33,423
2000..................................... 41,887
2001..................................... 71,219
2002..................................... 34,481
2003..................................... 202,787
2004..................................... 3,075(3)
2005..................................... 3,335
2006..................................... 44,026
2007..................................... 12,154(4)
2008..................................... 1,729
2009..................................... 1,886
2010..................................... 2,057
Thereafter............................... 19,745
-----------
Total............................... $ 840,366
===========

- ------------------
(1) Includes $86 million related to the Company's $150 million secured credit
facility which was repaid in full and terminated as of July 3, 1997.
(2) Includes $272 million outstanding as of June 30, 1997 under the Company's
$325 million unsecured line of credit.
(3) Excludes $150 million of notes sold by the Company on July 1, 1997 which are
due in 2004.
(4) Excludes $125 million of notes sold by the Company on July 1, 1997 which are
due in 2007.

S-22

<PAGE>

SELECTED FINANCIAL INFORMATION

S-23

<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------------- --------------------------------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
---------- ----------------------- --------- ------------------------------------
1997 1997 1996 1996 1996 1995 1994
---------- ---------- -------- --------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Real estate operating revenue:
Rental revenue................... $ 83,527 $ 66,289 $ 25,350 $297,684 $ 154,165 $ 89,539 $ 82,665
Real estate service revenue...... 4,178 4,178 2,726 12,512 12,512 11,315 8,890
Real estate operating expenses:
Property operating expenses...... 28,311 23,643 8,991 100,918 51,927 31,579 29,707
Interest expense................. 11,215 11,257 6,532 51,766 31,630 21,873 21,366
General and administrative
expenses....................... 5,156 5,156 2,748 15,228 15,228 10,711 9,535
Depreciation and amortization.... 19,063 15,916 5,484 69,680 38,264 18,495 14,419
Net income........................ 22,398 13,259 3,335 66,753 24,318(1) 12,067(1) 12,097
Dividends paid to common
stockholders..................... 21,320 5,914 42,914 23,344 20,204
PER SHARE DATA:
Net income before extraordinary
item............................. $ 0.31 $ 0.26 $ 0.25 $ 0.86 $ 0.90 $ 0.90 $ 1.06
Dividends paid to common
stockholders..................... 0.4375 0.4375 1.75 1.75 1.75
Weighted average shares
outstanding(2)................... 57,169 47,477 13,575 56,931 31,999 13,338 11,387
BALANCE SHEET DATA (AT PERIOD
END):
Real estate, before accumulated
depreciation..................... $2,268,560 $1,763,758 $647,825 $1,539,998 $480,589 $429,537
Total assets...................... 2,261,823 1,757,316 635,358 1,536,564 458,860 407,948
Mortgages payable................. 482,515 465,060 324,957 440,449 317,374 254,933
Other indebtedness................ 363,372 270,000 172,000 215,000 0 0
Total indebtedness................ 845,887 735,060 496,957 655,449 317,374 254,933
Minority interest................. 67,620 54,797 34,876 50,597 34,850 38,644
Total stockholders' equity........ 1,293,215 916,012 93,507 787,478 95,543 106,042
OTHER DATA:
Net cash provided by operating
activities....................... $ 27,667 $ 9,001 $ 82,300 $ 35,277 $ 29,908
Net cash used by investing
activities....................... (180,153) (169,496) (876,947) (81,635) (67,046)
Net cash provided by financing
activities....................... 152,297 171,511 813,067 37,113 32,652
Funds from operations before
minority interest of the
Unitholders of Carr
Partnerships(3).................. $ 42,313 $ 29,701 $ 9,501 $138,896 $ 64,496(1) $ 33,190(1) $ 30,640
Weighted average shares and Units
outstanding(4)................... 64,600 54,472 18,184 64,362 32,263 18,157 15,878
Number of properties (at period
end)............................. 222 184 36 222 159 13 11
Square footage (in thousands, at
period end)...................... 17,446 15,433 6,479 17,446 12,430 3,326 2,706
Percent leased (at period end).... 94.9% 95.1% 93.6% 93.5% 95.9%
EBITDA(5)......................... $ 54,719 $ 42,149 $ 16,741 $193,964 $ 99,428 $ 57,652 $ 53,606
Ratio of EBITDA to interest
expense.......................... 4.88x 3.74x 2.56x 3.75x 3.14x 2.64x 2.51x
Ratio of earnings to combined
fixed charges and preferred stock
dividends........................ 1.65x 1.85x 1.64x(6) 1.44x 1.71x 1.91x(6) 1.81x(6)
</TABLE>

<PAGE>

- ------------------
(1) Net income and funds from operations include non-recurring deductions of
approximately $2.3 million and $1.9 million in 1996 and 1995, respectively,
related to the write-off of the unamortized purchase price of certain third
party real estate service contracts that were terminated in 1996 and the
termination of an agreement to acquire the development business of The Evans
Company in 1995.
(2) Weighted average shares outstanding used in calculating net income (loss)
per share includes Common Stock and, when dilutive, stock equivalents, stock
options and units of partnership interest.
(3) The Company believes that funds from operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to incur
and service debt, to make capital expenditures and to fund other cash needs.
In accordance with the final National Association of Real Estate Investment
Trusts (NAREIT) White Paper on Funds From Operations as approved by the
Board of Governors of NAREIT on March 3, 1995, funds from operations
represents net income (loss) (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring
or sales of property, plus depreciation and amortization of assets uniquely
significant to the real estate industry and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect
funds from operations on the same basis. The Company computes funds from
operations in accordance with standards established by NAREIT, which may not
be comparable to funds from operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. The
Company's funds from operations in 1994 have been restated to conform to the
NAREIT definition of funds from operations. Funds from operations does not
represent net income or cash flow generated from operating activities in
accordance with generally accepted accounting principles and, as such,
should not be considered an alternative to net income as an indication of
the Company's performance or to cash flow as a measure of liquidity or the
Company's ability to make distributions.
(4) Includes shares of Common Stock and convertible preferred stock outstanding
plus units of partnership interest in the CarrAmerica Realty, L.P. and Carr
Realty, L.P. that the holders thereof have a right to have redeemed for cash
equal to the value of a share of Common Stock for each unit redeemed or, at
the option of the Company, for shares of Common Stock on a one-for-one
basis. Such units include non-dividend paying units.
(5) EBITDA is calculated as net operating income before minority interest and
extraordinary items, plus interest expense, depreciation and amortization,
and income taxes, if any.
(6) Prior to October 1996, the Company did not have any preferred stock issued
and outstanding. Therefore, the ratio of earnings to combined fixed charges
and preferred stock dividends for these periods was identical to the ratio
of earnings to fixed charges.

S-24

<PAGE>

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

The following section is qualified in its entirety by reference to, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.

RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 31, 1997 AND 1996

Real Estate Operating Revenue

Total real estate operating revenue increased $42.4 million, or 151.0%, to
$70.5 million for the three months ended March 31, 1997 as compared to $28.1
million for the three months ended March 31, 1996. The increase in revenue was
primarily attributable to a $40.9 million and a $1.5 million increase in rental
revenue and real estate service revenue, respectively. The Company experienced
net growth in its rental revenue as a result of its acquisitions since the first
quarter of 1996 which contributed approximately $41.0 million of additional
rental revenue in the three month period ended March 31, 1997. Rental revenue
from properties that were fully operating throughout both periods decreased by
approximately $.1 million as a result of increased vacancies experienced in
these properties. Real estate service revenue increased by $1.5 million, or
53.3%, for the three months ended March 31, 1997 to $4.2 million as compared to
$2.7 million for the three months ended March 31, 1996, primarily as a result of
development fees earned by CarrAmerica Development & Construction which was
acquired by the Company in May 1996.

Real Estate Operating Expenses

Total real estate operating expenses increased $32.2 million for the three
months ended March 31, 1997, or 135.6%, to $56.0 million as compared to $23.8
million for the three months ended March 31, 1996. The net increase in operating
expenses was attributable to a $14.7 million increase in property operating
expenses, a $4.7 million increase in interest expense, a $2.4 million increase
in general and administrative expenses, and a $10.4 million increase in
depreciation and amortization. The increase in property operating expenses was
primarily attributable to property acquisitions since the first quarter of 1996.
The increase in the Company's interest expense is primarily related to
borrowings for acquisitions. The increase in general and administrative expenses
is predominately a result of the addition of staff to implement the Company's
new business strategy, the addition of approximately $.6 million of general and
administrative expenses associated with CarrAmerica Development & Construction
and inflation. The increase in depreciation and amortization is predominately a
result of additional depreciation and amortization on the Company's real estate
acquisitions.

Other Operating Income (Expense)

Other operating income increased $.1 million for the three months ended
March 31, 1997, to $.5 million as compared to $.4 million for the three months
ended March 31, 1996, primarily due to an increase in interest income.

Net Income

Net income of $13.3 million was earned for the three months ended March 31,
1997 as compared to $3.3 million during the three month period ended March 31,
1996. The comparability of net income between the two periods is impacted by the
acquisitions the Company made and the other changes described above.

Cash Flows

Net cash provided by operating activities increased $18.7 million, or
207.4%, to $27.7 million for the three months ended March 31, 1997 as compared
to $9.0 million for the three months ended March 31, 1996, primarily as a result
of the acquisitions made by the Company. Net cash used by investing

S-25

<PAGE>

activities increased $10.7 million, to $180.2 million for the three months ended
March 31, 1997 as compared to $169.5 million for the three months ended March
31, 1996, primarily as a result of capital deployed by the Company for
acquisitions of office properties, land held for future development and for
construction in process. Net cash provided by financing activities decreased
$19.2 million to $152.3 million provided for in the three months ended March 31,
1997 as compared to $171.5 million provided for in the three months ended March
31, 1996, primarily as a result of an increase in the dividends paid due to the
increase in number of shares outstanding and the repayment in full of a $13.0
million mortgage payable.

LIQUIDITY AND CAPITAL RESOURCES

The Company seeks to create and maintain a capital structure that will
enable it to diversify its capital sources and thereby allow the Company to
obtain additional capital from a number of different sources, including
additional equity offerings of common and/or preferred stock, public and private
debt financings, and, when appropriate, asset sales. The Company anticipates
that adequate cash will be available to fund its operating and administrative
expenses, to continue debt service obligations, to pay dividends in accordance
with REIT requirements, to acquire additional properties and land, and to pay
for construction in progress.

On July 1, 1997, the Company used the proceeds from the sale of its
unsecured notes to repay $181 million outstanding under its unsecured revolving
line of credit and $86 million outstanding under its secured credit facility.
This reduced the Company's debt outstanding to $91 million under its unsecured
line of credit and fully repaid its secured credit facility. The secured credit
facility was subsequently cancelled on July 3, 1997. Since July 1, 1997 and
through July 31, 1997, the Company has drawn $75 million on its unsecured line
of credit. As a result, the remaining availability under the Company's unsecured
line of credit was $159 million as of July 31, 1997. The Company currently
expects to continue to use its unsecured line of credit to finance future
acquisition and development activities.

Net cash provided by operating activities was $27.7 million for the three
months ended March 31, 1997, compared to $9.0 million for the three months ended
March 31, 1996. The increase in net cash provided by operating activities was
primarily as a result of acquisitions made by the Company. The Company's
investing activities used approximately $180.2 million and $169.5 million for
the three months ended March 31, 1997 and 1996, respectively. The Company's
investment activities included the acquisitions of office buildings and land
held for future development and additions to construction in process of
approximately $172.8 million for the three months ended March 31, 1997, as
compared to $168.2 million in acquisitions during the same period in 1996.
Additionally, the Company invested approximately $7.2 million and $1.0 million
in its existing real estate assets for the three months ended March 31, 1997 and
1996, respectively. Before distributions to the Company's shareholders and
minority interests, the Company's financing activities provided net cash of
$176.6 million and $179.2 million for the three months ended March 31, 1997 and
1996, respectively. For the three months ended March 31, 1997, the Company
raised $136.1 million through the sale of common stock which was used to repay
$101.0 million of its unsecured facility and to fund acquisitions. For the three
months ended March 31, 1997, the Company's borrowings were approximately $55.0
million to provide adequate capital for the Company's investing activities.

S-26

<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information with respect to the
directors, executive officers and certain key employees of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ------------------------------------------ --- ------------------------------------------------------------
<S> <C> <C>
Oliver T. Carr, Jr........................ 72 Chairman of the Board
Thomas A. Carr............................ 38 President, Chief Executive Officer and Director
Andrew F. Brimmer......................... 70 Director
A. James Clark............................ 69 Director
Caroline S. McBride....................... 43 Director
J. Marshall Peck.......................... 45 Director
William D. Sanders........................ 55 Director
Wesley S. Williams, Jr.................... 54 Director
Brian K. Fields........................... 37 Chief Financial Officer
Kent C. Gregory........................... 47 Managing Director of National Accounts
Philip L. Hawkins......................... 41 Managing Director of Asset Management
Robert E. Peterson........................ 45 Regional Managing Director, Southeast Region
Robert G. Stuckey......................... 35 Managing Director of Acquisitions and Development
Paul R. Adkins............................ 39 Vice President, Market Officer--Washington, D.C.
Steven N. Bralower........................ 48 Senior Vice President of Carr Realty, L.P.
Robert L. Brumm........................... 46 Vice President, Human Resources and Administration
Robert O. Carr............................ 48 President of Carr Services, Inc.
Clete Casper.............................. 37 Vice President, Market Officer--Suburban Seattle
John J. Donovan, Jr....................... 53 Senior Vice President of Carr Services, Inc.
Karen B. Dorigan.......................... 32 Vice President--Land Due Diligence
J. Thad Ellis............................. 37 Vice President, Market Officer--Suburban Atlanta
Richard W. Greninger...................... 46 Senior Vice President of Carr Services, Inc.
John S. Herr.............................. 41 Vice President, Market Officer--Northern California
Austin W. Lehr............................ 36 Vice President, Market Officer--Southeast Denver
Dwight L. Merriman........................ 36 Vice President, Market Officer--Southern California
B. Thomas Miller, Jr...................... 35 Vice President--Acquisitions and Marketing
Gerald J. O'Malley........................ 53 Vice President, Market Officer--Suburban Chicago
Jeffrey S. Pace........................... 34 Vice President, Market Officer--Austin, Texas
James D. Peterson......................... 50 Vice President, Market Officer--Florida
William H. Vanderstraaten................. 37 Vice President, Market Officer--Suburban Dallas
Debra A. Volpicelli....................... 33 Treasurer and Controller
Joseph D. Wallace......................... 33 Vice President--Building Due Diligence
James S. Williams......................... 40 Senior Vice President of CarrAmerica Development &
Construction
</TABLE>

The following are biographical summaries of the directors, executive
officers and certain key employees of the Company:

DIRECTORS OF THE COMPANY

Oliver T. Carr, Jr., 72, has been the Chairman of the Board of
Directors of the Company since it commenced operations in February 1993 and
from February 1993 to May 1997 was the Company's Chief Executive Officer.
Mr. Carr founded OCCO in 1962 and since that time has been its Chairman of
the Board and a director. In addition, Mr. Carr has served as President of
OCCO since February 1993. Mr. Carr is also on the Board of Directors of
Carr Park, Inc., a subsidiary of OCCO. He was Chairman of the Board of
Trustees of The George Washington University until May

S-27
<PAGE>

1995. Mr. Carr is the father of Thomas A. Carr and Robert O. Carr. Mr. Carr
is a member of the Investment Committee and the Executive Committee of the
Board of Directors.

Thomas A. Carr, 38, has been President and a director of the Company
since February 1993. Mr. Carr was appointed Chief Executive Officer of the
Company in May 1997. Mr. Carr served as Chief Operating Officer of the
Company from May 1995 to May 1997 and as Chief Financial Officer of the
Company from February 1993 to May 1995. Mr. Carr was President of Carr
Partners, Inc., a financial services affiliate of OCCO, from 1991 until
February 1993, when Carr Partners, Inc. ceased operations. Prior to
becoming President of Carr Partners, Inc., Mr. Carr was Vice President of
Suburban Development and Regional Development Partner for Montgomery County
for OCCO, beginning in 1985. Mr. Carr is a director of OCCO. Mr. Carr holds
a Masters degree in Business Administration from Harvard Business School,
and a Bachelor of Arts degree from Brown University. Mr. Carr is a member
of the Board of Governors of the National Association of Real Estate
Investment Trusts and a director of Lafayette Square Partners, Inc. Mr.
Carr is the son of Oliver T. Carr, Jr. and the brother of Robert O. Carr.
Mr. Carr is a member of the Investment Committee and the Executive
Committee of the Board of Directors. In addition, Mr. Carr is a member of
management's Operating Committee and Investment Committee.

Andrew F. Brimmer, 70, has been a director of the Company since
February 1993. He has been the President of Brimmer & Company, Inc., an
economic and financial consulting firm, since 1976. Since 1995, Dr. Brimmer
has served as the chairman of the District of Columbia Financial Control
Board. Dr. Brimmer was a member of the Board of Governors of the Federal
Reserve System from 1966 through 1974. He is also the Wilmer D. Barrett
Professor of Economics at the University of Massachusetts-Amherst. Dr.
Brimmer serves as a director of BankAmerica Corporation and Bank of
America, BlackRock Investment Income Trust, Inc. (and other funds), PHH
Corporation, E.l. du Pont de Nemours & Company, Navistar International
Corporation, Gannett Company, Borg-Warner Automotive, Inc. and Airborne
Express. Dr. Brimmer received a Bachelor of Arts and a Masters degree in
Economics from University of Washington and holds a Ph.D. in Economics from
Harvard University. Dr. Brimmer is a member of the Audit Committee of the
Board of Directors.

A. James Clark, 69, has been a director of the Company since February
1993. He has been Chairman of the Board and President of Clark Enterprises,
Inc., a Bethesda, Maryland-based company involved in real estate,
communications, and commercial and residential construction, since 1972.
Mr. Clark is a member of the University of Maryland Foundation, and serves
on the Board of Trustees of The Johns Hopkins University. He is also a
member of the PGA Tour Investments Policy Board and a director of Lockheed
Martin Corporation and Potomac Electric Power Company. Mr. Clark is a
graduate of The University of Maryland. Mr. Clark is a member of the
Investment Committee, the Executive Compensation Committee, the Executive
Committee and the Nominating Committee of the Board of Directors.

Caroline S. McBride, 43, has been a director of the Company since July
1996. Mrs. McBride is a Managing Director of Security Capital Investment
Research Incorporated. From January 1993 to June 1996, Mrs. McBride was the
director of private market investments for the IBM Retirement Fund and from
January 1992 to January 1995, she was the director of real estate
investments for such fund. Prior to joining the IBM Retirement Fund in
1992, Mrs. McBride was director of finance, investments and asset
management for IBM's corporate real estate division. Mrs. McBride is on the
Boards of Directors of the Pension Real Estate Association (PREA) and the
Real Estate Research Institute. Mrs. McBride received her Masters in
Business Administration from New York University and a Bachelor of Arts
degree from Middlebury College. Mrs. McBride is a member of the Investment
Committee and the Audit Committee of the Board of Directors.

J. Marshall Peck, 44, has been a director of the Company since June
1996. Mr. Peck is a Managing Director of Security Capital Investment
Research Incorporated, where he is responsible for the operations and
oversight of strategic investments. Prior to joining Security Capital
Investment Research Incorporated in May 1996, Mr. Peck was a Managing
Director of LaSalle

S-28
<PAGE>

Partners Limited since January 1989, where he served in various capacities
over his 14-year tenure, with responsibility for operating groups within
both the investment and service businesses and was a member of its
management committee. Prior thereto, Mr. Peck held various marketing and
management positions in the Data Processing Division of IBM. Mr. Peck is
past Chairman of the Pension Real Estate Association and serves on the
National Real Estate Advisory Board of the Nature Conservancy. Mr. Peck is
on the Boards of Directors of Regency Realty Corporation and Storage USA,
Inc. Mr. Peck received his B.A. degree from University of North Carolina at
Chapel Hill. Mr. Peck is a member of the Executive Compensation Committee
and the Executive Committee of the Board of Directors.

William D. Sanders, 55, has been a director of the Company since May
1996. Mr. Sanders is the Founder and Chairman of Security Capital Group, an
affiliate of SC-USREALTY. Mr. Sanders retired on January 1, 1990, as chief
executive officer of LaSalle Partners Limited, which he founded in 1968.
Mr. Sanders is on the Boards of Directors of R. R. Donnelley & Sons
Company, SC-USREALTY, Storage USA, Inc. and Regency Realty Corporation. Mr.
Sanders is a former trustee and member of the executive committee of the
University of Chicago and a former trustee fellow of Cornell University.
Mr. Sanders received his Bachelor of Science from Cornell University. Mr.
Sanders is a member of the Nominating Committee of the Board of Directors.

Wesley S. Williams, Jr., 54, has been a director of the Company since
February 1993. Mr. Williams has been a partner of the law firm of Covington
& Burling since 1975. He was adjunct professor of real estate finance law
at the Georgetown University Law Center from 1971 to 1973 and is a
contributing author to several texts on banking law and on real estate
finance and investment. Mr. Williams is also on the Editorial Advisory
Board of the District of Columbia Real Estate Reporter. Mr. Williams serves
on the Boards of Directors of Blackstar Communications, Inc. and its
Florida, Michigan and Oregon subsidiaries; Blackstar LLC and its Nebraska
and South Dakota subsidiaries; and the Federal Reserve Bank of Richmond.
Mr. Williams is Chairman of the Boards of Directors of Broadcast Capital,
Inc. and Broadcast Capital Fund, Inc. and is Vice Chairman of The Lockhart
Companies, Incorporated. Mr. Williams also is a member of the Executive
Committee of the Board of Trustees of Penn Mutual Life Insurance Company.
Mr. Williams received a B.A. and J.D. from Harvard University, an M.A. from
the Fletcher School of Law and Diplomacy and an L.L.M. from Columbia
University. Mr. Williams is a member of the Executive Compensation
Committee of the Board of Directors.

EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES OF THE COMPANY

Brian K. Fields, 37, has been the Company's Chief Financial Officer
since May 1995. Prior to that time, Mr. Fields served as the Company's Vice
President, Treasurer and Controller since February 1993. Mr. Fields served
as Treasurer and Controller of OCCO from 1990 to February 1993. Prior to
that time, Mr. Fields was a Senior Manager with KPMG Peat Marwick LLP in
Washington, D.C. Mr. Fields was employed by KPMG Peat Marwick LLP for eight
years. Since 1993, Mr. Fields has also been a director and Treasurer of
Carr Services, Inc. and since 1996 he has served as a director and officer
of several other subsidiaries of the Company. He holds a Bachelor of
Science degree in Accounting from Virginia Tech and is a Certified Public
Accountant. Mr. Fields is a member of management's Operating Committee and
Investment Committee.

Kent C. Gregory, 47, has been the Company's Managing Director of
National Accounts since July 1997. Prior to that time, Mr. Gregory was
employed by Opus since 1992, serving as Senior Vice President of National
Accounts. Prior to that, Mr. Gregory was the Vice President for Trammell
Crow Corporate Services. He holds a Masters in Business Administration from
Pace University and a Bachelor of Arts degree in Business Administration
from St. Thomas University.

Philip L. Hawkins, 41, has been the Company's Managing Director of
Asset Management since February 1996. Prior to that time, Mr. Hawkins was
employed by LaSalle Partners Limited since 1982. Mr. Hawkins served as the
Executive Vice President, Eastern Division, Asset Management Group since
1995; the Senior Vice President, Northeast Region, Asset Management Group
from

S-29

<PAGE>

1990 to 1994 and in other asset management positions prior to that time.
Mr. Hawkins was also a director of LaSalle Partners. He holds a Masters in
Business Administration from the University of Chicago Graduate School of
Business and a Bachelor of Arts degree from Hamilton College. Mr. Hawkins
is a member of management's Operating Committee and Investment Committee.

Robert E. Peterson, 45, has been the Company's Regional Managing
Director, Southeast Region, since November 1996. Mr. Peterson has over 23
years of real estate experience. Mr. Peterson's most recent experience
includes 18 years as President of Peterson Properties, which he co-founded
in 1978. Prior to forming Peterson Properties, Mr. Peterson was Vice
President of Arthur Rubloff & Company, where he spent five years
specializing in office and industrial leasing and investment property
brokerage. Mr. Peterson is a former member of the Society of Industrial and
Office Realtors and serves on the Developer Advisory council for the
Georgia Chapter of the National Association of Industrial and Office Parks.
He graduated from University of North Carolina at Chapel Hill, with a B.S.
in Business Administration. Mr. Peterson is a member of management's
Operating Committee and Investment Committee.

Robert G. Stuckey, 35, has been the Company's Managing Director of
Acquisitions and Development since February 1996. Prior to that time, Mr.
Stuckey was employed by Security Capital Industrial Trust, an affiliate of
Security Capital Group, since January 1993, as a Senior Vice President
managing the operations of the development group since November 1994, and
as a Vice President supervising acquisition due diligence from May 1993 to
November 1994. Prior to that time, Mr. Stuckey had seven years of
experience with Trammell Crow Company. His most recent position there was
as Chief Financial Officer for Trammel Crow Company NE, Inc. Mr. Stuckey
holds a Masters in Business Administration from Harvard Business School and
a Bachelor of Science in Finance from University of Nebraska. Mr. Stuckey
is a member of management's Operating Committee and Investment Committee.

Paul R. Adkins, 39, has been the Company's Vice President, Market
Officer for Washington, D.C. since August 1996. Mr. Adkins has been with
the Company for over 14 years, including serving as Vice President of
Acquisitions from May 1994 to August 1996. Mr. Adkins was instrumental in
the Company's initial efforts to acquire suburban office properties in its
suburban Atlanta and Austin, Texas target markets. Prior to that, Mr.
Adkins served in a variety of other capacities with the Company, with over
12 years in commercial real estate leasing. Mr. Adkins was named "Top
Producer" for the Washington metropolitan area in 1990 and 1991 by the
Washington, D.C. Association of Realtors. Mr. Adkins is a member of the
District of Columbia's Building Industry Association and Northern
Virginia's National Association of Industrial and Office Parks. Mr. Adkins
holds a Bachelor of Arts degree from Bucknell University.

Steven N. Bralower, 46, has been Senior Vice President of Carr Realty,
L.P., a subsidiary of the Company, since May 1996 and prior thereto was
Senior Vice President of Carr Services, Inc. from 1993 to May 1996. Mr.
Bralower was Senior Vice President of OCCO from 1985 to February 1993 and
was responsible for overseeing and directing one-half of OCCO's leasing
activities in its portfolio of commercial office and retail space. Mr.
Bralower first joined OCCO in 1978 as a commercial leasing agent. Mr.
Bralower has been a member of the Georgetown University Law Center faculty.
Mr. Bralower holds a Bachelor of Arts degree from Kenyon College.

Robert L. Brumm, 46, has been Vice President, Human Resources and
Administration of the Company, since May 1996. From 1993 to 1996, Mr. Brumm
held the same position with Carr Services, Inc. and from March 1990 to 1993
held the same position with OCCO. He is responsible for managing the Human
Resources, Risk Management, Training, and Office Management functions. He
has over 20 years of experience including 8 years with Mark Controls
Corporation and 5 years with the real estate division of Philip Morris,
Inc. Mr. Brumm received his Bachelors degree from California State
University at Long Beach.

Robert O. Carr, 48, has been President and Chairman of the Board of
Directors of Carr Services, Inc. a subsidiary of the Company, since
February 1993. From February 1993 to May

S-30

<PAGE>

1997, Mr. Carr was a director of the Company. Mr. Carr is a director of
OCCO and, from 1987 until February 1993, served as its President and Chief
Executive Officer. Mr. Carr joined OCCO in 1973 and has served in a number
of positions which have included the supervision of all development
operations since 1979 and all day-to-day company operations since 1982 as
Executive Vice President. Mr. Carr is a member of the Boards of Directors
for the Greater Washington Research Center, the Corcoran School of Art, and
the National Cathedral School for Girls. Mr. Carr is also a member of the
Greater Washington Board of Trade, the Urban Land Institute, and the D.C.
Chamber of Commerce. Mr. Carr holds a Bachelor of Arts degree from Trinity
College. Mr. Carr is the son of Oliver T. Carr, Jr. and the brother of
Thomas A. Carr.

Clete Casper, 37, has been the Company's Vice President, Market
Officer for suburban Seattle since July 1996. Mr. Casper has over 10 years
experience in the real estate and marketing field. Mr. Casper's most recent
experience includes 1 year as a Senior Associate with CB Commercial Real
Estate Group Inc., Seattle, Washington. Prior to that, Mr. Casper was with
Sabey Corporation in Seattle, Washington serving in the following
capacities: 4 years as Development Manager and 5 years as a Marketing
Associate. Mr. Casper is a graduate of Washington State University.

John J. Donovan, Jr., 53, has been Senior Vice President of Carr
Services, Inc. since February 1993. Prior to that, Mr. Donovan was Senior
Vice President of OCCO from 1988 to February 1993 and was responsible for
overseeing and directing one-half of OCCO's leasing activities in its
portfolio of commercial office and retail space. Mr. Donovan joined OCCO as
a commercial leasing agent in 1976. He is a member of the Advisory Board
for Jubilee Enterprise of Greater Washington (an affiliate of Jubilee
Housing and The Enterprise Foundation). Mr. Donovan holds a Bachelor of
Arts degree from Georgetown University.

Karen B. Dorigan, 32, has been the Company's Vice President--Land Due
Diligence since January 1996 and is responsible for supervising land and
development due diligence. Prior to that time and for more than 9 years,
Mrs. Dorigan served in a variety of capacities in OCCO's development
business, including from February 1993 to January 1996 serving as a Vice
President. She is a past member of Northern Virginia's Building Industry
Association's Arlington Chapter Council. Mrs. Dorigan holds a Bachelor of
Science degree in Economics from the University of Pennsylvania, Wharton
School.

J. Thad Ellis, 37, has been the Company's Vice President, Market
Officer for suburban Atlanta since November 1996. Mr. Ellis has over 12
years experience in the real estate field. Mr. Ellis' most recent
experience includes 10 years with Peterson Properties where his primary
responsibility was to oversee and coordinate the leasing and property
management for the management services portfolio. Prior to that, Mr. Ellis
spent two years with another Atlanta development company. Mr. Ellis is a
graduate of Washington & Lee University and is involved with the National
Association of Industrial and Office Parks and Atlanta's Chamber of
Commerce and is also on the Advisory Board of Black's Guide.

Richard W. Greninger, 46, has been Senior Vice President of Carr
Services, Inc. since March 1995. Prior to that time he had been Vice
President of Carr Services, Inc. since February 1993. Mr. Greninger was
with OCCO as Vice President of Property Management Services from January
1992 to February 1993. Prior to that time, Mr. Greninger was with CB
Commercial Real Estate Group Inc., a commercial real estate firm, where he
was Senior Vice President and Regional Manager of the Mid-Atlantic Property
Management Division responsible for the management of 7.5 million square
feet of commercial space. During 1994, Mr. Greninger served as President of
the Greater Washington Apartment and Office Building Association. Mr.
Greninger has served as a director of both the Institute of Real Estate
Management and the Building Owners and Managers Association. Mr. Greninger
holds a Masters in Business Administration from the University of
Cincinnati and a Bachelor of Science degree from Ohio State University.

John S. Herr, 41, has been the Company's Vice President, Market
Officer for Northern California since September 1996. Mr. Herr has over 12
years experience in the real estate and marketing field. Mr. Herr's most
recent experience includes 2 years as the President and Chief

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Executive Officer of Simeon Commercial Properties in San Francisco,
California. Prior to that, Mr. Herr spent 8 years with Trammel Crow serving
in the following capacities: 2 years as Principal and Executive Vice
President in San Francisco; 3 years as Partner in Richmond, Virginia; and 4
years as Marketing Representative in Washington, D.C. Mr. Herr holds a
Masters in Business Administration from Stanford University and a Bachelors
degree from the U.S. Naval Academy.

Austin W. Lehr, 36, has been the Company's Vice President, Market
Officer for Southeast Denver since July 1996. Mr. Lehr has over 10 years
experience in the real estate and marketing field. Mr. Lehr's most recent
experience includes 4 years as a Vice President with Southwest Value
Partners and Affiliates in Phoenix, Arizona. Prior to that, Mr. Lehr spent
4 years with Draper and Kramer, incorporated in Washington, D.C. as the
Director of Development and Marketing, and 2 years as a Vice President at
Guaranty Federal Savings and Loan in Dallas, Texas. Mr. Lehr holds a
Masters of Management degree from Northwestern University and a Bachelor of
Arts degree from Williams College.

Dwight L. Merriman, 36, has been the Company's Vice President, Market
Officer for Southern California since August 1996. Mr. Merriman has over 12
years experience in the real estate and marketing field. Mr. Merriman's
most recent experience includes 1 year as Vice President with Security
Capital Industrial Trust in Irvine, California. Prior to that, Mr. Merriman
spent 11 years with Overton, Moore in Los Angeles in the following
capacities: 5 years as the Director of Marketing--Asset Management
(Partner), 4 years as Director of Marketing--Development (Partner) and 2
years as a Marketing Associate. Mr. Merriman holds a Masters in Business
Administration from University of California at Los Angeles and a Bachelors
degree from University of Southern California.

B. Thomas Miller, Jr., 35, has been the Company's Vice
President-Acquisitions and Marketing since September 1996. Mr. Miller has
over 10 years of experience in the real estate and marketing field. Mr.
Miller's most recent experience includes 3 years as Vice President of
Security Capital Investment Research Incorporated. Prior to that time, Mr.
Miller spent 3 years as a Senior Manager with Arthur Andersen S.C. Real
Estate Services Group and 2 years as an Associate in Management Advisory
Services at Kenneth Leventhal & Company. Mr. Miller holds a Bachelor of
Arts degree in Finance from University of Texas at Austin.

Gerald J. O'Malley, 53, has been the Company's Vice President, Market
Officer for suburban Chicago since July 1996. Mr. O'Malley has over 29
years experience in the real estate and marketing field. Mr. O'Malley's
most recent experience includes 10 years as founder and President of G. J.
O'Malley & Company, a real estate office leasing company. Prior to that,
Mr. O'Malley spent 6 years as a leasing agent for LaSalle Partners in
Chicago, Illinois, 4 years as a leasing and sales agent for the firm of
Bennett and Kahnweiler, in Chicago, Illinois, and 8 years with Whiston
Group as a property and leasing manager. Mr. O'Malley holds a Bachelors
degree from Loyola University.

Jeffrey S. Pace, 34, has been the Company's Vice President, Market
Officer for Austin, Texas since May 1997. Mr. Pace has over 12 years'
experience in the real estate and marketing field. Mr. Pace's most recent
experience was with Trammell Crow Company as Marketing Director. Prior to
that, Mr. Pace held the position of Marketing Representative in the Dallas
and Austin markets for Carlisle Property Company, Stockton, Luedmann,
French & West and Trammell Crow Company. Mr. Pace holds a Masters of
Business Administration from the University of Texas at Arlington and a
Bachelor of Science from the University of Texas at Austin.

James D. Peterson, 50, has been the Company's Vice President, Market
Officer for Florida since November 1996. Mr. Peterson has over 25 years
experience in the real estate field. Mr. Peterson's most recent experience
includes 3 years (from 1993 to October 1996) as Vice President of Peterson
Properties with responsibility for property operations in South Florida.
From 1978 to 1981, Mr. Peterson was President of Peterson Properties, which
he co-founded. Mr. Peterson also spent 4 years with the Investment Life
Insurance Company of America as Chairman and Chief Executive Officer, 7
years as Chairman of Cavanaugh Development

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Company, a general contractor and developer of office and industrial parks
in San Diego, California, which he co-founded, and 7 years with Wachovia
Bank and Trust Company. Mr. Peterson is involved with the National
Association of Industrial and Office Parks and is a member of Boca Raton's
Chamber of Commerce. Mr. Peterson holds a Masters in Business
Administration from University of Texas--Austin and a Bachelor of Science
degree in Economics from University of North Carolina at Chapel Hill.

William H. Vanderstraaten, 37, has been the Company's Vice President,
Market Officer for suburban Dallas since April 1997. Mr. Vanderstratten has
over 15 years of experience in the real estate development and leasing
fields. Mr. Vanderstraaten's most recent experience includes 8 years as
Vice President--New Development for Harwood Pacific Corporation in Dallas,
Texas where his primary responsibilities were directing large scale
development projects and coordinating leasing efforts for portfolios. Prior
to that, Mr. Vanderstraaten spent 6 years as a Leasing Agent/Broker for
S.P.G. International, Texas Inc., the predecessor to Harwood Pacific
Corporation, and 1 year as a Leasing Agent for Richard P. Howe Company. Mr.
Vanderstraaten holds a B.B.A. degree from Southern Methodist University.

Debra A. Volpicelli, 33, has been the Company's Treasurer and
Controller since May 1995. Prior to that time, Mrs. Volpicelli was the
Company's Tax Manager since February 1993. Mrs. Volpicelli was Tax Manager
for OCCO from 1990 to February 1993. Prior to that time, Mrs. Volpicelli
was in the tax department of Arthur Andersen & Co., SC. Mrs. Volpicelli
holds a Bachelor of Science degree in Business Administration from
Georgetown University and is a Certified Public Accountant.

Joseph D. Wallace, 33, has been the Company's Vice President--Building
Due Diligence since January 1996 and is responsible for supervising
building acquisition due diligence. Prior to that time, Mr. Wallace was the
Company's Vice President of Asset Management since February 1993. Mr.
Wallace was Vice President of Carr Partners, Inc. from 1990 to February
1993. Prior to that, Mr. Wallace was co-Director of Asset Management for
OCCO responsible for the investment oversight of OCCO's portfolio of
commercial properties in the Washington, D.C. metropolitan area. Mr.
Wallace holds a Bachelor of Science degree in Commerce from University of
Virginia.

James S. Williams, 40, has been a Senior Vice President of CarrAmerica
Development & Construction with responsibility for oversight of all project
management, design and construction operations since October 1996. Mr.
Williams rejoined the Company after 2 years as Vice President of Operations
of Obadwick International. Mr. Williams' initial tenure with the Company
was from 1983 to 1994, during which time he served in a variety of
capacities in OCCO's development business. Prior to that, Mr. Williams was
employed by Holland & Lyons where he worked in project management of
commercial and residential real estate development. Mr. Williams is a guest
lecturer at George Washington University. Mr. Williams holds a Bachelor of
Science degree in Business Administration from West Virginia University.

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DESCRIPTION OF SERIES B PREFERRED SHARES

The following summary sets forth the material terms and provisions of the
Series B Preferred Shares, and is qualified in its entirety by reference to the
provisions of the Articles Supplementary relating to the Series B Preferred
Shares (the "Articles Supplementary") and the Company's Charter, which are
incorporated by reference herein. The following description of the particular
terms of the Series B Preferred Shares supplements, and to the extent
inconsistent therewith, replaces, the description of the general terms of the
Preferred Stock set forth in the accompanying Prospectus, to which description
reference is hereby made.

GENERAL

Subject to limitations prescribed by Maryland law and the Company's
Charter, the Board of Directors is authorized to issue, from the authorized but
unissued capital stock of the Company, Preferred Stock in such classes or series
as the Board of Directors may determine and to establish from time to time the
number of shares of preferred stock to be included in any such series and to fix
the designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the shares of each such series. The Company
currently has outstanding approximately 1,700,000 shares of Series A Preferred
Shares, par value $.01 per share (the "Series A Preferred Shares"). The Board of
Directors has authorized the Company to designate and issue the Series B
Preferred Shares. The Series A Preferred Shares and the Series B Preferred
Shares will rank on a parity as to dividends and amounts upon liquidation.

When issued, the Series B Preferred Shares will be validly issued, fully
paid and nonassessable. The holders of the Series B Preferred Shares will have
no preemptive rights with respect to any shares of the capital stock of the
Company or any other securities of the Company convertible into or carrying
rights or options to purchase any such shares. The Series B Preferred Shares
will not be subject to any sinking fund or other obligation of the Company to
redeem or retire the Series B Preferred Shares.

The transfer agent, registrar and dividend disbursing agent for the Series
B Preferred Shares will be BankBoston, N.A.

RANKING

With respect to payment of dividends and amounts upon liquidation,
dissolution or winding up, the Series B Preferred Shares will rank equally with
the Company's outstanding Series A Preferred Shares and senior to the Common
Stock.

While any Series B Preferred Shares are outstanding, the Company may not
authorize, create or increase the authorized amount of any class of security
that ranks senior to the Series B Preferred Shares with respect to the payment
of dividends or amounts payable upon liquidation, dissolution or winding up, or
any class of security convertible into shares of such a class, without the
consent of the holders of two-thirds of the outstanding Series B Preferred
Shares and Parity Shares (as defined below), voting as a single class. However,
the Company may create additional classes of other stock, increase the
authorized number of preferred shares or issue series of preferred shares
ranking on a parity with the Series B Preferred Shares with respect, in each
case, to the payment of dividends and amounts upon liquidation, dissolution and
winding up (a "Parity Share") without the consent of any holder of Series B
Preferred Shares. See "--Voting Rights" below.

DIVIDENDS

Holders of the Series B Preferred Shares will be entitled to receive, when
and as declared by the Board of Directors, out of funds legally available for
the payment of dividends, cumulative preferential cash dividends at the rate of
8.57% of the liquidation preference per annum (equivalent to $2.1425 per share
per annum). Such dividends will be cumulative from the date of original issue
and payable quarterly in arrears on the last calendar day (or, if such day is
not a business day, the next business day) of each February, May, August and
November (each, a "Dividend Payment Date"). The first

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dividend, which will be paid on or about August 31, 1997, will be for less than
a full quarter. Such first dividend and any dividends payable on the Series B
Preferred Shares for any partial dividend period will be computed on the basis
of the actual number of days in such period. Dividends will be payable to
holders of record as they appear in the records of the Company at the close of
business on the applicable record date, which will be the date designated as
such by the Board of Directors of the Company that is not more than 50 nor less
than 10 days prior to such Dividend Payment Date (each, a "Dividend Record
Date"). Accrued and unpaid dividends for any past dividend periods may be
declared and paid at any time and for such interim periods to holders of record
on the applicable Dividend Record Date. Any dividend payment made on the Series
B Preferred Shares will first be credited against the earliest accrued but
unpaid dividend due with respect to the Series B Preferred Shares that remains
payable.

Dividends on Series B Preferred Shares will accrue whether or not the
Company has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared. No
interest, or sum of money in lieu of interest, will be payable in respect of any
dividend payment or payments on the Series B Preferred Shares that may be in
arrears. Holders of Series B Preferred Shares will not be entitled to any
dividends, whether payable in cash, property or shares of stock, in excess of
the full cumulative dividends, as described herein, on the Series B Preferred
Shares.

If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Internal Revenue Code of 1986, as
amended, or any successor revenue code or section (the "Code")) any portion (the
"Capital Gains Amount") of the dividends (within the meaning of the Code) paid
or made available for the year to holders of all classes of capital stock (the
"Total Dividends"), then the portion of the Capital Gains Amount that will be
allocable to holders of Series B Preferred Shares will be in the same portion
that the Total Dividends paid or made available to the holders of Series B
Preferred Shares for the year bears to the Total Dividends.

Except as provided in the next sentence, no dividends will be declared or
paid on any Parity Shares unless full cumulative dividends have been declared
and paid or are contemporaneously declared and funds sufficient for the payment
thereof set aside for such payment on the Series B Preferred Shares for all
prior dividend periods. If accrued dividends on the Series B Preferred Shares
for all prior dividend periods have not been paid in full, then any dividend
declared on the Series B Preferred Shares and on any Parity Shares for any
dividend period will be declared ratably in proportion to accrued and unpaid
dividends on the Series B Preferred Shares and such Parity Shares.

The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Shares (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Shares through a sinking fund or otherwise (other than a redemption or
purchase or other acquisition of Common Stock made for purposes of any employee
incentive or benefit plan of the Company or any subsidiary), unless (A) all
cumulative dividends with respect to the Series B Preferred Shares and any
Parity Shares at the time such dividends are payable have been paid or declared
and funds have been set apart for payment of such dividends and (B) sufficient
funds have been paid or declared and set apart for the payment of the dividend
for the current dividend period with respect to the Series B Preferred Shares
and any Parity Shares.

As used herein, (i) the term "dividend" does not include dividends or other
distributions payable solely in Fully Junior Shares, or in options, warrants or
rights to subscribe for or purchase any Fully Junior Shares, (ii) the term
"Junior Shares" means the Common Stock and any other class or series of shares
of capital stock of the Company now or hereafter issued and outstanding that
ranks junior to the Series B Preferred Shares as to the payment of dividends or
in the distribution of assets or amounts upon liquidation, dissolution and
winding up and (iii) the term "Fully Junior Shares" means Junior Shares that
rank junior to the Series B Preferred Shares both as to the payment of dividends
and distribution of assets upon liquidation, dissolution and winding up.

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LIQUIDATION RIGHTS

Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of Series B Preferred Shares will be entitled to
receive out of assets of the Company legally available for distribution to
stockholders a liquidation preference of $25.00 per Series B Preferred Share,
plus an amount per Series B Preferred Share equal to all dividends (whether or
not earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders, and no more.

Until the holders of Series B Preferred Shares and Parity Shares have been
paid their liquidation preference in full, no payment will be made to any holder
of Junior Shares upon the liquidation, dissolution or winding up of the Company.
If upon any liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributable among the holders of the Series
B Preferred Shares are insufficient to pay in full the amount payable upon
liquidation with respect to the Series B Preferred Shares and any other Parity
Shares, then such assets, or the proceeds thereof, will be distributed among the
holders of Series B Preferred Shares and any such Parity Shares ratably in
accordance with the respective amounts which would be payable on such Series B
Preferred Shares and any such Parity Shares if all amounts payable thereon were
paid in full. Neither a consolidation or merger of the Company with another
entity, a statutory share exchange by the Company nor a sale, lease or transfer
of all or substantially all of the Company's assets will be considered a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Company.

REDEMPTION

The Series B Preferred Shares are not redeemable by the Company prior to
August 12, 2002. On and after August 12, 2002, the Company, at its option, upon
not less than 30 or more than 90 days' written notice, may redeem the Series B
Preferred Shares, in whole or in part, at any time or from time to time, for
cash at a redemption price of $25.00 per share, plus accumulated, accrued and
unpaid dividends thereon to the date fixed for redemption, without interest. The
redemption price of the Series B Preferred Shares (other than the portion
thereof consisting of accrued and unpaid dividends) is payable solely out of
proceeds from the sale of other capital stock of the Company, which may include
Common Stock, preferred stock, depositary shares, interests, participations or
other ownership interests in the Company however designated (other than debt
securities converted into or exchangeable for capital stock), and any rights,
warrants or options to purchase any thereof. If fewer than all of the
outstanding Series B Preferred Shares are to be redeemed, the number of shares
to be redeemed will be determined by the Company and such shares may be redeemed
pro rata from the holders of record of such shares in proportion to the number
of such shares held by such holders (with adjustments to avoid redemption of
fractional shares), by lot or by any other method determined by the Company in
its sole discretion to be equitable.

Unless full cumulative dividends on all Series B Preferred Shares and any
Parity Shares have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no Series B Preferred
Shares or Parity Shares may be redeemed or purchased by the Company except
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Series B Preferred Shares or Parity Shares, as the case may be.

Notice of redemption will be mailed at least 30 days but not more than 90
days before the redemption date to each holder of record of Series B Preferred
Shares at the address shown on the stock transfer books of the Company. Each
notice shall state: (i) the redemption date; (ii) the number of Series B
Preferred Shares to be redeemed; (iii) the redemption price per share; (iv) the
place or places where certificates for Series B Preferred Shares are to be
surrendered for payment of the redemption price; and (v) that dividends on the
Series B Preferred Shares will cease to accrue on such redemption date. If fewer
than all Series B Preferred Shares are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of Series B Preferred Shares
to be redeemed from such holder. If notice of redemption of any Series B
Preferred Shares has been given and if the funds necessary for such redemption
have been set aside by the Company in trust for the benefit of the

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holders of Series B Preferred Shares so called for redemption, then from and
after the redemption date, dividends will cease to accrue on the Series B
Preferred Shares, such Series B Preferred Shares shall no longer be deemed
outstanding and all rights of the holders of such shares will terminate, except
the right to receive the redemption price.

The holders of Series B Preferred Shares at the close of business on a
Dividend Record Date will be entitled to receive the dividends payable with
respect to such Series B Preferred Shares on the corresponding Dividend Payment
Date notwithstanding the redemption thereof between such Dividend Record Date
and the corresponding Dividend Payment Date or the Company's default in the
payment of the dividend due. Except as provided above, the Company will make no
payment or allowance for unpaid dividends, whether or not in arrears, on Series
B Preferred Shares which have been called for redemption.

The Series B Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption.

VOTING RIGHTS

Except as indicated below, or except as otherwise from time to time
required by applicable law, the holders of Series B Preferred Shares will have
no voting rights.

If six consecutive quarterly dividends payable on the Series B Preferred
Shares or any Parity Shares are in arrears, whether or not earned or declared,
the number of directors then constituting the Board of Directors of the Company
will be increased by two, and the holders of Series B Preferred Shares, voting
together as a class with the holders of any other series of Parity Shares, will
have the right to elect two additional directors to serve on the Company's Board
of Directors at any annual meeting of stockholders or a properly called special
meeting of the holders of the voting Parity Shares until all such dividends and
dividends for the current quarterly period on the Series B Preferred Shares and
such other voting Parity Shares have been declared and paid or set aside for
payment. Such voting rights will terminate when all such accrued and unpaid
dividends have been declared and paid or set aside for payment. The term of
office of all directors so elected will terminate with the termination of such
voting rights.

The approval of two-thirds of the outstanding Series B Preferred Shares and
all other Parity Shares similarly affected, voting as a single class, is
required in order to (i) amend the Company's Charter to affect materially and
adversely the rights, preferences or voting power of the holders of the Series B
Preferred Shares or the Parity Shares; (ii) enter into a share exchange that
affects the Series B Preferred Shares, or consolidate the Company with or merge
the Company with another entity, unless in each such case each Series B
Preferred Share remains outstanding without a material adverse change to its
terms and rights or is converted into or exchanged for preferred stock of the
surviving entity having preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption thereof identical to that of the Series B Preferred
Shares (except for changes that do not materially and adversely affect the
holders of Series B Preferred Shares), or (iii) authorize, reclassify, create or
increase the authorized amount of any shares of any class, or any security
convertible into shares of any class, having rights senior to the Series B
Preferred Shares with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up of the Company. However, the Company may
create additional classes of Parity Shares and Junior Shares, increase the
authorized number of Parity Shares and Junior Shares and issue additional series
of Parity Shares and Junior Shares without the consent of any holder of Series B
Preferred Shares.

Except as provided above and as required by applicable law, the holders of
Series B Preferred Shares are not entitled to vote on any merger or
consolidation involving the Company, on any share exchange or on a sale of all
or substantially all of the assets of the Company.

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CONVERSION

The Series B Preferred Shares are not convertible into or exchangeable for
any other property or securities of the Company at the option of the holder.

RESTRICTIONS ON TRANSFER; OWNERSHIP LIMITS

For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding stock may be owned, directly or indirectly, by five or
fewer "individuals" during the last half of a full taxable year or during a
proportionate part of a shorter taxable year. Under the constructive ownership
provisions of the Code, stock owned by an entity, including a corporation, life
insurance company, mutual fund or pension trust, is treated as owned by the
ultimate individual beneficial owners of the entity. Because the Company intends
to maintain its qualification as a REIT, the Company's Charter contains certain
restrictions on the ownership and transfer of capital stock, including the
Series B Preferred Shares, intended to assist the Company in complying with
these requirements. For a complete description of these restrictions, see
"Common Stock--Restrictions on Transfer" in the accompanying Prospectus.

Subject to certain exceptions specified in the Company's Charter, no holder
may own, or be deemed to own by virtue of certain attribution provisions of the
Code, more than 5% of any class or series of Preferred Stock. The Board of
Directors of the Company has waived this restriction with respect to the
acquisition of Series B Preferred Shares for a holder who is not an "individual"
within the meaning of Section 542(a)(2) of the Code, so long as, through such
holder's ownership of such Series B Preferred Shares, no "individual" would be
considered the beneficial owner of more than 5% of the Series B Preferred
Shares. If a holder were to acquire more than 5% of the Series B Preferred
Shares and such holder did not meet the criteria set forth in the preceding
sentence, such holder's shares of Series B Preferred Shares would be subject to
the provisions in the Charter relating to a violation of the ownership limits as
described in the accompanying Prospectus under the caption "Description of
Common Stock--Restrictions on Transfer--Violation of Ownership Limits."

In order to assist the Company in qualifying as a "domestically controlled
REIT," the Company's Charter contains certain provisions generally preventing
foreign investors (other than SC-USREALTY and its affiliates) from acquiring
additional shares of the Company's capital stock if, as a result of such
acquisition, the Company would fail to qualify as a "domestically controlled
REIT." Accordingly, an acquisition of the Company's capital stock (including the
Series B Preferred Shares) would not likely be a suitable investment for
non-U.S. shareholders other than SC-USREALTY. See "Risk Factors--Special
Considerations for Foreign Investors."

FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material federal income tax consequences
pertaining to the acquisition, ownership and disposition of Series B Preferred
Shares. This discussion is general in nature and not exhaustive of all possible
tax considerations, nor does the discussion address any state, local or foreign
tax considerations. The discussion is based on current law and does not purport
to deal with all aspects of federal income taxation that may be relevant to a
prospective shareholder in light of its particular circumstance or to certain
types of shareholders (including insurance companies, financial institutions,
broker-dealers, tax exempt investors, foreign corporations and persons who are
not citizens or residents of the United States) subject to special treatment
under the federal income tax laws. The Company has not requested and will not
request a ruling from the Internal Revenue Service (the "Service") with respect
to any of the federal income tax issues discussed below. Prospective investors
should consult, and must depend on, their own tax advisors regarding the
federal, state, local, foreign and other tax consequences of holding and
disposing of Series B Preferred Shares or Common Stock.

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TAXATION OF HOLDERS OF SERIES B PREFERRED SHARES

Dividends and Other Distributions; Backup Withholding. For a discussion of
the taxation of the Company, the treatment of dividends and other distributions
with respect to shares of the Company, and the backup withholding rules, see the
captions "Federal Income Tax Considerations--Taxation of the Company" and
"--Taxation of Holders of Common Stock" in the accompanying Prospectus. In
determining the extent to which a distribution on the Series B Preferred Shares
constitutes a dividend for tax purposes, the earnings and profits of the Company
will be allocated, on a pro rata basis, first to distributions with respect to
the Series A and Series B Preferred Shares and then to the Common Stock.

Sale or Exchange of Series B Preferred Shares. Upon the sale or exchange
of Series B Preferred Shares to a party other than the Company, a Preferred
Holder will realize a capital gain or loss measured by the difference between
the amount realized on the sale or other disposition and the Preferred Holder's
adjusted tax basis in the Series B Preferred Shares (provided the Series B
Preferred Shares are held as a capital asset). Such gain or loss will be a long
term capital gain or loss if the Preferred Holder's holding period with respect
to the Series B Preferred Shares is more than one year at the time of sale or
exchange. Further, any loss on a sale of Series B Preferred Shares which was
held by the Preferred Holder for six months or less and with respect to which
capital gain dividend was received will be treated as a long term capital loss,
up to the amount of the capital gain dividend received with respect to such
shares.

Redemption of Series B Preferred Shares. The treatment accorded to any
redemption by the Company (as distinguished from a sale, exchange or other
disposition) of Series B Preferred Shares can only be determined on the basis of
particular facts as to each Preferred Holder at the time of redemption. In
general, a Preferred Holder will recognize capital gain or loss measured by the
difference between the amount received by the Preferred Holder upon the
redemption and such holder's adjusted tax basis in the Series B Preferred Shares
redeemed (provided the Series B Preferred Shares are held as a capital asset) if
such redemption (i) results in a "complete termination" of the Preferred
Holder's interest in all classes of stock of the Company under Section 302(b)(3)
of the Code, or (ii) is "not essentially equivalent to a dividend" with respect
to the Preferred Holder under Section 302(b)(1) of the Code. In applying these
tests, there must be taken into account not only any Series B Preferred Shares
owned by the Preferred Holder, but also such holder's ownership of Common Stock,
other series of preferred shares and any other options (including stock purchase
rights) to acquire any of the foregoing. The Preferred Holder also must take
into account any such securities (including options) which are considered to be
owned by such Preferred Holder by reason of the constructive ownership rules set
forth in Sections 318 and 302(c) of the Code.

If a particular Preferred Holder owns (actually or constructively) no
shares of Common Stock of the Company or an insubstantial percentage of the
outstanding shares of Common Stock of the Company, based upon current law, it is
probable that the redemption of Series B Preferred Shares from such a Preferred
Holder would be considered "not essentially equivalent to a dividend." However,
whether a distribution is "not essentially equivalent to a dividend" depends on
all of the facts and circumstances, and a Preferred Holder intending to rely on
any of these tests at the time of redemption should consult its own tax adviser
to determine their application to its particular situation.

If the redemption does not meet any of the tests under Section 302 of the
Code, then the redemption proceeds received from the Series B Preferred Shares
will be treated as a distribution on the Series B Preferred Shares as described
under "Federal Income Tax Considerations--Taxation of Holder's of Common Stock"
in the accompanying Prospectus. If the redemption is taxed as a dividend, the
Preferred Holder's adjusted tax basis in the Series B Preferred Shares will be
transferred to any other stockholdings of the Preferred Holder in the Company.
If the Preferred Holder owns no other stockholdings in the Company, under
certain circumstances, such basis may be transferred to a related person, or it
may be lost entirely.

S-39

<PAGE>

SPECIAL CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS

There are several special considerations for prospective purchasers of the
Series B Preferred Shares who would be Non-U.S. Shareholders (persons other than
(i) citizens or residents of the United States, (ii) corporations, partnerships
or other entities created or organized under the laws of the United States or
any political subdivision thereof, and (iii) estates or trusts the income of
which is subject to United States federal income taxation regardless of its
source). See also "Federal Income Tax Considerations--Taxation of Holder's of
Common Stock--Taxation of Non-U.S. Shareholders" and "Description of Common
Stock--Restrictions on Transfer" in the accompanying Prospectus.

A Non-U.S. Shareholder will be subject to tax under the Foreign Investment
in Real Property Tax Act ("FIRPTA") on the gain attributable to a disposition of
the Series B Preferred Shares if the Company does not qualify as a "domestically
controlled REIT." The Company will qualify as a "domestically controlled REIT"
with respect to a sale by a Non-U.S. Shareholder only if throughout the five
year period ending on the date of the sale, less than 50%, by value, of the
Company's outstanding stock is owned by Non-U.S. Shareholders. In November 1995,
SC-REALTY, a Luxembourg corporation, acquired 46.5% of the Company's outstanding
Common Stock. As of June 30, 1997, SC-USREALTY owned approximately 42.6% of the
outstanding Common Stock (38.3% on a fully diluted basis). In the event that
SC-REALTY and other shareholders of the Company who are Non-U.S. Shareholders
either currently, or at any time in the future, collectively own 50% or more of
the Company's stock, the Company would fail to qualify as a "domestically
controlled REIT." The Company does not have knowledge that there currently are
other Non-U.S. Shareholders that, when considered with SC-REALTY, would cause
the Company to fail the 50% test, but the vast majority of the Company's shares
of Common Stock are held in "street name" and thus the Company is unable to
advise a prospective Non-U.S. Shareholder that the Company in fact qualifies as
a "domestically controlled REIT."

Even if the Company were not a "domestically controlled REIT," a Non-U.S.
Shareholder of Series B Preferred Shares will not be subject to tax under FIRPTA
provided that (i) the Series B Preferred Shares are "regularly traded" (as
defined by the applicable Treasury Regulations) on an established securities
market, and (ii) such Non-U.S. Shareholder owned 5% or less of the value of the
Company's preferred stock, or any series thereof, throughout the five-year
period ending on the date of sale.

If the gain on the disposition of the Series B Preferred Shares were to be
subject to tax under FIRPTA, a Non-U.S. Shareholder would be subject to the same
tax treatment as domestic shareholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals), and the purchaser of the Series B
Preferred Shares would be required to withhold and remit to the IRS 10% of the
consideration paid for the Series B Preferred Shares.

S-40

<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to Goldman, Sachs & Co., Legg Mason Wood Walker,
Incorporated, J.P. Morgan Securities Inc., PaineWebber Incorporated, Prudential
Securities Incorporated and Smith Barney Inc., as representatives (the
"Representatives") of the Underwriters named below, and each of the Underwriters
has severally agreed to purchase from the Company, the respective number of
Series B Preferred Shares set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SERIES B
UNDERWRITER PREFERRED SHARES
- --------------------------------------------------------------------------- ----------------
<S> <C>
Goldman, Sachs & Co........................................................ 928,000
Legg Mason Wood Walker, Incorporated....................................... 925,000
J.P. Morgan Securities Inc................................................. 925,000
PaineWebber Incorporated................................................... 925,000
Prudential Securities Incorporated......................................... 925,000
Smith Barney Inc........................................................... 925,000
Alex. Brown & Sons Incorporated............................................ 87,000
Donaldson, Lufkin & Jenrette Securities Corporation........................ 87,000
EVEREN Securities, Inc..................................................... 87,000
Oppenheimer & Co., Inc..................................................... 87,000
Wheat, First Securities, Inc............................................... 87,000
J.C. Bradford & Co......................................................... 46,000
Cowen & Company............................................................ 46,000
Crowell, Weedon & Co....................................................... 46,000
Dain Bosworth Incorporated................................................. 46,000
Fahnestock & Co. Inc....................................................... 46,000
Interstate/Johnson Lane Corporation........................................ 46,000
Johnston, Lemon & Co. Incorporated......................................... 46,000
Lafayette Investments, Inc................................................. 46,000
McDonald & Company Securities, Inc......................................... 46,000
McGinn, Smith & Co., Inc................................................... 46,000
Morgan Keegan & Company, Inc............................................... 46,000
Piper Jaffray Inc.......................................................... 46,000
Principal Financial Securities, Inc........................................ 46,000
Rauscher Pierce Refsnes, Inc............................................... 46,000
Raymond James & Associates, Inc............................................ 46,000
The Robinson-Humphrey Company, Inc......................................... 46,000
Roney & Co., L.L.C......................................................... 46,000
Sutro & Co. Incorporated................................................... 46,000
Trilon International Inc................................................... 46,000
Tucker Anthony Incorporated................................................ 46,000
U.S. Clearing Corp......................................................... 46,000
Wedbush Morgan Securities Inc.............................................. 46,000
----------------
Total................................................................. 7,000,000
=========

</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Series B Preferred
Shares, if any are taken.

The Underwriters propose to offer the Series B Preferred Shares in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and in part to certain securities
dealers at such price less a concession of $.50 per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.35 per
share to certain brokers

S-41

<PAGE>

and dealers. After the Series B Preferred Shares are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to an aggregate of
1,050,000 additional Series B Preferred Shares solely to cover over-allotments,
if any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of Series B Preferred
Shares to be purchased by each of them, as shown in the foregoing table, bears
to the 7,000,000 Series B Preferred Shares offered by this Prospectus
Supplement.

Prior to the Offering, there has been no public market for the Series B
Preferred Shares. An application to list the Series B Preferred Shares on the
New York Stock Exchange will be made, although there can be no assurance that
the Series B Preferred Shares will be approved for listing.

In the ordinary course of their respective businesses, certain of the
Underwriters and their affiliates have provided, and may in the future provide,
commercial banking, investment banking, fiduciary and other services to the
Company. In addition, Morgan Guaranty Trust Company of New York, an affiliate of
J.P. Morgan Securities Inc., is the agent for the banks and a lender under the
Company's unsecured line of credit with groups of banks. The entire net proceeds
from the Offering may be used to repay Morgan Guaranty Trust Company of New
York, as agent, for a portion of the outstanding borrowings of the Company.
Since the amount to be repaid to Morgan Guaranty Trust Company of New York, as
agent, exceeds 10% of the net proceeds from the sale of the Series B Preferred
Shares, the Offering is being made pursuant to the provisions of Rules
2710(c)(8) and 2720(c)(3)(C) of the National Association of Securities Dealers,
Inc. See "Use of Proceeds."

The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.

In connection with the Offering, the Underwriters may purchase and sell the
Series B Preferred Shares in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Series B Preferred Shares; and
syndicate short positions involve the sale by the Underwriters of a greater
number of securities than they are required to purchase from the Company in the
Offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the securities sold in the Offering for their account may be reclaimed by the
syndicate if such Series B Preferred Shares are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Series B Preferred Shares, which may
be higher than the price that might otherwise prevail in the open market; and
these activities, if commenced, may be discontinued at any time. These
transactions may be effected on the New York Stock Exchange, the
over-the-counter market or otherwise.

LEGAL MATTERS

The validity of the issuance of the Series B Preferred Shares offered
pursuant to this Prospectus Supplement will be passed upon for the Company by
Hogan & Hartson L.L.P., Washington, D.C. Certain legal matters will be passed
upon for the Underwriters by Rogers & Wells, New York, New York.

S-42

<PAGE>

PROSPECTUS

$1,000,000,000

CARRAMERICA REALTY CORPORATION
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK,
COMMON STOCK WARRANTS AND DEPOSITARY SHARES

CarrAmerica Realty Corporation (the "Company") may from time to time offer
in one or more series its (i) unsecured debt securities ("Debt Securities"),
(ii) preferred stock ("Preferred Stock"), (iii) common stock, par value $0.01
per share ("Common Stock"), (iv) warrants exercisable for Common Stock ("Common
Stock Warrants"), and (v) shares of Preferred Stock represented by depositary
shares ("Depositary Shares") with an aggregate public offering price of up to
$1,000,000,000 (or its equivalent based on the exchange rate at the time of
sale) in amounts, at prices and on terms to be determined at the time of
offering. The Debt Securities, Preferred Stock, Common Stock, Common Stock
Warrants and Depositary Shares (collectively, the "Securities") may be offered,
separately or together, in separate series, in amounts, at prices and on terms
to be described in one or more supplements to this Prospectus (each a
"Prospectus Supplement").

The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payments, any terms for conversion into
Preferred Stock or Common Stock of the Company, covenants and any public
offering price; (ii) in the case of Preferred Stock, the specific title and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any public offering price; (iii) in the case of Common Stock,
any public offering price; (iv) in the case of Common Stock Warrants, the
specific title and aggregate number, the issue price and the exercise price; and
(v) in the case of Depositary Shares, the fractional shares of Preferred Stock
represented by each such Depositary Share. In addition, such specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Securities, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust for federal income tax
purposes.

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

The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement with,
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.

SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR CERTAIN FACTORS RELATING TO AN
INVESTMENT IN THE SECURITIES.
---------------------------

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

THE DATE OF THIS PROSPECTUS IS AUGUST 5, 1997.
<PAGE>
THE COMPANY

The Company is a publicly-traded real estate investment trust (a "REIT")
that focuses primarily on the acquisition, development, ownership and operation
of value office properties in select suburban growth markets across the United
States.

The Company is a Maryland corporation that was formed in July 1992. The
principal executive offices of the Company are located at 1700 Pennsylvania
Avenue, Washington, D.C. 20006, and its telephone number is (202) 624-7500.

2
<PAGE>
RISK FACTORS

Prospective investors should carefully consider, among other factors, the
matters described below.

REAL ESTATE INVESTMENT RISKS

General. Investments in real property are subject to varying degrees of
risk. The yields available from equity investments in real estate and the
Company's ability to service debt will depend in large part on the amount of
income generated, expenses incurred and capital expenditures required by its
real property investments. The Company's income from office properties may be
adversely affected by a number of factors, including the general economic
climate and local real estate conditions, an over-supply of, or a reduction in
demand for, office space in the areas where its properties are located and the
attractiveness of the properties to prospective tenants. Income from properties
and real estate values also are affected by such factors as the cost of
compliance with government regulation, including zoning and tax laws and the
potential for liability under applicable laws. Certain significant expenditures
associated with each equity investment by the Company in a property (such as
operating expenses and capital expenditures costs) may not be reduced when
circumstances cause a reduction in income from the property.

Renewal of Leases and Reletting of Space. The Company is subject to the
risks that upon expiration of leases for space located at its properties, the
space may not be relet or, if relet, the terms of the renewal or reletting
(including the cost of required renovations or concessions to tenants) may be
less favorable than current lease terms. Although the Company has established an
annual budget for renovation and reletting costs that it believes is reasonable
in light of each property's situation, no assurance can be given that this
budget will be sufficient to cover these costs. If the Company is unable
promptly to relet or renew leases for all or substantially all of the space at
its properties, if the rental rates upon such renewal or reletting are
significantly lower than expected, or if the Company's reserves for these
purposes prove inadequate, then the Company's cash provided by operating
activities and ability to make expected distributions to stockholders or debt
service payments may be adversely affected.

Possible Environmental Liabilities. Under various federal, state and local
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous
substances released at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with the contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral. The owner or operator
of a site may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating from the site. The
Company has not been notified by any governmental authority of any material
non-compliance, liability or other claim in connection with any of its
properties, and the Company is not aware of any other material environmental
condition with respect to any of its properties. No assurance, however, can be
given that no prior owner created any material environmental condition not known
to the Company, that no material environmental condition with respect to any
property has occurred during the Company's ownership thereof, or that future
uses or conditions (including, without limitation, changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability against the Company.

REAL ESTATE FINANCING RISKS

Debt Financing. The Company is subject to the risks associated with debt
financing, including the risk that the cash provided by the Company's operating
activities will be insufficient to meet required payments of principal and
interest, the risk of rising interest rates on the Company's floating rate debt
that is not hedged, the risk that the Company will not be able to repay or
refinance existing

3
<PAGE>
indebtedness (which generally will not have been fully amortized at maturity) or
that the terms of such refinancing will not be as favorable as the terms of
existing indebtedness. In the event the Company is unable to secure refinancing
of such indebtedness on acceptable terms, the Company might be forced to dispose
of properties upon disadvantageous terms, which might result in losses to the
Company, or to obtain financing at unfavorable terms, either of which might
adversely affect the cash flow available for distribution to stockholders or
meet debt service obligations. In addition, if a property or properties are
mortgaged to secure payment of indebtedness and the Company is unable to meet
required mortgage payments, the mortgage securing the property could be
foreclosed upon by, or the property could be otherwise transferred to, the
mortgagee with a consequent loss of income and asset value to the Company.

Degree of Leverage. At March 31, 1997, on a consolidated basis, the
Company's total indebtedness was approximately $735 million and the ratio of its
total indebtedness to total assets (excluding intangibles) was 38.7%. The degree
to which the Company is leveraged could have important consequences to holders
of the Securities, including affecting the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, development or other general corporate purposes and making the
Company more vulnerable to a downturn in its business or the economy generally.

ACQUISITION AND DEVELOPMENT RISKS

The Company intends to continue acquiring and developing office properties
in markets where it believes that such acquisition or development is consistent
with the business strategies of the Company. Acquisitions entail risks that
investments will fail to perform in accordance with expectations and that
judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property will prove inaccurate, as well as general investment risks associated
with any new real estate investment. See "--Real Estate Investment Risks" above.
New office development also is subject to a number of risks, including, but not
limited to, construction delays or cost overruns that may increase project
costs, financing risks as described above, the failure to meet anticipated
occupancy or rent levels, failure to receive required zoning, occupancy and
other governmental permits and authorizations and changes in applicable zoning
and land use laws, which may result in the incurrence of development costs in
connection with projects that are not pursued to completion. In addition,
because the Company must distribute 95% of its taxable income in order to
maintain its qualification as a REIT, the Company anticipates that new
acquisitions and developments will be financed primarily through periodic equity
and debt offerings, lines of credit or other forms of secured or unsecured
financing. If permanent debt or equity financing is not available on acceptable
terms, further acquisitions or development activities may be curtailed or cash
available for distribution to stockholders or to meet debt service obligations
may be adversely affected.

CHANGE IN BUSINESS STRATEGY; RISKS ASSOCIATED WITH THE ACQUISITION OF
SUBSTANTIAL NEW PROPERTIES

In 1996, the Company shifted its emphasis from downtown Washington, D.C.
properties toward a more national business strategy, focusing primarily on
office properties in suburban growth markets across the United States. This
change represents a significant shift in the business strategy of the Company.
Although the Board believes that such a shift in strategy was warranted in light
of the opportunities available to the Company, there is no assurance that the
Company's efforts to implement its national business strategy will continue to
be successful. Consistent with the Company's strategy of acquiring office
properties in suburban growth markets, the Company significantly expanded its
portfolio of office properties in 1996 and has continued to do so through June
30, 1997. These properties have a relatively short operating history under the
Company's management and they may have characteristics or deficiencies unknown
to the Company affecting their valuation or revenue potential.

4
<PAGE>
SUBSTANTIAL OWNERSHIP OF COMMON STOCK

As of June 30, 1997, Security Capital Holdings S.A., a wholly owned
subsidiary of Security Capital U.S. Realty (collectively "SC-USREALTY") owned
42.6% of the outstanding shares of the Company's Common Stock (38.3% of the
Common Stock on a fully-diluted basis), and SC-USREALTY has the right to
nominate a proportionate number of the directors of the Board based upon its
ownership of stock on a fully-diluted basis, rounded down to the nearest whole
number (but in no event more than 40% of the directors). As a result,
SC-USREALTY is the largest single stockholder of the Company, while no other
stockholder is permitted to own more than 5% of the Company's Common Stock,
subject to certain exceptions set forth in the Articles of Incorporation or
approved by the Board. Although certain standstill provisions preclude
SC-USREALTY from increasing its percentage interest in the Company above 45%
until at least April 30, 2001 (subject to certain exceptions) and the Articles
of Incorporation preclude it from increasing such percentage interest
thereafter, and SC-USREALTY agreed to certain limitations on its voting rights
with respect to its shares of Common Stock, SC-USREALTY nonetheless has a
substantial influence over the affairs of the Company. This concentration of
ownership in one stockholder could potentially be disadvantageous to other
stockholders' interests. In addition, so long as SC-USREALTY owns at least 25%
of the outstanding Common Stock of the Company on a fully diluted basis,
SC-USREALTY will be entitled (except in certain limited circumstances), upon
compliance with certain specified conditions, to a participation right to
purchase or subscribe for, either as part of such issuance or in a concurrent
issuance, a total number of shares of Common Stock or Preferred Stock, as the
case may be, equal to up to 30% (or 35% in certain circumstances) of the total
number of shares or of Common Stock or Preferred Stock, as applicable, proposed
to be issued by the Company.

LIMITATIONS ON CORPORATE ACTIONS

In conjunction with the transaction in which SC-USREALTY acquired its
initial interest in the Company (the "SC-USREALTY Transaction"), the Company
agreed to certain limitations on its operations, including restrictions relating
to incurrence of additional indebtedness, retention of third-party managers for
the Company's properties, investments in properties other than office buildings,
issuances of limited partnership interests ("CRLP Units") of Carr Realty, L.P.,
a partnership that owns certain of the Company's properties, and certain other
matters. The Company may take actions relating to these matters only with the
consent of SC-USREALTY. In addition, the Company is contractually obligated to
abide by certain limitations on the amount of assets that it owns indirectly
through other entities and the manner in which it conducts its business
(including the types of assets that it can acquire and own and the manner in
which such assets are operated). These limitations (which were designed to
permit SC-USREALTY to comply with certain requirements of the Internal Revenue
Code applicable to foreign corporations with U.S. shareholders) limit the
flexibility of the Company to structure transactions that might otherwise be
advantageous to the Company, and may impair the Company's ability to conduct its
business in the future.

CONFLICTS OF INTEREST

Certain members of the Company's board of directors (the "Board") and
officers of the Company own CRLP Units and, thus, may have interests that
conflict with stockholders with respect to business decisions affecting the
Company and Carr Realty, L.P. In particular, a holder of CRLP Units may suffer
different and/or more adverse tax consequences than the Company upon the sale or
refinancing of some of the properties owned by Carr Realty, L.P. as a result of
unrealized gain attributable to certain properties. These CRLP Unit holders and
the Company, therefore, may have different objectives regarding the appropriate
pricing and timing of a sale or refinancing of properties. Although the Company,
as the sole general partner of Carr Realty, L.P., has the exclusive authority to
determine whether and on what terms to sell or refinance an individual property,
these CRLP Unit holders might seek to influence the Company not to sell or
refinance a property, even though such sale might otherwise be financially
advantageous to the Company, or may seek to influence the Company to
refinance a property with a higher level of debt than would be in the best
interests of the Company. Although the Company believes that the change in 1996
in its operational structure from an "UPREIT"

5
<PAGE>
to a "DownREIT" has and should continue to reduce, over time, these potential
conflicts of interest, assets will continue to be owned by Carr Realty, L.P.,
diminishing the effects of this structural modification.

MANAGEMENT, LEASING AND BROKERAGE RISKS

The Company is subject to the risks associated with the property
management, leasing and brokerage businesses. These risks include the risk that
management contracts or service agreements with third-party owners will be lost
to competitors, that a property will be sold and the Company will lose the
contract, that contracts will not be renewed upon expiration or will not be
renewed on terms consistent with current terms and that leasing and brokerage
activity generally may decline. Each of these developments could adversely
affect the ability of the Company to make expected distributions to stockholders
or debt service payments.

LACK OF VOTING CONTROL OF OPERATING SUBSIDIARIES

The Company does not have voting control of Carr Real Estate Services, Inc.
("Carr Services, Inc.") or CarrAmerica Development & Construction, Inc.
("CarrAmerica Development & Construction"), and may acquire economic interests
in similarly structured companies in the future (collectively, the "Operating
Subsidiaries"). Carr Services, Inc., which conducts primarily fee-based
management and leasing, has capital stock which is divided into two classes:
voting common stock, approximately 92% and 8% of which is held by OCCO and Carr
Realty, L.P., respectively; and nonvoting common stock, approximately 95% and 5%
of which is held by Carr Realty, L.P. and The Oliver Carr Company ("OCCO"),
respectively. OCCO, as the holder of 92% of the voting common stock, has the
ability to elect the board of directors of Carr Services, Inc. CarrAmerica
Development & Construction, which conducts primarily fee-based development, has
capital stock which is divided into two classes: voting common stock, 99% and 1%
of which is held by OCCO and the Company, respectively; and nonvoting common
stock, 96% and 4% of which is held by the Company and OCCO, respectively. OCCO,
as the holder of 99% of the voting common stock, has the ability to elect the
board of directors of CarrAmerica Development & Construction. Oliver T. Carr,
Jr., who is Chairman of the Board and a significant stockholder of the Company,
beneficially owns a majority of the voting stock of OCCO, which controls the
election of directors of Carr Services, Inc. and CarrAmerica Development &
Construction.

Although neither the right of Carr Realty, L.P. or the Company, as
applicable, to receive distributions with respect to its equity interest in each
Operating Subsidiary nor the terms of the promissory notes made by such
Operating Subsidiary and held by Carr Realty, L.P. or the Company, as
applicable, can be changed by the holder of the majority of the voting common
stock of such Operating Subsidiary, the Company will not be able to elect
directors of each of the Operating Subsidiaries, and its ability to influence
the day-to-day decisions of each Operating Subsidiary is limited. As a result,
the board of directors and management of each Operating Subsidiary may implement
business policies or decisions that might not have been implemented by persons
elected by the Company and that are adverse to the interests of the Company or
that lead to adverse financial results, which could adversely impact the
Company's operating income and funds from operations.

CHANGES IN POLICIES

The major policies of the Company, including its policies with respect to
development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by its Board. The Board may amend or revise
these and other policies from time to time without a vote of the stockholders of
the Company. A change in these policies could adversely affect the Company's
financial condition, results of operations, funds available for distributions to
stockholders, debt service or the market price of the Securities. The Company
cannot change its policy of seeking to maintain its qualification as a REIT
without the approval of the holders of a majority of the Common Stock.

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CERTAIN TAX RISKS

Tax Liabilities as a Consequence of the Failure to Qualify as a REIT. The
Company believes that it has operated so as to qualify and has qualified as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1993, and intends to
continue to so operate. No assurance, however, can be given that the Company has
so qualified or will be able to remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions as to
which there are only limited judicial and administrative interpretations.
Certain facts and circumstances that may be wholly or partially beyond the
Company's control may affect its ability to qualify or to continue to qualify as
a REIT. In addition, no assurance can be given that new legislation, Treasury
Regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to the Company's qualification as
a REIT or the federal income consequences of such qualification to the Company.
If the Company fails to qualify as a REIT, it will be subject to federal income
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates and it will not be entitled to a deduction for dividends
paid to its stockholders. In addition, unless entitled to relief under certain
statutory provisions, the Company would be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. The additional tax incurred in such event would significantly reduce the
cash flow available for distribution to shareholders and to meet debt service
obligations. See "Federal Income Tax Considerations--Taxation of the Company."

REIT Distribution Requirements and Potential Impact of Borrowings. To
obtain the favorable tax treatment associated with qualifying as a REIT under
the Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its real estate investment trust taxable income.
See "Federal Income Tax Considerations--Taxation of the Company (Annual
Distribution Requirements)." In addition, the Company 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, 95% of its capital gain net income and 100% of its real estate
investment trust taxable income from prior years that is not deemed to have been
distributed under the Code. Differences in timing between the receipt of income,
the payment of expenses and the inclusion of such income and the deduction of
such expenses in arriving at taxable income (of the Company or its
subsidiaries), or the effect of nondeductible capital expenditures, the creation
of reserves or required debt or amortization payments, could require the
Company, directly or through its subsidiaries, to borrow funds on a short-term
basis to meet the distribution requirements that are necessary to achieve the
tax benefits associated with qualifying as a REIT. In such instances, the
Company might need to borrow funds in order to avoid adverse tax consequences
even if management believed that then prevailing market conditions were not
generally favorable for such borrowings.

Other Tax Liabilities. Even if the Company qualifies as a REIT, the Company
and certain of its subsidiaries will be subject to certain federal, state and
local taxes on its income and property. See "Federal Income Tax
Considerations--Taxation of the Company and Other Tax Considerations."

Consequences of Failure of Carr Realty, L.P., CarrAmerica Realty, L.P. or
other Partnerships to be Treated as a Partnership. The Company believes that
Carr Realty, L.P., CarrAmerica Realty, L.P. and each other partnership and
limited liability company in which it holds an interest are properly treated as
partnerships for federal income tax purposes. See "Federal Income Tax
Considerations--Other Tax Considerations (Effect of Tax Status of Carr Realty,
L.P., CarrAmerica Realty, L.P. and Other Partnerships on REIT Status)." If the
Internal Revenue Service (the "IRS") were to challenge successfully the tax
status of Carr Realty, L.P., CarrAmerica Realty, L.P., or any other partnership
or limited liability company in which the Company holds an interest, as a
partnership for federal income tax purposes, Carr Realty, L.P., CarrAmerica
Realty, L.P. or the affected partnership or limited liability company would be
taxable as a corporation. In such event, since the value of the Company's
ownership interest in each of Carr Realty, L.P. and CarrAmerica Realty, L.P.
exceeds, and the value of the Company's ownership interest in each affected
partnership or limited liability company could exceed, 5% of the Company's
assets, the Company could cease to qualify as a REIT. See "Federal Income Tax
Considerations--Taxation of the Company (Asset Tests)." In addition, the
imposition of a corporate tax

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on Carr Realty, L.P., CarrAmerica Realty, L.P. or any of the other partnerships
or limited liability companies in which the Company holds an interest would
reduce the amount of funds available for distribution to the Company and its
shareholders and to meet debt service obligations.

SPECIAL CONSIDERATIONS FOR FOREIGN INVESTORS

In order to assist the Company in qualifying as a "domestically controlled
REIT," the Company's Articles of Incorporation, as amended (the "Articles of
Incorporation") contain certain provisions generally preventing foreign
investors (other than SC-USREALTY and its affiliates) from acquiring additional
shares of the Company's capital stock if, as a result of such acquisition, the
Company would fail to qualify as a "domestically controlled REIT." See "Federal
Income Tax Considerations--Taxation of Holders of Common Stock--Taxation of
Non-U.S. Shareholders." Accordingly, an acquisition of the Company's capital
stock would not likely be a suitable investment for non-U.S. shareholders other
than SC-USREALTY. See "Description of Common Stock--Restrictions on Transfer."

PRICE FLUCTUATIONS OF THE COMMON STOCK AND TRADING VOLUME;
SHARES AVAILABLE FOR FUTURE SALE

A number of factors may adversely influence the price of the Company's
Common Stock in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Stock to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Stock, the
relatively low daily trading volume of REITs in general, including the Common
Stock, and any inability of the Company to invest the proceeds of a future
offering of Securities in a manner that will increase earnings per share. Sales
of a substantial number of shares of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for shares.
The Company also may issue shares of Common Stock upon redemption of Units
issued in connection with the formation of the Company and subsequent
acquisitions. In addition, as of June 30, 1997, 4,416,900 shares of Common Stock
of the Company were reserved for issuance pursuant to stock and unit options,
and more shares may be reserved for such purpose in the future. These shares
will be available for sale in the public markets from time to time pursuant to
exemptions from registration requirements or upon registration. In connection
with the SC-USREALTY Transaction, the Company granted SC-USREALTY the right to
require the Company to file, at any time requested by SC-USREALTY, a
registration statement under the Securities Act of 1933 covering all or any of
the shares of Common Stock acquired by SC-USREALTY. No prediction can be made
about the effect that future sales of Common Stock will have on the market
prices of shares.

POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES

In order to assist the Company in maintaining its qualification as a REIT,
the Articles of Incorporation contain certain provisions generally limiting the
ownership of shares of capital stock by any single shareholder to 5% of the
outstanding Common Stock and/or 5% of any class or series of Preferred Stock
(with exceptions for persons who received more than 5% of the equity of the
Company pursuant to the contribution of assets to the Company in connection with
the initial public offering of the Company and SC-USREALTY and its affiliates).
The Board could waive this restriction if it were satisfied that ownership in
excess of the above ownership limit would not jeopardize the Company's status as
a REIT and the Board otherwise decided such action would be in the best
interests of the Company. Capital stock acquired or transferred in breach of the
limitation will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. See "Description of Common Stock--
Restrictions on Transfer" for additional information regarding the limits
on ownership of shares of capital stock.

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RESTRICTIONS ON ACQUISITION AND CHANGE IN CONTROL

Various provisions of the Articles of Incorporation restrict the
possibility for acquisition or change in control of the Company, even if such
acquisition or change in control were in the stockholders' interest, including
the Ownership Limits (as defined herein), the staggered terms of the Company's
directors and the ability of the Board to authorize the issuance of preferred
stock without stockholder approval.

USE OF PROCEEDS

Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds from the sale of the Securities will be used for the acquisition and
development of additional office properties, as suitable opportunities arise,
for the repayment of certain outstanding indebtedness at such time, for capital
improvements to property and for working capital and other general corporate
purposes.

RATIOS OF EARNINGS TO FIXED CHARGES

The Company's ratio of earnings to fixed charges for the period from
February 16, 1993 (commencement of operations) to December 31, 1993 and for the
years ended December 31, 1994, 1995 and 1996 and for the three months ended
March 31, 1997 was 1.75x, 1.81x, 1.91x 1.74x, and 1.95x, respectively.

The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income (loss) before
gains from sales of property and extraordinary items plus fixed charges. Fixed
charges consist of interest expense (including interest costs capitalized), the
amortization of debt issuance costs and rental expense deemed to represent
interest expense.

The Company issued preferred stock in 1996. Accordingly, the ratio of
earnings to combined fixed charges and preferred stock dividends was 1.71x for
the year ended December 31, 1996 and 1.85x for the three months ended March 31,
1997.

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DESCRIPTION OF DEBT SECURITIES

The following description sets forth certain general terms and provisions
of the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being offered
and the extent to which such general provisions may apply will be set forth in
the applicable indenture or in one or more indentures supplemental thereto and
described in a Prospectus Supplement relating to such Debt Securities.

GENERAL

The Debt Securities will be direct, unsecured obligations of the Company
and may be either senior Debt Securities ("Senior Securities") or subordinated
Debt Securities ("Subordinated Securities"). The Debt Securities will be issued
under one or more indentures (the "Indentures"). Senior Securities and
Subordinated Securities will be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (a "Trustee"). The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
"TIA"). The statements made under this heading relating to the Debt Securities
and the Indentures are summaries of the anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities. All section references appearing herein are
to sections of each Indenture unless otherwise indicated and capitalized terms
used but not defined under this heading shall have the respective meanings set
forth in each Indenture.

The indebtedness represented by Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior Debt
of the Company as described under "--Subordination" below.

Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto and described in a Prospectus Supplement
relating thereto, the Debt Securities may be issued without limit as to
aggregate principal amount, in one or more series, in each case as established
from time to time in or pursuant to authority granted by a resolution of the
Board of the Company or as established in the applicable Indenture or in one or
more indentures supplemental to such Indenture. All Debt Securities of one
series need not be issued at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series.

It is anticipated that each Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with respect
to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a director of a trust under the
applicable Indenture separate and apart from the trust administered by any other
Trustee, and, except as otherwise indicated herein, any action described herein
to be taken by each Trustee may be taken by each such Trustee with respect to,
and only with respect to, the one or more series of Debt Securities for which it
is Trustee under the applicable Indenture.

The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:

(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;

(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;

(3) The percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;

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(4) If convertible in whole or in part into Common Stock or Preferred
Stock, the terms on which such Debt Securities are convertible, including
the initial conversion price or rate (or method for determining the same),
the portion that is convertible and the conversion period, and any
applicable limitations on the ownership or transferability of the Common
Stock or Preferred Stock receivable on conversion;

(5) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;

(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;

(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any
such interest will be payable, the regular record dates for such interest
payment dates, or the method by which such dates shall be determined, the
persons to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve
30-day months;

(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company in
respect of such Debt Securities and the applicable Indenture may be served;

(9) The period or periods within which, the price or prices at which
and the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company
is to have such an option;

(10) The obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which or the date and dates on which the price or prices at which
and the other terms and conditions upon which such Debt Securities will be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;

(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;

(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;

(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to Events of Default or covenants set
forth in the applicable Indenture;

(14) Whether such Debt Securities will be issued in certificate or
book-entry form;

(15) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;

(16) The applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the applicable Indenture;

(17) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
and

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<PAGE>
(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).

The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.

Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto, the applicable Indenture will not contain any
provisions that would limit the ability of the Company to incur indebtedness or
that would afford Holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company or in the event of a
change of control. Restrictions on ownership and transfers of the Company's
Common Stock and Preferred Stock are designed to preserve its status as a REIT
and, therefore, may act to prevent or hinder a change of control. See
"Description of Preferred Stock--Restrictions on Ownership" and "Description of
Common Stock--Restrictions on Transfer." Reference is made to the applicable
Prospectus Supplement for information with respect to any deletions from,
modifications of or additions to the Events of Default or covenants of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.

DENOMINATION, INTEREST, REGISTRATION AND TRANSFER

Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).

Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States (Sections 301,
305, 306, 307 and 1002).

Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than ten days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Section 307).

Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee referred
to above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer or exchange thereof at
the corporate trust office of the applicable Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such

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series. The Company may at any time designate additional transfer agents with
respect to any series of Debt Securities (Section 1002).

Neither the Company nor any Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
that has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305).

MERGER, CONSOLIDATION OR SALE

The Company will be permitted to consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity provided that (a) either the Company shall be the continuing entity, or
the successor entity (if other than the Company) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of such
assets shall expressly assume payment of the principal of (and premium, if any)
and interest on all of the Debt Securities and the due and punctual performance
and observance of all of the covenants and conditions contained in each
Indenture; (b) immediately after giving effect to such transaction and treating
any indebtedness that becomes an obligation of the Company or any Subsidiary as
a result thereof as having been incurred by the Company or Subsidiary at the
time of such transaction, no Event of Default under the Indentures, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to each Trustee
(Sections 801 and 803).

CERTAIN COVENANTS

Existence. Except as described under "--Merger, Consolidation or Sale"
above, the Company will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(by articles of incorporation, by-laws and statute) and franchises; provided,
however, that the Company shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities.

Maintenance of Properties. The Company will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary (as defined below) to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times (Section 1007); provided,
however, that the Company shall not be prevented from selling or otherwise
disposing for value its properties in the ordinary course of business.

Insurance. The Company will be required to, and will be required to cause
each of its Subsidiaries to keep all of its insurable properties insured against
loss or damage at least equal to their then full insurable value with insurers
of recognized responsibility and, if described in the applicable Prospectus
Supplement, having a specified rating from a recognized insurance rating service
(Section 1008).

Payment of Taxes and Other Claims. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or

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<PAGE>
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings (Section
1009).

Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will be required, to the
extent permitted under the Exchange Act, to file with the Commission the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Sections 13 or 15(d) if
the Company were so subject (the "Financial Information"), such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Company would have been required so to file such
documents if the Company were so subject. The Company also will in any event (x)
within 15 days of each Required Filing Date (i) transmit by mail to all Holders
of Debt Securities, as their names and addresses appear in the Security
Register, without cost to such Holders, copies of the Financial Information and
(ii) file with the Trustee copies of the Financial Information, and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1010).

ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE

Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness or
other financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.

EVENTS OF DEFAULT, NOTICE AND WAIVER

Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (i)
default in the payment of any installment of interest on any Debt Security of
such series; (ii) default in the payment of principal of (or premium, if any,
on) any Debt Security of such series when due and payable; (iii) default in
making any sinking fund payment as required for any Debt Security of such
series; (iv) default in the performance, or breach, of any other covenant or
warranty of the Company contained in the applicable Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the applicable Indenture; (v) default under
any bond, debenture, note or other evidence of indebtedness for money borrowed
by the Company or any of its Subsidiaries (including obligations under leases
required to be capitalized on the balance sheet of the lessee under GAAP)
representing recourse indebtedness or indebtedness guaranteed by such party in
an aggregate principal amount in excess of $5,000,000, or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company or any
of its Subsidiaries (including the leases) representing recourse indebtedness or
indebtedness guaranteed by such party in an aggregate principal amount in excess
of $5,000,000, whether the indebtedness now exists or shall hereafter be
created, which default shall have resulted in the indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, or the obligations being accelerated, without the
acceleration having been rescinded or annulled; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary (as defined
below) for all or substantially all of the property of the Company or any
Significant Subsidiary; and (vii) any other Event of Default provided with
respect to a particular series of Debt Securities (Section 501).

"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.

"Subsidiary" means a corporation, partnership or other entity a majority of
the voting power of the voting equity securities or the outstanding equity
interests of which are owned, directly or indirectly, by the Company or by one
or more other Subsidiaries of the Company. For the purposes of this definition,

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"voting equity securities" means equity securities having voting power for the
election of directors, whether at all times or only so long as no senior class
of security has such voting power by reason of any contingency. The term
"Subsidiary" does not include Carr Services, Inc. or CarrAmerica Development &
Construction as the Company does not own or control a majority of the
outstanding voting stock of such entities.

If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% of the
principal amount of the Outstanding Debt Securities of that series will have the
right to declare the principal amount (or, if the Debt Securities of that series
are Original Issue Discount Securities or indexed securities, such portion of
the principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (a) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture (Section
502). Each Indenture also will provide that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).

Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such Holders (Section 601).

Each Indenture will provide that no Holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the cases of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however, any
Holder of Debt Securities from instituting suit for the enforcement of payment
of the principal of (and premium, if any) and interest on such Debt Securities
at the respective due dates thereof (Section 508).

Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under an Indenture, as the case may

15
<PAGE>
be) shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee, or of exercising
any trust or power conferred upon such Trustee. However, a Trustee may refuse to
follow any direction which is in conflict with any law or the applicable
Indenture, which may involve such Trustee in personal liability or which may be
unduly prejudicial to the Holders of Debt Securities of such series not joining
therein (Section 512).

Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1011).

MODIFICATION OF THE INDENTURES

Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities issued under such Indenture which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (a) change the stated maturity of the principal
of, or any installment of interest (or premium, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the place of payment, or the coin or
currency, for payment of the principal of (or premium, if any) or interest on
any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (e)
reduce the above-stated percentage of Outstanding Debt Securities of any series
necessary to modify or amend the applicable Indenture, to waive compliance with
certain provisions thereof or certain defaults and consequences thereunder or to
reduce the quorum or voting requirements set forth in the applicable Indenture;
or (f) modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to increase
the required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).

The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).

Modifications and amendments of an Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in the Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or elimination shall
become effective only when there are no Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provisions and procedures,
if applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in an Indenture, provided that such action shall not
adversely affect the interests of Holders of Debt Securities of any series
issued under such Indenture in any material respect; or (x) to supplement any of
the provisions of

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<PAGE>
an Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities, provided that such action shall
not adversely affect the interests of the Holders of the Debt Securities of any
series in any material respect (Section 901).

Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed Outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to the
applicable Indenture, and (iv) Debt Securities owned by the Company or any other
obligor under the Debt Securities or any affiliate of the Company or of such
other obligor shall be disregarded.

Each Indenture will contain provisions for convening meetings of the
Holders of Debt Securities of a series (Section 501). A meeting will be
permitted to be called at any time by the applicable Trustee, and also, upon
request, by the Company or the Holders of at least 10% in principal amount of
the Outstanding Debt Securities of such series, in any such case upon notice
given as provided in the Indenture. Except for any consent that must be given by
the Holder of each Debt Security affected by certain modifications and
amendments of an Indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting or adjourned meeting
duly reconvened at which a quorum is present by the affirmative vote of the
Holders of such specified percentage in principal amount of the Outstanding Debt
Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance with
an Indenture will be binding on all Holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum.

Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Debt Securities affected thereby, or the Holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.

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SUBORDINATION

The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Company will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include a
description of the indebtedness ranking senior to the Debt Securities, the
restrictions on payments to the Holders of such Debt Securities while a default
with respect to such senior indebtedness in continuing, the restrictions, if
any, on payments to the Holders of such Debt Securities following an Event of
Default, and provisions requiring Holders of such Debt Securities to remit
certain payments to holders of senior indebtedness.

DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE

The Company may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.

Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Company with the
applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor.

Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
Holders of such Debt Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred, and such opinion of counsel, in the
case of defeasance, will be required to refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable U.S. federal income tax
law occurring after the date of the Indenture (Section 1404).

"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the

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United States of America or such government which issued the foreign currency in
which the Debt Securities of such series are payable, the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation of the
United States of America or such government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the Holder of a depository receipt, provided that (except as required
by applicable law) such custodian is not authorized to make any deduction from
the amount payable to the Holder of such depository receipt from any amount
received by the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt (Section 101).

Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.

In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iv) under "--Events of Default, Notice and Waiver" above with respect
to certain specified sections of Article Ten of each Indenture (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) or described in clause (vii) under "--Events of Default,
Notice and Waiver" above with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Default. However, the Company would remain
liable to make payment of such amounts due at the time of acceleration.

The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.

CONVERSION RIGHTS

The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock,

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<PAGE>
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the Holders or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.

REDEMPTION OF SECURITIES

The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the redemption price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.

From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have been
made available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice, and the
only right of the Holders of the Debt Securities will be to receive payment of
the redemption price.

Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Company's books and records, not
more than 60 nor less than 30 days prior to the date fixed for redemption. The
notice of redemption will specify, among other items, the redemption price and
the principal amount of the Debt Securities held by such Holder to be redeemed.

If the Company elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all of the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.

GLOBAL SECURITIES

The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depository identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.

<PAGE>

DESCRIPTION OF SERIES A PREFERRED SHARES

On October 24, 1996, the Company was authorized to issue, and issued,
1,740,000 shares of Series A Cumulative Convertible Redeemable Preferred Stock
(the "Series A Preferred Shares"). As of June 30, 1997, there were 1,740,000
Series A Preferred Shares outstanding.

The summary of certain terms and provisions of the Series A Preferred
Shares contained in this Prospectus does not purport to be complete and is
subject to and qualified in its entirety by reference to the terms and
provisions of the Articles Supplementary relating to the Series A Preferred
Shares (the "Articles Supplementary").

GENERAL

The Company's Board of Directors is authorized to issue, from the
authorized but unissued shares of capital stock of the Company, preferred shares
in series and to establish from time to time the number of preferred shares to
be included in such series and to fix the designation and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the shares
of each such series.

The Series A Preferred Shares were issued on October 25, 1996. The holders
of the Series A Preferred Shares have no preemptive rights with respect to any
shares of capital stock of the Company or any other securities of the Company
convertible into or carrying rights or options to purchase any such shares. The
Series A Preferred Shares are not be subject to any sinking fund or other
obligation of the Company to redeem or retire the Series A Preferred Shares.

The transfer agent, registrar and dividend disbursing agent for the Series
A Preferred Shares is BankBoston, N.A.

RANKING

The Series A Preferred Shares will rank senior to the Common Stock with
respect to payment of dividends and amounts upon liquidation, dissolution or
winding up.

While any Series A Preferred Shares are outstanding, the Company may not
authorize, create or increase the authorized amount of any class or any security
convertible into shares of any class that ranks senior to the Series A Preferred
Shares with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up without the consent of the holders of two-thirds of
the outstanding Series A Preferred Shares and Parity Shares (as defined below),
voting as a single class. However, the Company may create additional classes of
stock, increase the authorized number of preferred shares or issue series of
preferred shares ranking on a parity with the Series A Preferred Shares with
respect, in each case, to the payment of dividends and amounts upon liquidation,
dissolution and winding up (a "Parity Share") without the consent of any holder
of Series A Preferred Shares. See "--Voting Rights" below.

DIVIDENDS

Holders of the Series A Preferred Shares are entitled to receive, when and
as declared by the Board of Directors, out of funds legally available for the
payment of dividends, cumulative preferential cash dividends in an amount per
share equal to the greater of (i) $1.75 per annum or (ii) the cash dividends
(determined on each of the quarterly dividend payment dates referred to below)
paid on the number of shares of Common Stock, or portion thereof, into which a
Series A Preferred Share is convertible. Such dividends are cumulative from the
date of original issue and shall be payable quarterly in arrears on the last
calendar day (or if such day is not a business day, the next business day
thereafter) of each February, May, August and November (each, a "Dividend
Payment Date"). Such dividends and any dividends payable on the Series A
Preferred Shares for any partial dividend period will be computed on the basis
of the actual number of days in such period. Accrued and unpaid

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<PAGE>
dividends for any past dividend periods may be declared and paid at any time and
for such interim periods to holders of record on the Dividend Record Date. Any
dividend payment made on the Series A Preferred Shares will first be credited
against the earliest accrued but unpaid dividend due with respect to the Series
A Preferred Shares that remains payable.

Except as provided in the next sentence, no dividends will be declared or
paid on any Parity Shares unless full cumulative dividends have been declared
and paid or are contemporaneously declared and funds sufficient for payment set
aside on the Series A Preferred Shares for all prior dividend periods. If
accrued dividends on the Series A Preferred Shares for all prior dividend
periods have not been paid in full, then any dividend declared on the Series A
Preferred Shares and on any Parity Shares for any dividend period will be
declared ratably in proportion to accrued and unpaid dividends on the Series A
Preferred Shares and such Parity Shares.

The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Shares (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Shares through a sinking fund or otherwise (other than a redemption or
purchase or other acquisition of Common Stock made for purposes of any employee
incentive or benefit plan of the Company or any subsidiary), unless (A) all
cumulative dividends with respect to the Series A Preferred Shares and any
Parity Shares at the time such dividends are payable have been paid or declared
and funds have been set apart for payment of such dividends and (B) sufficient
funds have been paid or declared and set apart for the payment of the dividend
for the current dividend period with respect to the Series A Preferred Shares
and any Parity Shares.

As used herein, (i) the term "dividend" does not include dividends or other
distributions payable solely in Fully Junior Shares (as defined below), or in
options, warrants or rights to subscribe for or purchase any Fully Junior
Shares, (ii) the term "Junior Shares" means the Common Stock and any other class
or series of shares of capital stock of the Company now or hereafter issued and
outstanding that ranks junior to the Series A Preferred Shares as to the payment
of dividends or in the distribution of assets or amounts upon liquidation,
dissolution and winding up and (iii) the term "Fully Junior Shares" means Junior
Shares that rank junior to the Series A Preferred Shares both as to the payment
of dividends and distribution of assets upon liquidation, dissolution and
winding up.

REDEMPTION

Except as required by the limitation on ownership (see "--Restrictions on
Transfer; Ownership Limits" below), the Series A Preferred Shares are not
redeemable prior to October 25, 1999. On and after October 25, 1999, the
Company, at its option, upon not less than 30 nor more than 90 days' written
notice, may redeem the Series A Preferred Shares, in whole or in part, at any
time or from time to time, at a redemption price equal to $25.00 per share, plus
accumulated, accrued and unpaid dividends thereon to the date fixed for
redemption. If fewer than all of the outstanding Series A Preferred Shares are
to be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares), by lot or by any
other method determined by the Company in its sole discretion to be equitable.

Unless full cumulative dividends on all Series A Preferred Shares and any
Parity Shares shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, no Series A
Preferred Shares shall be redeemed or purchased by the Company except pursuant
to a purchase or exchange offer made on the same terms to holders of all
outstanding Series A Preferred Shares.

The Series A Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption. However, in order to
preserve the Company's status as a REIT, as defined in the Code, the Series A
Preferred Shares may be subject to redemption or exchange as described in the
Company's Articles of Incorporation. See "--Restrictions on Transfer; Ownership
Limits" below.

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LIQUIDATION PREFERENCE

The holders of Series A Preferred Shares are entitled to receive in the
event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, $25.00 per Series A Preferred Share plus an amount per
Series A Preferred Share equal to all dividends (whether or not earned or
declared) accrued and unpaid thereon to the date of final distribution to such
holders, and no more.

Until the holders of Series A Preferred Shares and Parity Shares have been
paid their liquidation preference in full, no payment will be made to any holder
of Junior Shares upon the liquidation, dissolution or winding up of the Company.
If upon any liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributable among the holders of the Series
A Preferred Shares are insufficient to pay in full the liquidation preference
with respect to the Series A Preferred Shares and any other Parity Shares, then
such assets, or the proceeds thereof, will be distributed among the holders of
Series A Preferred Shares and any such Parity Shares ratably in accordance with
the respective amounts which would be payable on such Series A Preferred Shares
and any such Parity Shares if all amounts payable thereon were paid in full.
Neither a consolidation or merger of the Company with another corporation, a
statutory share exchange by the Company nor a sale or transfer of all or
substantially all of the Company's assets will be considered a liquidation,
dissolution or winding up, voluntary or involuntary, of the Company.

VOTING RIGHTS

Except as indicated below, or except as otherwise from time to time
required by applicable law, the holders of Series A Preferred Shares will have
no voting rights.

If six consecutive quarterly dividends payable on the Series A Preferred
Shares or any Parity Shares are in arrears, whether or not earned or declared,
the number of directors then constituting the Board of Directors of the Company
will be increased by two, and the holders of Series A Preferred Shares, voting
together as a class with the holders of any other series of Parity Shares, will
have the right to elect two additional directors to serve on the Company's Board
of Directors at any annual meeting of stockholders or a properly called special
meeting of the holders of Series A Preferred Shares and such voting Parity
Shares and at each subsequent annual meeting of stockholders until all such
dividends and dividends for the current quarterly period on the Series A
Preferred Shares and such other voting Parity Shares have been paid or declared
and paid or set aside for payment. Such voting right will terminate when all
such accrued and unpaid dividends have been declared and paid or set aside for
payment. The term of office of all directors so elected will terminate with the
termination of such voting rights.

The approval of two-thirds of the outstanding Series A Preferred Shares and
all other series of voting Parity Shares similarly affected, voting as a single
class, is required in order to (i) amend the Company's Articles of Incorporation
to affect materially and adversely the rights, preferences or voting powers of
the holders of the Series A Preferred Shares or the voting Parity Shares, (ii)
enter into a share exchange that affects the Series A Preferred Shares,
consolidate with or merge into another entity, or permit another entity to
consolidate with or merge into the Company, unless in each such case each Series
A Preferred Share remains outstanding without a material adverse change to its
terms and rights or is converted into or exchanged for convertible preferred
stock of the surviving entity having preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms or conditions of redemption thereof identical to that of a Series A
Preferred Share (except for changes that do not materially and adversely affect
the holders of the Series A Preferred Shares), or (iii) authorize, reclassify,
create, or increase the authorized amount of any class of capital stock having
rights senior to the Series A Preferred Shares with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding up. However, the
Company may create additional classes of Parity Shares and Junior Shares,
increase the authorized number of Parity Shares and Junior Shares and issue
additional series of Parity Shares and Junior Shares without the consent of any
holder of Series A Preferred Shares.

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Except as provided above and as required by applicable law, the holders of
Series A Preferred Shares are not entitled to vote on any merger or
consolidation involving the Company or a sale of all or substantially all of the
assets of the Company.

CONVERSION RIGHTS

The Series A Preferred Shares will be convertible, in whole or in part, at
the option of the holders thereof, at any time after April 25, 1997, into
authorized but previously unissued shares of Common Stock at a conversion price
of $25.00 per share of Common Stock (equivalent to a conversion rate of one
share of Common Stock for each Series A Preferred Share), subject to adjustment
as described below (the "Conversion Price"). See "--Conversion Price
Adjustments" below. The right to convert Series A Preferred Shares called for
redemption will terminate at the close of business on the fifth business day
prior to the redemption date for such Series A Preferred Shares. For information
as to notices of redemption, see "--Redemption" above. For a description of the
Company's Common Stock, see "Description of Common Stock."

Each conversion will be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for Series A
Preferred Shares shall have been surrendered and notice shall have been received
by the Company as aforesaid (and, if applicable, payment of an amount equal to
the dividend payable on such shares shall have been received by the Company as
described below) and the conversion shall be at the Conversion Price in effect
at such time and on such date.

The Company will not issue fractional shares of Common Stock upon
conversion but in lieu thereof will pay cash at the current market price of the
Common Stock on the day prior to the conversion date.

CONVERSION PRICE ADJUSTMENTS

The Conversion Price is subject to adjustment upon certain events,
including, without limitation, (i) dividends (and other distributions) payable
in Common Stock, (ii) the issuance to all holders of Common Stock of certain
rights or warrants entitling them to subscribe for or purchase Common Stock at a
price per share less than the fair market value per share of Common Stock
(which, as defined, includes an adjustment for underwriting commissions avoided
in rights offerings to stockholders), (iii) subdivisions, combinations and
reclassifications of Common Stock, and (iv) distributions to all holders of
Common Stock of any capital stock of the Company (other than Common Stock),
evidences of indebtedness of the Company or assets (including securities, but
excluding those dividends, rights, warrants and distributions referred to above
and excluding Permitted Common Stock Cash Distributions (as herein defined)).
"Permitted Common Stock Cash Distributions" are those cumulative cash dividends
and distributions paid with respect to the Common Stock after December 31, 1995
which are not in excess of the following: the sum of (i) the Company's
cumulative undistributed funds from operations at December 31, 1995, plus (ii)
the cumulative amount of funds from operations, as determined by the Board of
Directors of the Company, after December 31, 1995, minus (iii) the cumulative
amount of distributions accrued or paid on the Series A Preferred Shares or any
other class of preferred stock after October 24, 1996. In addition to the
foregoing adjustments, the Company will be permitted to make such reductions in
the Conversion Price as it considers to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the holders of the Common Stock.

In the event that the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, statutory share
exchange, self tender offer for all or substantially all of the Common Stock or
sale of all or substantially all of the Company's assets or certain
recapitalizations of the Common Stock), in each case as a result of which all or
substantially all of the Common Stock is converted into the right to receive
stock, securities or other property (including cash or any combination thereof),
each Series A Preferred Share that is not redeemed or converted prior to such
transaction will thereafter be convertible into the kind and amount of stock and
other securities and property receivable (including cash or any combination
thereof) upon the consummation of such transaction by a holder of

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that number of shares of Common Stock or fraction thereof into which one Series
A Preferred Share was convertible immediately prior to such transaction
(assuming such holder of Common Stock failed to exercise any rights of election
and received per share the kind and amount received per share by a plurality of
non-electing shares). The Company may not become a party to any such transaction
unless the terms thereof are consistent with the foregoing.

No adjustment of the Conversion Price will be required to be made in any
case until cumulative adjustments amount to 1% or more of the Conversion Price.
Any adjustments not so required to be made will be carried forward and taken
into account in subsequent adjustments.

RESTRICTIONS ON TRANSFER; OWNERSHIP LIMITS

For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding Capital stock may be owned, directly or indirectly, by
five or fewer "individuals" during the last half of a taxable year (other than
the first year) or during a proportionate part of a shorter taxable year. Under
the constructive ownership provisions of the Code, stock owned by an entity,
including a corporation, life insurance company, mutual fund or pension trust,
is treated as owned by the ultimate individual beneficial owners of the entity.
Because the Company intends to maintain its qualification as a REIT, the
Company's Articles of Incorporation contain certain restrictions on the
ownership and transfer of capital stock, including the Series A Preferred
Shares, intended to ensure compliance with these requirements. For a complete
description of these restrictions, see "Common Stock--Restrictions on Transfer."

Subject to certain exceptions specified in the Articles of Incorporation,
no holder may own, or be deemed to own by virtue of certain attribution
provisions of the Code, more than 5% of any class or series of Preferred Stock.
The Board of the Company has waived this restriction with respect to the
acquisition of Series A Preferred Shares for a holder who is not an "individual"
within the meaning of Section 542(a)(2) of the Code, so long as, through such
holder's ownership of such Series A Preferred Shares, no "individual" would be
considered the beneficial owner of more than 5% of the Series A Preferred
Shares. If a holder were to acquire more than 5% of the Series A Preferred
Shares and such holder did not meet the criteria set forth in the preceding
sentence, such holders Series A Preferred Shares would be subject to the
provisions in the Articles of Incorporation relating to a violation of the
ownership limits as described under the caption "Description of Common
Stock--Restrictions on Transfer--Violation of Ownership Limits."

DESCRIPTION OF PREFERRED STOCK

The Company is authorized to issue 15,000,000 shares of Preferred Stock. As
of June 30, 1997, there were no shares of Preferred Stock outstanding other than
the Series A Preferred Shares described in "Description of Series A Preferred
Shares."

Under the Company's Articles of Incorporation, the Board may from time to
time establish and issue one or more series of Preferred Stock. The Board may
classify or reclassify any unissued Preferred Stock by setting or changing the
number, designation, preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series (a "Designating Amendment").

The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and the
Company's bylaws (the "Bylaws").

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GENERAL

The Board is empowered by the Company's Articles of Incorporation to
designate and issue from time to time one or more series of Preferred Stock
without stockholder approval. The Board may determine the relative rights,
preferences and privileges of each series of Preferred Stock so issued. Because
the Board has the power to establish the preferences and rights of each series
of Preferred Stock, it may afford the holders of any series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The Preferred Stock will, when issued, be fully paid
and nonassessable.

The Prospectus Supplement relating to any Preferred Stock offered thereby
will contain the specific terms thereof, including, without limitation:

(1) The title and stated value of such Preferred Stock;

(2) The number of such shares of Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;

(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;

(4) The date from which dividends on such Preferred Stock will
accumulate, if applicable;

(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;

(6) The provision for a sinking fund, if any, for such Preferred
Stock;

(7) The provision for redemption, if applicable, of such Preferred
Stock;

(8) Any listing of such Preferred Stock on any securities exchange;

(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);

(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;

(11) A discussion of federal income tax considerations applicable to
such Preferred Stock;

(12) The relative ranking and preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;

(13) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and

(14) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT.

RANK

Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock, (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock, and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term "equity
securities" does not include convertible debt securities.

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DIVIDENDS

Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board, out of assets of the Company legally
available for payment, cash dividends (or dividends in kind or in other property
if expressly permitted and described in the applicable Prospectus Supplement) at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend will be payable to holders of record as they
appear on the stock transfer books of the Company on such record dates as are
fixed by the Board.

Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board fails to declare a dividend
payable on a dividend payment date on any series of the Preferred Stock for
which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.

Unless otherwise specified in the Prospectus Supplement, if any shares of
Preferred Stock of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock will be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock will in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Stock of such series (which will not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, will be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.

Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Stock, or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation, nor will any Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such stock) by the
Company (except by conversion into or exchange for other capital

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stock of the Company ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation).

If for any taxable year, the Company elects to designate as "capital gains
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of capital stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that will be allocable
to the holders of shares of Preferred Stock will be the Capital Gains Amount
multiplied by a fraction, the numerator of which shall be the total dividends
(within the meaning of the Code) paid or made available to the holders of shares
of Preferred Stock for the year and the denominator of which shall be the Total
Dividends.

REDEMPTION

If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.

The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that will be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
will not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock will
automatically and mandatorily be converted into the applicable capital stock of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.

Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all Preferred Stock of
any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no Preferred Stock of any series
shall be redeemed unless all outstanding Preferred Stock of such series are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of Preferred Stock of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Stock of such series. In
addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of any series of
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividends periods and the then current dividend period, and (ii) if such series
of Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Company will not purchase or
otherwise acquire directly or indirectly any Preferred Stock of such series
(except by conversion into or exchange for capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing will not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Preferred Stock of such series.

If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be

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redeemed pro rata from the holders of record of such shares in proportion to the
number of such shares held or for which redemption is requested by such holder
(with adjustments to avoid redemption of fractional shares) or by lot in a
manner determined by the Company.

Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice will state: (i) the redemption date; (ii) the number of
shares and series of Preferred Stock to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such Preferred Stock are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all of the Preferred Stock of any series are to be
redeemed, the notice mailed to each such holder thereof will also specify the
number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.

LIQUIDATION PREFERENCE

Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment is made to
the holders of any Common Stock or any other class or series of capital stock of
the Company ranking junior to the Preferred Stock in the distribution of assets
upon any liquidation, dissolution or winding up of the Company, the holders of
each series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which will not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.

If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company will be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, will not be deemed to constitute a liquidation, dissolution or
winding up of the Company.

VOTING RIGHTS

Holders of Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.

Whenever dividends on any Preferred Stock shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be

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entitled to vote for the election of two additional directors of the Company at
a special meeting called by the holders of record of at least ten percent (10%)
of any series of Preferred Stock so in arrears (unless such request is received
less than 90 days before the date fixed for the next annual or special meeting
of the shareholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if such series of Preferred Stock do not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board will be increased by two directors.

Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of shares of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares, or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in clause
(ii) above, so long as the shares of Preferred Stock remain outstanding with the
terms thereof materially unchanged, taking into account that upon the occurrence
of an Event the Company may not be the surviving entity, the occurrence of any
such Event will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock and
provided further that (x) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of Preferred Stock, or (y)
any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.

The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Preferred Stock of such series shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.

CONVERSION RIGHTS

The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the Preferred Stock are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the Preferred
Stock or the Company, the events requiring an adjustment of the conversion price
and provisions affecting conversion in the event of the redemption of such
series of Preferred Stock.

RESTRICTIONS ON OWNERSHIP

As discussed below under "Description of Common Stock--Restrictions on
Transfer--Ownership Limits," for the Company to qualify as a REIT under the
Code, no more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer "individuals" (as defined in the Code
to include certain entities) during the last half of a taxable year (other than
the first year) or

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during a proportionate part of a shorter taxable year. To assist the Company in
meeting this requirement, the Articles of Incorporation provide that no holder
of Preferred Stock may own, or be deemed to own by virtue of certain attribution
provisions of the Code, more than 5% of any class or series of Preferred Stock
and/or more than 5% of the issued and outstanding shares of Common Stock,
subject to certain exceptions specified in the Articles of Incorporation. See
"Description of Common Stock--Restrictions on Transfer--Ownership Limits."

REGISTRAR AND TRANSFER AGENT

The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.

DESCRIPTION OF COMMON STOCK

GENERAL

The Company is authorized to issue 90,000,000 shares of Common Stock. The
outstanding Common Stock entitles the holder to one vote on all matters
presented to stockholders for a vote. Holders of Common Stock have no preemptive
rights. At June 30, 1997, there were 57,052,871 shares of Common Stock
outstanding.

Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (the "NYSE"). The Company will apply to the NYSE to list
the additional Common Stock to be sold pursuant to any Prospectus Supplement,
and the Company anticipates that such shares will be so listed.

Subject to such preferential rights as may be granted by the Board in
connection with the future issuance of Preferred Stock, holders of Common Stock
are entitled to one vote per share on all matters to be voted on by stockholders
and are entitled to receive ratably such dividends as may be declared on the
Common Stock by the Board in its discretion from funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and any liquidation
preference of the holders of Preferred Stock. Holders of Common Stock have no
subscription, redemption, conversion or preemptive rights. Matters submitted for
stockholder approval generally require a majority vote of the shares present and
voting thereon.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws of the Company provide that, with respect to an annual meeting
of stockholders, the proposal of business to be considered by stockholders may
be made only (i) by or at the direction of the Board or (ii) by a stockholder
who is entitled to vote at the meeting and who has complied with the advance
notice procedures set forth in the Bylaws. In addition, with respect to any
meeting of stockholders, nominations of persons for election to the Board may be
made only (i) by or at the direction of the Board or (ii) by any stockholder of
the Company who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.

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RESTRICTIONS ON TRANSFER

Ownership Limits. The Company's Articles of Incorporation contain certain
restrictions on the number of shares of Common Stock that individual
shareholders may own. For the Company to qualify as a REIT under the Code, no
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer "individuals" (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year. The capital
stock also must be beneficially owned by 100 or more persons during at least 335
days of a taxable year or during a proportionate part of a shorter taxable year.
Because the Company intends to maintain its qualification as a REIT, the
Company's Articles of Incorporation contain certain restrictions on the
ownership and transfer of capital stock, including Common Stock, intended to
ensure compliance with these requirements.

Subject to certain exceptions specified in the Articles of Incorporation,
no holder may own, or be deemed to own by virtue of certain attribution
provisions of the Code, more than (A) 5% of the issued and outstanding shares of
Common Stock (the "Common Stock Ownership Limit") and/or (B) more than 5% of any
class or series of Preferred Stock. (This limit, in addition to the Existing
Holder Limit, the Special Shareholder Limit, and the Non U.S. Shareholder Limit,
all as defined below, are referred to collectively herein as the "Ownership
Limits.") Existing Holders, including Clark Enterprises Inc., The Oliver Carr
Company, Oliver T. Carr, Jr., and A. James Clark, are not subject to the Common
Stock Ownership Limit, but they are subject to special ownership limitations
(the "Existing Holder Limit"). Furthermore, SC-USREALTY and its affiliates are
not subject to the Common Stock Ownership Limit, but are subject to a special
ownership limit of 45% of the outstanding shares of Common Stock and 45% of the
outstanding shares of each class or series of preferred stock of the Company
(the "Special Shareholder Limit"). Furthermore, all holders are prohibited from
acquiring any capital stock if such acquisition would cause five beneficial
owners of capital stock to beneficially own in the aggregate more than 50% in
value of the outstanding capital stock.

In addition to the above restrictions on ownership of shares of capital
stock of the Company, in order to assist the Company in qualifying as a
"domestically controlled REIT," the Articles of Incorporation contain certain
provisions preventing any Non-U.S. Shareholder (as defined below) (other than
SC-USREALTY and its affiliates) from acquiring additional shares of the
Company's capital stock if, as a result of such acquisition, the Company would
fail to qualify as a "domestically controlled REIT" (computed assuming that
SC-USREALTY owns the maximum percentage of the Company's capital stock that it
is permitted to own under the Special Shareholder Limit) (the "Non-U.S.
Shareholder Limit"). A Non-U.S. Shareholder is a nonresident alien individual,
foreign corporation, foreign partnership and any other foreign shareholder. For
a discussion of the taxation of a Non-U.S. Shareholder and the requirements for
the Company to qualify as a "domestically controlled REIT," see "Federal Income
Tax Considerations--Taxation of Holders of Common Stock--Taxation of Non-U.S.
Shareholders." The Company is unlikely to be able to advise a prospective
Non-U.S. Shareholder that its purchase of any shares of the Company's capital
stock would not violate this prohibition, thereby subjecting such prospective
Non-U.S. Shareholder to the adverse consequences described under "--Violation of
Ownership Limits" below. Accordingly, an acquisition of the Company's capital
stock would not likely be a suitable investment for Non-U.S. Shareholders other
than SC-USREALTY.

The Board may increase the Ownership Limits from time to time, but may not
do so to the extent that, after giving effect to such increase, five beneficial
owners of shares of capital stock could beneficially own in the aggregate more
than 49.5% of the Company's outstanding shares of capital stock. The Board, in
its sole discretion, may waive the Ownership Limits with respect to a holder if
such holder's ownership will not then or in the future jeopardize the Company's
status as a REIT.

Violation of Ownership Limits. The Articles of Incorporation provide that,
if any holder of capital stock of the Company purports to transfer shares to a
person or there is a change in the capital structure of the Company and either
the transfer or the change in capital structure would result in the Company
failing to qualify as a REIT, or such transfer or the change in capital
structure would cause the transferee to hold shares in excess of the applicable
Ownership Limit (including the Non-U.S.

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Shareholder Limit), then the capital stock being transferred (or in the case of
an event other than a transfer, the capital stock beneficially owned) that would
cause one or more of the restrictions on ownership or transfer to be violated
will be automatically transferred to a trust for the benefit of a designated
charitable beneficiary. The purported transferee of such shares shall have no
right to receive dividends or other distributions with respect to such shares
and shall have no right to vote such shares. Any dividends or other
distributions paid to such purported transferee prior to the discovery by the
Company that the shares have been transferred to a trust shall be paid upon
demand to the trustee of the trust for the benefit of the charitable
beneficiary. The trustee of the trust will have all rights to dividends with
respect to the shares of capital stock held in trust, which rights will be
exercised for the exclusive benefit of the charitable beneficiary. Any dividends
or distributions paid over to the trustee will be held in trust for the
charitable beneficiary. The trustee shall designate a transferee of such stock
so long as such shares of stock would not violate the Ownership Limitations in
the hands of such designated transferee. Upon the sale of such shares, the
purported transferee shall receive the lesser of (A) (i) the price per share
such purported transferee paid for the capital stock in the purported transfer
that resulted in the transfer of shares of capital stock to the trust, or (ii)
if the transfer or other event that resulted in the transfer of shares of
capital stock to the trust was not a transaction in which the purported record
transferee of shares of capital stock gave full value for such shares, a price
per share equal to the market price on the date of the purported transfer or
other event that resulted in the transfer of the shares to the trust, and (B)
the price per share received by the trustee from the sale or disposition of the
shares held in the trust.

All certificates representing Common Stock will bear a legend referring to
the restrictions described above.

Every owner of more than 5% (or such lower percentage as required by the
Code or regulations thereunder) of the issued and outstanding shares of Common
Stock must file a written notice with the Company containing the information
specified in the Articles of Incorporation no later than December 31 of each
year. In addition, each stockholder shall upon demand be required to disclose to
the Company in writing such information as the Company may request in good faith
in order to determine the Company's status as a REIT.

REGISTRAR AND TRANSFER AGENT

The Registrar and Transfer Agent for the Common Stock is BankBoston, N.A.

DESCRIPTION OF COMMON STOCK WARRANTS

The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.

The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Stock
Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price
or prices at which such Common Stock Warrants will be issued; (4) the
designation, number and terms of the shares of Common Stock purchasable upon
exercise of such Common Stock Warrants; (5) the designation and terms of the
other Securities offered thereby with which such Common Stock Warrants are
issued and the number of such Common Stock Warrants issued with each

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such Security offered thereby; (6) the date, if any, on and after which such
Common Stock Warrants and the related Common Stock will be separately
transferable; (7) the price at which each of the shares of Common Stock
purchasable upon exercise of such Common Stock Warrants may be purchased; (8)
the date on which the right to exercise such Common Stock Warrants shall
commence and the date on which such right shall expire; (9) the minimum or
maximum number of such Common Stock Warrants which may be exercised at any one
time; (10) information with respect to book entry procedures, if any; (11) a
discussion of certain federal income tax considerations; and (12) any other
terms of such Common Stock Warrants, including terms, procedures and limitations
relating to the exchange and exercise of such Common Stock Warrants.

DESCRIPTION OF DEPOSITARY SHARES

GENERAL

The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (a "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all the rights and preferences
of the Preferred Stock represented by such Depositary Shares (including
dividend, voting, conversion, redemption and liquidation rights).

The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.

DIVIDENDS AND OTHER DISTRIBUTIONS

A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.

In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.

No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged before the record date for such distribution.

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WITHDRAWAL OF STOCK

Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
shares of Preferred Stock will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of shares of Preferred Stock to be withdrawn, the
applicable Preferred Stock Depositary will be required to deliver to such holder
at the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares.

REDEMPTION OF DEPOSITARY SHARES

Whenever the Company redeems shares of Preferred Stock held by a Preferred
Stock Depositary, such Preferred Stock Depositary will be required to redeem as
of the same redemption date the number of Depositary Shares representing shares
of the Preferred Stock so redeemed, provided the Company shall have paid in full
to such Preferred Stock Depositary the redemption price of the Preferred Stock
to be redeemed plus an amount equal to any accrued and unpaid dividends thereon
to the date fixed for redemption. The redemption price per Depositary Share will
be equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that preserves the REIT
status of the Company.

From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.

VOTING OF THE PREFERRED STOCK

Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.

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LIQUIDATION PREFERENCE

In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.

CONVERSION OF PREFERRED STOCK

The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct the Company to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of stock, and the Company will agree that
upon receipt of such instructions and any amounts payable in respect thereof, it
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional shares of Common Stock will be issued
upon conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.

AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT

Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holders of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.

A Deposit Agreement will be permitted to be terminated by the Company upon
not less than 30 days" prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve the Company's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange. In
addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed, (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution

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<PAGE>
shall have been distributed to the holders of Depositary Receipts evidencing the
Depositary Shares representing such Preferred Stock or (iii) each share of the
related Preferred Stock shall have been converted into stock of the Company not
so represented by Depositary Shares.

CHARGES OF A PREFERRED STOCK DEPOSITARY

The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of a
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.

RESIGNATION AND REMOVAL OF DEPOSITARY

A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.

MISCELLANEOUS

A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.

Neither a Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of the
Company and a Preferred Stock Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.

In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company on the other hand, such Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.

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FEDERAL INCOME TAX CONSIDERATIONS

GENERAL

The following is a description of material federal income tax consequences
to the Company and the holders of Common Stock, Preferred Stock, Depositary
Shares, Common Stock Warrants and Debt Securities of the treatment of the
Company as a REIT under applicable provisions of the Code. The following
discussion, which is not exhaustive of all possible tax considerations, does not
give a detailed discussion of any state, local or foreign tax considerations.
Nor does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective Security holder in light of his or her particular
circumstances or to certain types of Security holders (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) who are subject to special treatment under the federal income tax laws.
As used under this heading, the term "Company" refers solely to CarrAmerica
Realty Corporation.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SECURITIES OF IN AN ENTITY ELECTING TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.

TAXATION OF THE COMPANY

General. The Company, which is considered a corporation for federal income
tax purposes, has elected to be taxed as a REIT under Sections 856 through 860
of the Code effective as of its taxable year ended December 31, 1993. The
Company believes that it was organized and has operated in a manner so as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. No assurance, however, can be given that
the Company has operated in a manner so as to qualify as a REIT or that it will
continue to operate in such a manner in the future. Qualification and taxation
as a REIT depends upon the Company's ability to meet on a continuing basis,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code on
REITs, some of which are summarized below. While the Company intends to operate
so that it qualifies as a RElT, given the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in circumstances of the Company, no assurance can
be given that the Company satisfies such tests or will continue to do so. See
"--Failure to Qualify" below.

The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof.

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on net income that it distributes
currently to shareholders. However, the Company will be subject to federal
income tax on any income that it does not distribute and will be subject to
federal income tax in certain circumstances on certain types of income even
though that income is distributed.

Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest, (3) that would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code,
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code, (5) the beneficial ownership of which is held by
100 or more persons, (6) that during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities), and (7) that

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meets certain other tests, described below, regarding the nature of its income
and assets. The Code provides that conditions (1) through (4), inclusive, must
be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. The Company's Articles of
Incorporation contain restrictions regarding the transfer of its capital stock
that are intended to assist the Company in continuing to satisfy the stock
ownership requirements described in conditions (5) and (6). See "Description of
Common Stock--Restrictions on Transfer."

Income Tests. In order to maintain qualification as a REIT, there are three
gross income requirements that must be satisfied annually. First, at least 75%
of the REIT's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% income test, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year.

Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions (related to the identity of the tenant, the computation of
the rent payable, and the nature of the property leased) are met. The Company
does not anticipate receiving rents in excess of 1% of gross revenue that fail
to meet these conditions. In addition, for rents received to qualify as "rents
from real property," the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent the
services provided by the Company are "usually or customarily rendered" in
connection with the rental space for occupancy only and are not otherwise
considered "rendered to the occupant." The Company will provide certain services
with respect to the properties through entities that do not satisfy the
"independent contractor" requirements described above. The Company has received
a ruling from the IRS that the provision of certain services will not cause the
rents received with respect to the properties to fail to qualify as "rents from
real property." Based upon the IRS ruling and its experience in the office
rental markets in which the Company's properties are located, the Company
believes that all services provided to tenants will be considered "usually or
customarily rendered" in connection with the rental of office space for
occupancy only, although there can be no assurance that the IRS will not contend
otherwise. If the Company contemplates providing services, either directly or
through another entity, in the future that reasonably might be expected not to
meet the "usual or customary" standard, it will arrange to have such services
provided by an independent contractor from which the Company will receive no
income.

The Company may receive fees in consideration of the performance of
management and administrative services with respect to properties that are not
owned entirely by the Company. A portion of such management and administrative
fees (corresponding to that portion of a property owned by a third party)
generally will not qualify under the 75% or 95% gross income tests. The Company
also may receive other types of income with respect to the properties that it
owns that will not qualify for the 75% or 95% gross income tests. The Company
believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under the 75% and 95% gross income tests.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. It is not
possible, however, to state whether in all circumstances the Company would be
entitled to the benefit of these relief provisions. Even if these relief
provisions were to apply, however, a

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tax would be imposed with respect to the "excess net income" attributable to the
failure to satisfy the 75% and 95% gross income tests.

Asset Tests. At the close of each quarter of its taxable year, the Company
also must satisfy the following three tests relating to the nature of its
assets: (i) at least 75% of the value of the Company's total assets must be
represented by "real estate assets," cash, cash items and government securities;
(ii) not more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class; and (iii) of the investments
included in the 25% asset class, the value of any one issuer's securities (other
than an interest in a partnership, shares of a "qualified REIT subsidiary" or
another REIT, but including any unsecured debt of Carr Realty, L.P. or
CarrAmerica Realty, L.P.) owned by the Company may not exceed 5% of the value of
the Company's total assets, and the Company may not own more than 10% of any one
issuer's outstanding voting securities (other than an interest in a partnership,
shares of a "qualified REIT subsidiary" or another REIT). The Company owns
directly all of the non-voting stock, representing 95% of the equity, of
CarrAmerica Development & Construction. By virtue of its ownership of Units, the
Company will be considered to own its pro rata share of the assets of Carr
Realty, L.P., including the securities of Carr Services, Inc. (Carr Services,
Inc. and CarrAmerica Development & Construction are referred to collectively
herein as the "Non-qualified REIT Subsidiaries.") Neither Carr Realty, L.P.,
CarrAmerica Realty, L.P., nor the Company will own more than 10% of the voting
securities of any Non-qualified REIT Subsidiary. There can be no assurance,
however, that the IRS might not contend that the arrangements between the
Company and the non-qualified REIT subsidiaries are such that the Company should
be considered to own more than 10% of the voting securities of one or both of
these entities. In addition, the Company and its senior management believe that
the Company's pro rata share of the value of the securities of each of such
Non-qualified REIT Subsidiary and of any unsecured debt of Carr Realty, L.P. and
CarrAmerica Realty, L.P. owned by the Company will not exceed 5% of the total
value of the Company's assets. There can be no assurance, however, that the IRS
might not contend otherwise. Although the Company plans to take steps to ensure
that it continues to satisfy the 5% test, there can be no assurance that such
steps will be successful or will not require a reduction in the Company's
overall interest in one or more of the Non-qualified REIT Subsidiaries.

Annual Distribution Requirements. To qualify as a REIT, the Company
generally must distribute to its shareholders at least 95% of its income each
year. In addition, the Company will be subject to tax on the undistributed
amount at regular capital gains and ordinary corporate tax rates and also may be
subject to a 4% excise tax on undistributed income in certain events.

The Company believes that it has made, and intends to continue to make,
timely distributions sufficient to satisfy the annual distribution requirements.
It is possible, however, that the Company, from time to time, may not have
sufficient cash or liquid assets to meet the 95% distribution requirement. In
that event, the Company may arrange for short-term, or possibly long-term,
borrowing to permit the payments of required dividends.

Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.

TAXATION OF HOLDERS OF COMMON STOCK

Taxation of Taxable Domestic Shareholders. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income, and
corporate shareholders will not be eligible for the dividends received deduction
as to such amounts. For purposes of determining whether distributions on the
shares of Common Stock are out of current or accumulated earnings and profits,
the earnings and profits of the Company will be

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allocated first to shares of Preferred Stock, if any, and second to the shares
of Common Stock. There can be no assurance that the Company will have sufficient
earnings and profits to cover distributions on any shares of Preferred Stock.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the shareholder has held its stock. However, corporate shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current or accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares of Common Stock, but rather will
reduce the adjusted basis of such shares of Common Stock. To the extent that
such distributions exceed the adjusted basis of a shareholder's shares of Common
Stock, they will be included in income as long-term capital gain (or short-term
capital gain if the shares of Common Stock have been held for one year or less),
assuming the shares of Common Stock are a capital asset in the hands of the
shareholder.

In general, a domestic shareholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between (i) the
amount of cash and the fair market value of any property received on such
disposition and (ii) the shareholder's adjusted basis of such shares of Common
Stock. Such gain or loss generally will constitute long-term capital gain or
loss if the shareholder has held such shares for more than one year. Loss upon a
sale or exchange of shares of Common Stock by a shareholder who has held such
shares of Common Stock for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.

Backup Withholding. The Company will report to its domestic shareholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number and
certifies as to no loss of exemption from backup withholding. Amounts withheld
as backup withholding will be creditable against the stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any shareholders who fail to certify their
non-foreign status to the Company. See "--Taxation of Non-U.S. Shareholders"
below. Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Shareholders (persons other than (i)
citizens or residents of the United States, (ii) corporations, partnerships or
other entities created or organized under the laws of the United States or any
political subdivision thereof, and (iii) estates or trusts the income of which
is subject to United States federal income taxation regardless of its source)
and Non-U.S. Shareholders should consult their tax advisors with respect to any
such information reporting and backup withholding requirements.

The Treasury Department has recently issued proposed regulations regarding
the withholding and information reporting rules discussed above. In general, the
proposed regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. If finalized in their current form, the
proposed regulations would generally be effective for payments made after
December 31, 1997, subject to certain transition rules.

Taxation of Tax-Exempt Shareholders. As a general rule, amounts distributed
to a tax-exempt entity do not constitute "unrelated business taxable income"
("UBTI"), and thus distributions by the Company to a stockholder that is a
tax-exempt entity should also not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its shares of Common Stock with
"acquisition indebtedness" within the meaning of the Code and the shares of
Common Stock are not otherwise used in an unrelated trade or business of the
tax-exempt entity. However, under the Revenue Reconciliation Act of 1993,
distributions by a REIT to a tax-exempt employee's pension trust that owns more
than 10% of the REIT will be treated as UBTI in an amount equal to the
percentage of gross income of the REIT that is derived from an "unrelated trade
or business" (determined as if the REIT were a pension trust)

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divided by the gross income of the REIT for the year in which the dividends are
paid. This rule only applies, however, if (i) the percentage of gross income of
the REIT that is derived from an unrelated trade or business for the year in
which the dividends are paid is at least 5%, (ii) the REIT qualifies as a REIT
only because the pension trust is not treated as a single individual for
purposes of the "five-or-fewer rule" (see "--Taxation of the Company--
Requirements for Qualification" above), and (iii) (A) one pension trust
owns more than 25 percent of the value of the REIT or, (B) a group of pension
trusts individually holding more than 10 percent of the value of the REIT
collectively own more than 50 percent of the value of the REIT. The Company
currently does not expect that this rule will apply.

Taxation of Non-U.S. Shareholders. The rules governing U.S. federal income
taxation of Non-U.S. Shareholders are complex, and no attempt will be made
herein to provide more than a limited summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of U.S. federal, state and local income tax laws with regard to an
investment in Common Stock, including any reporting requirements.

Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a Non-U.S. Shareholder's Common Stock, they will give rise to tax liability if
the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the
sale or disposition of its Common Stock as described below (in which case they
also may be subject to a 30% branch profits tax if the shareholder is a foreign
corporation). As a result of a legislative change made by the Small Business Job
Protection Act of 1996, effective for distributions made after August 20, 1996,
the Company is required to withhold 10% of any distribution in excess of the
Company's current and accumulated earnings and profits. Consequently, although
the Company intends to withhold at a rate of 30% (or such lower rate as may
apply to dividends under an applicable treaty) on the entire amount of any
distribution, to the extent that the Company does not do so, any portion of a
distribution not subject to dividend withholding tax will be subject to
withholding at a rate of 10%. However, the Non-U.S. Shareholder may seek from
the IRS a refund of such amounts from the IRS if it is subsequently determined
that such distribution was, in fact, in excess of current or accumulated
earnings and profits of the Company, and the amount withheld exceeded the
Non-U.S. Shareholder's United States tax liability, if any, with respect to the
distribution.

For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") at the
normal capital gain rates applicable to domestic shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Also, distributions subject to FIRPTA
may be subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Shareholder not entitled to treaty relief or exemption. The Company is required
by applicable Treasury Regulations to withhold 35% of any distribution that is
or could be designated by the Company as a capital gain dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Shareholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. As of June 30, 1997, SC-USREALTY held
approximately 42.6% in value of the outstanding Common Stock of the Company. In
the event that SC-USREALTY and other stockholders of the Company who are
Non-U.S. Shareholders own collectively 50% or more, in value, of

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the outstanding stock of the Company, the Company would cease to be a
"domestically controlled REIT."

If the Company does not qualify as a "domestically controlled REIT," a
Non-U.S. Shareholder's sale of securities of the Company generally still will
not be subject to U.S. tax under FIRPTA as a sale of a U.S. real property
interest, provided that (i) the securities are "regularly traded" (as defined by
the applicable Treasury Regulations) on an established securities market, and
(ii) the selling Non-U.S. Shareholder held 5% or less of the value of any class
or series of the Company's outstanding securities at all times during a
specified testing period. The Company believes that the Common Stock would be
considered to be "regularly traded" for this purpose, and the Company has no
actual knowledge of any Non-U.S. Shareholder (other than SC-USREALTY) that holds
in excess of 5% of the Company's capital stock. In order to assist the Company
in qualifying as a "domestically controlled REIT," the Articles of Incorporation
contain certain provisions preventing any Non-U.S. Shareholder (other than SC-
USREALTY and its affiliates) from acquiring additional shares of the Company's
capital stock if, as a result of such acquisition, the Company would fail to
qualify as a "domestically controlled REIT" (computed assuming that SC-USREALTY
owns the maximum percentage of the Company's capital stock that SC-USREALTY is
permitted to own under the Special Shareholder Limit). The Company is unlikely
to be able to advise a prospective Non-U.S. Shareholder that its purchase of any
shares of the Company's capital stock would not violate this prohibition,
thereby subjecting such prospective Non-U.S. Shareholder to the adverse
consequences described under "Description of Common Stock--Restrictions on
Transfer--Violation of Ownership Limits." Accordingly, an acquisition of the
Company's capital stock would not likely be a suitable investment for Non-U.S.
Shareholders other than SC-USREALTY.

If the gain on the sale of Common Stock were to be subject to tax under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as
domestic shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals), and the purchaser of the Common Stock would be
required to withhold and remit to the IRS 10% of the purchase price.

TAXATION OF HOLDERS OF PREFERRED STOCK, DEPOSITARY SHARES, COMMON STOCK WARRANTS
AND DEBT SECURITIES

Additional Tax Consequences for Holders of Preferred Stock, Depositary
Shares, Common Stock Warrants or Debt Securities. If the Company offers one or
more series of Preferred Stock, Depositary Shares, Common Stock Warrants or Debt
Securities, then there may be tax consequences for the holders of such
Securities not discussed herein. For a discussion of any such additional
consequences, see the applicable Prospectus Supplement.

OTHER TAX CONSIDERATIONS

Entity Classification. A significant number of the Company's investments
are through Carr Realty, L.P. and CarrAmerica Realty, L.P. If either Carr
Realty, L.P. or CarrAmerica Realty, L.P. were treated as an association, the
entity would be taxable as a corporation and therefore would be subject to an
entity level tax on its income. In such a situation, the character of the
Company's assets and items of gross income would change and would preclude the
Company from qualifying as a REIT (see "Taxation of the Company--Income Tests"
and "--Asset Tests").

Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the Treasury Regulations in effect at that
time used to distinguish a partnership from a corporation for tax purposes.
These four characteristics were (i) continuity of life, (ii) centralization of
management, (iii) limited liability and (iv) free transferability of interests.
Under final Treasury Regulations which became effective January 1, 1997, the
four factor test has been eliminated and an entity formed as a partnership or as
a limited liability company will be taxed as a partnership for federal income
tax purposes, unless it specifically elects otherwise. The

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Regulations provide that the IRS will not challenge the classification of an
existing partnership or limited liability company for tax periods prior to
January 1, 1997, so long as (1) the entity had a reasonable basis for its
claimed classification, (2) the entity and all of its members recognized the
federal income tax consequences of any changes in the entity's classification
within the 60 months prior to January 1, 1997, and (3) neither the entity nor
any member of the entity had been notified in writing on or before May 8, 1996,
that the classification of the entity was under examination by the IRS.

The Company believes that Carr Realty, L.P. and CarrAmerica Realty, L.P.
each will be treated as a partnership for federal income tax purposes (and not
as an association taxable as a corporation).

Tax Allocations with Respect to the Properties. Carr Realty, L.P. was
formed by way of contributions of appreciated property. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution (this difference is referred to as "Book-Tax Difference"). Carr
Realty, L.P.'s partnership agreement requires that allocations of income, gain,
loss and deduction with respect to each property contributed to Carr Realty,
L.P. be made in a manner consistent with the special rules in 704(c) of the Code
and the regulations thereunder, which will tend to eliminate the Book-Tax
Differences with respect to such contributed properties over the life of Carr
Realty, L.P. However, because of certain technical limitations, the special
allocation rules of Section 704(c) may not always entirely eliminate the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of such contributed
properties in the hands of Carr Realty, L.P. could cause the Company to be
allocated lower amounts of depreciation and other deductions for tax purposes
than would be allocated to the Company if all such contributed properties were
to have a tax basis equal to their fair market values at the time such
properties were contributed to Carr Realty, L.P. The foregoing rules also apply
for purposes of determining the Company's earnings and profits. The application
of such rules over time could result in a higher portion of distributions to
shareholders being taxed as dividends. See "--Taxation of Holders of Common
Stock."

Non-Qualified REIT Subsidiaries. The Non-qualified REIT Subsidiaries do not
qualify as REITs and thus pay federal, state and local income taxes (including
District of Columbia franchise tax) on their net income at normal corporate
rates. To the extent the Non-qualified REIT Subsidiaries are required to pay
federal, state and local income taxes, the cash available for distribution to
stockholders will be reduced accordingly.

State and Local Taxes; District of Columbia Unincorporated Business
Tax. The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. In this regard, the District of Columbia imposes an
unincorporated business income tax, at the rate of 9.975%, on the "District of
Columbia taxable income" of partnerships doing business in the District of
Columbia. Because many of the properties owned by Carr Realty, L.P. are located
in the District of Columbia, the Company's share of the "District of Columbia
taxable income" of Carr Realty, L.P. will be subject to this tax. Carr Realty,
L.P. has taken steps to attempt to reduce the amount of income that is
considered "District of Columbia taxable income," but it is likely that at least
some portion of the income attributable to Carr Realty, L.P.'s properties
located in the District of Columbia will be subject to the District of Columbia
tax. To the extent Carr Realty, L.P. is required to pay the District of Columbia
unincorporated business income tax, the cash available for distribution to the
Company and, therefore, to its stockholders as dividends will be reduced
accordingly. This tax would not apply if the Company were to own and operate its
assets directly, rather than through Carr Realty, L.P.; however, the Company's
ability to eliminate Carr Realty, L.P. and thus own directly the assets
currently owned by Carr Realty, L.P. is severely limited.

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PLAN OF DISTRIBUTION

GENERAL

The Company may sell Securities in or through underwriters for public offer
and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.

Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.

Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements to be entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.

If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be neither less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions, but will in all cases be
subject to the approval of the Company. Contracts will not be subject to any
conditions except (i) the purchase by an institution of the Securities covered
by its Contracts shall not at the time of delivery be prohibited under the laws
of any jurisdiction in the United States to which such institution is subject,
and (ii) if the Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Securities less
the principal amount thereof covered by Contracts.

Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
Subsidiaries in the ordinary course of business.

PARTICIPATION RIGHTS

In conjunction with the SC-USREALTY Transaction, so long as SC-USREALTY
owns at least 25% of the outstanding Common Stock of the Company on a fully
diluted basis, SC-USREALTY will be entitled (except in certain limited
circumstances), upon compliance with certain specified conditions, to a
participation right to purchase or subscribe for, either as part of such
issuance or in a concurrent issuance, a total number of shares of Common Stock
or Preferred Stock, as the case may be, equal to up to 30% (or 35% in certain
circumstances) of the total number of shares or of Common Stock or

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Preferred Stock, as applicable, proposed to be issued by the Company. All
purchases pursuant to such participation rights will be at the same price and on
the same terms and conditions as are applicable to other purchasers hereunder.

LEGAL MATTERS

The legality of the Debt Securities, the Preferred Stock, the Depositary
Shares, the Common Stock and the Common Stock Warrants offered hereby have been
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain
federal income tax matters have been passed upon for the Company by Hogan &
Hartson L.L.P., Washington, D.C.

EXPERTS

The consolidated financial statements and schedule of CarrAmerica Realty
Corporation and subsidiaries as of December 31, 1996 and 1995 and for each of
the years in the three-year period ended December 31, 1996 have been
incorporated herein by reference in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and the following regional offices of the
Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material also can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon receipt of
the fees prescribed by the rules and regulations of the Commission. Such
material also may be accessed electronically by means of the Commission's web
site on the Internet at "http://www.sec.gov". The Company's Common Stock is
listed on the New York Stock Exchange, and reports, proxy statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon receipt of
the fees prescribed by the rules and regulations of the Commission.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996;

46
<PAGE>
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997; and

3. The Company's Current Reports on Form 8-K dated April 18, 1997,
June 20, 1997, June 20, 1997, June 23, 1997, June 26, 1997, July 1,
1997, July 1, 1997 and August 5, 1997.

All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.

Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.

The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to Secretary, CarrAmerica Realty
Corporation, 1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006 (telephone
number (202) 624-7500).

47
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary.................. S-3
The Company.................................... S-8
Recent Developments............................ S-11
Use of Proceeds................................ S-13
Capitalization................................. S-14
Properties..................................... S-15
Selected Financial Information................. S-23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... S-25
Management..................................... S-27
Description of Series B Preferred Shares....... S-34
Federal Income Tax Considerations.............. S-38
Underwriting................................... S-41
Legal Matters.................................. S-42

PROSPECTUS
The Company.................................... 2
Risk Factors................................... 3
Use of Proceeds................................ 9
Ratios of Earnings to Fixed Charges............ 9
Description of Debt Securities................. 10
Description of Series A Preferred Shares....... 21
Description of Preferred Stock................. 25
Description of Common Stock.................... 31
Description of Common Stock Warrants........... 33
Description of Depositary Shares............... 34
Federal Income Tax Considerations.............. 38
Plan of Distribution........................... 45
Legal Matters.................................. 46
Experts........................................ 46
Available Information.......................... 46
Incorporation of Certain Documents by
Reference.................................... 46
</TABLE>

7,000,000 SHARES
CARRAMERICA
REALTY CORPORATION

8.57% SERIES B CUMULATIVE REDEEMABLE
PREFERRED STOCK

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[LOGO]

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GOLDMAN, SACHS & CO.
LEGG MASON WOOD WALKER
INCORPORATED
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS

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