CARRAMERICA REALTY CORP, 424B5, 1997-04-16

CARRAMERICA REALTY CORP
424B5, 1997-04-16
REAL ESTATE INVESTMENT TRUSTS

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PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 27, 1997
2,142,857 SHARES

[LOGO]

CARRAMERICA REALTY CORPORATION

COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------

The Company is a publicly-traded real estate investment trust that focuses
primarily on the acquisition, development, ownership and operation of suburban
office properties in select growth markets across the United States. As of April
14, 1997, the Company owned interests in 184 operating properties containing
approximately 14.7 million square feet of office space, five properties under
construction that will contain approximately 846,000 square feet of office
space, and land or options to acquire land that will support the development of
up to 3.7 million square feet of office space.

All of the shares of Common Stock offered hereby are being sold by the
Company. The Common Stock is listed on the New York Stock Exchange under the
symbol "CRE." The last reported sale price for the Common Stock on the NYSE on
April 14, 1997 was $26.375 per share. Subject to certain limited exceptions,
ownership of more than 5% of the Common Stock 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 the
Common Stock by foreign investors. See "Description of Common Stock--
Restrictions on Transfer" and "Risk Factors--Special Considerations for Foreign
Investors" in the accompanying Prospectus.

SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE COMMON STOCK.
------------------------

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>
PRICE TO UNDERWRITING PROCEEDS TO
OFFEREE DISCOUNT COMPANY
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Per Share................................... $26.375 $ 0 $26.375
Total(3).................................... $56,517,853 $ 0 $56,517,853
</TABLE>

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

The date of this Prospectus Supplement is April 14, 1997.
<PAGE>
[ARTWORK]
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus Supplement and the accompanying Prospectus or
incorporated therein by reference. Unless indicated otherwise, the information
contained in this Prospectus Supplement assumes that the Underwriters'
overallotment option in the Offering is not exercised. As used herein, the term
"Company" includes CarrAmerica Realty Corporation, a Maryland corporation,
and/or one or more of its subsidiaries, as appropriate, and "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. Factors that could cause actual results to
differ materially from current expectations include the failure of pending
investments to close, changes in general economic conditions, changes in local
real estate conditions, changes in industries in which the Company's principal
tenants compete, the failure to timely lease unoccupied square footage, the
failure to timely re-lease occupied square footage upon lease expiration, the
inability to generate sufficient revenues to meet debt service payments and
other operating expenses, the unavailability of equity and debt financing and
other risks described in this Prospectus Supplement or in the accompanying
Prospectus or incorporated therein by reference. See "Risk Factors" beginning on
page 3 of the accompanying Prospectus for further discussion of these risks.

THE COMPANY

The Company is a publicly-traded real estate investment trust ("REIT") and
one of the largest developers, owners and operators of suburban office
properties in the United States. As of April 14, 1997, the Company owned
interests in 184 operating properties containing approximately 14.7 million
square feet of office space located in 13 markets, five properties under
construction that will contain approximately 846,000 square feet of office
space, and land and options to acquire land that will support the development of
up to 3.7 million square feet of office space. The operating properties owned by
the Company as of December 31, 1996 were 93.6% 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, "USRealty") since November 1995. As of April 14, 1997, USRealty
owned approximately 41.0% of the outstanding Common Stock of the Company (36.5%
on a fully diluted basis). The Company is the exclusive strategic investment of
USRealty in the commercial office property business in 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 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. From January 1, 1996 through
April 14, 1997, the Company implemented its national business strategy by
acquiring 171 operating properties containing approximately 11.4 million square
feet of office space for an aggregate purchase price of approximately $1.2
billion.

S-1
<PAGE>
RECENT DEVELOPMENTS

Operating Property Acquisitions. From January 1 to April 14, 1997, the
Company acquired 24 operating office properties containing approximately 2.2
million square feet for an aggregate purchase price of $239.8 million. As of
April 14, 1997, the Company had entered into binding contracts (subject to
certain conditions) and non-binding letters of intent to acquire an additional
19 operating office properties containing approximately 1.0 million square feet
for an aggregate purchase price of approximately $98.3 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.

The following table summarizes the operating properties that were acquired
by the Company from January 1 to April 14, 1997 and those operating properties
that the Company expects to acquire within the next 60 days:

<TABLE>
<CAPTION>
MONTH/EXPECTED NUMBER OF APPROXIMATE
PROPERTY MARKET MONTH OF ACQUISITION PROPERTIES SQUARE FEET
- --------------------------------- ----------------------- -------------------- --------- --------------
<S> <C> <C> <C> <C>
COMPLETED PROPERTY ACQUISITIONS
Cedar Maple Plaza................ Suburban Dallas January 1997 3 112,000
The Crossings.................... Suburban Chicago January 1997 2 296,000
Warner Premier................... Southern California January 1997 1 62,000
Quorum North..................... Suburban Dallas February 1997 1 118,000
3745 North First Street.......... Northern California February 1997 1 68,000
Quorum Place..................... Suburban Dallas March 1997 1 177,000
Wateridge Pavilion............... Southern California March 1997 1 62,000
Mission Plaza.................... Northern California March 1997 2 103,000
Fortran Court.................... Northern California March 1997 4 298,000
RadiSys Building................. Suburban Portland, OR March 1997 1 80,000
Bannockburn Lake Office Plaza I &
II............................. Suburban Chicago March 1997 2 210,000
2400 Lake Park Drive............. Suburban Atlanta April 1997 1 103,000
680 Engineering Drive............ Suburban Atlanta April 1997 1 62,000
Embassy Row...................... Suburban Atlanta April 1997 3 467,000
--
--------------
Subtotal....................... 24 2,218,000
PENDING PROPERTY ACQUISITIONS

Data I/O Building................ Suburban Seattle May 1997 1 96,000
Scottsdale Place................. Suburban Phoenix April 1997 6 88,000
Westlake Corporate Center........ Southern California April 1997 2 71,000
Suburban Salt Lake City May 1997 3 179,000
Draper Park North................
Sorenson Research Park........... Suburban Salt Lake City April 1997 5 285,000
Tollhill East and West........... Suburban Dallas April 1997 2 238,007
--
--------------
Subtotal....................... 19 957,000
--
--------------
Total.......................... 43 3,175,000
--
--
--------------
--------------
</TABLE>

Development. The Company's property development program will be an
increasingly important component of its growth as attractive opportunities for
the acquisition of operating properties diminish due to the influx of capital
into the office property market. Since January 1, 1997, the Company placed in
service one development property containing approximately 101,000 square feet.
In addition, as of April 14, 1997, the Company had five other properties under
construction that it intends to own and operate. The five properties contain
approximately 846,000 square feet. The Company expects to achieve a first-year
stabilized unleveraged return of approximately 11.1% on the $112.6 million
estimated development cost of these five properties. The Company is also
developing a 58,000 square foot office building for sale upon completion of
construction to a third party under an existing agreement and expects to
generate a pre-tax profit on the sale of approximately $1.0 million. There can
be no assurance that the Company's expected return or profits on these
development projects will be realized.

S-2
<PAGE>
The following table sets forth certain information regarding the five
office properties under construction by the Company that it intends to own and
operate, as of April 14, 1997:

<TABLE>
<CAPTION>
EXPECTED
FIRST-YEAR
STABILIZED
ESTIMATED UNLEVERAGED
RENTABLE COST RETURN ON EXPECTED
SQUARE (IN PERCENT DEVELOPMENT COMPLETION
PROPERTY UNDER CONSTRUCTION MARKET FEET 000's) LEASED COST DATE
- --------------------------- ------------------- -------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Spalding Ridge............. Suburban Atlanta 128,000 $ 15,400 75% 10.3% 2Q 1997
City View Center........... Austin, Texas 128,000 18,100 0% 10.4% 4Q 1997
Panorama Corporate
Center II................ Southeast Denver 101,000 11,900 39% 10.5% 2Q 1997
JD Edwards................. Southeast Denver 189,000 28,600 100% 9.9% 3Q 1997
Baytech Center............. Northern California 300,000 38,600 100% 12.7% 4Q 1997
-------- --------- ------- -----
Total/Weighted Average 846,000 $112,600 74% 11.1%
-------- --------- ------- -----
-------- --------- ------- -----
</TABLE>

Land Held for Development. The Company believes that owning a sufficient
inventory of land for future development is critical to its 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. From January 1 to April 14, 1997, the Company acquired land
at Gateway Plaza, Cedar Maple Plaza, Tollway Plaza I and Embassy Row that will
support future development of up to 648,000 square feet of office space. The
Company also has entered into binding agreements (subject to certain conditions)
and non-binding letters of intent to acquire an additional 40 acres of land for
future development in 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 April 14, 1997 and land that the Company expects to
acquire within the next 60 days:

<TABLE>
<CAPTION>
PENDING LAND
OWNED OR
CONTROLLED LAND ACQUISITIONS
------------------- --------------------
BUILDABLE BUILDABLE
SQUARE SQUARE
REGION/PROPERTY MARKET ACRES FOOTAGE ACRES FOOTAGE
- ------------------------ ----------------------- ----- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
PACIFIC REGION:
RadiSys Land.......... Suburban Portland, OR -- -- 4 46,000
Redmond Hilltop....... Suburban Seattle 4 95,000 -- --
Data I/O Land......... Suburban Seattle -- -- 23 324,000
----- --------- ------ ---------
Subtotal 4 95,000 27 370,000
----- --------- ------ ---------
MOUNTAIN REGION:
Panorama Corporate
Center................ Southeast Denver 30 615,000 -- --
Draper Park North..... Suburban Salt Lake City -- -- 13 179,000
Gateway Plaza......... Suburban Phoenix 7 240,000 -- --
Quorum Land........... Southeast Denver 5 105,000 -- --
----- --------- ------ ---------
Subtotal 42 960,000 13 179,000
----- --------- ------ ---------
CENTRAL REGION:
Aubrey Smith.......... Austin, Texas 18 750,000 -- --
Riata................. Austin, Texas 51 774,000 -- --
Cedar Maple Land...... Suburban Dallas 1 38,000 -- --
Tollway Plaza I....... Suburban Dallas 4 178,000 -- --
Parkway North......... Suburban Chicago 30 723,000 -- --
----- --------- ------ ---------
Subtotal 104 2,463,000 -- --
----- --------- ------ ---------
SOUTHEAST REGION:
Embassy Row Land...... Suburban Atlanta 11 192,000 -- --
----- --------- ------ ---------
Subtotal 11 192,000 -- --
----- --------- ------ ---------
Total 161 3,710,000 40 549,000
----- --------- ------ ---------
----- --------- ------ ---------
</TABLE>

S-3
<PAGE>
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 April 14,
1997:

<TABLE>
<CAPTION>
SQUARE
NUMBER OF SQUARE FOOTAGE % OF FOOTAGE BUILDABLE
OPERATING OF OPERATING TOTAL UNDER SQUARE
MARKET PROPERTIES PROPERTIES SQ. FT. CONSTRUCTION FOOTAGE(1)
- --------------------------------------------- --------- -------------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Northern California.......................... 44 2,926,000 19.8% 300,000 --
Metropolitan Washington, D.C.(2):
Downtown................................... 10 2,403,000 16.3 -- --
Suburban................................... 7 1,273,000 8.6 -- --
Suburban Chicago............................. 8 1,380,000 9.4 -- 723,000
Suburban Atlanta............................. 43 1,895,000 12.9 128,000 192,000
Southern California.......................... 28 1,220,000 8.3 -- --
Southeast Denver............................. 11 1,014,000 6.9 290,000 720,000
Austin, Texas................................ 11 976,000 6.6 128,000 1,524,000
Suburban Dallas.............................. 7 650,000 4.4 -- 216,000
Suburban Seattle............................. 10 399,000 2.7 -- 95,000
Suburban Phoenix............................. 3 372,000 2.5 -- 240,000
South Florida................................ 1 160,000 1.1 -- --
Suburban Portland, Oregon.................... 1 80,000 0.5 -- --
--- -------------- ------- ------------ ----------
Total...................................... 184 14,748,000 100.0% 846,000 3,710,000
--- -------------- ------- ------------ ----------
--- -------------- ------- ------------ ----------
</TABLE>

- ------------------
(1) Represents buildable square footage of land (including land subject to
options) that is held for development.

(2) Excludes five properties containing approximately 1,289,000 square feet of
office space in which the Company owns an interest of 50% or less and which
are not consolidated in the Company's financial statements.

S-4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered Hereby (1)............................. 2,142,857 shares
Common Stock Offered in Offering(2)...........................5,000,000 shares
Common Stock Outstanding After the Offering and Concurrent
USRealty Purchase (3)..................................... 55,941,531 shares
Common Stock and Units Outstanding After the Offering and
Concurrent USRealty Purchase (4).......................... 61,536,340 shares and Units
Use of Proceeds............................................. To repay outstanding indebtedness and for future
acquisitions and development
</TABLE>

- ------------------
(1) See "Price Range of Common Stock and Dividend History" herein and
"Description of Common Stock" in the accompanying Prospectus.

(2) The Company is offering 5,000,000 shares of Common Stock (the "Offering")
in a concurrent offering simultaneously with the closing of the purchase by
USRealty of 2,142,857 shares of Common Stock offered hereby (the
"Concurrent USRealty Purchase").

(3) Based on number of shares of Common Stock outstanding on April 14, 1997.

(4) Based on number of shares of Common Stock and Units outstanding on April 14,
1997. "Unit" are 4,549,445 Units of partnership interest in Carr Realty,
L.P. and 1,045,364 Units of partnership interest in CarrAmerica Realty, L.P.
(the "Carr Partnerships") that are redeemable for shares of Common Stock on
a one-for-one basis or cash, at the option of the Company.

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, 1994, 1995 and 1996.
This information is derived from the audited financial statements of the Company
incorporated by reference in the accompanying Prospectus.

The following table also sets forth pro forma financial information for the
Company as of and for the year ended December 31, 1996, giving effect to (i) the
completion of the Offering and the Concurrent USRealty Purchase, (ii) the
acquisition of office properties and land that have been consummated since the
beginning of the period presented and the acquisition of other office properties
and land that the Company expects to consummate in the near future, (iii) the
sales of common and preferred stock during 1996, (iv) the Company's January 1997
public offering of 4,928,570 shares of Common Stock for aggregate net proceeds
of $136.0 million and (v) the repayment of outstanding indebtedness. See "Pro
Forma Financial Information."

S-5
<PAGE>
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."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
HISTORICAL PRO FORMA
---------------------------------- ----------
1994 1995 1996 1996
-------- -------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AND PROPERTY
DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Real estate operating revenue:
Rental revenue........................................... $ 82,665 $ 89,539 $ 154,165 $ 275,240
Real estate service revenue.............................. 8,890 11,315 12,512 12,512
Real estate operating expenses:
Property operating expenses.............................. 29,707 31,579 51,927 94,083
Interest expense......................................... 21,366 21,873 31,630 50,158
General and administrative expenses...................... 9,535 10,711 15,228 15,228
Depreciation and amortization............................ 14,419 18,495 38,264 64,585
Net income................................................. 12,097 12,067(1) 24,318(1) 57,892
Dividends paid to common stockholders...................... 20,204 23,344 42,914
PER SHARE DATA:
Net income before extraordinary item....................... $ 1.06 $ 0.90 $ 0.90 $ 0.97
Dividends paid to common stockholders...................... 1.75 1.75 1.75
Weighted average shares outstanding(2)..................... 11,387 13,338 31,999 62,075
BALANCE SHEET DATA (AT PERIOD END):
Real estate, before accumulated depreciation............... $429,537 $480,589 $1,539,998 $1,912,358
Total assets............................................... 407,948 458,860 1,536,564 1,906,920
Mortgages payable.......................................... 254,933 317,374 440,449 497,145
Other indebtedness......................................... 0 0 215,000 189,221
Minority interest.......................................... 38,644 34,850 50,597 69,423
Total stockholders' equity................................. 106,042 95,543 787,478 1,104,377
OTHER DATA:
Net cash provided by operating activities.................. $ 29,908 $ 35,277 $ 82,300
Net cash used by investing activities...................... (67,046) (81,635) (876,947)
Net cash provided by financing activities.................. 32,652 37,113 813,067
Funds from operations before minority interest of the
Unitholders of Carr Partnerships (3)..................... 30,640 33,190(1) 64,496(1) 124,895
Weighted average shares and Units outstanding (4).......... 15,878 18,157 32,263 63,815
Number of properties (at period end)....................... 16 18 165 203
Square footage (in thousands, at period end)............... 4,006 4,626 13,954 15,705
</TABLE>

- ------------------
(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 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 shares and share equivalents and, when dilutive,
stock options and Units.

(3) The Company believes that funds from operations is an appropriate measure of
the performance of an equity REIT because industry analysts have accepted it
as a performance measure of equity REITs. 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'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 should not be
considered an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity or the Company's
ability to make distributions.

(4) Includes shares of Common and Preferred Stock outstanding plus Units that
are redeemable for shares of Common Stock on a one-for-one basis or for
cash, at the option of the Company. Units include non-dividend paying Units.

S-6
<PAGE>
THE COMPANY

The Company and its predecessor, The Oliver Carr Company ("OCCO"), have
been in 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 625 employees located throughout the
United States. The Company's principal executive offices are located at 1700
Pennsylvania Avenue, N.W., Washington, D.C. 20006 and its telephone number is
(202) 624-7500. The Company's web site can be found at www.carramerica.com. The
Company was organized as a Maryland corporation on July 9, 1992.

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 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 South Florida.

For each identified target market, the Company has established a set of
general guidelines and physical characteristics to evaluate acquisition
opportunities available to the Company. 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.

S-7
<PAGE>

The Company believes that three of the key indicators of the strength of
the national office property market are declining vacancy rates, positive net
absorption and limited new supply of office product. The charts below show
national office vacancy rates in suburban markets and central business districts
for the period from 1986 to 1996 and new office construction starts and net
absorption in suburban markets for the same period.

(CHARTS OMITTED)

(See narrative description below or in appendix for graphics and images).
[The first chart shows suburban vacancy rates compared to central business
district vacancy rates for the years 1986-1996. The second chart tracks new
construction in millions of square feet along with net absorption from
1986-1996.]

S-8
<PAGE>
The supply and demand fundamentals in the Company's target markets
generally have improved since 1994 and have resulted in decreasing vacancy rates
which compare favorably with the national average, as shown below:
<TABLE>
<CAPTION>
COMPANY
--------------------------
SQUARE FEET % OF
OWNED IN COMPANY'S
MARKET/ TOTAL
COMPANY'S MARKET/ SUBMARKET SUBMARKET S.F.
- -------------------------------------------------------------------------------------------------- --------------- -------
<S> <C> <C>
NORTHERN CALIFORNIA............................................................................... 2,926,000 19.84
Sunnyvale....................................................................................... 126,000 0.86
North San Jose.................................................................................. 1,851,000 12.55
Pleasanton/Dublin............................................................................... 949,000 6.43
METROPOLITAN WASHINGTON, D.C...................................................................... 3,676,000 24.92
District of Columbia............................................................................ 2,403,000 16.29
Northern Virginia............................................................................... 1,273,000 8.63
CHICAGO........................................................................................... 1,380,000 9.36
Oakbrook........................................................................................ 662,000 4.49
Tri-State/Northbrook............................................................................ 718,000 4.87
ATLANTA........................................................................................... 1,895,000 12.85
Northeast....................................................................................... 772,000 5.23
Northwest....................................................................................... 334,000 2.27
Central Perimeter............................................................................... 626,000 4.24
Northlake....................................................................................... 163,000 1.11
SOUTHERN CALIFORNIA/ORANGE COUNTY................................................................. 631,000 4.28
Greater Airport Area............................................................................ 631,000 4.28
SOUTHERN CALIFORNIA/LOS ANGELES................................................................... 404,000 2.74
West San Fernando Valley........................................................................ 404,000 2.74
SOUTHERN CALIFORNIA/SAN DIEGO..................................................................... 185,000 1.25
Sorrento Mesa/Del Mar Heights................................................................... 185,000 1.25
DENVER............................................................................................ 1,014,000 6.88
Southeast I-25 Corridor......................................................................... 1,014,000 6.88
AUSTIN, TEXAS..................................................................................... 976,000 6.61
Northwest Suburban.............................................................................. 344,000 2.33
Southwest Suburban.............................................................................. 136,000 0.92
Central Business District....................................................................... 496,000 3.36
</TABLE>

<PAGE>

% MARKET
TOTAL OFFICE VACANCY
SPACE IN RATES(1)

MARKET (S.F.)(1) ------------

COMPANY'S MARKET/ SUBMARKET 1996 1996 1995
- ----------------------------------------------------------------------------------------------- ---------------- ---- ----
<S> <C> <C> <C>
NORTHERN CALIFORNIA............................................................................ 243,174,022 5.6 8.1
Sunnyvale.................................................................................... 23,889,091 4.6 8.6
North San Jose............................................................................... 24,901,324 4.3 7.9
Pleasanton/Dublin............................................................................ 5,601,135 3.5 5.9
METROPOLITAN WASHINGTON, D.C................................................................... 208,959,639 8.3 9.4
District of Columbia......................................................................... 76,016,575 10.4 9.5
Northern Virginia............................................................................ 84,629,549 4.8 7.0
CHICAGO........................................................................................ 188,594,031 14.0 15.1
Oakbrook..................................................................................... 26,048,053 9.4 10.4
Tri-State/Northbrook......................................................................... 5,088,456 6.7 8.8
ATLANTA........................................................................................ 91,546,181 9.3 10.1
Northeast.................................................................................... 6,267,344 8.6 7.7
Northwest.................................................................................... 18,290,239 7.6 10.3
Central Perimeter............................................................................ 18,755,456 3.8 6.0
Northlake.................................................................................... 10,262,202 8.7 9.1
SOUTHERN CALIFORNIA/ORANGE COUNTY.............................................................. 47,943,316 12.6 14.6
Greater Airport Area......................................................................... 25,602,112 8.6 11.5
SOUTHERN CALIFORNIA/LOS ANGELES................................................................ 161,523,324 18.3 19.9
West San Fernando Valley..................................................................... 9,482,471 15.9 15.9
SOUTHERN CALIFORNIA/SAN DIEGO.................................................................. 39,547,991 12.8 16.8
Sorrento Mesa/Del Mar Heights................................................................ 4,784,518 6.0 14.1
DENVER......................................................................................... 64,777,494 10.8 11.9
Southeast I-25 Corridor...................................................................... 19,776,888 5.2 6.1
AUSTIN, TEXAS.................................................................................. 20,406,590 9.2 10.6
Northwest Suburban........................................................................... 7,853,864 7.4 5.9
Southwest Suburban........................................................................... 1,763,257 9.7 11.8
Central Business District.................................................................... 6,607,777 14.7 18.4
</TABLE>

<PAGE>

COMPANY'S MARKET/ SUBMARKET 1994
- -------------------------------------------------------------------------------------------------- ----
<S> <C>
NORTHERN CALIFORNIA............................................................................... 11.3
Sunnyvale....................................................................................... 15.4
North San Jose.................................................................................. 11.2
Pleasanton/Dublin............................................................................... 9.5
METROPOLITAN WASHINGTON, D.C...................................................................... 10.5
District of Columbia............................................................................ 9.1
Northern Virginia............................................................................... 9.6
CHICAGO........................................................................................... 16.6
Oakbrook........................................................................................ 11.9
Tri-State/Northbrook............................................................................ 10.8
ATLANTA........................................................................................... 12.9
Northeast....................................................................................... 9.5
Northwest....................................................................................... 11.5
Central Perimeter............................................................................... 7.1
Northlake....................................................................................... 11.9
SOUTHERN CALIFORNIA/ORANGE COUNTY................................................................. 16.6
Greater Airport Area............................................................................ 14.3
SOUTHERN CALIFORNIA/LOS ANGELES................................................................... 20.7
West San Fernando Valley........................................................................ 15.7
SOUTHERN CALIFORNIA/SAN DIEGO..................................................................... 17.9
Sorrento Mesa/Del Mar Heights................................................................... 17.1
DENVER............................................................................................ 12.7
Southeast I-25 Corridor......................................................................... 9.3
AUSTIN, TEXAS..................................................................................... 11.1
Northwest Suburban.............................................................................. 6.5
Southwest Suburban.............................................................................. 9.7
Central Business District....................................................................... 19.4
</TABLE>

S-9
<PAGE>

<TABLE>
<CAPTION>
COMPANY
--------------------------
SQUARE FEET % OF
OWNED IN COMPANY'S
MARKET/ TOTAL
COMPANY'S MARKET/ SUBMARKET SUBMARKET S.F.
- -------------------------------------------------------------------------------------------------- --------------- -------
<S> <C> <C>
DALLAS............................................................................................ 650,000 4.41
LBJ/Quorum...................................................................................... 387,000 2.63
Oaklawn/Turtle Creek............................................................................ 112,000 0.76
North Central Expressway........................................................................ 151,000 1.02
SEATTLE........................................................................................... 399,000 2.71
Bellevue........................................................................................ 399,000 2.71

PHOENIX........................................................................................... 372,000 2.53
Camelback Corridor.............................................................................. 200,000 1.36
Paradise Valley................................................................................. 172,000 1.17

SOUTH FLORIDA..................................................................................... 160,000 1.08
Boca Raton...................................................................................... 160,000 1.08
PORTLAND, OREGON.................................................................................. 80,000 0.54
Hillsboro/Sunset Corridor....................................................................... 80,000 0.54
SALT LAKE CITY (2)................................................................................ -- --
5300 South & I-15............................................................................... -- --
Draper.......................................................................................... -- --
--------------- -------
TOTAL/WEIGHTED AVERAGE:
COMPANY'S SUBMARKETS............................................................................ 14,748,000 100.00
--------------- -------
--------------- -------
COMPANY'S SUBMARKETS (W/O DISTRICT OF COLUMBIA)................................................. 12,345,000 83.71
--------------- -------
--------------- -------
COMPANY'S 13 MARKETS (3)........................................................................ N/A N/A
UNITED STATES................................................................................... N/A N/A

</TABLE>

<PAGE>

% MARKET
TOTAL OFFICE VACANCY
SPACE IN RATES(1)

MARKET (S.F.)(1) ------------

COMPANY'S MARKET/ SUBMARKET 1996 1996 1995
- ---------------------------------------------------------------------------------------------- ---------------- ---- ----
<S> <C> <C> <C>
DALLAS........................................................................................ 111,319,178 17.0 19.3
LBJ/Quorum.................................................................................. 24,731,357 7.2 9.4
Oaklawn/Turtle Creek........................................................................ 6,454,916 14.9 14.2
North Central Expressway.................................................................... 4,434,844 13.5 23.7
SEATTLE....................................................................................... 52,113,849 7.7 8.7
Bellevue.................................................................................... 1,060,949 8.6 7.2
PHOENIX....................................................................................... 42,601,284 9.3 12.4
Camelback Corridor.......................................................................... 7,801,889 5.6 10.9
Paradise Valley............................................................................. 1,020,989 5.1 4.5
SOUTH FLORIDA................................................................................. 68,368,227 12.8 14.2
Boca Raton.................................................................................. 6,779,721 7.4 9.5
PORTLAND, OREGON.............................................................................. 24,451,754 6.2 8.7
Hillsboro/Sunset Corridor................................................................... 1,668,470 9.5 10.9
SALT LAKE CITY (2)............................................................................ 17,190,904 6.2 7.1
5300 South & I-15........................................................................... 3,047,174 2.4 5.6
Draper...................................................................................... 789,432 6.3 1.1
---------------- ---- ----
TOTAL/WEIGHTED AVERAGE:
COMPANY'S SUBMARKETS........................................................................ N/A 7.6 9.1
---- ----
---- ----
COMPANY'S SUBMARKETS (W/O DISTRICT OF COLUMBIA)............................................. N/A 7.0 9.1
---- ----
---- ----
COMPANY'S 13 MARKETS (3).................................................................... N/A 9.6 11.2
---- ----
---- ----
UNITED STATES............................................................................... N/A 12.0 14.1
---- ----
---- ----
</TABLE>

COMPANY'S MARKET/ SUBMARKET 1994
- -------------------------------------------------------------------------------------------------- ----
<S> <C>
DALLAS............................................................................................ 21.1
LBJ/Quorum...................................................................................... 15.5
Oaklawn/Turtle Creek............................................................................ 13.7
North Central Expressway........................................................................ 28.0
SEATTLE........................................................................................... 11.9
Bellevue........................................................................................ 6.6
PHOENIX........................................................................................... 14.7
Camelback Corridor.............................................................................. 10.8
Paradise Valley................................................................................. 8.8
SOUTH FLORIDA..................................................................................... 17.2
Boca Raton...................................................................................... 15.7
PORTLAND, OREGON.................................................................................. 9.6
Hillsboro/Sunset Corridor....................................................................... 11.4
SALT LAKE CITY (2)................................................................................ 8.9
5300 South & I-15............................................................................... 5.8
Draper.......................................................................................... 9.0
----
TOTAL/WEIGHTED AVERAGE:
COMPANY'S SUBMARKETS............................................................................ 11.1
----
----
COMPANY'S SUBMARKETS (W/O DISTRICT OF COLUMBIA)................................................. 11.5
----
----
COMPANY'S 13 MARKETS (3)........................................................................ 13.0
----
----
UNITED STATES................................................................................... 15.4
----
----
</TABLE>

- ------------------
(1) Source: Torto Wheaton/CB Commercial.
(2) See "Recent Developments -- Pending Acquisitions."
(3) Represents the 13 markets that include the Company's targeted submarkets in
which the Company owns properties or has property acquisitions pending.

S-10
<PAGE>
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 April
14, 1997, the Company acquired 171 operating properties containing approximately
11.4 million square feet of office space, resulting in an approximately 150%
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 $1.2 billion and, at the time of acquisition,
were expected to produce an initial unleveraged return on capitalized cost of
approximately 10.1% for the first year after acquisition. The initial
unleveraged return on capitalized cost for the 24 operating office properties
acquired January 1 through April 14, 1997 and the Company's pending acquisitions
is expected to be approximately 9.8% for the first year after acquisition.
Initial unleveraged return is calculated based on estimated net operating income
including the effect of straight-line rents, if any, for the first year after
acquisition, and including a deduction for management fees divided by
capitalized cost (including the purchase price, any deferred maintenance costs
and tenant rollover and buildout requirements).

Development Program. The Company's development program will be an
increasingly important component of its growth as attractive acquisition
opportunities diminish due to the influx of capital into the office property
market. To implement its national development program, the Company acquired Carr
Development & Construction 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 27 persons who have an average of over 12 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 square feet. In addition, as of April
14, 1997, the Company had five other properties under construction that it
intends to own and operate. The five properties will contain approximately
846,000 square feet. The Company expects that the first-year stabilized
unleveraged return on the estimated $112.6 million development cost of these
five properties will be approximately 11.1%. The expected first-year stabilized
unleveraged return on development cost is calculated by dividing a development
property's expected net operating income for the first year after stabilization,
on a cash basis, by the estimated total capitalized investment at stabilization.
The Company also is developing an office property that will contain 58,000
square feet for sale to a third party after completion of construction pursuant
to an existing agreement. With respect to this property, the Company (through a
subsidiary) expects to generate a pre-tax profit of approximately $1.0 million
on the sale. There can be no assurance that the Company's expected returns or
profit on these development projects will be realized.

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 owns or controls 161 acres of
land for future development in six of its target markets. The Company also has
entered into binding agreements (subject to certain conditions) and non-binding
letters of intent to acquire an additional 40 acres of land for future
development in 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. The Company also believes that the long-term investment returns
available to it on office properties it develops generally will exceed those of
office property acquisition opportunities currently available to the Company.

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-11
<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 identifying investment
opportunities for the Company; (ii) a National Marketing Group, which, when
established, will be 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.

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 April 14, 1997, the Company
provided its own real estate operating services for 12.8 million square feet (or
87.1%) of its portfolio. The Company expects to assume operational
responsibility for an additional 1.8 million square feet of its properties in
the next 120 days. The Company, through certain subsidiaries, also provides
fee-based real estate services for related and unrelated parties.

S-12
<PAGE>

RECENT DEVELOPMENTS

RECENT ACQUISITIONS

<TABLE>
<CAPTION>
PERCENT
PURCHASE LEASED AS OF
MONTH OF PRICE RENTABLE FEBRUARY 28,
MARKET/PROPERTY SUBMARKET ACQUISITION (IN MILLIONS) SQUARE FEET 1997
- -------------------------------- ------------------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NORTHERN CALIFORNIA
3745 North First Street....... North San Jose February 1997 $ 8.2 68,000 53%
Mission Plaza................. North San Jose March 1997 10.3 103,000 100
Fortran Court................. North San Jose March 1997 30.8 298,000 100
SUBURBAN CHICAGO
The Crossings................. Oakbrook January 1997 40.1 296,000 99
Bannockburn Lake Office Plaza
I and II.................... Northbrook/Tristate March 1997 27.4 210,000 100
SUBURBAN DALLAS
Cedar Maple Plaza............. Oaklawn/Turtle Creek January 1997 12.7 112,000 92
Quorum North.................. LBJ/Quorum February 1997 10.6 118,000 88
Quorum Place.................. Quorum/North Dallas March 1997 16.3 177,000 95
SOUTHERN CALIFORNIA
Warner Premier................ West San Fernando January 1997 9.5 62,000 100
Wateridge Pavilion............ Del Mar Heights March 1997 6.4 62,000 100
SUBURBAN PORTLAND
RadiSys Corporate
Headquarters................ Hillsboro/Sunset Corridor March 1997 8.9 80,000 100
SUBURBAN ATLANTA
2400 Lake Park Drive.......... Northwest April 1997 7.5 103,000 98
680 Engineering Drive......... Northeast April 1997 4.4 62,000 100
Embassy Row................... Central Perimeter April 1997 46.7 467,000 99
------------- ----------- -----
TOTAL/WEIGHTED AVERAGE $ 239.8 2,218,000 97%
------------- ----------- -----
------------- ----------- -----
</TABLE>

As of April 14, 1997, the Company had entered into six binding contracts
(subject to certain conditions) and non-binding letters of intent to acquire an
additional 19 operating office properties containing approximately 1.0 million
square feet for an aggregate purchase price of approximately $98.3 million. The
following table provides summary information on these properties, which the
Company expects to acquire within the next 60 days. The closing of these pending
acquisitions is subject to the Company's due diligence and certain other closing
conditions, and there can be no assurance that any of these transactions will be
consummated.

PENDING ACQUISITIONS

<TABLE>
<CAPTION>
PURCHASE
PRICE SQUARE PERCENT
MARKET/PROPERTY SUBMARKET (IN MILLIONS) FOOTAGE LEASED
- -------------------------------------------------- ----------------------- ------------- -------------- -------
<S> <C> <C> <C> <C>
SOUTHERN CALIFORNIA
Westlake Corporate Center....................... Westlake/Thousand Oaks $ 6.2 71,000 88%
SUBURBAN SALT LAKE CITY
Sorenson Research Park.......................... 5300 South and I-15 30.5 285,000 100
Draper Park North(1)............................ Draper 19.2 179,000 100
SUBURBAN SEATTLE
Data I/O Building(2)............................ Redmond 8.7 96,000 100
SUBURBAN PHOENIX
Scottsdale Place................................ Scottsdale 11.6 88,000 100
SUBURBAN DALLAS
Tollhill East and West.......................... LBJ/North Dallas 22.1 238,000 90
------------- -------------- -------
TOTAL/WEIGHTED AVERAGE
$ 98.3 957,000 97%
------------- -------------- -------
------------- -------------- -------
</TABLE>

- ------------------
(1) Also includes land for future development of up to 179,000 square feet, for
an additional $3.4 million.

(2) Also includes land for the future development of up to 324,000 square feet,
for an additional $5.7 million.

S-13
<PAGE>

Development. Since January 1, 1997, the Company has placed in service one
development property containing approximately 101,000 square feet. In addition,
as of April 14, 1997 the Company had five other properties under construction
that it intends to own and operate. The five properties will contain
approximately 846,000 square feet. The Company is also developing a 58,000
square foot office building for sale upon completion of construction to a third
party under an existing agreement.

The following table sets forth certain information regarding the five
office properties under construction by the Company that it intends to own and
operate, as of April 14, 1997:

<S> <C> <C> <C> <C> <C> <C>
Spalding Ridge Suburban Atlanta 128,000 $ 15,400 75% 10.3% 2Q 1997
City View Center Austin, Texas 128,000 18,100 0 10.4 4Q 1997
Panorama Corporate Southeast Denver
Center II 101,000 11,900 39 10.5 2Q 1997
JD Edwards Southeast Denver 189,000 28,600 100 9.9 3Q 1997
Baytech Center Northern California 300,000 38,600 100 12.7 4Q 1997
-------- --------- ------- -----
TOTAL/WEIGHTED AVERAGE 846,000 $112,600 74% 11.1%
-------- --------- ------- -----
-------- --------- ------- -----
</TABLE>

Land Held for Development. The following table shows the land and options
to acquire land held for future development by the Company as of April 14, 1997
and which the Company expects to acquire within the next 60 days:

<TABLE>
<CAPTION>
OWNED OR CONTROLLED PENDING LAND
LAND ACQUISITIONS
------------------- --------------------
BUILDABLE BUILDABLE
SQUARE SQUARE
REGION/PROPERTY MARKET ACRES FOOTAGE ACRES FOOTAGE
- ------------------------ ------------------------- ----- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
PACIFIC REGION:
RadiSys Land Suburban Portland, Oregon -- -- 4 46,000
Redmond Hilltop Suburban Seattle 4 95,000 -- --
Data I/O Land Suburban Seattle -- -- 23 324,000
----- --------- ------ ---------
Subtotal 4 95,000 27 370,000
----- --------- ------ ---------
MOUNTAIN REGION:
Panorama Land Southeast Denver 30 615,000 -- --
Draper Park North Land Suburban Salt Lake City -- -- 13 179,000
Gateway Plaza Suburban Phoenix 7 240,000 -- --
Quorum Land Southeast Denver 5 105,000 -- --
----- --------- ------ ---------
Subtotal 42 960,000 13 179,000
----- --------- ------ ---------
CENTRAL REGION:
Aubrey Smith Austin, Texas 18 750,000 -- --
Riata Austin, Texas 51 774,000 -- --
Cedar Maple Land Suburban Dallas 1 38,000 -- --
Tollway Plaza I Suburban Dallas 4 178,000 -- --
Parkway North Land Suburban Chicago 30 723,000 -- --
----- --------- ------ ---------
Subtotal 104 2,463,000 -- --
----- --------- ------ ---------
SOUTHEAST REGION:
Embassy Row Land Suburban Atlanta 11 192,000 -- --
----- --------- ------ ---------
Subtotal 11 192,000 -- --
----- --------- ------ ---------
TOTAL 161 3,710,000 40 549,000
----- --------- ------ ---------
----- --------- ------ ---------
</TABLE>

S-14
<PAGE>

RECENT FINANCING ACTIVITY

In July 1996, November 1996 and January 1997, the Company sold Common Stock
to the public and USRealty for net proceeds of approximately $216 million, $206
million and $136 million, respectively. In October 1996, the Company sold
preferred stock to institutional investors and USRealty for net proceeds of
approximately $43 million. The net proceeds of all of these offerings were used
to pay down indebtedness under the Company's unsecured line of credit 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 may borrow up to a maximum of $150 million. This facility
bears interest on the amount outstanding at an annual interest rate of either
the 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. The facility has a term of
six months, with an option for two six-month extensions. As of April 14, 1997,
$86 million was outstanding under this facility.

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, the interest rate for advances
under the line of credit was reduced to 1.375% over LIBOR. As of April 14, 1997,
$249 million was outstanding under the unsecured line of credit.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
in the Offering offered hereby and the Concurrent USRealty Purchase are
estimated to be approximately $180.9 million ($199.6 million if the
Underwriters' over-allotment option is exercised in full and assuming no
additional purchase by USRealty). The Company intends to use the net proceeds to
repay outstanding indebtedness and for future acquisitions and development.
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.

Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan
Securities Inc., is the lender under the Company's secured credit facility and
the lead lender under the Company's unsecured line of credit and, in those
capacities, is expected to receive substantially all the net proceeds from the
Offering and the Concurrent USRealty Purchase. See "Underwriting."

S-15
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY

The shares of Common Stock are traded on the NYSE under the symbol "CRE".
As of February 28, 1997, there were 423 stockholders of record. The following
table sets forth the high and low sales prices per share for the periods
indicated as reported on the NYSE and the dividends per share paid by the
Company with respect to the periods noted.

<TABLE>
<CAPTION>
CALENDAR PERIOD HIGH LOW DIVIDENDS
- --------------------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
1994:
First Quarter................................................ $ 24 1/2 $ 22 1/8 $ .4375
Second Quarter............................................... $ 23 7/8 $ 21 1/2 $ .4375
Third Quarter................................................ $ 21 5/8 $ 19 3/4 $ .4375
Fourth Quarter............................................... $ 20 3/8 $ 17 3/8 $ .4375
1995:
First Quarter................................................ $ 18 1/4 $ 17 1/8 $ .4375
Second Quarter............................................... $ 19 3/4 $ 16 3/4 $ .4375
Third Quarter................................................ $ 19 3/4 $ 17 1/4 $ .4375
Fourth Quarter............................................... $ 24 5/8 $ 18 1/2 $ .4375
1996:
First Quarter................................................ $ 25 $ 23 5/8 $ .4375
Second Quarter............................................... $ 25 1/4 $ 23 5/8 $ .4375
Third Quarter................................................ $ 25 7/8 $ 21 7/8 $ .4375
Fourth Quarter............................................... $ 29 1/2 $ 24 7/8 $ .4375
1997:
First Quarter................................................ $ 32 1/4 $ 28 1/4 (1)
April 1 to April 14, 1997.................................... $ 30 5/8 $ 26 1/4 --
</TABLE>

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

(1) A dividend for the first quarter has not yet been declared. It is
anticipated that purchasers of Common Stock in the Offering and the concurrent
USRealty Purchase, as long as they are holders on the record date, would be
entitled to receive any dividend declared for the first quarter.

The last reported sale price for the Common Stock on the NYSE on April 14,
1997 was $26.375 per share.

The Company, in order to qualify as a REIT, is required to make
distributions (other than capital gain distributions) to its stockholders in
amounts at least equal to (i) the sum of (A) 95% of its "REIT taxable income"
(computed without regard to the dividends paid deduction and its net capital
gain) and (B) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of non-cash income. The Company's
distribution strategy is to distribute what it believes is a conservative
percentage of its cash flow, permitting the Company to retain funds for capital
improvements and other investments while funding its distributions.

For federal income tax purposes, distributions may consist of ordinary
income, capital gains, nontaxable return of capital or a combination thereof.
Distributions that exceed the Company's current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather than
a dividend and reduce the stockholder's basis in his or her shares of Common
Stock. To the extent that a distribution exceeds both current and accumulated
earnings and profits and the stockholder's basis in his or her shares, it will
generally be treated as gain from the sale or exchange of that stockholder's
shares. The Company annually notifies stockholders of the taxability of
distributions paid during the preceding year. The following table sets forth the
taxability of distributions paid in 1993, 1994, 1995 and 1996:

<TABLE>
<CAPTION>
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Ordinary income............................................... 60% 75% 85% 95%
Capital gain.................................................. -- -- -- --
Return of capital............................................. 40% 25% 15% 5%
</TABLE>

S-16
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1996 on an historical basis and on a pro forma basis, giving effect
to (i) the completion of the Offering and the Concurrent USRealty Purchase, (ii)
the acquisitions of office properties and land that were consummated between
January 1, 1997 and April 14, 1997 and the acquisition of the Company's pending
acquisitions, (iii) the Company's common stock offering in January 1997 and (iv)
the repayment of a portion of the amount outstanding under the Company's
unsecured line of credit. See "Pro Forma Financial Information."

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
HISTORICAL PRO FORMA
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Mortgage debt............................................................ $ 440,449 $ 497,145
Line of credit........................................................... 215,000 189,221
Other liabilities........................................................ 43,040 46,754
---------- ----------
Total liabilities...................................................... $ 698,489 $ 733,120
---------- ----------
Minority interest........................................................ 50,597 69,423
Stockholders' equity:
Series A Preferred Shares, $.01 par value; 30,000,000 total preferred
shares authorized; 1,740,000 issued and outstanding................. 17 17
Common Stock, $.01 par value, 90,000,000 shares authorized; 43,789,073
shares issued and outstanding; 55,860,500 shares issued and
outstanding on a pro forma basis.................................... 438 558
Additional paid-in capital............................................... 837,355 1,154,134
Cumulative dividends paid in excess of net income........................ (50,332) (50,332)
---------- ----------
Total stockholders' equity............................................... $ 787,478 $1,104,377
---------- ----------
Total capitalization..................................................... $1,536,564 $1,906,920
---------- ----------
---------- ----------
</TABLE>

S-17
<PAGE>

PROPERTIES

GENERAL

The following table sets forth certain lease-related information about each
property owned by the Company as of December 31, 1996.
<TABLE>
<CAPTION>
COMPANY'S TOTAL AVERAGE
EFFECTIVE NET ANNUALIZED BASE RENT
PROPERTY RENTABLE AREA PERCENT BASE RENT(3) PER LEASED
OWNERSHIP (SQUARE FEET)(1) LEASED(2) (IN THOUSANDS) SQUARE FOOT(4)
--------- ---------------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED PROPERTIES
SOUTHEAST REGION
Metropolitan Washington, D.C.:
Downtown:
International Square (3 properties)........ 100.0% 1,017,511 91.7% $ 30,802 $33.00
1730 Pennsylvania Avenue................... 100.0 229,461 97.6 8,538 38.12
2550 M Street.............................. 100.0 187,931 100.0 5,838 31.06
1775 Pennsylvania Avenue(6)................ 100.0 143,981 99.1 3,120 21.87
900 19th Street............................ 100.0 100,804 75.6 2,194 28.79
1747 Pennsylvania Avenue................... 89.7(7) 152,314 76.6 3,522 30.17
1255 23rd Street........................... 75.0(8) 303,930 88.4 7,356 27.40
2445 M Street.............................. 74.0(7) 266,902 90.1 6,858 28.51
Suburban:
One Rock Spring Plaza(6)................... 100.0 205,298 95.9 4,349 22.10
Tycon Courthouse........................... 100.0 416,099 99.0 8,094 19.66
Three Ballston Plaza....................... 100.0 302,797 100.0 6,979 23.05
Reston Quadrangle (3 properties)........... 100.0 260,643 99.9 5,447 20.93
Parkway One................................ 100.0 87,842 100.0 1,358 15.46
Suburban Atlanta:
Veridian (22 properties)................... 100.0 187,842 96.0 2,255 12.50
Glenridge (3 properties)................... 100.0 64,431 96.0 909 14.69
Century Springs West....................... 100.0 94,765 95.3 1,321 14.63
Holcomb Place.............................. 100.0 72,991 100.0 1,097 15.03
Dekalb Tech (5 properties)................. 100.0 163,159 86.9 1,239 8.73
Midori..................................... 100.0 99,864 96.1 1,718 17.91
Crestwood.................................. 100.0 88,186 100.0 1,444 16.38
Parkwood................................... 100.0 151,020 89.5 2,486 18.40
Lakewood................................... 100.0 80,338 98.2 1,117 14.16
The Summit................................. 100.0 178,382 100.0 2,206 12.37
Spalding Triangle II (3 properties)........ 100.0 82,102 97.6 1,074 13.41
South Florida:
Lake Wyman Plaza........................... 100.0 159,921 97.1 2,036 13.11
---------------- --------- -------------- ------
SOUTHEAST REGION SUBTOTAL................... 5,098,514 94.3% $113,357 $23.57
PACIFIC REGION
Southern California:
Scenic Business Park (4 properties)........ 100.0% 137,436 89.7% $ 1,329 $10.78
Harbor Corporate Park (4 properties)....... 100.0 147,304 53.6 1,033 13.06
Plaza PacifiCare........................... 100.0 104,377 100.0 960 9.20

</TABLE>

SIGNIFICANT TENANTS(5)

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

<S> <C>
CONSOLIDATED PROPERTIES
SOUTHEAST REGION
Metropolitan Washington, D.C.:
Downtown:
International Square (3 properties)........ International Monetary Fund (42%)

1730 Pennsylvania Avenue................... Federal Deposit Insurance Corporation (52%),

King & Spalding (26%)

2550 M Street.............................. Patton Boggs (86%)

1775 Pennsylvania Avenue(6)................ Citibank, F.S.B. (81%)

900 19th Street............................ America's Community Bankers (29%)

1747 Pennsylvania Avenue................... None occupying more than 20%

1255 23rd Street........................... None occupying more than 20%

2445 M Street.............................. Wilmer, Cutler & Pickering (77%)

Suburban:
One Rock Spring Plaza(6)................... Sybase (27%), Caterair (22%)

Tycon Courthouse........................... None occupying more than 20%

Three Ballston Plaza....................... CACI (50%), Eastman Kodak (20%)

Reston Quadrangle (3 properties)........... Software AG (67%)

Parkway One................................ EIS International (87%)

Suburban Atlanta:
Veridian (22 properties)................... GE Capital Corporation (32%)

Glenridge (3 properties)................... Industrial Computer Corp. (37%), Crawford &

Co. (27%)

Century Springs West....................... Retirement Care Associates (27%)

Holcomb Place.............................. Prudential (24%)

Dekalb Tech (5 properties)................. Lucent Technologies (21%), Moreland &

Altobelli (20%)

Midori..................................... OHM Remediation Services (30%), UPS (21%)

Crestwood.................................. EBC Gwinnet Enterprises (23%)

Parkwood................................... Columbian Chemicals Company (30%)

Lakewood................................... Paychex (25%), ISS (25%); Hickson Corp.

(23%)

The Summit................................. Unisys Corp. (73%)

Spalding Triangle II (3 properties)........ OHM Remediation Services (28%)

South Florida:
Lake Wyman Plaza........................... None occupying more than 20%

SOUTHEAST REGION SUBTOTAL...................
PACIFIC REGION
Southern California:
Scenic Business Park (4 properties)........ FHP, Inc. (51%)

Harbor Corporate Park (4 properties)....... None occupying more than 20%

Plaza PacifiCare........................... PacifiCare Health Systems, Inc. (100%)

</TABLE>

S-18

<PAGE>

<TABLE>
<CAPTION>
COMPANY'S TOTAL AVERAGE
EFFECTIVE NET ANNUALIZED BASE RENT
PROPERTY RENTABLE AREA PERCENT BASE RENT(3) PER LEASED
OWNERSHIP (SQUARE FEET)(1) LEASED(2) (IN THOUSANDS) SQUARE FOOT(4)
--------- ---------------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Katella Corporate Center................... 100.0 79,917 92.7 1,169 15.78
Warner Center (12 properties).............. 100.0 342,056 94.5 7,444 23.03
Del Mar Corporate Plaza (2 properties)..... 100.0 123,142 100.0 1,756 14.26
South Coast Executive Center............... 100.0 161,778 95.3 3,009 19.52
Northern California:
AT&T Center (6 properties)................. 100.0 949,281 100.0 18,153 19.12
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
Orchard Business Park-B (6 properties)..... 100.0 166,928 100.0 1,653 9.90
Orchard Bayshore Center (2 properties)..... 100.0 195,249 100.0 2,643 13.53
Orchard Rincon Centre (3 properties)....... 100.0 201,178 100.0 1,885 9.37
Orchard Office Centre II (4 properties).... 100.0 212,082 62.4 1,293 9.78
Orchard Office Centre (2 properties)....... 100.0 68,725 100.0 1,406 20.46
Orchard Centre (2 properties).............. 100.0 102,291 100.0 979 9.57
Orchard Business Park-A (2 properties)..... 100.0 67,784 100.0 630 9.30
Suburban Seattle:
Redmond East (10 properties)............... 100.0 398,777 99.9 4,572 11.48
---------------- --------- -------------- ------
PACIFIC REGION SUBTOTAL..................... 3,952,483 95.1% $ 55,608 $14.80

CENTRAL REGION
Austin, Texas:
Norwood Tower.............................. 100.0% 111,440 86.3% $ 849 $ 8.83
Littlefield Complex (2 properties) (6)..... 100.0 126,622 52.4 765 11.55
First State Bank Tower..................... 100.0 258,113 74.3 1,954 10.19
Great Hills Plaza.......................... 100.0 135,335 100.0 1,930 14.26
Balcones Center............................ 100.0 75,761 83.5 904 14.29
Park North (2 properties).................. 100.0 132,935 98.7 2,112 16.10
The Settings (3 properties)................ 100.0 136,183 95.3 2,148 16.55
Suburban Chicago:
Parkway North (2 properties)............... 100.0 508,488 96.0 8,112 16.62
Unisys (2 properties)...................... 100.0 365,193 91.4 5,583 16.72
Suburban Dallas:
Greyhound.................................. 100.0 92,890 100.0 845 9.10
Search Plaza............................... 100.0 151,057 90.9 2,010 14.64
---------------- --------- -------------- ------
CENTRAL REGION SUBTOTAL..................... 2,094,017 89.1% $ 27,212 $14.58

MOUNTAIN REGION
Southeast Denver:
Harlequin Plaza (2 properties)............. 100.0% 324,340 95.8% $ 4,020 $12.94
Quebec Court I & II (2 properties)......... 100.0 285,829 100.0 2,878 10.07
The Quorum (2 properties).................. 100.0 123,876 78.2 1,335 13.78
Greenwood Center........................... 100.0 74,853 94.1 1,074 15.24
Quebec Center (3 properties)............... 100.0 104,367 92.5 1,232 12.76

</TABLE>

<PAGE>

SIGNIFICANT TENANTS(5)

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

<S> <C>
Katella Corporate Center................... None occupying more than 20%

Warner Center (12 properties).............. None occupying more than 20%

Del Mar Corporate Plaza (2 properties)..... Peregrine Systems (77%), Newgen Results

Company (23%)

South Coast Executive Center............... State Compensation Insurance Fund (32%)

Northern California:
AT&T Center (6 properties)................. AT&T (54%), PeopleSoft (20%)

Sunnyvale Research Plaza (3 properties).... AEA Credit Union (63%), Cadence Design (31%)

Rio Robles (7 properties).................. Fujitsu (41%), KLA Instruments (31%), NEC

Systems Laboratory (23%)

Orchard Business Park-B (6 properties)..... None occupying more than 20%

Orchard Bayshore Center (2 properties)..... Clarify, Inc. (51%), Alantec (49%)

Orchard Rincon Centre (3 properties)....... Ontrak Systems (44%), Toshiba America

Electronic (38%)

Orchard Office Centre II (4 properties).... Boston Scientific (38%)

Orchard Office Centre (2 properties)....... Bank of America (21%), Quadrep (20%)

Orchard Centre (2 properties).............. Seagate Technology (40%), Gregory Associates

(38%), Winbond Electronics (22%)

Orchard Business Park-A (2 properties)..... Leybold-Heraeus (35%)

Suburban Seattle:
Redmond East (10 properties)............... Digital Systems International (21%)

PACIFIC REGION SUBTOTAL.....................
CENTRAL REGION
Austin, Texas:
Norwood Tower.............................. City of Austin (21%), George, Donaldson &

Ford (20%)

Littlefield Complex (2 properties) (6)..... None occupying more than 20%

First State Bank Tower..................... None occupying more than 20%

Great Hills Plaza.......................... First USA Management, Inc. (48%) Blue Cross

(24%)

Balcones Center............................ Media Net (37%)

Park North (2 properties).................. Austin Regional Clinic (22%)

The Settings (3 properties)................ Holt Rinehart & Winston, Inc. (76%)

Suburban Chicago:
Parkway North (2 properties)............... Fujisawa USA (27%); Alliant Foodservice

(21%)

Unisys (2 properties)...................... Unisys (21%)

Suburban Dallas:
Greyhound.................................. Greyhound Lines (100%)

Search Plaza............................... Basic Capital Management (29%)

CENTRAL REGION SUBTOTAL.....................
MOUNTAIN REGION
Southeast Denver:
Harlequin Plaza (2 properties)............. None occupying more than 20%

Quebec Court I & II (2 properties)......... Intelligent Electronics (45%); Alert Centre

(37%)

The Quorum (2 properties).................. Chatfield Dean (21%)

Greenwood Center........................... General Motors Corp. (33%)

Quebec Center (3 properties)............... None occupying more than 20%
</TABLE>

S-19

<PAGE>

COMPANY'S TOTAL AVERAGE
EFFECTIVE NET ANNUALIZED BASE RENT
PROPERTY RENTABLE AREA PERCENT BASE RENT(3) PER LEASED
OWNERSHIP (SQUARE FEET)(1) LEASED(2) (IN THOUSANDS) SQUARE FOOT(4)
--------- ---------------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Suburban Phoenix:
Camelback Lakes (2 properties)............. 100.0 200,453 88.0 2,863 16.24
Pointe Corridor IV......................... 100.0 171,705 96.5 2,597 15.68
---------------- --------- -------------- ------
MOUNTAIN REGION SUBTOTAL.................... 1,285,423 93.5% $ 15,999 $13.31
---------------- --------- -------------- ------

TOTAL/WEIGHTED AVERAGE: CONSOLIDATED
PROPERTIES: 12,430,437 93.6% $212,176 $18.24
---------------- --------- -------------- ------
UNCONSOLIDATED PROPERTIES
Downtown Washington, D.C.:
AARP Headquarters.......................... 24.0(9)% 477,187 99.1% $ 16,691 $35.30
Bond Building.............................. 15.0(10) 162,097 100.0 4,714 29.08
1776 Eye Street............................ 5.0(11) 212,774 92.3 6,972 35.52
Willard Office/Hotel....................... 5.0(12) 242,787 91.9 8,368 37.52
1575 Eye Street............................ 2.0(11) 205,441 52.8 2,796 25.78
Suburban Washington, D.C.:
Booz-Allen & Hamilton Building............. 50.0(13) 222,989 100.0 3,211 14.40
---------------- --------- -------------- ------
TOTAL/WEIGHTED AVERAGE: UNCONSOLIDATED
PROPERTIES 1,523,275 91.0% $ 42,752 $30.85
---------------- --------- --------------
TOTAL/WEIGHTED AVERAGE: ALL OPERATING
PROPERTIES 13,953,712 93.3% $254,928 $19.58
---------------- --------- -------------- ------
---------------- --------- -------------- ------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
SIGNIFICANT TENANTS(5)
--------------------------------------------
<S> <C>
Suburban Phoenix:
Camelback Lakes (2 properties)............. Vanguard Group (38%)
Pointe Corridor IV......................... Jostens Learning Group (27%), Aetna Life
Insurance Company (23%)
MOUNTAIN REGION SUBTOTAL....................
TOTAL/WEIGHTED AVERAGE: CONSOLIDATED
PROPERTIES:
UNCONSOLIDATED PROPERTIES
Downtown Washington, D.C.:
AARP Headquarters.......................... American Association of Retired Persons
(98%)
Bond Building.............................. General Services Administration-Department
of Justice (93%)
1776 Eye Street............................ None occupying more than 20%
Willard Office/Hotel....................... Vinson & Elkins (27%)
1575 Eye Street............................ American Society of Association Executives
(20%)
Suburban Washington, D.C.:
Booz-Allen & Hamilton Building............. Booz-Allen & Hamilton (100%)
TOTAL/WEIGHTED AVERAGE: UNCONSOLIDATED
PROPERTIES
TOTAL/WEIGHTED AVERAGE: ALL OPERATING
PROPERTIES
</TABLE>

- ------------------
(1) Includes office and retail space.
(2) Includes space for leases that have been executed and have commenced as of
December 31, 1996.
(3) Total annualized base rent is based on executed and commenced leases as of
December 31, 1996. 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 December 31, 1996.
(5) Includes tenants leasing 20% 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 also a 50% interest in another joint venture that
owns an interest in 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 that 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. 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 has a 50% limited
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) As of December 31, 1996 the Company held a limited partner interest in the
partnership that owns the property. In early 1997, the Company sold this
interest.
(12) The Company holds 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.
(13) The Company holds a 50% joint venture interest and is the managing partner.

S-20

<PAGE>

TENANT INFORMATION

LEASE EXPIRATIONS

The following table sets forth, on a market-by-market basis, a schedule of
lease expirations for leases executed as of December 31, 1996, for each of the
10 years beginning with 1997, for the 159 properties owned by the Company as of
December 31, 1996 and consolidated for financial statement purposes, adjusted
for tenants who exercised renewal options during the period from January 1 to
March 31, 1997.
<TABLE>
<CAPTION>
TOTAL VACANT
SQUARE FEET SQUARE FEET 1997 1998 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
WASHINGTON, DC--DOWNTOWN.................. 2,402,834 212,891
Expiring Square Feet:.................... 258,430 594,457 90,429 101,881
Percentage Expiring Square Feet:......... 11.8% 27.1% 4.1% 4.7%
Annual Rent($):(1)....................... 8,496,250 20,702,591 3,005,869 3,309,577
Annual Rent / Square Foot($):............ 32.88 34.83 33.24 32.48
WASHINGTON, DC--SUBURBAN.................. 1,272,679 13,153
Expiring Square Feet:.................... 71,083 48,647 159,658 74,150
Percentage Expiring Square Feet:......... 5.6% 3.9% 12.7% 5.9%
Annual Rent($):(1)....................... 1,506,738 1,020,920 4,064,062 1,949,179
Annual Rent / Square Foot($):............ 21.20 20.99 25.45 26.29
SUBURBAN CHICAGO.......................... 861,217 (2) 50,231
Expiring Square Feet:.................... 208,243 134,964 31,871 236,326
Percentage Expiring Square Feet:......... 25.7% 16.6% 3.9% 29.2%
Annual Rent($):(1)....................... 4,716,184 2,793,024 619,093 6,575,562
Annual Rent / Square Foot($):............ 22.65 20.69 19.42 27.82
SUBURBAN ATLANTA.......................... 1,263,080 59,113
Expiring Square Feet:.................... 412,486 280,604 191,673 106,283
Percentage Expiring Square Feet:......... 34.3% 23.3% 15.9% 8.8%
Annual Rent($):(1)....................... 6,841,808 3,881,507 2,753,138 1,876,841
Annual Rent / Square Foot($):............ 16.59 13.83 14.36 17.66
SOUTH FLORIDA............................. 159,921 4,592
Expiring Square Feet:.................... 35,883 24,957 18,498 33,684
Percentage Expiring Square Feet:......... 23.1% 16.1% 11.9% 21.7%
Annual Rent($):(1)....................... 681,018 433,430 381,263 722,325
Annual Rent / Square Foot($):............ 18.98 17.37 20.61 21.44
SUBURBAN DALLAS........................... 243,947 13,704
Expiring Square Feet:.................... 14,161 19,296 19,481 62,149
Percentage Expiring Square Feet:......... 6.1% 8.4% 8.5% 27.0%
Annual Rent($):(1)....................... 177,560 270,990 345,610 1,258,719
Annual Rent / Square Foot($):............ 12.54 14.04 17.74 20.25
AUSTIN, TEXAS 976,390 162,667
Expiring Square Feet:.................... 167,979 175,158 69,953 76,206
Percentage Expiring Square Feet:......... 20.6% 21.5% 8.6% 9.4%
Annual Rent($):(1)....................... 2,526,110 3,013,181 1,142,696 1,468,634
Annual Rent / Square Foot($):............ 15.04 17.20 16.34 19.27
SOUTHEAST DENVER.......................... 913,265 52,765
Expiring Square Feet:.................... 124,483 115,897 136,533 44,172
Percentage Expiring Square Feet:......... 14.5% 13.5% 15.9% 5.1%
Annual Rent($):(1)....................... 1,653,347 1,656,363 1,821,484 645,657
Annual Rent / Square Foot($):............ 13.28 14.29 13.34 14.62
SUBURBAN PHOENIX.......................... 372,158 30,235
Expiring Square Feet:.................... 46,384 52,995 27,649 52,878
Percentage Expiring Square Feet:......... 13.6% 15.5% 8.1% 15.5%
Annual Rent($):(1)....................... 662,645 844,463 480,609 843,233
Annual Rent / Square Foot($):............ 14.29 15.93 17.38 15.95
SUBURBAN SEATTLE.......................... 398,777 506
Expiring Square Feet:.................... 114,976 91,002 91,875 45,466
Percentage Expiring Square Feet:......... 28.9% 22.8% 23.1% 11.4%
Annual Rent($):(1)....................... 1,544,462 1,032,059 1,231,470 679,393
Annual Rent / Square Foot($):............ 13.43 11.34 13.40 14.94
NORTHERN CALIFORNIA....................... 2,457,697 79,791
Expiring Square Feet:.................... 125,947 465,064 289,207 411,028
Percentage Expiring Square Feet:......... 5.3% 19.6% 12.2% 17.3%
Annual Rent($):(1)....................... 1,465,629 7,350,196 4,309,331 5,489,080
Annual Rent / Square Foot($):............ 11.64 15.80 14.90 13.35
SOUTHERN CALIFORNIA....................... 1,096,010 114,739
Expiring Square Feet:.................... 72,771 105,284 97,731 177,164
Percentage Expiring Square Feet:......... 7.4% 10.7% 10.0% 18.1%
Annual Rent($):(1)....................... 1,244,040 2,055,600 1,574,974 3,246,919
Annual Rent / Square Foot($):............ 17.10 19.52 16.12 18.33
TOTALS:.................................. 12,417,975 794,387
Expiring Square Feet:.................. 1,652,826 2,108,325 1,224,558 1,421,387
Percentage Expiring Square Feet:....... 14.2% 18.1% 10.5% 12.2%
Annual Rent($):(1)..................... 31,515,791 45,054,324 21,729,599 28,065,119
Annual Rent / Square Foot($):.......... 19.07 21.37 17.74 19.74

</TABLE>

2001 2002 2003 2004 2005 2006
----------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
WASHINGTON, DC--DOWNTOWN..................
Expiring Square Feet:.................... 20,779 382,913 71,298 151,924 48,359 123,540
Percentage Expiring Square Feet:......... 1.0% 17.5% 3.3% 6.9% 2.2% 5.6 %
Annual Rent($):(1)....................... 784,095 13,677,732 3,022,930 5,242,397 1,866,688 4,147,414
Annual Rent / Square Foot($):............ 37.73 35.72 42.40 34.51 38.60 33.57
WASHINGTON, DC--SUBURBAN..................
Expiring Square Feet:.................... 213,407 155,640 118,350 81,062 226,158 81,969
Percentage Expiring Square Feet:......... 16.9% 12.4% 9.4% 6.4% 18.0% 6.5 %
Annual Rent($):(1)....................... 5,374,745 4,005,650 2,496,145 2,042,284 5,969,095 1,589,918
Annual Rent / Square Foot($):............ 25.19 25.74 21.09 25.19 26.39 19.40
SUBURBAN CHICAGO..........................
Expiring Square Feet:.................... 107,928 46,861 12,921 11,500 20,372 0
Percentage Expiring Square Feet:......... 13.3% 5.8% 1.6% 1.4% 2.5% 0.0 %
Annual Rent($):(1)....................... 2,354,074 990,108 291,327 176,928 453,086 0
Annual Rent / Square Foot($):............ 21.81 21.13 22.55 15.39 22.24 0
SUBURBAN ATLANTA..........................
Expiring Square Feet:.................... 131,386 15,584 29,717 20,097 3,904 12,233
Percentage Expiring Square Feet:......... 10.9% 1.3% 2.5% 1.7% 0.3% 1.0 %
Annual Rent($):(1)....................... 2,169,362 255,028 487,314 339,191 80,824 97,008
Annual Rent / Square Foot($):............ 16.51 16.36 16.40 16.88 20.70 7.93
SOUTH FLORIDA.............................
Expiring Square Feet:.................... 31,263 0 11,044 0 0 0
Percentage Expiring Square Feet:......... 20.1% 0.0% 7.1% 0.0% 0.0% 0.0 %
Annual Rent($):(1)....................... 784,743 0 329,830 0 0 0
Annual Rent / Square Foot($):............ 25.10 0 29.87 0 0 0
SUBURBAN DALLAS...........................
Expiring Square Feet:.................... 11,623 0 0 101,995 0 0
Percentage Expiring Square Feet:......... 5.0% 0.0% 0.0% 44.3% 0.0% 0.0 %
Annual Rent($):(1)....................... 180,580 0 0 1,260,112 0 0
Annual Rent / Square Foot($):............ 15.54 0 0 12.35 0 0
AUSTIN, TEXAS
Expiring Square Feet:.................... 74,168 165,119 14,579 0 2,171 5,513
Percentage Expiring Square Feet:......... 9.1% 20.3% 1.8% 0.0% 0.3% 0.7 %
Annual Rent($):(1)....................... 1,339,420 3,260,997 331,874 0 48,978 104,912
Annual Rent / Square Foot($):............ 18.06 19.75 22.76 0 22.56 19.03
SOUTHEAST DENVER..........................
Expiring Square Feet:.................... 382,428 0 56,987 0 0 0
Percentage Expiring Square Feet:......... 44.4% 0.0% 6.6% 0.0% 0.0% 0.0 %
Annual Rent($):(1)....................... 6,037,146 0 875,328 0 0 0
Annual Rent / Square Foot($):............ 15.79 0 15.36 0 0 0
SUBURBAN PHOENIX..........................
Expiring Square Feet:.................... 44,852 4,839 0 14,090 75,236 23,000
Percentage Expiring Square Feet:......... 13.1% 1.4% 0.0% 4.1% 22.0% 6.7 %
Annual Rent($):(1)....................... 858,821 89,522 0 274,584 1,165,998 437,000
Annual Rent / Square Foot($):............ 19.15 18.50 0 19.49 15.50 19.00
SUBURBAN SEATTLE..........................
Expiring Square Feet:.................... 0 0 0 0 54,952 0
Percentage Expiring Square Feet:......... 0.0% 0.0% 0.0% 0.0% 13.8% 0.0 %
Annual Rent($):(1)....................... 0 0 0 0 940,200 0
Annual Rent / Square Foot($):............ 0 0 0 0 17.11 0
NORTHERN CALIFORNIA.......................
Expiring Square Feet:.................... 243,592 86,196 308,162 0 0 219,641
Percentage Expiring Square Feet:......... 10.2% 3.6% 13.0% 0.0% 0.0% 9.2 %
Annual Rent($):(1)....................... 3,976,489 1,418,112 4,881,828 0 0 2,899,316
Annual Rent / Square Foot($):............ 16.32 16.45 15.84 0 0 13.20
SOUTHERN CALIFORNIA.......................
Expiring Square Feet:.................... 148,562 104,377 171,787 0 17,677 74,358
Percentage Expiring Square Feet:......... 15.1% 10.6% 17.5% 0.0% 1.8% 7.6 %
Annual Rent($):(1)....................... 2,843,924 1,059,769 3,023,554 0 445,057 2,174,751
Annual Rent / Square Foot($):............ 19.14 10.15 17.60 0 25.18 29.25
TOTALS:..................................
Expiring Square Feet:.................. 1,409,988 961,529 794,845 380,668 448,829 540,254
Percentage Expiring Square Feet:....... 12.1% 8.3% 6.8% 3.3% 3.9% 4.7 %
Annual Rent($):(1)..................... 26,703,399 24,756,918 15,740,130 9,335,496 10,969,926 11,450,319
Annual Rent / Square Foot($):.......... 18.94 25.75 19.80 24.52 24.44 21.19

</TABLE>

<TABLE>
<CAPTION>
2007 AND
THEREAFTER
-----------
<S> <C>
WASHINGTON, DC--DOWNTOWN..................
Expiring Square Feet:.................... 345,933
Percentage Expiring Square Feet:......... 15.8%
Annual Rent($):(1)....................... 13,833,174
Annual Rent / Square Foot($):............ 39.99
WASHINGTON, DC--SUBURBAN..................
Expiring Square Feet:.................... 29,402
Percentage Expiring Square Feet:......... 2.3%
Annual Rent($):(1)....................... 1,442,075
Annual Rent / Square Foot($):............ 49.05
SUBURBAN CHICAGO..........................
Expiring Square Feet:.................... 0
Percentage Expiring Square Feet:......... 0.0%
Annual Rent($):(1)....................... 0
Annual Rent / Square Foot($):............ 0
SUBURBAN ATLANTA..........................
Expiring Square Feet:.................... 0
Percentage Expiring Square Feet:......... 0.0%
Annual Rent($):(1)....................... 0
Annual Rent / Square Foot($):............ 0
SOUTH FLORIDA.............................
Expiring Square Feet:.................... 0
Percentage Expiring Square Feet:......... 0.0%
Annual Rent($):(1)....................... 0
Annual Rent / Square Foot($):............ 0
SUBURBAN DALLAS...........................
Expiring Square Feet:.................... 1,538
Percentage Expiring Square Feet:......... 0.7%
Annual Rent($):(1)....................... 12,825
Annual Rent / Square Foot($):............ 8.34
AUSTIN, TEXAS
Expiring Square Feet:.................... 62,877
Percentage Expiring Square Feet:......... 7.7%
Annual Rent($):(1)....................... 1,370,856
Annual Rent / Square Foot($):............ 21.80
SOUTHEAST DENVER..........................
Expiring Square Feet:.................... 0
Percentage Expiring Square Feet:......... 0.0%
Annual Rent($):(1)....................... 0
Annual Rent / Square Foot($):............ 0
SUBURBAN PHOENIX..........................
Expiring Square Feet:.................... 0
Percentage Expiring Square Feet:......... 0.0%
Annual Rent($):(1)....................... 0
Annual Rent / Square Foot($):............ 0
SUBURBAN SEATTLE..........................
Expiring Square Feet:.................... 0
Percentage Expiring Square Feet:......... 0.0%
Annual Rent($):(1)....................... 0
Annual Rent / Square Foot($):............ 0
NORTHERN CALIFORNIA.......................
Expiring Square Feet:.................... 229,069
Percentage Expiring Square Feet:......... 9.6%
Annual Rent($):(1)....................... 5,227,893
Annual Rent / Square Foot($):............ 22.82
SOUTHERN CALIFORNIA.......................
Expiring Square Feet:.................... 11,560
Percentage Expiring Square Feet:......... 1.2%
Annual Rent($):(1)....................... 261,703
Annual Rent / Square Foot($):............ 22.64
TOTALS:..................................
Expiring Square Feet:.................. 680,379
Percentage Expiring Square Feet:....... 5.9%
Annual Rent($):(1)..................... 22,148,526
Annual Rent / Square Foot($):.......... 32.55
</TABLE>

- ------------------
(1) Annualized base rental income represented by such leases in the year of
expiration plus 1996 tenant payments on account of real estate taxes and
operating expense escalations.
(2) Excludes remeasurement of space in 1997 which had the effect of increasing
rentable square footage by 12,464.

S-21

<PAGE>
TENANTS BY INDUSTRY

The following table sets forth by industry category the tenants at the 159
properties that were owned by the Company as of December 31, 1996 and
consolidated for financial statement purposes:

<TABLE>
<CAPTION>
PERCENT
OF PERCENT
TOTAL ANNUALIZED OF TOTAL
SQUARE SQUARE BASE RENT(2) ANNUALIZED
INDUSTRY FOOTAGE(1) FOOTAGE (IN THOUSANDS) BASE RENT
- -------------------------------------------- ---------- ------- -------------- ----------
<S> <C> <C> <C> <C>
Professional Services....................... 3,671,000 31.6% $ 64,979 30.6%
Software Developers......................... 1,383,000 11.9 21,563 10.2
Financial Services.......................... 1,326,000 11.4 24,247 11.4
Communications.............................. 1,144,000 9.8 21,076 9.9
Biomedical.................................. 526,000 4.5 8,354 3.9
Quasi-Governmental.......................... 489,000 4.2 15,628 7.4
Government (Federal & State)................ 389,000 3.3 10,958 5.2
Not-For-Profit.............................. 176,000 1.5 3,719 1.8
Retail...................................... 161,000 1.4 3,767 1.8
Lobbyists/Government Affairs................ 27,000 0.2 350 0.2
Other....................................... 2,343,000 20.2 37,535 17.6
---------- ------- -------------- ----------
Total..................................... 11,635,000 100.0% $212,176 100.0%
---------- ------- -------------- ----------
---------- ------- -------------- ----------
</TABLE>

- ------------------
(1) Excludes vacant space of 795,000 square feet.

(2) Annualized base rent is based on executed and commenced leases as of
December 31, 1996. 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.

TEN LARGEST TENANTS

The following table sets forth the ten largest tenants at the 159
properties that were owned by the Company as of December 31, 1996 and
consolidated for financial statement purposes:

<TABLE>
<CAPTION>
PERCENT
PERCENT OF
OF TOTAL ANNUALIZED TOTAL
ANNUALIZED BASE RENT(1) SQUARE SQUARE
TENANT NAME BASE RENT (IN THOUSANDS) FOOTAGE FOOTAGE
- ------------------------------------------- ------------- -------------- --------- -------
<S> <C> <C> <C> <C>
AT&T....................................... 8.8% $ 18,606 965,844 7.8%
International Monetary Fund(2)............. 6.9 14,673 435,291 3.5
Wilmer, Cutler & Pickering................. 2.7 5,631 210,432 1.7
Patton Boggs............................... 2.4 5,184 161,228 1.3
General Services Administration............ 1.6 3,376 132,864 1.1
Software AG................................ 1.5 3,233 173,419 1.4
Fujisawa USA, Inc.......................... 1.4 2,959 135,286 1.1
Clarify, Inc............................... 1.0 2,017 139,195 1.1
Fujitsu Microelectronics................... 0.8 1,618 149,832 1.2
Unisys Corporation......................... 0.7 1,506 137,773 1.1
----- -------------- --------- -------
Total.................................... 27.8% $ 58,803 2,641,164 21.3%
----- -------------- --------- -------
----- -------------- --------- -------
</TABLE>

- ------------------
(1) Annualized base rent is based on executed and commenced leases as of
December 31, 1996. 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.

(Footnotes continued on next page)

S-22
<PAGE>
(Footnotes continued from previous page)
(2) Under its existing lease, the International Monetary Fund ("IMF") is to
vacate 375,000 square feet in 1998. The Company and IMF are currently
negotiating a restructured lease which would provide for an extension of
IMF's occupancy of 338,000 square feet of the space it currently occupies.
Under the proposed lease extension, 103,000 square feet would expire in
1999 and 235,000 square feet would expire in 2004, with an option to
terminate the lease in 2001.

DOWNTOWN WASHINGTON, D.C. MARKET

Ten of the Company's consolidated properties (containing 2.4 million square
feet and representing approximately 25.0% of the Company's pro forma rental
revenue as of December 31, 1996 and 15.5% of the aggregate square footage of the
Company's properties and the pending acquisitions described under "Recent
Acquisition and Development Activity") are located in the downtown Washington,
D.C. office market. This market, which is comprised of 89 million square feet,
had a vacancy rate of 9.0%, 8.1%, 9.5% and 10.2% as of December 31 in each of
1993 through 1996, respectively. The Company's downtown Washington, D.C.
properties are generally considered to be Class A/B+ properties. The Class A
vacancy rate in Washington, D.C. was 6.8% as of December 31, 1996.

UNCONSOLIDATED PROPERTIES

The following table sets forth certain information related to the seven
properties in which the Company has an equity investment:

SELECTED OPERATING STATEMENT INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FUNDS FROM
DEPRECIATION NET OPERATIONS
COMPANY'S RENTAL & INTEREST AND OTHER INCOME CONTRIBUTION TO
PROPERTY OWNERSHIP OTHER REVENUES EXPENSE AMORTIZATION EXPENSES (LOSS) THE COMPANY(1)
- -------------------- --------- -------------- ------- ------------ -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
AARP Headquarters... 24% $ 21,725 $13,077 $ 3,326 $6,497 $(1,175) $ 551
1776 Eye Street..... 5 7,610 4,426 1,344 2,534 (694) 20
Willard
Office/Hotel...... 5 43,802 8,361 4,537 29,753 1,151 --
1575 Eye Street..... 2 4,823 2,310 478 2,082 (47) --
Bond Building....... 15 6,155 3,588 1,083 1,366 (118) --
Booz-Allen &
Hamilton
Building.......... 50 3,489 1,533 1,117 523 316 1,224
1717 Pennsylvania
Avenue............ 50 (2) (2) (2) (2) (2) --
</TABLE>

SELECTED BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MATURITY
RENTAL OF
COMPANY'S PROPERTY TOTAL MORTGAGE INTEREST MORTGAGE
PROPERTY OWNERSHIP NET CASH ASSETS PAYABLE RATE PAYABLE
- ---------------------------------- --------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AARP Headquarters................. 24% $110,946 $ 2,791 $138,099 $146,506 8.07% 7/31/02
1776 Eye Street................... 5 34,868 1,584 38,683 44,087 10.00 10/1/23
Willard Office/Hotel.............. 5 72,903 7,288 86,226 87,851 9.40 11/1/01
1575 Eye Street................... 2 9,158 2,555 12,900 22,667 10.15 9/10/21
Bond Building..................... 15 14,733 813 16,471 37,450 9.53 11/1/96 (3)
Booz-Allen & Hamilton Building.... 50 26,704 310 30,350 24,288 7.00 8/1/13
1717 Pennsylvania Avenue.......... 50 39,490 236 40,115 -- -- --
</TABLE>

(Footnotes on next page)

S-23
<PAGE>
(Footnotes from previous page)

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

(1) Represents the Funds from Operations Contribution to the Company from each
property included in funds from operations before minority interest of
holders of Units as set forth in "Prospectus Supplement Summary--Summary
Selected Financial Information."

(2) Property was under construction as of December 31, 1996.

(3) The entity that owns this property is currently negotiating with the lender
to refinance the mortgage payable.

HISTORICAL RECURRING CAPITAL EXPENDITURES,
TENANT IMPROVEMENT COSTS AND TENANT LEASING COSTS

The following table sets forth annual and per square foot recurring capital
expenditures, tenant improvement costs and tenant leasing costs attributable to
existing leased space for the period from February 16, 1993 (inception of
operations) to December 31, 1993, and the years ended December 31, 1994, 1995,
and 1996 for the properties consolidated in the Company's financial statements
during the periods presented. In light of the Company's change in business
strategy away from downtown office buildings and toward suburban office
buildings, the Company believes that the historical capital expenditures, tenant
improvement costs and tenant leasing costs set forth below are not indicative of
the Company's future recurring capital expenditures, tenant improvement costs
and tenant leasing costs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Liquidity and Capital Resources."

DOWNTOWN WASHINGTON, D.C.

<TABLE>
<CAPTION>
LEASING
TENANT IMPROVEMENT BASE LEASE COMMISSION CAPITAL
AND CASH RENT LIFE PER EXPENDITURE
TOTAL SQUARE ALLOWANCE PER PER IN ABATEMENTS SQUARE PER
FEET LEASED SQUARE FOOT SQUARE FOOT YEARS IN MONTHS FOOT SQUARE FOOT
------------ ------------------ ----------- ----- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996..... 213,116 $13.07 $ 27.35 7.7 2.6 $ 6.15 $1.65
1995..... 161,345 15.44 28.90 5.1 1.0 3.85 .65
1994..... 271,462 19.65 29.35 7.1 2.2 3.08 2.09
1993..... 260,747 32.22 35.21 5.5 6.1 4.92 5.00
</TABLE>

ALL OTHER OPERATING PROPERTIES

<TABLE>
<CAPTION>
LEASING
TENANT IMPROVEMENT BASE LEASE COMMISSION CAPITAL
AND CASH RENT LIFE PER EXPENDITURE
TOTAL SQUARE ALLOWANCE PER PER IN ABATEMENTS SQUARE PER
FEET LEASED SQUARE FOOT SQUARE FOOT YEARS IN MONTHS FOOT SQUARE FOOT
------------ ------------------ ----------- ----- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996..... 1,390,226 $ 5.72 $ 18.02 5.7 0.2 $ 1.84 $1.08
1995..... 2,871 31.39 20.50 6.4 3.0 3.79 --
1994..... 9,642 18.51 19.38 4.2 0.0 2.49 --
1993..... -- -- -- -- -- -- --
</TABLE>

DEBT FINANCING

As of December 31, 1996, the Company had outstanding existing long-term
indebtedness in an aggregate principal amount of $655.4 million, of which $215.0
million (all of which represents draws under the Company's unsecured line of
credit), or 32.8%, bore interest at a floating interest rate. At that date, the
Company's fixed rate debt bore a weighted average interest rate of 8.1% and had
a weighted average maturity of 5.8 years (assuming loans callable before
maturity are called as early as possible).

S-24
<PAGE>

MORTGAGE DEBT

The existing mortgage indebtedness on the properties that were owned by the
Company as of December 31, 1996 and consolidated for financial statement
purposes is set forth in the table below:

<TABLE>
<CAPTION>
ESTIMATED
PRINCIPAL BALANCE
BALANCE ANNUAL DUE AT
AS OF DEBT MATURITY
INTEREST 12/31/96 SERVICE MATURITY (IN
PROPERTY RATE (IN THOUSANDS) (IN THOUSANDS) DATE THOUSANDS)
- --------------------------------------- -------- -------------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C>
International Square,
1730 Pennsylvania Avenue
and 1255 23rd Street (1)............. 8.25% $183,500 $ 15,148 2/1/03 $170,169(5)
900 19th Street........................ 8.25 16,957 1,656 7/15/19(2) (2)
1747 Pennsylvania Ave.................. 9.50 15,613 1,730 7/10/17(3) (3)
2445 M Street.......................... 8.90 38,188 4,646 6/1/02 26,925(6)
1775 Pennsylvania Ave.................. 7.50 6,350 586 2/1/99 6,098(6)
Parkway North.......................... 7.96 29,250 2,328 12/1/03 29,250(9)
Redmond East........................... 8.38 28,036 2,648 1/1/06 24,022(7)
Warner Center.......................... 7.40 26,000 1,924 12/1/00 26,000(6)
First State Bank Building.............. 7.38 9,630 868 3/1/99 9,259(6)
Peterson Portfolio(10)................. 7.20 22,022 2,126 1/1/06 15,209(8)
NELO Portfolio(11)..................... 8.25 40,850 4,655 12/10/01 37,873(6)
Pointe Corridor........................ 5.50 13,731 (4) 1/3/97 13,731(4)
South Coast Executive.................. 9.01 10,322 1,015 5/31/99 10,103(6)
-------------- --------------
Total................................ $440,449 $ 39,330
-------------- --------------
-------------- --------------
</TABLE>

- ------------------
(1) Consists of four loans secured by these three properties. Interest rate
represents the weighted average interest rate on the four loans.
(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) Principal balance was repaid in full in January 1997.
(5) Prepayable after November 1, 1997 at the rates stated in the loan documents.
(6) Currently prepayable at the rates stated in the loan documents.
(7) Prepayable after December 19, 2005 at the rates stated in the loan
documents.
(8) Prepayable after January 2001 at the rates stated in the loan documents.
(9) Prepayable after December 1, 1999 at the rates stated in the loan documents.
(10) Secured by the following properties: Century Springs West, Glenridge,
Crestwood, Lakewood, and Parkwood.
(11) Secured by the following properties: San Jose Orchard Business Park(A),
Orchard Office Center, Orchard Center II, Orchard Rincon Center, and
Orchard Bayshore Center.

CREDIT AVAILABILITY

The Company has a revolving line of credit providing for unsecured
borrowings of up to $325 million and a secured, short-term credit facility
providing for borrowings of up to $150 million. As of April 14, 1997, the
Company had drawn $249 million on the line of credit and $76 million was
available for draw. Borrowings under the line of credit bear interest at a
floating rate of 137.5 basis points over LIBOR (which rate will be reduced in
the event the Company obtains an investment grade rating on its senior,
unsecured debt). 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

S-25
<PAGE>

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.

The Company may borrow up to a maximum of $150 million under the secured
credit facility. As of April 14, 1997, the Company had $89 million of capacity
under this facility of which $86 million was drawn, and the Company had granted
security interests to the lender in three of its properties. As a result, $3
million is available to be drawn under this credit facility. The facility bears
interest on the amount outstanding at an annual interest rate of either the
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. The secured facility has a term of
six months, with an option for two six-month extensions.

S-26
<PAGE>
PRO FORMA FINANCIAL INFORMATION

The following tables set forth unaudited pro forma financial information
for the Company as of and for the year ended December 31, 1996 after giving
effect to: (i) the acquisition of office properties and land that have been
consummated since the beginning of 1996 and the acquisition of other office
properties and land that the Company expects to consummate in the near future;
(ii) the Company's sales of common and preferred stock during 1996 and the sale
of common stock in January 1997 (the "January Offering"); (iii) the sale of
Common Stock in the Offering and Concurrent USRealty Purchase; and (iv) the
repayment of amounts outstanding under the Company's unsecured line of credit.

The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented
as if the following transactions occurred on December 31, 1996: (i) the
acquisition of office properties and land that have been consummated since the
beginning of 1997, and the acquisition of other office properties and land that
the Company expects to consummate in the near future; (ii) the sale of common
stock in the January Offering; (iii) the sale of Common Stock in the Offering
and Concurrent USRealty Purchase; and (iv) the repayment of amounts outstanding
under the Company's unsecured line of credit. The unaudited Pro Forma Condensed
Consolidated Statement of Operations for the year ended December 31, 1996 is
presented as if the following transactions had been consummated as of the
beginning of 1996: (i) the acquisition of office properties and land that have
been consummated since the beginning of 1996 and the acquisition of other office
properties and land that the Company expects to consummate in the near future;
(ii) the sales of common and preferred stock during 1996 and the January
Offering; (iii) the sale of common stock in the Offering and Concurrent USRealty
Purchase; and (iv) the repayment of amounts outstanding under the Company's
unsecured line of credit.

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.

The unaudited Pro Forma Condensed Consolidated Balance Sheet and the
unaudited Pro Forma Condensed Consolidated Statement of Operations should be
read in conjunction with the Consolidated Financial Statements of the Company
and Notes thereto. The unaudited Pro Forma Condensed Consolidated Balance Sheet
is not necessarily indicative of what the actual financial position of the
Company would have been at December 31, 1996 had the aforementioned transactions
occurred on such date, nor does it purport to represent the future financial
position of the Company. The unaudited Pro Forma Condensed Consolidated
Statement of Operations is not necessarily indicative of what the actual results
of operations of the Company would have been assuming the aforementioned
transactions had been consummated as of the beginning of 1996, nor does it
purport to represent the results of operations for future periods.

S-27
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRED PROBABLE JANUARY
HISTORICAL(A) PROPERTIES(B) ACQUISITIONS(C) OFFERING(D)
------------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Rental property, net.................................... $ 1,356,341 $ 239,617(1) $ 98,083(4) $ --
Development property.................................... 64,000 24,733(1) 9,927(4) --
Restricted and unrestricted cash........................ 35,866 -- -- --
Other assets............................................ 80,357 (2,013)(1)(2) 9(4)(5) --
------------- ------------- --------------- -----------
Total assets....................................... $ 1,536,564 $ 262,337 $ 108,019 $ --
------------- ------------- --------------- -----------
------------- ------------- --------------- -----------
LIABILITIES:
Mortgages and notes payable............................. $ 655,449 $ 254,070(2) $ 93,746(5) $ (136,000)
Other liabilities....................................... 43,040 3,714(2) -- --
------------- ------------- --------------- -----------
Total liabilities....................................... 698,489 257,784 93,746 (136,000)
Minority interest....................................... 50,597 4,553(3) 14,273(6) --
------------- ------------- --------------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock......................................... 17 -- -- --
Common stock............................................ 438 -- -- 49
Additional paid-in capital.............................. 837,355 -- -- 135,951
Dividends paid in excess of earnings.................... (50,332) -- -- --
------------- ------------- --------------- -----------
Total stockholders' equity......................... 787,478 -- -- 136,000
------------- ------------- --------------- -----------
Total liabilities and stockholders' equity......... $ 1,536,564 $ 262,337 $ 108,019 $ --
------------- ------------- --------------- -----------
------------- ------------- --------------- -----------

</TABLE>

<TABLE>
<CAPTION>
OFFERING AND
CONCURRENT PRO FORMA
USREALTY PURCHASE(E) CONSOLIDATED
-------------------- ------------
<S> <C> <C>
ASSETS:
Rental property, net.................................... $ -- $1,694,041
Development property.................................... -- 98,660
Restricted and unrestricted cash........................ -- 35,866
Other assets............................................ -- 78,353
-------------------- ------------
Total assets....................................... $ -- $1,906,920
-------------------- ------------
-------------------- ------------
LIABILITIES:
Mortgages and notes payable............................. $ (180,899) $ 686,366
Other liabilities....................................... -- 46,754
-------------------- ------------
Total liabilities....................................... (180,899) 733,120
Minority interest....................................... -- 69,423
-------------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock......................................... -- 17
Common stock............................................ 71 558
Additional paid-in capital.............................. 180,828 1,154,134
Dividends paid in excess of earnings.................... -- (50,332)
-------------------- ------------
Total stockholders' equity......................... 180,899 1,104,377
-------------------- ------------
Total liabilities and stockholders' equity......... $ -- $1,906,920
-------------------- ------------
-------------------- ------------
</TABLE>

S-28
<PAGE>

CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)

ADJUSTMENTS (DOLLARS IN THOUSANDS):

(A) Reflects the Company's historical consolidated balance sheet as of
December 31, 1996.

(B) Reflects the following pro forma adjustments related to the properties
acquired between January 1 and April 14, 1997:

(1) total acquisition costs of $264,537 ($9,491 related to Warner
Premier, $3,417 related to Gateway Plaza, $16,296 related to Quorum Place,
$40,089 related to The Crossings, $12,664 related to Cedar Maple, $10,603
related to Quorum North, $8,268 related to 3745 North First Street, $1,054
related to ASIS, $14,294 related to Baytech Center, $6,383 related to
Wateridge Pavilion, $10,277 related to Mission Plaza, $8,949 related to
RadiSys Corporate Headquarters, $30,826 related to Fortran Court, $7,495
related to 2400 Lake Park Drive, $4,350 related to 680 Engineering Drive,
$50,977 related to Embassy Row Land and Building, $1,716 related to Tollway
Plaza Building I, and $27,388 related to Bannockburn Lake Office Plaza I &
II);

(2) the assumption of existing debt of $39,183 ($7,821 related to
Quorum Place, $6,743 related to Quorum North, $3,542 related to Wateridge
Pavilion, and $21,077 related to Bannockburn Lake Office Plaza I & II) and
other liabilities for each acquisition totaling $3,714, the use of the
Company's purchase deposits of $2,200 (net of other assets acquired of
$187) and a draw on the Company's unsecured line of credit of $214,887; and

(3) the issuance of 144,094 units in connection with the acquisition
of Bannockburn Lake Office Plaza I & II.

(4) total acquisition costs of $108,262 ($30,535 related to Sorenson
Research Park, $768 related to RadiSys Corporate Headquarters land, $14,405
related to Data I/O Willows, $22,637 related to Draper Park North, $11,600
related to Scottsdale Place, $22,100 related to Toll Hill East and West,
and $6,217 related to Westlake Corporate Center);

(5) the assumption of existing debt of $17,513 ($4,513 related to
Sorenson Research Park and $13,000 related to Draper Park North), the use
of the Company's purchase deposits of $243 (net of other assets acquired of
$252) and a draw on the Company's unsecured line of credit of $76,233; and

(6) the issuance of 541,142 Units in connection with the acquisition
of Sorenson Research Park.

(D) Reflects the sale of 4,928,570 shares of Common Stock to the
underwriter and Security Capital USRealty at a net price of $136,000, after
deduction of transaction costs of $150. The Company used all of the proceeds to
pay down amounts outstanding under its unsecured line of credit.

(E) Reflects the sale of 7,142,857 shares of Common Stock to the
underwriter and Security Capital USRealty in this Offering and the Concurrent
USRealty Purchase at a net price of $180,899, after deduction of transaction
costs of $544. The Company expects to use the net proceeds of this Offering and
the Concurrent USRealty Purchase to repay outstanding indebtedness and for
future acquisitions and development activity.

S-29
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRED PROBABLE
HISTORICAL(A) PROPERTIES(B) ACQUISITIONS(C)
------------- ------------- ---------------
<S> <C> <C> <C>
Real estate operating revenue:
Rental revenue.................................................. $ 154,165 $ 111,386(1) $ 9,689(6)
Real estate service income...................................... 12,512 -- --
------------- ------------- ---------------
Total revenue................................................... 166,677 111,386 9,689
------------- ------------- ---------------
Real estate operating expenses:
Property operating expenses..................................... 51,927 39,326(4) 2,830(8)
Interest expense................................................ 31,630 36,220(2) 6,075(9)
General and administrative...................................... 15,228 -- --
Depreciation and amortization................................... 38,264 23,602(3) 2,719(7)
------------- ------------- ---------------
Total operating expenses........................................ 137,049 99,148 11,624
------------- ------------- ---------------
Real estate operating income.................................... 29,628 12,238 (1,935)
Other operating income (expense).................................. (94) 8(1) --
------------- ------------- ---------------
Income before minority interest................................. 29,534 12,246 (1,935)
------------- ------------- ---------------
Minority interest................................................. (4,732) (753)(5) (235)(10)
------------- ------------- ---------------
Income from continuing operations............................... $ 24,802 $ 11,493 $(2,170)
------------- ------------- ---------------
------------- ------------- ---------------
Earnings from continuing operations per common share.............. $ 0.90
-------------
-------------
</TABLE>

<TABLE>
<CAPTION>
OFFERING AND
JANUARY CONCURRENT PRO FORMA
OFFERING(D) USREALTY PURCHASE(E) CONSOLIDATED
----------- -------------------- ------------
<S> <C> <C> <C>
Real estate operating revenue:
Rental revenue.................................................. $ -- $ -- $275,240
Real estate service income...................................... -- -- 12,512
----------- ----------- ------------
Total revenue................................................... -- -- 287,752
----------- ----------- ------------
Real estate operating expenses:
Property operating expenses..................................... -- -- 94,083
Interest expense................................................ (10,200) (13,567) 50,158
General and administrative...................................... -- -- 15,228
Depreciation and amortization................................... -- -- 64,585
----------- ----------- ------------
Total operating expenses........................................ (10,200) (13,567) 224,054
----------- ----------- ------------
Real estate operating income.................................... 10,200 13,567 63,698
Other operating income (expense).................................. -- -- (86)
----------- ----------- ------------
Income before minority interest................................. 10,200 13,567 63,612
----------- ----------- ------------
Minority interest................................................. -- -- (5,720)
----------- ----------- ------------
Income from continuing operations............................... $ 10,200 $ 13,567 $ 57,892
----------- ----------- ------------
----------- ----------- ------------
Earnings from continuing operations per common share.............. $ 0.97(F)
------------
------------
</TABLE>

S-30
<PAGE>

CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)

ADJUSTMENTS (DOLLARS IN THOUSANDS):

(A) Reflects the Company's historical consolidated statement of operations
for the year ended December 31, 1996.

(B) Pro forma adjustments for the purchases of the properties acquired
between January 1, 1996 and April 14, 1997 reflect:

(1) the historical operating activity of the properties acquired;

(2) the additional interest expense of $24,282 on the Company's
unsecured line of credit ($27,998 of interest costs net of $3,716
capitalized) and interest expense of $11,938 on debt assumed in certain
acquisitions;

(3) the depreciation expense for the acquisitions based on the new
accounting basis for the rental property acquired;

(4) the historical operating activity of the rental properties
acquired reduced by the elimination of management fee expenses that will no
longer be incurred by the Company upon purchase of the properties; and

(5) the minority interest share of earnings.

(6) the historical operating activity of the properties to be
acquired;

(7) the depreciation expense for the probable acquisitions based on
the new accounting basis for the rental property to be acquired;

(8) the historical operating activity of the rental property to be
acquired reduced by the elimination of management fee expenses that will
not be incurred by the Company upon purchase of the properties;

(9) the additional interest expense of $4,654 on the Company's
unsecured line of credit ($5,846 of interest costs net of $1,192
capitalized) and interest expense of $1,421 on debt assumed in certain
acquisitions; and

(10) the minority interest share of earnings.

(D) Pro forma adjustment reflects the reduction in interest expense
associated with the pay down of amounts outstanding under the Company's
unsecured line of credit with the proceeds from the January Offering.

(E) Pro forma adjustment reflects the reduction in interest expense
associated with the pay down of amounts outstanding under the Company's
unsecured line of credit with the proceeds from the Offering and Concurrent
USRealty Purchase.

(F) Based upon 62,075,152 pro forma shares of Common Stock outstanding and
Common Stock equivalents on a weighted average basis during the year ended
December 31, 1996. Net income and weighted average shares outstanding have been
adjusted for certain minority interests that have a dilutive effect on earnings
per share.

S-31
<PAGE>

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

The following discussion is based primarily on the condensed Consolidated
Financial Statements of CarrAmerica Realty Corporation and its subsidiaries as
of and for the years ended December 31, 1996, 1995 and 1994, which are
incorporated by reference in the accompanying Prospectus. This information
should be read in conjunction with such financial statements and the notes
thereto.

RESULTS OF OPERATIONS--1996 TO 1995

Real Estate Operating Revenue. Total real estate operating revenue
increased $65.8 million, or 65.3%, to $166.7 million for 1996 as compared to
$100.9 million for 1995. The increase in revenue was primarily attributable to a
$64.6 million and a $1.2 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, which contributed approximately $68.2
million of additional rental revenue in 1996. Rental revenue from properties
that were fully operating throughout both years decreased by approximately $3.6
million due to increased vacancies experienced in those properties. Real estate
service revenue increased by $1.2 million, or 10.6%, for 1996 to $12.5 million
as compared to $11.3 million for 1995. The increase was primarily as a result of
development fees earned by Carr Development & Construction, Inc., which was
acquired by the Company in May 1996.

Real Estate Operating Expenses. Total real estate operating expenses
increased $54.4 million for 1996, or 65.8%, to $137.1 million as compared to
$82.7 million for 1995. The net increase in operating expenses was attributable
to a $20.3 million increase in property operating expenses, a $9.8 million
increase in interest expense, a $4.5 million increase in general and
administrative expenses, and a $19.8 million increase in depreciation and
amortization. The increase in property operating expenses was primarily
attributable to $20.2 million in operating expenses associated with property
acquisitions. Exclusive of operating expenses attributable to new property
acquisitions, property operating expenses increased by $.1 million for 1996. The
increase in the Company's interest expense is primarily related to borrowings
for acquisitions. The increase in general and administrative expenses is
predominantly a result of the addition of new staff to implement the Company's
new business strategy, the addition of approximately $1.8 million of expenses
associated with Carr Development & Construction, Inc., and inflation. The
increase in depreciation and amortization is predominantly a result of
depreciation and amortization on the Company's real estate acquisitions.

Other Operating Income (Expense). Other operating income (expense)
increased $.8 million for 1996, to ($.1) million as compared to ($.9) million
for 1995, primarily as a result of an increase in interest income and the
addition of equity in earnings of CC-JM II Associates, a joint venture which
owns the Booz-Allen & Hamilton Building. The Company is a 50% venturer in this
entity, which constructed the Booz-Allen & Hamilton Building that was placed in
service in January 1996. The increases in other operating income were partially
offset by an additional loss recognized on the write-off of intangible assets.

Net Income. Net income of $24.3 million was earned for 1996 as compared to
$12.1 million during 1995. 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 $47.0
million, or 133.3%, to $82.3 million for 1996 as compared to $35.3 million for
1995, primarily as a result of the acquisitions made by the Company. Net cash
used by investing activities increased $795.3 million to $876.9 million for 1996
as compared to $81.6 million for 1995, primarily as a result of capital deployed
by the Company for acquisitions of office properties, land held for future
development and construction in progress. Net cash provided by financing
activities increased $776.0 million to $813.1 million provided for 1996 as
compared to $37.1 million provided for 1995, primarily as a result of the sale
of Common Stock and Preferred Stock by the Company and net borrowings necessary
for the Company's acquisitions.

S-32
<PAGE>

RESULTS OF OPERATIONS--1995 TO 1994

Real Estate Operating Revenue. Total real estate operating revenue
increased $9.3 million, or 10.2%, to $100.9 million in 1995 as compared to $91.6
million in 1994. The increase in revenue was primarily attributable to a $6.9
million and a $2.4 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 which contributed approximately $8.1 million of
additional rental revenue in 1995. Rental revenue contributed by properties that
were fully operating throughout both periods declined by approximately $1.2
million, or 1.5%. These properties, all of which were located in downtown
Washington, D.C., experienced lower rental revenue in the aggregate during 1995
as a result of (a) lower occupancy rates, (b) the renegotiation of certain
tenants' leases resulting in lower rental rates, and (c) new leases entered into
by the Company at rates lower than the expiring leases' rental rates. The
Company experienced growth in its real estate service income of $1.7 million as
a result of its acquisition of real estate service contracts in 1995. In
addition, real estate service revenues from the Company's core service contracts
increased by $.7 million, or 8.2%, in 1995.

Real Estate Operating Expenses. Total real estate operating expenses
increased $7.7 million, or 10.2%, to $82.7 million as compared to $75.0 million
in 1994. The net increase in operating expenses was attributable to a $1.9
million increase in property operating expenses, a $.5 million increase in
interest expense, a $1.2 million increase in general and administrative
expenses, and a $4.1 million increase in depreciation and amortization. The
increase in property operating expenses was primarily attributable to $2.4
million in operating expenses associated with property acquisitions. Exclusive
of operating expenses attributable to new property acquisitions, property
operating expenses decreased $.5 million, or 1.9%, in 1995 predominantly as a
result of lower real estate tax assessments. The increase in the Company's
interest expense is primarily related to borrowings for acquisitions. The
increase in general and administrative expenses is predominantly a result of
general and administrative expenses associated with the real estate service
contracts acquired in 1995 and inflation. The increase in depreciation and
amortization is predominantly a result of depreciation and amortization on the
Company's real estate service contract acquisitions.

Other Operating Income (Expense). In January 1996, the Company terminated
an agreement to acquire the development business of The Evans Company and, as a
result, recognized a $1.9 million non-recurring charge to its earnings in the
fourth quarter of 1995. The Company took this action in order to focus on
implementing its national growth strategy.

Net Income. Net income of $12.1 million was earned during 1995 as compared
to $12.1 million during 1994. 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 $5.4
million, or 18.0%, to $35.3 million in 1995 as compared to $29.9 million in
1994, primarily as a result of the acquisitions made by the Company. Net cash
used by investing activities increased $14.6 million, or 21.8%, to $81.6 million
in 1995 as compared to $67.0 million in 1994, primarily as a result of capital
deployed by the Company for acquisitions of office properties and real estate
service contracts. Net cash provided by financing activities increased $4.5
million, or 13.7%, to $37.1 million as compared to $32.6 million in 1994,
primarily as a result of the net borrowings for the Company's acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

The Company's total indebtedness at April 14, 1997 was $800.9 million, of
which $335.0 million, or 41.8%, bore a LIBOR-based floating interest rate. The
Company has total borrowing capacity under its unsecured line of credit of
$325.0 million, allowing the Company to borrow up to an additional $76 million
after taking into consideration the $249 million of indebtedness outstanding as
of April 14, 1997. In January 1997, the Company obtained a $150 million,
short-term credit facility from Morgan Guaranty Trust Company of New York, which
is secured by three properties in the Company's portfolio. At April 14, 1997,
the Company had borrowing capacity under this facility of $89.0 million,
allowing the Company to borrow up to $3 million after taking into consideration
the $86.0 million of indebtedness

S-33
<PAGE>

outstanding under the facility. The Company will be required to secure the
facility with additional properties in order to increase the borrowing capacity.
The Company intends to use its credit facilities to finance the acquisition and
development of office properties and to meet working capital needs. Based upon
the Company's total market capitalization at April 14, 1997 of $2.281 billion
(the stock price was $26.375 per share and the total shares/Units outstanding
were 56,133,483), the Company's debt represented 35.1% of its total market
capitalization.

The Company will require capital to invest in its existing portfolio of
operating assets for major capital projects such as large-scale renovations,
routine capital expenditures and deferred maintenance on certain properties
recently acquired and tenant related capital expenditures, such as tenant
improvements and allowances and leasing commissions. With respect to major
capital projects, the Company is planning a renovation of a 327,000 square foot
property in Denver during 1997 which will cost $2.0 million, or approximately
$5.00 per square foot. During 1997, the Company is also completing renovations
of several garages in its downtown Washington, DC portfolio totaling
approximately $1.7 million. With respect to routine capital expenditures and
deferred maintenance on certain properties recently acquired, the Company
anticipates spending approximately $5.8 million, or approximately $.52 per
square foot, during 1997 on its portfolio of operating assets owned as of
December 31, 1996. The Company's capital requirements for tenant related capital
expenditures are dependent upon a number of factors, including square feet of
expiring leases, tenant retention ratios and whether the expiring leases are in
central business district properties or suburban properties. During 1997, the
Company has 256,347 square feet and 1,251,459 square feet of expiring leases in
central business districts properties and suburban properties, respectively. The
Company intends to use cash flow from operations and its unsecured line of
credit to meet its working capital needs for its existing portfolio of operating
assets.

The Company will also require a substantial amount of capital for
development projects currently underway and planned for the future. The Company
currently has a total of six development projects underway, one of which the
Company intends to sell to a third party upon completion of construction
pursuant to an existing contract. These projects are expected to require a total
investment by the Company of $119.4 million, with $112.6 million expected to be
invested in the five properties the Company intends to own and operate upon
completion of construction. The Company intends to use cash flow from operations
and its unsecured line of credit and secured credit facility to meet its working
capital needs for its existing portfolio of operating assets.

Net cash flow provided by operating activities was $82.3 million for 1996,
compared to $35.3 million in 1995. The increase in net cash flow provided by
operating activities was primarily as a result of acquisitions made by the
Company.

The Company's investing activities used approximately $876.9 million and
$81.6 million in 1996 and 1995, respectively. The Company's investment
activities included the investment in acquisitions and development properties
and real estate service contracts of approximately $857.1 million and $71.8
million in 1996 and 1995, respectively. Additionally, the Company invested
approximately $11.5 million and $8.9 million in 1996 and 1995, respectively, in
its existing real estate assets.

Net of distributions to the Company's shareholders, the Company's financing
activities provided net cash of $813.1 million and $37.1 million in 1996 and
1995, respectively. In 1996 and 1995, the Company borrowed approximately $215.0
million and $72.0 million respectively to provide adequate capital for the
Company's investing activities. Additionally, in 1996, the Company raised $708.5
million in net proceeds from the sale of Common Stock and Preferred Stock to
provide adequate capital for the Company's investing activities and to repay
certain amounts of indebtedness. In 1995, the Company did not raise any capital
from equity offerings.

Rental revenue and real estate service revenue have been the principal
sources of capital to fund the Company's operating expenses, debt service and
capital expenditures, excluding nonrecurring capital expenditures. The Company
believes that rental and real estate service revenue will continue to provide
the necessary funds for its operating expenses and debt service. The Company
expects to fund capital expenditures, including tenant concession packages and
building renovations, from (i) available funds from operations, (ii) existing
capital reserves, and (iii) if necessary, credit facilities established with

S-34
<PAGE>

third-party lenders. If these sources of funds are insufficient, the Company's
ability to make expected distributions may be adversely impacted. At December
31, 1996, the Company had cash of $35.9 million, of which $8.2 million was
restricted.

The Company's dividends are paid quarterly. Amounts accumulated for
distribution are predominantly invested by the Company in short-term investments
that are collateralized by securities of the United States Government or any of
its agencies.

Management believes that the Company will have access to the capital
resources necessary to expand and develop its business. Accordingly, the Company
may seek to obtain funds through additional equity offerings or debt financings
in a manner consistent with its intention to operate with a conservative
borrowing policy. The Company anticipates that adequate cash will be available
to fund its operating and administrative expenses, continuing debt service
obligations, the payment of dividends in accordance with REIT requirements in
both the short-term and long-term, and future acquisitions of rental properties.

The Company believes that funds from operations is an appropriate measure
of the performance of an equity REIT because industry analysts have accepted it
as a performance measure of equity REITs. In accordance with the final 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 will be
calculated to reflect funds from operations on the same basis. 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 should not be considered an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or the Company's ability to make
distributions.

The following table provides the calculations of the Company's funds from
operations for 1996, 1995 and 1994:

(In thousands):

<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA ---------------------------
1996 1996 1995 1994
--------- ------- ------ ------
<S> <C> <C> <C> <C>
Net income before minority interest................................. $ 63,612 29,534 17,284 17,821
Adjustments to derive funds from operations:
Add:
Depreciation and amortization..................................... 62,209 35,888 17,564 14,523
Deduct:
Minority interests (non Unitholders) share of depreciation and
amortization and net income....................................... (926) (926) (1,658) (1,704)
--------- ------- ------ ------
Funds from operations before allocation to minority Unitholders..... 124,895 64,496 33,190 30,640
Less: Funds from operations allocable to minority Unitholders....... (11,101) (8,610) (7,876) (8,640)
--------- ------- ------ ------
Funds from operations allocable to CarrAmerica Realty Corporation... $ 113,794 55,886 25,314 22,000
--------- ------- ------ ------
--------- ------- ------ ------
</TABLE>

Changes in funds from operations are largely attributable to changes in net
income between the periods as previously discussed.

S-35
<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........................ 71 Chairman of the Board and Chief Executive Officer
Thomas A. Carr............................ 38 President, Chief Operating Officer and Director
Robert O. Carr............................ 47 President of Carr Real Estate Services, Inc. and Director
David Bonderman........................... 54 Director
Andrew F. Brimmer......................... 70 Director
A. James Clark............................ 69 Director
Anthony R. Manno, Jr...................... 44 Director
Caroline S. McBride....................... 43 Director
J. Marshall Peck.......................... 45 Director
George R. Puskar.......................... 53 Director
William D. Sanders........................ 55 Director
Wesley S. Williams, Jr.................... 54 Director
Brian K. Fields........................... 37 Chief Financial Officer
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............................ 38 Vice President, Market Officer--Washington, D.C.
Andrea F. Bradley......................... 36 Vice President, General Counsel and Corporate Secretary
Steven N. Bralower........................ 46 Senior Vice President of Carr Realty, L.P.
Robert L. Brumm........................... 45 Vice President, Human Resources and Administration
Clete Casper.............................. 37 Vice President, Market Officer--Suburban Seattle
Joel DeSpain.............................. 45 Vice President, Market Officer--Austin, Texas
Karen B. Dorigan.......................... 32 Vice President--Land Due Diligence
John J. Donovan, Jr....................... 53 Senior Vice President of Carr Real Estate Services, Inc.
J. Thad Ellis............................. 36 Vice President, Market Officer--Suburban Atlanta
Richard W. Greninger...................... 45 Senior Vice President of Carr Real Estate Services, Inc.
John S. Herr.............................. 41 Vice President, Market Officer--Northern California
Austin W. Lehr............................ 35 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
James D. Peterson......................... 49 Vice President, Market Officer--Southern Florida
Matthew L. Richardson..................... 37 Senior Vice President of Carr
Development & Construction, Inc.
William H. Vanderstraaten................. 36 Vice President, Market Officer--Suburban Dallas
Debra A. Volpicelli....................... 32 Treasurer and Controller
Joseph D. Wallace......................... 33 Vice President--Building Due Diligence
James S. Williams......................... 40 Senior Vice President of Carr
Development & Construction, Inc.
</TABLE>

S-36
<PAGE>

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., 71, has been the Chief Executive Officer and
Chairman of the Board of Directors of the Company since it commenced
operations in February 1993. Mr. Carr's term as a director of the Company
expires at the 1999 Annual Meeting of Stockholders. 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 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's term as a director of the Company expires
at the 1998 Annual Meeting of Stockholders. In May 1995, Mr. Carr was also
appointed the Chief Operating Officer of the Company, at which time he
resigned as the Company's Chief Financial Officer, a position he had held
since February 1993. 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.

Robert O. Carr, 47, has been a director of the Company and President
and Chairman of the Board of Directors of Carr Real Estate Services, Inc.,
("Carr Services, Inc.") a subsidiary of the Company, since February 1993.
Mr. Carr's term as a director of the Company expires at the 1997 Annual
Meeting of Stockholders. 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. Mr. Carr is a
member of the Executive Committee of the Board of Directors.

David Bonderman, 54, has been a director of the Company since its
commencement of operations. Mr. Bonderman's term expires at the 1997 Annual
Meeting of Stockholders. He is the managing general partner of TPG
Partners, L.P., a private investment partnership. From October 1971 through
June 1983, Mr. Bonderman was an associate and then partner in the law firm
of Arnold & Porter, Washington, D.C. From July 1983 through August 1992,
Mr. Bonderman served as the Vice President and Chief Operating Officer of
Keystone, Inc. (formerly the Robert M. Bass Group, Inc.). Mr. Bonderman
also serves as a director of Bell & Howell Holdings Company, Washington
Mutual, Inc., Denbury Resources, Inc., National Education Corporation and
Continental Airlines, Inc. Mr. Bonderman holds a Bachelor of Arts degree
from the University of Washington and an L.L.B. degree from Harvard
University. Mr. Bonderman is a member of the Executive Compensation
Committee of the Board of Directors.

S-37
<PAGE>

Andrew F. Brimmer, 70, has been a director of the Company since
February 1993. Dr. Brimmer's term as a director of the Company expires at
the 1999 Annual Meeting of Stockholders. 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. Mr. Clark's term as a director of the Company expires at the 1998
Annual Meeting of Stockholders. 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.

Anthony R. Manno, Jr., 44, has been a director of the Company since
May 1996. Mr. Manno's term as a director of the Company expires at the 1997
Annual Meeting of Stockholders. Mr. Manno is a Managing Director of
Security Capital Investment Research Incorporated, an affiliate of
USRealty. Prior to joining Security Capital Investment Research
Incorporated in 1993, Mr. Manno was a managing director of LaSalle Partners
Limited where he served in various capacities from 1980 to 1993, including
client manager for LaSalle Partners Limited's joint venture partner,
Dai-ichi Mutual Life Insurance Company; manager of LaSalle Partners
Limited's degree finance group; and a member of LaSalle Partners Limited's
investment committee. Prior thereto, Mr. Manno was a commercial real estate
loan officer of The First National Bank of Chicago. Mr. Manno is a
Certified Public Accountant. Mr. Manno received his Masters in Business
Administration, with a concentration in Finance, from the University of
Chicago School of Business and his M.A. and B.A. in Economics from
Northwestern University.

Caroline S. McBride, 43, has been a director of the Company since July
1996. Mrs. McBride's term as a director of the Company expires at the 1997
Annual Meeting of Stockholders. 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 was appointed to the Board in connection with the USRealty
Transaction. 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 Partners Limited since January 1989, where he served in
various capacities over his 14-year tenure, with

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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.

George R. Puskar, 53, has been a director of the Company since its
commencement of operations. Mr. Puskar's term expires at the 1999 Annual
Meeting of Stockholders. He has served as the Chairman and Chief Executive
Officer of Equitable Real Estate Investment Management, Inc. ("Equitable
Real Estate") since 1989 and a vice president of The Equitable Life
Assurance Society of the United States ("ELAS"). Mr. Puskar joined ELAS in
1966 in its local field office in Pittsburgh. Mr. Puskar became the
President of Equitable Real Estate, a diversified real estate organization
which is a subsidiary of ELAS, in 1984. Mr. Puskar serves as a director of
Equitable Real Estate Capital Markets, Inc. and is a board member of the
International Council of Shopping Centers, Clark Atlanta University, The
Atlanta Chamber of Commerce, the Vice Chairman and a board member of the
National Realty Committee, and a member of the Advisory Board of the
Wharton School's Real Estate Center in Philadelphia. Mr. Puskar is a member
of the Executive Committee and the Nominating Committee of the Board of
Directors.

William D. Sanders, 55, has been a director of the Company since May
1996. Mr. Sander's term as a director of the Company expires at the 1999
Annual Meeting of Stockholders. Mr. Sanders is the Founder and Chairman of
Security Capital Group, an affiliate of 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, 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' term as a director of the Company expires at
the 1998 Annual Meeting of Stockholders. 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 KEY 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 Real Estate Services, Inc. and

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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.

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 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, 38, 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.

Andrea F. Bradley, 36, has been the Company's Vice President, General
Counsel and Corporate Secretary since August 1993. Mrs. Bradley was an
attorney with the law firm of Shaw, Pittman, Potts and Trowbridge from 1991
to August 1993 and an attorney with the law firm of Paul, Hastings,
Janofsky & Walker from 1985 to 1991, where she practiced primarily
corporate finance and securities law. Mrs. Bradley holds a Juris Doctor
from University of California at Los Angeles and an A.B. degree in American
Studies from Stanford 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

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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, 45, 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.

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.

Joel DeSpain, 45, has been the Company's Vice President, Market
Officer for Austin, Texas since August 1996. Mr. DeSpain has over 18 years
experience in the real estate and marketing field. Mr. DeSpain's most
recent experience includes 2 years as a Vice President of Littlefield Real
Estate Company in Austin, Texas. Prior to that, Mr. DeSpain spent 2 years
with Faison-Stone in Austin, Texas as Vice President, 5 years with Grubb &
Ellis in Austin, Texas as President, 2 years with Paragon Properties in
Austin, Texas as Executive Vice President, and 7 years with The Home
Company Realtors in Houston, Texas as Marketing Director. Mr. DeSpain holds
a Doctor of Jurisprudence from South Texas College of Law and a BBA in
Marketing from University of Houston.

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, 36, 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, 45, 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.

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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 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, 35, 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, lncorporated 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"MalIey 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"MaIIey & 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.

James D. Peterson, 49, has been the Company's Vice President, Market
Officer for South Florida since November 1996. Mr. Peterson has over 25
years experience in the real estate field.

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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 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.

Matthew L. Richardson, 37, has been a Senior Vice President of Carr
Development & Construction, Inc., a subsidiary of the Company, since April
1996, with responsibility for all build-to-suit marketing and for assisting
the Market Officer Group in qualifying, structuring and negotiating
development opportunities. Prior to that time and for more than 8 years,
Mr. Richardson served in a variety of capacities in OCCO's development
business, including from September 1991 to April 1996 serving as its
President. He is on the Board of Directors of the District of Columbia's
Building Industry Association. Mr. Richardson holds a Masters of Business
Administration and a Bachelor of Urban Planning degree from University of
Virginia.

William H.Vanderstraaten, 36, 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, 32, 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 Carr
Development & Construction, Inc. 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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PLAN OF DISTRIBUTION

The Company expects to sell to Security Capital Holdings S.A. ("Holdings"),
at a price per share of $26.375, 2,142,857 shares of Common Stock. Such sale
will be made pursuant to a Subscription Agreement between Holdings and the
Company. The sale and purchase of the Common Stock is expected to close on or
about April 18, 1997. The obligation of Holdings to purchase Common Stock is
subject to certain conditions under the Subscription Agreement.

The Common Stock is listed on the NYSE under the symbol "CRE."

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LEGAL MATTERS

The validity of the issuance of the shares of Common Stock pursuant to this
Prospectus Supplement will be passed upon for the Company by Hogan & Hartson
L.L.P., Washington, D.C.

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<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, $.01 par value
("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 MARCH 27, 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. The
Company's web site can be found at "http:www.carramerica.com."

2
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RISK FACTORS

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

REAL ESTATE INVESTMENT RISKS

General. Real property investments 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, such as an over-supply of, or a
reduction in demand for, office space in the area where its properties are
located and the attractiveness of the properties to prospective tenants. In
addition, 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.

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 prepay or
refinance existing 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 equity holders or debt service. In addition, if a
property or properties are mortgaged to secure payment of indebtedness and the
Company is unable to meet 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.

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 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. In particular, as of December 31, 1996, one of the
Company's tenants leased space representing approximately 7.6%, respectively, of
the total rentable square footage of the Company's properties pursuant to leases
that expire beginning in 1998. Although the Company has established an annual
budget for renovation and reletting costs that it believes are 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 to promptly
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 shareholders or debt service payments could 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

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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.

CONFLICTS OF INTEREST

Certain members of the Company's board of directors (the "Board") and
officers own limited partnership interests ("Units") of Carr Realty, L.P., a
partnership that owns certain of the Company's properties, and, thus, may have
interests that conflict with shareholders with respect to business decisions
affecting the Company and Carr Realty, L.P. In particular, a holder of Units may
suffer different and/or more adverse tax consequences than the Company upon the
sale or refinancing of some of the properties as a result of unrealized gain
attributable to certain properties. These Unit holders and the Company,
therefore, may have different objectives regarding the appropriate pricing and
timing of any sale or refinancing of properties. Although the Company, as the
sole general partner of Carr Realty, L.P., has the exclusive authority as to
whether and on what terms to sell or refinance an individual property, these
Unit holders might seek to influence the Company not to sell or refinance the
properties, 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" 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.

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
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 offerings, lines of credit or
other forms of secured or unsecured construction financing. If permanent debt or
equity financing is not available on acceptable terms to refinance such new
acquisitions or developments are undertaken without permanent financing, 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 value
office properties in suburban growth markets across the United States This
change represents a significant shift in the business strategy of

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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 value office properties
in suburban growth markets, the Company has significantly expanded its portfolio
of office properties in 1996. 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.

DEPENDENCE ON WASHINGTON, D.C. MARKET

Although the Company's business strategy is to move toward a more national
business focus, at December 31, 1996, the Company's consolidated Properties
located in downtown Washington, D.C. represented approximately 19.3% of the
consolidated Properties in terms of rentable square footage. The Company's
performance and its ability to make expected distributions to stockholders could
be adversely affected by economic or other conditions in downtown Washington,
D.C. that are beyond the control of the Company.

SUBSTANTIAL OWNERSHIP OF COMMON STOCK

As of December 31, 1996, Security Capital Holdings S.A., a wholly owned
subsidiary of Security Capital U.S. Realty (collectively "USRealty") owned 43.4%
of the outstanding shares of the Company's Common Stock (37.3% of the Common
Stock on a fully-diluted basis), and 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, 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 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 USRealty agreed to certain
limitations on its voting rights with respect to its shares of Common Stock,
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
USRealty owns at least 25% of the outstanding Common Stock of the Company on a
fully diluted basis, 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 USRealty acquired its initial
interest in the Company (the "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 Units by Carr Realty, L.P., and certain other matters. The Company
may take actions relating to these matters only with the consent of USRealty. In
addition, the Company has agreed to 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 are
intended to permit USRealty to comply with certain requirements of the Internal
Revenue Code and other countries' tax laws applicable to foreign investors,
limit somewhat the flexibility of the Company to structure transactions that
might otherwise be advantageous to the Company. Although the Company does not
believe that the limitations imposed on the

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<PAGE>

Company's activities will materially impair the Company's ability to conduct its
business, there can be no assurance that these limitations will not adversely
affect the Company's operations in the future.

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 shareholders
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 Carr Development & Construction, Inc. ("Carr
Development & Construction") (collectively, the "Operating Subsidiaries"). The
capital stock of Carr Services, Inc., which conducts fee-based management and
leasing, is divided into two classes: voting common stock, approximately 92% and
8% of which is held by The Oliver Carr Company ("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 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.

The capital stock of Carr Development & Construction which conducts
fee-based development, 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 Carr Development & Construction.

Oliver T. Carr, Jr., who is Chairman of the Board and Chief Executive
Officer and a significant stockholder of the Company, beneficially owns a
majority of the voting stock of OCCO, which will control the election of
directors of the Operating Subsidiaries. Although neither the right of Carr
Realty, L.P. or the Company, as applicable, to receive distributions with
respect to its equity interests in the Operating Subsidiaries nor the terms of
the promissory notes made by each of the Operating Subsidiaries and held by Carr
Realty, L.P. or the Company, as applicable, can be changed by OCCO, 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 the Operating Subsidiaries
is limited. As a result, the board of directors and management of each of the
Operating Subsidiaries 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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<PAGE>

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 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 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. 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 net 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 undistributed income from prior years.
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 the Carr Realty, L.P., CarrAmerica Realty, L.P.
or other Partnerships to be Treated as a Partnership. The Company believes that
the 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
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 would be taxable as a corporation. In such event, since the value of
the Company's ownership interest in Carr Realty, L.P. and CarrAmerica Realty,
L.P. exceeds, and the value of Carr Realty, L.P.'s ownership interest in the
affected partnership 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 on
Carr Realty, L.P., CarrAmerica Realty, L.P. or any of the other partnerships in
which it holds an interest would reduce the amount of funds available for
distribution to the Company and its stockholders.

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<PAGE>

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 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 USRealty.

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 December 31, 1996, 1,436,900 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 USRealty Transaction, the Company granted USRealty the right
to require the Company to file, at any time requested by USRealty, a
registration statement under the Securities Act of 1933 covering all or any of
the shares of Common Stock acquired by 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 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.

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 shareholders' 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.

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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 was 1.75, 1.81, 1.91 and 1.74,
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 is
1.71 for the year ended December 31, 1996.

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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. The forms
of the Senior Indenture (as defined herein) and the Subordinated Indenture (as
defined herein) have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.

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 below 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."

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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(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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<PAGE>

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 above under "Merger, Consolidation or Sale",
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 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, defined below, 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 for 30 days 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 at its maturity; (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 in the
payment of an aggregate principal amount exceeding $10,000,000 of any
indebtedness of the Company or any mortgage, indenture or other instrument under
which such indebtedness is issued or by which such indebtedness is secured, such
default having occurred after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness, but
only if such indebtedness is not discharged or such acceleration is not
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, or either of its
property; 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 entity such as a limited
liability company, in which a majority of the outstanding voting stock or
partnership interests, as the case may be, is owned or controlled, directly or
indirectly, by the Company or by one or more other Subsidiaries of the Company.
For the purposes of this definition, "voting stock" means stock having voting
power for the election of directors, or managers or other voting members of the
governing body of such entities, whether at all times or only so long as no
senior class of stock has such voting power by reason of any contingency. The
term "subsidiary" does not include Carr Services, Inc. or Carr Development &
Construction as the Company does not own or control a majority of the
outstanding voting stock of such entities.

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<PAGE>

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 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).

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<PAGE>

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 principal 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 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,

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<PAGE>

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 upon 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.

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

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<PAGE>

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 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 law)

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<PAGE>

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" 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" 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, 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.

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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 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.

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DESCRIPTION OF SERIES A PREFERRED SHARES

The Company is authorized to issue 1,740,000 shares of Series A Cumulative
Convertible Redeemable Preferred Stock (the "Series A Preferred Shares"). As of
December 31, 1996 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 Boston EquiServe.

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 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

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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 Share 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, 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 shareholders 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 shareholders 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 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 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" in the accompanying
Prospectus.

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 shareholders), (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 the date of this Prospectus Supplement. 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
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 shares of stock and other
securities and property receivable (including cash or any combination thereof)
upon the consummation of such transaction by a holder of that number of shares
of Common Stock or fraction thereof into which one Series A Preferred

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<PAGE>

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 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"
in the accompanying Prospectus.

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 Directors 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 holder's shares of 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 in the accompanying Prospectus
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 December 31, 1996, 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").

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 shareholder approval. The Board may determine the relative rights,
preferences and privileges of each series of Preferred Stock so issued.

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<PAGE>

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.

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

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<PAGE>

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 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 shares of beneficial
interest (the "Total Dividends"), then the portion of the Capital Gains Amount
that will be allocable to the holders

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<PAGE>

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 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

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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 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 shareholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated

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<PAGE>

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 (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, not 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. 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."

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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 shareholders for a vote. Holders of Common Stock have no preemptive
rights. At December 31, 1996, there were 43,789,073 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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<PAGE>

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 ("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., or 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, 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
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 USRealty
owns the maximum percentage of the Company's capital stock that it is permitted
to own under the Special Shareholder Limit) ("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 below under
"--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 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 shareholder 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 Boston EquiServe.

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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<PAGE>

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.

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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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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 certain 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 shareholder in light of his or her particular
circumstances or to certain types of shareholders (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 in this section, 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 STOCK 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 is 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 meets certain other tests, described below,
regarding the nature of its income and assets. The Code

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provides that conditions (l) 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 (5) and (6) above. 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 is 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 the 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 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 Carr 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 Carr
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 is 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 percent 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

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trust) 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 five percent, (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 his 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 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 December 31, 1996, USRealty, a
Luxembourg corporation, held approximately 40.9% in value of the securities of
the Company. In the event that 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 Company's
outstanding securities at all times during a specified testing period. The
Company believes 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 USRealty) that holds in excess of 5% of the Company's
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 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 USRealty owns the maximum percentage of
the Company's capital stock that it 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 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 Regulations provide
that the IRS will not challenge the classification of an existing partnership or
limited

43
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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 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"). The Carr
Realty, L.P. partnership agreement requires allocations of income, gain, loss
and deduction with respect to the contributed Property 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 the 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 the contributed Properties in the hands of Carr
Realty, L.P. could cause the Company (i) to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to
the Company if all Properties were to have a tax basis equal to their fair
market value at the time the Properties were contributed to Carr Realty, L.P.,
and (ii) possibly to be allocated taxable gain in the event of a sale of such
contributed Properties in excess of the economic or book income allocated to the
Company as a result of such sale.

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 the 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 not 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 USRealty Transaction, so long as USRealty owns at
least 25% of the outstanding Common Stock of the Company on a fully diluted
basis, 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

45
<PAGE>

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 will be
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain
federal income tax matters will be 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 and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected 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 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's Common Stock are listed
on the New York Stock Exchange and such 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 Commission
maintains a "web site" that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of such site is "http://www.sec.gov".

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 documents are not necessarily complete, and in each instance, reference is
made to the copy of such contract or documents 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 payment of
the fees prescribed by 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; and

46
<PAGE>
2. The Company's Current Report on Form 8-K filed with the Commission
on February 12, 1997 and the Company's Current Report on Form 8-K filed
with the Commission on March 26, 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.

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<PAGE>

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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 THE DATE OF SUCH INFORMATION.

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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary.................. S-1
The Company.................................... S-7
Recent Developments............................ S-13
Use of Proceeds................................ S-15
Price Range of Common Stock and Dividend
History...................................... S-16
Capitalization................................. S-17
Properties..................................... S-18
Pro Forma Financial Information................ S-27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... S-32
Management..................................... S-36
Plan of Distribution........................... S-44
Legal Matters.................................. S-45

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>

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2,142,857 SHARES

CARRAMERICA
REALTY CORPORATION

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

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