PARAGON GROUP INC, 10-K/A, 1996-07-24

PARAGON GROUP INC
10-K/A, 1996-07-24
REAL ESTATE INVESTMENT TRUSTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A
(Amendment No. 1)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995.

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

Commission File Number 1-13220

PARAGON GROUP, INC.
(Exact name of registrant as specified in its charter)

MARYLAND 75-2540957
(State of Incorporation) (I.R.S. employer
identification no.)

7557 RAMBLER ROAD, SUITE 1200
DALLAS, TEXAS 75231
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (214) 891-2000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, New York Stock Exchange
$0.01 Par Value

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /

As of July 19, 1996, the aggregate market value of the 13,058,877 shares
of Common Stock held by non-affiliates of the registrant was approximately
$207.3 million, based upon the closing price of $15.875 on the New York Stock
Exchange composite tape on such date.

Number of shares of Common Stock outstanding as of July 19, 1996:
14,791,165

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual stockholders' meeting
held in 1996 are incorporated by reference into Part III.

<PAGE>

PART I
ITEM 1. BUSINESS

GENERAL

Paragon Group, Inc. (together with its subsidiaries, the "Company") is a
fully integrated, diversified real estate investment trust headquartered in
Dallas, Texas focused on the operation, development and acquisition of
multifamily residential communities in its key markets in the Southwest,
Midwest, Carolina and Florida markets. The Company is a self-administered
and self-managed real estate investment trust ("REIT") that as of June 30,
1996, owned (either directly or through interests in other entities) interests
in 61 properties -- 55 multifamily residential communities (the "Residential
Properties") and four office buildings and two shopping centers (the "Commercial
Properties") located in six states, with five additional multifamily residential
communities currently under construction (collectively, the "Properties"). The
Residential Properties contain 15,334 apartment units and the Commercial
Properties contain approximately 1,000,000 rentable square feet. In addition,
the Company, through an affiliate, managed 274 office and industrial buildings,
shopping centers and multifamily residential communities (including the
Properties) as of December 31, 1995 located across the United States, totaling
approximately 26.4 million square feet of commercial space and 22,000 apartment
units. The Company sold its economic interest in its commercial property
services business as of June 30, 1996. See "Recent Developments" below.

The Company and its affiliates succeeded in July 1994 to substantially
all of the interests of Paragon Group, Inc., a Texas corporation ("Paragon"),
and certain others in the Properties and to Paragon's property services
businesses and consummated an initial public offering (the "Initial
Offering"). Paragon began its business activities in 1967 (through a
predecessor entity) as a developer and manager of multifamily residential
communities in the midwest and southwest regions of the United States. It
expanded its geographic focus to include ownership and management of
properties in the southeast and mid-atlantic regions in 1972 and added west
coast operations in 1981. Over the last 26 years, Paragon expanded its
residential and commercial property holdings primarily through development,
and also through acquisitions of individual or multi-product, multi-market
portfolios of properties owned and/or developed by others, and evolved into
one of the largest developers, owners and managers of multifamily residential
and commercial real estate in the United States.

The Company's principal executive offices are located at 7557 Rambler Road,
Suite 1200, Dallas, Texas 75231, and its telephone number is (214) 891-2000.
The Company is a Maryland corporation that was incorporated on March 23, 1994.
The Company and its affiliates employed over 1,200 persons as of December 31,
1995.

ORGANIZATIONAL STRUCTURE

The Company conducts substantially all of its business through Paragon
Group L.P. (the "Operating Partnership"), which the Company controls through
its wholly owned subsidiaries, Paragon Group GP Holdings, Inc. ("Paragon GP
Holdings"), the sole general partner of and the holder of a 1.0% general
partner interest in the Operating Partnership, and Paragon Group LP Holdings,
Inc. ("Paragon LP Holdings"), the holder of 79.1% of the units of limited
partnership interest ("Units") in the Operating Partnership as of December 31,
1995. The other limited partners of the Operating Partnership include entities
controlled by the Company's executive officers and other prior owners of
interests in the Properties and other assets owned by the Operating Partnership.
As sole general partner, Paragon GP Holdings has the exclusive power to manage
and

<PAGE>

conduct the business of the Operating Partnership. The Company's interests
in the Operating Partnership (through Paragon GP Holdings and Paragon LP
Holdings) entitle it to share in cash distributions from, and in the profits
and losses of, the Operating Partnership in proportion to its percentage
interest therein.

The Company's residential property services business is conducted by
Paragon Residential Services, Inc. ("PRSI"), an affiliate in which the
Operating Partnership owns a 95% economic interest by virtue of owning 1,880
shares of nonvoting common stock and one share of voting common stock. The
remaining 99 shares of voting common stock, which represent a 5% economic
interest, are owned by a partnership controlled by certain current and former
executive officers of the Company. As discussed below under "Recent
Developments," as of June 30, 1996, PRSI succeeded to the residential
property services business of Paragon Group Property Services, Inc. ("PGPSI").

BUSINESS OBJECTIVES AND STRATEGY

The Company's business objectives are to generate stable and increasing
cash flow and asset value through (i) continued improvements in the operating
margins of its existing portfolio of properties through rental rate increases
and improved operating efficiencies, (ii) active pursuit of attractive apartment
development and acquisition opportunities, (iii) continued focus on delivering
profitable property service operating results from existing and new management
and other property service assignments, (iv) strategic existing asset
disposition and capital redeployment, and (v) continued utilization of joint
venture opportunities to broaden the Company's investment capability in its
key markets and to enhance yield generated on the Company's invested capital.

The Company believes that its current portfolio of properties and new
acquisition and development properties should provide the Company with stable
and increasing cash flow and asset value. In addition, the Company will pursue
new property service assignments that it believes will be profitable, although
it recognizes that the property service business continues to be increasingly
competitive. The knowledge and experience that Paragon has gained and the
relationships that it has cultivated through the development, acquisition,
ownership and management of multifamily residential communities, shopping
centers and office and industrial buildings over the past 28 years, coupled with
its presence in numerous real estate markets across the country through
management and/or ownership of properties, provides the Company with a solid
foundation from which to achieve long-term growth. The Company will seek to
realize this growth by continuing to improve the performance of the existing
portfolio of properties and by expanding its asset portfolio through
development or acquisition of additional multifamily residential and/or
commercial properties in multiple geographic markets.

BUSINESS SEGMENTS

The Company's two primary business segments are property operations and
property service operations. Results of operations and information related
to the Properties and the property services businesses conducted by an
affiliate of the Company and its predecessor for 1995, 1994 and 1993 are
shown in Note 13 "Segment Operations" in the Consolidated and Combined
Financial Statements and Notes thereto included elsewhere herein in order to
provide a basis for analyzing and comparing operating performance.

<PAGE>

PROPERTY OPERATIONS. The Company's property operations generate the
majority of the Company's revenue and substantially all of the Company's net
income. In 1996, the Company will continue its practice of seeking
opportunities to improve operating margins at the Properties and to implement
more effective and consistent marketing of its apartment communities to
potential residents. In addition, the Company expects to identify certain
residential properties in the portfolio that may present opportunities for
enhanced revenue growth through product repositioning. The Company believes
select properties in the portfolio that possess certain market, submarket and
locational qualities can achieve improved occupancies and/or greater than
market rental rate increases through a product repositioning program. The
Company intends to pursue product repositioning and enhancements on 30
Properties in 1996 and 1997 and may invest $6-8 million in those Properties
to accomplish this objective.

PROPERTY SERVICES BUSINESS. PRSI performs a variety of property service
tasks for the Company, affiliate property owners and third-party owners. The
Company believes that the property services business continues to be
increasingly competitive and, as a result, operating results from PRSI's
operations could be adversely impacted. In 1996, PRSI will continue to
explore ways to improve operating results by focusing new business efforts
toward longer-term property owners. The Company and PRSI intend to analyze
additional methods of achieving improved returns from the Company's
investment in this business segment.

RECENT DEVELOPMENTS AND ACTIVITIES

SALE OF COMMERCIAL PROPERTY SERVICES BUSINESS. As of June 30, 1996, the
Company sold its economic interest in the commercial property services business
which previously had been conducted by PGPSI ("Paragon Commercial") to
Insignia Financial Group Inc. for initial cash consideration of approximately
$18.2 million. The acquisition price may be adjusted upward or downward
depending on the future revenue performance of Paragon Commercial. This
transaction does not include the sale of any residential or commercial real
estate assets owned by the Company. PRSI will continue the Company's
residential property services business and will provide all residential
property service functions previously provided by PGPSI, including property
management, leasing, development, acquisition and disposition of its owned
residential communities as well as for affiliated and third party residential
owners.

CAREIT JOINT VENTURE. On April 1, 1996, the Company entered into a
joint venture with Careit Investments Limited Partnership ("Careit"), an
affiliate of Caisse de depot et placement du Quebec, to acquire, develop and
operate selected multifamily residential properties in markets in which the
Company operates. The Company and Careit each have committed up to $22.5
million for investment in the joint venture corporation, which will be
operated so as to permit its qualification as a REIT for Federal income tax
purposes. The Company and Careit each effectively will own an approximately
45% interest and a number of private investors will own the remaining 10%
interest in the joint venture. In connection with the formation of the joint
venture, the Company and Careit each invested approximately $7.9 million in
connection with the joint venture's acquisition from the Company of three
properties: (i) Overlook, formerly known as The Phoenix, a 220-unit
multifamily residential complex in Charlotte, North Carolina; (ii) Highpoint,
a 708-unit multifamily residential complex in Dallas, Texas; and (iii)
Brassfield Park, a 336-unit multifamily residential complex under development
in Greensboro, North Carolina. The Company will record the initial
contribution of these properties at their net carrying value, which was
approximately $14.4 million (net book value of $40.0 million subject to
existing indebtedness of $25.6 million) on March 31, 1996. The Company will
account for its investment in the joint venture using the equity method of
accounting. Additional investments by Paragon and Careit will be made from
time to time when and if additional property acquisition or development
opportunities are approved for acquisition or development.

<PAGE>

PROPERTY DEVELOPMENT. In 1995, the Company commenced development of six
new residential properties.

In January and February 1995, the Company commenced construction of two
residential properties, one in suburban Dallas and one in Tampa, Florida.
The Dallas property (Stone Gate) will contain 276 units. The estimated total
development cost for this project is $15.8 million, and the project is
expected to be completed in the third quarter of 1996. The Tampa property
(Heron Pointe) is the third phase of a three-phase 1,108-unit multifamily
residential community (including two other Properties, Dolphin Pointe and
Lookout Pointe) overlooking Tampa Bay. This property contains 276 units at a
total development cost of $13.4 million and was completed in February 1996.

In May 1995, the Company commenced construction on the 272 apartment unit
Renaissance Pointe (formerly Mallard Pointe) project in Orlando, Florida. The
estimated total development cost for this project is $14.6 million, with
completion scheduled for July 1996.

In July 1995, the Company commenced construction on the Brassfield Park
Apartments in Greensboro, North Carolina. The estimated total development
cost of this 336 unit project is $16.9 million, with completion scheduled for
March 1997.

In September 1995, the Company commenced construction on the Camden
Passage II Apartments contiguous to its existing 308 unit Camden Passage
property in Kansas City, Missouri. The estimated total development cost of
this 288 unit project is $15.6 million, with completion scheduled for
February 1997.

In November 1995, the Company completed construction of the 240 unit Stone
Creek Apartments in suburban Dallas, Texas at a total cost of $12.3 million.

In November 1995, the Company commenced development activities on The
Park Apartments community in Charlotte, North Carolina. This project, when
completed, will contain 232 units at an estimated development cost of $11.3
million.

In January 1996, PGPSI acquired a 5.15 acre tract of land in suburban
Dallas, Texas and commenced construction of the Post and Paddock office
warehouse which will contain 108,600 square feet. PGPSI expects to sell this
development once completed.

PROPERTY ACQUISITIONS. In addition to the development activity noted
above, the Company acquired four residential operating properties and partial
interests in two commercial operating properties in 1995.

In April 1995, the Company purchased a partial interest in two suburban
Washington, D.C. office properties at a total cost to the Company of $3.5
million. The two properties are Fair Oaks Commerce Center, a six-story
136,000 square foot suburban office property located in Fairfax, Virginia,
and Shady Grove Plaza, a four-story 187,000 square foot building located in
Rockville, Maryland.

In the fourth quarter of 1995 the Company purchased four operating
residential properties: Spanish Trace Apartments, a 372 unit property in St.
Louis, Missouri, at a cost of $13.4 million; Overlook Apartments, a 220 unit
property in Charlotte, North Carolina, at a cost of $8.8 million; Highpoint
Apartments, a 708 unit property in Dallas, Texas, at a cost of 26.9 million;
and Schooner Bay Apartments, a 278 unit property in Tampa, Florida, at a cost
of $10.6 million.

<PAGE>

The acquisitions of Overlook Apartments, Highpoint Apartments and
Schooner Bay Apartments were made through wholly-owned limited liability
companies ("LLC") or a limited partnership ("LP"). The Company anticipates
incurring, in 1996, an additional $1.1 million in capital expenditures on
these properties and $1.5 million on Spanish Trace for deferred maintenance
and improvements. In 1996, the Company contributed the Overlook Apartments,
Highpoint Apartments and a property currently under development (Brassfield)
to a venture in which it retained an approximate 45% ownership interest with
a 55% interest being held by a Canadian pension fund and other investors.
The Company believes that this joint venture will allow it to participate in
the acquisition of additional properties and to potentially generate higher
than proportionate returns if certain minimum yield expectations are
achieved. Proceeds from the investors were used to pay down the Company's
short term borrowings.

FINANCING ACTIVITY. During the year the Company increased its total
debt from $182.1 million at December 31, 1994 to $293.8 million at December
31, 1995. The Company borrowed additional fixed-rate term debt totaling $69
million in December 1995 secured by various properties. This borrowing was
used to pay down line of credit borrowings made during the year which was
used to fund acquisition and development activity. The Company also borrowed
$28.2 million of short-term bridge debt to fund the acquisition of certain
properties in December 1995. At December 31, 1995, $14.5 million of debt is
represented by advances under the Company's line of credit. These advances
are in two contracts at fixed rates.

ITEM 2. PROPERTIES

RESIDENTIAL PROPERTIES

Fifty-five of the Properties are Residential Properties, 53 of which the
Company considers to have reached stabilized occupancy. A residential property
is considered by the Company to have achieved stabilized occupancy on the
earlier to occur of (i) attainment of 93% physical occupancy on the first day
of any month or (ii) one year after the completion of construction. The
Residential Properties, which represented approximately 95.9% of the total
Property revenue for the year ended December 31, 1995, contain a total of
15,334 apartment units. Twenty of the Residential Properties, containing a
total of 5,733 apartment units, are located in Florida, 13 (3,450 apartment
units) are located in Missouri, eight (2,095 apartment units) in North Carolina,
eight (2,560 apartment units) in Texas, five (1,142 apartment units) in Kentucky
and one (352 apartment units) in South Carolina. The Residential Properties
range in size from 112 to 708 apartment units. Forty-two of the Residential
Properties were developed by Paragon and are now managed by the Company while
12 were acquired from third parties and one from an affiliate and have been
managed by the Company or Paragon for an average of 8 years. The weighted
average age of the Residential Properties is approximately 12 years and the
average apartment unit size is approximately 790 square feet. For

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the year ended December 31, 1995, the weighted average occupancy of the
stabilized Residential Properties was 93.6% and the weighted average monthly
rental rate per apartment unit was approximately $512.

Five additional residential properties currently are under construction,
with completion dates ranging from the third quarter of 1996 to the first
quarter of 1997. "See Item 1: BUSINESS -- Recent Developments and
Activities -- Property Development." Two of these properties are located in
North Carolina and will contain 568 units. The three remaining properties
are located in Texas, Florida and Missouri and will contain 276, 272, and 288
units, respectively.

<PAGE>

The following table sets forth certain information about each of the
stabilized Residential Properties that was owned by the Company as of
December 31, 1995:

<TABLE>
YEAR ENDED DECEMBER 31, 1995
-----------------------------
WEIGHTED
NUMBER OF NET RENTAL WEIGHTED AVERAGE
PERCENT YEAR APARTMENT AREA AVERAGE RENTAL RATE PER
PROPERTY LOCATION OWNED COMPLETED UNITS (SQ. FT.) OCCUPANCY(1) APARTMENT UNIT
- -------- -------- ------- --------- ----------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Grove Orlando, FL 100% 1973 232 157,064 95.3% $428
The Reserve Orlando, FL 100% 1991 146 130,378 95.3% 599
The Vineyard Orlando, FL 100% 1990 380 303,250 93.7% 543
Broadmoor Tampa, FL 100% 1986 384 249,984 94.4% 420
Chasewood Tampa, FL 100% 1985 247 173,888 91.7% 458
Dolphin Pointe Tampa, FL 100% 1989 416 315,328 95.3% 525
Lookout Pointe Tampa, FL 100% 1987 416 306,592 93.6% 508
Schooner Bay (2) Tampa, FL 100% 1986 278 202,183 90.6% 535
Lake I Winterhaven, FL 100% 1976 192 139,968 91.0% 379
Copper Creek Louisville, KY 100% 1987 224 163,968 92.1% 551
Deerfield Louisville, KY 100% 1987/90 400 298,336 88.7% 543
Glenridge Louisville, KY 100% 1990 138 126,408 91.6% 687
Post Oak Louisville, KY 100% 1981 126 106,722 91.2% 499
Sundance Louisville, KY 100% 1975 254 173,228 95.2% 442
Camden Passage Kansas City, MO 100% 1989 308 238,392 95.8% 584
San Miguel St. Charles, MO 100% 1970 251 214,430 91.3% 471
The Cove St. Louis, MO 100% 1990 276 234,876 97.3% 828
The Knolls St. Louis, MO 100% 1973 112 164,600 94.5% 701
Knollwood I St. Louis, MO 100% 1981 308 222,684 93.8% 456
Knollwood II St. Louis, MO 100% 1985 300 216,000 95.4% 465
Pear Tree St. Louis, MO 100% 1967 134 96,882 95.9% 442
Spanish Trace (2) St. Louis, MO 100% 1972 372 430,628 94.7% 579
Sunswept St. Louis, MO 100% 1971 334 268,726 94.8% 440
Tempo St. Louis, MO 100% 1975 304 205,504 93.3% 434
Westchase Park St. Louis, MO 100% 1986 160 151,200 95.4% 752
Westgate I St. Louis, MO 100% 1973 189 220,941 91.1% 731
Westgate II St. Louis, MO 100% 1980 402 338,484 90.4% 594
Turtlecreek I Asheville, NC 100% 1973 208 216,944 93.5% 533
Turtlecreek II Asheville, NC 100% 1985 176 127,776 96.6% 486
Copper Creek Charlotte, NC 100% 1989 208 146,224 96.2% 505
Falls Charlotte, NC 100% 1984 352 248,391 97.6% 519
The Overlook (2) Charlotte, NC 100% 1985 220 165,790 95.9% 541
Pinehurst Charlotte, NC 100% 1967 407 531,200 94.7% 621
Glen Greensboro, NC 100% 1980 304 201,248 94.0% 490
Brookfield Dallas, TX 100% 1986 232 165,544 94.0% 435
Chesapeake Dallas, TX 100% 1982 128 116,708 92.8% 623
Highpoint (2) Dallas, TX 100% 1985 708 591,428 91.9% 555
Nob Hill Dallas, TX 100% 1986 486 311,995 92.6% 435
</TABLE>

<PAGE>

(2) The Company acquired these Properties in the fourth quarter of 1995.
Therefore, the weighted average occupancy and weighted average rental
rate per apartment unit are based on information from the date of
acquisition only.

(3) The Company (through the Operating Partnership) is the controlling partner
of the partnership that owns this Property and generally has the right to
receive a preferred return on its interest that is expected to provide the
Company with substantially all of the cash flow distributed with respect to
the Property for the foreseeable future. The percentage disclosed
generally represents the Company's interest in cash flow and sales and
refinancing proceeds in addition to and payable after the Company's
preference and certain partner preferences.

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The following table sets forth the total number of apartment units,
weighted average occupancy and weighted average rental rate per apartment
unit for each of the last five years for the Residential Properties as a
whole:

<TABLE>
NUMBER OF WEIGHTED WEIGHTED AVERAGE
YEAR ENDED NUMBER APARTMENT AVERAGE RENTAL RATE
DECEMBER 31, OF PROPERTIES (1) UNITS OCCUPANCY PER APARTMENT UNIT
------------ ----------------- --------- --------- ------------------
<S> <C> <C> <C> <C>
1995 53 14,818 93.6% $512
1994 49 13,240 93.6% 488
1993 48 12,833 93.8% 474
1992 47 12,547 92.4% 461
1991 43 11,607 90.7% 448
</TABLE>
___________________________

(1) Represents the number of Residential Properties stabilized as of January 1
of the applicable year. A Residential Property is considered by the
Company to have achieved stabilized occupancy on the earlier to occur of
(i) attainment of 93% physical occupancy on the first day of any month or
(ii) one year after the completion of construction. Information for the
year ended December 31, 1995 includes information from the date of
acquisition only for Schooner Bay, Spanish Trace, The Overlook and
Highpoint, which were acquired in the fourth quarter of 1995. Information
for the years ended December 31, 1993, 1992, 1991 and 1990 does not include
information for Pinehurst, which was acquired by the Company in December
1994.

COMMERCIAL PROPERTIES

Six of the Properties are Commercial Properties. The Commercial
Properties consist of four office buildings (one in which the Company owns a
20% interest and two in which the Company owns a 10% interest containing a
total of approximately 827,000 square feet of office space) and two shopping
centers containing approximately 173,000 square feet of retail space. Two
office buildings are located in St. Louis, Missouri and two in suburban
Washington, D.C. The two shopping centers are located in Bradenton, Florida
and St. Louis, Missouri. Three of the six Commercial Properties were
developed by Paragon and one was acquired from a third party. The Company
acquired an ownership interest in the remaining two properties in April,
1995. All of these properties were managed by PGPSI until the sale of the
Company's commercial property services operations as of June 30, 1996. See
"Item 1: BUSINESS - Recent Developments" above. The weighted average age of
the Commercial Properties (adjusted to reflect the Company's ownership
interests) is approximately 14.0 years. As of December 31, 1995, the
Commercial Properties were 93.8% leased (adjusted to reflect the Company's
ownership interests).

<PAGE>

The following table sets forth certain information about each of the
Commercial Properties that was owned by the Company as of December 31, 1995:

<TABLE>
AS OF DECEMBER 31, 1995
---------------------------------------------------
AVERAGE
NET RENTABLE BASE
AREA/GROSS RENT PER NET
OWNERSHIP YEAR LEASABLE AREA PERCENT ANNUAL LEASED EFFECTIVE
PROPERTY LOCATION INTEREST COMPLETED (SQUARE FEET) LEASED (1) BASE RENT (2) SQ. FT. (3) RENT(4)
- -------- -------- --------- --------- ------------- ---------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
The Paragon St. Louis, MO 100% 1982/83 102,486 98.6% $1,632,094 $16.15 $ 7.38
Gateway (5) St. Louis, MO 20% 1985 401,625 97.6% 1,252,501 15.97 10.03
Fair Oaks (5) Fairfax, VA 10% 1986 135,808 96.2% 202,340 15.48 6.54
Shady Grove (5) Rockville, MD 10% 1988 187,037 77.5% 280,843 19.38 10.24
------- ----- ---------- ------ ------
Subtotal -- Office (4 Properties) (6) 826,956 96.3% $3,367,778 $16.32 $ 8.06
------- ----- ---------- ------ ------
RETAIL PROPERTIES:
Southwood Mall Bradenton, FL 100% 1981 113,949 88.2% $ 527,945 $ 5.25 $ 4.78
Westgate Centre St. Louis, MO 100% 1978 58,935 95.9% 947,293 16.76 14.78
------- ----- ---------- ------ ------
Subtotal -- Retail (2 Properties) 172,884 90.8% $1,475,238 $ 9.17 $ 8.14
------- ----- ---------- ------ ------
TOTAL/WEIGHTED AVERAGE (6 PROPERTIES) (6) 999,840 93.8%
------- -----
------- -----
</TABLE>
_______________________________
(1) Percent leased represents square footage leased at the end of the year.

(2) Annual base rent is calculated using base rents (which are the gross
rents payable by tenants, before taking into account any tenant
improvements, leasing concessions and expense stops) at December 31, 1995
multiplied by the Company's ownership interest.

(3) Average base rent per leased square foot is equal to the annual base
rent divided by the total leased square feet.

(4) For presentation of net effective rent for leases entered into for the
three years ended December 31, 1995, see the table on page 15.

(5) The Company owns a 20% interest in Gateway, a 10% interest in Fair Oaks
and a 10% interest in Shady Grove. Information with respect to net
rentable area, percent leased, average base rent per leased square foot
and net effective rent presented for the entire property and information
with respect to annual base rent represents the Company's partial ownership
interests.

(6) Weighted average, taking into account the Company's partial ownership
interest in Gateway, Fair Oaks and Shady Grove, except for net rentable
area, which represents the gross square footage in the properties.

<PAGE>

The following table sets forth the net rentable area or gross leasable
area, as applicable, percent leased and average base rent per leased square
foot as of the end of each of the last five years for the Commercial
Properties:

AVERAGE
NET RENTABLE BASE RENT PER
AREA/GROSS PERCENT LEASED (2) LEASED SQUARE FOOT (4)
YEAR ENDED LEASABLE AREA ------------------- ----------------------
DECEMBER 31, (SQUARE FEET)(1) OFFICE (3) RETAIL OFFICE RETAIL
- ------------ ---------------- ---------- ------ --------- ---------
1995 999,840 96.3% 90.8% $16.32 $9.17
1994 677,026 95.5% 88.3% 15.47 9.38
1993 677,026 95.5% 91.9% 15.47 9.86
1992 677,026 90.9% 93.6% 16.96 8.97
1991 677,026 90.7% 94.6% 16.08 8.57

_________________
(1) As space is re-leased to new tenants, certain immaterial adjustments to
net rentable area or gross leasable area may occur as a result of
build-out adjustments for tenants. The total shown is used by the
Company for consistency.

(2) Percent leased represents square footage leased at the end of the year.

(3) Weighted average percent leased, considering the Company's partial
ownership interests in Gateway, Fair Oaks and Shady Grove.

(4) Average base rent per leased square foot is calculated using year-end
base rent figures for the respective periods.

The following table sets forth a schedule of the lease expirations for
leases in place as of December 31, 1995 for the Commercial Properties:

NUMBER OF NET RENTABLE ANNUALIZED BASE PERCENT OF TOTAL
YEAR OF TENANTS WITH AREA/GROSS RENT OF ANNUALIZED BASE
LEASE EXPIRING LEASING AREA EXPIRING RENT OF
EXPIRATION LEASES (SQUARE FEET) (1) LEASES (1)(2) EXPIRING LEASES
- ---------- ------------ ----------------- -------------- ---------------
1996 24 123,432 695,976 14.4%
1997 17 37,776 270,103 5.5%
1998 32 168,471 913,780 18.9%
1999 18 88,199 480,140 9.9%
2000 27 209,391 1,017,432 21.0%
2001 8 157,956 901,449 18.6%
2002 5 71,473 153,964 3.2%
2003 4 30,366 255,310 5.3%
2004 - - - 0.0%
2005 1 4,160 8,320 0.2%
2006+ 2 34,634 146,543 3.0%
------- ---------- ------
925,858 $4,843,017 100.0%
------- ---------- ------
------- ---------- ------

_________________
(1) Excludes 73,982 square feet of space not leased as of December 31, 1995.
Net rentable area of expiring leases includes 100% of leases at Gateway,
Fair Oaks and Shady Grove in which the Company owns a 20%, 10% and 10%
interest, respectively. Annualized base rent includes 20%, 10% and 10%
of rent attributable to leases at Gateway, Fair Oaks and Shady Grove,
respectively, to reflect the Company's partial ownership interest.

(2) Annualized base rent is calculated using base rents as of December 31,
1995.

<PAGE>

The following table sets forth certain additional leasing information
with respect to all new leases for permanent space entered into at the
Commercial Properties in the last three years:

RETAIL PROPERTIES OFFICE PROPERTIES
(SOUTHWOOD MALL AND (THE PARAGON, GATEWAY,
WESTGATE SHOPPING CENTER) FAIR OAKS AND SHADY GROVE)
------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ --------------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------- ------ -------
NEW LEASING ACTIVITY
(PER SQUARE FOOT):
Square Feet Leased 35,931 12,000 20,379 145,996 45,716 138,080
Number of Leases 15 4 9 34 15 30
Weighted Average Term
of Lease (years) 5.1 5.5 3.8 4.5 5.1 5.6

Base Rent $13.64 $17.84 $13.97 $ 18.26 $14.35 $ 15.68
Expense Stop 1.00 0.00 0.00 6.36 (5.49) (5.50)
------ ------ ------ ------- ------ -------
Net Rent $12.64 $17.84 $13.97 $ 11.90 $ 8.96 $ 10.18
Tenant Improvements/
Commissions (1) (.76) (.94) (0.24) (2.25) (2.08) (2.04)
------ ------ ------ ------- ------ -------
Net Effective Rent $11.88 $16.90 $13.73 $ 9.65 $ 6.88 $ 8.14
------ ------ ------ ------- ------ -------
------ ------ ------ ------- ------ -------
_________________
(1) Tenant Improvements/Commissions calculated as total cost of tenant
improvements and leasing commissions, divided by square feet leased,
divided by weighted average lease term.

PROPERTY SERVICES

Prior to the sale as of June 30, 1996 of the Company's commercial property
services operations referred to in "Item 1: BUSINESS - Recent Developments"
above, PGPSI provided a wide array of property services to the Properties,
affiliates of PGPSI and the Company, and third-party clients, including
property management, marketing, leasing, asset management, construction
management and disposition services. As of December 31, 1995, PGPSI managed
a total of 274 income-producing properties (including the 61 Properties)
located in 20 states, consisting of 195 commercial properties and 79
multifamily residential communities. This management portfolio, which
totaled approximately 26.4 million square feet of commercial space and 22,000
apartment units as of December 31, 1995, includes (i) the 61 Properties, (ii)
64 additional properties owned by affiliates of the Company and its executive
officers and (iii) 149 properties owned by unaffiliated third-party owners.

PRSI has continued the residential property services operations of PGPSI,
including its focus on maximizing the performance of each property under its
management through proactive management that focuses on maintaining tenant
satisfaction to reduce tenant rollover, aggressive reletting of apartment
units and utilization of operating efficiencies as a result of the size of
PRSI's management operations. In addition to providing the Company with an
additional source of cash flow, providing property services to clients
through PRSI enables the Company to achieve economies of scale in its
management operations and to obtain in-depth knowledge about existing and new
markets and submarkets, which provides the Company with greater information
about future development and acquisition opportunities.

OPERATING INFORMATION

For information relating to the Company's net income and other aspects of
its results of operations, see the Consolidated and Combined Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere herein.

<PAGE>

MORTGAGE FINANCING

The Properties are subject to existing mortgage indebtedness in an
aggregate principal amount as of December 31, 1995 of $293.8 million,
carrying a weighted average interest rate of 7.7% and a weighted average
maturity of 7.6 years (assuming loans callable before maturity are called as
early as possible). The existing mortgage indebtedness on the Properties is
set forth in the table below:

<TABLE>
ESTIMATED
PRINCIPAL ANNUAL BALANCE
INTEREST BALANCE DEBT MATURITY DUE AT
PROPERTY RATE (AS OF 12/31/95) SERVICE DATE (1) MATURITY
-------- -------- ---------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Pool A Properties (2) 8.36% $61,710,000 $5,158,956 July 15, 2001 $61,700,000

Landtree 8.52% 3,780,000 322,056 July 15, 1999 3,780,000
Summerplace I & II 8.52% 6,330,000 539,316 July 15, 1999 6,330,000
Summerplace III 8.52% 3,720,000 316,944 July 15, 1999 3,720,000
The Vineyard 7.30% 10,500,000 766,500 Jan. 15, 1999 10,500,000
4th Street Station I 8.52% 5,120,000 436,224 July 15, 1999 5,120,000
4th Street Station II 8.52% 5,070,000 431,964 July 15, 1999 5,070,000
CocoWest I 8.52% 2,670,000 227,484 July 15, 1999 2,670,000
CocoWest II 8.52% 3,780,000 322,056 July 15, 1999 3,780,000
Greenhouse 8.52% 3,580,000 305,016 July 15, 1999 3,580,000
Parsons Run 8.52% 3,840,000 327,168 July 15, 1999 3,840,000
Summerset Bend 8.52% 4,500,000 383,400 July 15, 1999 4,500,000
Deerfield 5.75% 8,200,000 471,500 June 1, 2003(3) 8,200,000
Deerfield 7.00% 1,786,667 192,513(4) June 1, 2003(5) 820,000(6)
Copper Creek (KY) 5.88% 8,900,000 523,320 June 1, 2003(7) 8,900,000
Copper Creek (KY) 6.00% 336,667 87,058(4) Dec. 1, 1998(8) 0
Glenridge 7.50% 2,984,231 223,817 Nov. 15, 1998 2,984,231
Glenridge 7.50% 710,530 53,290 Nov. 15, 1998 710,530
Camden Passage 7.50%(9) 7,350,373 551,278 October 1, 2003 6,572,145
Copper Creek (NC) 6.80% 4,100,000 278,800 Sept. 15, 1996 4,100,000
Eastchase 7.50% 2,948,521 221,139 June 7, 1998(10) 2,948,521
Glen 7.50%(11) 6,626,472 546,904 Jan. 1, 2000 6,371,817
Westchase 8.52% 4,440,000 378,288 July 15, 1999 4,440,000
Fairlane 8.50% 3,524,245 359,856 August 1, 1999 3,272,709
Nationwide-North
Carolina Property (12) 7.29% 14,000,000 1,020,600 Dec. 10, 2005 12,225,503
Nationwide-Texas
Properties (12) 7.29% 22,073,000 1,609,122 Dec. 10, 2005 19,275,252
Nationwide-Missouri
Properties (12) 7.29% 32,927,000 2,400,378 Dec. 10, 2005 28,753,509
The Overlook 7.50% 5,400,000 405,000(13) Jan. 1, 2003 4,962,448
The Overlook 10.00% 300,000 0 Jan. 1, 1996 0
Spanish Trace 7.35% 9,838,271 795,275(13) Sept. 1, 2028 0
Highpoint 7.66% 20,250,000 1,551,150(14) June 19, 1996 20,250,000
Schooner Bay 7.63% 7,930,000 605,059(14) March 31, 1996 7,930,000
PGPSI Equipment Loans 9.25% 53,970 37,891 Various 0
------------ ----------- ------------
SUBTOTAL: $279,279,947 $21,849,322 $257,306,665

Line of Credit (15) Various 14,500,000 1,106,200 July 26, 1996 14,500,000
------------ ----------- ------------
TOTAL: $293,779,947 $22,955,522 $271,806,665
------------ ----------- ------------
------------ ----------- ------------
</TABLE>

14
<PAGE>

___________________________

(1) All of the mortgages can be prepaid at any time, in whole or in part,
subject to prepayment penalties typically calculated on a yield maintenance
basis, except for the mortgages encumbering Copper Creek (KY), Deerfield,
Glen and Fairlane, which are closed to prepayment for varying lengths of
time.

(2) The "Pool A Properties" are Grove, The Reserve, Broadmoor, Chasewood,
Dolphin Pointe, Lookout Pointe, Post Oak, Sundance, Westchase Park,
Westgate I, Westgate II, Turtlecreek I, Falls and The Paragon (all of which
are Residential Properties except The Paragon, which is a Commercial
Property). The loan is secured by the Pool A Properties on a
cross-collateralized basis.

(3) Information presented relates to the Series A bonds. The maturity date
noted represents the date on which credit enhancement on the Series A bonds
expires. The stated maturity date for the Series A bonds is June 1, 2023.

(4) Information presented relates to the Series B bonds which amortize over
the life of the loan.

(5) Information presented relates to the Series B bonds. The maturity date
noted represents the date on which credit enhancement on the Series B bonds
expires. The stated maturity date for the Series B bonds is June 1, 2008.

(6) Information presented relates to the Series B bonds which amortize over the
life of the loan. The balance reflects the principal balance which will be
due at the date on which the credit enhancement on the bonds expires.

(7) Information presented relates to the Series A bonds. The maturity date
noted represents the date on which credit enhancement on the Series A bonds
expires. The stated maturity date for the Series A bonds is June 1, 2023.

(8) Information presented relates to the Series B bonds. The Series B bonds
self-liquidate, with the final payment of principal due on December 1,
1998.

(9) Represents the rate in effect pursuant to an interest rate buy down
agreement in effect through July 1999, after which time the rate will
increase to 8.07%.

(10) The lender of the loan secured by this Property has a right to call the
loan, and the Company will have the right to prepay the loan, on June 7,
1998. The stated maturity date for the note is June 1, 2003.

(11) In connection with the Initial Offering, the Company entered into an
interest swap agreement. The agreement, which expires on January 27, 2000,
effectively reduces the fixed interest rate on this note from 9.5% to 7.5%.

(12) The Nationwide debt is structured with three separate loan agreements.
"Nationwide-North Carolina" is secured by Pinehurst. "Nationwide-Texas"
is secured by Los Rios, Nob Hill and Brookfield. "Nationwide-Missouri" is
secured by Tempo, Knollwood I, Knollwood II and The Cove at Westgate. Each
of these are Residential Properties.

(13) The amount noted represents the annual debt service projected for 1996.

(14) The amount noted represents the projected annual debt service on two
bridge acquisition loans which are expected to be refinanced in 1996. The
Schooner Bay loan was repaid on March 28, 1996 using proceeds from the
Company's line of credit.

(15) Advances under the line of credit are secured by Properties that do not
secure other mortgage loans. The principal balance shown represents the
amount advanced and outstanding as of December 31, 1995. Annual debt
service represents the amount projected for 1996, assuming no change in the
interest rates in effect as of December 31, 1995.

LINE OF CREDIT

Concurrent with the Initial Offering, the Company obtained a line of
credit facility in the amount of $75 million. The commitment was
subsequently increased to $115 million, in December 1995 was reduced by the
Company to $90 million, and under certain conditions can be increased to $150
million. The line of credit matures in July 1996 but may be extended for up
to two years at the Company's option. Borrowings under the line are
collateralized by specified properties. The interest rate on the amounts
outstanding under the line of credit varies between either the greater of the
prime rate or the Federal Funds rate plus .50% or, at the Company's election,
the London Interbank Offer Rate ("LIBOR") plus 2.0%. The line of credit
reprices, at the Company's discretion, in defined intervals ranging from 1 to
360 days. As the line of credit is drawn or reprices, the Company enters
into a contract and selects the available term and the interest rate option
it desires. If the Company

15
<PAGE>

selects a contract based upon LIBOR plus 2.0%, then the interest rate becomes
fixed for the term selected. Otherwise, the contract rate varies based upon
the appropriate index.

At June 30, 1996, $44.3 million was outstanding under the line of credit
in five separate contracts. The weighted average interest rate under these
contracts was 7.50%.

The Company anticipates that the line of credit will continue to be used
primarily to fund development or acquisition of additional properties and for
general working capital purposes.

Under the terms of the line of credit, the Company is required to
maintain a minimum tangible net worth and is required to meet certain
coverage ratios with respect to debt to implied market equity (defined as the
Initial Offering price of the Common Stock, adjusted for net cash received
from additional equity offerings and any reductions to net worth after June
30, 1994), operating cash flow to interest, and operating cash flow to debt
service and capital expenditures. For any 12-month period, partner
distributions by the Operating Partnership in excess of a certain percentage
(ranging from 95% to 100%) of funds from operations (as defined therein) are
prohibited under the terms of the line of credit.

ITEM 3. LEGAL PROCEEDINGS

Neither the Company nor the Properties are presently subject to any
material litigation nor, to the Company's knowledge, is any material
litigation threatened against the Company or the Properties, other than
routine litigation and administrative proceedings arising in the ordinary
course of business, most of which are expected to be covered by liability
insurance and none of which are expected to have a material adverse effect on
the business, financial condition or results of operations of the Company.

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

The Company did not submit any matters to a vote of security holders in
the fourth quarter of 1995.

16
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The shares of Common Stock of Paragon Group, Inc. are listed on the New
York Stock Exchange under the symbol "PAO".CUSIP:699116 10 9.

On July 19, 1996 the last reported sale price of the Common Stock on
the NYSE was $15.875 per share.

As of July 19, 1996, Paragon Group, Inc. had approximately 297
stockholders of record and 14,791,165 shares of Common Stock outstanding.

QUARTERLY STOCK PRICE INFORMATION

DIVIDEND
PER
PARTIAL PERIOD OR QUARTER ENDED HIGH LOW SHARE
- ------------------------------- ---- --- --------
July 21, 1994 through September 30, 1994..... 21 3/8 19 1/2 $0.33
October 1, 1994 through December 31, 1994.... 21 1/8 16 1/4 $0.465
January 1, 1995 through March 31, 1995....... 19 1/2 15 3/4 $0.465
April 1, 1995 through June 30, 1995.......... 18 7/8 16 1/2 $0.465
July 1, 1995 through September 30, 1995...... 19 16 3/8 $0.465
October 1, 1995 through December 31, 1995.... 17 5/8 15 1/4 $0.465

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

PARAGON GROUP, INC. AND PREDECESSORS
SELECTED FINANCIAL DATA (1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND PROPERTY DATA)

<TABLE>
COMPANY PREDECESSORS
--------------------------- -----------------------------------------------
FOR THE PERIOD
YEAR JULY 27 TO FOR THE PERIOD
ENDED DECEMBER 31, JANUARY 1 TO YEAR ENDED DECEMBER 31,
DECEMBER 31, 1994, AS JULY 26, -------------------------------
1995 RESTATED (2) 1994 1993 1992 1991
----------- ------------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental $ 80,437 $ 32,099 $ 39,018 $ 66,848 $ 60,984 $ 58,167
Property management and leasing services 22,296 9,821 13,875 24,900 24,541 23,913
Other income 4,835 2,792 4,049 5,104 4,435 4,646
---------- --------- -------- --------- -------- --------
Total revenues 107,568 44,712 56,942 96,852 89,960 86,726
Operating expenses (before depreciation
and amortization) 60,075 24,798 33,375 52,560 51,300 48,852
Depreciation and amortization 18,561 7,019 6,499 11,321 10,747 11,844
Interest expense 17,011 6,448 14,858 26,713 27,793 27,057
Reorganization costs (3) - 7,796 - - - -
Income (loss) before extraordinary items 10,063 (825) 2,639 6,871 277 661
Net extraordinary items (4) - 1,636 1,776 9,092 965 -
Net income $ 10,063 $ 811 $ 4,415 $ 15,963 $ 1,242 $ 661

Per share data:
Income (loss) before extraordinary items (5) $ 0.68 $ (0.06)
---------- --------- --------
---------- --------- --------
Net income (5) $ 0.68 $ 0.06
---------- --------- --------
---------- --------- --------
Dividends declared per common share
outstanding (6) $ 1.86 $ 0.80
---------- --------- --------
---------- --------- --------

BALANCE SHEET DATA:
Real estate, net of accumulated depreciation $ 505,034 $ 411,777 $ 245,523 $252,660 $242,599
Total assets 539,611 442,548 262,953 266,242 256,903
Mortgages and notes payable 293,780 182,056 267,650 274,174 264,739
Stockholders' equity (deficit) 178,466 193,434 (40,031) (42,726) (40,985)

OTHER DATA:
Cash flows provided by (used in):
Operating activities 36,522 11,098 11,995 18,630 12,269 15,979
Investing activities (103,366) (192,477) (3,140) (3,585) (20,731) (4,658)
Financing activities 67,514 179,509 (5,927) (14,285) 7,342 (11,421)
Funds from operations (7) $ 34,937 $ 15,020 $ 9,739 $ 19,228 $ 11,918 $ 13,231

STATISTICAL PROPERTY DATA: (8)
Total Residential Properties (end of year) 53 49 48 47 43
Total Apartment Units (end of year) 14,818 13,240 12,833 12,547 11,607
Total Commercial Properties (end of year) 6 4 4 4 4
Weighted Average Monthly Residential Rate
per Apartment Unit for Residential Properties $ 512 $ 488 $ 474 $ 461 $ 448
Weighted Average Occupancy for
Residential Properties 93.6% 93.6% 93.8% 92.4% 90.7%
</TABLE>

(1) For a detailed presentation of Company operations segmented into rental
operations and property services operations, see Note 13 to the
December 31, 1995 consolidated financial statements included elsewhere
herein.

(2) In 1995, the Company changed its method of accounting for its investment
in its property services subsidiary from the cost method to
consolidation. The 1994 financial statements have been restated to
reflect this accounting change. See Note 2 to the December 31, 1995
consolidated financial statements included elsewhere herein.

(3) Reorganization costs represents non-recurring costs, principally legal,
accounting and other costs, incurred in connection with the formation of
the Company.

<PAGE>

(4) Net extraordinary items represents extraordinary gain from forgiveness
of debt, net of minority interests, less extraordinary loss from early
extinguishment of debt, net of minority interest.

(5) Per share amounts are computed based on the weighted average number of
shares outstanding during the period (14,698,336 in 1995 and 14,513,503
in 1994).

(6) The dividend paid by the Company for the partial quarter ended September
30, 1994 was $.33 per share. During 1995, the Company paid quarterly
dividends, with respect to the fourth quarter of 1994, through the third
quarter of 1995, of $.465 per share. On February 6, 1996, the Company
declared a dividend with respect to the fourth quarter of 1995, of $.465
per share.

(7) Funds from Operations ("FFO") is defined by the National Association of
Real Estate Investment Trusts ("NAREIT") to mean net income, computed in
accordance with generally accepted accounting principles ("GAAP"),
excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Management generally
considers FFO to be a useful measure of the operating performance of an
equity REIT because, together with net income and cash flows, FFO
provides investors with an additional basis to evaluate the ability of a
REIT to incur and service debt and to fund acquisitions and other
capital expenditures. FFO does not represent cash flows from operating
activities as defined by GAAP, should not be considered as an
alternative to net income as an indicator of the Company's operating
performance and is not indicative of cash available to fund all cash
flow needs, including principal amortization, capital improvements and
distributions to stockholders. Further, FFO as disclosed by other REITs
may not be comparable to the Company's calculation of FFO. The
following table represents the Company's calculation of FFO (dollars in
thousands):

<TABLE>
Company Predecessors
--------------------------- -----------------------------------------------
For the Period
Year July 27 to For the Period
Ended December 31, January 1 to Year Ended December 31,
December 31, 1994, as July 26, -------------------------------
1995 Restated 1994 1993 1992 1991
----------- ------------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income $10,063 $ 811 $ 4,415 $15,963 $ 1,242 $ 661
Adjustments to net income:
Minority interests in income 2,612 (207) - - - -
Minority interests in cash flow (287) (147) - - - -
Reorganization costs incurred in connection
with the formation of the Company - 7,796 - - - -
Gain on sale of property - - - (136) (3) -
Extraordinary items, net of minority interests - (1,636) (1,776) (9,092) (965) -
Depreciation and amortization 18,561 7,019 6,499 11,321 10,747 11,844
Depreciation and amortization from
unconsolidated ventures 542 180 110 - - -
Deferred loan cost amortization included in
interest expense 1,559 602 472 1,219 800 735
Grants/amortization of employee restricted stock 1,462 577 - - - -
Other cash reorganization expenses 553 - - - - -
Adjustment for straight-lining of rents (128) 25 19 (47) 97 (9)
------- ------- ------- ------- ------- --------
Funds from Operations $34,937 $15,020 $ 9,739 $19,228 $11,918 $ 13,231
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
</TABLE>

(8) Includes statistical information for all stabilized residential
properties and all commercial properties for the periods presented as if
controlled by the Company or the Predecessors. A residential property
is considered by the Company to have achieved stabilized occupancy on
the earlier to occur of (i) attainment of 93% physical occupancy on the
first day of any month or (ii) one year after completion of construction.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion is based primarily on, and should be read in
conjunction with, the Consolidated and Combined Financial Statements of
Paragon Group, Inc. and Predecessors and notes thereto appearing elsewhere in
this report.

COMPANY ACTIVITIES

On January 5, 1995, the Company, through its ownership in the Operating
Partnership, purchased a 15.34 acre tract of land in suburban north Dallas,
Texas. Construction activities commenced immediately on the development
(Stone Gate) which, when completed, will contain 276 apartment units at an
estimated development cost of $15.8 million.

On January 12, 1995, the Company, through its ownership in the
Operating Partnership, purchased a 16.63 acre tract of land in Tampa, Florida
and immediately commenced construction activities on the development (Heron
Pointe). The project, which contains 276 apartment units, was completed in
February 1996 at a total cost of $13.4 million.

On April 10, 1995, the Company, through its ownership in the Operating
Partnership, purchased a partial interest in two suburban Washington, D.C.
office properties through a joint venture with J.P. Morgan Investment
Management, Inc. The Company contributed $3.5 million in exchange for a 10%
interest in the joint venture. The two properties owned by the joint venture
are Fair Oaks Commerce Center, a six-story 135,808 square foot suburban
office property located in Fairfax, Virginia, and Shady Grove Plaza, a
four-story 187,037 square foot building located in Rockville, Maryland. Both
of the properties are unencumbered.

On May 19, 1995, the Company, through its ownership in the Operating
Partnership, purchased a 24.37 acre tract of land in Orlando, Florida.
Construction commenced immediately on the Renaissance Pointe Apartments
development (formerly Mallard Pointe) which, when completed, will contain 272
apartment units at an estimated development cost of $14.6 million.

On July 31, 1995, the Company, through its ownership in the Operating
Partnership, purchased a 28.08 acre tract of land in the Brassfield planned
unit community in Greensboro, North Carolina. Construction activities
commenced immediately on the Brassfield Park Apartments development which,
when completed, will contain 336 apartment units at an estimated development
cost of $16.9 million.

On August 8, 1995, the Company, through the Operating Partnership,
issued 73,783 Class B Units to a corporation owned by affiliates of the
Company pursuant to a deferred obligation on the purchase of a tract of land
that took place August 8, 1994 (Stone Creek). (Class B Units receive a pro
rata distribution for the quarter in which they were issued, based on the
number of days they were outstanding during such quarter, and thereafter
automatically convert to Class A Units.)

On September 30, 1995, the Company, through its ownership in the
Operating Partnership, purchased a 17.1 acre tract of land contiguous to its
existing 308 unit Camden Passage property in Kansas City, Missouri.
Construction activities commenced immediately on the Camden Passage II
Apartments development which, when completed, will contain 288 units at an
estimated development cost of $15.6 million.

20
<PAGE>

Effective October 1, 1995, the Company, through its ownership in the
Operating Partnership, purchased the 372 unit Spanish Trace Apartments in St.
Louis, Missouri at a cost of $13.4 million. As part of the purchase
consideration, the Operating Partnership issued 42,353 Class B Units to
affiliates of the Company. The Company anticipates incurring an additional
$1.5 million of capital expenditures on the property for property
repositioning, upgrades and deferred maintenance.

In November 1995, the Company completed construction of the 240 unit
Stone Creek Apartments in suburban north Dallas, Texas at a total cost of
$12.3 million.

On November 17, 1995 the Company, through the Operating Partnership,
purchased a 13.7 acre tract of land in Charlotte, North Carolina.
Development activities commenced immediately on The Park Apartments community
which, when completed, will contain 232 units at an estimated development
cost of $11.3 million.

Effective December 1, 1995, the Company, through its ownership in the
Operating Partnership, purchased the 220 unit Overlook Apartments (formerly
The Phoenix) in Charlotte, North Carolina at a cost of $8.8 million.

On December 20, 1995, the Company, through its ownership in the
Operating Partnership, purchased the 708 unit Highpoint Apartments in Dallas,
Texas at a cost of $26.9 million.

On December 29, 1995, the Company, through its ownership in the
Operating Partnership, purchased the 278 unit Schooner Bay Apartments in
Tampa, Florida at a cost of $10.6 million.

The acquisitions of Overlook Apartments, Highpoint Apartments and
Schooner Bay Apartments were made through wholly-owned limited liability
companies ("LLC") or a limited partnership ("LP"). The Company anticipates
incurring, in 1996, an additional $1.1 million in capital expenditures on
these properties for deferred maintenance and improvements. In 1996, the
Company contributed the Overlook Apartments, Highpoint Apartments and a
property currently under development (Brassfield) to a joint venture in which
it retained an approximate 45% ownership interest with a 55% interest being
held by a Canadian pension fund and other investors. The Company will record
the initial contribution of these properties at their net carrying value and
will account for its investment in the joint venture using the equity method
of accounting. The Company believes that this joint venture will allow it to
invest in the acquisition of additional properties and to potentially
generate higher than proportionate returns if certain minimum yield
expectations are achieved. Proceeds from the investors were used to pay down
the Company's short term borrowing.

On January 3, 1996, the Company, through the Operating Partnership,
issued 4,694 Class B Units to an affiliate in partial settlement of debt it
assumed on the purchase of the Overlook Apartments.

On January 29, 1996, the Company, through Paragon Group Property
Services, Inc. ("PGPSI"), its management, leasing, and construction
affiliate, acquired a 5.15 acre tract of land in suburban Dallas, Texas.
Construction activities commenced immediately on the Post and Paddock office
warehouse development which when completed will contain 108,600 square feet.
PGPSI expects to sell this development once completed.

The properties currently under development, in the aggregate, did not
generate operating income for the year ended December 31, 1995. During the
stabilization period, from completion to lease up, these properties are
expected to experience operating losses. The Company believes, however, that
the positive impact of these development projects, once they reach stabilized
occupancy levels, will significantly contribute to income from operations of
the Company.

21
<PAGE>

On February 23, 1995, the Company and PGPSI announced a realignment of
PGPSI from a regional multiproduct organization to two national product
groups - one for residential operations and one for commercial operations.
The Company expects the efficiencies created by the new structure to generate
annual savings to PGPSI in excess of $2 million per year, with the
realignment fully in place. PGPSI recorded a non-recurring cash charge in
the first half of 1995 of $.553 million as a result of the implementation of
this new structure. PGPSI also recorded a non-cash charge of $.195 million
for the first half of 1995 associated with the non-dilutive accelerated
vesting of outstanding restricted stock made available to certain employees
as described in the Initial Offering.

The Company believes that the property services business has become
increasingly competitive, and is likely to remain so for the foreseeable
future, which could adversely impact operating results derived from PGPSI's
operations. The Company believes, however, that there continue to be
opportunities to expand its property services business, particularly as a
result of the trend in the industry for institutional holders of real estate
to contract with larger, diversified property service companies with multiple
geographic capabilities. The Company expects that PGPSI will actively pursue
such opportunities as they arise.

The Company paid a quarterly dividend of $.465 per share of common stock
on February 25, 1995, May 26, 1995, August 23, 1995 and November 28, 1995.
Concurrent with each of the dividend payments, the Operating Partnership
distributed $.465 per Unit.

On February 6, 1996, the Company declared a dividend, with respect to
the fourth quarter of 1995 of $.465 per share of common stock which was paid
on February 27, 1996. Concurrent with the dividend payment, the Operating
Partnership distributed $.465 per Unit.

On April 1, 1996, the Company entered into a joint venture with Careit
to acquire, develop and operate selected multifamily residential properties
in markets in which the Company operates. See "Item 1: BUSINESS - Recent
Developments" above.

On May 7, 1996, the Company declared a dividend, with respect to the
first quarter of 1996, of $.465 per share of common stock which was paid on
May 29, 1996 to holders of record on May 17, 1996. Concurrent with the
dividend announcement, the Operating Partnership authorized a distribution of
$.465 per Unit which was paid on May 29, 1996 to holders of record on May 17,
1996.

As of June 30, 1996, the Company sold its economic interest in the
commercial property services business which previously had been conducted by
PGPSI to Insignia Financial Group Inc. for initial cash consideration of
approximately $18.2 million. See "Item 1: BUSINESS - Recent Developments"
above.

PRESENTATION

The information contained in the Consolidated and Combined Statements of
Operations of Paragon Group, Inc. and Predecessors is presented on the
following basis.

The Emerging Issues Task Force (EITF) of the Financial Accounting
Standards Board recently reached a consensus regarding the method by which
companies electing REIT status account for investment in property services
subsidiaries. Consistent with prior regulatory direction, the Company
accounted for its investment in PGPSI on the cost basis of accounting for
periods reported from July 27, 1994 through September 30, 1995, whereas the
Predecessors reported the property services business on a combined basis. As
a result of the EITF decision, this form of ownership dictates that the
Operating Partnership now report its investment on the full consolidation
method

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<PAGE>

of accounting. In accordance with the pronouncement, the Company has
restated all periods previously reported using the new method.

For the periods after the Initial Offering, the accompanying
consolidated financial statements include the accounts of the Company,
Paragon Group GP Holdings, Inc., Paragon Group LP Holdings, Inc., Paragon
Group L.P., PGPSI, 12 wholly owned partnerships and LLCs, and partnerships
owning 13 properties in which the Company, through the Operating Partnership,
has a controlling interest.

For the periods prior to the Initial Offering, the accompanying combined
financial statements of the Predecessors include the accounts of 45
partnerships owning multifamily apartment communities, two partnerships
owning retail properties, two partnerships owning office properties and
various entities engaged in property management, leasing, construction and
development on a contractual basis. Additionally included are the accounts
of a partnership which owns a 20% interest in an office property accounted
for using the equity method. The accompanying combined financial statements
are presented on a combined basis because of common ownership and management.

RESULTS OF OPERATIONS - 1995 COMPARED WITH 1994

Net income increased $4.8 million from the comparable period in 1994
while income before extraordinary items increased $8.2 million. Total
revenue increased $5.9 million and total expenses decreased $5.1 million
while minority interests increased $2.8 million, extraordinary gain from
forgiveness of debt, net of minority interests decreased $8.6 million and
extraordinary loss from early extinguishment of debt, net of minority
interests decreased $5.2 million.

Rental income increased $9.3 million, or 13.1%, principally due to an
increase in rental revenue on the 48 projects owned by the Predecessors,
revenue generated from three apartment projects, totaling 697 units, acquired
upon formation of the Company and the acquisition of a fourth project with
407 units in December of 1994. In the fourth quarter of 1995, the Company
acquired an additional four apartment projects totaling 1,578 units. The
increase in rental revenue on the 48 projects owned by the Predecessors
contributed $2.8 million to the rental income increase while the addition of
apartment units accounted for $6.5 million. Average monthly base revenue per
leased apartment unit increased $20, or 4.1%, from $485 to $505 from December
31, 1994 to December 31, 1995, respectively, for those units owned in both
periods. The Company believes that the increase in rental income per
occupied apartment unit was achieved primarily as a result of the
implementation of select rental increases allowed by improved economic
conditions in certain of the Company's markets. Average occupancy for those
residential properties increased nominally from 93.6% to 93.7% for the years
ended December 31, 1994 and December 31, 1995, respectively.

Property management income decreased $1.5 million, or 12.0%, while
leasing and other services income remained flat. The reduction in property
management income is due to terminated management contracts that were not
replaced or reduced rates charged for management services on third party
contracts.

Interest income decreased $.1 million as a result of reduced investment
interest earned on excess cash balances.

Other income - properties decreased $.4 million, or 12.3%, due
principally to a $.4 million real estate tax refund recorded in the first
quarter of 1994.

Other income - property services decreased $1.5 million, or 54.4%, due
principally to decreased transaction activity on which such revenue is based.

23
<PAGE>

Property operating and maintenance expense increased $2.2 million, or
7.0%, for the year ended December 31, 1995 as compared to the comparable
period in 1994. Of this increase, $2.7 million is principally attributable
to the addition of apartment units offset by a reduction of $.5 million on
properties owned in both periods principally attributable to reduced real
estate tax and other operating expenses on certain of those properties.

Property management expenses decreased $3.2 million, or 14.8%, due
principally to the realignment within PGPSI mentioned above and the effect of
the cost sharing agreements between PGI and PGPSI. That sharing was in place
for a full year in 1995 and only from August through December in 1994.

Interest expense decreased $4.3 million, or 20.2%, due to a reduction of
the Company's outstanding debt concurrent with the formation of the Company.
Additional debt added in December 1995 caused a nominal increase as most was
added late in the fourth quarter of 1995 (see "Liquidity and Capital
Resources" below).

General and administrative expenses - property services increased $1.6
million in 1995 over 1994 principally due to expenses associated with the
realignment of PGPSI described above. Severance and other realignment
expenses totaled $.7 million in 1995, while other expenses including travel
and temporary services increased by $.9 million due to the implementation of
the realignment and a computer conversion.

General and administrative expenses - corporate increased $1.2 million
or 149% due principally to the effect of the cost sharing agreements between
PGI and PGPSI. In addition, the public company costs existed for only four
months in 1994 and for the entire year in 1995.

Reorganization costs decreased $7.8 million and represent costs
associated with the formation of the company, including accounting, legal,
and other formation costs.

RESULTS OF OPERATIONS - 1994 COMPARED WITH 1993

Net income decreased $10.7 million from the comparable period of 1993.
Income from operations decreased primarily due to an increase in total
revenue of $4.8 million, offset by an increase in extraordinary loss from
early extinguishment of debt, net of minority interests of $4.3 million, an
increase in total expenses of $10.2 million, a decrease in gain on sale of
properties of $.1 million, and a decrease in extraordinary gains from
forgiveness of debt, net of minority interest of $1.4 million.

Rental income increased $4.3 million, or 6.3%, principally due to an
increase in rental revenue on the 48 projects owned by the Predecessors,
revenue generated from three apartment projects, totaling 697 units, acquired
upon formation of the Company and the acquisition of a fourth project with
407 units in December 1994. The increase in rental revenue on the 48
projects owned by the Predecessors contributed $2.4 million while the
addition of apartment units accounted for $1.9 million. Average monthly base
revenue per leased apartment unit increased $11, or 2.3%, from $474 to $485
from 1993 to 1994, respectively. The Company believes that the increase in
rental income per occupied apartment unit was achieved primarily as a result
of the implementation of select rental increases allowed by improved economic
conditions in certain of the Company's markets. Average occupancy for the
residential properties remained relatively unchanged (93.8% in 1993 and 93.6%
in 1994).

Property management services income decreased $.4 million, or 3.2%.
Leasing and other property services income decreased $.8 million, or 6.7%.
These decreases were due to terminated management contracts that were not
replaced, reduced rates charged for management services on third-party
contracts and to reduced transaction volume on which such fees are based.

24
<PAGE>

Interest income increased $.4 million, or 175.7%, as a result of
investment interest earned on higher excess cash balances.

Other income - properties increased $.3 million or 8.3% due principally
to the addition of 697 units acquired upon formation of the Company noted
above of $.1 million and increases in other revenue generated from the
remaining properties.

Other income - property services increased $1.1 million or 64% due to
increased transaction activity on which such revenue is based.

Property operating and maintenance expense increased $2.3 million, or
7.6%, for the year ended December 31, 1994 as compared to the comparable
period in 1993. The increase is principally attributable to a $.62 million
increase in personnel expense for merit and performance pay increases;
advertising and promotion increased $.23 million; utilities increased $.31
million; and building repair and maintenance increased $.55 million. The
acquisition of four apartment projects totaling 1,104 units accounted for
$.85 million of these increases. Real estate tax and insurance expense
increased $.56 million, of which $.20 million is due to the addition of the
four apartment projects noted above, and due to an increase in insurance
costs associated with all of the properties.

Property management expenses increased $1.6 million, or 8.3%, due
principally to increased compensation occurring prior to the public company
formation and after the Initial Offering.

Interest expense decreased $5.4 million, or 20.2% in 1994, as compared
to 1993, due to the reduction of the Company's outstanding debt concurrent
with the formation of the Company. The Company's total debt decreased from
$267.7 million to $182.1 million from December 31, 1993 to December 31, 1994.

General and administrative expenses - property services increased $.9
million, or 29.6%, in 1994 as compared to 1993, principally due to costs
associated with converting to operating as a public company (principally
legal, accounting fees and temporary services fees).

General and administrative - corporate increased $.8 million over 1993
representing public company costs after formation. There were no public
company costs prior to formation.

Reorganization costs increased $7.8 million and represent costs
associated with the formation of the Company, including accounting, legal,
and other formation costs.

Equity in income of ventures increased $.27 million, or 56.4%, as a
result of the timing of distributions from the Gateway property. Effective
March 1, 1994, the Company began participating in cash flow of the property.

LIQUIDITY AND CAPITAL RESOURCES

During the year the Company increased its total debt from $182.1
million at December 31, 1994 to $293.8 million at December 31, 1995. The
Company borrowed additional fixed-rate term debt totaling $69 million in
December 1995 secured by various properties. This borrowing was used to pay
down line of credit borrowings made during the year which was used to fund
acquisition and development activity. The Company also borrowed $28.2
million of short-term bridge debt to fund the acquisition of certain
properties in December 1995. At December 31, 1995, $14.5 million of debt is
represented by advances under the Company's line of credit. These advances
are in two contracts at fixed rates.

25
<PAGE>

Two of the properties added in 1995, Spanish Trace and Overlook
(formerly the Phoenix), were acquired from partnerships affiliated with
certain officers and directors of the Company. Pursuant to Company policy,
both transactions required approval by a majority of the Company's
disinterested directors and were so approved unanimously. The affiliated
officers and directors were entitled to receive total consideration of $1
million in the transactions, all of which was paid in Operating Partnership
Units (42,353 issued in 1995 and 4,694 in 1996). By using a per Unit value
of $21.25 to determine the number of Units, the affiliated officers and
directors received consideration with a current value totaling approximately
$.82 million based upon a share price of $17.50 (at the date of the
transactions).

LINE OF CREDIT

Concurrent with the Initial Offering, the Company obtained a line of
credit facility in the amount of $75 million. The commitment was
subsequently increased to $115 million and in December 1995 was reduced by
the Company to $90 million. This decrease was primarily as a result of the
$69 million refinancing that took place in December 1995. Through this
refinancing the Company was able to obtain long term fixed rate debt under
favorable terms and as a result anticipates a reduced usage of the line of
credit in the future. However under certain conditions, the line of credit
may be increased to $150 million. The line of credit matures in July 1996
and, at the Company's election, provides for two one year extension options.
Borrowings under the line are collateralized by specified properties. The
interest rate on the amounts outstanding under the line of credit vary
between either the greater of the prime rate or the Federal Funds rate plus
.50% or, at the Company's election, the London Interbank Offer Rate ("LIBOR")
plus 2.0%. The line of credit reprices, at the Company's discretion, in
defined intervals ranging from 1 to 360 days. As the line of credit is drawn
or reprices, the Company enters into a contract and selects the available
term and the interest rate option it desires. If the Company selects a
contract based upon LIBOR plus 2.0%, then the interest rate becomes fixed for
the term selected. Otherwise, the contract rate varies based upon the
appropriate index.

At June 30, 1996, $44.3 million was outstanding under the line of credit
in five separate contracts. The weighted average interest rate under these
contracts was 7.50%.

The Company anticipates that the line of credit will continue to be used
primarily to fund development or acquisition of additional properties and for
general working capital purposes.

MORTGAGE DEBT

The Company's mortgage indebtedness outstanding at December 31, 1995
requires principal amortization and balloon payments from 1996 to 2023 as
follows: $47.5 million in 1996 (of which $14.5 million represents maturities
of draws under the line of credit and $28.2 million represents maturities on
bridge loans on properties acquired in the fourth quarter of 1995), $.4
million in 1997, $4.3 million in 1998, $62.2 million in 1999, $8.0 million in
2000, and $171.4 million thereafter. This schedule assumes (i) a balloon
payment may be required on tax exempt bonds that were issued to finance two
of the properties upon the expiration, in 2003, of the credit enhancement
currently securing these bonds and (ii) the exercise of the put/call option
on a loan securing one of the properties in 1998. Since the Company
anticipates that very little of the principal of its mortgage indebtedness
will be amortized prior to maturity and the Company will not have sufficient
funds to

26
<PAGE>

repay such indebtedness at maturity, it will be necessary for the Company to
refinance such debt either through additional debt financing secured by
individual properties or groups of properties, through unsecured private or
public debt offerings or through additional equity offerings.

The Company expects to meet its short-term liquidity requirements
generally through its initial working capital, net cash provided by
operations and borrowings under the line of credit. The Company believes
that net cash provided by operations will be sufficient to allow the Company
to make any distributions as required for the Company to continue to qualify
as a REIT. The Company also believes that the foregoing sources of liquidity
will be sufficient to fund its short-term liquidity needs for the foreseeable
future.

The Company expects to meet certain long-term liquidity requirements
relating to developments, property acquisitions, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements through
long-term secured and unsecured indebtedness and the issuance of additional
equity securities. The Company also expects to use funds available under the
line of credit to fund acquisitions, development activities and capital
improvements on an interim basis. Borrowings under the line are subject to
periodic fluctuations in interest rates and, as such, may have a negative
impact on the amount of interest incurred should rates rise during future
operating periods. The Company has obtained a commitment from a lender to
fund permanent debt of $18.5 million in 1996. These funds will be used to
partially retire the above mentioned bridge acquisition loans.

CAPITAL EXPENDITURES

Under the Company's policy regarding repairs, maintenance and capital
expenditures, ordinary repairs and maintenance are expensed as incurred.
Major replacements and betterments are capitalized and depreciated on a
straight-line basis over the estimated useful lives of the properties
(buildings and related land improvements - 10 to 40 years; furniture,
fixtures and equipment - 3 to 10 years; and tenant improvements - over the
life of the related tenant lease). With respect to the apartment properties,
the Company capitalizes floor and window coverings and depreciates such items
over 5 years; appliances and heating, ventilating and air conditioning
equipment are capitalized and depreciated over 10 years.

During 1992 and 1993, the Predecessors incurred an average of $180 per
apartment unit per year of capital expenditures for the residential
properties. During 1994, the Company incurred an average of $226 per
apartment unit for capital expenditures prior to, and $162 per apartment unit
subsequent to, the Initial Offering. In 1995 the Company incurred an average
of $392 per apartment unit for capital expenditures. The Company expects to
expend annually an average of approximately $275 per apartment unit through
1999 for the residential properties. This amount is expected to be funded
from Company operations, existing cash balances, and borrowings under the
line of credit.

INFLATION

Substantially all of the residential property leases are for a term of
one year or less, which may enable the Company to seek increased rents upon
renewal of existing leases or commencement of new leases. Such short-term
leases generally minimize the risk to the Company of the adverse effects of
inflation, although as a general rule, these leases permit residents to leave
at the end of the lease term without penalty. Commercial property leases
range in length from 1 to 25 years and most have cost pass-through provisions.

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<PAGE>

FUNDS FROM OPERATIONS

FFO is defined by NAREIT to mean net income, computed in accordance with
GAAP, excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Management generally
considers FFO to be a useful measure of the operating performance of an
equity REIT because, together with net income and cash flows, FFO provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures.
FFO does not represent cash flows from operating activities as defined by
GAAP, should not be considered as an alternative to net income as an
indicator of the Company's operating performance and is not indicative of
cash available to fund all cash flow needs, including principal amortization,
capital improvements and distributions to stockholders. Further, FFO as
disclosed by other REITs may not be comparable to the Company's calculation
of FFO.

The following table represents the Company's calculation of FFO for the
year ended December 31, 1995 (dollar amounts in thousands):

Net Income.............................. $10,063
ADJUSTMENTS TO NET INCOME:
Minority interests in income.......... 2,612
Minority interests in cash flow....... (287)
Depreciation and amortization......... 18,561
Depreciation and amortization from
unconsolidated ventures.............. 542
Deferred loan cost amortization
included in interest expense......... 1,559
Grants/Amortization of employee
restricted stock..................... 1,462
Adjustment for straight-lining of
rents................................ (128)
Other cash reorganization expenses.... 553
-------
Funds from Operations.................... $34,937
-------
-------

For the year ended December 31, 1995, FFO increased from the same period
in 1994 by $10.1 million, or 40.7%, from $24.8 million to $34.9 million. The
increase in funds from operations was primarily attributable to increases in
revenue from the properties of $8.9 million, relating to increased rental
rates and the addition of 2,682 apartment units since the formation of the
Company, a reduction in interest expense of $4.8 million (excluding deferred
loan cost amortization) attributable to the debt reduction effected in
connection with the formation of the Company, a reduction in property
management expenses of $4.6 million (excluding employee restricted stock
amortization and other cash reorganization expenses) offset by a decrease in

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<PAGE>

property services revenue of $2.9 million and an increase in property
operating expenses of $2.2 million and general and administrative expenses of
$2.8 million.

For the year ended December 31, 1994, FFO increased from the same period
in 1993 by $5.6 million or 29.2%, from $19.2 million to $24.8 million. This
increase in funds from operations was primarily attributable to increases in
revenue from the properties of $4.5 million, relating to increased rental
rates, occupancy and the collection of a property tax refund of $.4 million
in the first quarter of 1994 and a reduction in interest expense of $5.3
million (excluding deferred loan cost amortization) attributable to the debt
reduction mentioned above both of which were offset by increased expenses of
$5.1 million (excluding employee restricted stock amortization).

FUNDS FROM OPERATIONS DEFINITION CHANGE

In compliance with the standard recommended by the REIT industry,
beginning with the results for the first quarter of 1996, the Company will
report FFO pursuant to the new NAREIT definition. The change in definition
primarily results in the Company no longer adding certain non-cash and
non-real estate depreciation and amortization charges back to net income in
calculating FFO. Had the Company employed the new definition in 1995, its
FFO would have been reduced by approximately $2.4 million to $32.5 million.
The adoption of the new definition will not alter the cash flow of the
Company, but it should serve to provide a more consistent comparison of
results for the industry.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company are listed under Item 14(a) and
are filed as part of this report on the pages indicated. The supplementary
data is included in Note 16 in the Consolidated and Combined Financial
Statements and Notes thereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS OF THE COMPANY

The information required by this item with respect to directors of the
Company is hereby incorporated by reference to the material appearing in the
proxy statement for the annual stockholders' meeting held in 1996 (the "Proxy
Statement") under the caption "Election of Directors."

EXECUTIVE OFFICERS OF THE COMPANY

The following is a biographical summary of the experience of the
executive officers of the Company as of March 31, 1996:

WILLIAM R. COOPER. Mr. Cooper, 59, has been Chairman of the Board of
Directors and Chief Executive Officer of the Company and Paragon GP Holdings
since the Initial Offering in July 1994. In addition, Mr. Cooper was the
President of the Company and Paragon GP Holdings from the Initial Offering
until February 1995. He also has been Chairman of the Board of Directors and
Chief Executive Officer of PGPSI since the Initial Offering and was the
President of PGPSI from the Initial Offering until December 1994. Prior to
the Initial Offering, Mr. Cooper had been with Paragon or its predecessor for
27 years, serving as a general partner or principal executive officer from
1967 to 1994 and its President and Chief Executive Officer from 1979 to 1994.
In such capacities, he has been actively engaged in the acquisition,
development, management, leasing and sale of multifamily, office, retail and
industrial properties. Mr. Cooper is or was a member of the board of
directors of the Edwin Cox School of Business at Southern Methodist
University, the Advisory Board of the Society of Industrial and Office
Realtors, the Dallas County Advisory Board of the Salvation Army and the
Presbyterian Healthcare System. He also is a member of the Urban Land
Institute and the board of directors of the National Realty Committee. Mr.
Cooper earned a B.A. degree from Southern Methodist University.

LEWIS A. LEVEY. Mr. Levey, 53, has been the Vice Chairman of the Board
of Directors of the Company and Paragon GP Holdings since February 1995 and a
director of the Company and Paragon GP Holdings since the Initial Offering in
July 1994. He was a Managing Director of the Company's Midwest Region from
the Initial Offering until February 1995. Mr. Levey also has been the Vice
Chairman of the Board of Directors of PGPSI since December 1994 and was a
Managing Director of PGPSI from the Initial Offering until December 1994.
Prior to the Initial Offering, Mr. Levey was with Paragon or its predecessor
for 23 years, serving as a general partner from 1971 to 1994 and as the
Managing Director of the Midwest Region from 1980 to 1994. As Managing
Director of the Midwest Region for Paragon, Mr. Levey was responsible for
supervising all aspects of Paragon's real estate operations in Illinois,
Indiana, Kansas, Kentucky and Missouri. As Vice Chairman, Mr. Levey
continues to have responsibilities in those areas and also is involved in
strategic planning and other general corporate matters for the Company. He
is currently a member of the board of directors of the National Multi-Housing
Council, a Council member the Urban Land Institute, and a member of the
Builders Economic Council of the National Association of Homebuilders. Mr.
Levey earned a B.S. degree from the University of Wisconsin and an M.B.A.
degree from Washington University (St. Louis).

ROBERT H. GIDEL. Mr. Gidel, 44, has been the President, Chief Operating
Officer of the Company and Paragon GP Holdings since January 1996. He has
served as a director of the Company and Paragon GP Holdings since February
1996. As President and Chief Operating Officer, Mr. Gidel is responsible for
the management of the day-to-day affairs of the Company. Mr. Gidel also has
been the President and Chief Operating Officer of PGPSI since January 1996,
and a director

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<PAGE>

of PGPSI since March 1996. Mr. Gidel has been the President, Chief Operating
Officer and a director (and a member of the compensation committee) of the
general partner of Brazos Partners, L.P., a partnership that was formed to
acquire and liquidate a $3 billion portfolio of real estate assets previously
owned by failed banks, since July 1993. The portfolio of assets has been
substantially liquidated, and Mr. Gidel does not have any significant
managerial responsibilities remaining with respect to this partnership. He
also was Chief Operating Officer and a director of Brazos Fund, L.P., a real
estate investment fund, from March 1994 to January 1996, and currently
remains as a director of that fund. Mr. Gidel was Managing Director and a
director of Alex Brown Kleinwort Benson Realty Advisors ("ABKB"), a real
estate investment management firm based in Baltimore, Maryland, from 1986 to
1993. Mr. Gidel was Chairman of ABKB's Investment Committee and had
responsibility for portfolio management and strategy for over $3.2 billion of
direct equity ownership, participating debt, joint venture equity, and real
estate securities owned by ABKB's domestic and foreign institutional clients.
Mr. Gidel earned a B.S.B.A. degree in real estate from the University of
Florida. Mr. Gidel is a member of the Executive Committee of the Board of
Directors.

JERRY J. BONNER. Mr. Bonner, 56, has been Secretary and Treasurer
of the Company and Paragon GP Holdings since the Initial Offering and a
Senior Vice President of the Company and Paragon GP Holdings since February
1995. Mr. Bonner also has been Secretary, Treasurer and a director of PGPSI
since the Initial Offering and a Senior Vice President of PGPSI since March
1995. Prior to the Initial Offering, Mr. Bonner was with Paragon or its
predecessor for 24 years, serving as Secretary and Treasurer from 1979 to
1994. As Treasurer, Mr. Bonner is responsible for supervising all treasury,
controllership and management information systems of the Company. He had
similar responsibilities while serving as Treasurer of Paragon. He is a CPA
and a member of the Real Estate Council. Mr. Bonner earned a B.B.A. degree
from Louisiana Tech University and an M.B.A. degree from Southern Methodist
University.

LYNN T. CALDWELL. Lynn T. Caldwell, 36, has been a Senior Vice
President and Chief Investment Officer of the Company and Paragon GP Holdings
since February 1995 and was a Vice President of the Company and Paragon GP
Holdings from the Initial Offering in July 1994 to February 1995. She has
also been a Senior Vice President and Chief Investment Officer of PGPSI since
March 1995, was Vice President and Chief Investment Officer of PGPSI from
December 1994 to March 1995 and was Vice President of PGPSI from the Initial
Offering until December 1994. Prior to the Initial Offering, Mr. Caldwell
was with Paragon for five years, serving as Vice President -- Finance. Ms.
Caldwell is a licensed Texas real estate broker and earned B.B.A. and B.A.
degrees from Southern Methodist University.

JAMES T. COBB. Mr. Cobb, 56, has been a Managing Director and Senior
Vice President of Paragon GP Holdings since February 1995, and was a Managing
Director of Paragon GP Holdings from the Initial Offering in July 1994 to
February 1995. Mr. Cobb also has been a Managing Director and Senior Vice
President of PGPSI since March 1995, and was a Managing Director of PGPSI
from the Initial Offering until March 1995. Prior to the Initial Offering,
Mr. Cobb was with Paragon for 21 years, serving as a general partner from
1974 to 1994 and the Managing Director of the Mid-Atlantic Region from 1980
to 1994. As Managing Director of the Mid-Atlantic Region for Paragon, Mr.
Cobb was responsible for supervising all aspects of Paragon's real estate
operations in North Carolina, South Carolina and Virginia. As Managing
Director and Senior Vice President of Paragon GP Holdings, Mr. Cobb is
responsible for the development of multifamily properties in Virginia, North
Carolina, South Carolina, and Georgia. Mr. Cobb has served as past president
of the Charlotte Apartment Association and a past board member of the
Charlotte Habitat for Humanity. Mr. Cobb earned a B.A. degree from the
University of Pennsylvania and an M.B.A. degree from the Wharton School.

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<PAGE>

THOMAS D. FERGUSON. Mr. Ferguson, 42, has been a Senior Vice President
and Chief Financial Officer of the Company and Paragon GP Holdings since
February 1995, and was a Vice President of the Company and Paragon GP
Holdings from the Initial Offering in July 1994 to February 1995. He also
has been a Senior Vice President and Chief Financial Officer of PGPSI since
March 1995, was Vice President and Chief Financial Officer of PGPSI from
December 1994 to March 1995 and was a Vice President of PGPSI from the
Initial Offering until December 1994. Prior to the Initial Offering, Mr.
Ferguson was with Paragon for 10 years, serving as Vice President -- Finance.
Mr. Ferguson is a past president and director of the Wednesday's Child
Benefit Corporation. Mr. Ferguson earned a B.A. degree from the University
of Arkansas.

DOUGLAS A. KNAUS. Mr. Knaus, 44, has been President of Paragon
Commercial (one of the Company's two operating divisions) and a Senior Vice
President of Paragon GP Holdings since February 1995. He also has been
President of Paragon Commercial and a director of PGPSI since December 1994,
and was a Vice President of PGPSI from the Initial Offering until December
1994. Prior to the Initial Offering, Mr. Knaus was with Paragon for 13
years, serving as Vice President of the Central Region and directing all
property service functions for the Houston and Austin offices. Mr. Knaus is
a member of the Urban Land Institute, has served on the board of the National
Association of Industrial and Office Parks and was a Director of Houston
Proud. Mr. Knaus earned a B.B.A. degree from the University of Colorado. In
connection with the sale of the Company's economic interest in the commercial
property services business as of June 30, 1996, Mr. Knaus is no longer an
executive of the Company.

BRIAN F. LAVIN. Mr. Lavin, 42, has been President of Paragon
Residential (one of the Company's two operating divisions) and a Senior Vice
President of Paragon GP Holdings since February 1995. He also has been
President of Paragon Residential and a director of PGPSI since December 1994,
and was a Vice President of PGPSI from the Initial Offering until December
1994. Prior to the Initial Offering, Mr. Lavin was Vice President of
Paragon's Midwest Region, where he directed the development, marketing,
leasing, management and maintenance operations for Paragon's Kentucky and
Indiana portfolio. Mr. Lavin is a frequent participant and instructor in
various property management seminars. He has served as guest lecturer at the
University of Louisville School of Business and is a past Director of the
Louisville Apartment Association. Mr. Lavin is CPM certified and holds a
Board of Directors position on the Greater Louisville Economic Development
Partnership, Old Kentucky Home Council of the Boy Scouts of America,
Louisville Ballet and the Louisville Science Center. Mr. Lavin earned a B.S.
of B.A. degree from the University of Missouri.

STEVEN A. MEANS. Mr. Means, 50, has been a Managing Director and Senior
Vice President of Paragon GP Holdings since February 1995, and was a Managing
Director of Paragon GP Holdings from the Initial Offering in July 1994 to
February 1995. Mr. Means also has been a Managing Director and Senior Vice
President of PGPSI since March 1995, and was a Managing Director of PGPSI
from the Initial Offering to March 1995. Prior to the Initial Offering, Mr.
Means was with Paragon for 22 years, serving as Managing Director of the
Central Region from 1980 to 1994. As Managing Director of the Central Region
for Paragon, Mr. Means was responsible for supervising all aspects of
Paragon's commercial operations in Arizona, Colorado, Oklahoma, Tennessee,
Texas and Washington, D.C. As Managing Director and Senior Vice President of
Paragon GP Holdings, Mr. Means serves as the Director of Acquisitions and
works in conjunction with the operating divisions on all property
acquisitions. Mr. Means is a board member (and past chairman) of the Real
Estate Council, a committee member of the Urban Land Institute, a member of
the board of The Science Place and Hockaday School, and a member of the
Industrial Development Research Council, Inc. Mr. Means earned a B.A. degree
from Southern Methodist University and an M.B.A. degree from the University
of Texas.

32
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is hereby incorporated by
reference to the material appearing in the Proxy Statement under the caption
"Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is hereby incorporated by
reference to the material appearing in the Proxy Statement under the caption
"Voting Securities and Principal Holders Thereof."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is hereby incorporated by
reference to the material appearing in the Proxy Statement under the caption
"Certain Relationships and Transactions."

33
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

14(a)(1) FINANCIAL STATEMENTS AND SCHEDULES
AND (2)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

The following Consolidated and Combined Financial Statements and Schedule
of Paragon Group, Inc. and Predecessors and the Independent Auditors' Report
thereon are filed as part of this report on the pages indicated.

FINANCIAL STATEMENTS PAGE
----
Independent Auditors' Report 38

Consolidated Balance Sheets as of December 31, 1995 and 1994 39

Consolidated and Combined Statements of Operations for the year
ended December 31, 1995, the period July 27 to December 31, 1994,
as restated, the period January 1 to July 26, 1994, and the year
ended December 31, 1993 40

Consolidated and Combined Statements of Stockholders' Equity
(Partners' and Owners' Deficit) for the year ended December 31,
1995, the period ended December 31, 1994, as restated, the period
ended July 26, 1994, and the year ended December 31, 1993 41

Consolidated and Combined Statements of Cash Flows for the year
ended December 31, 1995, the period July 27 to December 31, 1994,
as restated, the period January 1 to July 26, 1994, and the year
ended December 31, 1993 42

Notes to Consolidated and Combined Financial Statements 43

SCHEDULES:

Schedule III: Real Estate and Accumulated Depreciation as
of December 31, 1995 66

All other schedules have been omitted because the required information
of such other schedules is not present in amounts sufficient to require
submission of the schedule or because the required information is included in
the Consolidated and Combined Financial Statements.

34
<PAGE>

14(a)(3) EXHIBITS

3.1* Articles of Amendment and Restatement of Articles of
Incorporation of Paragon Group, Inc.

3.2+ Amended and Restated Bylaws of Paragon Group, Inc. Incorporated
by reference to Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the three months ended March 31, 1995.

10.1* Second Amended and Restated Agreement of Limited Partnership of
the Operating Partnership.

10.2* Articles of Incorporation and Bylaws of Paragon GP Holdings.

10.3* Articles of Incorporation and Bylaws of Paragon LP Holdings.

10.4* Articles of Incorporation and Bylaws of PGPSI.

10.5* Employment Agreement among William R. Cooper, the Company,
Paragon GP Holdings, the Operating Partnership and PGPSI.

10.6* Employment Agreement among Lewis A. Levey, the Company, Paragon
GP Holdings, the Operating Partnership and PGPSI.

10.7* Registration Rights and Lock-up Agreement between the Company
and the persons named therein.

10.8* First Amended and Restated Employee Restricted Stock Plan.

10.9* Second Amended and Restated 1994 Employee Stock Option, Unit
Option, Restricted Stock and Restricted Unit Plan.

10.10* Non-Employee Director Stock Option Plan.

10.11* Supplemental Representations and Warranties Agreement among
the Company, the Operating Partnership, PGPSI, FWP, L.P. and
certain other parties named therein.

10.12* Paragon Group, Inc. First Amended and Restated Employee Stock
Purchase Plan.

10.13* Paragon Group Property Services, Inc. First Amended and
Restated Employee Stock Purchase Plan.

10.14* Second Amended and Restated Credit Agreement among Paragon
Group L.P. and various lenders.

10.15* Mortgage and Security Agreement relating to the Pool A Loan by
Paragon-Ott Apartments II, Ltd., Lookout Pointe II Associates,
Ltd., Lookout Pointe Associates, Ltd., Lake George II
Associates, Ltd. and Paragon Group L.P. to the Prudential
Insurance Company of America.

10.16+ Letter Agreement, dated January 23, 1996, between Robert H.
Gidel and the Company.

10.17+ Mortgage Note (Texas) dated December 5, 1995 from Paragon Group
L.P. to Nationwide Life Insurance Company.

10.18+ Deed of Trust, Mortgage and Security Agreement (Texas) made by
Paragon Group L.P. to secure Nationwide Life Insurance Company.

10.19+ Mortgage Note (Missouri) dated December 5, 1995 from Paragon
Group L.P. to Nationwide Life Insurance Company.

10.20+ Deed of Trust and Security Agreement (Missouri) made by Paragon
Group L.P. to secure Nationwide Life Insurance Company.

10.21+ Mortgage Note (North Carolina) dated December 5, 1995 from
Paragon Group L.P. to Nationwide Life Insurance Company.

10.22+ Deed of Trust and Security Agreement (North Carolina) made by
Paragon Group L.P. to secure Nationwide Life Insurance Company.

10.23 Stock and Note Purchase Agreement dated as of May 31, 1996,
as modified by an Addendum thereto dated as of June 26, 1996,
among Insignia Commercial Group, Inc., PGPSI, Paragon Group
L.P. and Texas Paragon Management Partners L.P.

<PAGE>

10.24 Warrant Agreement dated as of June 30, 1996 between Paragon
Group, Inc. and Insignia Commercial Group, Inc.

13.1+ Annual Report to Stockholders.

21.1+ List of Subsidiaries of Paragon Group, Inc.

23.1 Consent of Ernst & Young LLP.

24.1+ Powers of Attorney.
__________________
* Incorporated by reference to the same titled and numbered exhibit to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
+ Previously filed.

14(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the year ended December 31,
1995.

14(c) EXHIBITS

The list of exhibits filed with this report is set forth in response
to Item 14(a)(3). The required exhibit index has been filed with the
exhibits.

14(d) FINANCIAL STATEMENTS

None.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the State of Texas on July 24, 1996.

PARAGON GROUP, INC.,
a Maryland corporation

By: /s/ Thomas D. Ferguson
---------------------------------
Thomas D. Ferguson
Chief Financial Officer and
Senior Vice President

<PAGE>

INDEPENDENT AUDITORS' REPORT
- -----------------------------------------------------------------------------

To the Board of Directors and
Stockholders of Paragon Group, Inc.

We have audited the accompanying consolidated balance sheets of Paragon
Group, Inc. and subsidiaries as of December 31, 1995 and 1994, as restated,
and the related consolidated and combined statements of operations,
stockholders' equity (partners' and owners' deficit), and cash flows of
Paragon Group, Inc. and Predecessors for the year ended December 31, 1995,
the period from July 27, 1994 through December 31, 1994, as restated, the
period from January 1, 1994 through July 26, 1994 and the year ended December
31, 1993. Our audits also included the financial statement schedule listed
in the index at Item 14(a)1 and 2. These consolidated and combined financial
statements and schedule are the responsibility of the management of Paragon
Group, Inc. and Predecessors. Our responsibility is to express an opinion on
these consolidated and combined financial statements and schedule based on
our audits.

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

In our opinion, the consolidated and combined financial statements
referred to above present fairly, in all material respects, the financial
position of Paragon Group, Inc. and subsidiaries as of December 31, 1995 and
1994, as restated, and the results of Paragon Group, Inc. and Predecessors'
operations and cash flows for the year ended December 31, 1995, the period
from July 27, 1994 through December 31, 1994, as restated, the period from
January 1, 1994 through July 26, 1994 and the year ended December 31, 1993,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 2, the Company, since its initial public offering
on July 27, 1994, has accounted for the investment in its property services
subsidiary, Paragon Group Property Services, Inc., under the cost method
consistent with prior regulatory direction. However, in September 1995, the
Emerging Issues Task Force of the Financial Accounting Standards Board (EITF)
reached a consensus in EITF 95-6 that the cost method of accounting for such
investments was not appropriate. Accordingly, in 1995, the Company changed
its method of accounting for PGPSI from the cost method to consolidation of
the financial position and results of operations of PGPSI with the Company.
Furthermore, as required by EITF 95-6, the 1994 financial statements
(specifically, the period from July 27, 1994 through December 31, 1994) have
been restated to consolidate PGPSI. The effect of the restatement was to
decrease stockholders' equity at December 31, 1994 by approximately
$20,456,000 and to decrease net income for the period from July 27 through
December 31, 1994 by approximately $120,000. The effect on earnings per
share was nominal.

Ernst & Young LLP
Dallas, Texas
February 27, 1996

38
<PAGE>

PARAGON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

DECEMBER 31, DECEMBER 31,
1995 1994, AS RESTATED
- ------------------------------------------------------------------------------
ASSETS

Real estate assets:
Land $ 86,602 $ 75,520
Buildings and improvements 459,129 385,995
Furniture, fixtures and equipment 57,796 47,247
--------- ---------
603,527 508,762
Less: Accumulated depreciation (126,437) (101,984)
--------- ---------
Operating real estate assets 477,090 406,778
Construction in process 27,944 4,999
--------- ---------
Net real estate assets 505,034 411,777
Cash and cash equivalents 6,583 5,913
Restricted cash 3,909 3,605
Accounts receivable, including amounts due
from affiliates of $1,424 and $940,
respectively in 1995 and 1994 4,716 3,098
Advances to affiliates 186 1,605
Investment in ventures 7,401 3,997
Deferred charges, net 9,254 11,689
Deferred rent receivable 260 242
Deferred tax asset 863 105
Other assets 1,405 517
--------- ---------
Total assets $ 539,611 $ 442,548
--------- ---------
--------- ---------

LIABILITIES AND STOCKHOLDERS' EQUITY

Notes payable $ 293,780 $ 182,056
Accrued interest payable 1,106 602
Accrued real estate taxes payable 2,030 1,107
Accounts payable and accrued liabilities,
including amounts due to affiliates of
$1,656 in 1994 10,883 7,432
Tenant security deposits 2,273 1,918
Deferred tax liability 863 40
--------- ---------
Total liabilities 310,935 193,155
--------- ---------

Minority interests 50,210 55,959
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock $.01 par value, authorized
100,000,000 shares, issued 14,791,165
shares (14,697,047 in 1994) 148 147
Additional paid-in capital 204,537 203,631
Unamortized employee restricted stock
compensation (4,085) (5,559)
Accumulated deficit (21,236) (4,028)
--------- ---------
179,364 194,191
Less: Cost of 42,266 treasury shares
(35,600 in 1994) (898) (757)
--------- ---------
Total stockholders' equity 178,466 193,434
--------- ---------
Total liabilities and stockholders'
equity $ 539,611 $ 442,548
--------- ---------
--------- ---------

SEE ACCOMPANYING NOTES.

39
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
COMPANY PREDECESSORS
------------------------------- -----------------------------
FOR THE YEAR FOR THE PERIOD FOR THE PERIOD FOR THE YEAR
ENDED JULY 27 TO JANUARY 1 TO ENDED
DECEMBER 31, DECEMBER 31, JULY 26, DECEMBER 31,
1995 1994, AS RESTATED 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Rental $ 80,437 $32,099 $39,018 $66,848
Property management services - third party 6,859 3,729 4,693 8,046
Property management services - affiliates 4,454 1,688 2,751 5,239
Leasing and other property services - third party 8,847 3,437 4,445 8,127
Leasing and other property services - affiliates 2,136 967 1,986 3,488
Interest 537 445 156 218
Other - properties 3,023 1,222 2,225 3,183
Other - property services 1,275 1,125 1,668 1,703
-------- ------- ------- -------
107,568 44,712 56,942 96,852
-------- ------- ------- -------
EXPENSES
Property operating and maintenance:
Personnel 9,385 3,767 4,748 7,893
Advertising and promotion 1,621 625 860 1,260
Utilities 4,911 1,927 2,649 4,267
Building repair and maintenance 6,463 2,259 3,510 5,219
Real estate taxes and insurance 8,932 3,759 4,923 8,125
Other operating expenses 2,950 909 2,092 3,001
-------- ------- ------- -------
34,262 13,246 18,782 29,765
Depreciation and amortization 18,561 7,019 6,499 11,321
Property management, net of amounts reimbursed by
affiliates of $114, $235, $316 and $595 for 1995,
the period July 27 to December 31, 1994, the period
January 1 to July 26, 1994 and 1993, respectively 18,141 8,705 12,587 19,663
Interest - third party 17,011 6,448 14,057 24,993
Interest - affiliates - - 801 1,720
General and administrative - property services, net of
amounts reimbursed by affiliates of $216, $182, $945
and $1,674 for 1995, the period July 27 to
December 31, 1994, the period January 1 to
July 26, 1994 and 1993, respectively 5,693 2,052 2,006 3,132
General and administrative - corporate 1,979 795 - -
Reorganization costs - 7,796 - -
-------- ------- ------- -------
95,647 46,061 54,732 90,594
-------- ------- ------- -------
Income (loss) before equity in income of ventures,
gain (loss) on sale of property, income taxes,
minority interests and extraordinary items 11,921 (1,349) 2,210 6,258
Equity in income of ventures 775 317 429 477
Gain (loss) on sale of property (21) - - 136
-------- ------- ------- -------
Income (loss) before income taxes, minority interests
and extraordinary items 12,675 (1,032) 2,639 6,871
Income taxes - - - -
-------- ------- ------- -------
Income (loss) before minority interests
and extraordinary items 12,675 (1,032) 2,639 6,871
Minority interests (2,612) 207 - -
-------- ------- ------- -------
Income (loss) before extraordinary items 10,063 (825) 2,639 6,871
Extraordinary gain from forgiveness of debt,
net of minority interests - 6,832 1,776 10,019
Extraordinary loss from early extinguishment of debt,
net of minority interests - (5,196) - (927)
-------- ------- ------- -------
Net income $ 10,063 $ 811 $ 4,415 $15,963
-------- ------- ------- -------
-------- ------- ------- -------
Per share data:
Income (loss) before extraordinary items $ 0.68 $ (0.06)
-------- -------
-------- -------
Net income $ 0.68 $ 0.06
-------- -------
-------- -------
</TABLE>

SEE ACCOMPANYING NOTES.

40
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(PARTNERS' AND OWNERS' DEFICIT)

FOR THE YEAR ENDED DECEMBER 31, 1995, THE PERIOD ENDED DECEMBER 31, 1994,
AS RESTATED, THE PERIOD ENDED JULY 26, 1994 AND THE YEAR ENDED DECEMBER 31, 1993

(DOLLARS IN THOUSANDS)

<TABLE>
UNAMORTIZED
EMPLOYEE LESS:
ADDITIONAL RESTRICTED COST OF
COMMON PAID-IN STOCK ACCUMULATED TREASURY
STOCK CAPITAL COMPENSATION DEFICIT SHARES TOTAL
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS' AND OWNERS' DEFICIT
AT DECEMBER 31, 1992 $ - $ - $ - $(42,726) $ - $ (42,726)
Contributions - - - 2,503 - 2,503
Distributions - - - (15,771) - (15,771)
Net Income - - - 15,963 - 15,963
---- -------- ------- -------- ----- ---------
PARTNERS' AND OWNERS' DEFICIT
AT DECEMBER 31, 1993 - - - (40,031) - (40,031)
Contributions - - - 3,202 - 3,202
Distributions - - - (7,912) - (7,912)
Net Income - - - 4,415 - 4,415
---- -------- ------- -------- ----- ---------
PARTNERS' AND OWNERS' DEFICIT
AT JULY 26, 1994 - - - (40,326) - (40,326)
Paragon Group, Inc.
formation transactions - - - 13,391 - 13,391
Reclassification of accumulated
deficit at date of initial
offering - (26,935) - 26,935 - -
Proceeds of initial offering,
net of underwriting discount
and offering costs of $24,813 137 266,069 - - - 266,206
Shares issued in exchange for
note receivable from
property services corporation 7 14,393 - - - 14,400
Shares issued pursuant to
employee restricted stock plan 3 6,890 (6,136) - (757) -
Adjustment for minority interests
at date of initial offering - (56,786) - - - (56,786)
Net income - - - 811 - 811
Amortization of employee
restricted stock compensation - - 577 - - 577
Dividends paid - - - (4,839) - (4,839)
---- -------- ------- -------- ----- ---------
STOCKHOLDERS' EQUITY AT DECEMBER
31, 1994, AS RESTATED 147 203,631 (5,559) (4,028) (757) 193,434
Acquisition of land for Units - 1,251 - - - 1,251
Acquisition of partnership
interest for Units - (1,559) - - - (1,559)
Conversion of Units to common
stock 1 1,214 - - - 1,215
Net income - - - 10,063 - 10,063
Amortization of employee
restricted stock compensation - - 1,333 - - 1,333
Redemption of employee restricted
stock, net of additional grants - - 141 - (141) -
Dividends paid - - - (27,271) - (27,271)
---- -------- ------- -------- ----- ---------
STOCKHOLDERS' EQUITY AT DECEMBER 31,
1995 $148 $204,537 $(4,085) $(21,236) $(898) $ 178,466
---- -------- ------- -------- ----- ---------
---- -------- ------- -------- ----- ---------
</TABLE>

SEE ACCOMPANYING NOTES.

<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

<TABLE>
COMPANY PREDECESSORS
--------------------------------- -----------------------------
FOR THE YEAR FOR THE PERIOD FOR THE PERIOD FOR THE YEAR
ENDED JULY 27 TO JANUARY 1 TO ENDED
DECEMBER 31, DECEMBER 31, JULY 26, DECEMBER 31,
1995 1994, AS RESTATED 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,063 $ 811 $ 4,415 $ 15,963
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 16,182 6,471 6,455 11,201
Amortization 2,379 548 44 120
Amortization of deferred financing costs 1,559 602 472 1,219
Amortization of employee restricted stock
compensation 1,333 577 - -
Equity in income of ventures - (122) (171) (477)
Loss (gain) on sale of property 21 - - (136)
Minority interests in income (loss) 2,612 (207) - -
Gain on forgiveness of debt, net of
minority interests - (6,832) (1,776) (10,019)
Loss on early extinguishment of debt, net of
minority interests - 5,196 - 927
Changes in assets and liabilities:
Decrease (increase) in restricted cash 367 3,019 (695) (2,589)
Decrease (increase) in accounts receivable (1,860) (2,415) 345 54
Decrease (increase) in deferred rent receivable (18) 25 19 (47)
Increase in prepaid leasing costs (136) (55) - (16)
Decrease (increase) in other assets (1,614) (472) 63 216
Increase (decrease) in accrued interest payable 463 (619) 898 1,524
Increase (decrease) in accrued real estate taxes 861 (930) 2,572 290
Increase (decrease) in accounts payable and
accrued liabilities 4,052 4,089 (678) 456
Increase (decrease) in tenant security deposits 258 1,412 32 (56)
--------- --------- ------- --------
Net cash provided by operating activities 36,522 11,098 11,995 18,630
--------- --------- ------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to operating real estate assets (56,082) (183,554) (3,229) (4,310)
Additions to construction in process (43,560) (3,217) - -
Additions to investment in ventures (3,624) (60) - -
Purchase of working capital assets, net (553) - - -
Purchase of management and leasing contracts - (5,600) - -
Payments of organization costs (22) (82) - (102)
Distributions received from unconsolidated ventures 462 36 89 477
Proceeds from sale of property 13 - - 350
--------- --------- ------- --------
Net cash used in investing activities (103,366) (192,477) (3,140) (3,585)
--------- --------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock - 266,206 - -
Dividends (27,271) (4,839) - -
Contributions from minority interests - 100 - -
Distributions to minority interests (7,063) (1,235) - -
Capital contributions - - 3,202 2,503
Capital distributions - - (7,912) (15,771)
Deemed distributions at formation - (11,442) - -
Payments of deferred financing costs (1,139) (4,336) (115) (2,876)
Proceeds from notes payable 174,080 129,248 8,300 49,628
Payments on notes payable (72,512) (182,902) (9,507) (49,316)
Payment of participation fees and prepayment
penalties - (5,778) - -
Distributions to repay off-balance sheet debt - (2,600) - -
Decrease (increase) in advances to affiliates 1,419 (1,450) - -
Proceeds from partner loans - - 283 1,888
Payments on partner loans - (1,463) (178) (341)
--------- --------- ------- --------
Net cash provided by (used in) financing
activities 67,514 179,509 (5,927) (14,285)
--------- --------- ------- --------

Net increase (decrease) in cash and cash equivalents 670 (1,870) 2,928 760
Cash and cash equivalents, beginning of period 5,913 7,783 4,855 4,095
--------- --------- ------- --------
Cash and cash equivalents, end of period $ 6,583 $ 5,913 $ 7,783 $ 4,855
--------- --------- ------- --------
--------- --------- ------- --------

Cash paid for interest $ 16,556 $ 6,475 $13,305 $ 23,824
--------- --------- ------- --------
--------- --------- ------- --------

</TABLE>

SEE SUPPLEMENTAL NON-CASH DISCLOSURES AT NOTE 15.
SEE ACCOMPANYING NOTES.

<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE OR SHARE/UNIT DATA)

1. ORGANIZATION AND FORMATION OF THE COMPANY

Paragon Group, Inc. (together with its subsidiaries, the "Company"),
qualifies as a real estate investment trust ("REIT") for Federal income tax
purposes and was incorporated in the state of Maryland on March 23, 1994 to
continue the operations of certain entities involved in management, leasing,
construction, development and ownership of real estate assets (collectively
the "Predecessors"). On July 27, 1994, the Company completed an initial
public offering (the "Initial Offering") of 13,000,000 shares of common stock
(including 1,000,000 shares issued upon exercise of the underwriters'
over-allotment option), a sale of 695,000 shares of common stock to the
sponsors (the "Private Placement") and a business combination with the
Predecessors. The offering price of all shares sold was $21.25 per share,
resulting in net proceeds (less the underwriters' discount and offering
costs) of approximately $266,206.

Upon completion of the Initial Offering, the Company, through its
wholly-owned subsidiary, Paragon Group LP Holdings, Inc., acquired a 79.1%
limited partner interest in Paragon Group L.P. (the "Operating Partnership").
The Operating Partnership succeeded to substantially all of the interests of
the Predecessors and certain others in certain properties. The Company,
through its wholly-owned subsidiary, Paragon Group GP Holdings, Inc., is the
sole general partner and the holder of a 1% interest in the Operating
Partnership. Subsequent to the business combination, the Company's
management, leasing, construction and development businesses are being
conducted through Paragon Group Property Services, Inc. ("PGPSI"). The
Company, through the Operating Partnership, owns 100% of the non-voting stock
and 1% of the voting stock of PGPSI (collectively representing 99% of the
total equity).

Proceeds from the Initial Offering, the Private Placement and new
borrowings totaled $408.5 million. The Company and the Operating Partnership
used these proceeds to (i) purchase certain properties and interests in
certain other properties, (ii) retire existing debt associated with certain
properties, (iii) pay expenses of the offering including underwriting
discounts, accounting, legal, and other formation costs, (iv) pay prepayment
penalties, purchase lender participation interests, buy down interest rates
on certain mortgage loans and pay loan costs on new indebtedness, (v) make
distributions to certain owners of the Predecessors to repay off-balance
sheet debt associated with one of the properties, (vi) purchase the property
services businesses from affiliates, (vii) pay real estate taxes and fund
interest and tax escrows, and (viii) establish working capital reserves.

In consideration for the sale of certain properties and partnership
interests, certain owners of the Predecessors, including affiliates of the
Company, elected to receive limited partnership units ("Units") in the
Operating Partnership. The 3,648,546 Units received by such owners at
formation represented an approximate 19.9% equity interest in the Operating
Partnership.

During 1995, the Operating Partnership acquired additional property and
partnership interests from affiliates of the Company with Units which
decreased the Company's ownership interest in the Operating Partnership.
This decrease was offset by the redemption of certain other Units for shares
of common stock in the Company (with the Company acquiring such Units in
exchange for a like number of shares). As a result, at December 31, 1995 the
Company's ownership interest in the Operating Partnership remained 80.1%.

43
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION FOR PERIODS AFTER THE INITIAL OFFERING

For the periods after the Initial Offering, the accompanying
consolidated financial statements include the accounts of the Company,
Paragon Group GP Holdings, Inc., Paragon Group LP Holdings, Inc., Paragon
Group L.P., Paragon Group Property Services, Inc., 12 wholly-owned
partnerships and limited liability companies, and partnerships owning 13
properties where the Company, through the Operating Partnership, has a
controlling interest. All significant intercompany accounts and transactions
have been eliminated in consolidation.

The Company, since the consummation of its Initial Offering on July 27,
1994, accounted for its investment in PGPSI under the cost method consistent
with prior regulatory direction. However, in September 1995, the Emerging
Issues Task Force of the Financial Accounting Standards Board ("EITF")
reached a consensus in EITF 95-6 "ACCOUNTING BY A REAL ESTATE INVESTMENT
TRUST FOR AN INVESTMENT IN A SERVICE CORPORATION" that the cost method of
accounting for such investments was not appropriate and, based upon the
specific facts and circumstances either the equity method or consolidation
accounting should be used. While the Company only holds 1% of the voting
stock of PGPSI, due to its 99% economic interest and other factors the
Company believes that the consolidation method should be used and will
provide for the most meaningful financial statement presentation.
Accordingly, in 1995 the Company changed its method of accounting for PGPSI
from the cost method to consolidation of the financial position and results
of operations of PGPSI in the Company's consolidated financial statements.

Furthermore, as required by EITF 95-6, the 1994 financial statements
(specifically, the period from July 27, 1994 through December 31, 1994) have
been restated to consolidate PGPSI. The effect of the restatement was to
decrease stockholders' equity at December 31, 1994 by $20,456 and to decrease
income before extraordinary items and net income by $120. The effect on net
income per share was nominal.

The business combination was structured to allow the partners and owners
of the entities in the Predecessors to receive either cash or Units in the
Operating Partnership. (Units can be exchanged, with certain restrictions,
for cash or common stock in the Company, at the Company's election, on a
one-for-one basis.) Purchase accounting was applied to the acquisition of
all non-controlled interests from persons who received either cash or Units
in the Operating Partnership as consideration as well as controlled interests
from persons who received cash. The acquisition of all other interests was
accounted for as a reorganization of entities under common control and,
accordingly, was reflected at historical cost in a manner similar to that of
pooling of interests accounting. Acquisitions subsequent to the Initial
Offering have been accounted for in a similar manner.

44
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

The Paragon Group, Inc. formation transactions of $13,391 included in
the accompanying statements of stockholders' equity represents the net effect
on equity of the transactions recorded by the Company in connection with the
business combination. The formation transactions are summarized as follows:

Net adjustment resulting from the transfer of the property
management, leasing, construction and development
businesses to PGPSI.......................................... $(7,367)

Elimination of historical basis of certain assets purchased
for cash..................................................... 6,544

Elimination of net working capital due to/from Predecessor
owners....................................................... (3,064)

Conversion of net debt due Predecessor owners to equity....... 13,970

Basis adjustments for the purchase of partnership interests
for cash or Units............................................ 5,908

Distributions to certain Predecessor owners to repay off-
balance sheet debt associated with one of the properties..... (2,600)
-------
Total..................................................... $13,391
-------
-------

The transactions related to the transfer of the property management,
leasing, construction and development businesses to PGPSI, the elimination of
historical basis of certain assets purchased for cash and the elimination of
net working capital due to/from Predecessor owners include certain cash
components. These cash adjustments are reflected as deemed distributions at
formation in the accompanying consolidated statements of cash flows. In
connection with the business combination, PGPSI recorded an intangible asset
associated with certain acquired management and leasing contracts. This
intangible asset was valued based upon the consideration paid.

BASIS OF PRESENTATION FOR PERIODS PRIOR TO THE INITIAL OFFERING

For periods prior to the Initial Offering, the accompanying combined
financial statements of the Predecessors include the accounts of 45
partnerships owning multifamily apartment communities, two partnerships
owning retail properties, one partnership owning an office property and
various entities engaged in property management, leasing, construction and
development on a contractual basis. Additionally included are the accounts
of a partnership which owns a 20% interest in an office property and is
therefore accounted for using the equity method. The Predecessors is not a
legal entity but rather a combination for financial reporting purposes. The
accompanying combined financial statements are presented on a combined basis
because of common ownership and management. All significant inter-entity
accounts and transactions have been eliminated in combination. The
accompanying combined financial statements prior to the business combination
exclude or carve out certain assets and liabilities that were not contributed
to the Operating Partnership or transferred to PGPSI.

REAL ESTATE ASSETS AND DEPRECIATION

Real estate assets are stated at cost. Ordinary repairs and maintenance
are expensed as incurred; major replacements and betterments are capitalized
and depreciated on a straight-line basis over the estimated useful lives of
the properties (buildings and related land improvements - 10 to 40 years;
furniture, fixtures, and equipment - 3 to 10 years; and tenant improvements -
over the life of the related tenant lease). With respect to the operating
apartment properties, the Company capitalizes floor and window coverings and
depreciates such items over 5 years; appliances and heating, ventilating and
air conditioning equipment are capitalized and depreciated over 10 years.
With respect to construction in process, the Company capitalizes all costs
associated with development activities, including interest and taxes, until
each project is complete. Capitalized interest for the years ended December
31, 1995, 1994 and 1993 aggregated to $1,608, $47 and $0, respectively.

45
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 "ACCOUNTING FOR THE IMPAIRMENT OF
LONG LIVED ASSETS" ("FAS 121"). FAS 121 establishes accounting standards for
the impairment of long lived assets and is effective for fiscal years
beginning after December 15, 1995, with early adoption encouraged. The
Company adopted FAS 121 in 1995. Accordingly, the Company records impairment
losses on long lived assets used in operations when events and circumstances
indicate that the assets may be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amount
of those assets. No such impairment losses with respect to real estate
assets have been recognized to date (See Note 5).

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
investments purchased with an original maturity of three months or less to be
cash equivalents.

RESTRICTED CASH

Restricted cash is comprised of tenant security deposits, real estate
tax and insurance escrows, required reserves for property replacements, and
other cash restricted pursuant to loan or other agreements.

INVESTMENT IN VENTURES

The Company's 20% interest in Gateway One Office Venture ("Gateway") and
10% interest in Fair Grove Properties, L.L.C. ("Fair Grove") are accounted
for using the equity method of accounting.

DEFERRED CHARGES

Deferred charges include costs incurred in connection with the formation
of each entity which are generally amortized on a straight-line basis over
five years; deferred financing costs which are amortized on a straight-line
basis over the life of the related loan; prepaid leasing costs on the office
and retail properties which are amortized on a straight-line basis over the
life of the related tenant lease; and management and leasing contracts
purchased at formation which are amortized on a straight-line basis over five
years.

REVENUE RECOGNITION

Rental income attributable to residential leases is recognized when
earned. Minimum rental income related to retail and office leases is
recognized on a straight-line basis over the terms of the leases. Certain of
the leases include scheduled rent increases and provisions whereby the tenant
is not responsible for rental payments during specified initial occupancy
periods. Rental income recognized in excess of payments due is reflected as
a deferred rent receivable in the accompanying balance sheets. The retail
and office leases also provide for reimbursement of actual operating expenses
in excess of base amounts.

46
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

The following is a schedule by year of the minimum future rentals to be
received from noncancelable operating retail and office leases for the next
five years and thereafter, as of December 31, 1995:

YEAR AMOUNT
---- -------
1996.................. $ 2,932
1997.................. 2,707
1998.................. 2,142
1999.................. 1,842
2000.................. 1,405
Thereafter............ 1,459
-------
Total................. $12,487
-------
-------

Management fees are based on a percentage of the rental receipts of
properties managed and are recognized when earned. Leasing fees are based on
the gross value of leases signed and are recognized as earned under the terms
of the various contracts. Construction and development fees are generally
based on a fixed percentage of costs and are recognized as the project costs
are incurred.

STOCK COMPENSATION

The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"). In
October 1995, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK BASED
COMPENSATION" ("FAS 123") which establishes financial accounting and
disclosure standards for stock based employee compensation plans and is
effective for fiscal years beginning after December 15, 1995. FAS 123
provides an alternative of adopting the new accounting standards of the
statement or remaining under the existing requirements of APB 25. The
Company has not yet decided whether to adopt the accounting standards of FAS
123 in future periods.

PER SHARE DATA AND DIVIDENDS

Earnings per share with respect to the Company for the periods following
the Initial Offering are computed based upon the weighted average number of
shares outstanding during the respective period. Historical per share data
with respect to the periods prior to the Initial Offering is not relevant
since the Predecessors' financial statements are a presentation of the
combined operations of partnerships and S corporations. 100% of the
dividends paid during the period July 27, 1994 through December 31, 1994
($4,839 or $.33 per share) represents a return of capital to stockholders.
Approximately 52.6% of the dividends paid during 1995 ($14,345 or $.98 per
share) represents a return of capital to stockholders.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CONCENTRATIONS

At December 31, 1995 and 1994, there were cash and restricted cash
balances with banks in excess of the FDIC insured limits by $3,376 and
$5,067, respectively. The Company has not experienced any losses in its cash
accounts, and believes it is not exposed to any significant credit risk on
cash and cash equivalents.

47
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

As of December 31, 1995, certain apartment units are leased to tenants
that have common employers and may be dependent on one related source of
income. Additionally, as of December 31, 1995, approximately 57% of
Southwood Mall's total leasable area is leased to two tenants. Management
believes that any possible loss resulting from the above-mentioned
concentrations would not be material as the apartment units and leasable
space related to the retail project could be re-leased if the current tenants
fail to perform under their obligations.

RECLASSIFICATIONS

Certain amounts in the financial statements for prior periods have been
reclassified to conform with the 1995 presentation.

3. REAL ESTATE INVESTMENTS

REAL ESTATE

As of December 31, 1995, the Company, through the Operating Partnership,
controls, either through direct ownership or in some instances through an
investment in a partnership or a limited liability company, 60 multifamily
properties and three commercial properties in Florida, Kentucky, Missouri,
North Carolina, South Carolina and Texas. In addition, the Company, through
the Operating Partnership, has a minority interest in two ventures which own
three office properties; one in Missouri and two in suburban Washington, D.C.
At December 31, 1995, six of the multifamily properties are under
development and one is in the initial lease-up phase.

48
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

The following is a summary of the Company's real estate investments at
December 31, 1995.

<TABLE>
NUMBER OF PROPERTIES NUMBER OF APARTMENT UNITS
------------------------------- ---------------------------------
UNDER UNDER
LOCATION OPERATING DEVELOPMENT TOTAL OPERATING DEVELOPMENT TOTAL
- -------- --------- ----------- ----- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES
FLORIDA
Tampa/St. Petersburg...... 12 1 13 3,737 276 4,013
Orlando................... 6 1 7 1,530 272 1,802
Winterhaven............... 1 - 1 192 - 192
-- -- -- ------ ----- ------
19 2 21 5,459 548 6,007
-- -- -- ------ ----- ------
KENTUCKY
Louisville................ 5 - 5 1,142 - 1,142
-- -- -- ------ ----- ------

MISSOURI
St. Louis................. 12 - 12 3,142 - 3,142
Kansas City............... 1 1 2 308 288 596
-- -- -- ------ ----- ------
13 1 14 3,450 288 3,738
-- -- -- ------ ----- ------

NORTH CAROLINA
Charlotte................. 5 1 6 1,407 232 1,639
Asheville................. 2 - 2 384 - 384
Greensboro................ 1 1 2 304 336 640
-- -- -- ------ ----- ------
8 2 10 2,095 568 2,663
-- -- -- ------ ----- ------

SOUTH CAROLINA
Charleston................ 1 - 1 352 - 352
-- -- -- ------ ----- ------

TEXAS
Dallas (1)................ 8 1 9 2,560 276 2,836
-- -- -- ------ ----- ------
Total Residential........ 54 6 60 15,058 1,680 16,738
-- -- -- ------ ----- ------
-- -- -- ------ ----- ------

NUMBER OF PROPERTIES NUMBER OF SQUARE FEET
------------------------------- ---------------------------------
UNDER UNDER
OPERATING DEVELOPMENT TOTAL OPERATING DEVELOPMENT TOTAL
--------- ----------- ----- --------- ----------- --------
OFFICE PROPERTIES
MISSOURI
St. Louis (2)............. 2 - 2 504,111 - 504,111

WASHINGTON, D.C. (3)...... 2 - 2 322,845 - 322,845
-- -- -- ------- ----- -------
Total Office............ 4 - 4 826,956 - 826,956
-- -- -- ------- ----- -------
-- -- -- ------- ----- -------

RETAIL PROPERTIES
FLORIDA
Bradenton................. 1 - 1 113,949 - 113,949

MISSOURI
St. Louis................. 1 - 1 58,935 - 58,935
-- -- -- ------- ----- -------
Total Retail............ 2 - 2 172,884 - 172,884
-- -- -- ------- ----- -------
-- -- -- ------- ----- -------
</TABLE>

(1) Operating information includes a 240 unit project that is in the initial
lease up phase.

(2) Includes a 401,625 square foot office building in which the Company holds
a 20% interest.

(3) Represents two office buildings in which the Company holds a 10% interest.

<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

ACQUISITION AND DEVELOPMENT ACTIVITIES

In August 1994, the Company purchased 19.05 acres from an affiliate and
commenced construction of a 240 unit multifamily project in a suburb of
Dallas, Texas (Stone Creek). In December 1994, the Company also purchased a
407 unit multifamily project in Charlotte, North Carolina (Pinehurst) at a
total cost of $18,900.

During 1995, the Company purchased six tracts of land totaling 115.22
acres and commenced construction of 1,680 apartment units. The Company
expects to complete construction of 824 of these units in 1996 and 856 in
1997. In November 1995, the Company completed construction of Stone Creek
at a total cost of $12,300. During 1995, the Company incurred total
construction and development costs of $45,491 with respect to the seven
projects under development, including $27,944 of construction in process at
December 31, 1995.

On April 10, 1995, the Company purchased a 10% interest in Fair Grove
for $3,544. Fair Grove, a limited liability company, owns two office
buildings in suburban Washington, D.C.: the six-story, 135,808 square foot
Fair Oaks Commerce Center and the four-story, 187,037 square foot Shady Grove
Plaza.

Effective October 1, 1995, the Company purchased the partnership
interests of an affiliated partnership which owned a 372 unit multifamily
property in St. Louis, Missouri (Spanish Trace) at a cost of $13,412. The
purchase consideration included cash of $2,556, the assumption of a $9,856
mortgage note payable collateralized by the property and the issuance of
42,353 Units valued at the Initial Offering price of $21.25 per Unit.

During December 1995, the Company acquired three additional multifamily
properties containing 1,206 units at a total cost of $46,300. The properties
include the 278 unit Schooner Bay Apartments in Tampa, Florida, the 220 unit
Overlook Apartments, formerly known as The Phoenix, in Charlotte, North
Carolina, which was acquired from an affiliate, and the 708 unit Highpoint
Apartments in Dallas, Texas. In 1996, the Company plans to contribute the
Overlook Apartments, Highpoint Apartments and one property under development
into a joint venture in which it will retain an approximate 45% ownership
interest. The remaining 55% interest will be held by a Canadian pension fund
and other investors. The Company will record the initial contribution of
these properties at their net carrying value and will account for its
investment in the joint venture using the equity method of accounting.

4. PROPERTY SERVICES

Subsequent to the business combination, the Company's management,
leasing, construction and development businesses are being conducted through
PGPSI. PGPSI was originally capitalized with $3,000 of cash and the issuance
of a $17,000 note.

PGPSI is a real estate property services company engaged in providing
property services for the Company, affiliates of the Company and unrelated
third parties. The services provided by PGPSI include asset and property
management, leasing, acquisitions, sales, construction management and
development. PGPSI is currently operating in 18 states and approximately 40
metropolitan areas. At December 31, 1995 and 1994, PGPSI managed over 26.4
and 26.8 million square feet of commercial space and 22,085 and 22,923
apartment units, respectively.

50
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

During 1995, PGPSI was realigned from a regional multi-product
organization to two national product groups - one for residential operations
and one for commercial operations. As a result of the realignment, PGPSI
incurred non-recurring charges totaling $748 related to employee severance
and other costs, including $195 of non-cash charges associated with the
accelerated vesting of outstanding restricted stock made available to certain
employees (See Note 9).

5. DEFERRED CHARGES

Deferred charges consist of the following:

DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
Deferred financing costs........... $ 8,378 $ 7,732
Organization costs................. 249 450
Prepaid leasing costs.............. 421 370
Management and leasing contracts... 4,044 5,600
------- -------
13,092 14,152
Less: Accumulated amortization..... (3,838) (2,463)
------- -------
$ 9,254 $11,689
------- -------
------- -------

Amortization of organization costs and prepaid leasing costs was $148,
$110 and $120 for the years ended December 31, 1995, 1994 and 1993,
respectively.

Amortization of deferred financing costs, which is included in interest
expense in the accompanying statements of operations, was $1,559, $1,074 and
$1,219 for the years ended December 31, 1995, 1994 and 1993, respectively.
As a result of loan repayments in 1994 and 1993, $970 and $927 of deferred
financing costs, respectively, were written off and are reflected as an
extraordinary loss in the accompanying statements of operations.

Amortization of management and leasing contracts purchased at formation
was $2,231 and $482 for the year ended December 31, 1995 and the period from
July 27, 1994 through December 31, 1994, respectively. During 1995, the
Company recognized an impairment adjustment of $1,111, which is included in
amortization expense in the accompanying statements of operations, relating
to the termination of certain of the contracts initially acquired.
Management has estimated the useful life of these intangibles to be five
years, based upon historical experience with other contracts with similar
terms. However, during 1995 certain of the contracts were terminated. As a
result, management recorded an impairment adjustment, determined on a prorata
basis, based upon the percentage of contracts terminated during 1995. The
1995 impairment adjustment of $1,111 related to terminated contracts with a
gross value of $1,556 and related accumulated amortization of $445.
Management intends to periodically evaluate the carrying amount of the
management and leasing contracts in the future and, if necessary, record
additional impairment adjustments.

In 1995, the Company wrote off certain fully amortized deferred charges
including $206 of organization costs, $86 of prepaid leasing costs and $730
of deferred financing costs.

6. INCOME TAXES

PERIODS AFTER THE INITIAL OFFERING

The Company has elected to be taxed as a real estate investment trust
under the Internal Revenue Code of 1986, as amended, commencing with its
taxable year ended December 31, 1994. As a result, the Company will
generally not be subject to Federal income tax on its taxable income to the
extent it distributes annually at least 95% of its taxable income to its
shareholders and complies with certain other requirements.

51
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

Accordingly, no provision for Federal income taxes has been made for the
Company and certain of its subsidiaries in the accompanying consolidated
financial statements. State, local and other taxes are not significant for
the Company or its subsidiaries.

As of December 31, 1995 and 1994, the net assets reported in the
consolidated financial statements for the Company exceed the tax basis in net
assets by approximately $44,000 and $49,000, respectively.

PGPSI files a separate tax return and is subject to income tax.
Accordingly, PGPSI's provision for income taxes has been calculated in
accordance with the Statement of Financial Accounting Standards 109,
"ACCOUNTING FOR INCOME TAXES" ("FAS 109"). Under the provisions of FAS 109,
deferred tax assets and liabilities are provided for certain temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes, computed
based on provisions of the enacted tax law. Significant components of
PGPSI's deferred tax assets and liabilities are as follows:

DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
Deferred tax assets:
Intangible assets......... $ 4,189 $ 4,413
Net operating loss........ 1,284 -
Employee restricted
stock compensation....... 561 196
Other..................... 133 55
------- -------
6,167 4,664
Valuation allowance....... (5,304) (4,559)
------- -------
$ 863 $ 105
------- -------
------- -------
Deferred tax liabilities:
Depreciable assets........ $ 858 $ 22
Other..................... 5 18
------- -------
$ 863 $ 40
------- -------
------- -------

Deferred tax assets relate primarily to (i) the difference in the
carrying amount of intangible assets recognized at formation for financial
reporting purposes and the amount recognized for tax purposes; (ii) the
amortization of employee restricted stock compensation for financial
reporting purposes; and (iii) the current year tax net operating loss which
expires in 2010. Deferred tax liabilities relate primarily to the difference
in the carrying amount of certain depreciable assets for financial reporting
purposes which are deducted for tax purposes. A valuation allowance has been
recognized to offset the net deferred tax assets, due to the uncertainty of
the ultimate realization of those deferred tax assets in future years.

For the partial year ended December 31, 1994, PGPSI's current income tax
expense of $65 was fully offset by a deferred tax benefit. PGPSI intends to
carry back a portion of the 1995 net operating loss to offset 1994 taxes.
This current tax benefit in 1995 has been fully offset by deferred tax
expense in the accompanying consolidated statement of operations.

PERIODS PRIOR TO THE INITIAL OFFERING

The entities included in the combined financial statements of the
Predecessors were either limited partnerships or S corporations and were not
subject to Federal and state income taxes. Accordingly, no recognition has
been given to income taxes in the combined financial statements of the
Predecessors since the income or loss of the entities are to be included in
the tax returns of the individual owners.

52
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

7. NOTES PAYABLE

DEBT RESTRUCTURING

During 1994, net proceeds from the Initial Offering, the Private
Placement and new borrowings were utilized to retire 28 loans (26 of which
were retired prior to maturity) with outstanding balances of $174,449,
including seven loans which were repaid at a discount. In order to retire
certain loans, the Company was required to pay lender participation interests
of $2,577 and prepayment penalties of $3,201.

In connection with the Initial Offering, the Company paid $680 and
entered into an interest rate swap agreement in the notional amount of
$6,760. The agreement, which expires on January 27, 2000, effectively
reduces the fixed interest rate on one mortgage note from 9.5% to 7.5%.
Additionally, the Company reduced the outstanding principal balances of seven
loans by $4,229 and utilized $755 to reduce the interest rates on four loans.

During 1994, debt restructuring resulted in an extraordinary gain from
the forgiveness of debt (before minority interests) of $10,675 and an
extraordinary loss from early extinguishment of debt (before minority
interests) of $6,748.

During 1993, three mortgage loans with an aggregate principal balance of
$33,018 were repaid at a discount prior to scheduled maturity with proceeds
from new mortgage loans and partner loans. As a result, an extraordinary
gain from debt forgiveness of $10,019 and an extraordinary loss from the
early extinguishment of debt in the amount of $927 were recognized.

MORTGAGES PAYABLE

Concurrent with the Initial Offering, the Company obtained new debt in
the amount of $108,540 which is collateralized by certain properties. The
new debt is structured in two pools; Pool A, in the amount of $61,710,
requires monthly payments of interest only at 8.36% per annum and matures in
July 2001; and Pool B, in the amount of $46,830, requires monthly payments of
interest only at 8.52% per annum and matures in July 1999.

Effective October 1, 1995, the Company assumed debt in the amount of
$9,856 associated with the acquisition of partnership interests (Spanish
Trace). The loan requires monthly payments of principal and interest, bears
interest at 7.35% per annum, matures in September 2028 and is insured by the
United States Department of Housing and Urban Development ("HUD"). There are
no restrictions on the use or operation of this property.

In December 1995, the Company obtained new debt in the amount of $69,000
collateralized by various properties. The new debt requires monthly interest
only payments at 7.29% per annum for three years and monthly principal and
interest payments for years four to ten based on a 25 year amortization
schedule and matures December 2005. Net proceeds of the new debt were used
to repay existing borrowings under the Company's line of credit.

Additionally, in December 1995, in conjunction with the purchase of a
property (Overlook), the Company obtained new debt in the amount of $5,400
which is collateralized by the property. The loan requires monthly payments
and bears interest at 7.5% fixed throughout the term with interest only
payments for the first two years and principal and interest payments for the
last 5 years based on a 25 year amortization schedule. The note matures in
January 2003.

53
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

Also in December 1995, concurrent with the acquisition of two
properties, the Company borrowed $20,250 and $7,930. These notes require
monthly payments of interest only and bear interest at 7.66% and 7.63%
respectively. The notes are collateralized by various properties and mature
in June and March 1996, respectively.

Mortgages payable consist of 33 loans at December 31, 1995 and 25 loans
at December 31, 1994, each of which is collateralized by properties included
in real estate assets. At December 31, 1995, 27 of the loans carry a fixed
interest rate and provide for the monthly payment of interest only, and six
loans provide for monthly payments of principal and interest at a fixed rate.
Interest rates on the fixed rate mortgages range from 5.75% to 10% at
December 31, 1995 with a weighted average interest rate of 7.71%. At
December 31, 1994, 23 of the loans carry a fixed interest rate and provide
for the monthly payment of interest only, and two loans provide for monthly
payments of principal and interest at a fixed rate. Interest rates on the
fixed rate mortgages range from 5.75% to 9.5% at December 31, 1994 with a
weighted average interest rate of 7.91%.

At December 31, 1995 and 1994, two of the mortgage loans collateralize
tax exempt housing revenue bonds and two related mortgage loans collateralize
taxable housing revenue bonds. The Predecessors obtained these mortgages
during 1993. As additional security for these loans, the Predecessors
entered into reimbursement agreements, paid premiums of $1,587, and agreed to
pay an annual servicing fee of .1% of the original loan balances. The
underlying collateral for the bonds is subject to land use restrictions which
provide, among other things, that at least 20% of the multifamily housing
units be leased to low or moderate income families as established by HUD. On
July 27, 1994, the Operating Partnership assumed the aforementioned mortgage
loans and succeeded to the agreements and restrictions thereto.

At December 31, 1995, the Company owns three other multifamily
properties which were previously financed with the proceeds of multifamily
revenue bonds and remain subject to similar HUD restrictions which expire
under certain conditions in 1996 and 1997.

LINE OF CREDIT

Concurrent with the Initial Offering, the Company obtained a line of
credit facility in the amount of $75,000. The commitment was subsequently
increased to $115,000 and in December 1995 was reduced by the Company to
$90,000 and under certain conditions can be increased to $150,000. The line
of credit matures in July 1996 but may be extended for up to two years at the
Company's option. Borrowings under the line of credit are collateralized by
specified properties. The interest rate on the amounts outstanding under the
line of credit varies between either the greater of the prime rate or the
Federal Funds rate plus .50% or, at the Company's election, the London
Interbank Offer Rate ("LIBOR") plus 2.0%. The line of credit reprices, at
the Company's discretion, in defined intervals ranging from 1 to 360 days.
As the line of credit is drawn or reprices, the Company enters into a
contract and selects the term and the interest rate option it desires. If
the Company selects a contract based upon LIBOR plus 2.0%, then the interest
rate becomes fixed for the term selected. Otherwise, the contract rate
varies based upon the appropriate index.

At December 31, 1995, $14,500 is outstanding under the line of credit in
two separate contracts. One contract in the amount of $10,000 is priced at
7.66% and reprices on March 22, 1996. The second contract in the amount of
$4,500 is priced at 7.56% and reprices on June 28, 1996. At December 31,
1995 the prime rate, Federal Funds rate and three month LIBOR were 8.5%,
4.73%, and 5.66%, respectively.

54
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

The scheduled principal payments related to all debt outstanding as of
December 31, 1995 are as follows:

YEAR AMOUNT
---- --------
1996................ $ 47,515
1997................ 459
1998................ 4,255
1999................ 62,156
2000................ 8,027
Thereafter.......... 171,368
--------
Total............... $293,780
--------
--------

The maturities reflected above for 1996 include $14,500 of amounts
outstanding under the line of credit which reprice in 1996 and $28,180 of
bridge acquisition loans on properties acquired in the fourth quarter of
1995. The Company has obtained a commitment from a lender to fund permanent
debt of $18,500 in 1996. These funds will be used to partially retire the
bridge acquisition loans.

PLEDGED ASSETS

The aggregate net book value at December 31, 1995 of property pledged as
collateral for indebtedness amounted to approximately $441,564.

8. MINORITY INTERESTS

In connection with the formation of the Company and the Operating
Partnership, certain persons received either common stock of the Company or
Units in the Operating Partnership. A Unit in the Operating Partnership and
a share of common stock of the Company have the same economic characteristics
in as much as they effectively share equally in the net income or loss of the
Operating Partnership and any distributions from the Operating Partnership.
Beginning one year after the closing of the Initial Offering, which occurred
on July 27, 1994, each Unit may be redeemed by holders of the Units for
either one share of common stock or, at the option of the Company, cash equal
to the fair market value of a share at the time of the redemption. When a
unitholder redeems a Unit for a share, minority interests will be reduced and
the Company's investment in the Operating Partnership will be increased.
During 1995, 94,118 Units were exchanged for shares of common stock of the
Company. The number of Units held by minority interest unitholders were
3,670,564 and 3,648,546 at December 31, 1995 and 1994, respectively. At
December 31, 1995, the unitholders' minority interest ownership percentage in
the Operating Partnership was 19.9%.

Minority interests in the accompanying consolidated financial statements
relate to holders of Units in the Operating Partnership, the minority
interest in PGPSI and the ownership of certain partnership interests in
various properties where the Operating Partnership holds a controlling
interest. The Operating Partnership acquired its controlling partnership
interests by contributing cash for, in most instances, an agreed upon
cumulative preferred return in the existing property partnerships.

9. STOCKHOLDERS' EQUITY

CAPITAL STOCK

The Company is authorized to issue up to 100,000,000 shares of $.01 par
value common stock. On July 27, 1994, the Company completed the Initial
Offering of 13,000,000 shares of common stock and the Private Placement of
695,000 shares of common stock at the offering price for all shares of
$21.25. In addition, on July 27, 1994, the Company issued 677,047 shares of
common stock and paid $2,600 in cash in exchange for the $17,000 note
receivable from PGPSI which was issued as part of the initial capitalization
of PGPSI.

55
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

Effective July 27, 1994, the Company also issued 324,400 shares of
common stock pursuant to the Employee Restricted Stock Plan discussed below.
The value of the employee restricted stock ($6,893, representing 324,400
shares valued at the Initial Offering price of $21.25 per share) is being
amortized and recognized as compensation expense ratably over a three to five
year vesting period. Amortization of employee restricted stock compensation
for 1995 and 1994 was $1,333 and $577, respectively, and is included in
property management expense in the accompanying consolidated statements of
operations. The unamortized portion of the employee restricted stock has
been classified for financial reporting purposes as a reduction to
stockholders' equity. At December 31, 1995 and 1994, 42,266 and 35,600
shares, respectively, of employee restricted stock were held by PGPSI and had
not been granted to employees. Accordingly, such shares are classified as
treasury shares for financial reporting purposes in the accompanying
consolidated balance sheets.

During 1995, the Company paid quarterly dividends, with respect to the
fourth quarter of 1994 through the third quarter of 1995, of $.465 per share
of common stock. Concurrent with the quarterly dividend payments, the
Operating Partnership distributed $.465 per Unit.

STOCK OPTION PLANS

In connection with the Initial Offering, the Company, the Operating
Partnership, and PGPSI adopted an Employee Restricted Stock Plan (the
"Initial Plan") which was designed to retain and motivate officers and other
employees. In August 1994, a total of 324,400 shares of the Company's common
stock were issued for use in the Initial Plan. As of December 31, 1995, 73
employees were participants in the Initial Plan and received their 272,000
shares of restricted stock at no cost to the employee. The restricted shares
pursuant to the Initial Plan were treated as outstanding shares in connection
with the Initial Offering. As such, the issuance of the restricted stock had
no dilutive effect on the Company's stockholders. Generally, the Initial
Plan calls for vesting in three annual installments beginning on the third
anniversary date and ending on the fifth anniversary date. During the
vesting period the restricted shares are non-transferable but entitle the
participants to all other rights of a stockholder, including the right to
vote and receive dividends. During 1995, 10,000 shares originally issued
under the Initial Plan were granted to certain employees. Additionally,
management redeemed 16,666 shares and eliminated the vesting requirements for
10,134 shares granted to employees terminated in connection with the
realignment of PGPSI, and the related amortization of compensation expense
was adjusted accordingly. At December 31, 1995, 272,000 shares of restricted
stock under the Initial Plan were outstanding.

The Company, the Operating Partnership, and PGPSI have established the
1994 Employee Stock Option, Unit Option, Restricted Stock and Restricted Unit
Plan (the "Employee Plan") for the purpose of attracting, retaining, and
motivating officers and other employees. The Employee Plan authorizes the
issuance of up to 1,460,000 shares of common stock and/or Units pursuant to
options or restricted shares or Units granted or issued under the plan. The
Employee Plan limits the number of shares of restricted stock and/or Units,
which are eligible for grant at no cost, to 485,000 shares/Units. Options
granted under the Employee Plan have a ten year term and will have such
pricing, vesting and other terms as the committee approving the grant will
determine. Effective August 23, 1994, options to purchase 80,000 shares of
common stock were granted to eight officers under the Employee Plan. These
options are at a price of $21.25 per share and are fully vested. Effective
April 1, 1995, options to purchase an additional 283,000 shares were granted
to 64 officers and employees under the Employee plan. These options are at a
price of $17.25 and vest over periods ranging from three to five years.
Effective August 22, 1995, options to purchase an additional 4,000 shares
were granted to four officers and employees under the Employee Plan at a
price of $17.50 under the same vesting provisions. At December 31, 1995, no
shares of restricted stock and/or Units had been granted under the Employee
Plan.

<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

The Company has adopted a Non-Employee Director Stock Option Plan (the
"Director Plan"). Under the Director Plan, each non-employee director, in
connection with the Initial Offering, was granted options to purchase 5,000
shares of common stock. The Director Plan also provides for automatic annual
grants of 2,500 shares of common stock following the annual election of
directors. The exercise price of all options granted under the Director Plan
is the fair market value of the common stock on the date of grant. Each
option granted has a term of ten years and vests six months after the date of
grant. At December 31, 1995, options to purchase 45,000 shares of common
stock had been granted under the Director Plan.

The Company accounts for its stock compensation arrangements under the
provisions of APB 25. Accordingly, no compensation cost has been recorded
related to options granted under the Employee Plan and the Director Plan
since all options granted to date have been granted at option prices at or
above the fair market value of the common stock on the date of grant.

The following is a summary of the option activity under the Employee
Plan and the Director Plan for the years ended December 31, 1995 and 1994:

Number of Option Price
Options Per Share
--------- -----------------
Year ended December 31, 1994
- ----------------------------
Options granted.................. 110,000 $21.25
Options canceled................. -
Options exercised................ -
-------
Balance at December 31, 1994..... 110,000

Year ended December 31, 1995
- ----------------------------
Options granted.................. 302,000 $17.25 to $17.625
Options canceled................. 16,000
Options exercised................ -
-------
Balance at December 31, 1995..... 396,000
-------
-------
Options exercisable at
December 31, 1995............... 125,000
-------
-------

Options to purchase 1,164,000 shares of common stock were available for
grant under the Employee Plan and the Director Plan at December 31, 1995.

10. EARNINGS PER SHARE

Per share amounts are computed based on the weighted average number of
shares outstanding during the period (14,698,336 in 1995 and 14,513,503 in
1994). Earnings per share will be unaffected by partners who elect to
convert Units in the Operating Partnership to shares of common stock in the
Company as unitholders and stockholders effectively share equally in the net
income of the Operating Partnership. The assumed exercise of outstanding
stock options, using the treasury stock method, is not dilutive and
therefore, is not considered in determining shares outstanding.

For the year ended December 31, 1995 the Company had earnings of $.68
per share.

For the period July 27, 1994 through December 31, 1994, the Company
incurred a loss before extraordinary items of $(.06) per share. The effect of
the extraordinary gain from the forgiveness of debt, net of minority
interests, increased earnings per share by $.47, while the extraordinary loss
from the early extinguishment of debt, net of minority interests, decreased
earnings per share by $(.36), resulting in net income per share of $.06.
During the period, the Company incurred $7,796 in non-recurring
reorganization

<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

costs, principally legal, accounting, and other costs incurred in connection
with the formation of the Company. The effect of these costs, net of
minority interests of $1,668, was to reduce the income (loss) before the
extraordinary items by $(.42) per share.

11. RELATED PARTY TRANSACTIONS

On August 8, 1994, the Company exercised an option to purchase a 19.05
acre tract of partially developed land from a corporation whose sole
shareholders were three executive officers (including two who are also
directors) of the Company. The option agreement required consideration of
$128 in cash, and Units with a value of $1,568, as well as reimbursement of
all pre-development costs totaling $367. The Unit portion of the purchase
price was paid one year from the date of purchase, based on the value of
Units at the election date of the option (August 8, 1994) and totaled 73,783
Units. The liability associated with the purchase was included in accounts
payable and accrued liabilities at December 31, 1994.

Effective October 1, 1995, the Company issued 42,353 Units with a value
of $900 (based on the price of the Company's stock at the Initial Offering
date) to an entity whose sole shareholders were two executive officers and
directors of the Company. The Units represented partial consideration for
the purchase of partnership interests.

In December 1995, the Company purchased the Overlook Apartments,
formerly known as The Phoenix, from a partnership which was owned by
affiliates of the Company and outside investors. As consideration for the
purchase the Company paid cash of $8,500 and assumed $300 of debt payable to
affiliates. Affiliates of the Company did not receive any of the cash
portion of the purchase price. However, in 1996, the affiliated debt was
repaid by the Company partially through the issuance of Units.

The Company, through PGPSI, uses a centralized disbursement and receipt
system whereby, for certain properties owned by the Company and other
affiliated properties, all project deposits are transferred to a central
operating account and all expenses and other disbursements are paid
therefrom. In other cases, certain properties maintain a separate cash
account for recording project receipts and disbursements; however, certain
common operating expenses are paid through the centralized account and are
subsequently reimbursed by the appropriate properties. Additionally, cash of
PGPSI is periodically transferred to the Operating Partnership for short term
investment purposes.

PGPSI provides services to affiliated partnerships on a contractual
basis. The related party fees and expenses for such services are reflected
in the accompanying consolidated financial statements.

12. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

PGPSI is a party to office and equipment leases with varying terms which
expire over the next nine years. Future minimum lease payments for
noncancelable office and equipment leases for the next five years and
thereafter, as of December 31, 1995, are as follows:

58
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

YEAR CAPITAL OPERATING
---- ------- ---------
1996............................ $123 $1,305
1997............................ 58 842
1998............................ 20 768
1999............................ 10 768
2000............................ - 764
Thereafter...................... - 3,052
---- ------
Total minimum lease payments.... 211 $7,499
------
------
Amounts representing interest... (23)
----
Present value of net minimum
lease payments................. $188
----
----

The eligible employees of PGPSI and the Predecessors participate in a
contributory employee savings plan. Under the plan, PGPSI may make matching
contributions with respect to contributions made by eligible employees.
Expenses under the plan for the years ended December 31, 1995, 1994 and 1993
were not material.

CONTINGENCIES

The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters cannot be predicted with
certainty, management believes that the final outcome of such matters will
not have a material adverse effect on the financial position or results of
operations of the Company.

In connection with the Initial Offering, environmental consultants were
engaged to perform environmental assessments on each of the properties. The
environmental assessments identified certain properties with underground or
above ground storage tanks, pipelines, asbestos containing materials or radon
levels in excess of the Environmental Protection Agency standards and noted
that one property is located within one-half mile of a site included on the
National Priorities List issued pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act, as amended. The environmental
assessments revealed only one property, Knollwood I, that had contamination
in significant amounts requiring remediation. Remediation was successfully
completed in 1994 at a cost of $70. Management intends to monitor all
properties for possible environmental impact. As of December 31, 1995 no
remedial actions are currently considered necessary.

13. SEGMENT OPERATIONS

The Operating Partnership is engaged in the ownership and rental of
residential apartment communities, office buildings and retail properties and
PGPSI provides property management, construction, development and other
services to both related and unrelated parties. Revenue from property
management and other services provided to affiliated partnerships, which
collectively represent a major customer of PGPSI, was approximately 28%, 24%,
30% and 33% of total property services revenue for the year ended December 31,
1995, the period July 27 to December 31, 1994, the period January 1 to
July 26, 1994 and the year ended December 31, 1993, respectively. Revenue
from property management and other services provided to the consolidated
group are recognized in the period in which the services are provided and are
eliminated in consolidation. The following table presents operating and
other information divided among the two primary lines of the Company's and
Predecessors' business.

59
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

<TABLE>
<CAPTION>
Property
Management
and Other
Rental Services Combined
Operations Operations Elimination Total
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Revenue - third party........................ $ 83,902 $ 17,076 $ - $100,978
Revenue - affiliates......................... - 6,590 - 6,590
Intersegment revenue......................... 2,342 2,840 (5,182) -
-------- -------- --------- --------
Total revenue.............................. 86,244 26,506 (5,182) 107,568
Operating expenses........................... (39,092) (23,684) 2,701 (60,075)
-------- -------- --------- --------
Operating profit........................... $ 47,152 $ 2,822 $ (2,481) $ 47,493
-------- -------- --------- --------
-------- -------- --------- --------
Depreciation and amortization................ $ 15,447 $ 3,114 $ - $ 18,561
-------- -------- --------- --------
-------- -------- --------- --------
Identifiable assets at December 31, 1995..... $552,186 $ 20,422 $ (32,997) $539,611
-------- -------- --------- --------
-------- -------- --------- --------
Capital expenditures and investments......... $115,495 $ 2,258 $ - $117,753
-------- -------- --------- --------
-------- -------- --------- --------
PERIOD JULY 27 TO DECEMBER 31, 1994:
Revenue - third party........................ $ 33,731 $ 8,326 $ - $ 42,057
Revenue - affiliates......................... - 2,655 - 2,655
Intersegment revenue......................... 877 1,057 (1,934) -
-------- -------- --------- --------
Total revenue.............................. 34,608 12,038 (1,934) 44,712
Operating expenses........................... (15,146) (10,671) 1,019 (24,798)
-------- -------- --------- --------
Operating profit........................... $ 19,462 $ 1,367 $ (915) $ 19,914
-------- -------- --------- --------
-------- -------- --------- --------
Depreciation and amortization................ $ 6,393 $ 626 $ - $ 7,019
-------- -------- --------- --------
-------- -------- --------- --------
Identifiable assets at December 31, 1994..... $455,461 $ 21,437 $ (34,350) $442,548
-------- -------- --------- --------
-------- -------- --------- --------
Capital expenditures and investments......... $197,577 $ 3,505 $ - $201,082
-------- -------- --------- --------
-------- -------- --------- --------
</TABLE>

<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

<TABLE>
<CAPTION>
Property
Management
and Other
Rental Services Combined
Operations Operations Elimination Total
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
PERIOD JANUARY 1 TO JULY 26, 1994:
Revenue - third party....................... $ 41,359 $ 10,846 $ - $ 52,205
Revenue - affiliates........................ - 4,737 - 4,737
Intersegment revenue........................ - 2,185 (2,185) -
-------- -------- --------- --------
Total revenue............................. 41,359 17,768 (2,185) 56,942
Operating expenses.......................... (20,811) (14,593) 2,029 (33,375)
-------- -------- --------- --------
Operating profit.......................... $ 20,548 $ 3,175 $ (156) $ 23,567
-------- -------- --------- --------
-------- -------- --------- --------
Depreciation and amortization............... $ 6,448 $ 258 $ (207) $ 6,499
-------- -------- --------- --------
-------- -------- --------- --------
Identifiable assets at July 26, 1994........ $264,538 $ 3,717 $ (5,579) $262,676
-------- -------- --------- --------
-------- -------- --------- --------
Capital expenditures and investments........ $ 3,029 $ 314 $ (114) $ 3,229
-------- -------- --------- --------
-------- -------- --------- --------
YEAR ENDED DECEMBER 31, 1993:
Revenue - third party....................... $ 70,154 $ 17,971 $ - $ 88,125
Revenue - affiliates........................ - 8,727 - 8,727
Intersegment revenue........................ - 3,711 (3,711) -
-------- -------- --------- --------
Total revenue............................. 70,154 30,409 (3,711) 96,852
Operating expenses.......................... (33,253) (22,795) 3,488 (52,560)
-------- -------- --------- --------
Operating profit.......................... $ 36,901 $ 7,614 $ (223) $ 44,292
-------- -------- --------- --------
-------- -------- --------- --------
Depreciation and amortization............... $ 11,213 $ 438 $ (330) $ 11,321
-------- -------- --------- --------
-------- -------- --------- --------
Identifiable assets at December 31, 1993.... $264,563 $ 4,022 $ (5,632) $262,953
-------- -------- --------- --------
-------- -------- --------- --------
Capital expenditures and investments........ $ 3,347 $ 1,033 $ (101) $ 4,279
-------- -------- --------- --------
-------- -------- --------- --------
</TABLE>

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized,
for financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1995 and December 31, 1994. Considerable judgment is necessary
to interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize on disposition of the financial instruments. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.

Management estimates that the fair value of (i) cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate carrying value due to the relatively short maturity of these
instruments; (ii) the interest rate swap agreement approximates carrying
value based upon the terms of the agreement relative to current interest
rates; and (iii) notes payable approximate carrying value based upon the
Company's effective borrowing rate for issuance of debt with similar terms
and remaining maturities.

<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

15. SUPPLEMENTAL CASH FLOW INFORMATION

In connection with the business combination on July 27, 1994, certain
non-cash transactions were recorded by the Company, including: (i) basis
adjustments for the purchase of partnership interests for cash or Units, or
assumption of debt, (ii) elimination of historical basis of certain assets
purchased for cash, (iii) adjustments resulting from the transfer of the
property management, leasing, construction and development businesses of the
Predecessors to PGPSI, (iv) elimination of net working capital due to/from
prior owners at closing, (v) issuance of stock in exchange for note
receivable from PGPSI, (vi) issuance of stock pursuant to the Employee
Restricted Stock Plan, (vii) recognition of mortgage principal and accrued
interest concessions by lenders, (viii) write-off of deferred financing costs
associated with debt repaid at closing, (ix) write-off of fully amortized
deferred charges, (x) elimination of partner loans, and (xi) allocation of
capital to minority interests. The aggregate effect of these non-cash
transactions, as restated, is summarized below:

Operating real estate assets.................... $(39,575)
Accumulated depreciation........................ 26,973
Accounts receivable............................. (171)
Advances to affiliates.......................... 155
Investment in ventures.......................... 7,289
Deferred charges, net........................... (1,342)
Other assets.................................... (749)
--------
$ (7,420)
--------
--------
Notes payable................................... $(28,956)
Accrued interest payable........................ (10,822)
Accrued real estate taxes....................... (2,875)
Accounts payable and accrued liabilities........ (2,647)
Partner loans................................... (10,650)
Tenant security deposits........................ (1,231)
Minority interests.............................. 56,886
Stockholders' equity............................ (7,125)
--------
$ (7,420)
--------
--------

The transactions described above, with respect to the elimination of
historical basis on assets purchased for cash, the adjustments resulting from
transfer of the property management, leasing, construction and development
businesses to PGPSI and the net working capital adjustments, also include
certain cash components. These cash adjustments are presented as deemed
distributions at formation in the accompanying consolidated statement of cash
flows.

<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

Other non-cash investing and financing activities during 1995 and 1994 are
as follows:

<TABLE>
<CAPTION>
Company Predecessor
---------------------- --------------------
Period
July 27 to Period
December 31, January 1 to
1994, July 26,
1995 as Restated 1994
---------------------- --------------------
<S> <C> <C> <C>
Accrual of costs related to
construction in process................. $ 2,053 $ 214 $ -
Additions to operating real
estate assets transferred
from construction in process............ 22,546 - -
Accrual of distributions from
unconsolidated ventures................. - 242 -
Accrual of liability associated
with the acquisitions of land
for Units............................... (1,568) 1,568 -
Mortgage principal concessions
recognized prior to the business
combination............................. - - 1,776
Debt assumed in connection with the
acquisition of property................. 300 - -
Conversion of Units to common stock...... 1,215 - -
</TABLE>

In addition, during 1995 the Operating Partnership acquired the
partnership interests related to Spanish Trace for a combination of cash and
Units. In connection therewith, certain non-cash transactions were recorded
as follows:

Additions to operating real estate assets, net............ $ 7,688
Additions to deferred charges, net........................ 222
Assumption of mortgage indebtedness....................... 9,856
Increase in accounts payable.............................. 13
Carryover of deficit capital of interest purchased
for Units................................................ (1,959)

16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of quarterly results of operations for the year
ended December 31, 1995 and for the period July 27, 1994 to December 31,
1994, as restated:

<TABLE>
<CAPTION>
Fourth
First Second Third Quarter,
Quarter, Quarter, Quarter, as Restated
as Restated as Restated as Restated for 1994 Total
----------- ----------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Revenues.............................. $25,303 $26,266 $26,897 $29,102 $107,568
Income before extraordinary items..... 2,054 2,677 3,091 2,241 10,063
Extraordinary items, net of
minority interests................... - - - - -
Net income............................ 2,054 2,677 3,091 2,241 10,063
Per share data:
Income before extraordinary items.... 0.14 0.18 0.21 0.15 0.68
Net income........................... 0.14 0.18 0.21 0.15 0.68

Period July 27, 1994 to December 31,
1994, as Restated:
Revenues.............................. $18,184 $26,528 $44,712
Income (loss) before extraordinary
items................................ (3,952) 3,127 (825)
Extraordinary items, net of minority
interests............................ 1,636 - 1,636
Net income (loss)..................... (2,316) 3,127 811
Per share data:
Income (loss) before extraordinary
items................................ (0.28) 0.21 (0.06)
Net income (loss)...................... (0.16) 0.21 0.06
</TABLE>

63
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

As described in Note 2, the Company, in the fourth quarter of 1995,
changed its method of accounting for its investment in PGPSI from the cost
method to consolidation. Accordingly, all previously reported periods have
been restated to reflect this change in accounting method. The effect of
this change on the reported results of operations for the first quarter,
second quarter and third quarter of 1995 was an increase in revenue of
$5,056, $5,089, and $5,069, a decrease in net income of $(889), $(229), and
$(163), and a corresponding decrease in net income per share of $(.06),
$(.02), and $(.01), respectively. The effect on the 1994 reported results of
operations for the third quarter, fourth quarter and the period July 27, 1994
to December 31, 1994 was an increase in revenues of $3,656, $6,448, and
$10,104, and an increase (decrease) in net income of $(198), $78, and $(120),
respectively. The effect on net income per share was nominal.

The results of operations for the fourth quarter of 1995 includes an
impairment adjustment of $1,111 relating to the termination of certain of the
management and leasing contracts purchased at formation.

17. PROFORMA INFORMATION (UNAUDITED)

The following unaudited pro forma results of operations for the Company
have been prepared as if the 1995 real estate acquisitions described in Note 3
had occurred on January 1, 1995. The unaudited pro forma results of
operations are not necessarily indicative of what the actual results of
operations would have been had the 1995 acquisitions occurred as of January 1,
1995, nor do they purport to present the results of operations of future
periods. Pro forma results have not been presented for 1994 as the Company's
operations did not commence until July 27, 1994.

Year ended December 31, 1995:
Revenue...................................... $116,861
Income before extraordinary items............ 10,094
Net income................................... 10,094
Net income per common share.................. .69

In 1996, the Company plans to contribute the interests in two of the four
apartment projects acquired in 1995 and one property under development to a
joint venture in which it will retain an approximate 45% ownership interest
with a 55% aggregate interest being held by a Canadian pension fund and other
investors.

18. SUBSEQUENT EVENTS (UNAUDITED)

On January 3, 1996, the Company, through the Operating Partnership, issued
4,694 Units in partial settlement of debt assumed on the purchase of the
Overlook Apartments. These Units were not eligible for participation in the
distribution on February 27, 1996 but will participate in distributions on a
pro-rata basis beginning with the distribution with respect to the first
quarter of 1996.

On January 29, 1996, PGPSI acquired a 5.15 acre tract of land in suburban
Dallas, Texas. Construction activities commenced immediately on the Post and
Paddock office warehouse development which, when completed, will contain
108,600 square feet. PGPSI expects to sell this development once completed.

On February 6, 1996, the Company declared a dividend, with respect to the
fourth quarter of 1995, of $.465 per share of common stock which was paid on
February 27, 1996 to holders of record on February 16, 1996. Concurrent with
the dividend announcement, the Operating Partnership authorized a
distribution of $.465 per Unit which was paid on February 27, 1996 to
holders of record on February 16, 1996.

64
<PAGE>

PARAGON GROUP, INC. AND PREDECESSORS

On April 1, 1996, the Company entered into a joint venture with Careit
Investments Limited Partnership ("Careit"), an affiliate of Caisse de depot
et placement du Quebec, to acquire, develop and operate selected multifamily
residential properties in markets in which the Company operates. The Company
and Careit each have committed up to $22.5 million for investment in the
joint venture corporation, which will be operated so as to permit its
qualification as a REIT for Federal income tax purposes. The Company and
Careit each effectively will own an approximately 45% interest and a number
of private investors will own the remaining 10% interest in the joint
venture. In connection with the formation of the joint venture, the Company
and Careit each invested approximately $7.9 million in connection with the
joint venture's acquisition from the Company of three properties: (i)
Overlook, formerly known as The Phoenix, a 220-unit multifamily residential
complex in Charlotte, North Carolina; (ii) Highpoint, a 708-unit multifamily
residential complex in Dallas, Texas; and (iii) Brassfield Park, a 336-unit
multifamily residential complex under development in Greensboro, North
Carolina. The Company will record the initial contribution of these
properties at their net carrying value, which was approximately $14.4 million
(net book value of $40.0 million subject to existing indebtedness of $25.6
million) on March 31, 1996. The Company will account for its investment in
the joint venture using the equity method of accounting. Additional
investments by Paragon and Careit will be made from time to time when and if
additional property acquisition or development opportunities are approved for
acquisition or development.

On May 7, 1996, the Company declared a dividend, with respect to the first
quarter of 1996, of $.465 per share of common stock which was paid on May 29,
1996 to holders of record on May 17, 1996. Concurrent with the dividend
announcement, the Operating Partnership authorized a distribution of $.465
per Unit which was paid on May 29, 1996 to holders of record on May 17, 1996.

As of June 30, 1996, the Company sold its economic interest in the
commercial property services business which previously had been conducted by
PGPSI ("Paragon Commercial") to Insignia Financial Group Inc. for initial
cash consideration of approximately $18.2 million. The acquisition price may
be adjusted upward or downward depending on the future revenue performance of
Paragon Commercial. This transaction does not include the sale of any
residential or commercial real estate assets owned by the Company. Paragon
Residential Services, Inc. ("PRSI") succeeded to the residential property
services business of PGPSI. PRSI will continue the Company's residential
property services business and will provide all residential property service
functions previously provided by PGPSI, including property management,
leasing, development, acquisition and disposition for its owned residential
communities as well as for affiliated and third party residential owners.

65
<PAGE>
SCHEDULE III

PARAGON GROUP, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
INITIAL COSTS COSTS CARRIED AT DECEMBER 31, 1995
---------------------- CAPITALIZED ----------------------------------------------
NOTES BUILDINGS AND SUBSEQUENT TO BUILDINGS AND CONSTRUCTION
PROPERTY NAME PAYABLE LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS IN PROCESS TOTAL
- ------------- ------------ ------- ------------- ------------- ------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MULTIFAMILY:
FLORIDA
4th St. Station I $ 5,120 (3) $ 800 $ - $ 11,571 $ 1,499 $ 10,872 $ - $ 12,371
4th St. Station II 5,070 (3) 656 - 10,694 1,643 9,707 - 11,350
Broadmoor 4,660 (2) 1,536 5,265 3,927 2,080 8,648 - 10,728
Chasewood 2,850 (2) 992 4,534 1,611 1,182 5,955 - 7,137
Citrus Lakes - 208 2,942 99 208 3,041 - 3,249
Coco West I 2,670 (3) 68 - 8,285 630 7,723 - 8,353
Coco West II 3,780 (3) 111 - 11,606 589 11,128 - 11,717
Dolphin Pointe 7,250 (2) 1,456 25 15,200 1,919 14,762 - 16,681
Greenhouse 3,580 (3) 808 - 9,699 1,146 9,361 - 10,507
Grove 2,700 (2) 1,431 4,269 167 1,431 4,436 - 5,867
Heron Pointe - 990 - 11,659 990 9,409 2,250 12,649
Landtree 3,780 (3) 624 - 7,943 1,277 7,290 - 8,567
Lookout Pointe 6,700 (2) 1,563 - 13,267 1,823 13,007 - 14,830
Mallard Pointe - 1,564 - 6,227 - - 7,791 7,791
Parsons Run 3,840 (3) 902 - 9,027 1,424 8,505 - 9,929
The Reserve 3,100 (2) 1,060 - 6,270 1,093 6,237 - 7,330
Schooner Bay 10,111 1,518 8,966 5 1,518 8,971 - 10,489
Summerplace I & II 6,330 (3) 1,016 - 12,876 1,729 12,163 - 13,892
Summerplace III 3,720 (3) 753 - 7,347 1,117 6,983 - 8,100
Summerset Bend 4,500 (3) 779 - 9,380 1,141 9,018 - 10,159
The Vineyard 10,500 (9) 2,602 - 14,899 3,118 14,383 - 17,501
KENTUCKY
Copper Creek 9,237 (8) 649 - 6,687 649 6,687 - 7,336
Deerfield 9,987 (8) 1,610 - 18,917 2,421 18,106 - 20,527
Glenridge 3,695 (9) 970 - 6,575 1,119 6,426 - 7,545
Post Oak 2,450 (2) - - 3,734 339 3,395 - 3,734
Sundance 2,800 (2) 447 - 5,830 738 5,539 - 6,277
MISSOURI
Camden Passage 7,350 (9) 1,345 9,455 2,604 1,817 11,587 - 13,404
Camden Passage II - 1,169 - 810 - - 1,979 1,979
The Cove 12,480 (5) 2,308 10,418 6,491 3,505 15,712 - 19,217
Knolls - (11) 978 3,778 307 980 4,083 - 5,063
Knollwood I 7,215 (5) 1,764 7,928 143 1,764 8,071 - 9,835
Knollwood II 7,027 (5) 1,272 9,328 88 1,272 9,416 - 10,688
Pear Tree - (11) 366 2,684 130 366 2,814 - 3,180
San Miguel - (11) 1,321 5,487 198 1,321 5,685 - 7,006
Spanish Trace 12,148 (4) 2,445 15,508 223 2,445 15,731 - 18,176
Sunswept - (11) 1,813 5,496 236 1,813 5,732 - 7,545
Tempo 6,205 (5) 2,168 5,982 640 2,168 6,622 - 8,790
Westchase Park 4,900 (2) - - 11,625 1,024 10,601 - 11,625
Westgate I 4,500 (2) 380 3,165 1,734 615 4,664 - 5,279
Westgate II 8,200 (2) 790 - 17,020 2,131 15,679 - 17,810

<CAPTION>
NET DATE OF
ACCUMULATED REAL ESTATE CONSTRUCTION/ DEPRECIABLE
PROPERTY NAME DEPRECIATION ASSETS ACQUISITION LIVES-YEARS
- ------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
MULTIFAMILY:
FLORIDA
4th St. Station I $ 4,493 $ 7,878 1982 5-40 Years
4th St. Station II 3,214 8,136 1983 5-40 Years
Broadmoor 2,327 8,401 1986/1987 5-40 Years
Chasewood 1,839 5,298 1985/1987 5-40 Years
Citrus Lakes 131 3,118 1976 5-40 Years
Coco West I 2,340 6,013 1983 5-40 Years
Coco West II 3,742 7,975 1985 5-40 Years
Dolphin Pointe 3,349 13,332 1989 5-40 Years
Greenhouse 3,849 6,658 1982 5-40 Years
Grove 198 5,669 1973 5-40 Years
Heron Pointe 125 12,524 (1) 5-40 Years
Landtree 2,701 5,866 1983 5-40 Years
Lookout Pointe 5,340 9,490 1987 5-40 Years
Mallard Pointe - 7,791 (1) -
Parsons Run 2,908 7,021 1986 5-40 Years
The Reserve 1,262 6,068 1991 5-40 Years
Schooner Bay 20 10,469 1995 5-40 Years
Summerplace I & II 4,596 9,296 1984 5-40 Years
Summerplace III 2,496 5,604 1986 5-40 Years
Summerset Bend 3,470 6,689 1984 5-40 Years
The Vineyard 3,073 14,428 1990 5-40 Years
KENTUCKY
Copper Creek 2,895 4,441 1987 5-30 Years
Deerfield 4,336 16,191 1987 5-40 Years
Glenridge 1,582 5,963 1990 5-40 Years
Post Oak 1,810 1,924 1981 5-30 Years
Sundance 2,437 3,840 1975 5-40 Years
MISSOURI
Camden Passage 1,654 11,750 1989 5-40 Years
Camden Passage II - 1,979 (1) -
The Cove 2,356 16,861 1990 5-40 Years
Knolls 180 4,883 1973/1974 5-40 Years
Knollwood I 340 9,495 1981 5-40 Years
Knollwood II 395 10,293 1985 5-40 Years
Pear Tree 123 3,057 1967 5-40 Years
San Miguel 243 6,763 1970/1994 5-40 Years
Spanish Trace 8,458 9,718 1972/1995 5-40 Years
Sunswept 259 7,286 1971/1994 5-40 Years
Tempo 317 8,473 1975 5-40 Years
Westchase Park 2,931 8,694 1986 5-40 Years
Westgate I 2,424 2,855 1973 5-40 Years
Westgate II 6,005 11,805 1980 5-40 Years
</TABLE>

<PAGE>

SCHEDULE III

PARAGON GROUP, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

<TABLE>
GROSS AMOUNT AT WHICH
INITIAL COSTS COSTS CARRIED AT DECEMBER 31, 1995
---------------------- CAPITALIZED ------------------------------------------
NOTES BUILDINGS AND SUBSEQUENT TO BUILDINGS AND CONSTRUCTION
PROPERTY NAME PAYABLE LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS IN PROCESS TOTAL
- ------------- ------------ ------- ------------- ------------- ------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NORTH CAROLINA
Brassfield $ - $ 2,107 $ - $ 2,083 $ - $ - $ 4,190 $ 4,190
Copper Creek 4,100 (9) 930 - 6,571 928 6,573 - 7,501
Eastchase 2,949 (9) 1,265 - 6,052 1,352 5,965 - 7,317
Falls 5,700 (2) 1,010 - 11,145 1,475 10,680 - 12,155
Glen 6,626 (9) 1,713 6,808 76 1,713 6,884 - 8,597
Pinehurst 14,000 (5) 3,591 15,213 163 3,591 15,376 - 18,967
The Overlook 5,700 (6) 1,291 7,319 9 1,291 7,328 - 8,619
The Park - 906 - 313 - - 1,219 1,219
Turtle Creek I 2,600 (2) 1,300 4,450 186 1,299 4,637 - 5,936
Turtle Creek II - (11) 591 5,759 39 591 5,798 - 6,389
SOUTH CAROLINA
Westchase 4,440 (3) 1,496 - 11,548 1,895 11,149 - 13,044
TEXAS
Brookfield 4,023 (5) 1,481 2,643 1,849 1,578 4,395 - 5,973
Chesapeake - (11) 1,061 4,939 3,249 1,471 7,778 - 9,249
Fairlane 3,524 (9) 710 - 8,735 1,449 7,996 - 9,445
Highland Trace - (11) 1,450 2,871 648 1,539 3,430 - 4,969
Highpoint 25,451 (7) 2,811 23,915 1 2,811 23,916 - 26,727
Los Rios 9,000 (5) 1,494 - 9,409 1,517 9,386 - 10,903
Nob Hill 9,050 (5) 2,944 5,714 6,273 3,462 11,469 - 14,931
Stone Creek - (7) 1,696 367 10,108 1,696 10,483 - 12,179
Stone Gate 4,808 2,275 - 8,248 - - 10,515 10,515
-------- ------- -------- -------- ------- -------- ------- --------
TOTAL MULTIFAMILY 290,426 75,354 185,228 342,456 83,702 491,392 27,944 603,038
RETAIL:
Southwood Mall - 636 4,415 1,396 1,094 5,353 - 6,447
Westgate Center - 700 - 3,976 1,348 3,328 - 4,676
-------- ------- -------- -------- ------- -------- ------- --------
TOTAL RETAIL - 1,336 4,415 5,372 2,442 8,681 - 11,123
OFFICE:
The Paragon 3,300 (2) 280 - 11,310 458 11,132 - 11,590

Miscellaneous Assets 54 (10) - - 5,720 - 5,720 - 5,720
-------- ------- -------- -------- ------- -------- ------- --------
TOTAL REAL ESTATE $293,780 $76,970 $189,643 $364,858 $86,602 $516,925 $27,944 $631,471
-------- ------- -------- -------- ------- -------- ------- --------
-------- ------- -------- -------- ------- -------- ------- --------

<CAPTION>
NET DATE OF
ACCUMULATED REAL ESTATE CONSTRUCTION/ DEPRECIABLE
PROPERTY NAME DEPRECIATION ASSETS ACQUISITION LIVES-YEARS
- ------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
NORTH CAROLINA
Brassfield $ - $ 4,190 (1) -
Copper Creek 1,396 6,105 1989 5-40 Years
Eastchase 2,483 4,834 1986 5-40 Years
Falls 4,009 8,146 1984 5-40 Years
Glen 285 8,312 1980 5-40 Years
Pinehurst 428 18,539 1967/1994 5-40 Years
The Overlook 18 8,601 1985/1995 5-40 Years
The Park - 1,219 (1) -
Turtle Creek I 201 5,735 1973/1981 5-40 Years
Turtle Creek II 238 6,151 1985 5-40 Years
SOUTH CAROLINA
Westchase 3,906 9,138 1986 5-40 Years
TEXAS
Brookfield 1,032 4,941 1986/1987 5-40 Years
Chesapeake 2,660 6,589 1982 5-40 Years
Fairlane 3,550 5,895 1980 5-40 Years
Highland Trace 1,010 3,959 1985/1987 5-40 Years
Highpoint 68 26,659 1985/1995 5-40 Years
Los Rios 1,325 9,578 1992 5-40 Years
Nob Hill 2,269 12,662 1986/1987 5-40 Years
Stone Creek 129 12,050 1995 (1) 5-40 Years
Stone Gate - 10,515 (1) -
-------- --------
TOTAL MULTIFAMILY 115,225 487,813
RETAIL:
Southwood Mall 2,243 4,204 1981/1985 5-40 Years
Westgate Center 1,779 2,897 1978 3-40 Years
-------- --------
TOTAL RETAIL 4,022 7,101
OFFICE:
The Paragon 6,126 5,464 1982 3-40 Years

Miscellaneous Assets 1,064 4,656 1994/1995 5 Years
-------- --------
TOTAL REAL ESTATE $126,437 $505,034
-------- --------
-------- --------
</TABLE>

(1) Construction still in process and/or property still in initial lease-up
phase at December 31, 1995.

(2) These properties serve as collateral for the Pool A mortgage note
payable obtained concurrent with the Initial Offering in the amount of
$61,710.

(3) These properties serve as collateral for the Pool B mortgage notes
payable obtained concurrent with the Initial Offering in the amount of
$46,830.

(4) This property serves as collateral for the mortgage note payable
insured by HUD assumed effective October 1, 1995 in the outstanding amount
of $9,838 at December 31, 1995.

(5) These properties serve as collateral for mortgage notes payable
obtained in December 1995 in the amount of $69,000.

(6) This property serves as collateral for the mortgage note payable
obtained in December 1995 in the amount of $5,400.

(7) These properties serve as collateral for the bridge acquisition loans
obtained in December 1995 in the outstanding amount of $28,180 at December
31, 1995.

(8) These properties serve as collateral for housing revenue bonds assumed
at the Initial Offering in the outstanding amount of $19,244 at December
31, 1995.

(9) These properties serve as collateral for mortgage notes payable assumed
at the Initial Offering in the outstanding amount of $38,744 at December
31, 1995.

(10) A portion of these assets with a net book value at December 31, 1995 of
$92 serve as collateral for two equipment loans in the outstanding amount
of $54 at December 31, 1995.

(11) These properties serve as collateral for the line of credit facility in
the outstanding amount of $14,500 at December 31, 1995.

<PAGE>

PARAGON GROUP INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
- -----------------------------------------------------------------------------
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

A summary of activity for real estate and accumulated depreciation is as
follows:

DECEMBER 31,
----------------------------------
1994,
1995 AS RESTATED 1993
-------- ----------- --------
Real Estate:
Balance at beginning of year.......... $513,761 $361,554 $357,629
Additions and basis adjustments....... 117,753 204,311 4,279
Disposition of property............... (43) (52,104)(1) (354)
-------- -------- --------
Balance at end of year................ $631,471 $513,761 $361,554
-------- -------- --------
-------- -------- --------
Accumulated Depreciation:
Balance at beginning of year.......... $101,984 $116,031 $104,969
Depreciation and basis adjustments.... 24,462 (2) 12,926 11,201
Disposition of property............... (9) (26,973)(1) (139)
-------- -------- --------
Balance at end of year................ $126,437 $101,984 $116,031
-------- -------- --------
-------- -------- --------

(1) Represents the non-cash effect of the elimination of the historical basis
of certain assets purchased for cash and adjustments resulting from the
transfer of the property management, leasing, construction and development
businesses of the Predecessors to PGPSI pursuant to the formation of the
Company on July 27, 1994.

(2) Includes an $8,280 adjustment to accumulated depreciation related to the
acquisition of a partnership interest (Spanish Trace) for Units.

Depreciation and amortization in buildings and improvements reflected in
the statements of operations are calculated on a straight-line basis over the
estimated useful lives of the properties (buildings and related land
improvements - 10 to 40 years; furniture, fixtures and equipment - three to
10 years; and tenant improvements - over the life of the related tenant
lease). With respect to the apartment properties, the Company capitalizes
floor and window coverings and depreciates such items over five years;
appliances and heating, ventilating and air conditioning equipment are
capitalized and depreciated over ten years.

As of December 31, 1995 and 1994, the aggregate cost for federal income
tax purposes was approximately $532,000 and $414,000, respectively.

<PAGE>

STOCK AND NOTE PURCHASE AGREEMENT

by and among

Paragon Group L.P.

Texas Paragon Management Partners L.P.

Paragon Group Property Services, Inc.; and

Insignia Commercial Group, Inc.

Dated as of May 31, 1996

<PAGE>

TABLE OF CONTENTS

Page
----

1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
"A.A.A.". . . . . . . . . . . . . . . . . . . . . . . . . 1
"Accounts Receivable" . . . . . . . . . . . . . . . . . . 1
"Agreement" . . . . . . . . . . . . . . . . . . . . . . . 1
"Annual Earn-Out Statement" . . . . . . . . . . . . . . . 2
"Applicable Contract" . . . . . . . . . . . . . . . . . . 2
"Barnett Management Termination Event". . . . . . . . . . 2
"Barnett Management Termination Fee". . . . . . . . . . . 2
"Barnett Plaza" . . . . . . . . . . . . . . . . . . . . . 2
"Best Efforts". . . . . . . . . . . . . . . . . . . . . . 2
"Breach". . . . . . . . . . . . . . . . . . . . . . . . . 2
"Buyer" . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Buyer's Advisors". . . . . . . . . . . . . . . . . . . . 2
"Buyer's Closing Certificate" . . . . . . . . . . . . . . 2
"Buyer's Closing Documents" . . . . . . . . . . . . . . . 2
"Closing" . . . . . . . . . . . . . . . . . . . . . . . . 2
"Closing Allocation of Joint Assets Agreement". . . . . . 2
"Closing Cooper Agreements" . . . . . . . . . . . . . . . 2
"Closing Date". . . . . . . . . . . . . . . . . . . . . . 2
"Closing Date Employee Accounts Receivable" . . . . . . . 4
"Completed Lease" . . . . . . . . . . . . . . . . . . . . 2
"Confidentiality Letter". . . . . . . . . . . . . . . . . 3
"Consent" . . . . . . . . . . . . . . . . . . . . . . . . 3
"Contemplated Transactions" . . . . . . . . . . . . . . . 3
"Continuing Liabilities". . . . . . . . . . . . . . . . . 3
"Contract". . . . . . . . . . . . . . . . . . . . . . . . 3
"Controlled Management Properties". . . . . . . . . . . . 3
"Cooper". . . . . . . . . . . . . . . . . . . . . . . . . 3
"Cooper Agreement". . . . . . . . . . . . . . . . . . . . 3
"Cooper Consulting/Non-Competition Agreement" . . . . . . 3
"Cooper Partnership". . . . . . . . . . . . . . . . . . . 4
"Cooper Partnership Properties" . . . . . . . . . . . . . 4
"Consulting/Non-Competition Agreements" . . . . . . . . . 3
"Copyrights". . . . . . . . . . . . . . . . . . . . . . . 4
"Damages" . . . . . . . . . . . . . . . . . . . . . . . . 4
"Delivered Cooper Partnership Agreements" . . . . . . . . 4
"Delivered PGPSI Service Agreements". . . . . . . . . . . 4
"Designated Employees". . . . . . . . . . . . . . . . . . 4
"Earn-Out Amount" . . . . . . . . . . . . . . . . . . . . 4
"Earn-Out Payment I". . . . . . . . . . . . . . . . . . . 4
"Earn-out Payment II" . . . . . . . . . . . . . . . . . . 4
"Effective Time". . . . . . . . . . . . . . . . . . . . . 4
"Effective Time PGPSI Commercial Clients" . . . . . . . . 4
"Effective Time PGPSI Commercial Properties". . . . . . . 4
"Employee Designation Date" . . . . . . . . . . . . . . . 4
"Encumbrance" . . . . . . . . . . . . . . . . . . . . . . 4
"Environment" . . . . . . . . . . . . . . . . . . . . . . 5

<PAGE>

"Environmental, Health, and Safety Liabilities" . . . . . 5
"Environmental Law" . . . . . . . . . . . . . . . . . . . 5
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . 6
"ERISA Affiliate" . . . . . . . . . . . . . . . . . . . . 6
"Excluded Assets" . . . . . . . . . . . . . . . . . . . . 6
"Final Proration Report". . . . . . . . . . . . . . . . . 6
"Fletcher/PGPSI Termination". . . . . . . . . . . . . . . 6
"GAAP". . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Governmental Authorization". . . . . . . . . . . . . . . 6
"Governmental Body" . . . . . . . . . . . . . . . . . . . 6
"Great Southwest Management Agreement". . . . . . . . . . 7
"Hazardous Activity". . . . . . . . . . . . . . . . . . . 7
"Hazardous Materials" . . . . . . . . . . . . . . . . . . 7
"HSR Act" . . . . . . . . . . . . . . . . . . . . . . . . 7
"IFG" . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"IFG Registration Rights Agreement" . . . . . . . . . . . 7
"IFG Warrants". . . . . . . . . . . . . . . . . . . . . . 7
"IFG Warrant Agreement" . . . . . . . . . . . . . . . . . 7
"Indemnified Persons" . . . . . . . . . . . . . . . . . . 7
"Initial Proration Report". . . . . . . . . . . . . . . . 7
"Intellectual Property Assets". . . . . . . . . . . . . . 7
"Interim Balance Sheet" . . . . . . . . . . . . . . . . . 8
"IRC" . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Knaus Employment Agreement". . . . . . . . . . . . . . . 8
"Knowledge" . . . . . . . . . . . . . . . . . . . . . . . 8
"Legal Requirement" . . . . . . . . . . . . . . . . . . . 8
"Managed Properties". . . . . . . . . . . . . . . . . . . 8
"Management Termination Event". . . . . . . . . . . . . . 8
"Management Termination Properties" . . . . . . . . . . . 9
"Marks" . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Means" . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Means Consulting/Non-Competition Agreement". . . . . . . 9
"Modification Notice" . . . . . . . . . . . . . . . . . . 9
"Multi-Employer Plan" . . . . . . . . . . . . . . . . . . 9
"1996 Dallas Industrial Property" . . . . . . . . . . . . 9
"New Paragon Residential" . . . . . . . . . . . . . . . . 9
"New Paragon Residential Note". . . . . . . . . . . . . . 9
"Non-Affiliated Management Properties". . . . . . . . . . 9
"Non-Designated Employees". . . . . . . . . . . . . . . . 9
"Non-Transition Employees". . . . . . . . . . . . . . . . 9
"Non-Voting Class". . . . . . . . . . . . . . . . . . . . 9
"Occupational Safety and Health Law". . . . . . . . . . . 10
"Order" . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Ordinary Course of Business" . . . . . . . . . . . . . . 10
"Organizational Documents". . . . . . . . . . . . . . . . 10
"Other Benefit Obligations" . . . . . . . . . . . . . . . 10
"Owned Assets". . . . . . . . . . . . . . . . . . . . . . 10
"PBGC". . . . . . . . . . . . . . . . . . . . . . . . . . 10
"PGGPH" . . . . . . . . . . . . . . . . . . . . . . . . . 10
"PGLPH" . . . . . . . . . . . . . . . . . . . . . . . . . 11
"PGL" . . . . . . . . . . . . . . . . . . . . . . . . . . 11

<PAGE>

"PG Group". . . . . . . . . . . . . . . . . . . . . . . . 11
"PG Group Person" . . . . . . . . . . . . . . . . . . . . 11
"PG Group Properties" . . . . . . . . . . . . . . . . . . 11
"PG Parent" . . . . . . . . . . . . . . . . . . . . . . . 11
"PG Parent Registration Rights Agreement" . . . . . . . . 11
"PG Parent Warrant Agreement" . . . . . . . . . . . . . . 11
"PG Parent Warrants". . . . . . . . . . . . . . . . . . . 11
"PGPSI" . . . . . . . . . . . . . . . . . . . . . . . . . 11
"PGPSI Commercial Division" . . . . . . . . . . . . . . . 11
"PGPSI Note". . . . . . . . . . . . . . . . . . . . . . . 11
"PGPSI Other Benefit Obligation". . . . . . . . . . . . . 11
"PGPSI Stock Plan". . . . . . . . . . . . . . . . . . . . 11
"PGPSI Plan". . . . . . . . . . . . . . . . . . . . . . . 11
"PGPSI Services Agreement". . . . . . . . . . . . . . . . 11
"PGPSI VEBA". . . . . . . . . . . . . . . . . . . . . . . 12
"Paragon Consulting/Non-Competition Agreement". . . . . . 12
"Paragon/St. Louis" . . . . . . . . . . . . . . . . . . . 12
"Patents" . . . . . . . . . . . . . . . . . . . . . . . . 12
"Pension Plan". . . . . . . . . . . . . . . . . . . . . . 12
"Person". . . . . . . . . . . . . . . . . . . . . . . . . 12
"Plan". . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Plan Sponsor". . . . . . . . . . . . . . . . . . . . . . 12
"Proceeding". . . . . . . . . . . . . . . . . . . . . . . 12
"Property" or "Properties". . . . . . . . . . . . . . . . 12
"Property Interest" or "Property Interests" . . . . . . . 12
"Property Specific Management Termination Fee". . . . . . 12
"Proprietary Rights Agreement". . . . . . . . . . . . . . 12
"Purchase Price". . . . . . . . . . . . . . . . . . . . . 12
"Qualified Plan". . . . . . . . . . . . . . . . . . . . . 12
"Qualified Revenue" . . . . . . . . . . . . . . . . . . . 12
"Real Estate Brokerage Agreement" . . . . . . . . . . . . 12
"Related Person". . . . . . . . . . . . . . . . . . . . . 13
"Release" . . . . . . . . . . . . . . . . . . . . . . . . 14
"Replacement PGPSI Management Agreement". . . . . . . . . 14
"Representative". . . . . . . . . . . . . . . . . . . . . 14
"Securities Act". . . . . . . . . . . . . . . . . . . . . 14
"Sellers" . . . . . . . . . . . . . . . . . . . . . . . . 14
"Seller's Closing Certificate". . . . . . . . . . . . . . 14
"Sellers' Closing Documents". . . . . . . . . . . . . . . 14
"Seller's Control Environmental Liability". . . . . . . . 14
"Shares". . . . . . . . . . . . . . . . . . . . . . . . . 14
"Southwood" . . . . . . . . . . . . . . . . . . . . . . . 14
"St. Louis Lease" . . . . . . . . . . . . . . . . . . . . 14
"Syndicated GE Partnerships". . . . . . . . . . . . . . . 14
"Syndicated GE Partnership Properties". . . . . . . . . . 14
"Subsidiary". . . . . . . . . . . . . . . . . . . . . . . 14
"Tampa Lease" . . . . . . . . . . . . . . . . . . . . . . 14
"Tax Allocation Agreement". . . . . . . . . . . . . . . . 15
"Tax Return". . . . . . . . . . . . . . . . . . . . . . . 15
"Threat of Release" . . . . . . . . . . . . . . . . . . . 15
"Threatened". . . . . . . . . . . . . . . . . . . . . . . 15
"Title IV Plans". . . . . . . . . . . . . . . . . . . . . 15

iii

<PAGE>

"TPMPL" . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Trade Secrets" . . . . . . . . . . . . . . . . . . . . . 15
"Transition Employees". . . . . . . . . . . . . . . . . . 15
"VEBA". . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Voting Class". . . . . . . . . . . . . . . . . . . . . . 15
"Welfare Plan". . . . . . . . . . . . . . . . . . . . . . 15
"Westgate". . . . . . . . . . . . . . . . . . . . . . . . 15
"WRCH". . . . . . . . . . . . . . . . . . . . . . . . . . 15

2. SALE AND TRANSFER OF SHARES; PGPSI NOTE PURCHASE;
CLOSING; OTHER AGREEMENTS . . . . . . . . . . . . . . . . 15
2.1 Shares and PGPSI Note . . . . . . . . . . . . . . . 15
2.2 Purchase Price. . . . . . . . . . . . . . . . . . . 16
2.3 Closing . . . . . . . . . . . . . . . . . . . . . . 16
2.4 Closing Obligations . . . . . . . . . . . . . . . . 17
2.5 Earn-Out Amount . . . . . . . . . . . . . . . . . . 18
2.6 Balance Sheets on the Closing Date. . . . . . . . . 22
2.7 Liabilities and Revenues/Prorations . . . . . . . . 24
2.8 Continuing Liabilities. . . . . . . . . . . . . . . 28
2.9 Tax Return. . . . . . . . . . . . . . . . . . . . . 28
2.10 IFG Registration Rights . . . . . . . . . . . . . . 28
2.11 PGPSI Services Agreement
in Effect on the Closing Date . . . . . . . . . . . 28
2.12 Consulting/Non-Competition Agreements . . . . . . . 30
2.13 Real Estate Brokerage . . . . . . . . . . . . . . . 30
2.14 [Intentionally Omitted] . . . . . . . . . . . . . . 31
2.15 [Intentionally Omitted] . . . . . . . . . . . . . . 31
2.16 Tenancy Leases. . . . . . . . . . . . . . . . . . . 31
2.17 Certain Employment Matters. . . . . . . . . . . . . 32
2.18 License to Use Tradename. . . . . . . . . . . . . . 35
2.19 Closing Allocation of Joint Assets Agreement. . . . 35
2.20 Tenure of Jeremy Fletcher . . . . . . . . . . . . . 35
2.21 Barnett Management Termination Fee. . . . . . . . . 36
2.22 Management Termination Fees . . . . . . . . . . . . 37
2.23 PG Parent Warrants. . . . . . . . . . . . . . . . . 39
2.24 PG Parent Registration Rights . . . . . . . . . . . 39
2.25 [Intentionally Omitted] . . . . . . . . . . . . . . 39
2.26 Limitations on Co-Investment with JP Morgan . . . . 39

3. REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . 40
3.1 Organization and Good Standing. . . . . . . . . . . 40
3.2 Authority; No Conflict. . . . . . . . . . . . . . . 41
3.3 Capitalization. . . . . . . . . . . . . . . . . . . 43
3.4 Financial Statements. . . . . . . . . . . . . . . . 44
3.5 Books and Records . . . . . . . . . . . . . . . . . 44
3.6 Title to Properties; Encumbrances . . . . . . . . . 45
3.7 Condition and Sufficiency of Assets . . . . . . . . 46
3.8 Accounts Receivable . . . . . . . . . . . . . . . . 46
3.9 [Intentionally Omitted] . . . . . . . . . . . . . . 46
3.10 No Undisclosed Liabilities. . . . . . . . . . . . . 46
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . 47
3.12 No Material Adverse Change. . . . . . . . . . . . . 48

<PAGE>

3.13 Employee Benefits . . . . . . . . . . . . . . . . . 48
3.14 Compliance with Legal
Requirements; Governmental Authorizations . . . . . 53
3.15 Legal Proceedings; Orders . . . . . . . . . . . . . 55
3.16 Absence of Certain Changes and Events . . . . . . . 56
3.17 Contracts; No Defaults. . . . . . . . . . . . . . . 57
3.18 Insurance . . . . . . . . . . . . . . . . . . . . . 61
3.19 Environmental Matters . . . . . . . . . . . . . . . 63
3.20 Employees . . . . . . . . . . . . . . . . . . . . . 65
3.21 Labor Relations; Compliance . . . . . . . . . . . . 66
3.22 Intellectual Property . . . . . . . . . . . . . . . 66
3.23 Certain Payments. . . . . . . . . . . . . . . . . . 69
3.24 PGPSI Services Agreements . . . . . . . . . . . . . 69
3.25 PGPSI Services Agreement Revenues . . . . . . . . . 70
3.26 Disclosure. . . . . . . . . . . . . . . . . . . . . 70
3.27 Relationships with Related Persons. . . . . . . . . 70
3.28 Brokers or Finders. . . . . . . . . . . . . . . . . 70
3.29 PGPSI Note. . . . . . . . . . . . . . . . . . . . . 71
3.30 Net Operating Loss. . . . . . . . . . . . . . . . . 71

4. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . 71
4.1 Organization and Good Standing. . . . . . . . . . . 71
4.2 Authority; No Conflict. . . . . . . . . . . . . . . 71
4.3 Investment Intent . . . . . . . . . . . . . . . . . 72
4.4 Certain Proceedings . . . . . . . . . . . . . . . . 72
4.5 Brokers or Finders. . . . . . . . . . . . . . . . . 72

5. COVENANTS OF SELLERS AND PGPSI PRIOR TO/ON CLOSING DATE . 73
5.1 Required Approvals. . . . . . . . . . . . . . . . . 73
5.2 Shareholder Approval. . . . . . . . . . . . . . . . 73
5.3 Current Information . . . . . . . . . . . . . . . . 73
5.4 [Intentionally Omitted] . . . . . . . . . . . . . . 73
5.5 Securities Laws Compliance. . . . . . . . . . . . . 73
5.6 Operations Prior to Closing Date. . . . . . . . . . 74
5.7 Miscellaneous Agreements and Consents . . . . . . . 75
5.8 Access and Investigation. . . . . . . . . . . . . . 76
5.9 Notification. . . . . . . . . . . . . . . . . . . . 76
5.10 No Negotiation. . . . . . . . . . . . . . . . . . . 76

6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. . . . . . . . . 77
6.1 Approvals of Governmental Bodies. . . . . . . . . . 77

7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE . . . 77
7.1 Accuracy of Representations . . . . . . . . . . . . 77
7.2 Performance . . . . . . . . . . . . . . . . . . . . 77
7.3 Consents. . . . . . . . . . . . . . . . . . . . . . 78
7.4 Additional Documents. . . . . . . . . . . . . . . . 78
7.5 No Proceedings. . . . . . . . . . . . . . . . . . . 79
7.6 No Claim Regarding Stock
Ownership or Sale Proceeds. . . . . . . . . . . . . 79
7.7 No Prohibition. . . . . . . . . . . . . . . . . . . 79

<PAGE>

7.8 Book Value of Owned Assets. . . . . . . . . . . . . 80
7.9 Financial Statements; Comfort Letters . . . . . . . 80
7.10 Division/Cost Allocation
of Certain PGPSI Assets . . . . . . . . . . . . . . 80
7.11 Unimproved Real Estate. . . . . . . . . . . . . . . 80
7.12 Revenues Attributable to Continuing
PGPSI Services Agreements . . . . . . . . . . . . . 80

8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE. . . 81
8.1 Accuracy of Representations . . . . . . . . . . . . 81
8.2 Buyer's Performance . . . . . . . . . . . . . . . . 81
8.3 Consents. . . . . . . . . . . . . . . . . . . . . . 81
8.4 Additional Documents. . . . . . . . . . . . . . . . 81
8.5 No Proceedings. . . . . . . . . . . . . . . . . . . 82
8.6 Division/Cost Allocation of Certain PGPSI Assets. . 82

9. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 82
9.1 Termination Events. . . . . . . . . . . . . . . . . 82
9.2 Effect of Termination . . . . . . . . . . . . . . . 83

10. INDEMNIFICATION; REMEDIES . . . . . . . . . . . . . . . . 83
10.1 Survival; Right to Indemnification
Not Affected by Knowledge . . . . . . . . . . . . . 83
10.2 Indemnification and Payment
of Damages by Sellers . . . . . . . . . . . . . . . 84
10.3 [Intentionally Omitted] . . . . . . . . . . . . . . 85
10.4 Indemnification and Payment of Damages by Buyer . . 86
10.5 [Intentionally Omitted] . . . . . . . . . . . . . . 86
10.6 Procedure for Indemnification--
Third Party Claims. . . . . . . . . . . . . . . . . 86
10.7 Procedure for Indemnification--Other Claims . . . . 88

11. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 88
11.1 Expenses. . . . . . . . . . . . . . . . . . . . . . 88
11.2 Mandatory Arbitration . . . . . . . . . . . . . . . 88
11.3 Confidentiality . . . . . . . . . . . . . . . . . . 89
11.4 Notices . . . . . . . . . . . . . . . . . . . . . . 89
11.5 [Intentionally Omitted] . . . . . . . . . . . . . . 90
11.6 Further Assurances. . . . . . . . . . . . . . . . . 91
11.7 Waiver. . . . . . . . . . . . . . . . . . . . . . . 91
11.8 Entire Agreement and Modification . . . . . . . . . 91
11.9 Agreement with Cooper . . . . . . . . . . . . . . . 91
11.10 Assignments, Successors,
and No Third-Party Rights . . . . . . . . . . . . . 92
11.11 Severability. . . . . . . . . . . . . . . . . . . . 92
11.12 Section Headings, Construction. . . . . . . . . . . 92
11.13 Time of Essence . . . . . . . . . . . . . . . . . . 92
11.14 Governing Law . . . . . . . . . . . . . . . . . . . 92
11.15 Counterparts. . . . . . . . . . . . . . . . . . . . 93

<PAGE>

STOCK AND NOTE PURCHASE AGREEMENT

This Stock and Note Purchase Agreement ("Agreement") is made
as of May 31, 1996, by Insignia Commercial Group, Inc., a Delaware
corporation ("Buyer"), Paragon Group L.P., a Delaware limited
partnership ("PGL"), Texas Paragon Management Partners L.P., a
Texas limited partnership ("TPMPL"), and Paragon Group Property
Services, Inc., a Delaware corporation ("PGPSI"). PGL and TPMPL are
referred to herein collectively as "Sellers."

RECITALS

PGPSI is engaged in the operation of a national multi-family
residential and commercial property management service business,
providing its services both to properties which are owned by
affiliates of Paragon Group, Inc. and to unaffiliated properties.

The Sellers own all the shares of the capital stock of PGPSI
(the "Shares").

Buyer is an affiliate of Insignia Financial Group, Inc., which
through one or more subsidiaries or affiliates operates a national
real estate service business, including property management, asset
management, property brokerage and mortgage banking.

Sellers desire to transfer and assign the multi-family
residential property management service business of PGPSI to
another affiliate of Sellers, leaving PGPSI only in the business of
providing commercial property management services.

Sellers desire to sell, and Buyer desires to purchase PGPSI
for the consideration and on the terms set forth in this Agreement,
and thereby to acquire and to integrate PGPSI's commercial property
services business into the Buyer's existing operations as a major
provider of commercial property services.

AGREEMENT

The parties, intending to be legally bound, agree as follows:

1. DEFINITIONS

For purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1:

"A.A.A."--as defined in Section 11.2.

"ACCOUNTS RECEIVABLE" -- as defined in Section 3.8(a).

"AGREEMENT"-- this Stock and Note Purchase Agreement.

"ANNUAL EARN-OUT STATEMENT"--as defined in Section 2.5(d).

<PAGE>

"APPLICABLE CONTRACT"--any Contract, including any PGPSI
Services Agreements presently in effect, (a) under which PGPSI has
or may acquire any rights, (b) under which PGPSI has or may become
subject to any obligation or liability, or (c) by which PGPSI or
any of the assets owned or used by it is or may become bound.

"BARNETT MANAGEMENT TERMINATION EVENT"-- as defined in Section
2.21.

"BARNETT MANAGEMENT TERMINATION FEE"-- as defined in Section
2.21.

"BARNETT PLAZA"-- that certain office building complex
presently owned by Para-Met Plaza Associates and located at 101
East Kennedy, Tampa, Florida.

"BEST EFFORTS"--the reasonable efforts that a prudent Person
desirous of achieving a result would use in similar circumstances
to ensure that such result is achieved as expeditiously as
possible, but without the obligation to expend any money other than
incidental out of pocket expenditures.

"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have
occurred if there is or has been any inaccuracy in or breach of, or
any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision.

"BUYER"--as defined in the first paragraph of this Agreement.

"BUYER'S ADVISORS"-- as defined in Section 5.8.

"BUYER'S CLOSING CERTIFICATE"-- as defined in Section
2.4(b)(vii).

"BUYER'S CLOSING DOCUMENTS"-- as defined in Section 4.2.

"CLOSING"--as defined in Section 2.3.

"CLOSING ALLOCATION OF JOINT ASSETS AGREEMENT"--as defined in
Section 7.10.

"CLOSING COOPER AGREEMENTS"-- as defined in Section 7.2(d).

"CLOSING DATE"--the date and time as of which the Closing
actually takes place.

EFFECTIVE TIME EMPLOYEE ACCOUNTS RECEIVABLE"--as defined in
Section 3.8(b).

"COMPLETED LEASE"--as defined in Section 2.7(c)(viii).

<PAGE>

"CONFIDENTIALITY LETTER"-- as defined in Section 11.3.

"CONSENT"--any approval, consent, ratification, waiver, or
other authorization (including any Governmental Authorization).

"CONSULTING/NON-COMPETITION AGREEMENTS"--the Paragon
Consulting/Non-Competition Agreement, the Cooper Consulting/Non-
Competition Agreement, and the Means Consulting/Non-Competition
Agreement.

"CONTEMPLATED TRANSACTIONS"--all of the transactions
contemplated by this Agreement, including:

(a) the sale by the Sellers to Buyer and the purchase
(and payment therefor) by Buyer from the Sellers of the Shares
and the PGPSI Note;

(b) the execution, delivery, and performance of the
Paragon Consulting/Non-Competition Agreement, the Cooper
Agreement, the IFG Warrant Agreement, the IFG Registration
Rights Agreement, the PG Parent Warrant Agreement, the PG
Parent Registration Rights Agreement, the Cooper
Consulting/Non-Competition Agreement, the Knaus Employment
Agreement, the Means Consulting/Non-Competition Agreement, the
Real Estate Brokerage Agreement, the Closing Allocation of the
Joint Assets Agreement, and the Tax Allocation Agreement;

(c) the performance by Buyer, PGPSI and Sellers of their
respective covenants and obligations under this Agreement,
including without limitation their obligations under Section
2 hereof;

(d) Buyer's acquisition and ownership of the Shares and
exercise of control over PGPSI; and

(e) the performance (including performance by Persons
who are not parties hereto) or occurrence of the actions,
transactions, events or obligations necessary to satisfy the
conditions set forth in Sections 7 and 8 hereof.

"CONTINUING LIABILITIES"--as defined in Section 2.6(b).

"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or
implied) that is legally binding.

"CONTROLLED MANAGEMENT PROPERTIES"-- the Cooper Partnership
Properties and the PG Group Properties.

"COOPER"-- William R. Cooper, a resident of Dallas County,
Texas.

3
<PAGE>

"COOPER AGREEMENT"--as defined in Section 11.9.

"COOPER CONSULTING/NON-COMPETITION AGREEMENT"-- as defined in
Section 7.4(c).

"COOPER PARTNERSHIP"-- any general partnership, joint venture,
limited partnership, limited liability company, trust, corporation
or other entity listed on EXHIBIT 1.A hereto.

"COOPER PARTNERSHIP PROPERTIES"--the Properties listed on
EXHIBIT 1.B.

"COPYRIGHTS"-- as defined in Section 3.22(a)(iii).

"DAMAGES"--as defined in Section 10.2.

"DELIVERED COOPER PARTNERSHIP AGREEMENTS"-- those documents
listed on EXHIBIT 1.C consisting of Organizational Documents of the
Cooper Partnerships which (or accurate photocopies of which) were
actually delivered to Buyer no later than May 31, 1996, but
excluding any undelivered written portions of such Organizational
Documents or any unwritten portions of such Organizational
Documents.

"DELIVERED PGPSI SERVICE AGREEMENTS"-- those documents listed
on EXHIBIT 1.D consisting of PGPSI Service Agreements which (or
accurate photocopies of which) were actually delivered to Buyer no
later than May 31, 1996, but excluding any undelivered written
portions of such Agreements or any unwritten portions of such
Agreements.

"DESIGNATED EMPLOYEES"--as defined in Section 2.17(a).

"EARN-OUT AMOUNT"--as defined in Section 2.5.

"EARN-OUT PAYMENT I"--as defined in Section 2.5(b).

"EARN-OUT PAYMENT II"-- as defined in Section 2.5(c).

"EFFECTIVE TIME"--the end of the day June 30, 1996.

"EFFECTIVE TIME PGPSI COMMERCIAL CLIENTS"-- as defined in
Section 2.5.(a)(i).

"EFFECTIVE TIME PGPSI COMMERCIAL PROPERTIES"-- as defined in
Section 2.5.(a)(i).

"EMPLOYEE DESIGNATION DATE" --as defined in Section 2.17(a).

"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind,

<PAGE>

including any restriction on use, voting, transfer, receipt of
income, or exercise of any other attribute of ownership.

"ENVIRONMENT"--soil, land surface or subsurface strata,
surface waters (including navigable waters, ocean waters, streams,
ponds, drainage basins, and wetlands), groundwaters, drinking water
supply, stream sediments, ambient air (including indoor air), plant
and animal life, and any other environmental medium or natural
resource.

"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost,
damages, expense, liability, obligation, or other responsibility
arising from or under Environmental Law or Occupational Safety and
Health Law and consisting of or relating to:

(a) any environmental, health, or safety matters or
conditions (including on-site or off-site contamination,
occupational safety and health, and regulation of chemical
substances or products);

(b) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses, claims,
demands and response, investigative, remedial, or inspection
costs and expenses arising under Environmental Law or
Occupational Safety and Health Law;

(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or
corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such
Cleanup has been required or requested by any Governmental
Body or any other Person) and for any natural resource
damages; or

(d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or
Occupational Safety and Health Law.

The terms "removal," "remedial," and "response action,"
include the types of activities covered by the United States
Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA").

"ENVIRONMENTAL LAW"--any Legal Requirement that requires or
relates to:

(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or
hazardous substances or materials, violations of discharge
limits, or other prohibitions and of the commencements of

<PAGE>

activities, such as resource extraction or construction, that
could have significant impact on the Environment;

(b) preventing or reducing to acceptable levels the
release of pollutants or hazardous substances or materials
into the Environment;

(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are
generated;

(d) assuring that products are designed, formulated,
packaged, and used so that they do not present unreasonable
risks to human health or the Environment when used or disposed
of;

(e) protecting resources, species, or ecological
amenities;

(f) reducing to acceptable levels the risks inherent in
the transportation of hazardous substances, pollutants, oil,
or other potentially harmful substances;

(g) cleaning up pollutants that have been released,
preventing the threat of release, or paying the costs of such
clean up or prevention; or

(h) making responsible parties pay private parties, or
groups of them, for damages done to their health or the
Environment, or permitting self-appointed representatives of
the public interest to recover for injuries done to public
assets.

"ERISA"--the Employee Retirement Income Security Act of 1974
or any successor law, and regulations and rules issued pursuant to
that Act or any successor law.

"ERISA AFFILIATE"-- as defined in Section 3.13.

"EXCLUDED ASSETS"-- as defined in Section 2.6(a).

"FINAL PRORATION REPORT"-- as defined in Section 2.7(b).

"FLETCHER/PGPSI TERMINATION"-- as defined in Section 2.20.

"GAAP"--generally accepted United States accounting
principles, applied on a consistent basis.

"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.

<PAGE>

"GOVERNMENTAL BODY"--any:

(a) nation, state, county, city, town, village,
district, or other jurisdiction of any nature;

(b) federal, state, local, municipal, foreign, or other
government;

(c) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department,
official, or entity and any court or other tribunal);

(d) multi-national organization or body; or

(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.

"GREAT SOUTHWEST MANAGEMENT AGREEMENT"--as defined in Section
2.7(c)(vi).

"HAZARDOUS ACTIVITY"--the distribution, generation, handling,
importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment,
or use (including any withdrawal or other use of groundwater) of
Hazardous Materials in, on, under, about, or from a property or any
part thereof into the Environment.

"HAZARDOUS MATERIALS"--any waste or other substance that is
listed, defined, designated, or classified as, or otherwise
determined to be, hazardous, radioactive, or toxic or a pollutant
or a contaminant under or pursuant to any Environmental Law,
including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.

"HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of
1976 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.

"IFG"--Insignia Financial Group, Inc., a Delaware corporation.

"IFG REGISTRATION RIGHTS AGREEMENT"--as defined in Section
2.10 hereof.

"IFG WARRANTS"--as defined in Section 2.2.

"IFG WARRANT AGREEMENT"--as defined in Section 2.2.

"INDEMNIFIED PERSONS"-- as defined in Section 10.2.

"INITIAL PRORATION REPORT"-- as defined in Section 2.7(b).

<PAGE>

"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.

"INTERIM BALANCE SHEET"--as defined in Section 3.4.

"IRC"--the Internal Revenue Code of 1986 or any successor law,
and regulations issued by the IRS pursuant to the Internal Revenue
Code or any successor law.

"IRS"--the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States
Department of the Treasury.

"KNAUS EMPLOYMENT AGREEMENT"--as defined in Section 7.4(e).

"KNOWLEDGE"--an individual will be deemed to have "Knowledge"
of a particular fact or other matter if such individual is actually
aware of such fact or other matter. PGPSI and Sellers will be
deemed to have "Knowledge" of a particular fact or other matter if
any of Cooper, Means, Doug Knaus, Steve Caron, Lynn Caldwell, Barry
Nelson, David Fitch, Patrick G. ("Rick") Cooper, Jeremy Fletcher,
Scott Smithers, Hal Flowers, Scott Martin, Lewis Levey, Robert
Gidel, Jerry Bonner, Thomas Ferguson, Brian Lavin, James Cobb,
Robert Guimbarda, Gerald Hasara, James Johnson, has, or had,
Knowledge of such fact or other matter. Buyer will be deemed to
have "Knowledge" of a particular fact or other matter if any of
Frank M. Garrison, Janice Cole, Alan Ballew, Ronald R. Uretta, Tina
Morrow, Henry Horowitz, Andrew Farkas, John Combs, Wayne Etheridge,
Michael Horowitz, Robert Shibuya, Ken Miller, Louis Genarelli, or
Fred Meno has, or had, Knowledge of such fact or other matter.

"LEGAL REQUIREMENT"--any federal, state, local, municipal,
foreign, international, multinational, or other administrative
order, constitution, law, ordinance, principle of common law,
regulation, statute, or treaty (as to representations and
warranties set forth in this Agreement, such orders, constitutions,
laws, ordinances, principles of common law, regulations, statutes,
or treaties in effect as of the date such representation or
warranty is made).

"MANAGED PROPERTIES"--the Properties with respect to which
PGPSI provides or is obligated to provide property management
services and/or leasing services and/or real estate brokerage
services and/or development services and/or other services pursuant
to a PGPSI Services Agreement, which Properties as of the date
hereof are listed on EXHIBIT 1.E hereof.

"MANAGEMENT TERMINATION EVENT"-- with respect to a Management
Termination Property, the cessation of PGPSI's services under a
PGPSI Services Agreement for any reason (including sale of such
Management Termination Property) other than (i) the voluntary
termination by PGPSI of such services, or (ii) termination of the
PGPSI Services Agreement by the owner(s) of such Management

<PAGE>

Termination Property on the basis of PGPSI's sustained gross
negligence, willful misconduct or mismanagement in the performance
of its services under the PGPSI Services Agreement, as measured by
prevailing industry standards.

"MANAGEMENT TERMINATION PROPERTIES"-- the Properties listed on
Exhibit 1.J-1 hereof.

"MARKS"-- as defined in Section 3.22(a)(i).

"MEANS"-- Steven A. Means, a resident of Dallas County, Texas.

"MEANS CONSULTING/NON-COMPETITION AGREEMENT"-- as defined in
Section 7.4(d).

"MODIFICATION NOTICE"--as defined in Section 5.9.

"MULTI-EMPLOYER PLAN"-- as defined in Section 3.13.

"1996 DALLAS INDUSTRIAL PROPERTY"--as defined in Section
2.7(c)(vi).

"NEW PARAGON RESIDENTIAL"--a to-be-formed Delaware corporation
which will be the transferee of the Excluded Assets.

"NEW PARAGON RESIDENTIAL NOTE"--a promissory note to be
created on or before the Closing Date payable by New Paragon
Residential in the original principal amount of not less than
$4,430,000 nor greater than $4,460,000 payable to the order of PGL,
which note represents the assumption of liability by New Paragon
Residential of a portion of a promissory note originally dated July
28, 1994 payable by PGPSI to PGL Associates L.P. (which note was
subsequently endorsed to PGL).

"NON-AFFILIATED MANAGEMENT PROPERTIES"-- Properties listed on
Exhibit 2.11.(d)-1 hereof.

"NON-DESIGNATED EMPLOYEES"--as defined in Section 2.17(b).

"NON-TRANSITION EMPLOYEES"--as defined in Section 2.17(a).

"NON-VOTING CLASS"--as defined in Section 3.3(a).

"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement
designed to provide safe and healthful working conditions and to
reduce occupational safety and health hazards, and any generally
recognized program, whether governmental or private (including
those promulgated or sponsored by industry associations and
insurance companies), designed to provide safe and healthful
working conditions.

<PAGE>

"ORDER"--any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by
any court, administrative agency, or other Governmental Body or by
any arbitrator.

"ORDINARY COURSE OF BUSINESS"--an action taken by a Person
will be deemed to have been taken in the "Ordinary Course of
Business" only if:

(a) such action is consistent with the past practices of
such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person;

(b) such action is not required to be authorized by the
board of directors of such Person (or by any Person or group
of Persons exercising similar authority); and

(c) such action is similar in nature and magnitude to
actions customarily taken, without any authorization by the
board of directors (or by any Person or group of Persons
exercising similar authority), in the ordinary course of the
normal day-to-day operations of other Persons that are in the
same line of business as such Person.

"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership
agreement and any statement of partnership of a general
partnership; (c) the limited partnership agreement and the
certificate of limited partnership of a limited partnership;
(d) any charter, articles of organization, operating agreement or
similar document adopted or filed in connection with the creation,
formation, or organization of a Person, including a limited
liability company; and (e) any amendment to any of the foregoing.

"OTHER BENEFIT OBLIGATIONS"-- as defined in Section 3.13.

"OWNED ASSETS"-- as defined in Section 2.6(a).

"PBGC"-- as defined in Section 3.13.

"PGGPH"--Paragon Group GP Holdings, Inc., a Delaware
corporation.

"PGLPH"--Paragon Group LP Holdings, Inc., a Delaware
corporation.

"PGL"-- as defined in the first paragraph of this Agreement.

"PG GROUP"-- collectively, PG Parent, PGL, TPMPL, PGPSI, PGGPH
and PGLPH.

"PG GROUP PERSON"-- a Person being a part of the PG Group.

<PAGE>

"PG GROUP PROPERTIES"-- the seven Properties listed on EXHIBIT 1.F
and any additional Properties of which one or more PG Group Persons,
individually or collectively, own or control at least nine percent (9%)
of the ownership or economic interest (exclusive of lessee tenancies of
a term of less than 25 years).

"PG PARENT"-- Paragon Group, Inc., a Maryland corporation.

"PG PARENT REGISTRATION RIGHTS AGREEMENT"-- as defined in
Section 2.24 hereof.

"PG PARENT WARRANT AGREEMENT"-- as defined in Section 2.23
hereof.

"PG PARENT WARRANTS"-- as defined in Section 2.23 hereof.

"PGPSI"- the corporation defined in the first paragraph of
this Agreement as "PGPSI" and any predecessor corporations merged
into Paragon Group Property Services, Inc. and any corporation the
rights and liabilities of which were assumed by operation of law by
Paragon Group Property Services, Inc. or any such predecessor.

"PGPSI COMMERCIAL DIVISION"--that segment of the business and
operations of PGPSI relating to the rendering of services to
Properties, and the assets, employees and other personnel,
facilities, property and other assets employed, owned or otherwise
used by PGPSI in connection therewith.

"PGPSI NOTE"-- that certain Promissory Note to be dated a date
on or before the Closing Date payable by PGPSI as maker to the
order of PGL, to be created in the form of the promissory note
attached hereto as EXHIBIT 1.G.

"PGPSI OTHER BENEFIT OBLIGATION"-- as defined in Section 3.13.

"PGPSI STOCK PLAN"-- as defined in Section 3.20(d).

"PGPSI PLAN"-- as defined in Section 3.13.

"PGPSI SERVICES AGREEMENT"--any Contract pursuant to which
PGPSI provides or is obligated to provide property management
services and/or leasing services and/or real estate brokerage
services and/or development services and/or other services with
respect to one or more Properties.

"PGPSI VEBA"-- as defined in Section 3.13.

"PARAGON CONSULTING/NON-COMPETITION AGREEMENT"-- as defined in
Section 2.4 (a)(iv).

"PARAGON/ST. LOUIS"--as defined in Section 2.11(a)(1).

<PAGE>

"PATENTS"-- as defined in Section 3.22(a)(ii).

"PENSION PLAN"-- as defined in Section 3.13.

"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.

"PLAN"--as defined in Section 3.13.

"PLAN SPONSOR"-- as defined in Section 3.13.

"PROCEEDING"--any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought,
conducted, or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.

"PROPERTY" OR "PROPERTIES"-- one or more, as the case may be,
office buildings, retail buildings, industrial buildings and other
non-residential improvement or development (including such
buildings, improvements or developments under construction).

"PROPERTY INTEREST" or "PROPERTY INTERESTS"-- as defined in
Section 3.19(a)(ii).

"PROPERTY SPECIFIC MANAGEMENT TERMINATION FEE"-- the fee
payable by Sellers to Buyer upon the occurrence of a Management
Termination Event with respect to a specific Management Termination
Property as designated on EXHIBIT 1.J-1 hereto and in the amount
designated on such EXHIBIT 1.J-1.

"PROPRIETARY RIGHTS AGREEMENT"-- as defined in Section 3.20(b).

"PURCHASE PRICE"--as defined in Section 2.2.

"QUALIFIED PLAN"-- as defined in Section 3.13.

"QUALIFIED REVENUE"-- as defined in Section 2.5.

"REAL ESTATE BROKERAGE AGREEMENT"-- as defined in Section
2.13.

"RELATED PERSON"--with respect to a particular individual:

(a) each other member of such individual's Family;

(b) any Person that is directly or indirectly controlled
by such individual or one or more members of such individual's
Family;

<PAGE>

(c) any Person in which such individual or members of
such individual's Family hold (individually or in the
aggregate) a Material Interest; or

(d) any Person with respect to which such individual or
one or more members of such individual's Family serves as a
director, officer, partner, executor, or trustee (or in a
similar capacity).

With respect to a specified Person other than an individual:

(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or
indirectly under common control with such specified Person; or

(b) any Person that holds a Material Interest in such
specified Person; or

(c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in
a similar capacity); or

(d) any Person in which such specified Person holds a
Material Interest; or

(e) any Person with respect to which such specified
Person serves as a general partner or a trustee (or in a
similar capacity); and

(f) any Related Person of any individual described in
clause (b) or (c).

For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual, (ii) the individual's
spouse, (iii) any other natural person who is related to the
individual or the individual's spouse as a parent or step-parent,
child or step-child, sibling or step-sibling, grandchild or
step-grandchild, aunt or uncle, and (iv) any other natural person who
resides with such individual, and (b) "Material Interest" means
direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of voting securities or
other voting interests representing at least 15% of the outstanding
voting power of a Person or equity securities or other equity
interests representing at least 15% of the outstanding equity
securities or equity interests in a Person.

"RELEASE"--any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or other releasing into
the Environment, whether intentional or unintentional.

"REPLACEMENT PGPSI MANAGEMENT AGREEMENT"-- as defined in
Section 2.11.

<PAGE>

"REPRESENTATIVE"--with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, partner or
other representative of such Person, including legal counsel,
accountants, and financial advisors.

"SECURITIES ACT"--the Securities Act of 1933 or any successor
law, and regulations and rules issued pursuant to that Act or any
successor law.

"SELLERS"--as defined in the first paragraph of this
Agreement.

"SELLERS' CLOSING CERTIFICATE"-- as defined in Section
2.4(a)(v).

"SELLERS' CLOSING DOCUMENTS"-- as defined in Section 3.2(a).

"SELLERS' CONTROL ENVIRONMENTAL LIABILITY"-- as defined in
Section 10.2.

"SHARES"--as defined in the Recitals of this Agreement.

"SOUTHWOOD"--as defined in Section 2.11(a)(1).

"ST. LOUIS LEASE"-- as defined in Section 2.16(c).

"SYNDICATED GE PARTNERSHIPS"--the partnership listed on
EXHIBIT 1.H hereof and which owns the Syndicated GE Partnership
Properties.

"SYNDICATED GE PARTNERSHIP PROPERTIES"--the ten Properties
listed on EXHIBIT 1.I hereof.

"SUBSIDIARY"--with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests
having the power to elect a majority of that corporation's or other
Person's board of directors or similar governing body, or otherwise
having the power to direct the business and policies of that
corporation or other Person (other than securities or other
interests having such power only upon the happening of a
contingency that has not occurred) are held by the Owner or one or
more of its Subsidiaries; when used without reference to a
particular Person, "Subsidiary" means a Subsidiary of PGPSI.

"TAMPA LEASE"-- as defined in Section 2.16(b).

"TAX ALLOCATION AGREEMENT"--as defined in Section 2.9.

"TAX RETURN"--any return (including any information return),
report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed

<PAGE>

with or submitted to, any Governmental Body in connection with the
determination, assessment, collection, or payment of any Tax or in
connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.

"THREAT OF RELEASE"--a substantial likelihood of a Release
that may require action in order to prevent or mitigate damage to
the Environment that may result from such Release.

"THREATENED"--a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or
statement has been received (orally or in writing) or any notice
has been received (orally or in writing), that would lead a prudent
Person to conclude that such a claim, Proceeding, dispute, action,
or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.

"TITLE IV PLANS"-- as defined in Section 3.13.

"TPMPL"- as defined in the first paragraph of this Agreement.

"TRADE SECRETS"-- as defined in Section 3.22(a)(iv).

"TRANSITION EMPLOYEES"--as defined in Section 2.17(a).

"VEBA"-- as defined in Section 3.13.

"VOTING CLASS"-- as defined in Section 3.3(b).

"WELFARE PLAN"-- as defined in Section 3.13.

"WESTGATE"--as defined in Section 2.11(a)(1).

"WRCH"-- as defined in Section 11.9.

2. SALE AND TRANSFER OF SHARES; PGPSI NOTE PURCHASE; CLOSING;
OTHER AGREEMENTS

2.1 SHARES AND PGPSI NOTE

Subject to the terms and conditions of this Agreement, at the
Closing:

(a) Sellers will sell and transfer the Shares to Buyer,
and Buyer will purchase the Shares from Sellers; and

(b) PGL will sell and assign the PGPSI Note to Buyer or
a designee of Buyer and Buyer will purchase or cause a
designee of Buyer to purchase the PGPSI Note.

2.2 PURCHASE PRICE

<PAGE>

The purchase price (the "Purchase Price") for the Shares and
the PGPSI Note will be $18,100,000 (Eighteen Million One Hundred
Thousand Dollars) plus (i) the Earn-Out Amount and (ii) warrants to
purchase 50,000 shares of the Class A Common Stock of IFG on the
terms and conditions set forth in the form of the IFG Warrant
Agreement (the "IFG Warrant Agreement") and IFG Warrant attached
hereto collectively as EXHIBIT 2.2(a) (the "IFG Warrants"). The
Purchase Price for the PGPSI Note will be the face amount thereof;
the balance of the Purchase Price will be allocated to the Shares.

2.3 CLOSING

(a) Unless this Agreement is terminated in accordance with
Section 9 hereof, the purchase and sale (the "Closing") provided
for in this Agreement will take place at the offices of Sellers'
counsel in Dallas, Texas at 1:00 p.m. (local time):

(i) at the option of Buyer, on a date following the
last to be fulfilled or waived of the conditions set forth in
Sections 7 and 8 that is the third business day following
notice by Buyer to Sellers, but in no event later than
July 31, 1996; or

(ii) at the option of Sellers, on a date following
the last to be fulfilled or waived of the conditions set forth
in Sections 7 and 8 that is the third business day following
notice by Sellers to Buyer, but in no event earlier than June
30, 1996 nor later than July 31, 1996; or

(iii) at such other time and place as the parties may
agree.

Subject to the provisions of Section 9, failure to consummate
the purchase and sale provided for in this Agreement on the date
and time and at the place determined pursuant to this Section 2.3
will not result in the termination of this Agreement and will not
relieve any party of any obligation under this Agreement.

(b) The parties hereto acknowledge that as of the date of
execution hereof certain of the Exhibits referenced in this
Agreement are incomplete and undelivered. The parties agree to use
their Best Efforts in good faith to complete and deliver all
Exhibits in a timely manner, but in no event later than 5 p.m. CDT
Monday, June 3, 1996. The Exhibits hereto shall not be deemed
completed and delivered until and unless: (i) all parties have
approved them, which approval any party may withhold in its sole
discretion; (ii) one set of Exhibits has been attached to Buyer's
counterpart of this Agreement and another set has been attached to
Sellers' counterpart of this Agreement; and (iii) the Sellers have
delivered to the Buyer and the Buyer has delivered to the Sellers
no later than 5 p.m. CDT June 3, 1996 a certificate acknowledging
the completion, approval and receipt of the Exhibits. In the event

<PAGE>

that the Exhibits become complete and delivered pursuant to this
Section 2.3(b), they shall be deemed for purposes of this Agreement
to have been completed and delivered as of the date hereof. In the
event that the Exhibits do not become complete and delivered
pursuant to this Section 2.3(b), this Agreement shall automatically
terminate as of 5 p.m. CDT June 3, 1996.

2.4 CLOSING OBLIGATIONS

At the Closing:

(a) Sellers or PGPSI, as applicable, will deliver to
Buyer:

(i) certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers),
with signatures guaranteed by a commercial bank or by a
member firm of the New York Stock Exchange, for transfer
to Buyer;

(ii) a Tax Allocation Agreement executed by the
Sellers;

(iii) the PGPSI Note duly endorsed to Buyer or
Buyer's designee;

(iv) the Consulting/Non-Competition Agreement
executed by Sellers and PG Parent in the form attached
hereto as EXHIBIT 2.4(a) (the "Paragon Consulting/Non-
Competition Agreement");

(v) a certificate executed by Sellers and PGPSI
representing and warranting to Buyer that, except as
otherwise stated in such certificate, each of Sellers'
representations and warranties in this Agreement was
accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full
effect to any Modification Notices) (the "Sellers'
Closing Certificate"); and

(vi) the IFG Warrant Agreement executed by PGL, the
PG Parent Warrant Agreement executed by PG Parent, the
PG Parent Registration Rights Agreement executed by PG
Parent, the IFG Registration Rights Agreement executed
by PGL, and the Closing Allocation of Joint Assets
Agreement executed by Sellers;

(b) Buyer will deliver to Sellers (or to such other
Persons designated below):

<PAGE>

(i) the following amounts by wire transfer to
accounts specified by Sellers:

1) $18,043,000 to PGL; and

2) $57,000 to TPMPL;

(ii) a consulting fee of $300,000 payable to
Sellers or their designee and a non-competition fee of
$100,000 payable to the Sellers ($80,000), Cooper
($10,000) and Means ($10,000) pursuant to the
Consulting/Non-Competition Agreements, which fees shall
be paid by bank cashier's or certified check payable to
the order of or by wire transfer to accounts specified
by Sellers;

(iii) the Paragon Consulting/Non-Competition
Agreement, the Cooper Consulting/Non-Competition
Agreement and the Means Consulting/Non-Competition
Agreement, all executed by Buyer;

(iv) the Great Southwest Management Agreement
executed by Buyer;

(v) the Real Estate Brokerage Agreement executed
by Buyer;

(vi) the Tax Allocation Agreement executed by the
Buyer, the Closing Allocation of Joint Assets Agreement
executed by Buyer, the IFG Warrant Agreement and the IFG
Warrant executed by IFG and the IFG Registration Rights
Agreement executed by IFG, the PG Parent Warrant
Agreement and the PG Parent Warrant executed by Buyer
and the PG Parent Registration Rights Agreement executed
by PG Parent; and

(vii) a certificate executed by Buyer to the effect
that, except as otherwise stated in such certificate,
each of Buyer's representations and warranties in this
Agreement was accurate in all respects as of the date of
this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (the
"Buyer's Closing Certificate").

2.5 EARN-OUT AMOUNT

(a) GENERAL TERMS AND DEFINITIONS.

Within 90 days (or such longer period provided in Section
2.5(d)) following the second anniversary of the Effective Time
and/or following the third anniversary of the Effective Time, if
applicable, Buyer shall, subject to and in accordance with the

<PAGE>

terms of this Section 2.5 and Section 2.22 hereof, pay two Earn-Out
Payments, if any, to Sellers based on the average annual amount of
Qualified Revenue actually received by PGPSI or any Related Person
of IFG during two and/or three consecutive twelve (12) month
periods following the Effective Time.

The First Annual Period shall be a 12 consecutive month period
the first day of which shall be the day of the Effective Time and
the last day shall be the day preceding the first anniversary of
the day of the Effective Time. The first day of the Second Annual
Period shall be the first anniversary of the Effective Time date
and the last day shall be the day preceding the second anniversary
of the Effective Time date. The first day of the Third Annual
Period shall be the second anniversary of the Effective Time date
and the last day shall be the day preceding the third anniversary
of the Effective Time date.

For purposes of this Section 2.5, "Qualified Revenue" means
the sum of:

(i) property management, leasing, development, construction
and any other related fees (but excluding reimbursement
payments) actually received by PGPSI, IFG or any entity of
which (through one or more tiers of ownership) more than 50%
of the equity interest is owned, directly or indirectly, by
IFG from those commercial property management clients of PGPSI
listed on a EXHIBIT 2.5.(a)-1 (the "Effective Time PGPSI
Commercial Clients"), which Exhibit shall be delivered by
Sellers to Buyer at the Closing and is subject to the
reasonable approval of Buyer, and which fees are earned with
respect to Properties subject to written binding PGPSI Service
Agreements or other service agreements listed on EXHIBIT
2.5.(a)-2 (the "Effective Time PGPSI Commercial Properties"),
which Exhibit shall be delivered by Sellers at the Closing and
is subject to the reasonable approval of Buyer; and

(ii) the property management, leasing, development,
construction and other related fees (but excluding
reimbursement payments) earned with respect to certain
Properties located within the continental United States which
fees are actually received by PGPSI, IFG or any Person of
which (through one or more tiers of ownership) more than 50%
of the equity interest is owned by IFG, which fees and
Properties are further described on and subject to the
limitations set forth on EXHIBIT 2.5.(a)-3.

Notwithstanding anything in this Agreement to the contrary:

(a) Qualified Revenue shall not include any revenue
received by PGPSI, IFG or a direct or junior tier
wholly-owned subsidiary of IFG resulting or arising from
the acquisition of another Person (other than PGPSI), or

<PAGE>

in connection with a transaction with a third party in
the nature of an acquisition providing economic
consideration to such third party in exchange for, or in
connection with, the receipt of property management
revenue from Contracts (or a subcontracting arrangement
under, or later extension of, such Contracts),
including, but not limited to, "fee split" arrangements;

(b) Qualified Revenue shall not include any revenue
derived from Property services either: (i) which include
re-development of retail properties, except for re-
development revenue derived from Effective Time PGPSI
Commercial Properties and the Properties described in
Item 1 of EXHIBIT 2.5(a)-3 paid by Effective Time PGPSI
Commercial Clients; or (ii) which relate to hotel or
motel properties; and

(c) amounts otherwise comprising Qualified Revenue shall
be reduced by the amount of bona fide earned brokerage
fees paid to Persons unaffiliated with IFG to the extent
such brokerage fees were incurred directly in connection
with a transaction from which the item of Qualified
Revenue arose or paid to Sellers or New Paragon
Residential pursuant to Section 2.7(c)(viii), (ix), (x),
and (xi).

(d) Qualified Revenue shall not include any revenue
derived from Property services related to Properties,
except for Effective Time PGPSI Commercial Properties
and the Properties described in Item 1 of EXHIBIT
2.5(a)-3 either: (i) in which IFG makes a bona fide
investment in such Property or, in connection with such
Property, in the owner thereof; or (ii) which are
located within:

(1) the District of Columbia or the area within 50
miles of the exterior boundary of the District of
Columbia;

(2) Cook County, Illinois or the area within 50
miles of the exterior boundary of such county; or

(3) any borough of New York City, New York or the
area within 100 miles of the exterior boundary of
any of such boroughs.

(e) For purposes of calculating the amount of
Qualified Revenue, the amount Qualified Revenue deemed
received by any Person of which IFG owns (through one or
more tiers of ownership) more than 50% but less than
100% of the equity interest shall equal the amount of
Qualified Revenue actually received by such Person

<PAGE>

multiplied by a percentage equal to the percentage of
the equity interest in such Person owned (through one or
more tiers of ownership) by IFG at the time of receipt
of such Qualified Revenue.

(f) Notwithstanding anything seemingly to the
contrary contained in this Agreement, PGPSI, IFG or a
Person of which IFG owns (through one or more tiers of
ownership) more than 50% of the equity interest, shall
have the right to decline or reject any Property
services business made available to any of such entities
provided those entities act in good faith in any such
decision, such decision is based upon reasonably prudent
business standards, and such decision is not based upon
an attempt to reduce Qualified Revenue.

(b) EARN-OUT PAYMENT I

Provided that BOTH (i) the average annual Qualified Revenue
equals at least Seventeen Million Five Hundred Thousand Dollars
($17,500,000) for the two annual periods ending on the last day of
the Second Annual Period and (ii) Qualified Revenue for the Second
Annual Period is at least $16,500,000, Buyer shall pay Sellers an
Earn-Out Fee ("Earn-Out Payment I") equal to:

(x) $1,500,000;

(y) plus a one time payment of 75% of each $50,000 increment
by which the average Qualified Revenue for such 24 month
period exceeds $17,500,000

up to a total aggregate maximum Earn-Out Payment I of $2,500,000.

In addition to any amounts due Sellers under Section 2.5(b)
above, if average annual Qualified Revenue EITHER:

(i) is at least $19,000,000 for the two annual periods
ending on the last day of the Second Annual Period, (provided,
however, that the amount of Qualified Revenue during the
Second Annual Period shall not be less than $17,500,000); or

(ii) is at least $18,000,000 for the three annual periods
ending on the last day of the Third Annual Period (provided,
however, that the amount of Qualified Revenue during the Third
Annual Period shall not be less than $17,000,000)

then Buyer shall pay Sellers an Earn-Out Fee ("Earn-Out Payment
II") in the amount of $1,500,000.

<PAGE>

(d) REPORTING AND CONFIRMATION

Buyer shall prepare and deliver to Sellers, within sixty-five
(65) days following the end of each of the First Annual Period, the
Second Annual Period and the Third Annual Period, a written notice
certified as true and correct by the Buyer (the "Annual Earn-Out
Statement") detailing the amount of Earn-Out Payment I and/or Earn-
Out Payment II, if any, payable to Sellers and the calculation (and
detailed basis of determination thereof) of Qualified Revenue
received during each of such three Annual Periods. Unless Sellers
provide written notice to Buyer of Sellers' objection to the
determinations and calculations within 40 days following receipt of
the Annual Earn-Out Statement, the calculations and determinations
contained in such Annual Earn-Out Statement shall be deemed
conclusive and Buyer shall promptly disburse any Earn-Out Payment
payable with respect to such Annual Period(s). Buyer shall make
available to Sellers, at reasonable cost to Sellers, copies of such
books and records pertaining to the calculations and determinations
of Qualified Revenue and Earn-Out Payments as are reasonably
requested by Sellers and Sellers may, at their expense, audit and
review the pertinent information, documents and financial
statements related to the calculations and determinations of the
Earn-Out Payments. If Sellers provide the written notice of
objection, Buyer shall promptly disburse any non-disputed amount of
any Earn-Out Payment and Sellers and Buyer shall proceed during the
30 day period following Buyer's receipt of Sellers' written
statement of objection to negotiate in good faith to resolve the
disputed calculations and determinations. In the event that Sellers
and Buyer are unable to agree on a resolution during such 30 day
period, Sellers and Buyer shall promptly submit the dispute (and a
proposed calculation of total Earn-Out Payment(s)) to an
arbitration procedure pursuant to Section 11.2 hereof, the fees for
which shall be borne solely by the party (either Buyer on the one
hand or Sellers on the other) whose proposed resolution of the
disputed Earn-Out Payment calculation has the largest dollar amount
of discrepancy from the respective total amounts of Earn-Out
Payment(s) submitted by the respective party.

2.6 BALANCE SHEETS ON THE CLOSING DATE

(a) OWNED ASSETS. At the Effective Time, PGPSI shall own and
have good title, without Encumbrance (except, with respect to the
PGPSI Service Agreements, for subordinations of PGPSI's interest
therein to the liens of mortgagees encumbering any of the Managed
Properties), to all of the assets currently owned and used in
conjunction with the operation of PGPSI's business (which assets
are described on EXHIBIT 2.6.(a)-1 and shall be reflected in the
Interim Balance Sheet of PGPSI) (the "Owned Assets"), including,
without limitation:

(i) all rights and interest of PGPSI in and under the PGPSI
Services Agreements in effect; and

<PAGE>

(ii) all furniture, fixtures, equipment, personalty or
intellectual property of any kind owned and used by
PGPSI in the operation of the PGPSI Commercial Division,
including without limitation, computer software,
policies and procedures manuals, permits, licenses and
lease and utility deposits relating to the PGPSI
Commercial Division;

(iii) any other assets which prior to the Effective Time have
been used in the Ordinary Course of Business by both the
PGPSI Commercial Division and in other segments of
PGPSI's business operations, which assets are pursuant
to the Closing Allocation of Joint Assets Agreement to
be treated as an Owned Asset.

EXCEPT for the following assets, which PGPSI shall transfer,
distribute or dispose of before the Effective Time (the "Excluded
Assets"):

(i) all cash on hand and immediately available funds
immediately before the Effective Time, including funds
in bank accounts, money market funds and the like
(except to the extent that such cash or funds represents
deposits held for third parties or payments or deposits
for future work or services required to be performed by
PGPSI Commercial Division);

(ii) all rights and claims for refunds of, taxes and other
governmental charges for periods ending up to the
Effective Time;

(iii) all property management rights, services agreements and
other rights related to residential properties and
commercial property activities incidental to the
rendering of services to residential properties;

(iv) all furniture, fixtures, equipment, personalty or
intellectual property utilized by PGPSI exclusively in
segments of its business other than the PGPSI Commercial
Division including without limitation, the name "Paragon
Group Property Services", the Paragon logo and the
mission statement "The Paragon Way";

(v) all claims or rights against third parties relating to
liabilities or obligations of PGPSI which are not
Continuing Liabilities;

(vi) all rights under PGPSI's insurance policies, including
without limitation credits available for cancellation of
such policies at the Effective Time, except for those
rights listed on EXHIBIT 2.6(a)(vi) hereof;

<PAGE>

(vii) all assets of PGPSI which are presently used in
connection with the operation of the PGPSI Commercial
Division that in the Ordinary Course of Business prior
to the Effective Time become depleted, worn-out or are
disposed, but which assets in the aggregate have a fair
market value as of May 31, 1996 of less than $10,000;

(viii) except as otherwise provided in Section 2.7, all
accounts receivable;

(ix) any stock or options to acquire stock under the PGPSI
Stock Plan; and

(x) contract concerning abatement, demolition and
construction of a parking plaza property owned by Sibag
or its affiliate located in downtown St. Louis,
Missouri;

(xi) any other assets which prior to the Effective Time have
been used in the Ordinary Course of Business by both the
PGPSI Commercial Division and in other segments of
PGPSI's business operations, which assets are pursuant
to the Closing Allocation of Joint Assets Agreement to
be treated as an Excluded Asset.

Prior to the Closing, Sellers and PGPSI shall cause the
Excluded Assets to be transferred by PGPSI to a party designated by
Sellers. Sellers shall be responsible for the payment for and shall
promptly pay and discharge (and shall reimburse PGPSI after the
Closing for) any and all costs, expenses, taxes, levies or similar
charges incurred by PGPSI or imposed at any time on PGPSI by virtue
of or resulting from such transfer or disposition. Sellers covenant
with and to Buyer that, after giving effect to the transfers and
dispositions of Excluded Assets: (a) the unamortized and un-
depreciated basis of the amortizable and depreciable Owned Assets
for federal income tax purposes shall not be less than twelve
million dollars on the Closing Date; and (b) the gain (regardless
of whether such gain is treated as ordinary income) realized by
PGPSI for federal income tax purposes resulting from the transfer
and sale of the Excluded Assets will not exceed $100,000.

(b) LIABILITIES. Other than the liabilities and obligations
listed on EXHIBIT 2.6.(b), including the obligation as maker under
the PGPSI Note, (the "Continuing Liabilities"), PGPSI shall have no
other material (but in no event in an aggregate amount exceeding
$50,000) obligations or liabilities as of the Effective Time or the
Closing Date. As provided in Section 2.7, the Sellers on or before
the Closing Date shall discharge in their entirety, or arrange for
the assumption by New Paragon Residential, or shall cause PGPSI to
discharge in their entirety, all liabilities and obligations of
PGPSI, other than the Continuing Liabilities, which exist on, have
accrued to or which relate to the period up to the Effective Time.

<PAGE>

PGPSI shall have continuing liability for the Continuing
Liabilities in accordance with Section 2.7 hereof.

2.7 LIABILITIES AND REVENUES/PRORATIONS

(a) GENERAL RULE FOR PRORATION OF REVENUES AND LIABILITIES

Subject to the effectiveness of the Closing, any revenue or
income of PGPSI earned, as determined in accordance with GAAP,
prior to the Effective Time shall inure to the benefit of the
Sellers or Sellers' designee. Subject to the obligation of the
Sellers to discharge, to arrange for assumption by New Paragon
Residential, or to cause PGPSI to discharge, on or before the
Closing Date, certain liabilities and obligations of PGPSI in
accordance with Section 2.6 and this Section 2.7, the cash balance
of PGPSI as of the end of the day preceding the Effective Time
shall be remitted on the Closing Date to the Sellers or their
designee. Sellers shall discharge, arrange for the assumption by
New Paragon Residential of, or shall cause PGPSI to discharge, on
or at Closing all the liabilities and all operating and other
expenses of PGPSI arising, related or accruing, in accordance with
GAAP, to the period prior to the Effective Time, including, without
limitation, accounts payable, insurance premiums, fees, lease
payments, federal, state and local taxes, tariffs and assessments
arising, accruing or related to the period up to the Effective
Time. Without limitation, the liabilities of PGPSI with respect to
all real or personal property leases shall be current through the
Effective Time (including the payment of any pro-rata amounts
through the Effective Time) other than any expense reconciliations
which may occur after the Effective Time.

(b) IMPLEMENTATION PROCEDURES

If funds are received by PGPSI after the Effective Time with
respect to items of pre-Effective Time PGPSI income or revenue,
such funds shall be paid by PGPSI to the Sellers or their designee
at the later of the Closing Date or promptly after receipt thereof.
If invoices, assessments or other expense claims are received by
PGPSI after the Effective Time with respect to pre-Effective Time
expenses of PGPSI that have accrued or relate to the period prior
to the Effective Time, Sellers shall pay or cause a designee of
Sellers to pay such expenses at the later of the Closing Date or
promptly after receipt of bona fide evidence of such expenses or
shall reimburse PGPSI for any pre-Effective Time expenses of PGPSI
paid by PGPSI. Buyer shall use its Best Efforts to obtain the prior
approval of Sellers or its successor as to any single expense
exceeding $5,000 so paid by Buyer, but Buyer's failure to do so
shall not constitute a Breach hereof. PGPSI shall prepare, within
sixty (60) days following the Closing, a proration statement (the
"Initial Proration Report") detailing the amount of any PGPSI pre-
Effective Time income or revenue payable to the Sellers or their
designee or of any PGPSI pre-Effective Time expenses payable by the

<PAGE>

Sellers or their designee. PGPSI and Sellers agree to promptly
disburse funds and make payments in accordance with the mutually
agreed upon determinations set forth in such Initial Proration
Report and to diligently collect all fees and other sources of
income even though they may be payable to another party. In the
event Sellers disputes one or more proration items, it shall
communicate such disputed proration item(s) to PGPSI within 40 days
of delivery to Sellers of the Initial Proration Report. In the
event that Sellers and PGPSI do not agree to a resolution, PGPSI
shall select (which selection shall be reasonably acceptable to a
nationally recognized accounting firm to prepare an adjusting
proration statement for the disputed items, the fees for which
shall be borne solely by the party (either PGPSI on the one hand or
Sellers on the other) whose proposed resolution of the disputed
proration items has the largest dollar amount of discrepancy
(collectively, if there is more than one disputed item) from the
proration statement prepared by the accounting firm selected to
resolve the dispute.

PGPSI shall prepare during January 1997 a second proration
statement (the "Final Proration Report") respecting the amounts, if
any, of any PGPSI pre-Effective Time income or revenue payable to
the Sellers or their designee or of any PGPSI pre-Effective Time
expenses payable by the Sellers or their designee which was not
covered by the Initial Proration Report. Such supplemental report
will be subject to the same delivery and dispute resolutions
procedures as those governing the Initial Proration Report.

Notwithstanding the general application of the proration
provisions of Section 2.7(a), the following expenses, income and
revenue shall be prorated and allocated as follows:

(i) Any items that are prepaid by PGPSI on an annual basis
such as dues and subscriptions shall not be pro-rated
nor credited to the Sellers; provided, however, that any
refundable premiums for insurance of PGPSI which is
cancelled effective the Closing Date in accordance with
the provisions hereof shall be paid to Sellers.

(ii) [Intentionally omitted]

(iii) Sellers shall be responsible for the payment for and
shall promptly pay and discharge (and shall reimburse
PGPSI at or after the Closing for) any and all costs,
expenses, taxes, levies or similar charges incurred by
PGPSI or imposed at any time on PGPSI by virtue of or
resulting from the transfer or disposition by PGPSI of
the Excluded Assets as contemplated by this Agreement.

<PAGE>

(iv) Sellers shall, as Sellers' allocation of bonuses payable
to officers and employees of PGPSI attributable to the
1996 pre-Effective Time, immediately after Closing pay
to PGPSI $650,000, together with an amount equal to the
employer portion of tax and withholding liabilities
(without limitation, for FICA, unemployment
compensation, PGPSI Plan contributions, etc.) thereon.
The amounts payable by Sellers under this Section
2.7(c)(iv) shall be reduced by the amount of the
Effective Time Employee Accounts Receivable. Seller
shall be responsible for the payment of the employer's
portion of tax and withholding liabilities (without
limitation, for FICA, unemployment compensation, PGPSI
Plan contribution, etc.) with respect to Effective Time
Employee Accounts Receivable.

(v) The allocation of certain payments, expenses,
compensation and benefits to certain PGPSI employees or
agents or its former employees or agents is governed by
Section 2.17 hereof and to the extent of any conflict
between the provisions of Section 2.7(a) and Section
2.17, the provisions of Section 2.17 shall control.

(vi) The Sellers shall cause PGPSI to sell and convey the
Grand Prairie, Texas industrial development known as
"Great Southwest Industrial Center (the "1996 Dallas
Industrial Property") immediately before or at Closing
to New Paragon Residential. Sellers shall at Closing
cause New Paragon Residential to enter into a Management
and Development Agreement with PGPSI (the "Great
Southwest Management Agreement") pursuant to which PGPSI
will be engaged as construction manager, property
manager, leasing agent and sales broker with respect to
the 1996 Dallas Industrial Property. The Great Southwest
Management Agreement shall provide that Barry Nelson,
Steve Sears and Jeff Turner remain actively involved in
the project, and shall provide for the payment of the
following fees to PGPSI: (i) a construction management
fee equal to $12,500 to be paid upon completion of the
project, (ii) property management and leasing fees
consistent with the fees paid under the PGPSI Services
Agreement for the PG Group Properties and (iii)
brokerage commission of 2% of the purchase price if
PGPSI is the sole real estate broker, provided that, if
additional brokers participate, the aggregate commission
payable to all brokers shall be 3%.

(vii) PGPSI shall, immediately prior to Closing, terminate and
pay and assume all costs related to terminating any
PGPSI Plans and the PGPSI Stock Plan.

<PAGE>

(viii) With respect to leasing commissions, in cases where at
the Effective Time both: (a) a lease has been executed
by all the parties necessary to create a binding
obligation of all the parties thereto; and (b) there are
no contingencies or unfulfilled conditions which must be
satisfied or obligations which must be performed by any
party thereto before the obligation to pay PGPSI a
leasing commission arises (a "Completed Lease"), then
the leasing revenue arising from such Completed Lease
actually received by PGPSI during the 90 day period
beginning on the Effective Time shall be deemed "earned"
as of the Effective Time and shall be paid by PGPSI to
Sellers after deduction for any and all expenses
incurred in connection with such Completed Lease,
including without limitation the payment of any amounts
to employees or third parties in connection with such
Completed Lease. Notwithstanding the foregoing, if the
only condition remaining to be satisfied before the
obligation to pay PGPSI a leasing commission is the
occupancy by the tenant under such lease of the
designated premises covered thereby and PGPSI has no
obligation to perform tenant improvement services or
other services with respect to such lease or the
designated premises for compensation less than the
amount which would be paid by one party to a non-
affiliate for similar services in a similar geographic
location, then such lease shall be treated as a
Completed Lease.

(ix) Tenant supervision fees, consulting fees, and
development fees for billed and unbilled actual work
performed by PGPSI through the Effective Time shall be
recorded as a receivable and paid to Sellers upon
receipt. Any expenses of PGPSI accrued prior to the
Effective Time (and attributable to the period ending at
the Effective Time) which directly relate to providing
such tenant supervisory services, consulting services,
or development services shall be recorded as a liability
at the Effective Time and netted against amounts to be
paid to the Sellers as tenant supervision fees,
consulting fees, or development fees, respectively.

(x) Sellers shall be entitled to receive any acquisition
fees or leasing fees (totalling approximately $325,000)
associated with the acquisition of the office building
known as 10,0000 North Central Expressway located in
Dallas, Texas, and the occupancy of space therein by New
PGPSI Residential, Sellers or PG Parent.

(xi) With respect to any exclusive agreements which are in
writing and fully executed by all parties as of Closing
except for agreements with respect to PG Group

<PAGE>

Properties, Cooper Partnership Properties and Syndicated
GE Partnership Properties, which agreements provide for
the engagement of PGPSI to dispose of a specific real
estate asset or to acquire a specific real estate asset,
in the event that a closing of any such acquisition or
disposition covered by such an agreement occurs on or
prior to December 31, 1996 and PGPSI receives a fee in
connection therewith, then Sellers shall be entitled to
receive 15% of the net amount of such fees so received
by PGPSI (but excluding any payments to co-brokers)
after the payment of all bona fide third party out of
pocket expenses and any payments or credits to employees
of PGPSI in the nature of commission in connection with
each of such transactions, provided, however, that the
maximum amount Sellers shall be entitled to receive
pursuant to this sub-paragraph (xi) shall not exceed
$250,000. The payments provided for in this sub-
paragraph (xi) shall not apply to the acquisition of any
real estate asset if PGPSI or an affiliate makes a co-
investment in such property.

(xii) PGPSI will retain the Effective Time Employee Accounts
Receivable and will assign to New Paragon Residential
obligations of employees of PGPSI to PGPSI representing
surplus draws against commission. To the extent that
PGPSI collects any of the obligations from employees for
surplus draws against commission existing as of the
Closing Date on or prior to October 31, 1996, PGPSI
shall remit such amount collected to Sellers.

(d) RELEASE OF NOTE HOLDER

At Closing, Sellers shall deliver to Buyer a release from the
holder of the New Paragon Residential Note.

2.8 CONTINUING LIABILITIES

PGPSI shall retain after the Effective Time the liability and
responsibility for the payment and performance of the Continuing
Liabilities.

2.9 TAX RETURN

At Closing Sellers, PGPSI and Buyer shall enter into that
certain Tax Allocation Agreement in the form attached hereto as
EXHIBIT 2.9 (the "Tax Allocation Agreement"). All Tax Returns shall
be prepared and filed and all other matters respecting Taxes shall
be governed by the terms and conditions of the Tax Allocation
Agreement.

2.10 IFG REGISTRATION RIGHTS

<PAGE>

IFG at the Closing will enter into an IFG Registration Rights
Agreement with PGL in the form of EXHIBIT 2.10 attached hereto (the
"IFG Registration Rights Agreement") with respect to all shares of
IFG Common Stock obtainable through exercise of the IFG Warrants.

2.11 PGPSI SERVICES AGREEMENT IN EFFECT ON THE CLOSING DATE

The Sellers acknowledge that a primary inducement of Buyer to
enter into this Agreement is the financial benefit to be derived
from the revenues expected to be generated from PGPSI Services
Agreements in effect on the Closing Date and thereafter. Subject to
effectuation of a Closing:

(a) Sellers shall cause the following Properties to
become subject no later than the Closing Date, and to remain
thereafter subject prior to a sale of such Property, to a
replacement PGPSI Services Agreement, in a form subject to the
mutual approval of Buyer and Sellers and with respect to which
Buyer and Sellers agree to use their Best Efforts in good
faith to negotiate and approve (the "Replacement PGPSI
Management Agreement") and which will contain for "cause"
termination only provisions, with the owner of each such
Property:

(1) those three PG Group Properties known as "The
Paragon" located in St. Louis, Missouri (the
"Paragon/St. Louis"), "Westgate" located in St.
Louis, Missouri ("Westgate") and "Southwood Shops"
located in Bradenton, Florida ("Southwood"),
provided that the compensation and reimbursements
payable under the revised PGPSI Services Agreement
shall be substantially the same as those paid under
the existing PGPSI Services Agreement.

(b) Sellers shall use their Best Efforts to cause the
Properties known as "Gleneagles" located in Richmond, Virginia
and "363 North Belt" located in Houston, Texas to, prior to a
sale of such Property, remain subject to the existing
respective PGPSI Services Agreement with the owner of each
such Property, provided that such PGPSI Service Agreements
shall until the first anniversary of the Closing Date be
terminable only for "cause", but thereafter terminable upon 30
days notice.

(c) Sellers shall use their Best Efforts to cause the
Syndicated GE Partnership Properties and those three PG Group
Properties known as "Gateway" located in St. Louis, Missouri,
"Fair Oaks" located in Fairfax County, Virginia and "Shady
Grove" located in Rockville, Maryland to remain subject to the
existing PGPSI Services Agreements.

<PAGE>

(d) Sellers shall use their Best Efforts until the
Closing Date to cause all the Non-Affiliated Properties listed
on EXHIBIT 2.11.(d)-1 (the "Non-Affiliated Management
Properties") to remain subject to the respective PGPSI
Services Agreement.

(e) PGPSI shall promptly deliver to Buyer a copy of all
PGPSI Services Agreements presently in effect and will cause
any PGPSI Services Agreement to which it becomes a party
during the period after the date hereof but prior to the
Closing Date to be promptly delivered to Buyer. PGPSI will
promptly submit to Buyer any applicable Modification Notices
respecting EXHIBIT 3.24-1 in order to include the listing of
any such newly executed PGPSI Services Agreement and to delete
the listing of any newly terminated or expired PGPSI Services
Agreement.

(f) Except as otherwise provided in this Section 2.11,
in addition to any obligations which the Sellers may have
under the Paragon Consulting/Non-Competition Agreement,
neither of the Sellers shall, without the prior written
consent of Buyer, cause, encourage or authorize any Property
owner to terminate or fail to renew any PGPSI Services
Agreement with respect to any Managed Properties except, with
respect to the Controlled Management Properties, any
termination or failure to renew (1) for "cause"; or (2) as may
be required by Sellers' fiduciary duty.

(g) In the event a PGPSI Services Agreement respecting
a Property described in Section 2.11(a),(b) and (c), a Cooper
Partnership Property or a Syndicated GE Partnership Property
is terminated or not renewed by a party other than PGPSI,
Sellers shall not, nor shall they permit any Person over which
either has control, for a period of five years following the
Closing Date, to sell to, or receive any financial
consideration from, any Person or entity other than Buyer or
a Related Person thereof the right to provide (or to control
the designation of the provider thereof) to any such Property
property management services and/or leasing services and/or
real estate brokerage services and/or development services
unless Sellers cause Buyer to be paid 100% of any sale
proceeds or other consideration received by the Sellers or any
Related Person thereof.

(h) For purposes of this Section 2.11,: "for cause"
means gross negligence, willful misconduct or mismanagement as
measured by prevailing industry standards.

<PAGE>

2.12 CONSULTING/NON-COMPETITION AGREEMENTS

Subject to effectuation of a Closing, at the Closing the
Sellers will enter into the Paragon Consulting/Non-Competition
Agreement.

2.13 REAL ESTATE BROKERAGE

Subject to effectuation of a Closing, at Closing the Sellers
shall cause the owner of Westgate, Paragon/St. Louis and Southwood
to enter into a real estate brokerage agreement with Buyer or a
Related Person of Buyer designated by Buyer, in a form subject to
the mutual approval of Buyer and Sellers and with respect to which
Buyer and Sellers agree to use their Best Efforts in good faith to
negotiate and approve (the "Real Estate Brokerage Agreement") and
which will have the following commission structure with respect to
each Property:

(a) Southwood: 6% to all participating brokers on
the first $500,000 of purchase price
and 2.0% on the amounts in excess
thereof, unless additional brokers
participate in which event the
aggregate commissions payable to all
brokers shall be 3%;

(b) Westgate: 2% of the purchase price payable to
Buyer if it is the sole real estate
broker; if additional brokers
participate, the aggregate
commissions payable to all brokers
shall be 3%;

(c) Paragon/St. Louis: 1% payable to Buyer if it is the
sole real estate broker; if
additional brokers participate, the
aggregate commissions payable to all
brokers shall be 2%.

Such right of Buyer or Buyer's Related Person designee to act as
real estate broker with respect to each of the three foregoing
Properties shall be exclusive for a period commencing with the date
of notice by such owner to Buyer of such owner's desire to sell the
specified Property and terminating 180 days thereafter, but in no
event shall such exclusive period terminate prior to the 180th day
following the Closing Date. Upon the expiration of any exclusivity
period respecting a specified Property, Buyer or its Related Person
designee shall continue to have a similar but non-exclusive listing
right for a period of six (6) additional months.

2.14 [Intentionally Omitted]

<PAGE>

2.15 [Intentionally Omitted]

2.16 TENANCY LEASES

PGPSI is a party to certain leases pursuant to which it
presently occupies office space as a tenant. Buyer and Sellers
desire to allocate the rights and obligations thereunder as
follows. Subject to effectuation of the Closing:

(a) DALLAS LEASE. Sellers shall indemnify PGPSI and
Buyer against any and all liabilities and obligations
respecting the lease for the Dallas, Texas office
headquarters located at 7557 Rambler Road. In the event
Sellers or New Paragon Residential effectuate an assumption of
the existing lease or negotiate a new lease, subject to a
Closing, PGPSI shall have the right to sublet approximately
12,500 square feet on the 13th floor for a term expiring
December 31, 1996, but otherwise on the same terms as the
assumed/new lease. If prior to the Closing Date PGPSI
exercises an option to terminate the lease, Sellers shall use
their Best Efforts to make the 13th floor available for
continued occupancy by PGPSI through December 31, 1996.

(b) TAMPA LEASE. Sellers shall be responsible for one-
half and Buyer shall be responsible for one-half of the
financial liabilities payable under that certain lease
agreement between Tampa Plaza IV Company, Ltd. as lessor and
Paragon Group, Inc., a Texas corporation (now known as Texas
PGI, Inc.) as the original lessee, dated as of September 21,
1989 (the "Tampa Lease"). Buyer and Sellers shall use their
Best Efforts in good faith to provide in the Closing
Allocation of Joint Assets Agreement for the allocation
between the parties of the other rights and obligations of the
lessee under the Tampa Lease.

Sellers represent and warrant that PGPSI has the right to sub-
lease, with the consent of the lessor, which consent may not
be unreasonably withheld or delayed, any or all of such Tampa
Lease office space.

(c) ST. LOUIS LEASE. Sellers shall cause PGPSI to
assign and shall cause New Paragon Residential to assume, all
the rights and obligations of PGPSI under the lease for the
St., Louis office headquarters located at 12400 Olive
Boulevard, St. Louis, Missouri. Sellers indemnify PGPSI and
Buyer against any and all liabilities and obligations
respecting such lease.

(d) PGPSI shall remain obligated for the leased space
currently utilized by the PGPSI Commercial Division at PGPSI's
present offices in Louisville, Kentucky, Lexington, Kentucky,
Washington D.C., Houston, Texas, Los Angeles, California, San

<PAGE>

Francisco, California, and Phoenix, Arizona located as
described on EXHIBIT 2.16.(d) hereof. With respect to the
leased space located at 9100 Shelbyville Road, Louisville,
Kentucky, PGPSI shall sublease the portion of the space
currently utilized by the residential group of PGPSI on the
same terms as the current lease. Buyer and Sellers shall use
their Best Efforts in good faith to provide in the Closing
Allocation of Joint Assets Agreement for the allocation
between the parties of other rights and obligations under the
sublease. With respect to the leased space located in
Louisville, Kentucky, Lexington, Kentucky, Washington, D.C.,
and San Franscisco, California, Sellers indemnify PGPSI and
Buyer against any and all liabilities arising from any default
created under such lease by the acquisition of the Shares by
Buyer.

(e) CHARLOTTE LEASE. Sellers shall cause PGPSI to assign
and shall cause New Paragon Residential to assume, all the
rights and obligations of PGPSI under the lease for the
Charlotte, North Carolina office headquarters located at 5821
Fairview Road, Charlotte, North Carolina. Sellers indemnify
PGPSI and Buyer against any and all liabilities and
obligations respecting such lease.

2.17 CERTAIN EMPLOYMENT MATTERS

(a) CATEGORIZATION OF PGPSI EMPLOYEES

Buyer will provide written notice, no later than June 5, 1996
(the "Employee Designation Date") to Sellers, of the names of
employees and independent contractors of PGPSI that Buyer intends
to retain (subject at all times to employment at will in the
absence of a written agreement effective entered into at or after
the Closing Date between such person and PGPSI (or a Related Party
designee of Buyer) as employees or independent contractors of PGPSI
(or a Related Party designee of Buyer) after the Closing Date (the
"Designated Employees"). The notice of Designated Employees will
categorize the Designated Employees into two divisions: (x)
Transition Employees (employees that Buyer intends will have a
short employment duration not intended to exceed 180 days) (the
"Transition Employees"); and (y) Non-Transition Employees
(employees that Buyer intends, but without obligation, to employ
for longer than a transition period) ("Non-Transition Employees").
Sellers shall deliver to Buyer no later than June 7, 1996 a
Certificate stating the employment commencement date of employment
with PGPSI of all the Designated Employees.

(b) NON-DESIGNATED EMPLOYEES

PGPSI shall on or before the Effective Time cease the
employment of, and Sellers shall pay and discharge (or assume or
cause a creditworthy designee of Sellers to assume) in full prior

<PAGE>

to the Effective Time any and all employment-related liabilities,
benefits and costs, including, without limitation, wages, benefits,
insurance, pension, profit-sharing, any Plan benefits, accrued
vacation, severance, or sick leave of PGPSI for any employees or
independent contractors of PGPSI who are not Designated Employees
("Non-Designated Employees"). Sellers will pay and indemnify and
reimburse PGPSI for any and all employment-related claims,
including, without limitations, wages, benefits, insurance,
pension, profit-sharing, any Plan benefits, accrued vacation, WARN
Act or COBRA benefits, claims or remedies, severance, or sick leave
for all Non-Designated Employees.

Sellers shall be solely responsible for (and shall reimburse
Buyer for any claims paid or incurred by Buyer or PGPSI) all the
costs of Transition Employees' including wages, withholding taxes,
accrued sick leave, accrued or accumulated vacation, pension, any
Plan benefits, health insurance costs, severance related
obligations, accruing or related to the period prior to and through
the Effective Time as if all such Transition Employees had their
employment irrevocably terminated by PGPSI as of the Effective
Time. All additional costs of such Transition Employees' wages,
withholding taxes, accrued sick leave, accrued vacation, pension,
health insurance costs, severance related obligations, accruing or
related to the period after the Effective Time shall remain the
liability and obligation of PGPSI. Except as required by applicable
law, neither Buyer, IFG nor any Related Person thereof shall have
any obligation to provide any vacation, health, insurance, pension,
insurance or other welfare benefits to Transition Employees.

(d) VACATION/POST-CLOSING BENEFITS FOR NON-TRANSITION
EMPLOYEES GENERALLY

(1) UNUSED VACATION AND SICK LEAVE

Buyer and IFG and any Related Person thereof shall
maintain on behalf of PGPSI employees after the Effective Time
such employee benefit plans as they may determine in their
sole discretion; provided, however, any Person who is a Non-
Transition Employee and who remains continuously employed by
PGPSI through July 1, 1998 may use through June 30, 1998
vacation and up to 20 days of sick leave accrued/accumulated
as PGPSI employees through the Closing Date. Thereafter, any
and all Non-Transition Employee vacation and sick leave
accrued/accumulated through the Closing Date shall be
forfeited and neither PGPSI nor Buyer shall have any
obligation to honor, permit any such employees to utilize or
to provide any other compensation to such employees respecting
such unused pre-Closing accrued/accumulated vacation and sick
leave.

<PAGE>

Any Person who is a Non-Transition Employee and whose
employment with PGPSI or Buyer (or their affiliates)
terminates for any reason on or before June 30, 1998 shall
receive cash compensation for the unused portion of such
Non-Transition Employee's pre-Closing accrued/accumulated vacation
and sick leave in accordance with the following calculations
and procedures:

(i) Any vacation utilized by such a Non-Transition
Employee during the period commencing with the Closing Date
and expiring June 30, 1998 shall, for purposes of this
Section 2.17, first be applied to any vacation
earned/accrued/accumulated during the period beginning
with the Closing Date and last applied to any vacation
earned/accrued/accumulated during the period prior
to the Closing Date.

(ii) Sellers shall pay such Non-Transition
Employee (or, at Buyer's option, shall reimburse
Buyer if Buyer advances such payment) promptly
after receipt from Buyer of evidence of the
cessation of such Non-Transition Employee's
employment with PGPSI (or Buyer or affiliate of
Buyer) in cash the value (as customarily
calculated) of all such employee's unused vacation
earned/accrued/accumulated during the period prior
to the Closing Date.

(iii) Buyer shall pay such Non-Transition
Employee promptly after the date of the cessation
of such Non-Transition Employee's employment with
PGPSI (or Buyer or an affiliate of Buyer) in cash
the value (as customarily calculated) of all such
employee's unused vacation earned/accrued/accumulated
during the period commencing on Closing Date.

(iv) Buyer shall provide a quarterly written
report to Sellers of the cessation of employment of
any Non-Transition Employee occurring during the
period commencing on the Closing Date and
terminating on June 30, 1998. The report shall
contain a calculation of the respective amounts
payable by Sellers and Buyer under subsections (ii)
and (iii) immediately above together with evidence
of such employment cessation.

(2) OTHER BENEFITS

Buyer and IFG and any Related Person thereof shall
maintain on behalf of PGPSI employees after the Closing Date

<PAGE>

such employee benefit plans as they may determine in their
sole discretion; provided, however, that at a minimum Buyer
shall maintain for Designated Employees employee benefit plans
that are comparable to those provided to other persons
employed by Buyer. Buyer shall (i) credit each Non-Transition
Employee for such Non-Transition Employee's service with PGPSI
or its affiliates for purposes of eligibility, benefits,
benefit service, credited service under any employee benefit
plan in which such Non-Transition Employee is otherwise
eligible to participate, and (ii) permit, at Sellers' expense,
a trustee-to-trustee transfer or direct rollover of the
accrued benefit of any Employee under the PGPSI 401-K Plan
into a qualified employee benefit plan upon reasonable notice.
With respect to any employee benefit plans that provide
welfare benefits, such plans shall waive for Non-Transition
Employees any exclusions with respect to preexisting
conditions and shall provide that any expenses incurred on or
prior to the Effective Time by any Non-Transition Employee
under any employee plan of PGPSI shall be fully credited for
purposes of satisfying applicable deductible, coinsurance and
maximum out-of-pocket provisions under such employee benefit
plans of Buyer.

(e) Except as expressly provide herein, nothing in this
Section 2.17 shall create any rights for any employees of PGPSI,
IFG or any Related Person thereof.

(f) Subject to the effectiveness of a Closing, Sellers and
PGPSI shall cause, effective immediately prior to the Closing:

(1) all rights of any grantee or participant under the PGPSI
Stock Plan listed on Exhibit 2.17(f) and who, immediately
prior to Closing is an employee of PGPSI to be fully vested
and all shares ever issuable to such grantee or participant
(which have not previously been issued under the PGPSI Stock
Plan) to be issued;

(2) all obligations (including tax withholding obligations)
of PGPSI under the PGPSI Stock Plan to be discharged or
assumed by New Paragon Residential.

Sellers shall cause, at Sellers' expense, PGPSI's sponsorship of
any and all PGPSI Plans to terminate and no PGPSI employee shall
accrue further benefits under such PGPSI Plans. Sellers agree and
represent and warrant that after the Effective Time, PGPSI shall
have no duty to: (i) file any Tax Returns related to any PGPSI
Plan, (ii) sponsor, maintain or administer any PGPSI Plan, (iii)
provide any notice or communication to any PGPSI Plan participant;
or (iv) make any contribution to any PGPSI Plan; and Sellers
further agree that any requirement to undertake or perform any of
the foregoing shall be the sole responsibility and obligation of
the Sellers or their designee.

<PAGE>

(g) In the event any of the Non-Transition Employees listed
on EXHIBIT 2.17(g) hereof cease being an employee of PGPSI prior to
the first anniversary of the Closing Date for any reason, Buyer
agrees to promptly provide a confidential notice to Sellers stating
the date and the basis for such cessation.

2.18 LICENSE TO USE TRADENAME

Subject to the effectiveness of a Closing, Sellers grant to
Buyer, in connection with rendering services to Properties, the
exclusive right and license, in connection with rendering
commercial property services, to all of Sellers' and PGPSI's right,
title and interest in the use of the name/words "Paragon
Commercial", but only for use in the context of "Insignia-Paragon
Commercial" for the period of one (1) year following the Closing
Date. Buyer shall cause PGPSI to change its corporate name
effective immediately after Closing to a name permitted by the
terms of this Section 2.18. Subject to the effectiveness of a
Closing, Sellers further agree: (i) to cooperate with Buyer in
protecting Buyer's right and license to use the tradename
"Insignia-Paragon Commercial" during the first year following the
Closing Date; and (ii) not, nor permit any affiliate, to use the
tradename "Paragon Commercial" during the five year period
following the Closing Date; (iii) never license any non-affiliated
Person to use the tradename "Paragon Commercial"; and (iv) at
Buyer's expense, to institute and pursue any cause of action which
Buyer reasonably requests to protect Buyer's license during the one
year period to use the tradename "Insignia-Paragon Commercial"
and/or to restrain any use by any non-affiliated Person of the
tradename "Paragon Commercial" prohibited by the terms hereof.

2.19 CLOSING ALLOCATION OF JOINT ASSETS AGREEMENT

Buyer, PGPSI and Sellers agree to negotiate in good faith and
to use their Best Efforts to enter into at any Closing held
hereunder the Closing Allocation of Joint Assets Agreement. Such
agreement shall determine, to the extent not otherwise expressly
provided in this Agreement, allocation, use and ownership between
Sellers (or their designee) on the one hand and Buyer (or its
designee) on the other after the Closing of any assets, including
office and telecommunications equipment and non-exclusive use of
policy and procedures manuals, Trade Secrets and Copyrights, and
leasehold interests as tenants at offices maintained by PGPSI,
which prior to Closing have been used in the Ordinary Course of
Business by both the PGPSI Commercial Division and other segments
of PGPSI's business operations.

2.20 TENURE OF JEREMY FLETCHER

In recognition of Jeremy Fletcher's value to PGPSI, in the
event of a Closing, if prior to the first anniversary of the
Closing Date, either:

<PAGE>

(a) Jeremy Fletcher voluntarily terminates his
employment with PGPSI; or

(b) PGPSI terminates his employment with cause

(either termination, a "Fletcher/PGPSI Termination"), Sellers shall
pay to Buyer $100,000 within 30 days after the date of such
Fletcher/PGPSI Termination. Buyer shall promptly provide notice to
Sellers upon the occurrence of a Fletcher/PGPSI Termination.

2.21 BARNETT MANAGEMENT TERMINATION FEE

Subject to a Closing, Sellers shall promptly pay to Buyer (or
its designee) a termination fee (the "BARNETT MANAGEMENT TERMINATION
FEE"), in an amount set forth below, if prior to the fifth
anniversary of the Closing Date PGPSI's services under the
applicable PGPSI Services Agreement cease (including a cessation
resulting from a sale of Barnett Plaza or cessation for non-renewal
of the applicable PGPSI Services Agreement), unless such cessation
results:

(a) from the voluntary termination or non-renewal of the
applicable PGPSI Services Agreement by PGPSI; or

(b) from termination of the PGPSI Services Agreement for
"cause"; or

(c) at the sole direction of Metropolitan Life Insurance
Company ("Metropolitan") following Metropolitan's purchase of
all the ownership interests in Para-Met Plaza Associates not
owned as of the Closing Date by Metropolitan unless:

(i) Metropolitan's purchase of the remaining
ownership interests resulted from the exercise of
its rights under an applicable buy/sale contractual
provision initially invoked by Cooper and/or WRCH;
or

(ii) Cooper and/or WRCH encouraged Metropolitan to
either (1) terminate (or fail to renew) the PGPSI
Services Agreement on grounds not satisfying the
standard set forth in (b) above, or (2) to initiate
exercise of Metropolitan's buy/sale rights to
purchase the remaining ownership interest in Para-Met
Plaza Associates;

or;

(d) Buyer (or its designee) succeeds to all the right,
power and authority (other than the rights to receive
distributions payable to partners on account of their
ownership of partnership interests in Paragon Plaza Two, Ltd.)

<PAGE>

of Cooper and WRCH as a general partner as of the date hereof
in Paragon Plaza Two, Ltd. (the co-general partner with
Metropolitan) in Para-Met Plaza Associates.

(a "Barnett Management Termination Event")

The amount of the Barnett Management Termination Fee, if any,
shall be based upon the date of the occurrence of a Barnett
Management Termination Event, as follows:

(i) During the first twelve (12) month period after the
Closing Date: $1,000,000

(ii) During the second twelve (12) month period after the
Closing Date: $750,000

(iii) During the third twelve (12) month period after the
Closing Date: $500,000

(iv) During the fourth twelve (12) month period after the
Closing Date: $250,000

(v) During the fifth twelve (12) month period after the
Closing Date: $100,000

In the event of sale of Barnett Plaza, the Barnett Termination
Fee shall be reduced in an amount equal to thirty percent (30%) of
any gross real estate commission (less any commission paid by PGPSI
to a non-affiliated participating real estate broker) received by
PGPSI, but in no event shall the amount of the Barnett Termination
Fee be less than $100,000.

For purposes of this Section 2.21,: "for cause" means gross
negligence, willful misconduct or mismanagement as measured by
prevailing industry standards.

2.22 MANAGEMENT TERMINATION FEES

Subject to a Closing, if a Management Termination Event occurs
with respect to a specific Management Termination Property during
the twenty-four month period commencing on the Closing Date and
terminating on (but including) the second anniversary of the
Closing Date, Sellers shall promptly pay, but only as a deduction
against any Earn-Out Payments then due or thereafter due to Sellers
under Section 2.05 hereof, to Buyer (or its designee) the Property
Specific Management Termination Fee set forth on EXHIBIT 1.J-1
hereof corresponding to the designated Management Termination
Property listed on such EXHIBIT 1.J-1. In no event:

(a) shall the aggregate of the Property Specific Management
Termination Fees payable hereunder exceed $2,879,200; nor

<PAGE>

(b) shall any Property Specific Management Termination Fees be
payable by Sellers if no Earn-Out Payments become payable to
Sellers under Section 2.05 hereof.

Notwithstanding the foregoing provisions of this Section 2.22,
no Property Specific Management Termination Fee shall be payable
with respect to the occurrence of a Management Termination Event at
the following Management Termination Properties in accordance with
the following conditions:

(a) "GLENEAGLES" LOCATED IN RICHMOND, VIRGINIA AND "363
NORTH BELT" LOCATED IN HOUSTON, TEXAS: in the event that as of
the Closing Date, these two Properties are subject to the
PGPSI Services Agreements described in subsection (b) of
Section 2.11, except that such PGPSI Service Agreements shall
until the second anniversary (instead of until the first
anniversary date) of the Closing Date be terminable only for
"cause" as defined in Section 2.11 herein.

(b) CERTAIN COOPER PARTNERSHIP PROPERTIES: the Cooper
Partnership Properties listed on EXHIBIT 1.J-1 shall no longer
be treated or defined as a Management Termination Property for
purposes of this Section 2.22 (and no Property Specific
Management Termination Fee shall ever be payable by Sellers to
Buyer) upon satisfaction of all of the following conditions
with respect to such Management Termination Property:

(i) Cooper and/or WRCH, in accordance with Section
5.2 of the Cooper Agreement, tender a "Qualified Offer"
(as defined in the Cooper Agreement respecting the sale
and transfer to Buyer of partnership interests in the
Cooper Partnership identified as the owner of the Cooper
Partnership Property on EXHIBIT 1.J-2; and

(ii) either:

1) Buyer accepts the Qualified Offer to
purchase the partnership interests and purchases
such interests in accordance with the applicable
terms of the Cooper Agreement; or

2) Buyer fails to accept the Qualified Offer
to purchase the partnership interests and such
partnership interests are sold to a Person other
than Buyer in a bona fide transaction within 180
days following the date on which the offer to Buyer
is deemed rejected in accordance with Section 5 of
the Cooper Agreement. In the event that Buyer fails
to accept the tendered offer to purchase the
partnership interests and Cooper and/or WRCH does
not sell such partnership interests to another
Person within the 180 day time period, the

<PAGE>

partnership interests will again become subject to
Buyer's right of first offer pursuant to the Cooper
Agreement.

and;

(iii) in accordance with Section 11 of the Cooper
Agreement, Cooper and/or WRCH delivers to Buyer the
agreements of James T. Cobb and Lewis A. Levey described
in the introductory sentence of such Section 11
respecting the matters described in Section 11.1 and
11.2 of the Cooper Agreement;

Any Property Specific Management Termination Fees payable by
Sellers to Buyer shall be credited against and deducted against the
amount of any Earn-Out Payments payable by Buyer to Sellers in
accordance with Section 2.05 hereof.

2.23 PG PARENT WARRANTS

At Closing, to induce Buyer to enter into this transaction,
PGL shall deliver to Buyer warrants to purchase up to 288,000
shares of the common stock, $0.01 par value per share, of PG Parent
on the terms and conditions set forth in the form of the PG Parent
Warrant Agreement (the "PG Parent Warrant Agreement") and PG Parent
Warrant attached hereto collectively as EXHIBIT 2.23 (the "PG
Parent Warrants").

2.24 PG PARENT REGISTRATION RIGHTS

PG Parent at the Closing will enter into a PG Parent Registration
Rights Agreement with Buyer in the form of EXHIBIT 2.24 attached hereto
(the "PG Parent Registration Rights Agreement") with respect to all
shares of PG Parent Common Stock obtainable through exercise of the
PG Parent Warrants.

2.25 [Intentionally Omitted]

2.26 LIMITATIONS ON CO-INVESTMENT WITH JP MORGAN

Subject to a Closing, during the period commencing on the
Closing Date and expiring on the first anniversary of the Closing
Date, Buyer (including any Person of which IFG owns (through one or
more tiers of ownership) more than 50% of the equity interest
therein) shall not solicit JP Morgan or any Subsidiary thereof to
become a joint venturer, partner or co-owner with Buyer in any
non-individual Person the assets of which do or are intended primarily
to consist of multi-family residential properties (or interests
therein). Notwithstanding any provision of this Section 2.26
seemingly to the contrary, Buyer or any Related Person thereof may
in its capacity as an owner (of a non-individual Person of which JP
Morgan has no equity interest) or broker of multi-family real

<PAGE>

estate solicit or participate in Ordinary Course of Business
transactions in which JP Morgan or a Subsidiary thereof is a party
as a purchaser or seller

3. REPRESENTATIONS AND WARRANTIES OF SELLERS

The phrase "their Knowledge" wherever used in this Section 3
refers to the Knowledge of Sellers and PGPSI.

Sellers and PGPSI represent and warrant to Buyer as follows:

3.1 ORGANIZATION AND GOOD STANDING

(a) EXHIBIT 3.1 hereof contains a complete and accurate
list for PGPSI and, to their Knowledge, for each Cooper
Partnership and, to their Knowledge, for each owner or holder
of an equity interest thereof and each owner of a general
partner or limited partner of a Cooper Partnership, of its
name, its jurisdiction of incorporation or organization,
jurisdictions in which it is authorized to do business, and
its capitalization (including the identity of each equity
owner and amount of such ownership), provided, however, that
such EXHIBIT 3.1 need not set forth for the Cooper
Partnerships or its equity owners the jurisdictions of
organization or authorization or capitalization. PGPSI is a
corporation duly organized on April 7, 1994, validly existing,
and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or
use the properties and assets that it purports to own or use,
and to perform all its obligations under Applicable Contracts.
PGPSI is duly qualified to do business as a foreign
corporation and is in good standing under the laws of the
states listed in EXHIBIT 3.1 hereof, which are all of the
states which the nature of the activities conducted by it
requires such qualification. PGPSI has never been a party to
a merger. PGPSI has no and has never had any Subsidiaries.

(b) Sellers have delivered to Buyer copies of the
Organizational Documents of PGPSI and, to their Knowledge,
copies of the Organizational Documents of the Cooper
Partnerships, as currently in effect. PGL was formed as a
limited partnership under Delaware law on December 31, 1993
and has never been a party to a merger. TPMPL was formed as a
Delaware limited partnership on July 11, 1994 and has never
been a party to a merger.

3.2 AUTHORITY; NO CONFLICT

(a) This Agreement constitutes the legal, valid, and
binding obligation of the Sellers and PGPSI, enforceable
against each of the Sellers and PGPSI in accordance with its

<PAGE>

terms except as such enforcement may be limited by applicable
bankruptcy laws. Upon the execution and delivery by Sellers of
the Paragon Consulting/Non-Competition Agreement, the Tax
Allocation Agreement, the IFG Warrant Agreement, the IFG
Registration Rights Agreement, the Great Southwest Management
Agreement, the Closing Allocation of Joint Assets Agreement
(collectively, the "Sellers' Closing Documents"), the Sellers'
Closing Documents will constitute the legal, valid, and
binding obligations of the Sellers and PG Parent (to the
extent PG Parent is a party to a Sellers Closing Documents)
enforceable against each of them in accordance with their
respective terms except as such enforcement may be limited by
applicable bankruptcy laws. Each of the Sellers and PGPSI has
the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and the
Sellers' Closing Documents to which each is a party and to
perform their obligations under this Agreement and the
Sellers' Closing Documents to which each is a party.

(b) Except as set forth in EXHIBIT 3.2.(b), neither the
execution, delivery or performance of this Agreement nor any
other consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without
notice or lapse of time):

(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational
Documents of PGPSI or, to their Knowledge, any Cooper
Partnership other than a Delivered Cooper Partnership
Agreement, (B) any resolution adopted by the board of
directors or the stockholders of PGPSI or the board of
directors of any corporate general partners of either of
the Sellers, or (C) any duty owed by any of the Sellers
or PGPSI to any Person;

(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other
Person the right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any
relief under, any Legal Requirement or any Order to
which PGPSI or either of the Sellers, or any of the
assets owned or used by PGPSI or the Sellers, may be
subject;

(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or
give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization (excluding any real estate
brokerage licenses and similar professional services
licenses) that is held by PGPSI or that otherwise

<PAGE>

relates to the business of, or any of the assets owned
or used by, PGPSI;

(iv) cause Buyer or PGPSI to become subject to, or
to become liable for the payment of, any Tax;

(v) to their Knowledge, cause any of the assets
owned by PGPSI to be reassessed or revalued by any
taxing authority or other Governmental Body;

(vi) contravene, conflict with, or result in a
violation or breach of any provision of, or give any
Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any
Applicable Contract or any Contract (including without
limitation any loan documents, but excluding any
Delivered PGPSI Services Agreement which is an
Applicable Contract or a Contract) to which PGPSI or
Sellers is a party or, to their Knowledge, with respect
to a Contract to which neither PGPSI nor Sellers is a
party but to which any of their property is subject or,
to which any Managed Property is subject; or

(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets
owned or used by PGPSI or, to their Knowledge, any
Cooper Partnership.

(i) required to be given to or obtained from a
person pursuant to the express provisions of the
Delivered Cooper Partnership Agreements; or

(ii) required to be given to or obtained from an
owner of one or more Managed Properties pursuant to the
express provisions of the Delivered PGPSI Service
Agreements; or

(iii) described on EXHIBIT 3.2.(c) hereof,

none of Sellers, PGPSI nor, to their Knowledge, any Cooper
Partnership is or will be required to give any notice to or
obtain any Consent from any Person, including without
limitation, any owner or mortgage/lien holder of any
Controlled Management Properties, Syndicated GE Properties or
of any Non-Affiliated Management Properties or any owner of
any interest in any Cooper Partnership, in connection with the
execution, delivery or performance of this Agreement or the
consummation or other performance of any of the Contemplated
Transactions, the absence of which notice or Consent would

<PAGE>

cause to occur or result in the occurrence of any of the
events described in Section 3.2(b)(i) through (vii).

(d) Notwithstanding any other provision of this
Agreement to the contrary, in the event that the execution,
delivery or performance of this Agreement or any other
consummation or performance of any of the Contemplated
Transactions (with or without notice or lapse of time)
contravenes, conflicts with, or results in a violation of or
breach of any provision of, or gives any Person the right to
declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel,
terminate, or modify, the express terms of any Delivered
Cooper Partnership Agreement, no such contravention, conflict,
violation or breach shall be treated by Buyer as a Breach by
Sellers of this Agreement nor give rise to any claim for
indemnification under Section 10.2(a) hereof.

(e) PGL is acquiring the IFG Warrants for its own
account and not with a view to their distribution within the
meaning of Section 2(11) of the Securities Act. Each Seller is
an "accredited investor" as such term is defined in Rule
501(a) under the Securities Act.

3.3 CAPITALIZATION

The authorized equity securities of PGPSI consist of:

(a) 9800 shares of non-voting common stock, par value $0.01
per share, (the "Non-Voting Class") of which 9800 shares
are issued and outstanding; and

(b) 100 shares of voting common stock, par value $0.01 per
share, (the "Voting Class") of which 100 shares are
issued and outstanding.

Such shares constitute the Shares. Sellers are and will be on the
Closing Date the record and beneficial owners and holders of the
Shares, free and clear of all Encumbrances. PGL owns 9800 Shares of
the Non-Voting Class and one Share of the Voting Class and TPMPL
owns 99 Shares of the Voting Class. No legend or other reference to
any purported Encumbrance appears upon any certificate representing
equity securities of PGPSI other than customary legends restricting
transfers under applicable securities laws. All of the outstanding
equity securities of PGPSI have been duly authorized and validly
issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity
securities or other securities of PGPSI. None of the outstanding
equity securities or other securities of PGPSI was issued in
violation of the Securities Act or any other Legal Requirement.
PGPSI does not own, nor has any Contract to acquire, any equity
securities or other securities of any Person (other than PGPSI) or

<PAGE>

any direct or indirect equity or ownership interest in any other
business, except in accordance with the PGPSI Stock Plan.

3.4 FINANCIAL STATEMENTS

Sellers have delivered to Buyer: (a) unaudited balance sheets
of PGPSI as at December 31, in each of the years 1994 and 1995, and
the related unaudited consolidated statements of income, changes in
stockholders' equity, and cash flow for each of the fiscal years
then ended, and (b) an unaudited balance sheet of PGPSI as at March
31, 1996 (the "Interim Balance Sheet") and the related unaudited
consolidated statements of income, changes in stockholders' equity,
and cash flow for the three months then ended, including in each
case the notes thereto. Such financial statements and notes fairly
present the financial condition and the results of operations,
changes in stockholders' equity, and cash flow of PGPSI as at the
respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP, subject, in the
case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (that,
if presented, would not differ materially from those included in
the December 31, 1995 balance sheet). The financial statements
referred to in this Section 3.4 reflect the consistent application
of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements. No
financial statements of any Person other than PGPSI are required by
GAAP to be included in the consolidated financial statements of
PGPSI.

3.5 BOOKS AND RECORDS

The books of account, minute books, stock record books, and
other records of PGPSI, all of which have been made available to
Buyer, are complete and correct and have been maintained in
accordance with sound business practices and the requirements of
Section 13(b)(2) of the Securities Exchange Act of 1934, as amended
(regardless of whether or not PGPSI are subject to that Section),
including the maintenance of an adequate system of internal
controls. The minute books of PGPSI contain accurate and complete
records of all meetings held of, and corporate action taken by, the
stockholders, the Boards of Directors, and committees of the Boards
of Directors of PGPSI, and no meeting of any such stockholders,
Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books.
At the Closing, all of those books and records will be in the
possession of PGPSI.

3.6 TITLE TO PROPERTIES; ENCUMBRANCES

EXHIBIT 3.6 hereto contains a complete and accurate list of
all real property, leaseholds, or other interests therein owned by

<PAGE>

PGPSI. Sellers have delivered or made available to Buyer copies of
the deeds and other instruments (as recorded) by which PGPSI
acquired such real property and interests, and copies of all title
insurance policies, opinions, abstracts, and surveys in the
possession of Sellers or PGPSI and relating to such property or
interests. PGPSI owns (with good and indefeasible title in the case
of real property, subject only to the matters permitted by the
following sentence) all the properties and assets (whether real,
personal, or mixed and whether tangible or intangible) that are
reflected as owned in the books and records of PGPSI, including all
of the properties and assets reflected in the Interim Balance Sheet
(except for assets held under capitalized leases disclosed or not
required to be disclosed in EXHIBIT 3.6 hereof and personal
property sold since the date of the Interim Balance Sheet in the
Ordinary Course of Business), and all of the properties and assets
purchased or otherwise acquired by PGPSI since the date of the
Interim Balance Sheet (except for personal property acquired and
sold since the date of the Interim Balance Sheet in the Ordinary
Course of Business and consistent with past practice), which
subsequently purchased or acquired properties and assets (other
than inventory and short-term investments) are listed in EXHIBIT 3.6
hereof. All material properties and assets reflected in the
Interim Balance Sheet are free and clear of all Encumbrances and
are not, in the case of real property, subject to any rights of
way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature except, with respect to
all such properties and assets, (a) mortgages or security interests
shown on the Interim Balance Sheet as securing specified
liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute
a default) exists, (b) mortgages or security interests incurred in
connection with the purchase of property or assets after the date
of the Interim Balance Sheet (such mortgages and security interests
being limited to the property or assets so acquired), with respect
to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (c) liens for current
taxes not yet due, and (d) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in
amount, materially detracts from the value or impairs the use of
the property subject thereto, or impairs the operations of PGPSI,
and (ii) zoning laws and other land use restrictions that do not
impair the present or anticipated use of the property subject
thereto. All buildings and structures owned by PGPSI lie wholly
within the boundaries of the real property owned by PGPSI and do
not encroach upon the property of, or otherwise conflict with the
property rights of, any other Person.

3.7 CONDITION AND SUFFICIENCY OF ASSETS

To their Knowledge, the buildings, structures of PGPSI are
structurally sound, are in good operating condition and repair. To
their knowledge, the building, structures, and equipment of PGPSI

<PAGE>

are currently sufficient for the conduct of the PGPSI Commercial
Division.

3.8 ACCOUNTS RECEIVABLE

(a) To their Knowledge, all accounts receivable of PGPSI that
are reflected on the Interim Balance Sheet or on the accounting
records of PGPSI as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually
performed in the Ordinary Course of Business. To their Knowledge,
unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date current and collectible net of
the respective reserves shown on the Interim Balance Sheet or on
the accounting records of PGPSI as of the Closing Date (which
reserves are adequate and calculated consistent with past practice
and, in the case of the reserve as of the Closing Date, will not
represent a greater percentage of the Accounts Receivable as of the
Closing Date than the reserve reflected in the Interim Balance
Sheet represented of the Accounts Receivable reflected therein and
will not represent a material adverse change in the composition of
such Accounts Receivable in terms of aging). To their Knowledge,
subject to such reserves, each of the Accounts Receivable either
has been or will be collected in full, without any set-off, within
ninety days after the day on which it first becomes due and
payable. To their Knowledge, there is no contest, claim, or right
of set-off, other than returns in the Ordinary Course of Business,
under any Contract with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable. To
their Knowledge, EXHIBIT 3.8(a) hereof contains a complete and
accurate list of all Accounts Receivable as of the date of the
Interim Balance Sheet, which list sets forth the aging of such
Accounts Receivable.

(b) EXHIBIT 3.8(b) hereof contains a complete and accurate
list of all Accounts Receivable as of the Closing Date representing
obligations of employees of the PGPSI Commercial Division to PGPSI,
including obligations for surplus draws or bonuses creditable
against commissions and bonuses not yet earned, (the "Effective
Time Employee Accounts Receivable").

3.9 [Intentionally Omitted]

3.10 NO UNDISCLOSED LIABILITIES

Except as set forth in EXHIBIT 3.10 hereof, to their
Knowledge, PGPSI has no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued,
contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the Interim Balance Sheet and
current liabilities incurred in the Ordinary Course of Business
since the respective dates thereof or for immaterial liabilities or

<PAGE>

obligations (the aggregate of such immaterial liabilities or
obligations are not in excess of $50,000).

3.11 TAXES

(a) PGPSI has filed or caused to be filed all Tax
Returns that are or were required to be filed by or with
respect to any of them, either separately or as a member of a
group of corporations, pursuant to applicable Legal
Requirements. Sellers have delivered to Buyer copies of, and
EXHIBIT 3.11 hereof contains a complete and accurate list of,
all federal and state income and gross receipts Tax Returns,
and made available for review by Buyer all other Tax Returns,
filed since December 1, 1993. PGPSI has paid, or made
provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment received by Sellers or PGPSI,
except such Taxes, if any, as are listed in EXHIBIT 3.11
hereof and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have
been provided in the Interim Balance Sheet.

(b) None of the United States federal and state income
Tax Returns of PGPSI subject to such Taxes have been audited
by the IRS or relevant state tax authorities or are closed by
the applicable statute of limitations for all taxable years
through December 31, 1995. EXHIBIT 3.11 contains a complete
and accurate list of all audits of all such Tax Returns,
including a reasonably detailed description of the nature and
outcome of each audit. All deficiencies proposed as a result
of such audits have been paid, reserved against, settled, or,
as described in EXHIBIT 3.11 hereof, are being contested in
good faith by appropriate proceedings. EXHIBIT 3.11 hereof
describes all adjustments to the United States federal income
Tax Returns filed by PGPSI or any group of corporations
including PGPSI for all taxable years since 1993, and the
resulting deficiencies proposed by the IRS. Except as
described in EXHIBIT 3.11, no Seller nor PGPSI has given or
been requested to give waivers or extensions (or is or would
be subject to a waiver or extension given by any other Person)
of any statute of limitations relating to the payment of Taxes
of PGPSI or for which PGPSI may be liable.

(c) The charges, accruals, and reserves with respect to
Taxes on the respective books of PGPSI are adequate
(determined in accordance with GAAP) and PGPSI's liability for
Taxes through the Closing Date shall not be not greater than
$100,000 more than such charges, accruals and reserves. There
exists no proposed tax assessment against PGPSI except as
disclosed in the Interim Balance Sheet or in EXHIBIT 3.11
hereof. No consent to the application of Section 341(f)(2) of
the IRC has been filed with respect to any property or assets

<PAGE>

held, acquired, or to be acquired by PGPSI. All Taxes that
PGPSI is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the
extent required, have been paid to the proper Governmental
Body or other Person.

(d) All Tax Returns filed by (or that include on a
consolidated basis) PGPSI are true, correct, and complete.
There is no tax sharing agreement that will require any
payment by PGPSI after the date of this Agreement. PGPSI is
not, nor within the five-year period preceding the Closing
Date has been, an "S" corporation.

3.12 NO MATERIAL ADVERSE CHANGE

To their Knowledge, except as otherwise set forth in this
Agreement, including the Exhibits hereto, since the date of the
Interim Balance Sheet, there has not been any material adverse
change in the business, client relations, operations, assets of
PGPSI, and no event has occurred or circumstance exists that may
result in such a material adverse change.

3.13 EMPLOYEE BENEFITS

(a) As used in this Section 3.13, the following terms
have the meanings set forth below.

"PGPSI OTHER BENEFIT OBLIGATION" means an Other
Benefit Obligation owed, adopted, or followed by PGPSI
or an ERISA Affiliate of PGPSI.

"PGPSI PLAN" means all Plans of which PGPSI or an
ERISA Affiliate of PGPSI is or was a Plan Sponsor, or to
which PGPSI or an ERISA Affiliate of PGPSI otherwise
contributes or has contributed, or in which PGPSI or an
ERISA Affiliate of PGPSI otherwise participates or has
participated. All references to Plans are to PGPSI Plans
unless the context requires otherwise.

"PGPSI VEBA" means a VEBA whose members include
employees of PGPSI or any ERISA Affiliate of PGPSI.

"ERISA AFFILIATE" means, with respect to PGPSI, any
other person that, together with PGPSI, would be treated
as a single employer under IRC Section 414.

"MULTI-EMPLOYER PLAN" has the meaning given in ERISA
Section 3(37)(A).

"OTHER BENEFIT OBLIGATIONS" means all obligations,
arrangements, or customary practices, whether or not
legally enforceable, to provide benefits, other than

<PAGE>

salary, as compensation for services rendered, to
present or former directors, employees, or agents, other
than obligations, arrangements, and practices that are
Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not
depend upon the amount of service rendered, sabbatical
policies, severance payment policies, and fringe
benefits within the meaning of IRC Section 132.

"PBGC" means the Pension Benefit Guaranty
Corporation, or any successor thereto.

"PENSION PLAN" has the meaning given in ERISA
Section 3(2)(A).

"PLAN" has the meaning given in ERISA Section 3(3).

"PLAN SPONSOR" has the meaning given in ERISA
Section 3(16)(B).

"QUALIFIED PLAN" means any Plan that meets or
purports to meet the requirements of IRC Section 401(a).

"TITLE IV PLANS" means all Pension Plans that are
subject to Title IV of ERISA, 29 U.S.C. Section 1301 et seq.,
other than Multi-Employer Plans.

"VEBA" means a voluntary employees' beneficiary
association under IRC Section 501(c)(9).

"WELFARE PLAN" has the meaning given in ERISA Section
3(1).

(b) (i) No PGPSI Plan is a VEBA, a Title IV Plan or a
Multi-Employer Plan or provides post-retirement medical,
life insurance or other welfare benefits as described in
Financial Accounting Statement 106 of the Financial
Accounting Standards Board.

(ii) EXHIBIT 3.13(b)(ii) contains a complete and
accurate list of all PGPSI Plans and PGPSI Other Benefit
Obligations, and identifies as such all PGPSI Plans that
are Qualified Plans.

(iii) EXHIBIT 3.13(b)(iii) contains a complete and
accurate list of (A) all ERISA Affiliates of PGPSI, and
(B) all Plans of which any such ERISA Affiliate is or
was a Plan Sponsor, in which any such ERISA Affiliate
participates or has participated, or to which any such
ERISA Affiliate contributes or has contributed.

<PAGE>

(iv) EXHIBIT 3.13(b)(iv) hereof sets forth a list
of PGPSI other Benefit Obligations and the financial
cost of all obligations owed under any PGPSI Plan or
PGPSI Other Benefit Obligation that is not subject to
the disclosure and reporting requirements of ERISA.

(i) all documents that set forth the terms of each
PGPSI Plan or PGPSI Other Benefit Obligation and of any
related trust, including (A) all plan descriptions and
summary plan descriptions of PGPSI Plans for which
Sellers or PGPSI are required to prepare, file, and
distribute plan descriptions and summary plan
descriptions, and (B) all summaries and descriptions
furnished to participants and beneficiaries regarding
PGPSI Plans and PGPSI Other Benefit Obligations for
which a plan description or summary plan description is
not required;

(ii) all personnel, payroll, and employment manuals
and policies;

(iii) all collective bargaining agreements pursuant
to which contributions have been made or obligations
incurred (including both pension and welfare benefits)
by PGPSI and the ERISA Affiliates of PGPSI, and all
collective bargaining agreements pursuant to which
contributions are being made or obligations are owed by
such entities;

(iv) a written description of any PGPSI Plan or
PGPSI Other Benefit Obligation that is not otherwise in
writing;

(v) all registration statements filed with respect
to any PGPSI Plan;

(vi) all insurance policies purchased by or to
provide benefits under any PGPSI Plan;

(vii) all contracts with third party administrators,
actuaries, investment managers, consultants, and other
independent contractors that relate to any PGPSI Plan or
PGPSI Other Benefit Obligation;

(viii) all reports submitted within the four years
preceding the date of this Agreement by third party
administrators, actuaries, investment managers,
consultants, or other independent contractors with
respect to any PGPSI Plan, PGPSI Other Benefit
Obligation, or PGPSI VEBA;

<PAGE>

(ix) the Form 5500 filed in each of the most recent
three plan years with respect to each PGPSI Plan,
including all schedules thereto and the opinions of
independent accountants;

(x) all notices that were given by PGPSI or any
ERISA Affiliate of PGPSI or any PGPSI Plan to the IRS or
any participant or beneficiary, pursuant to statute,
within the four years preceding the date of this
Agreement, including notices that are expressly
mentioned elsewhere in this Section 3.13;

(xi) all notices that were given by the IRS or the
Department of Labor to PGPSI, any ERISA Affiliate of
PGPSI, or any PGPSI Plan within the four years preceding
the date of this Agreement; and

(xii) with respect to Qualified Plans, the most
recent determination letter for each Plan of PGPSI that
is a Qualified Plan.

(d) Except as set forth in EXHIBIT 3.13(d) hereof:

(i) PGPSI has performed all of its obligations
under all PGPSI Plans and PGPSI Other Benefit
Obligations. PGPSI has made appropriate entries in
their financial records and statements for all
obligations and liabilities under such Plans and
Obligations that have accrued but are not due.

(ii) No statement, either written or oral, has been
made by PGPSI to any Person with regard to any Plan or
Other Benefit Obligation that was not in accordance with
the Plan or Other Benefit Obligation and that could have
a material adverse economic consequence to PGPSI or to
Buyer.

(iii) PGPSI, with respect to all PGPSI Plans and
PGPSI Other Benefits Obligations, is, and each PGPSI
Plan and PGPSI Other Benefit Obligation is, in full
compliance with ERISA, the IRC, and other applicable
Laws including the provisions of such Laws expressly
mentioned in this Section 3.13, and with any applicable
collective bargaining agreement.

(A) No transaction prohibited by ERISA Section 406
and no "prohibited transaction" under IRC Section 4975(c)
have occurred with respect to any PGPSI Plan.

(B) No Seller nor PGPSI has any liability to
the IRS with respect to any Plan, including any
liability imposed by Chapter 43 of the IRC.

<PAGE>

(C) No Seller nor PGPSI has any liability to
the PBGC with respect to any Plan or has any
liability under ERISA Section 502 or Section 4071.

(D) All filings required by ERISA and the IRC
as to each Plan have been timely filed, and all
notices and disclosures to participants required by
either ERISA or the IRC have been timely provided.

(E) All contributions and payments made or
accrued with respect to all PGPSI Plans, PGPSI
Other Benefit Obligations and are deductible under
IRC Section 162 or Section 404. No amount, or any asset
of any PGPSI Plan, is subject to tax as unrelated business
taxable income.

(iv) Each PGPSI Plan can be terminated within
thirty days, without payment of any additional
contribution or amount and without the acceleration of
any benefits promised by such Plan.

(v) Since December 1, 1993, there has been no
establishment or amendment of any PGPSI Plan or PGPSI
Other Benefit Obligation.

(vi) Other than claims for benefits submitted by
participants or beneficiaries, no claim against, or
legal proceeding involving, any PGPSI Plan or PGPSI
Other Benefit Obligation is pending or threatened.

(vii) No PGPSI Plan is a stock bonus, pension, or
profit-sharing plan within the meaning of IRC Section 401(a).

(viii) Each Qualified Plan of PGPSI is qualified in
form and operation under IRC Section 401(a); each trust for
each such Plan is exempt from federal income tax under
IRC Section 501(a). No event has occurred or circumstance
exists that will or could give rise to disqualification
or loss of tax-exempt status of any such Plan or trust.

(x) PGPSI and each ERISA Affiliate of PGPSI has
met the minimum funding standard, and has made all
contributions required, under ERISA Section 302 and IRC
Section 402.

(xi) Neither PGPSI nor any ERISA Affiliate of PGPSI
has filed a notice of intent to terminate any Plan or
has adopted any amendment to treat a Plan as terminated.

(xii) Neither the Sellers nor PGPSI know any facts
or circumstances that may give rise to any liability of
any Seller, PGPSI, or Buyer to the PBGC under Title IV
of ERISA.

<PAGE>
(xiii) Except to the extent required under ERISA Section
601 et seq. and IRC Section 4980B, PGPSI does not provide
health or welfare benefits for any retired or former
employee or is obligated to provide health or welfare
benefits to any active employee following such
employee's retirement or other termination of service.

(xiv) PGPSI has the right to modify and terminate
benefits to retirees (other than pensions) with respect
to both retired and active employees.

(xv) Sellers and all PGPSI have complied with the
provisions of ERISA Section 601 et seq. and IRC Section 4980B.

(xvi) No payment that is owed or may become due to
any director, officer, employee, or agent of PGPSI will
be non-deductible to PGPSI or subject to tax under IRC
Section 280G or Section 4999; nor will PGPSI be required to
"gross up" or otherwise compensate any such person because of
the imposition of any excise tax on a payment to such
person.

(xxii) The consummation of the Contemplated
Transactions will not result in the payment, vesting, or
acceleration of any benefit.

3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS

(a) Except as set forth in EXHIBIT 3.14 hereof:

(i) To their Knowledge, PGPSI is, and at all times
has been, in full compliance with each Legal Requirement
that is or was applicable to it or to the conduct or
operation of its business or the ownership or use of any
of its assets;

(ii) To their Knowledge, no event has occurred or
circumstance exists that (with or without notice or
lapse of time) (A) may constitute or result in a
violation by PGPSI of, or a failure on the part of PGPSI
to comply with, any Legal Requirement, or (B) may give
rise to any obligation on the part of PGPSI to
undertake, or to bear all or any portion of the cost of,
any remedial action of any nature; and

(iii) to their Knowledge, neither of the Sellers or
PGPSI has received, at any time since December 1, 1993,
any notice or other communication (whether oral or
written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or
potential violation of PGPSI, or failure by PGPSI to

<PAGE>

comply with, any Legal Requirement, which violation or
failure has not been corrected or complied with, or (B)
any actual, alleged, possible, or potential obligation
on the part of PGPSI to undertake, or to bear all or any
portion of the cost of, any remedial action of any
nature.

(b) EXHIBIT 3.14 hereof contains a complete and accurate
list of each Governmental Authorization that relates to the
business of the PGPSI Commercial Division or that otherwise
relates to the business of, or to any of the assets used in
the operation of the PGPSI Commercial Division. Each
Governmental Authorization of PGPSI is valid and in full force
and effect. Except as set forth in EXHIBIT 3.14 hereof:

(i) PGPSI is, and at all times since December 1,
1993 has been, in full compliance with or has fully
cured any non-compliance respecting all of the terms and
requirements of each PGPSI Governmental Authorization;

(ii) to their Knowledge, no event has occurred or
circumstance exists that may (with or without notice or
lapse of time) (A) constitute or result directly or
indirectly in a violation by PGPSI of or a failure by
PGPSI to comply with any term or requirement of any
Governmental Authorization, or (B) result directly or
indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to,
any Governmental Authorization;

(iii) to their Knowledge, no PG Group Person has
received, at any time since December 1, 1993 any notice
or other communication (whether oral or written) from
any Governmental Body or any other Person regarding (A)
any actual, alleged, possible, or potential violation by
PGPSI of or failure by PGPSI to comply with any term or
requirement of any Governmental Authorization, or (B)
any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and

(iv) to their Knowledge, all applications required
to have been filed for the renewal of the Governmental
Authorizations listed or required to be listed in
EXHIBIT 3.14 hereof have been duly filed on a timely
basis with the appropriate Governmental Bodies, and all
other filings required to have been made with respect to
such Governmental Authorizations have been duly made on
a timely basis with the appropriate Governmental Bodies.

The Governmental Authorizations listed in EXHIBIT 3.14 hereof
collectively constitute all of the Governmental Authorizations

<PAGE>

necessary to permit PGPSI to lawfully conduct and operate the
business of the PGPSI Commercial Division in the manner they
currently conduct and operate such business and to permit
PGPSI to own and use the assets used in the operation of the
PGPSI Commercial Division in the manner in which they
currently own and use such assets.

3.15 LEGAL PROCEEDINGS; ORDERS

(a) Except as set forth in EXHIBIT 3.15 hereof, there is
no pending Proceeding:

(i) that has been commenced by or against PGPSI or
that otherwise relates to or may affect the business of,
or any of the assets owned or used by, PGPSI; or

(ii) that challenges, or that may have the effect
of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions.

No such Proceeding has been Threatened, and, to their
Knowledge, no event has occurred or circumstance exists that
may reasonably be expected to give rise to or serve as a basis
for the commencement of any such Proceeding. Sellers have
delivered to Buyer summaries of (and made available for review
by Buyer copies of) all pleadings, correspondence, and other
documents relating to all Proceedings listed in EXHIBIT 3.15
hereof. The Proceedings listed in EXHIBIT 3.15 hereof will not
have a material adverse effect on the business, operations,
assets, condition, or prospects of PGPSI.

(b) Except as set forth in EXHIBIT 3.15 hereof:

(i) there is no Order to which any of PGPSI, or
any of the assets owned or used by PGPSI, is subject;

(ii) neither Seller is subject to any Order that
relates to the business of, or any of the assets owned
or used by, PGPSI; and

(iii) no officer, director, or, to their Knowledge,
agent or employee, of PGPSI is subject to any Order that
prohibits such officer, director, agent, or employee
from engaging in or continuing any conduct, activity, or
practice relating to the business of PGPSI.

(i) PGPSI is, and at all times since December 1,
1993 has been, in full compliance with all of the terms
and requirements of each Order to which it, or any of
the assets owned or used by it, is or has been subject;

<PAGE>

(ii) to their Knowledge, no event has occurred or
circumstance exists that may constitute or result in
(with or without notice or lapse of time) a violation by
PGPSI of or failure by PGPSI to comply with any term or
requirement of any Order to which PGPSI, or any of the
assets owned or used by PGPSI, is subject; and

(iii) to their Knowledge, except for violations or
failures which have been and remain totally cured, no PG
Group Person has received, at any time since December 1,
1993, any notice or other communication (whether oral or
written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential
violation by PGPSI of, or failure by PGPSI to comply
with, any term or requirement of any Order to which
PGPSI, or any of the assets owned or used by PGPSI, is
or has been subject.

3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS

Except as otherwise expressly set forth in this Agreement or
in EXHIBIT 3.16 hereof, since the date of the Interim Balance
Sheet, PGPSI has conducted its business only in the Ordinary Course
of Business and there has not been any:

(a) change in PGPSI's authorized or issued capital
stock; grant of any stock option or right to purchase shares
of capital stock of PGPSI; issuance of any security
convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition
by PGPSI of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution
or payment in respect of shares of capital stock;

(b) amendment to the Organizational Documents of PGPSI;

(c) with respect to the PGPSI Commercial Division,
payment or increase by PGPSI of any bonuses, salaries, or
other compensation to any stockholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry
into any employment, severance, or similar Contract with any
director, officer, or employee, other than the payments and
increases which will be assumed at Closing by New Paragon
Residential;

(d) adoption of, or increase in the payments to or
benefits under, any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement, or
other employee benefit plan for or with any employees of
PGPSI;

<PAGE>

(e) damage to or destruction or loss of any asset or
property of PGPSI, whether or not covered by insurance,
materially and adversely affecting the properties, assets,
business, financial condition, or prospects of PGPSI, taken as
a whole;

(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement,
or (ii) any Contract or transaction involving a total
remaining commitment by or to PGPSI of at least $10,000;

(g) sale (other than sales of inventory in the Ordinary
Course of Business), lease, or other disposition of any asset
or property of PGPSI or mortgage, pledge, or imposition of any
lien or other encumbrance on any material asset or property of
PGPSI, including the sale, lease, or other disposition of any
of the Intellectual Property Assets;

(h) cancellation or waiver of any claims or rights with
a value to PGPSI in excess of $10,000;

(i) material change in the accounting methods used by
PGPSI; or

(j) agreement, whether oral or written, by PGPSI to do
any of the foregoing.

3.17 CONTRACTS; NO DEFAULTS

(a) Sellers have delivered to Buyer true and complete
copies of and EXHIBITS 3.17(a)(i) - (xiv) hereof contain a
complete and accurate list, of:

(i) in connection with the operation of the PGPSI
Commercial Division, each Applicable Contract that
involves performance of services or delivery of goods or
materials by PGPSI of an amount or value in excess of
$5,000 is described on EXHIBIT 3.17(a)(i);

(ii) in connection with the operation of the PGPSI
Commercial Division, each Applicable Contract that was
not entered into in the Ordinary Course of Business and
that involves expenditures or receipts by the PGPSI in
excess of $10,000 is described on EXHIBIT 3.17(a)(ii);

(iii) in connection with the operation of the PGPSI
Commercial Division, each lease, rental or occupancy
agreement, license, installment and conditional sale
agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any
leasehold or other interest in, any real or personal

<PAGE>

property (except personal property leases and
installment and conditional sales agreements having a
value per item or aggregate payments of less than $5,000
and with terms of less than one year) is described on
EXHIBIT 3.17(a)(iii);

(iv) [Intentionally Omitted]

(v) in connection with the operation of the PGPSI
Commercial Division, each licensing agreement or other
Applicable Contract with respect to patents, trademarks,
copyrights, or other intellectual property, including
agreements with current or former employees,
consultants, or contractors regarding the appropriation
or the non-disclosure of any of the Intellectual
Property Assets is described on EXHIBIT 3.17(a)(v);

(vi) in connection with the operation of the PGPSI
Commercial Division, each collective bargaining
agreement and other Applicable Contract to or with any
labor union or other employee representative of a group
of employees is described on EXHIBIT 3.17(a)(vi);

(vii) in connection with the operation of the PGPSI
Commercial Division, each joint venture, partnership,
and other Applicable Contract (however named) involving
a sharing of profits, losses, costs, or liabilities by
PGPSI with any other Person is described on EXHIBIT
3.17(a)(vii);

(viii) in connection with the operation of the PGPSI
Commercial Division, each Applicable Contract containing
covenants that in any way purport to restrict the
business activity of PGPSI or limit the freedom of PGPSI
to engage in any line of business or to compete with any
Person, other than any Delivered PGPSI Services
Agreement which expressly contains such a covenant, is
described on EXHIBIT 3.17(a)(viii);

(ix) in connection with the operation of the PGPSI
Commercial Division, each Applicable Contract providing
for payments to or by any Person based on sales,
purchases, or profits, other than direct payments for
goods, in excess of $5,000 is described on EXHIBIT
3.17(a)(ix);

(x) in connection with the operation of the PGPSI
Commercial Division, each power of attorney that is
currently effective and outstanding is described on
EXHIBIT 3.17(a)(x);

<PAGE>

(xi) in connection with the operation of the PGPSI
Commercial Division, each Applicable Contract entered
into other than in the Ordinary Course of Business that
contains or provides for an express undertaking by PGPSI
to be responsible for consequential damages is described
on EXHIBIT 3.17(a)(xi);

(xii) in connection with the operation of the PGPSI
Commercial Division, each Applicable Contract for
capital expenditures in excess of $20,000 is described
on EXHIBIT 3.17(a)(xii);

(xiii) in connection with the operation of the PGPSI
Commercial Division, each written warranty, guaranty,
and or other similar undertaking with respect to
contractual performance extended by PGPSI other than in
the Ordinary Course of Business is described on EXHIBIT
3.17(a)(xiii); and

(xiv) in connection with the operation of the PGPSI
Commercial Division, each amendment, supplement, and
modification (whether oral or written) in respect of any
of the foregoing is described on EXHIBIT 3.17(a)(xiv).

EXHIBITS 3.17(a)(i) - (xiv) hereof sets forth reasonably
complete details concerning such Contracts, including the
parties to the Contracts, the amount of the remaining
commitment of PGPSI under the Contracts if such amount exceeds
$5,000 and PGPSI's office where details relating to the
Contracts are located.

(b) Except as set forth in EXHIBIT 3.17(b) hereof:

(i) neither of the Sellers (and no Related Person
of either Seller) has or may acquire any rights under,
and neither of the Sellers has or may become subject to
any obligation or liability under, any Contract that
relates to the business of, or any of the assets used in
the operation of the PGPSI Commercial Division; and

(ii) other than as set forth in the express terms of
a Delivered PGPSI Services Agreement, neither PGPSI nor
any officer, director, agent, employee, consultant, or
contractor of PGPSI is bound by any Contract that
purports to limit the ability of PGPSI or such officer,
director, agent, employee, consultant, or contractor to
engage in or continue any conduct, activity, or practice
relating to the PGPSI Commercial Division business of
PGPSI.

<PAGE>

(c) Except as set forth in EXHIBIT 3.17(c) hereof, each
Contract identified or required to be identified in EXHIBIT
3.17(a) hereof is in full force and effect and is valid and
enforceable in accordance with its terms.

(d) Except as set forth in EXHIBIT 3.17(d) hereof:

(i) to their Knowledge, PGPSI is, and at all times
since December 1, 1993 has been, in full compliance with
all applicable terms and requirements of each Contract
under which PGPSI has or had any obligation or liability
or by which PGPSI or any of the assets owned or used by
PGPSI is or was bound;

(ii) to their Knowledge, each other Person that has
or had any obligation or liability under any Contract
under which PGPSI has or had any rights is, and at all
times since December 1, 1993 has been, in full
compliance with all applicable terms and requirements of
such Contract;

(iii) to their Knowledge, no event has occurred or
circumstance exists that (with or without notice or
lapse of time) may contravene, conflict with, or result
in a violation or breach of, or give PGPSI or other
Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any
Applicable Contract; and

(iv) to their Knowledge, no PG Group Person has
given to or received from any other Person, at any time
since December 1, 1993, any notice or other
communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or
breach by PGPSI of, or default by PGPSI under, any
Contract.

(e) To their Knowledge, there are no renegotiations of,
attempts to renegotiate, or outstanding rights to renegotiate
any material amounts paid or payable to PGPSI under current or
completed Contracts with any Person and, no such Person has
made written demand for such renegotiation.

(f) The Contracts relating to the provision of services
by PGPSI has been entered into in the Ordinary Course of
Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would
be in violation of any Legal Requirement.

<PAGE>

3.18 INSURANCE

(a) Sellers have delivered to Buyer:

(i) true and complete copies of all policies of
insurance to which PGPSI is a party or under which
PGPSI, or any director of PGPSI, is or has been covered
at any time since July 1, 1994;

(ii) have made available for review by Buyer and
will deliver to Buyer upon request, true and complete
copies of all pending applications for policies of
insurance; and

(iii) any statement by the auditor of PGPSI's
financial statements with regard to the adequacy of such
entity's coverage or of the reserves for claims.

(b) EXHIBITS 3.18(b)(i)-(iii) hereof describes, relating
to the operation of the PGPSI Commercial Division:

(i) any self-insurance arrangement by or affecting
PGPSI, including any reserves established thereunder as
identified in EXHIBIT 3.18(i);

(ii) other than in the Ordinary Course of Business,
any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
PGPSI as identified in EXHIBIT 3.18(ii); and

(iii) except for obligations set forth expressly in
the Delivered PGPSI Services Agreements, all obligations
of PGPSI to third parties with respect to insurance
(including such obligations under leases and service
agreements) and identifies the policy under which such
coverage is provided as identified in EXHIBIT 3.18(iii).

(i) a summary of the loss experience under each
policy;

(ii) a statement describing each claim under an
insurance policy for an amount in excess of $25,000,
which sets forth:

(A) the name of the claimant;

(B) a description of the policy by insurer,
type of insurance, and period of coverage; and

<PAGE>

(iii) a statement describing the loss experience for
all claims that were self-insured, including the number
and aggregate cost of such claims.

(d) Except as set forth on EXHIBIT 3.18(d) hereof:

(i) All policies to which PGPSI is a party or that
provide coverage to either Seller, PGPSI, or any
director or officer of PGPSI:

(A) are valid, outstanding, and enforceable;

(B) are issued by an insurer that is
financially sound and reputable;

(D) are sufficient for compliance with all
Legal Requirements and Contracts to which PGPSI is
a party or by which any of them is bound;

(E) will continue in full force and effect
following the consummation of the Contemplated
Transactions with respect to losses or claims
accruing or arising prior to the Closing Date; and

(F) do not provide for any retrospective
premium adjustment or other experienced-based
liability on the part of PGPSI.

(ii) No Seller nor PGPSI has received with respect
to PGPSI (A) any refusal of coverage or any notice that
a defense will be afforded with reservation of rights,
or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in
full force or effect or will not be renewed or that the
issuer of any policy is not willing or able to perform
its obligations thereunder.

(iii) PGPSI has paid all premiums due, and have
otherwise performed all of their respective obligations,
under each policy to which PGPSI is a party or that
provides coverage to PGPSI or a director thereof.

(iv) PGPSI has given notice to the insurer of all
material claims that may be insured thereby.

<PAGE>

3.19 ENVIRONMENTAL MATTERS

Except as set forth in EXHIBIT 3.19:

(a) To their Knowledge:

(i) PGPSI, and the Properties constituting Managed
Properties during the period from the date hereof until
Closing are, and at all times have been, in full
compliance with, and has not been and is not in
violation of or liable under, any Environmental Law; and

(ii) neither PGPSI nor any Cooper Partnership has any basis
to expect, nor has any of them or any other Person for
whose conduct they are or may be held to be responsible
received, any actual or Threatened order, notice, or
other communication from (i) any Governmental Body or
private citizen acting in the public interest, or (ii)
the current or prior owner, property manager or operator
of any property, of any actual or potential violation or
failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the
cost of any Environmental, Health, and Safety
Liabilities with respect to any properties or assets
(whether real, personal, or mixed) in which PGPSI or any
Cooper Partnership has or had an interest (singularly,
a "Property Interest" and, collectively, the "Property
Interests"), or with respect to any Property Interests
at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or
processed by PGPSI, PGL, any Cooper Partnerships, or any
other Person for whose conduct they are or may be held
responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred,
disposed, recycled, or received.

(b) To their Knowledge, there are no pending or
Threatened claims, Encumbrances, or other restrictions of any
nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental
Law, with respect to or affecting any Property Interests.

(c) To their Knowledge, neither the Sellers nor PGPSI
has any basis to expect, nor has any of them or any other
Person for whose conduct they are or may be held responsible,
received, any citation, directive, inquiry, notice, Order,
summons, warning, or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged,
actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential
obligation to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to any Property

<PAGE>

Interests, or with respect to any property or facility to
which Hazardous Materials were generated, manufactured,
refined, transferred, imported, used, or processed by PGPSI or
any Cooper Partnership or any other Person for whose conduct
they are or may be held responsible, have been transported,
treated, stored, handled, transferred, disposed, recycled, or
received.

(d) To their Knowledge, neither PGPSI nor any Cooper
Partnership, nor any other Person for whose conduct they are
or may be held responsible, has any Environmental, Health, and
Safety Liabilities with respect to any Property Interests, or
at any property geologically or hydrologically adjoining any
such property or assets.

(e) To their Knowledge:

(i) there are no Hazardous Materials present on or in the
Environment at any Property Interests, or at any
geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels,
above or underground storage tanks, landfills, land
deposits, dumps, equipment (whether moveable or fixed)
or other containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any other
part of such properties or assets or of such adjoining
property, or incorporated into any structure therein or
thereon; and

(ii) neither Sellers nor PGPSI nor any other Person for whose
conduct they are or may be held responsible has
permitted or conducted, or is aware of, any Hazardous
Activity conducted with respect to any Property
Interests except in full compliance with all applicable
Environmental Laws.

(f) To their Knowledge, there has been no Release or
Threat of Release, of any Hazardous Materials at or from any
Property Interests, or at any other locations where any
Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by
the Property Interests, or any geologically or hydrologically
adjoining property, whether by Sellers, PGPSI, a Cooper
Partnership or any other Person.

(g) Sellers have delivered to Buyer true and complete
copies and results of any reports, studies, analyses, tests,
or monitoring possessed or initiated by Sellers, PGPSI, PGL
or, to their Knowledge, any Cooper Partnership pertaining to
Hazardous Materials or Hazardous Activities in, on, or under
the Property Interests, or concerning compliance by Sellers,
PGPSI, any or any other Person for whose conduct they are or

<PAGE>

may be held responsible, with Environmental Laws pertaining to
the Property Interests.

3.20 EMPLOYEES

(a) EXHIBIT 3.20 hereof contains a complete and accurate
list of the following information for each employee or
director of PGPSI involved in the business or operations of
the PGPSI Commercial Division, including each employee on
leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in
compensation since January 1, 1996; vacation accrued; and
service credited for purposes of vesting and eligibility to
participate under PGPSI's pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock
option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee
Pension Benefit Plan or Employee Welfare Benefit Plan, or any
other employee benefit plan or any Director Plan.

(b) No employee, officer or director of the PGPSI
involved in the business or operations of the PGPSI Commercial
Division is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such
officer or director and any other Person ("Proprietary Rights
Agreement") that in any way adversely affects or will affect
(i) the performance of his duties as an employee, officer or
director of PGPSI, or (ii) the ability of the PGPSI Commercial
Division to conduct its business, including any Proprietary
Rights Agreement with Sellers or PGPSI by any such employee,
officer or director. Neither PGPSI nor the Sellers has
Knowledge that any director or officer involved in the
business or operations of the PGPSI Commercial Division
intends to terminate his/her employment with PGPSI prior to
April 30, 1997.

(c) EXHIBIT 3.20 hereof also contains a complete and
accurate list of the following information for each retired
employee or director of PGPSI, or their dependents, receiving
benefits or scheduled to receive benefits in the future: name,
pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other
benefits.

(d) EXHIBIT 3.20(d) hereof lists all Persons who are
presently grantees under or participants in the PGPSI Employee
Restricted Stock Plan (the "PGPSI Stock Plan"). Sellers have
provided to Buyer a copy of all Restricted Stock Agreements
presently outstanding under the Plan and all such agreements
are listed on EXHIBIT 3.20(d). All such agreements are

<PAGE>

enforceable against the parties thereto in accordance with
their terms.

3.21 LABOR RELATIONS; COMPLIANCE

Since December 1, 1993, PGPSI has not been nor is a party to
any collective bargaining or other labor Contract. Since
December 1, 1993, there has not been, there is not presently
pending or existing, and there is not Threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process,
(b) any Proceeding against or affecting PGPSI relating to the
alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint
filed by an employee or union with the National Labor Relations
Board, the Equal Employment Opportunity Commission, or any
comparable Governmental Body, organizational activity, or other
labor or employment dispute against or affecting any of PGPSI or
their premises, or (c) any application for certification of a
collective bargaining agent. To their Knowledge, no event has
occurred or circumstance exists that could provide the basis for
any work stoppage or other labor dispute. There is no lockout of
any employees by PGPSI, and no such action is contemplated by
PGPSI. PGPSI has complied in all respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing. PGPSI is not
liable for the payment of any compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to
comply with any of the foregoing Legal Requirements.

3.22 INTELLECTUAL PROPERTY

(a) INTELLECTUAL PROPERTY ASSETS--The term "Intellectual
Property Assets" includes, as it relates to the operation
and/or assets used by the PGPSI Commercial Division:

(i) the tradename "Paragon Commercial" and all
related fictional business names, registered and
unregistered trademarks, service marks, and applications
(collectively, "Marks");

(ii) all patents, patent applications, and
inventions and discoveries that may be patentable
(collectively, "Patents");

(iii) all copyrights in both published works and
unpublished works (collectively, "Copyrights"); and

(iv) all know-how, trade secrets, confidential
information, customer lists, software, technical
information, data, process technology, plans, drawings,

<PAGE>

and blue prints (collectively, "Trade Secrets"); owned,
used, or licensed by PGPSI as licensee or licensor.

(b) AGREEMENTS-- To their Knowledge, EXHIBIT 3.22(b)
hereof contains a complete and accurate list and summary
description, including any royalties paid or received by
PGPSI, of all Contracts relating to the Intellectual Property
Assets to which PGPSI is a party or by which PGPSI is bound,
except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available software
programs with a value of less than $10,000 under which PGPSI
is the licensee. To their Knowledge, there are no outstanding
and no Threatened disputes or disagreements with respect to
any such agreement.

(i) The Intellectual Property Assets are all those
necessary for the operation of PGPSI' businesses as they
are currently conducted. To their Knowledge, PGPSI is
the owner of all right, title, and interest in and to
each of the Intellectual Property Assets, free and clear
of all liens, security interests, charges, encumbrances,
equities, and other adverse claims, and has the right to
use without payment to a third party all of the
Intellectual Property Assets.

(ii) Except as set forth in EXHIBIT 3.22(c) hereof,
no officer or employee of PGPSI involved in the
operation of the PGPSI Commercial Division has entered
into any Contract that restricts or limits in any way
the scope or type of work in which the officer or
employee may be engaged or requires the officer or
employee to transfer, assign, or disclose information
concerning his work to anyone other than PGPSI.

(d) Trademarks

(i) EXHIBIT 3.22(d) hereof contains a complete and
accurate list and summary description of all Marks.

(ii) PGPSI has no Marks that have been registered
or the subject of an application for registration with
the United States Patent and Trademark Office.

(iii) No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, no such
action is, to their Knowledge, threatened with the
respect to any of the Marks.

<PAGE>

(iv) To their Knowledge, there is no potentially
interfering trademark or trademark application of any
third party.

(v) To their Knowledge, no Mark has been
challenged or threatened.

(e) Copyrights

(i) To their Knowledge, EXHIBIT 3.22(e) hereof
contains a complete and accurate list and summary
description of all Copyrights. To their Knowledge, PGPSI
is the owner of all right, title, and interest in and to
each of the Copyrights, free and clear of all liens,
security interests, charges, encumbrances, equities, and
other adverse claims.

(ii) No Copyrights have been registered.

(iii) To their Knowledge, no Copyright is infringed
or been challenged or threatened. To their Knowledge,
none of the subject matter of any of the Copyrights
infringes or is alleged to infringe any copyright of any
third party or is a derivative work based on the work of
a third party.

(f) TRADE SECRETS

(i) With respect to each Trade Secret, to their
Knowledge, the documentation relating to such Trade
Secret is current, accurate, and sufficient in detail
and content to identify and explain it and to allow its
full and proper use without reliance on the knowledge or
memory of any individual.

(ii) To their Knowledge, Sellers and PGPSI have
taken all reasonable precautions to protect the secrecy,
confidentiality, and value of their Trade Secrets.

(iii) PGPSI has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets,
including computer software, in the manner in which it
is presently used by the PGPSI Commercial Division. To
their Knowledge, the Trade Secrets are not part of the
public knowledge or literature, and have not been used,
divulged, or appropriated either for the benefit of any
Person (other than PGPSI) or to the detriment of PGPSI.
No Trade Secret is subject to any adverse claim or has
been challenged or threatened in any way.

<PAGE>

3.23 CERTAIN PAYMENTS

Since December 1, 1993, neither PGPSI nor any director,
officer, agent, or employee of PGPSI, nor any Representative, has
directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to
any Person, private or public, regardless of form, whether in
money, property, or services (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of PGPSI or any
Related Person thereof, or (iv) in violation of any Legal
Requirement, (b) established or maintained any fund or asset that
has not been recorded in the books and records of PGPSI.

3.24 PGPSI SERVICES AGREEMENTS

The PGPSI Services Agreements in effect are listed on EXHIBIT
3.24-1 hereof. All such listed PGPSI Services Agreements are in
full force and effect and are valid and enforceable according to
their terms except as such enforcement may be limited by applicable
insolvency laws or laws affecting creditors' rights generally.
Except as set forth on EXHIBIT 3.24-2, there is no default in
existence in regard to any such listed PGPSI Services Agreements
or, to their Knowledge, event of default or event, occurrence,
condition or act which, with the giving of notice or the lapse of
time, would become a default or event of default thereunder. Such
listed PGPSI Services Agreements contain all the terms of agreement
between PGPSI and such owner respecting the parties' mutual rights
and obligations related to the property management services of
PGPSI.

None of the Encumbrances respecting PGPSI Service Agreements
referenced in Section 2.6(a) have a material adverse effect on the
value of any single PGPSI Service Agreement or on the value of all
the PGPSI Service Agreements taken as a whole.

Except as set forth on EXHIBIT 3.24-3 hereto, all the
Properties respecting which PGPSI provides management services are
either Controlled Management Properties, Syndicated GE Properties
or Non-Affiliated Management Properties. To their Knowledge,
neither the Sellers nor PGPSI has received notice or other
communication that any party (other than PGPSI) to a PGPSI Services
Agreement is considering terminating such agreement, including any
termination either prior to the expiration of their stated term or
as a result of effectuation of the Contemplated Transactions, or
failure to renew a PGPSI Services Agreement.

Except as set forth in EXHIBIT 3.24-4, to their Knowledge,
none of the Managed Properties is presently being offered for sale
(as evidenced by specific authorization of an owner to any person
make a commercially reasonable offer to sell as to price and term

<PAGE>

and to use customary and professional methods ordinarily utilized
in the brokerage and marketing of commercial real estate.)

Notwithstanding any other provision of this Agreement to the
contrary, in the event that the execution, delivery or performance
of this Agreement or any other consummation or performance of any
of the Contemplated Transactions (with or without notice or lapse
of time) contravenes, conflicts with, or results in a violation of
or breach of any provision of, or gives any Person the right to
declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or modify,
the express terms of any Delivered PGPSI Services Agreement, no
such contravention, conflict, violation or breach shall be treated
by Buyer as a Breach by Sellers of this Agreement nor give rise to
any claim for indemnification under Section 10.2(a) hereof.

3.25 PGPSI SERVICES AGREEMENT REVENUES

PGPSI revenues, as measured by GAAP, from PGPSI Services
Agreements during the fiscal year ended 1995 was not less than
$20,000,000. PGPSI revenues, as measured by GAAP on an
unconsolidated basis, from PGPSI Services Agreements during the
fiscal quarter ended March 31, 1996 was not less than $3,750,000.

3.26 DISCLOSURE

(a) To their Knowledge, no representation or warranty of
Sellers in this Agreement omits to state a material fact
necessary to make the statements herein or therein, in light
of the circumstances in which they were made, not misleading.

(b) To their Knowledge, no notice given pursuant to
Section 5.9 will contain any untrue statement or omit to state
a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they
were made, not misleading.

3.27 RELATIONSHIPS WITH RELATED PERSONS

Except as set forth in EXHIBIT 3.27 hereof, no Seller or any
Related Person of Sellers or of PGPSI is a party to any Contract
with, or has any claim or right against, PGPSI.

3.28 BROKERS OR FINDERS

Sellers and their agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with
this Agreement except for fees payable at or prior to Closing to
Merrill Lynch.

<PAGE>

3.29 PGPSI NOTE

PGL is and will be on the Closing Date the sole holder of the
PGPSI Note, free and clear of all Encumbrances. The copy of the
PGPSI Note attached hereto as EXHIBIT 1.G is a true and complete
copy of the form of the PGPSI Note. Immediately before Closing,
after giving effect to the creation of the New Paragon Residential
Note, the unpaid principal amount of the PGPSI Note will be not
less than $12,417,000 nor greater than $12,447,000 and no interest
will be outstanding on the PGPSI Note on the Closing Date.

3.30 NET OPERATING LOSS

As of the date of closing and including all transactions
reported in the period ending with the date of the closing, PGPSI
will have a federal net operating loss carryforward (for purposes
of IRC Section 172) of at least $5,000,000. The net operating loss
carryforward for Alternative Minimum Tax purposes (as described in
IRC Section 56(a)(4)) will also be at least $5,000,000. These
amounts are exclusive of any other tax attribute carrying forward
(including capital losses and charitable contributions).

In determining the taxable income or loss for the year ended
December 31, 1995, it is anticipated that PGPSI will deduct
approximately $2,500,000 of research and development expenditures
under IRC Section 174, that these expenditures will qualify under
Section 174(e), and that this deduction will establish an accounting
method for this entity for these costs. Buyer may request, and the
Sellers may not deny without reasonable cause, that certain
elections, accounting methods, etc. be utilized in the preparation
of the federal and state returns for the year ended December 31,
1995, and the period ending with the date of closing. These
elections may include a statement in the return specifying that the
accounting method chosen for the above-referenced Section 174 costs may
be limited to costs attributable to in-house computer software
development. It will not be unreasonable for the Sellers to deny
the request(s) if, by complying with the request(s), additional tax
liability in total (for all requests) will result (unless Buyer
agrees to compensate the Sellers for the additional liability).
Sellers can deny elections causing additional pre-closing tax
liability unless Buyer agrees to pay Sellers for such liability.

4. REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Sellers as follows:

4.1 ORGANIZATION AND GOOD STANDING

Buyer is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware.

<PAGE>

4.2 AUTHORITY; NO CONFLICT

(a) This Agreement constitutes the legal, valid, and
binding obligation of Buyer, enforceable against Buyer in
accordance with its terms. Upon the execution and delivery by
Buyer of the three Consulting/Non-Competition Agreements with
(i) Sellers and PG Parent, (ii) Means and (iii) Cooper,
respectively, the Great Southwest Management Agreement, the
Real Estate Brokerage Agreement, the Tax Allocation Agreement,
the IFG Warrant, the IFG Warrant Agreement and the Buyer's
Closing Certificate (collectively, the "Buyer's Closing
Documents"), the Buyer's Closing Documents will constitute the
legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms. Buyer
has the absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and the Buyer's Closing
Documents and to perform its obligations under this Agreement
and the Buyer's Closing Documents.

(b) Except as set forth in EXHIBIT 4.2, neither the
execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to
prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:

(i) any provision of Buyer's Organizational
Documents;

(ii) any resolution adopted by the board of
directors or the stockholders of Buyer;

(iii) any Legal Requirement or Order to which Buyer
may be subject; or

(iv) any Contract to which Buyer is a party or by
which Buyer may be bound.

Except as set forth in EXHIBIT 4.2, Buyer is not and
will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated
Transactions.

4.3 INVESTMENT INTENT

Buyer is acquiring the Shares for its own account and not with
a view to their distribution within the meaning of Section 2(11) of
the Securities Act.

<PAGE>

4.4 CERTAIN PROCEEDINGS

There is no pending or Threatened Proceeding that has been
commenced against Buyer and that challenges, or may have the effect
of preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions.

4.5 BROKERS OR FINDERS

Buyer and its officers and agents have incurred no obligation
or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection
with this Agreement and will indemnify and hold Sellers harmless
from any such payment alleged to be due by or through Buyer as a
result of the action of Buyer or its officers or agents.

5. COVENANTS OF SELLERS AND PGPSI PRIOR TO/ON CLOSING DATE

5.1 REQUIRED APPROVALS

As promptly as practicable after the date of this Agreement,
Sellers will, and will cause PGPSI to, make all filings required by
Legal Requirements to be made by them in order to consummate the
Contemplated Transactions (including all filings under the HSR
Act). Between the date of this Agreement and the Closing Date,
Sellers will, and will cause PGPSI to, (a) cooperate with Buyer
with respect to all filings that Buyer elects to make or is
required by Legal Requirements to make in connection with the
Contemplated Transactions, and (b) cooperate with Buyer in
obtaining all Consents identified in EXHIBIT 4.2 (including taking
all actions requested by Buyer to cause early termination of any
applicable waiting period under the HSR Act).

5.2 SHAREHOLDER APPROVAL

The Sellers shall as soon as practicable after the date of
this Agreement take any necessary action to vote upon and approve
this Agreement and the Contemplated Transactions.

5.3 CURRENT INFORMATION

During the period from the date of this Agreement to the
Closing Date, PGPSI shall cause one or more of its representatives
to confer on a regular and frequent basis with representatives of
Buyer to report on the general status of the ongoing operations of
the PGPSI Commercial Division. PGPSI shall promptly notify Buyer of
any material change in the normal course of its business or in the
operation of its properties and of any governmental complaints,
investigations, or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of
material litigation involving such party, and will keep Buyer fully
informed with respect to such events.

<PAGE>

5.4 [Intentionally Omitted]

5.5 SECURITIES LAWS COMPLIANCE

Buyer and Sellers shall use their Best Efforts to cause the
IFG Warrants to be issued exempt from registration under the
Securities Act in valid reliance upon the private placement
exemption provisions of Section 4(2) of the Securities Act and, at
Buyer's option, Rules 505 and/or 506 of the SEC promulgated
pursuant to Sections 3(b) and 4(2) of the Securities Act.

5.6 OPERATIONS PRIOR TO CLOSING DATE

In addition to any other express obligation under this
Agreement, between the date of this Agreement and the Closing Date,
PGPSI will, and TPMPL shall cause PGPSI to:

(a) conduct the business of PGPSI only in the Ordinary
Course of Business;

(b) use their Best Efforts to preserve intact the
current commercial property management organization of PGPSI,
keep available the services of the current officers,
employees, and agents of the current commercial property
management organization of PGPSI, and maintain the relations
and good will with owners of Non-Affiliated Managed
Properties, Syndicated GE Partnership Properties and
Controlled Managed Properties, tenants of Properties, all
partners and other equity owners of the Cooper Partnerships
and the Syndicated GE Partnerships, suppliers, customers,
landlords, creditors, employees, agents, and others having
business relationships with PGPSI.

During the period from the date hereof to and including the Closing
Date, except as expressly contemplated hereby, without the prior
written consent of Buyer, PGPSI will not have:

(a) incurred any liability or obligation of any material
nature (whether accrued, absolute, contingent or otherwise),
except in the Ordinary Course of Business;

(b) permitted any of its Owned Assets to be subjected to any
Encumbrance;

(d) in connection with the operation of the PGPSI Commercial
Division, made any capital expenditure or commitment therefor,
except in the Ordinary Course of Business;

<PAGE>

(e) redeemed, purchased or otherwise acquired any shares of
its capital stock or any option, warrant or other right to
purchase or acquire any such shares;

(f) except in the Ordinary Course of Business, borrowed
money or made any loan to any Person;

(g) written off as uncollectible any note or accounts
receivable, except write-offs in the Ordinary Course of
Business charged to applicable reserves, none of which
individually or in the aggregate is material to PGPSI;

(h) granted any increase in the rate of wages, salaries,
bonuses or other remuneration of any PGPSI Commercial Division
executive employees or other employees;

(i) cancelled or waived any claims or rights of substantial
value;

(j) made any change in any method of accounting or auditing
practice;

(k) agreed, whether or not in writing, to do any of the
foregoing;

(l) caused the Sellers or PGPSI to, without the prior
consent of Buyer, take any affirmative action, or fail to take
any reasonable action within their or its control, as a result
of which any of the changes or events listed in Section 3.16
is likely to occur.

5.7 MISCELLANEOUS AGREEMENTS AND CONSENTS

The Sellers and PGPSI hereto shall use their Best Efforts to:
(a) satisfy all the conditions precedent to its and all other
parties' obligations hereunder; (b) obtain Consents necessary or
desirable for the consummation of the transactions contemplated by
this Agreement, other than any Consent required by the express
terms of the Delivered PGPSI Service Agreements or the express
terms of the Delivered Cooper Partnership Agreement; and (c) remove
any condition or state of facts pertaining to Sellers or PGPSI that
otherwise would make consummation of the transactions contemplated
hereby a violation of applicable law or a breach of a Contract
(including any PGPSI Services Agreement) to which PGPSI or any
Cooper Partnership is a party. Sellers and Buyer agree to cooperate
in good faith and to use their Best Efforts to enable PGPSI and New
Paragon Residential to obtain and/or maintain appropriate real
estate brokerage and related professional services licenses
(including the utilization, at no cost to Sellers, of Paragon Colo.
RE Services, Inc. or other affiliates of Sellers holding such
licenses which have in the Ordinary Course of Business enabled
PGPSI to provide services in such states) during and immediately

<PAGE>

following the transition of the transfer of the Shares. With
respect to performance bonds listed on EXHIBIT 2.6(b) obtained by
PGPSI or a Related Person respecting activities or obligations of
PGPSI as a receiver or contractor, Buyer will either assume PGPSI's
liabilities thereunder (and provide appropriate indemnity) or
obtain replacement bonds immediately after Closing in form and
amount sufficient to satisfy the applicable bonding requirements.
The Sellers and PGPSI further agree promptly to execute at the
reasonable request of Buyer before, on or after the Closing Date
any documents or materials related to the transactions contemplated
by this Agreement, including, without limitation, information to
auditors respecting the operations of PGPSI prior to the Closing
Date, letters of authority on the Closing Date and signature cards
and other materials evidencing the transfer of the bank accounts of
PGPSI.

Buyer acknowledges and agrees that it is a sophisticated and
experienced acquiror of commercial property management services
agreements and related assets and is relying on its own
investigation and examination in its decision to acquire the Shares
and proceed with the Contemplated Transactions herein described.
Nothing in this Section 5.7 shall, however, limit the effect of the
indemnification obligation of the Sellers set forth in Section 10.2
hereof.

5.8 ACCESS AND INVESTIGATION

Between the date of this Agreement and the Closing Date,
Sellers and PGPSI will, and will cause each PG Group Person and
their Representatives to, (a) afford Buyer and its Representatives
and advisors (collectively, "Buyer's Advisors") full and free
access to PGPSI Commercial Division personnel, the Controlled
Managed Properties (and will use their Best Efforts to afford Buyer
and Buyer's Advisors reasonable access to the Non-Affiliated
Managed Properties and Syndicated GE Partnerships) and to PGPSI
Contracts, books and records, and other documents and data, (b)
furnish Buyer and Buyer's Advisors with copies of all such
Contracts, books and records, and other existing documents and data
as Buyer may reasonably request, and (c) furnish Buyer and Buyer's
Advisors with such additional financial, operating, and other data
and information as Buyer may reasonably request.

5.9 NOTIFICATION

Between the date of this Agreement and the Closing Date, the
Sellers and PGPSI will promptly notify Buyer in writing if a Seller
or PGPSI becomes aware of any fact or condition that causes or
constitutes a Breach of any of representations and warranties of
Sellers as of the date of this Agreement and before Closing, or if
a Seller or PGPSI becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a

<PAGE>

Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence
or discovery of such fact or condition. Should any such fact or
condition require any change in any representations or warranties
of a Seller herein if this Agreement were dated the date of the
occurrence or discovery of any such fact or condition, Sellers or
PGPSI will promptly deliver to Buyer written notice specifying such
change (a "Modification Notice"). During the same period, each
Seller will promptly notify Buyer of the occurrence of any Breach
of any covenant of Sellers in this Section 5 or of the occurrence
of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.

5.10 NO NEGOTIATION

Until such time, if any, as this Agreement is terminated
pursuant to Section 9, for so long as Buyer is not in Breach of
this Agreement, Sellers and PGPSI will not, and will not permit any
of their Representatives to, directly or indirectly solicit,
initiate, respond to or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to,
or consider the merits of any unsolicited inquiries or proposals
from, any Person (other than Buyer) relating to any transaction
involving the sale of the business or assets (other than in the
Ordinary Course of Business) of PGPSI, or any of the capital stock
of PGPSI, or any merger, consolidation, business combination, or
similar transaction involving PGPSI.

6. COVENANTS OF BUYER PRIOR TO CLOSING DATE

6.1 APPROVALS OF GOVERNMENTAL BODIES

As promptly as practicable after the date of this Agreement,
Buyer will, and will cause each of its Related Persons to, make all
filings required by Legal Requirements to be made by them to
consummate the Contemplated Transactions (including all filings
under the HSR Act). The Buyer shall use its Best Efforts to satisfy
all the conditions precedent to its and all other parties'
obligations under this Agreement. Between the date of this
Agreement and the Closing Date, Buyer will, and will cause each
Related Person to, cooperate with Sellers with respect to all
filings that Sellers are required by Legal Requirements to make in
connection with the Contemplated Transactions, and (ii) cooperate
with Sellers in obtaining all consents identified in EXHIBIT 3.2(c)
hereof; provided that this Agreement will not require Buyer to
dispose of or make any change in any portion of its business or to
incur any other burden to obtain a Governmental Authorization.

7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE

Buyer's obligation to purchase the Shares and to take the
other actions required to be taken by Buyer at the Closing is

<PAGE>

subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Buyer, in
whole or in part):

7.1 ACCURACY OF REPRESENTATIONS

All of the representations and warranties of Sellers and PGPSI
in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have
been accurate as of the date of this Agreement, and must be
accurate as of the Closing Date as if made on the Closing Date,
without giving effect to any Modification Notice.

7.2 PERFORMANCE

(a) All of the covenants and obligations that Sellers and
PGPSI are required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and
each of these covenants and obligations (considered individually),
must have been duly performed and complied with.

(b) Each document required to be delivered pursuant to
Section 2.4 must have been delivered.

(c) All of the agreements, other documents or certificates,
or actions required to be entered into, delivered and/or taken at
or prior to the Closing in accordance with Section 2 hereof,
including actions or deliveries of Persons not a party hereto,
shall have been entered into, delivered and or taken, as
applicable.

(d) All of the covenants and obligations that Cooper and
WRCH are required to perform or to comply with pursuant to the
Cooper Agreement at or prior to the Closing must have been duly
performed and complied with; Cooper has delivered the agreements
and documents described in Section 11 of the Cooper Agreement (the
"Closing Cooper Agreements"); and there shall be no Breach in such
Closing Cooper Agreements.

7.3 CONSENTS

Each of the Consents identified in Sections 3.2, 4.2 and 5.7,
must have been obtained and must be in full force and effect.

7.4 ADDITIONAL DOCUMENTS

Each of the following documents must have been delivered to
Buyer:

(a) an opinion of Stutzman & Bromberg, dated the Closing
Date, in the form of EXHIBIT 7.4(a); and

<PAGE>

(b) Tax Allocation Agreement; and

(c) a Consulting/Non-Competition Agreement executed by
Cooper in the form of EXHIBIT 7.4(c) (the "Cooper
Consulting/Non-Competition Agreement"), and the Paragon
Consulting/Non-Competition Agreement; and

(d) a Consulting/Non-Competition Agreement executed by
Means substantially similar to the form of Non-Solicitation
and Right of First Opportunity Agreement between Means and
PGPSI, dated July 27, 1994, executed by Means and PGPSI (the
"Means Consulting/Non-Competition Agreement"); and

(e) Employment Non-Competition Agreement in the form of
EXHIBIT 7.4(e), executed by Doug Knaus (the "Knaus Employment
Agreement"), the PG Parent Warrants, the PG Parent Warrant
Agreement and the PG Parent Registration Rights Agreement; and

(f) the Real Estate Brokerage Agreement, the form of
which shall have been agreed upon by Buyer and Sellers no
later than June 15, 1996; and

(g) the Exhibits, in accordance with Section 2.3(b) or
as the parties may otherwise agree; and

(h) such other documents as Buyer may reasonably request
for the purpose of (i) enabling its counsel to provide the
opinion referred to in Section 8.4(a), (ii) evidencing the
accuracy of any of Sellers' representations and warranties,
(iii) evidencing the performance by either Seller of, or the
compliance by either Seller with, any covenant or obligation
required to be performed or complied with by such Seller,
(iv) evidencing the satisfaction of any condition referred to
in this Section 7, or (v) otherwise facilitating the
consummation or performance of any of the Contemplated
Transactions.

Buyer and Sellers shall have, no later than June 15, 1996,
agreed upon the form of the PGPSI Replacement Management Agreement.

7.5 NO PROCEEDINGS

Since the date of this Agreement, there must not have been
commenced or Threatened against Buyer, or against any Person
affiliated with Buyer, any Proceeding (a) involving any challenge
to, or seeking damages or other relief in connection with, any of
the Contemplated Transactions, or (b) that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.

<PAGE>

7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS

There must not have been made or Threatened by any Person any
claim asserting that such Person (a) is the holder or the
beneficial owner of, or has the right to acquire or to obtain
beneficial ownership of, any stock of, or any other voting, equity,
or ownership interest in, any of PGPSI, or (b) is entitled to all
or any portion of the Purchase Price payable for the Shares.

7.7 NO PROHIBITION

Neither the consummation nor the performance of any of the
Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or
conflict with, or result in a material violation of, or cause Buyer
or any Person affiliated with Buyer to suffer any material adverse
consequence under, (a) any applicable Legal Requirement or Order,
or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any
Governmental Body.

7.8 BOOK VALUE OF OWNED ASSETS

After giving effect to the transfers and dispositions of
Excluded Assets and the Contemplated Transactions, the unamortized
and un-depreciated basis of the amortizable and depreciable Owned
Assets for federal income tax purposes shall not be less than
twelve million dollars on the Closing Date.

7.9 FINANCIAL STATEMENTS; COMFORT LETTERS

The receipt by Buyer of: (a) pro forma financial statements of
PGPSI giving effect to the sale of the Excluded Assets, prepared by
Ernst & Young and in form and substance satisfactory to Buyer; and
(b) "comfort letters" from E&Y, in form and substance satisfactory
to Buyer, dated within 5 days prior to the Closing Date, of the
kind contemplated by the Statement of Auditing Standards with
respect to Letters to Underwriters promulgated by the American
Institute of Certified Public Accountants relating to the foregoing
financial statements and customarily included in comfort letters
relating to similar transactions.

7.10 DIVISION/COST ALLOCATION OF CERTAIN PGPSI ASSETS

Buyer and Sellers will have entered into a Closing Allocation
of Joint Assets Agreement (the "Closing Allocation of Joint Assets
Agreement") governing the division, future possession and use, and
cost allocation of those assets, including equipment and leased
office space, of PGPSI (including the designation of an asset as an
Owned Asset or an Excluded Asset) which are presently used both in
the operation of the PGPSI Commercial Division and the operation of
PGPSI's residential property services business.

<PAGE>

7.11 UNIMPROVED REAL ESTATE

PGPSI will have transferred (and provided to Buyer
satisfactory evidence thereof) all its right, title and interest in
the 1996 Dallas Industrial Property immediately prior to the
Closing and PGPSI and New Paragon Residential will have entered
into the Great Southwest Management Agreement respecting the 1996
Dallas Industrial Property.

7.12 REVENUES ATTRIBUTABLE TO CONTINUING PGPSI SERVICES
AGREEMENTS

The annualized aggregate amount of revenues payable on PGPSI
Service Agreements in effect on the Closing Date (excluding
revenues from PGPSI Service Agreements respecting which the owner
has provided PGPSI notice of termination, cancellation or non-renewal
as of the Closing Date) shall not be greater than $1,000,000 less than
the annualized aggregate amount of revenues payable on PGPSI Service
Agreements in effect on the date of execution of this Agreement
(excluding revenues from PGPSI Service Agreements respecting which the
owner has provided PGPSI notice of termination, cancellation or
non-renewal as of the date of execution of this Agreement).

8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE

Sellers' obligation to sell the Shares and to take the other
actions required to be taken by Sellers at the Closing is subject
to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Sellers, in
whole or in part):

8.1 ACCURACY OF REPRESENTATIONS

All of Buyer's representations and warranties in this
Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have
been accurate as of the date of this Agreement and must be accurate
as of the Closing Date as if made on the Closing Date.

8.2 BUYER'S PERFORMANCE

(a) All of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations
(considered individually), must have been performed and
complied with.

(b) Buyer must have delivered each of the documents
required to be delivered by Buyer pursuant to Section 2.4 and

<PAGE>

must have made the cash payments required to be made by Buyer
pursuant to Sections 2.4(b)(i) and 2.4(b)(ii).

8.3 CONSENTS

Each of the Consents identified in Exhibit 3.2 hereof must
have been obtained and must be in full force and effect.

8.4 ADDITIONAL DOCUMENTS

Buyer must have caused the following documents to be delivered
to Sellers:

(a) an opinion of Farris, Warfield & Kanaday, dated the
Closing Date, in the form of EXHIBIT 8.4(a); and

(b) the Exhibits, in accordance with Section 2.3(b) or
as the parties may otherwise agree; and

(c) such other documents as Sellers may reasonably
request for the purpose of (ii) evidencing the accuracy of any
representation or warranty of Buyer, (ii) evidencing the
performance by Buyer of, or the compliance by Buyer with, any
covenant or obligation required to be performed or complied
with by Buyer, or (iii) evidencing the satisfaction of any
condition referred to in this Section 8.

8.5 NO PROCEEDINGS

Since the date of this Agreement, there must not have been
commenced or Threatened against Sellers or PGPSI, or against any
Person affiliated with Sellers, any Proceeding (a) involving any
challenge to, or seeking damages or other relief in connection
with, any of the Contemplated Transactions, or (b) that may have
the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.

8.6 DIVISION/COST ALLOCATION OF CERTAIN PGPSI ASSETS

Buyer and Sellers will have entered into a Closing Allocation
of Joint Assets Agreement governing the division, future possession
and use, and cost allocation of those assets, including equipment
and leased office space, of PGPSI (including the designation of an
asset as an Owned Asset or an Excluded Asset) which are presently
used both in the operation of the PGPSI Commercial Division and the
operation of PGPSI's residential property services business.

<PAGE>

9. TERMINATION

9.1 TERMINATION EVENTS

This Agreement may, by notice given prior to or at the
Closing, be terminated:

(a) by either Buyer or Sellers if a material Breach of
any provision of this Agreement has been committed by the
other party and such Breach has not been waived;

(b) by Buyer: if any of the conditions in Section 7 has
not been satisfied as of the Closing Date; or if satisfaction
of such a condition is or becomes impossible (other than
through the failure of Buyer to comply with its obligations
under this Agreement) and Buyer has not waived such condition
on or before the Closing Date;

(c) by Sellers: if any of the conditions in Section 8
has not been satisfied of the Closing Date; or if satisfaction
of such a condition is or becomes impossible (other than
through the failure of Sellers to comply with their
obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date; or

(d) by mutual consent of Buyer and Sellers; or

(e) by either Buyer or Sellers if the Closing has not
occurred (other than through the failure of any party seeking
to terminate this Agreement to comply fully with its
obligations under this Agreement) on or before July 31, 1996,
or such later date as the parties may agree upon.

9.2 EFFECT OF TERMINATION

Each party's right of termination under Section 9.1 is in
addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant
to Section 9.1, all further obligations of the parties under this
Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this
Agreement is terminated by a party because of the Breach of the
Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive
such termination unimpaired.

<PAGE>

10. INDEMNIFICATION; REMEDIES

10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE

All representations, warranties, covenants, and obligations in
this Agreement, the Modification Notices, the certificates
delivered pursuant to Section 2.4(a) and (b), and any other
certificate or document delivered pursuant to this Agreement will
indefinitely survive the Closing, except as otherwise provided
below.

(a) The representations and warranties of Sellers and PGPSI
contained in the following Sections of this Agreement shall
survive until the third anniversary of the Closing Date:

3.2(c),(d); 3.4; 3.5; 3.6; 3.7; 3.10; 3.14 (except
3.14(b)(iii) which shall survive indefinitely); 3.16(c)
through (h); 3.17(a); 3.17(d) through (f); 3.18(b) and
(c); 3.20 (a) and (c); 3.21; 3.22; 3.24; 3.25; 3.26;
3.27; 3.28

(b) The representations and warranties of Sellers and PGPSI
contained in the following Sections of this Agreement shall
survive until the second anniversary of the Closing Date:

3.8; and 3.12

(c) The representations and warranties of Buyer contained in
the Section 4.5 of this Agreement shall survive until the
third anniversary of the Closing Date.

PROVIDED FURTHER that, if prior to the expiration of the
survival period with respect to any claim for indemnity hereunder,
Buyer or Sellers, as the case may be, shall have been notified of
such claim and such claim shall not have been finally resolved
before the expiration of such survival period, any representation,
warranty, covenant or agreement that is the basis for such claim
shall continue to survive as to such claim and shall remain a basis
for indemnity as to such claim until such claim is finally
resolved.

10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS

Sellers, jointly and severally, will indemnify and hold
harmless Buyer, PGPSI, IFG and their respective Representatives,
stockholders, controlling persons, and affiliates (collectively,
the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage
(including incidental and consequential damages), expense
(including costs of investigation and defense and reasonable
attorneys' fees) or diminution of value, whether or not involving

<PAGE>

a third-party claim (collectively, "Damages"), arising or resulting
from, directly or indirectly, from or in connection with:

(a) any Breach of any representation or warranty made by
any PG Group Person in this Agreement (after giving effect to
any Modification Notice) or any other certificate or document
delivered by Sellers or by any other PG Group Person pursuant
to this Agreement;

(b) any Breach by any PG Group Person of any covenant or
obligation of such PG Group Person in this Agreement or in any
Sellers' Documents or any other document delivered by Sellers
or any other PG Group Person pursuant to this Agreement;

(c) regardless of whether it may also constitute a
Breach under Section 10.2 (a) or (b) above, any loss,
liability, claim, damage (including incidental and
consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees)
arising from or relating to the operation, management or
ownership of PGPSI, arising or related to the period on or
prior to the Closing Date (whether known or unknown on the
Closing Date).

The remedies provided in this Section 10.2 will not be
exclusive of or limit any other remedies that may be available to
Buyer or the other Indemnified Persons.

With respect to any indemnification required of the Sellers as
a result of any breach of a representation or warranty set forth in
Section 3.30 hereof, the parties hereto hereby stipulate and agree
that the indemnifiable claim hereunder shall be an amount equal to
38% of the resulting reduction in the net operating loss
carryforward, and that such claim shall be payable in full at the
time the adjustment giving rise to such reduction is final, with
appropriate adjustment to reflect the time period over which PGPSI
is or reasonably anticipate to be able to utilize any portion of
the carryforward eliminated by such adjustment.

Notwithstanding anything in this Agreement to the contrary,
the aggregate Damages for which Sellers shall be liable under this
Section 10.2 or otherwise under this Agreement shall be limited to
Twenty-Five Million Dollars ($25,000,000); provided, however, that
such limitation shall not apply to:

(1) any payment of Ordinary Course of Business liabilities
or obligations required to be made by Sellers pursuant
to Sections 2.6 and 2.7 if such payment constituted an
Ordinary Course of Business liability of which PGPSI or
any employee, officer or director of PGPSI had Knowledge
on or before the Closing Date;

<PAGE>

(2) payments required to be made by Sellers pursuant to
Sections 2.16(a) and 2.17;

(3) payments made by a Seller for a liability of a Seller
arising under Environmental Laws as a result of Sellers'
ownership of or control over PGPSI during any period
prior to the Closing Date ("Sellers' Control
Environmental Liability") (and Buyer shall have the
right to cross claim or otherwise assert against Sellers
claims related to Sellers Control Environmental
Liability);

(4) an indemnity claim against Sellers for payment after the
Closing of an indemnification obligation by PGPSI to a
Person who was an officer, employee or director of PGPSI
prior to the Closing who is entitled to indemnification
from PGPSI under applicable statutory law, under
Organizational Documents of PGPSI or otherwise.

10.3 [Intentionally Omitted]

10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER

Buyer will indemnify and hold harmless Sellers and their
respective Representatives, stockholders, controlling persons, and
affiliates (collectively, the "Sellers' Indemnified Persons"), and
will pay to Sellers' Indemnified Persons the amount of any Damages
arising, directly or indirectly, from or in connection with:

(a) any Breach of any representation or warranty made by
Buyer in this Agreement or in any certificate delivered by
Buyer pursuant to this Agreement; or

(b) any Breach by Buyer of any covenant or obligation of
Buyer in this Agreement; or

(c) regardless of whether it may also constitute a
Breach under Section 10.4 (a) or (b) above, any loss,
liability, claim, damage (including incidental and
consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees)
arising from or relating to the operation, management or
ownership of PGPSI, arising or related to the period after the
Closing Date (whether known or unknown on the Closing Date).

Notwithstanding anything in this Agreement to the contrary,
the aggregate Damages for which Buyer shall be liable under this
Section 10.4 (a) and/or (b) or otherwise under this Agreement shall
be limited to Four Million Dollars ($4,000,000) and the aggregate
Damages for which Buyer shall be liable under Section 10(c) shall
be limited to Three Million Dollars ($3,000,000); provided,

<PAGE>

however, that such limitations shall not apply to Earn-Out Payments
required to be made by Buyer pursuant to Section 2.5 hereof.

10.5 [Intentionally Omitted]

10.6 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS

(a) Promptly after receipt by an indemnified party under
Section 10.2 or 10.4, of notice of the commencement of any
Proceeding against it or of notice that such Proceeding has
been Threatened against it, such indemnified party will, if a
claim is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the
commencement of such claim or threatened Proceeding, but the
failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying
party demonstrates that the defense of such action or the
ability of the indemnifying party to obtain otherwise
available insurance proceeds is materially prejudiced by the
indemnified party's failure to give such notice.

(b) If any Proceeding referred to in Section 10.6(a) is
brought against an indemnified party and it gives notice to
the indemnifying party of the commencement of such Proceeding,
the indemnifying party will, unless the claim involves Taxes,
be entitled to participate in such Proceeding and, to the
extent that it wishes (unless (i) the indemnifying party is
also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be
inappropriate, or (ii) the indemnifying party fails to provide
reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification
with respect to such Proceeding), to assume the defense of
such Proceeding with counsel satisfactory to the indemnified
party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will not, as long as
it diligently conducts such defense, be liable to the
indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of
such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such
Proceeding, other than reasonable costs of investigation. If
the indemnifying party assumes the defense of a Proceeding,
(i) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's
consent unless (A) there is no finding or admission of any
violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be
made against the indemnified party, and (B) the sole relief
provided is monetary damages that are paid in full by the

<PAGE>

indemnifying party; and (ii) the indemnified party will have
no liability with respect to any compromise or settlement of
such claims effected without its consent. If notice is given
to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any
determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.

(c) Notwithstanding the foregoing, if an indemnified
party determines in good faith that there is a reasonable
probability that a Proceeding may materially adversely affect
it or its affiliates other than as a result of monetary
damages for which it would be entitled to indemnification
under this Agreement, the indemnified party may, by notice to
the indemnifying party, and following a good faith attempt to
consult with the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any determination
of a Proceeding so defended or any compromise or settlement
effected without its consent (which may not be unreasonably
withheld).

10.7 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS

A claim for indemnification for any matter not involving a
third-party claim may be asserted by notice to the party from whom
indemnification is sought.

11. GENERAL PROVISIONS

11.1 EXPENSES

Except as otherwise expressly provided in this Agreement, each
party to this Agreement will bear its respective expenses incurred
in connection with the preparation, execution, and performance of
this Agreement and the Contemplated Transactions, including all
fees and expenses of agents, representatives, counsel, and
accountants. In the event of a Closing, Buyer will reimburse
Sellers $22,500 for the HSR Act filing fee previously paid by
Sellers. In the event of a Closing, Buyer will also pay Sellers
$27,500 on a non-accountable basis to reimburse Sellers for fees
and expenses paid by Sellers to their independent certified public
accounting firm and others incurred in connection with the
preparation of the pro forma financial statements and Tax Returns
of PGPSI required to be delivered at or before the Closing Date
pursuant to Section 7.9 hereof. Sellers will cause PGPSI not to
incur or accrue after the Effective Time any out-of-pocket expenses
in connection with this Agreement. In the event of termination of
this Agreement, the obligation of each party to pay its own

<PAGE>

expenses will be subject to any rights of such party arising from
a breach of this Agreement by another party.

11.2 MANDATORY ARBITRATION

Any controversy or claim between or among the parties hereto,
including but not limited to those arising out of or relating to
this Agreement, including any claim based on or arising from an
alleged tort, (but excluding claims, controversies and disputes
under the Consulting/Non-Competition Agreements, the IFG
Registration Rights Agreement(s), the PG Parent Warrant Agreement,
the PG Parent Registration Rights Agreement, the IFG Warrant
Agreement, the IFG Registration Rights Agreement, and the
Employment Agreement(s), all of which shall be governed by the
terms thereof) shall be determined by binding arbitration in
accordance with the Federal Arbitration Act (or, if not applicable,
the applicable New York law), the rules of practice and procedure
for the arbitration of commercial disputes of the American
Arbitration Association ("A.A.A."), and the "Special Rules" set
forth below. In the event of any inconsistency, the Special Rules
shall control. Judgment upon any arbitration award may be entered
in any court having jurisdiction. Any party to this Agreement may
bring an action, including a summary or expedited proceeding, to
compel arbitration of any controversy or claim to which this
Agreement applies in any court having jurisdiction over such
action.

(i) SPECIAL RULES. The arbitration shall be conducted
in the Borough of Manhattan, New York, New York and administered
by A.A.A., who will appoint an arbitrator. All arbitration hearings
will be commenced within ninety (90) days of the demand for
arbitration. Further, the arbitrator shall only, upon a showing of
cause, be permitted to extend the commencement of such hearing for
an additional sixty (60) days.

11.3 CONFIDENTIALITY

All information and documentation furnished to Buyer shall be
covered by that certain letter agreement dated March 6, 1996 (the
"Confidentiality Letter"). Prior to Closing, no party or affiliate of
a party hereto or to the Confidentiality Letter will issue or cause
publication of any press release or other announcement or public
communications with respect to the Contemplated Transactions, including
without limitation a general announcement to such party's employees,
without the prior consent of the other parties hereto, which consent
will not be unreasonably withheld; provided, however, that nothing
herein will prohibit any party (or affiliate) from issuing or causing
publication of any such press release, announcement or public
communication to the extent that such party (or affiliate) reasonably
determines such action to be required by law or the rules of any
national stock exchange or

<PAGE>

association applicable to it, in which case the party (or affiliate)
making such determination will use reasonable efforts to allow the
other party reasonable time to comment on such release or announcement
in advance of its issuance or to make any disclosure necessary to obtain
any consents required or deemed appropriate by Purchaser.

11.4 NOTICES

All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been
duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of
receipt), provided that a copy is mailed by registered mail, return
receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other
parties):

If to Sellers:

Paragon Group L.P.
Texas Paragon Management Partners L.P.
7557 Rambler Road
Suite 1200
Dallas, Texas 75231
Telephone: (214) 891-2000
Facsimile: (214) 891-2019
Attention: William R. Cooper

with a copy to:

Stutzman & Bromberg, a Professional Corporation
2323 Bryan Street
Suite 2200
Dallas, Texas 75201
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
Attention: M. David Stutzman

If to Buyer:

Insignia Commercial Group, Inc.
c/o Insignia Financial Group, Inc.
One Insignia Financial Plaza
Greenville, South Carolina 29602
Telephone: (864) 239-1675
Facsimile: (864) 239-1096
Attention: John K. Lines, General Counsel and Secretary

<PAGE>

With a copy to:

Insignia Financial Group, Inc.
102 Woodmont Boulevard, Suite 400
Nashville, Tennessee 37205
Telephone: (615) 783-1000
Facsimile: (615) 783-1099
Attention: Frank M. Garrison

With a copy to its counsel:

Farris, Warfield & Kanaday
Suite 1900, 424 Church Street
Nashville, Tennessee 37219
Telephone: (615) 244-5200
Facsimile: (615) 726-3185
Attention: B. Riney Green

11.5 [Intentionally Omitted]

11.6 FURTHER ASSURANCES

The parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of
carrying out the intent of this Agreement and the documents
referred to in this Agreement.

11.7 WAIVER

The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under
this Agreement or the documents referred to in this Agreement will
operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege
will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement or the
documents referred to in this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no
waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (c) no notice to
or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this
Agreement.

<PAGE>

11.8 ENTIRE AGREEMENT AND MODIFICATION

This Agreement supersedes all prior agreements between the
parties with respect to its subject matter (including the Letter of
Intent between Buyer and Sellers dated April 29, 1996) and
constitutes (along with the documents referred to in this
Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter.
This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.

11.9 AGREEMENT WITH COOPER

The Sellers acknowledge that the entering into concurrently
with this Agreement of that certain Cooper Agreement by and among
Cooper, WRC Holdings, Inc., ("WRCH") and Buyer dated as of the date
hereof (the "Cooper Agreement") is a material inducement to Buyer
to enter into this Agreement.

11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS

Neither party may assign any of its rights under this
Agreement without the prior consent of the other parties, except
that Buyer may assign any of its rights under this Agreement to any
Subsidiary of IFG. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure
to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be
construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or
with respect to this Agreement or any provision of this Agreement.
This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and
their successors and assigns.

11.11 SEVERABILITY

If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect.
Any provision of this Agreement held invalid or unenforceable only
in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.

11.12 SECTION HEADINGS, CONSTRUCTION

The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or
interpretation. All references to "Section" or "Sections" refer to
the corresponding Section or Sections of this Agreement. All words
used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly

<PAGE>

provided, the word "including" does not limit the preceding words
or terms. The parties, in acknowledgement that all of them have
been represented by counsel and that this Agreement has been
carefully negotiated, agree that the construction and
interpretation of this Agreement and other documents entered into
in connection herewith shall not be affected by the identity of the
party or parties under whose direction or at whose expense this
Agreement and such documents were prepared or drafted.

11.13 TIME OF ESSENCE

With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.

11.14 GOVERNING LAW

This Agreement will be governed by the laws of the State of
New York without regard to conflicts of laws principles.

11.15 COUNTERPARTS

This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.

REMAINING PORTION OF PAGE INTENTIONALLY LEFT BLANK

<PAGE>

IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.

PARAGON GROUP L.P. PARAGON GROUP PROPERTY
SERVICES, INC.
BY: PARAGON GROUP GP HOLDINGS, INC.
ITS GENERAL PARTNER

By: By:

Title: Title:

TEXAS PARAGON MANAGEMENT PARTNERS INSIGNIA COMMERCIAL GROUP,
L.P., a Texas limited partnership INC.

BY: PGI MANAGEMENT HOLDINGS, INC. By:
A TEXAS CORPORATION
Title:
By:

Title:

<PAGE>

INDEX OF EXHIBITS

Exhibit 1.A Cooper Partnerships
Exhibit 1.B Cooper Partnership Properties
Exhibit 1.C Delivered Cooper Partnership Agreements
Exhibit 1.D Delivered PGPSI Service Agreements
Exhibit 1.E Managed Properties
Exhibit 1.F PG Group Properties
Exhibit 1.G PGPSI Note
Exhibit 1.H Syndicated GE Partnerships
Exhibit 1.I Syndicated GE Partnership Properties
Exhibit 1.J-1 Management Termination Properties
Exhibit 2.2(a) Form of IFG Warrant Agreement
Exhibit 2.4(a) Form of Paragon Consulting/Non-Competition
Agreement
Exhibit 2.5.(a)-1 Effective Time PGPSI Commercial Clients
Exhibit 2.5.(a)-2 Effective Time PGPSI Commercial Properties
Exhibit 2.5.(a)-3 Additional Effective Time PGPSI Commercial
Clients
Exhibit 2.6.(a)-1 Owned Assets
Exhibit 2.6(a)(vi) Excluded Assets
Exhibit 2.6.(b) Continuing Liabilities of PGPSI
Exhibit 2.9 Form of Tax Allocation Agreement
Exhibit 2.10 Form of IFG Registration Rights Agreements
Exhibit 2.11.(d)-1 Non-Affiliated Management Properties
Exhibit 2.16.(d) Leased Space Utilized by PGPSI
Exhibit 2.17(f) Stock Option Plan Information
Exhibit 2.17(g) List of PGPSI Employees Subject to Notice
Exhibit 2.23 PG Parent Warrants
Exhibit 2.24 PG Parent Registration Rights Agreement
Exhibit 3.1 List of States in Which Qualified
Exhibit 3.2.(b) Conflicts with Agreement
Exhibit 3.2.(c) Required Consents and Notices
Exhibit 3.6 List of Real property, Leaseholds, Other
Interests Owned by PGPSI
Exhibit 3.8(a) List of Accounts Receivable
Exhibit 3.8(b) List of Employee Accounts Receivable
Exhibit 3.10 Excluded Liabilities
Exhibit 3.11 Contested Taxes
Exhibit 3.13(b)(ii) List of PGPSI Plans, PGPSI Other Benefit
Obligations, and Qualified Plans
Exhibit 3.13(b)(iii) List of ERISA Affiliates of PGPSI
Exhibit 3.13(b)(iv) List of PGPSI Other Benefit Obligations and
Financial Cost of Obligations
Exhibit 3.13(d) Certain Plan Changes and Events
Exhibit 3.14 List of Governmental Authorizations
Exhibit 3.15 Litigation
Exhibit 3.16 Changes
Exhibit 3.17(a)(i) Performance of Services or Delivery of
Goods
Exhibit 3.17(a)(ii) Non-Ordinary Course of Business in Excess
$10,000

<PAGE>

Exhibit 3.17(a)(iii) Affecting Real or Personal property
Exhibit 3.17(a)(iv) [Intentionally Omitted]
Exhibit 3.17(a)(v) Patents, Trademarks, Copyrights
Exhibit 3.17(a)(vi) Labor Union
Exhibit 3.17(a)(vii) Sharing of Profits, Losses, Costs, or
liabilities
Exhibit 3.17(a)(viii) Restrict the Business Activity
Exhibit 3.17(a)(ix) Payments based on Sales, Purchases, or
Profits
Exhibit 3.17(a)(x) Power of Attorney
Exhibit 3.17(a)(xi) Non-Ordinary Course of Business responsible
for Consequential Damages
Exhibit 3.17(a)(xii) Capital Expenditures in Excess of $20,000
Exhibit 3.17(a)(xiii) Non-Ordinary Course of Business Contractual
Performance
Exhibit 3.17(a)(xiv) Amendment, Supplement, and Modification
Exhibit 3.17(b) Certain Contract Claims or Employee
Restrictions
Exhibit 3.17(c) Invalid Contracts
Exhibit 3.17(d) Contract Compliance and Default Matters
Exhibit 3.18(b)(i) Self-Insurance Arrangement
Exhibit 3.18(b)(ii) Transferring or Sharing of Risk by PGPSI
Exhibit 3.18(b)(iii) Insurance Obligations of PGPSI to Third
Parties
Exhibit 3.18(c) Insurance Losses and Claims
Exhibit 3.18(d) Excluded Insurance
Exhibit 3.19 Environmental Matters
Exhibit 3.20 List of Employees and Directors and Related
Information
Exhibit 3.20(d) PGPSI Employee Restricted Stock Plan
Exhibit 3.22(b) Intellectual Property Assets
Agreements/Contracts
Exhibit 3.22(c) Employees without Written Contracts
Exhibit 3.22(d) List of Trademarks
Exhibit 3.22(e) List of Copyrights
Exhibit 3.24-1 List of PGPSI Services Agreements
Exhibit 3.24-2 List of Defaulted PGPSI Services Agreements
Exhibit 3.24-3 List of Managed Properties Other than
Controlled Management Properties or Non-Affiliated
Management Properties
Exhibit 3.24-4 List of Managed Properties for Sale
Exhibit 3.27 Claims against or Contracts with PGPSI
Exhibit 4.2 Buyer's Required Consents
Exhibit 7.4(a) Opinion Letter of Stutzman & Bromberg
Exhibit 7.4(b) [Intentionally Omitted]
Exhibit 7.4(c) Form of Consulting/Non-Competition
Agreement of Cooper
Exhibit 7.4(e) Form of Employment Non-Competition
Agreement of Doug Knaus
Exhibit 8.4(a) Opinion Letter of Farris, Warfield &
Kanaday

<PAGE>

ADDENDUM TO STOCK AND NOTE PURCHASE AGREEMENT
AND ESCROW AGREEMENT

This Addendum to Stock and Note Purchase Agreement and Escrow
Agreement ("ADDENDUM AND ESCROW AGREEMENT") is made as of June 26, 1996,
by Insignia Commercial Group, Inc., a Delaware corporation ("Buyer"),
Paragon Group L.P., a Delaware limited partnership ("PGL"), Texas Paragon
Management Partners L.P., a Texas limited partnership ("TPMPL"), and
Paragon Group Property Services, Inc., a Delaware corporation ("PGPSI").
PGL and TPMPL are referred to herein collectively as "SELLERS."

RECITALS

A. Buyer, Sellers and PGPSI entered into that certain Stock and
Note Purchase Agreement dated as of May 31, 1996 ("STOCK PURCHASE
AGREEMENT").

B. The parties to the Stock Purchase Agreement wish to make
certain modifications to the Stock Purchase Agreement, including
modifications to the procedure for the Closing.

C. In addition, the parties desire to create certain escrow
procedures to facilitate the consummation of the Contemplated
Transactions and the Closing.

NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
AGREEMENT

1. DEFINITIONS.

1.1 "BUYER'S DELIVERED DOCUMENTS" shall mean the documents required
by the Stock Purchase Agreement to be executed and/or delivered by Buyer,
and/or related parties, to Sellers on or before the Closing Date, and
required hereunder to be executed and/or delivered to Dallas Escrow Agent
on the Delivery Date, and listed on EXHIBIT 1.1 hereto and appropriate
counterparts of Sellers' Delivered Documents.

1.2 "DELIVERY DATE" shall mean June 28, 1996.

1.3. "ESCROW RELEASE DATE" shall mean that time at or after 9:00
a.m. (Central Daylight Time) July 1, 1996, when the conditions precedent
to Sellers' obligation to close have been satisfied and the conditions
precedent to Buyer's obligation to close have been satisfied and when the
conditions in this Addendum and Escrow Agreement, including the
procedural requirements for the Transferred Funds, have been satisfied,
but in no event later than 9:00 a.m. (Central Daylight Time) July 5,
1996.

1.4 "PGL ACCOUNT" shall mean the account maintained at NationsBank,
Dallas, Texas designated by PGL as the account into which certain funds
shall be sent by wire transfer pursuant to this Addendum and Escrow
Agreement.

1.5 "SELLERS' DELIVERED DOCUMENTS" shall mean the documents
required by the Stock Purchase Agreement to be executed and/or delivered

<PAGE>

by Sellers, and/or related parties, to Buyer on or before the Closing
Date, and required hereunder to be executed and/or delivered to Nashville
Escrow Agent on the Delivery Date, and listed on EXHIBIT 1.5. hereto and
appropriate copies of Buyer's Delivered Documents.

1.6. "STOCK CERTIFICATES" shall mean the stock certificates
representing the Shares.

1.7. "STOCK PURCHASE ESCROW" shall mean:
(a) the receipt of and holding in trust by Nashville Escrow
Agent of (i) Sellers' Delivered Documents and (ii) the Stock
Certificates; and
(b) the receipt of and holding in trust by Dallas Escrow Agent
of Buyer's Delivered Documents,
in each case until the Escrow Release Date or until the Escrow
Cancellation Date, as applicable.

1.8 "TRANSFERRED FUNDS" shall mean the funds described on Exhibit
1.8, hereto, and transmitted by wire transfer to the PGL Account.

All defined terms not defined herein shall be given the same
meanings as such terms are given in the Stock Purchase Agreement.

2. CLOSING DATE DESIGNATION; IFG WARRANT AGREEMENT EXERCISE PRICE

2.1. For purposes of the Stock Purchase Agreement, in the
event a Closing occurs under the Stock Purchase Agreement and this
Addendum and Escrow Agreement, the "Closing Date" and "Closing" shall be
deemed to be concurrent with the Effective Time (the end of the day
(midnight) Central Daylight Time June 30, 1996). Sellers' Closing
Documents and Buyer's Closing Documents and other related documents
entered into by the parties in connection with the Stock Purchase
Agreement and required hereunder to be delivered on the Delivery Date
shall be dated as of June 30, 1996.

2.2 The exercise price at which PGL shall be entitled to
purchase shares of Common Stock of IFG under the IFG Warrant shall be
calculated through the period ending at the close of business on June 25,
1996.

3. EXTENSION OF TIME BY BUYER FOR PROVISION OF CERTAIN INFORMATION;
SETTLE-UP WITH RESPECT TO CERTAIN OUTSTANDING MATTERS

3.1 With respect to certain information described on EXHIBIT 3
hereto and required by the Stock Purchase Agreement to be provided to
Buyer by Sellers as of the Closing Date, Sellers shall, on the Delivery
Date, provide the most recent information available to Sellers in the
Ordinary Course of Business, and shall update that information as soon as
practicable after the Closing but in all events within thirty (30) days
after the Delivery Date, except with respect to the information
concerning the Performance Bonds, such information to be provided within
seven (7) business days following the Closing. The information provided,
when properly provided within the time allowed in this Section 3 and
Exhibit 3, of the Delivery Date, shall be deemed to have been provided as
of the Closing Date.

<PAGE>

3.2 The parties agree that following reconciliation of the accounts
listed on Item 1 and 2 of Exhibit 3, hereto, any liabilities and/or
obligations arising in connection with such accounts shall remain with
Sellers and any assets that remain following reconciliation of such
accounts shall be the property of Sellers.

4. MODIFICATION TO SECTION 2.4(b) AND 2.7(c) OF THE STOCK PURCHASE
AGREEMENT IN CONNECTION WITH THE PAYMENT AMOUNTS AND PAYMENT PROCEDURE.

4.1 Section 2.4(b) and Section 2.7(c) of the Stock Purchase
Agreement are hereby amended, as necessary, to provide that Buyer shall
transmit and deliver via wire transfer to the PGL Account, for the
benefit of Sellers, Cooper and Means, all amounts due Sellers, Cooper and
Means under the Stock Purchase Agreement, less all amounts due from
Sellers to Buyer pursuant to Section 2.7(c)(iv), plus all amounts due
from Buyer to Sellers under the Closing Allocation of Joint Assets
Agreement, all as described on EXHIBIT 1.8 hereto.

4.2 Section 2.7(c) is amended to provide that the payment required
to be made by Sellers to Buyer in respect of the employer portion of tax
and withholding liabilities in connection with the $650,000 bonus amount
described in Section 2.7(c) shall be paid as follows: one and forty-five
hundredths percent (1.45%) of such $650,000 shall be paid in connection
with the payment of the Purchase Price, as described herein, and an
adjustment, as necessary to reflect the actual liability with respect to
such tax and withholding liabilities, shall be made on December 31, 1996.

5. MODIFICATION TO SECTION 2.7(c)(vii) AND 2.17(d)(2) OF STOCK PURCHASE
AGREEMENT.

5.1 Section 2.7(c)(vii) of the Stock Purchase Agreement is hereby
modified to allow Sellers or an affiliate thereof to maintain the PGPSI
Plans listed on EXHIBIT 5.1, hereto, instead of terminating such PGPSI
Plans as currently required by such Section 2.7(c)(vii), provided,
however, that (i) Sellers shall change no later than July 15, 1996 the
Sponsor of such PGPSI Plans and Sellers shall promptly at or immediately
after the Effective Time take all steps required to be taken to terminate
PGPSI's connection with and relationship with such PGPSI Plans, (ii) all
costs and expenses associated with the changes necessary to maintain the
PGPSI Plans and/or to terminate PGPSI's connection and relationship of
PGPSI with and to such PGPSI Plans shall be borne by Sellers, (iii) all
costs, expenses, liabilities and obligations accrued in respect of such
PGPSI Plans after the Effective Time shall be borne by Sellers, and (iv)
Sellers, jointly and severally, indemnify and hold harmless the
Indemnified Persons for, and will pay to the Indemnified Persons the
amount of, any loss, liability, claim, damage (including incidental and
consequential damages), expense (including costs of administration,
investigation and defense and reasonable attorneys' fees) or diminution
of value, whether or not involving a third-party claim arising or
resulting from, directly or indirectly, from or in connection with such
PGPSI Plans allowed to remain in effect after the Effective Time. The
foregoing costs of indemnification shall not be subject to the
$25,000,000 indemnification limits of Section 10.2 of the Stock Purchase
Agreement.

<PAGE>

5.2 Section 2.17(d)(2) clause (ii) of the Stock Purchase Agreement
is amended by deleting its present provision and substituting in lieu
thereof the following:

"(ii) permit, at Sellers' expense, within a reasonable time
following Closing, a bulk trustee-to-trustee transfer of assets
of the tax qualified PGPSI 401(k) Plan that are held for the
benefit of Non-Transition Employees or Transition Employees to
the IFG 401(k) Plan; provided, however, that neither Buyer nor
IFG shall be required to effectuate or accept the bulk trustee-
to-trustee transfer to the IFG 401(k) Plan in the event Buyer
reasonably determines (and provides written notice to PGL no
later than July 31, 1996 of such determination) that the
effectuation of such bulk trustee-to-trustee transfer would
either impose substantial financial or administrative burdens
or costs on IFG or the IFG 401(k) Plan or require substantial
modifications to the terms or provisions of the IFG 401(k)
Plan. Sellers shall bear all the costs and expenses of initial
implementation of any such trustee-to-trustee transfer of
assets and shall indemnify the Indemnified Parties for any such
additional costs. The foregoing costs of indemnification shall
not be subject to the $25,000,000 indemnification limits of
Section 10.2 of the Stock Purchase Agreement."

6. AMENDMENT TO SECTION 2.7(c) OF STOCK PURCHASE AGREEMENT.

The following subsections shall be added to Section 2.7(c) of the
Stock Purchase Agreement:
(xiii) With respect to a proposed lease having Trinity Universal Life
as lessee and J.P. Morgan as lessor at the 10,000 North Central
office building in Dallas, Texas (the "TUL Lease") and a
proposed lease having Hughes Electronics as lessee and
Metropolitan Life Insurance Company as lessor at Valwood 25 in
the Dallas, Texas area (the "HE Lease"), the projected $125,000
gross leasing commission respecting the TUL Lease and the
projected $45,000 gross leasing commission respecting the HE
Lease, if actually paid, after deduction for any and all
expenses incurred in connection with such leases, including
without limitation the payment of any amounts to employees or
third parties in connection with such leases shall be allocated
between Sellers and Buyer as follows:

(1) if the TUL Lease or HE Lease becomes fully executed (and
delivered) by the parties thereto on or before July 31,
1996, the net leasing commission attributable to such
lease(s) which become executed (and delivered) during such
period shall be allocated 50% to the Sellers and
50% to the Buyer;

(2) if the TUL Lease or HE Lease becomes fully executed (and
delivered) by the parties thereto after July 31, 1996 but
before August 16, 1996, the net leasing commission
attributable to such lease(s) which become executed (and
delivered) during such period shall be allocated 25% to
the Sellers and 75% to the Buyer; and

<PAGE>

(3) if the TUL Lease or HE Lease becomes fully executed (and
delivered) by the parties thereto after August 15, 1996,
all the net leasing commission attributable to such
lease(s) which become executed (and delivered) during such
period shall be allocated to Buyer.

Notwithstanding anything to the contrary stated herein, (y) in
respect of the commissions described in subsection (1) above,
Sellers shall receive no more than 50% of $125,000 in
connection with the TUL Lease and no more than 50% of $45,000
in connection with the HE Lease, in each case subject to
Sellers' obligation to pay the appropriate portion of all
expenses incurred in connection with such leases; and (z) in
respect of commissions described in subsection (2) above,
Sellers shall receive no more than 25% of $125,000 in
connection with the TUL Lease and no more than 25% of $45,000
in connection with the HE Lease, in each case subject to the
Sellers' obligation to pay the appropriate portion of all
expenses incurred in connection with such leases. In all
events, Buyer shall be entitled to receive the share described
in subsections (1) and (2) above and all portions of gross
leasing commissions greater than $125,000 for the TUL Lease and
$45,000 for the HE Lease.

(xiv) Sellers shall be entitled to receive 70% of any net
acquisition/brokerage fees associated with the sale by AEW to
IHG of the office building known as Hurstborne Business Center
located in Louisville, Kentucky provided that any such sale
closes after June 30, 1996, but before July 15, 1996.

7. ADDENDUM TO SECTION 2.9 OF STOCK PURCHASE AGREEMENT.

In addition to the requirement of Section 2.9 that the parties enter
into a Tax Allocation Agreement, Sellers also agree to the following:

Within sixty days following the Closing, Sellers will provide
to Buyer all information reasonably necessary to prepare required
annual federal and state information returns for the period January
1, 1996 through the date of closing. The information provided will
include the data needed to complete Forms W-2, including a
reconciliation of the Forms 941 for the first two quarters to the W-
2 amounts. The data will be provided in spreadsheet format (either
1-2-3 by Lotus or Microsoft Excel) (or other format agreed to by
both parties). Separate spreadsheets (or files) will be provided
for each information return. Additionally (within the sixty day
period), Sellers will also provide Buyer any permanent documents
related to these reports, including vendor and employee lists (with
name, address, federal identification number, and other relevant
data), Form W-9, and related materials. Should any terminated
employee(s) request his(their) form(s) W-2 under the procedures of
Revenue Procedure 84-77, Sellers will prepare the necessary federal
and state forms and provide them to the employee(s) and provide
copies to Buyer. If requested by Buyer, Sellers will prepare and
distribute required information returns for the period ending with
the Closing Date; these reports will be distributed to the payees no
later than January 22, 1997, and the copies for the employer and the

<PAGE>

government (including magnetic media) given to IFG's payroll
department no later than January 24, 1997. Nothing herein shall
obligate Sellers to provide Forms 1099 to Buyer prior to the tenth
day before the date such Forms are required by applicable law to be
filed.

8. MISCELLANEOUS MODIFICATIONS AND ADDENDUMS TO THE STOCK PURCHASE
AGREEMENT.

8.1. The term "Sellers' Closing Documents" in Section 3.2 and the
term "Buyer's Closing Document" in Section 4.2 is amended to include this
Addendum and Escrow Agreement and that certain letter agreement dated as
of the Closing Date by and among Sellers, Buyer and Cooper (the "Closing
Date Letter Agreement").

8.2. The provisions of Section 2.16(d) with respect to a
lease/sublease in Louisville, Kentucky are amended to conform to the
provisions of Section 4 of the Closing Allocation of Joint Assets
Agreement.

8.3. The forms of the Paragon Consulting/Non-Compete Agreement and
the Cooper Consulting/Non-Compete Agreement are amended to the extent
necessary to conform to the Letter Agreement.

8.4. Personalty, including intangible personalty, which as of June
24, 1996 were assets of PGPSI used jointly in the operation of the PGPSI
Commercial Division and in the operation of other business of PGPSI and
whose ownership and use are not expressly allocated to Buyer or Sellers
in the Closing Allocation Agreement (the "Unallocated Joint Assets")
shall be used and allocated as set forth below:

(a) any insurance policies insuring the life of Cooper shall be
exclusively allocated and title transferred to Sellers or their
designee at or prior to the Closing Date;

(b) any tickets or rights to attend sports and entertainment events
in the states of Kentucky and Missouri and in the city of Dallas,
Texas (and within a 100 mile radius of Dallas) shall be exclusively
allocated and transferred to Sellers or their designee at or prior
to the Closing Date;

(c) any (i) restricted stock agreements, (ii) employment agreements,
(iii) non-solicitation agreements, (iv) non-compete agreements or
(v) other employment arrangements, in each case between PGPSI and
PGPSI employees or former employees (other than any such agreements
between PGPSI and any PGPSI employees who become employees of Buyer
or its designee, but not such agreements with Transition Employees)
shall be assigned and transferred to Sellers (or their designee) at
or prior to the Closing;

(d) subject to subparagraphs 8.5(e) below, all other Unallocated
Joint Assets shall continue to be available after the Closing Date
for the joint and equitable use and benefit of Buyer and Sellers, it
being expressly agreed that: (1) Buyer and Sellers shall pay each
other reasonable rent or other amounts for the disproportionate use
thereof (as measured by relative value, benefit and use between the

<PAGE>

PGPSI Commercial Division on the one hand and all other business
segments of PGPSI on the other), and (2) with respect to intangible
Unallocated Joint Assets, the beneficiaries (such as PGPSI
respecting the pre-Closing PGPSI Commercial Division and New Paragon
Residential respecting pre-Closing other business segments of PGPSI)
of such intangible assets shall continue after the Closing Date to
have the right to enforce the rights and obligations thereunder
regardless of whether such intended beneficiary is the title holder
of such personalty and Buyer and Sellers (and the respective
affiliates of Buyer and Sellers) shall cooperate with each other to
assist any intended beneficiary in realizing the intended benefits
and right thereunder;

(e) notwithstanding any provision of Section 8.5(d) to the
contrary:

(1) Buyer shall have the right to purchase (and shall pay
to Sellers a fair price based on the relative value, benefit
and use between the PGPSI Commercial Division on the one
hand and all other business segments of PGPSI on the other)
and to acquire the exclusive possessory use and title of
any Unallocated Joint Assets which have been predominantly
used in the operation of the PGPSI Commercial Division; and

(2) Sellers shall have the right to purchase (and shall pay to
Buyer a fair price based on the relative value, benefit and use
between the PGPSI Commercial Division on the one hand and all
other business segments of PGPSI on the other) and to acquire
the exclusive title and possessory use of all Unallocated Joint
Assets not described in subparagraph 8.5(e)(1) above.

8.5 Section 2.7(b) of the Stock Purchase Agreement is amended to
require the Initial Proration Report to be delivered in two parts, the
first part within five (5) business days following thirty (30) days after
the Closing and the second part within five (5) business days following
sixty (60) days after the Closing.

9. EXECUTION AND DELIVERY OF DOCUMENTS.

9.1. Representatives of the parties shall convene at the
offices of Sellers, 7557 Rambler Road, Dallas, Texas, on the Delivery
Date and deliver into the Stock Purchase Escrow all documents required to
be executed and/or delivered at or before Closing, including without
limitation the Sellers' Closing Documents, the Closing Cooper Agreements,
the Stock Certificates, and Buyer's Closing Documents.

9.2. This Agreement shall not relieve any party of any
obligation under the Stock Purchase Agreement to notify any other party
if it becomes aware before the Closing Date of any fact or condition that
causes or constitutes a Breach of any of its representations and
warranties as of the date of the Stock Purchase Agreement and before the
Closing Date, or if a party becomes aware of the occurrence after the
date of the Stock Purchase Agreement of any fact or condition that would
(except as expressly contemplated by the Stock Purchase Agreement or this
Addendum and Escrow Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made
as of the time of occurrence or discovery of such fact or condition,

<PAGE>

provided, however, that any notification or document delivery obligation
arising on the Closing Date shall terminate at noon Central Daylight Time
on the Closing Date. Notwithstanding such termination of the
notification and document delivery obligation of the parties at noon
Central Daylight Time on the Closing Date and notwithstanding any other
provision in this Addendum and Escrow Agreement or of the Stock Purchase
Agreement, each party shall have not less than twelve hours after actual
receipt of any notice or document delivery from the other party to
evaluate any information provided and respond to such information. Any
correspondence, notice or other document delivered by one party to the
other shall be deemed to be a Modification Notice if in the reasonable
judgment of the deliveree party it has a material effect on the
representations, warranties or other disclosures contained in or required
to be made by the Stock Purchase Agreement or other Transaction
Documents.

9.3. Notwithstanding any other provision of this Addendum and
Escrow Agreement or of the Stock Purchase Agreement any notice or
document delivery obligation of a party hereto otherwise arising between
5 p.m. Central Daylight Time, Friday, June 28, 1996 and noon, Central
Daylight Time on the Closing Date shall also include the obligation to
use the notifying or delivering party's Best Efforts to contact Janice
Cole by calling her beeper number (888/582-1781), and then personally
conversing via telephone with Ms. Cole, with confirmation by facsimile,
at 615-783-1099, of any information conveyed if Buyer is the notified or
deliveree party or by contacting Lynn Caldwell at 214/821-1291, with
confirmation by facsimile, at 214-891-2019, of any information conveyed,
if Sellers or Cooper is the notified or deliveree party.

10. THE CLOSING.

The Closing shall be effectuated as follows:

10.1. In the absence prior to the Effective Time, (a) of a
facsimile notification by Buyer to Sellers of a failure of a condition
precedent to Buyer's obligation to close, and/or (b) of facsimile
notification by Sellers to Buyer of a failure of a conditition precedent
to Sellers' obligation to close, all conditions precedent to Sellers'
obligation to close and to Buyer's obligation to close shall be deemed to
have been satisfied.

10.2 If all conditions precedent to Sellers' obligation to close
and to Buyer's obligation to close have been satisfied, Buyer shall, at
or before 9:00 a.m. (Central Daylight Time) July 1, 1996, initiate the
procedure to transmit by wire transfer to the PGL Account the funds
required to be paid to Sellers, Cooper and Means pursuant to the Stock
Purchase Agreement, the other Transaction Documents, and this Addendum
and Escrow Agreement, all as described in EXHIBIT 1.8, hereto (once
transferred, the "TRANSFERRED FUNDS.")

10.3. The Stock Purchase Escrow Agents shall carry out their duties
as Stock Purchase Escrow Agents, pursuant to this Addendum and Escrow
Agreement.

11. APPOINTMENT OF COUNSEL AS ESCROW AGENTS.

<PAGE>

11.1 With the approval of Buyer, the parties appoint Farris,
Warfield & Kanaday, a Tennessee general partnership engaged in the
practice of law with its offices in Nashville, Tennessee, as an escrow
agent ("NASHVILLE ESCROW AGENT"), to receive and hold Sellers' Delivered
Documents and the Stock Certificates, from the Delivery Date until the
Escrow Release Date or until the Escrow Cancellation Date, whichever
first occurs.

11.2 With the approval of Sellers, the parties appoint Stutzman &
Bromberg, a Texas professional corporation engaged in the practice of
law, as an escrow agent ("DALLAS ESCROW AGENT"), to receive and hold
Buyer's Delivered Documents from the Delivery Date until the Escrow
Release Date or until the Escrow Cancellation Date, whichever first
occurs.

11.3 The parties acknowledge that Nashville Escrow Agent represents
Buyer and IFG and that the Dallas Escrow Agent represents Sellers, Cooper
and Means. The parties further acknowledge that the appointment and
fulfillment of duties as escrow agent do not create an attorney/client
relationship: (a) between Nashville Escrow Agent and any of Sellers,
Cooper or Means, or (b) between Dallas Escrow Agent and either Buyer or
ICG.

12. DUTIES OF STOCK PURCHASE ESCROW AGENTS.

Dallas Escrow Agent and Nashville Escrow Agent (collectively, the
"STOCK PURCHASE ESCROW AGENTS") agree to take the following actions, with
respect to which they shall have no discretion:

12.1. Nashville Escrow Agent shall receive and hold in safe-
keeping and trust the Sellers' Delivered Documents and the Stock
Certificates, and Dallas Escrow Agent shall receive and hold in safe-
keeping and in trust Buyer's Delivered Documents, according to the
instructions provided herein and subject to other written instructions
provided by Sellers or Buyer, as applicable, pursuant to the procedure
described herein.

12.2 PGL shall immediately notify Buyer, Dallas Escrow Agent and
Nashville Escrow Agent, in writing by facsimile, of the receipt of the
Transferred Funds into the PGL Account.

12.3 Upon receipt of written notice delivered by PGL by facsimile
that the Transferred Funds have been received, (a) Nashville Escrow Agent
shall immediately release and deliver to Buyer the Stock Certificates and
Sellers' Delivered Documents, and (b) the Dallas Escrow Agent shall
immediately release and deliver to Sellers Buyer's Delivered Documents.

12.4 If, prior to the Effective Time, Buyer notifies Sellers and
Dallas Escrow Agent by facsimile of non-satisfaction of a condition
precedent to Buyer's obligation to close and/or Sellers notify Buyer and
Nashville Escrow Agent by facsimile of non-satisfaction of a condition
precedent to Sellers' obligation to close, Nashville Escrow Agent shall
return to Sellers via a recognized overnight delivery courier Sellers'
Delivered Documents and the Stock Certificates, and Dallas Escrow Agent
shall return to Buyer via a recognized overnight delivery courier Buyer's
Delivered Documents.

9
<PAGE>

12.5. If, after the Effective Time and after the respective
conditions precedent to Sellers' and Buyer's obligations to close have
been deemed to be satisfied, the funds described on EXHIBIT 1.8 hereto
are not wired by Buyer to nor received into the PGL Account by 9:00 a.m.
(Central Daylight Time) on July 2, 1996, Nashville Escrow Agent shall,
upon its receipt thereafter of facsimile notice by PGL of the failure of
PGL Account to receive such funds, return, via a recognized overnight
delivery courier, to Sellers Sellers' Delivered Documents and the Stock
Certificates unless expressly instructed by facsimile otherwise in
writing by PGL, and Dallas Escrow Agent shall return, via a recognized
overnight delivery courier, to Buyer Buyer's Delivered Documents unless
expressly instructed by facsimile otherwise in writing by Buyer.

12.6. In all events, if prior to 9:00 a.m. (Central Daylight Time)
on July 5, 1996 PGL has not received into the PGL Account the Transferred
Funds and has not disseminated facsimile notices in accordance with this
Addendum and Escrow Agreement:

(a) Nashville Escrow Agent shall return to Sellers the Stock
Certificates via a recognized overnight delivery courier and shall
destroy all the Sellers' Delivered Documents; and

(b) Dallas Escrow Agent shall destroy Buyer's Delivered Documents.

13. PERFORMANCE BONDS.

With respect to the performance bonds described in Section 5.7 of
the Stock Purchase Agreement:

(a) Buyer shall cause such bonds to be replaced as soon as
commercially practicable; and

(b) , subject to its obligations in 13(a) above, Buyer shall
continue such bonds in effect until they are replaced (or their
expiration, if earlier); and

(c) except as may otherwise be provided in Sections 2.6, 2.7 and
10.2 of the Stock Purchase Agreement, Buyer hereby indemnifies
Sellers against any loss, claims, ], damages or costs arising from
or related to the continuation of the performance bonds after the
Closing Date.

14. NO OTHER CHANGES; GENERAL PROVISIONS OF STOCK PURCHASE AGREEMENT
CONTROL.

The execution, delivery and effectiveness of this Addendum and
Escrow Agreement does not operate as an amendment to or modification or
waiver of the Stock Purchase Agreement except with respect to the express
terms herein and is subject to the specific conditions described herein.
In addition, the general provisions of the Stock Purchase Agreement set
forth in Sections 11.1 through 11.4, 11.6, 11.7, 11.8, and 11.10 through
11.15 are hereby incorporated by reference.

<PAGE>

IN WITNESS WHEREOF, the parties have executed and delivered this
Addendum and Escrow Agreement as of the date first written above.

PARAGON GROUP L.P. PARAGON GROUP PROPERTY SERVICES,
INC.
By: Paragon Group G Holdings, Inc.
its General Partner

By: By:
---------------------------- -------------------------
Title: Title:
------------------------- -------------------------

TEXAS PARAGON MANAGEMENT PARTNERS INSIGNIA COMMERCIAL GROUP, L.P.,
a Texas limited partnership INC.

By: PGI Management Holdings, Inc. By:
a Texas corporation ----------------------------
Title:
By: ------------------------
----------------------------
Title:
-------------------------

ACKNOWLEDGED:

- -----------------------------
WILLIAM R. COOPER

- -----------------------------
STEVEN A. MEANS

<PAGE>

ACKNOWLEDGMENT OF APPOINTMENT AS ESCROW AGENT
and
AGREEMENT TO SERVE AS ESCROW AGENT

NASHVILLE ESCROW AGENT. Farris, Warfield & Kanaday, a Tennessee
general partnership engaged in the practice of law, acknowledges its
appointment as Nashville Escrow Agent, as described in this Addendum and
Escrow Agreement and accepts such appointment, on the terms and
conditions herein. This appointment as Nashville Escrow Agent is limited
by the express terms of this Addendum and Escrow Agreement to the duties
and scope and duration described herein.

FARRIS, WARFIELD & KANADAY

By:
---------------------------
B. Riney Green, Partner

DALLAS ESCROW AGENT. Stutzman & Bromberg, a Texas professional
corporation, acknowledges its appointment as Dallas Escrow Agent, as
described in this Addendum and Escrow Agreement and accepts such
appointment, on the terms and conditions herein. This appointment as
Dallas Escrow Agent is limited by the express terms of this Addendum and
Escrow Agreement to the duties and scope and duration described herein.

STUTZMAN & BROMBERG, A PROFESSIONAL
CORPORATION

By:
------------------------------

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

<PAGE>

EXHIBIT 1.1

Buyer's Delivered Documents

1. PARAGON CONSULTING/NON-COMPETITION AGREEMENT.

2. COOPER CONSULTING/NON-COMPETITION AGREEMENT.

3. MEANS CONSULTING/NON-COMPETITION AGREEMENT.

4. TAX ALLOCATION AGREEMENT.

5. CLOSING ALLOCATION OF JOINT ASSETS AGREEMENT.

6. IFG WARRANT AGREEMENT.

7. IFG WARRANT.

8. IFG REGISTRATION RIGHTS AGREEMENT.

9. PG PARENT WARRANT AGREEMENT.

10. INVESTMENT LETTER FROM ICG.

11. PG PARENT REGISTRATION RIGHTS AGREEMENT.

12. REAL ESTATE BROKERAGE AGREEMENT (ST. LOUIS).

13. REAL ESTATE BROKERAGE AGREEMENT (GREAT SOUTHWEST).

14. REAL ESTATE BROKERAGE AGREEMENT (SOUTHWOOD).

15. REAL ESTATE BROKERAGE AGREEMENT (WESTGATE).

16. BUYER'S CLOSING CERTIFICATE.

17. CLOSING COOPER AGREEMENTS
(1) AGREEMENT EXECUTED BY COBB
(2) AGREEMENT EXECUTED BY LEVEY

18. COPIES OF CONSENTS

19. OPINION OF FARRIS, WARFIELD & KANADAY.

20. ADDENDUM AND ESCROW AGREEMENT

21. EMPLOYMENT/NON-COMPETITION AGREEMENT (KNAUS)

22. CLOSING DATE LETTER AGREEMENT.

<PAGE>

EXHIBIT 1.5

Sellers' Delivered Documents

1. CERTIFICATES REPRESENTING THE SHARES

2. TAX ALLOCATION AGREEMENT
(1) DESIGNATION OF INDIVIDUAL (TAX OFFICER)
(2) "FOREIGN PERSON" CERTIFICATE FROM EACH SELLER

3. PGPSI NOTE

4. RELEASE FROM HOLDER OF FOUR NOTES

5. PARAGON CONSULTING/NON-COMPETITION AGREEMENT FROM SELLERS AND
PG PARENT

6. IFG WARRANT AGREEMENT

7. INVESTMENT LETTER FROM PGL

8. IFG REGISTRATION RIGHTS AGREEMENT

9. PG PARENT WARRANT AGREEMENT

10. PG PARENT WARRANTS (2 warrants)

11. PG PARENT REGISTRATION RIGHTS AGREEMENT

12. CLOSING ALLOCATION OF JOINT ASSETS AGREEMENT

13. SPECIAL WARRANTY DEED TRANSFERRING DALLAS INDUSTRIAL

14. GREAT SOUTHWEST MANAGEMENT AGREEMENT

15. PGPSI REPLACEMENT MANAGEMENT AGREEMENT (Southwood)

16. PGPSI REPLACEMENT MANAGEMENT AGREEMENT (Westgate)

17. PGPSI REPLACEMENT MANAGEMENT AGREEMENT (St. Louis)

18. REAL ESTATE BROKERAGE AGREEMENT (Southwood)

19. REAL ESTATE BROKERAGE AGREEMENT (Westgate)

20. REAL ESTATE BROKERAGE AGREEMENT (St. Louis)

21. REAL ESTATE BROKERAGE AGREEMENT (Great Southwest)

21. CLOSING CERTIFICATE EXECUTED BY SELLERS AND PGPSI

22. LIST OF "EFFECTIVE TIME PGPSI COMMERCIAL CLIENTS"

23. LIST OF EFFECTIVE TIME PGPSI COMMERCIAL PROPERTIES (EXHIBIT
2.5.(A)-2)

<PAGE>

24. EVIDENCE OF TRANSFER OF EXCLUDED ASSETS
(1) CONTRIBUTION AGREEMENT
(2) BILL OF SALE, ASSIGNMENT AND ASSUMPTION
(3) ASSIGNMENT OF MANAGEMENT AGREEMENTS
(4) ASSIGNMENT OF LEASES

25. EFFECTIVE TIME EMPLOYEE ACCOUNTS RECEIVABLE (EXHIBIT 3.8(B))

26. CLOSING COOPER AGREEMENTS
(1) AGREEMENT EXECUTED BY COBB
(2) AGREEMENT EXECUTED BY LEVEY
(3) OPINION OF STUTZMAN AND BROMBERG

27. COOPER CONSULTING/NON-COMPETITION AGREEMENT

28. MEANS CONSULTING/NON-COMPETITION AGREEMENT

29. OPINION OF STUTZMAN & BROMBERG

30. PRO FORMA FINANCIAL STATEMENTS OF PGPSI

31. "COMFORT LETTERS" FROM E&Y

34. AMENDED LEASE IN CONNECTION WITH LOUISVILLE LEASE AGREEMENT

35. ASSIGNMENT TO PGPSI OF PGPSI SERVICE AGREEMENTS, AS
APPROPRIATE

37. ADDENDUM AND ESCROW AGREEMENT

39. CLOSING DATE LETTER AGREEMENT

40. NOTICE: LETTER TERMINATING BROKERAGE AGREEMENT (THE
PARAGON)

41. MODIFICATION NOTICE

<PAGE>

EXHIBIT 1.8
[Attach Closing Statement]

<PAGE>

EXHIBIT 3

Information for Which Extended Time is Granted - Section 3.

<PAGE>

EXHIBIT 5.1

PGPSI Plans to Remain In Place

I. VARIOUS BENEFIT PLANS
(1) Employee Stock Purchase Plan
(2) Employee Restricted Plan
(3) Employee Stock Option Plan
(4) COBRA
(5) Group Health and Dental
(6) Group Life and Accidental Death and Dismemberment
(7) Short-Term Disability
(8) Long-Term Disability
(9) Travel and Accident Life Insurance

II. 401(K) RETIREMENT AND SAVINGS PLAN
The Paragon Group Property Services, Inc. 401(k) Retirement and
Savings Plan

<PAGE>

WARRANT AGREEMENT

This WARRANT AGREEMENT (the "Agreement") is entered into as of
June 30, 1996 by and between PARAGON GROUP, INC., a Maryland
corporation (the "Company") and INSIGNIA COMMERCIAL GROUP, INC., a
Delaware corporation (the "Warrantholder").

In connection with the entrance into a Stock and Note Purchase
Agreement regarding Paragon Group Property Services, Inc.
("Acquiree") (the "Stock Purchase Agreement") by the Warrantholder,
Paragon Group L.P, a subsidiary of the Company, and others, the
Company hereby agrees to issue and sell to the Warrantholder, in
exchange for consideration consisting of entering into the Stock
Purchase Agreement, a Stock Purchase Warrant, as hereinafter
described (the "Warrant"), to purchase shares (the "Shares") of the
Company's Common Stock, $0.01 par value ("Common Stock"). The
issuance of the Warrant by the Company shall occur concurrently
with the Closing of the Stock Purchase Agreement.

The aggregate number of Shares subject to this Warrant shall
be as follows:

(a) 50,000 Shares, at an exercise price of $18.25 per Share;
("Initial Shares"); plus

(b) Up to an additional 238,000 Shares, at an exercise price
of $18.25 based on the following formula: 288,000 times
a fraction having as the numerator the aggregate amount
of Property Specific Management Termination Fees (as
defined in the Stock Purchase Agreement) payable during
the first two years after the Closing Date (as defined in
the Stock Purchase Agreement) and having $2,879,200 as
the denominator, minus 50,000 ("Secondary Shares").

At the end of the twenty four month period following Closing,
a determination will be made as to the number of the additional
238,000 Warrants which will be exercisable in accordance with the
foregoing formula and any of such additional Warrants which do not
become exercisable in accordance with the foregoing formula shall
be automatically cancelled.

In consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and for the purpose of defining the terms and
provisions of the Warrant and the respective rights and obligations
thereunder, the Company and the Warrantholder hereby agree as
follows:

<PAGE>

SECTION 1. Transferability and Form of Warrant.

1.1 REGISTRATION. The Warrant shall be numbered and shall be
registered on the books of the Company when issued.

1.2 NON-TRANSFERABILITY. Neither the Warrant nor the right,
title or interest of the Warrantholder in this Agreement may be
transferred or assigned unless such transfer or assignment is to an
"accredited investor," as defined in Rule 501 promulgated under the
Securities Act of 1933, as amended, compliance with said standard
to be demonstrated by evidence reasonably satisfactory to the
Company; PROVIDED, HOWEVER, in the event the Warrantholder assigns
or transfers his interest in this Agreement, the assignee or
transferee of said interest shall be subject to all Section 1.3
restrictions and shall acquire only such partial exercise rights as
remain pursuant thereto. This Agreement and all rights and
interests hereunder are assignable or transferrable by
Warrantholder only in whole and not in part. Any Shares issued
pursuant to a Warrant issued hereunder shall be subject to the
rights and obligations of that certain Registration Rights
Agreement dated of even date herewith between the Company and
Warrantholder.

1.3 SECURITIES LAW RESTRICTIONS ON TRANSFER OF THE WARRANT.
Neither this Agreement, the Warrant, any of the Shares, nor any
interest herein or therein may be sold, transferred, or otherwise
disposed of in the absence of registration or qualification, as the
case may be, of the same under the Securities Act of 1933, as
amended, and applicable state securities laws, or an exemption
therefrom. The Warrant may be divided, upon request to the Company
by the Warrantholder, into a certificate or certificates
representing the right to purchase the same aggregate number of
Shares, but in no event shall the Company be obligated to issue a
Warrant for less than five thousand (5,000) Shares. Unless the
context indicates otherwise, the term "Warrantholder" shall include
any transferee or transferee of the Warrant and the term "Warrant"
shall include any and all warrants outstanding pursuant to this
Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or
permitted transfer pursuant to this Agreement.

1.4 FORM OF WARRANT. The text of the Warrant and the form of
election to purchase Shares shall be substantially as set forth in
EXHIBIT 1.4A and EXHIBIT 1.4B attached hereto and hereby made a
part hereof. The price per Share and the number of Shares issuable
upon exercise of the Warrant are subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The
Warrant shall be executed on behalf of the Company by its Chairman
or President and by its Secretary or Treasurer.

A Warrant bearing the signature of an individual who was at
any time the proper officer of the Company shall bind the Company,

<PAGE>

notwithstanding that such individual shall have ceased to hold such
office prior to the delivery of such Warrant or did not hold such
office on the date of this Agreement.

The Warrant shall be dated as of the date of signature thereof
by the Company either upon initial issuance or upon division,
exchange, substitution or transfer.

1.5 LEGEND ON WARRANT SHARES. The Warrant and each
certificate for Shares initially issued upon exercise of the
Warrant, shall bear the following legend:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES MAY NOT
BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY
ACCEPTABLE TO THE ISSUER, THAT SUCH SALE, TRANSFER,
PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS PURSUANT
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS
ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE
REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE
DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH
THE WARRANT AGREEMENT, DATED AS OF JUNE 30, 1996 BY AND
AMONG PARAGON GROUP, INC. AND INSIGNIA COMMERCIAL GROUP,
INC. AND THE REGISTRATION RIGHTS AGREEMENT DATED AS OF
JUNE 30, 1996 BY AND AMONG INSIGNIA COMMERCIAL GROUP INC.
AND PARAGON GROUP, INC."

Any warrant or certificate issued at any time in exchange or
substitution for any warrant or certificate bearing such legend
shall also bear the above legend unless, in the opinion of the
Company's counsel or such other counsel as shall be reasonably
approved by the Company, the securities represented thereby are no
longer subject to the restrictions referred to in such legend.

1.6 INVESTMENT LETTER. Simultaneously with the delivery to
the Warrantholder of certificates or other documents representing
the Shares and the Warrant, the Warrantholder will execute and
deliver to the Company a letter, in the following form of Exhibit
1.6 hereto, representing to the Company as follows:

(a) The Warrantholder is acquiring the Shares and the
Warrant for Warrantholder's own account (and not for the
account of others), for investment and not with a view to the
distribution or resale thereof;

<PAGE>

(b) Warrantholder has received copies of all Reports on
Form 10-K for the period ending December 31, 1995, Form 10-Q
for the period ending March 31, 1996, and other forms required
to be filed and filed by the Company with the Securities and
Exchange Commission (the "Commission") since January 1, 1996;

(d) The Warrantholder understands that Warrantholder may
not sell or dispose of the Shares or the Warrant in the
absence of either a registration statement under the 1933 Act
or an exemption from the registration provisions of the 1933
Act;

(e) The Warrantholder understands and agrees that if he
should decide to dispose of or transfer any of the Shares or
the Warrant, he may dispose of them only (i) in compliance
with the 1933 Act, as then in effect, and (ii) upon delivery
to the Company of an opinion, in form and substance reasonably
satisfactory to the Company, of recognized securities counsel
to the effect that the disposition or transfer is to be made
in compliance with all applicable federal and state securities
laws; and

(f) The Warrantholder understands that stop-transfer
instructions to the foregoing effect will be in effect with
respect to the Shares and the Warrant.

SECTION 2. EXCHANGE OF WARRANT CERTIFICATE. Subject in all
respects to the limitations on transferability and divisibility of
SECTION 1 hereof, any certificate evidencing all or a portion of
the Warrant may be exchanged for another certificate or
certificates entitling the Warrantholder to purchase a like
aggregate number of Shares as the certificate or certificates
surrendered then entitling such Warrantholder to purchase. Any
Warrantholder desiring to exchange a certificate evidencing all or
a portion of the Warrant, shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed,
the certificate evidencing the portion of the Warrant to be so
exchanged. Thereupon, the Company shall, within five (5) business
days, execute and deliver to the person entitled thereto a new
certificate evidencing all or a portion of the Warrant as so
requested.

SECTION 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.

(a) Subject to the terms of this Agreement, the Warrantholder
shall have the right, at any time during the period commencing at
9:00 a.m., New York, New York time, on July 1, 1996 (the "Initial
Shares Exercisability Date") and ending at 5:00 p.m,, New York, New
York time, on June 30, 2001 (the "Termination Date"), to purchase

<PAGE>

from the Company up to the number of Initial Shares which the
Warrantholder may at the time be entitled to purchase pursuant to
this Agreement and the portion of the Warrant (or certificate
therefor) then held by it, upon surrender to the Company, at its
principal office in Dallas, Texas, of the certificate evidencing
the portion of the Warrant to be exercised, together with the
purchase form on the reverse thereof duly filled in and signed, and
upon payment to the Company of the Warrant Price, as defined in and
determined in accordance with the provisions of Sections 6 and 7
hereof, for the number of Shares with respect to which such portion
of the Warrant is then exercised. Payment of the aggregate Warrant
Price shall be made in cash, by cashier's check or by wire
transfer.

(b) Subject to the terms of this Agreement, the Warrantholder
shall have the right at any time prior to 5 p.m. local New York,
New York time on the second anniversary of the date hereof to
notify the Company in writing of the Warrantholders' to liquidate
some or all of the Secondary Shares to which the Warrantholder may
then or subsequently be entitled (an "Early Notice"). In the event
of an Early Notice, the Warrantholder shall be entitled to receive
an amount equal to:

(i) the excess of the closing price of the Common Stock on the
date of delivery of the Early Notice over the Exercise Price

times

(ii) the number of Secondary Shares to which the Warrantholder
ultimately becomes entitled and which were the subject of an
Early Notice (an "Early Payment").

Payment of an Early Payment, if any, shall be made by the
Company to Warrantholder in installments each of which will be made
promptly following , but in no event more than 15 days after the
date(s) on which it is determinable that Warantholder is entitled
to any Secondary Shares, determined in accordance with the terms of
this Agreement and the Stock Purchase Agreement based on the
occurrences of Management Termination Events during the twenty four
month period ending on the second anniversary of the date hereof

(c) Subject to the terms of this Agreement, the Warrantholder
shall have the right, at any time during the period commencing at
9:00 a.m., New York, New York time, on July 1, 1998 (the "Secondary
Shares Exercisability Date") and ending at 5:00 p.m,, New York, New
York time, on June 30, 2001 (the "Termination Date"), to purchase
from the Company up to the number of Secondary Shares which the
Warrantholder may at the time be entitled to purchase pursuant to
this Agreement (as such number is automatically adjusted downward
to take account of the number of Secondary Shares liquidated by
Warrantholder in accordance with the provisions of Section 3(b)
hereof), and the portion of the Warrant (or certificate therefor)

<PAGE>

then held by it, upon surrender to the Company, at its principal
office in Dallas, Texas, of the certificate evidencing the portion
of the Warrant to be exercised, together with the purchase form on
the reverse thereof duly filled in and signed, and upon payment to
the Company of the Warrant Price, as defined in and determined in
accordance with the provisions of Sections 6 and 7 hereof, for the
number of Shares with respect to which such portion of the Warrant
is then exercised. Payment of the aggregate Warrant Price shall be
made in cash, by cashier's check or by wire transfer.

(c) Upon such surrender of the Warrant (or certificate
therefor) and payment of such Warrant Price as aforesaid, the
Company shall, within five (5) business days, issue and cause to be
delivered to or upon the written order of the Warrantholder, and in
such name or names as the Warrantholder may designate, certificate
or certificates for the number of full Shares so purchased upon the
exercise of the Warrant, together with cash, as provided in
SECTION 8 hereof, with respect to any fractional Shares otherwise
issuable upon such surrender and the cash, property and other
securities to which the Warrantholder is entitled pursuant to the
provisions of SECTION 7. The Warrant shall be exercisable, at the
election of the Warrantholder, either in whole or from time to time
in part (but in no event for less than 5,000 Shares) and, in the
event that the certificate evidencing the Warrant is exercised with
respect to less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing
the remaining Warrant shall be issued by the Company.

SECTION 4. PAYMENT OF TAXES. The Warrantholder shall pay all
documentary stamp taxes, if any, attributable to the initial
issuance of the Shares; further, provided that the Company shall
not be required to pay any tax or taxes which may be payable with
respect to any secondary transfer of the Warrant or the Shares.

SECTION 5. MUTILATED OR MISSING WARRANT. In case the
certificate or certificates evidencing the Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall, at the
request of the Warrantholder, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated certificate
or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of
such Warrant and of a bond of indemnity, if requested, also
satisfactory in form and amount at the applicant's cost. Applicants
for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges
as the Company may prescribe, not to exceed Two Hundred Fifty and
no/100 Dollars ($250) per occurrence.

<PAGE>

SECTION 6. WARRANT PRICE AND CASHLESS EXERCISE.

6.1 WARRANT PRICE. The price per Share (the "Warrant Price")
at which Shares shall be purchasable upon the exercise of the
Warrant shall be $18.25 per Share, subject to adjustment pursuant
to Section 7 hereof.

6.2 CASHLESS EXERCISE. Except as otherwise noted, the Warrant
Price may be paid as follows:

(i) In all cash;

(ii) In a combination of already held Common Stock
valued at its fair market value as of the date of the
exercise and cash; or

(iii) If the fair market value of one share of
Common Stock as of the date of exercise is greater than
the Warrant Price per share of Common Stock, in lieu of
exercising the Warrant for cash only, or cash and Common
Stock as provided herein, the Warrantholder may elect to
receive shares equal to the value (as determined below)
of the Warrant (or the portion thereof being cancelled)
plus any cash or Common Stock (the "other consideration")
as provided in paragraph (ii) above, by surrender to the
Company the other consideration (if any) and the Warrant
(or certificate therefor) as provided above, and the
Company shall issue to the Warrantholder a number of
shares of Common Stock equal to: (A) the number of shares
of Common Stock to which the Warrantholder is entitled as
a result of the delivery of the other consideration, plus
(B) a number of shares of Common Stock computed using the
following formula (collectively, a "Cashless Exercise"):

X = Y (A-B)
-------
A

Where: X = the number of shares of Common Stock to
be issued to the Warrantholder

Y = the number of shares of Common Stock
purchasable under the Warrant or, if only
a portion of the Warrant is being
exercised, the portion of the Warrant
being cancelled (at the date of such
calculation)

A = the fair market value of one share of the
Company's Common Stock (as of the
exercise date)

B = Warrant Price per Share

<PAGE>

For all purposes of this Section 6.2, the fair market value
per share shall equal the average closing price quoted on the
New York Stock Exchange (or on any other exchange on which the
Common Stock is listed) as published in the Eastern Edition of
The Wall Street Journal for the five (5) trading days prior to
the date of determination of fair market value.

SECTION 7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.

7.1 ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The
number and kind of securities purchasable upon the exercise of the
Warrant and the Warrant Price shall be subject to adjustment from
time to time upon the happening of certain events, as follows:

(A) ADJUSTMENTS. The number of Shares purchasable upon
the exercise of the Warrant and the Warrant Price shall be
subject to adjustment as follows:

(i) In the event the Company shall (A) pay a stock
dividend or make a distribution to holders of Common
Stock in shares of its Common Stock, (B) subdivide its
outstanding shares of Common Stock into a larger number
of shares, (C) combine its outstanding shares of Common
Stock into a smaller number of shares, (D) issue by
reclassification of its shares of Common Stock any shares
of capital stock of the Company, or (E) take any action
which would result in any of the foregoing, then (1) the
Warrant Price shall be increased or decreased, as the
case may be, to an amount which shall bear the same
relation to the Warrant Price as the total number of
shares outstanding immediately prior to such action shall
bear to the total number of shares outstanding
immediately after such action and (2) the Warrant
automatically shall be adjusted so that it thereafter
shall be convertible into the kind and number of shares
of Common Stock or other securities which the Holder
would have owned and would have been entitled to receive
after such action or any record date with respect
thereto. An adjustment made pursuant to this
SECTION 7.1(a)(i) shall become effective retroactively
immediately after the record date in the case of a
dividend or distribution of Common Stock and shall become
effective immediately after the effective date in the
case of a subdivision, combination or reclassification.

If any event shall occur as to which the provisions
of this SECTION 7.1(a)(i) shall not be strictly
applicable, but with respect to which the failure to make
any adjustment to the Warrant Price and the number of
shares issuable upon exercise of the Warrant would not
fairly protect the purchasing rights contained in this
Agreement in accordance with the intent and principles of

<PAGE>

this SECTION 7.1(a)(i), upon request of the
Warrantholder, the Company shall appoint a firm of
independent public accountants reasonably acceptable to
the Warrantholder which shall give its opinion upon the
adjustments, if any, consistent with the intent and
principles established in this SECTION 7.1(a)(i)
necessary to preserve without dilution of the purchasing
rights represented by this Agreement. Upon receipt of
such opinion, the Company will promptly mail a copy
thereof to the Warrantholder and shall make the
adjustments described therein.

(ii) In calculating any adjustment hereunder, the
Warrant Price shall be calculated to the nearest cent and
the number of Shares purchasable hereunder shall be
calculated to the nearest .001 of a share.

(iii) For the purpose of this SECTION 7.1(a), the
term "Common Stock" shall mean (A) the class of stock
designated as the Class A Common Stock of the Company at
the date of this Agreement, or (B) any other class of
stock resulting from successive changes or
reclassifications of such Common Stock consisting solely
of changes in par value, or from no par value to par
value. In the event that at any time, as a result of an
adjustment made pursuant to this SECTION 7, the
Warrantholder shall become entitled to purchase any
securities of the Company other than Common Stock, the
Company shall duly reserve such securities for issuance
and thereafter the number of such other securities so
purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to the
adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with
respect to the Shares contained in this SECTION 7.

(iv) In any case in which the provisions of this
SECTION 7.1(a) require that the adjustment shall be
effective immediately after a record date for an event,
the Company may defer until the occurrence of such event
(1) issuing to the holder of the Warrant or portion
thereof exercised after such record date and before the
occurrence of such event the additional shares of Common
Stock issuable upon such exercise by reason of the
adjustment required by such event over and above the
shares of Common Stock issuable upon such exercise before
giving effect to such adjustment, and (2) paying to such
holder any cash in lieu of a fractional share of Common
Stock pursuant to SECTION 8 hereof.

(b) No Adjustment for Dividends. Except as provided in
SECTION 7.1(a), no adjustment with respect to any ordinary

<PAGE>

dividends (made out of current earnings) on shares of Common
Stock shall be made during the term of the Warrant or upon the
exercise of the Warrant.

(C) NO ADJUSTMENT FOR RIGHTS OFFERING. Notwithstanding
anything seemingly to the contrary contained herein, no
adjustment on shares of Common Stock (which adjustment might
otherwise be effected pursuant to this Section 7) shall be
made in connection with any rights offering made to all
holders of the Common Stock to purchase shares of the capital
stock or other securities of any subsidiary of the Company.

7.2 STATEMENT ON WARRANTS. Irrespective of any adjustment in
the Warrant Price or the number or kind of Shares purchasable upon
the exercise of the Warrant, the Warrant certificate or
certificates theretofore issued may continue to express the same
price and number and kind of shares as are stated in the Warrant
initially issuable pursuant to this Agreement.

7.3 RESERVATION. The Company shall at all times reserve and
keep available, so long as the Warrant remains outstanding, out of
its authorized but unissued Common Stock the full number of shares
of Common Stock deliverable upon the exercise of the Warrant and
shall take all such action and obtain all such permits or orders as
may be necessary to enable the Company lawfully to issue such
Common Stock.

7.4 CHANGE IN CONTROL; MERGER; REORGANIZATION. Notwithstanding
anything to the contrary contained herein, in the event of (i) a
Change of Control (as hereinafter defined), (ii) any consolidation
or merger of the Company with or into another person, (iii) the
sale, lease, or transfer of all or substantially all of the assets
of the Company to another person, (iv) a "going private"
transaction whereby the securities of the Company cease to be
traded on a national stock exchange, or (v) a reorganization of the
Company, the Company may, in its sole discretion, provide written
notice of such occurrence to the Warrantholder (the "Change of
Control Notice"). The Warrantholder may, within ten (10) calendar
days of receipt of a Change of Control Notice (the "Notice Cutoff
Date"), exercise the Warrant and purchase, in accordance with the
procedures set forth in SECTION 3 hereof, up to such number of
Shares as the Warrantholder may be entitled to purchase hereunder.
If the Company provides a Change of Control Notice to the
Warrantholder and the Warrantholder has not exercised the Warrant
in accordance with the terms of this Agreement by 5:00 p.m., local
time of Greenville, South Carolina, on the Notice Cutoff Date, the
Warrants and all rights hereunder shall expire and terminate
(unless the Change of Control described in a Change of Control
Notice provided to the Warrantholder does not occur within twelve
(12) months from the Notice Cutoff Date in which case the Warrant
shall remain outstanding).

<PAGE>

For purposes of this Agreement, Change of Control shall mean
the acquisition by any person or group (as such term is defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, (the "Act") of beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Act) of more than 25%
of the outstanding shares of Common Stock of the Company, except
for any acquisition, the purpose of which is to create one or more
holding companies for the Company.

SECTION 8. FRACTIONAL INTERESTS. The Company shall not be
required to issue fractional Shares on the exercise of the Warrant.
If any fraction of a Share would, except for the provisions of this
Section 8, be issuable on the exercise of the Warrant (or specified
portions thereof), the Company shall pay an amount in cash equal to
the adjusted Warrant Price of such fractional Share.

SECTION 9. NO RIGHTS AS STOCKHOLDER. Nothing contained in this
Agreement or in the Warrant shall be construed as conferring upon
the Warrantholder or its transferee any rights as a stockholder of
the Company.

SECTION 10. NOTICES. Any notice pursuant to this Agreement by
the Company or by the Warrantholder shall be in writing and shall
be deemed to have been duly given if delivered personally with
written receipt acknowledged or mailed by certified mail five days
after mailing, return receipt requested:

If to the Warrantholder:
INSIGNIA COMMERCIAL GROUP, INC.
One Insignia Financial Plaza
P.O. Box 1089
Greenville, South Carolina 29602
Attention: General Counsel

with a copy to:

Farris, Warfield & Kanaday
1900 Third National Financial Center
424 Church Street
Nashville, Tennessee 37219
Attention: B. Riney Green, Esq.

If to the Company:

PARAGON GROUP, INC.
7557 Rambler Road, Ste. 1200
Dallas, Texas 75231
Attn: William R. Cooper

<PAGE>

with a copy to:

Stutzman & Bromberg
2323 Bryan Street
Suite 2200
Dallas, Texas 75201
Attn: M. David Stutzman

Each party hereto may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by
notice in accordance herewith to the other party.

SECTION 11. SUCCESSORS. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the
Warrantholder shall bind and inure to the benefit of their
respective successors, heirs and permitted assigns.

SECTION 12. BENEFITS OF THIS AGREEMENT. Except as otherwise
provided herein, nothing in this Agreement shall be construed to
give to any person or corporation other than the Company and the
Warrantholder any legal or equitable right, remedy or claim under
this Agreement, and this Agreement shall be for the sole and
exclusive benefit of the Company and the Warrantholder.

SECTION 13. FURTHER ASSURANCES. The Company hereby agrees
promptly to execute, at the Warrantholder's reasonable request
after the issuance of the Warrant, any documents or materials
related to the transactions contemplated by this Agreement.

SECTION 14. TIME OF ESSENCE. Time is of the essence in
interpreting and performing this Agreement.

SECTION 15. SEVERABILITY. In case any provision in this
Agreement shall be held invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions
hereof will not in any way be affected or impaired hereby.

SECTION 16. JURY TRIAL; JURISDICTION. The parties waive the
right to a jury trial with respect to any controversy or claim
between or among the parties hereto, including but not limited to
those arising out of or relating to this Agreement, including any
claim based on or arising from an alleged tort. Venue for any and
all disputes arising out of or in connection with this Agreement
shall be exclusively in the federal and state courts in the State
of Texas. The parties hereto consent and submit to the jurisdiction
of such courts and waive any objection to venue laid therein.
Process in any action or proceeding referred to in this Agreement
may be served on any party anywhere in the world.

SECTION 17. GOVERNING LAW. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of
Delaware. The parties, in acknowledgement that they have been
12

<PAGE>

represented by counsel and that this Agreement has been carefully
negotiated, agree that the construction and interpretation of this
Agreement and other documents entered into in connection herewith
shall not be affected by the identity of the party under whose
direction or at whose expense this Agreement and such documents
were prepared or drafted.

SECTION 18. ATTORNEYS' FEES. In the event of any disputes
arising hereunder concerning the interpretation or enforcement of
this Agreement, a party shall be entitled to recover from the party
determined to be in breach its attorneys' fees, costs and expenses.

SECTION 19. SPECIFIC PERFORMANCE. Each of the parties shall be
entitled to specific performance in the event of a breach by the
other party of their respective obligations hereunder. Such remedy
shall be in addition to, but shall not replace, any other remedies
which might be available under this Agreement, at law or in equity,
including without limitation, actions for attorney's fees.

SECTION 20. REGISTRATION RIGHTS. The Common Stock issuable
upon exercise of this Warrant may be subject to certain rights
pursuant to the Registration Rights Agreement dated of even date
herewith.

SECTION 21. REPRESENTATIONS OF COMPANY. The Company represents
and warrants to Warrantholder as follows:

21.01 CORPORATE ORGANIZATION AND GOOD STANDING. The Company is
a corporation duly organized, validly existing, and in good
standing under the laws of the State of Maryland and is duly
qualified and in good standing in all other states where the nature
of its business or operations or the ownership of its property
requires such qualification.

21.02 CORPORATE APPROVAL. The Company has full corporate power
and authority to execute and deliver this Agreement and all other
documents and agreements to be executed and delivered by it
hereunder ("Transaction Documents") and to consummate the
transactions contemplated hereby. The board of directors of the
Company has duly and validly approved the execution, delivery, and
performance of this Agreement and the transactions contemplated
herein. No other corporate or legal proceedings on the part of the
Company are necessary to approve and authorize the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby. This Agreement constitutes, and the other
Transaction Documents, when executed, will constitute, the legal,
valid, and binding obligation and agreement of the Company
enforceable against the Company in accordance with its terms,
subject only to the general law of creditors' rights.
13

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed, all as of the day and year first above written.

"WARRANTHOLDER" INSIGNIA COMMERCIAL GROUP, INC.

-----------------------------------
By:
-----------------------------------
Title:
-----------------------------------

"COMPANY" PARAGON GROUP, INC.

-----------------------------------
By:
-----------------------------------
Title:
-----------------------------------

<PAGE>

EXHIBIT 1.4A to
Warrant Agreement

WARRANT NO. __

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). SUCH SECURITIES MAY NOT
BE SOLD, ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (II) UPON RECEIPT OF
AN OPINION OF THE COUNSEL TO THE TRANSFEROR, REASONABLY
ACCEPTABLE TO THE ISSUER, THAT SUCH SALE, TRANSFER,
PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION IS PURSUANT
TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. BY ITS
ACCEPTANCE HEREOF, THE HOLDER OF THIS CERTIFICATE
REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE
DISTRIBUTION OR RESALE THEREOF, AND AGREES TO COMPLY WITH
THE WARRANT AGREEMENT, DATED AS OF JUNE ___, 1996, BY
AND AMONG PARAGON GROUP, INC. AND INSIGNIA COMMERCIAL
GROUP, INC. AND THE REGISTRATION RIGHTS AGREEMENT DATED
AS OF JUNE ___, 1996 BY AND AMONG INSIGNIA COMMERCIAL
GROUP INC. AND PARAGON GROUP, INC."

WARRANT TO PURCHASE UP TO ______ SHARES
OF ______ STOCK OF
PARAGON GROUP, INC. $_____ PAR VALUE

Exercisable commencing July ___, 1998;
Void after June ___, 2001;

THIS CERTIFIES that, for value received, Insignia Commercial
Group, Inc., a Delaware corporation, ("Holder"), or registered
assigns, is entitled, subject to the terms and conditions set forth
in this Warrant, to purchase from PARAGON GROUP, INC., a Delaware
corporation (the "Company"), up to ______ shares, of ______
______ Stock, $______ par value ("Shares"), of the Company,
commencing at 9:00 a.m., Eastern time, on June __, 1996 and
continuing up to 5 p.m. Eastern time on June __, 2001 at a price
per Share of $18.25, such number of Shares and price per Share
being subject to adjustment from time to time as set forth in the
Warrant Agreement referred to below. This Warrant is issued
pursuant to a Warrant Agreement between the Holder and the Company
dated as of June __, 1996 and is subject to all the terms

<PAGE>
thereof, including the limitations on transferability set forth
therein.

This Warrant may be exercised by the holder hereof, in whole
or in part (but not for less than 5,000 Shares, nor in certain
circumstances, as to a fractional share), by the presentation and
surrender of this Warrant with the form of Election to Purchase
duly executed, at the principal office of the Company (or at such
other address as the Company may designate by notice in writing to
the holder hereof at the address of such holder appearing on the
books of the Company), and upon payment to the Company of the
purchase price in cash, by cashier's check, by Cashless Exercise
(as defined in the Warrant Agreement) or by wire transfer.
Certificates for the Shares so purchased shall be delivered or
mailed to the Holder promptly after this Warrant shall have been so
exercised, and, unless this Warrant has expired or has been
exercised in full, a new Warrant identical in form but representing
the number of Shares with respect to which this Warrant shall not
have been exercised shall also be issued to the holder hereof.

Nothing contained herein shall be construed to confer upon the
holder of this Warrant, as such, any of the rights of a shareholder
of the Company.

Dated: June ___, 1996

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

By:
-------------------------------------
Title:
-------------------------------------

<PAGE>

EXHIBIT 1.4B to
Warrant Agreement

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

ELECTION TO PURCHASE

------------------------------:

The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to
purchase thereunder, _________ Shares provided for therein, and
requests that certificates for the Shares be issued in the name of:

(Please Print Name, Address and Tax Identification Number)
and, if said number of Shares shall not be the total number of
Shares purchasable hereunder, that a new Warrant certificate for
the balance of the Shares purchasable under the within Warrant
certificate be registered in the name of the undersigned
Warrantholder or its assignee as below indicated and delivered to
the address stated below:

Dated: _________________, ____

Name of Warrantholder or
Assignee (Please Print): ___________________________________

Address: ___________________________________________________

Signature: _________________________________________________

Signature Guaranteed: Note: The above signature must
correspond with the name as written upon the face of this Warrant
certificate in every particular, without alteration or enlargement
or any change whatever, unless this Warrant has been assigned.

(To be signed only upon assignment of Warrant)

<PAGE>

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto

_______________________________________________________________
_______________________________________________________________

(Name and Address of Assignee must be Printed or Typewritten) the
within Warrant, hereby irrevocably constituting and appointing
______________________ Attorney to transfer said Warrant on the
books of the Company, with full power of substitution in the
premises.

Dated: ___________, ____

______________________________
Signature of Registered Holder

Signature Guaranteed: Note: The above signature of this
assignment must correspond with
the name as written upon the
face of the within Warrant
certificate in every
particular, without alteration
or enlargement or any change
whatever.

<PAGE>

EXHIBIT 1.6 to
Warrant Agreement

[letterhead of Warrantholder]

June , 1996

------------------------------:

The undersigned warrantholder ("Warrantholder") hereby
represents and warrants to you as follows:

(b) Warrantholder has received copies of all Reports on
Form 10-K for the period ending December 31, 199 , Form 10-Q
for the period ending __________, 199__, and other forms
required to be filed and filed by the Company with the
Securities and Exchange Commission (the "Commission") since
January 1, 199__;

(f) The Warrantholder understands that stop-transfer
instructions to the foregoing effect will be in effect with
respect to the Shares and the Warrant.

<PAGE>

IN WITNESS WHEREOF, the undersigned has caused this letter to
be duly executed, all as of the day and year first above written.

INSIGNIA COMMERCIAL GROUP, INC.

By: ______________________________

Title: ___________________________

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS CONSENT

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-83144) of Paragon Group, Inc. of our report dated February 27,
1996 with respect to the consolidated and combined financial statements and
schedule of Paragon Group, Inc. included in the Form 10-K/A for the year ended
December 31, 1995.

ERNST & YOUNG LLP

Dallas, Texas
July 23, 1996

<PAGE>
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<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,492
<SECURITIES> 0
<RECEIVABLES> 2,868
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<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 631,471
<DEPRECIATION> 126,437
<TOTAL-ASSETS> 539,611
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<BONDS> 293,780
0
0
<COMMON> 148
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<TOTAL-LIABILITY-AND-EQUITY> 539,611
<SALES> 0
<TOTAL-REVENUES> 107,568
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</TABLE>