GLENBOROUGH REALTY TRUST INC, 8-K, 1997-03-19

GLENBOROUGH REALTY TRUST INC
8-K, 1997-03-19
REAL ESTATE

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------

FORM 8-K

PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): March 19, 1997
(March 1, 1997)

GLENBOROUGH REALTY TRUST INCORPORATED
(Exact name of Registrant as
Specified in its Charter)

MARYLAND
(State or Other Jurisdiction
of Incorporation)

001-14162
(Commission File Number)

94-3211970
(IRS Employer Identification No.)

400 SOUTH EL CAMINO REAL, SUITE 1100
SAN MATEO, CA 94402
(415) 343-9300
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)

<PAGE> 2
Item 5. OTHER EVENTS.

In February 1997, Glenborough Properties, L.P. (the "Operating
Partnership"), in which Glenborough Realty Trust Incorporated (the "Company")
holds a 1% interest as sole general partner and an approximate 91% limited
partner interest, acquired a 163-suite hotel property located in Scottsdale,
Arizona. On March 1, 1997, Glenborough Properties, L.P. leased the hotel to
Glenborough Hotel Group pursuant to a lease agreement, a copy of which is
attached hereto as Exhibit 10.1.

On March 17, 1997, the Company priced its offering of 4,025,000 shares (the
"Shares") of its Common Stock (including an over-allotment option of 525,000
shares) at $20 1/4 per share. Attached hereto as exhibits to this Current Report
on Form 8-K is a Prospectus Supplement, an opinion of counsel and Underwriting
Agreement dated as of March 17, 1997 among the Company and Glenborough
Properties, L.P., on the one hand, and Bear Stearns & Co., Inc., Robertson,
Stephens and Company LLC and Jefferies & Company, Inc., on the other hand, each
relating to the issuance of the Shares, and an opinion of counsel relating to
the tax status of the Company.

Item 7. Exhibits

1.1 Underwriting Agreement

5.1 Opinion of Counsel (relating to the Shares)

8.1 Opinion of Counsel (relating to the tax status of the Company)

10.1 Lease Agreement by and between Glenborough Properties, L.P.
and Glenborough Hotel Group

12.1 Computation of ratio of earnings to fixed charges

99.1 Prospectus Supplement relating to the Shares

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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

GLENBOROUGH REALTY TRUST
INCORPORATED

March 19, 1997 By: /s/ TERRI GARNICK
--------------------------------
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)

<PAGE> 4

EXHIBIT INDEX

EXHIBIT DESCRIPTION
- ---------- --------------------------------------------
<S> <C>
1.1 Underwriting Agreement

5.1 Opinion of Counsel (relating to Shares)

8.1 Opinion of Counsel (relating to
tax status of the Company)

10.1 Lease Agreement by and between Glenborough
Properties, L.P. and Glenborough Hotel Group

12.1 Computation of ratio of earnings to fixed charges

99.1 Prospectus Supplement relating to the Shares

</TABLE>

<PAGE> 1
EXHIBIT 1.1

3,500,000 Shares of Common Stock

GLENBOROUGH REALTY TRUST INCORPORATED

UNDERWRITING AGREEMENT

March 17, 1997

BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY LLC
JEFFERIES & COMPANY, INC.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167

Ladies and Gentlemen:

Glenborough Realty Trust Incorporated, a corporation organized and
existing under the laws of Maryland (the "Company") and the sole general partner
of Glenborough Properties, L.P. (the "Operating Partnership"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the several
underwriters named in Schedule I attached hereto (the "Underwriters") an
aggregate of 3,500,000 shares (the "Firm Shares") of its common stock, par value
$0.001 per share (the "Common Stock") and, for the sole purpose of covering
over-allotments in connection with the sale of the Firm Shares, at the option of
the Underwriters, up to an additional 525,000 shares (the "Additional Shares")
of Common Stock. The Firm Shares and any Additional Shares purchased by the
Underwriters are referred to herein as the "Shares". Bear, Stearns & Co. Inc.,
Robertson, Stephens & Company LLC and Jefferies & Company, Inc. have agreed to
act as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the purchase of the Shares. The Shares are
more fully described in the Registration Statement referred to below.

1. Representations and Warranties of the Company and the Operating
Partnership. The Company and the Operating Partnership, jointly and severally,
represent and warrant to, and agree with, the Underwriters that:

(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
333-19279), and any amendments thereto, and a related preliminary prospectus for
the registration under the Securities
<PAGE> 2
Act of 1933, as amended (the "Securities Act") of preferred stock, common stock
(including the Shares) and warrants to purchase shares of preferred stock or
common stock, which registration statement, as so amended, has been declared
effective by the Commission and copies of which have heretofore been delivered
to you. Such registration statement, in the form in which it was declared
effective, as amended, including all documents incorporated or deemed to be
incorporated by reference therein through the date hereof, is hereinafter
referred to as the "Initial Registration Statement." Other than a registration
statement, if any, increasing the size of the offering (a "Rule 462(b)
Registration Statement") filed pursuant to Rule 462(b) under the Securities Act,
which became effective upon filing, no other document with respect to the
Initial Registration Statement or document incorporated by reference therein has
heretofore been filed with the Commission (other than prospectuses filed
pursuant to Rule 424(b) of the rules and regulations of the Commission under the
Act, each in the form heretofore delivered to the Representatives). No stop
order suspending the effectiveness of the Registration Statement and the Rule
462(b) Registration Statement, if any, has been issued and no proceeding for
that purpose has been initiated or, to the Company's knowledge, threatened by
the Commission. The various parts of such registration statement, including all
exhibits thereto and the documents incorporated by reference in the prospectus
contained in the registration statement at the time such part of the
registration statement became effective, each as amended at the time such part
of the registration statement became effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes effective, are
hereafter collectively called the "Registration Statement." The Company proposes
to file with the Commission pursuant to Rule 424(b) of the rules and regulations
of the Commission under the Securities Act (the "Securities Act Regulations")
the Prospectus Supplement (as defined in Section 4(j) hereof) and the prospectus
dated February 25, 1997 (the "Base Prospectus"), and has previously advised you
of all further information (financial and other) with respect to the Company set
forth therein. The Base Prospectus together with the Prospectus Supplement, in
their respective forms on the date hereof (being the forms in which they are to
be filed with the Commission pursuant to Rule 424(b) of the Securities Act
Regulations), including all documents incorporated or deemed to be incorporated
by reference therein through the date hereof, are hereinafter referred to as the
"Prospectus," except that if any revised prospectus or prospectus supplement
shall be provided to the Underwriters by the Company for use in connection with
the offering and sale of the Shares which differs from the Prospectus (whether
or not such revised prospectus or prospectus supplement is required to be filed
by the Company pursuant to Rule 424(b) of the Securities Act Regulations), the
term "Prospectus" shall refer to such revised prospectus or prospectus
supplement, as the case may be, from and after the time it is first provided to
the Underwriters for such use. As used herein, the term "date of the Prospectus"
shall be deemed to refer to the date of the applicable Prospectus Supplement.
Any preliminary prospectus or prospectus subject to completion included in the
Registration Statement or filed with the Commission pursuant to Rule 424 under
the Securities Act, is hereafter called a "Preliminary Prospectus." Unless the
context otherwise requires, all references in this Agreement to documents,
financial statements and schedules and other information which is "contained",
"included", "stated", "described in" or "referred to" in the Registration
Statement or the Prospectus (and all other references of like import) shall be
deemed to mean and include all such documents, financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be,
and all references in this

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Agreement to amendments or supplements to the Registration Statement or the
Prospectus shall be deemed to mean and include the filing of any document under
the Securities Exchange Act of 1934 (the "Exchange Act") after the date of this
Agreement which is or is deemed to be incorporated by reference in the
Registration Statement or the Prospectus, as the case may be. Additionally, all
references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a Preliminary Prospectus, the Base Prospectus, the
Prospectus Supplement and the Prospectus, or any amendments or supplements to
any of the foregoing, shall be deemed to include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").

(b) The Registration Statement and the Base Prospectus, at the
time the Registration Statement became effective and as of the date hereof,
complied and comply in all material respects with the requirements of the
Securities Act and the Securities Act Regulations (including Rule 415(a) of the
Securities Act Regulations), and did not and as of the date hereof do not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Prospectus, as of the date hereof (unless the term "Prospectus"
refers to a prospectus which has been provided to the Underwriters by the
Company for use in connection with the offering of the Shares which differs from
the Prospectus filed with the Commission pursuant to Rule 424(b) of the
Securities Act Regulations, in which case at the time it is first provided to
the Underwriters for such use) and on the Closing Date referred to in Section 2
hereof, does not and will not include an untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection (a) shall
not apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by any Representative
expressly for use in the Registration Statement or the Prospectus. Each
Preliminary Prospectus and Prospectus filed as part of the Registration
Statement, as part of any amendment thereto or pursuant to Rule 424 under the
Securities Act Regulations, if filed by electronic transmission pursuant to
EDGAR (except as may be permitted by Regulations S-T under the Securities Act)
was identical to the copy thereof delivered to the Underwriters for use in
connection with the offer and sales of the Shares. There are no contracts or
other documents required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement under the Securities Act that have not
been described, filed or incorporated by reference therein as required.

(c) Arthur Andersen LLP, whose reports are incorporated by
reference into the Registration Statement, are independent public accountants
with respect to the Company and with respect to the Company's subsidiaries, in
each case as required by the Securities Act and the Securities Act Regulations.

(d) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as set forth
in the Registration Statement and the Prospectus, there has been no material
adverse change in the business, business prospects, properties, operations,
condition (financial or other) or results of operations of the

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Company or the Operating Partnership and their respective subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business (any such change with respect to any entity being referred to herein as
a "Material Adverse Change"), and since the date of the latest balance sheet
included or incorporated by reference in the Registration Statement and the
Prospectus, neither the Company, the Operating Partnership nor any of their
respective subsidiaries has incurred or undertaken any liabilities or
obligations, direct or contingent, which are material to the Company, the
Operating Partnership and their respective subsidiaries taken as a whole, except
for liabilities or obligations which are set forth in or contemplated by the
Registration Statement and the Prospectus.

(e) This Agreement and the transactions contemplated herein
have been duly and validly authorized by the Company and the Operating
Partnership and this Agreement has been duly and validly executed and delivered
by the Company and the Operating Partnership.

(f) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
(i) conflict with or result in a breach of any of the terms and provisions of,
or constitute a default (or an event which with notice or lapse of time, or
both, would constitute a default) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company,
the Operating Partnership or any of their respective subsidiaries pursuant to,
any agreement, instrument, franchise, license or permit to which the Company,
the Operating Partnership or any of their respective subsidiaries is a party or
by which any of such entities or their respective properties or assets may be
bound or (ii) violate or conflict with any provision of the partnership
agreement of the Operating Partnership, the certificate of incorporation or
by-laws of the Company or any of the subsidiaries of the Company or Operating
Partnership or any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company, the Operating Partnership or any of their
subsidiaries or any of their respective properties or assets, except for those
violations or conflicts that would not have a material adverse effect on the
Company, the Operating Partnership and their respective subsidiaries, taken as a
whole. No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company,
the Operating Partnership or any of their respective subsidiaries or any of
their respective properties or assets is required for the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby, including the issuance, sale and delivery of the Shares to
be issued, sold and delivered by the Company hereunder, except the registration
under the Securities Act of the Shares and such consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses and
permits as may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters.

(g) All of the outstanding shares of Common Stock are duly and
validly authorized and issued, fully paid and nonassessable and were not issued
and are not now in violation of or subject to any preemptive rights. The Shares,
when issued, delivered and sold in accordance with this Agreement, were or will
be, as the case may be, duly and validly issued

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and outstanding, fully paid and nonassessable, and will not have been issued in
violation of or be subject to any preemptive rights. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Prospectus
Supplement under the caption "Capitalization" and in the descriptions thereof
incorporated by reference in the Prospectus. The Common Stock, including the
Shares, conform to the description thereof contained in the Registration
Statement and the Prospectus. The Company is the sole general partner of the
Operating Partnership; the partnership agreement of the Operating Partnership
has been duly authorized, executed and delivered by each partner thereto and is
valid, legally binding and enforceable in accordance with its terms; all of the
partnership interests in the Operating Partnership have been duly and validly
authorized and issued and (except as described in the Prospectus) are owned
directly or indirectly by the Company free and clear of all liens, encumbrances,
equities or claims. All issued and outstanding securities of the Operating
Partnership have been duly and validly authorized and issued in compliance with
the federal and state securities laws. The units of the Operating Partnership
issued or to be issued in connection with the acquisitions described in the
Prospectus Supplement under the caption "Recent Activities" will be duly and
validly issued in compliance with the federal and state securities laws when
issued in the manner described in the Prospectus.

(h) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Maryland. The Operating Partnership has been duly organized and is validly
existing as a limited partnership in good standing under the laws of the State
of California. The Company is duly qualified and in good standing as a foreign
corporation, and the Operating Partnership has been duly qualified and is in
good standing as a foreign limited partnership, in each jurisdiction in which
the character or location of its respective properties (owned, leased or
licensed) or the nature or conduct of its respective business makes such
qualification necessary, except for those failures to be so qualified or in good
standing which will not in the aggregate have a material adverse effect on the
Company, the Operating Partnership and their respective subsidiaries, taken as a
whole. Each of the Company and the Operating Partnership has all requisite power
and authority, and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and from all public,
regulatory or governmental agencies and bodies, to own, lease and operate its
properties and conduct its business as now being conducted and as described in
the Registration Statement and the Prospectus, except for the absence of which
individually or in the aggregate would not have a material adverse effect on the
Company, the Operating Partnership and their respective subsidiaries taken as a
whole, and no such consent, approval, authorization, order, registration,
qualification, license or permit contains a materially burdensome restriction
not adequately disclosed in the Registration Statement and the Prospectus.

(i) Each subsidiary of the Company or the Operating
Partnership has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation. Each
subsidiary of the Company or the Operating Partnership is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which the
character or location of its properties (owned, leased or licensed) or the
nature or conduct of its business makes such qualification necessary, except for
those failures to be so qualified or in good standing which will not in the
aggregate have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries, taken as a whole.

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Each subsidiary of the Company and the Operating Partnership has all requisite
power and authority, and all necessary consents, approvals, authorizations,
orders, registrations, qualifications, licenses and permits of and from all
public, regulatory or governmental agencies and bodies, to own, lease and
operate its properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus, except for the
absence of which individually or in the aggregate would not have a material
adverse effect on the Company, the Operating Partnership and their respective
subsidiaries taken as a whole, and no such consent, approval, authorization,
order, registration, qualification, license or permit contains a materially
burdensome restriction not adequately disclosed in the Registration Statement
and the Prospectus. All of the capital stock in each subsidiary of the Company
or the Operating Partnership has been duly and validly authorized and issued and
(except as described in the Prospectus) is owned directly or indirectly by the
Company or the Operating Partnership, as the case may be, free and clear of all
liens, encumbrances, equities or claims.

(j) Except as described in the Prospectus, there is no
litigation or governmental proceeding to which the Company, the Operating
Partnership or any of their respective subsidiaries is a party or to which any
property of the Company, the Operating Partnership or any of their respective
subsidiaries is subject or which is pending or, to the knowledge of the Company
and the Operating Partnership, contemplated against the Company, the Operating
Partnership or any of their respective subsidiaries which might result in any
material adverse change in the business, business prospects, properties,
operations, condition (financial or other) or, results of operations of the
Company, the Operating Partnership and their respective subsidiaries taken as a
whole, which might materially and adversely affect the transactions contemplated
by this Agreement or which is required to be disclosed in the Registration
Statement or the Prospectus or in any documents incorporated therein by
reference. The descriptions of litigation matters in the Base Prospectus under
the captions "Risk Factors -- Litigation Related to Consolidation" and "Risk
Factors -- Chapter 11 Reorganization of Partnership Consolidation by Senior
Management" and the descriptions of such matters incorporated by reference in
the Prospectus are complete and accurate in all material respects.

(k) Neither the Company nor the Operating Partnership has
taken or will take, directly or indirectly, any action designed to cause or
result in, or which constitutes or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock to facilitate the sale or resale of the Shares.

(l) The financial statements, including the notes thereto, and
supporting schedules included or incorporated by reference in the Registration
Statement and the Prospectus present fairly the consolidated financial position
of the Company, its subsidiaries and their predecessors in interests of the
dates indicated and the results of their operations for the periods specified;
except as otherwise stated in the Registration Statement, said financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis; the supporting schedules included in
the Registration Statement present fairly the information required to be stated
therein; and no other financial statements or supporting schedules are required
to be included in the Registration Statement. The Company's ratios of earnings
to fixed charges and ratios of earnings to combined fixed charges and preferred

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stock dividends included in the Base Prospectus under the caption "Ratio of
Earnings to Fixed Charges" and in Exhibit 12.1 to the Registration Statement
have been calculated in compliance with Item 503(d) of Regulation S-K of the
Securities Act Regulations. The financial data incorporated by reference in the
Prospectus and set forth in the Prospectus Supplement under the captions
"Selected Historical and Pro Forma Financial and Other Data" and
"Capitalization" fairly present the information set forth therein on a basis
consistent with that of the audited financial statements contained or
incorporated by reference in the Registration Statement; and the pro forma
condensed consolidated financial statements of the Company and the related notes
thereto incorporated by reference in the Prospectus and included under the
caption "Selected Historical and Pro Forma Financial and Other Data" and
elsewhere in the Prospectus and in the Registration Statement present fairly the
information contained therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial statements
and have been properly presented on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions and
circumstances referred to therein.

(m) Except as described in the Prospectus, no holder of
securities of the Company or the Operating Partnership has any rights to the
registration of securities of the Company or securities of the Operating
Partnership that are convertible, exchangeable or exercisable for securities of
the Company because of the filing of the Registration Statement or otherwise in
connection with the sale of the Shares contemplated hereby.

(n) Except as described in the Prospectus, the Company, the
Operating Partnership and their respective subsidiaries have good and marketable
title to all the properties and assets reflected as owned in the financial
statements referred to in Section 1(l) above or elsewhere in the Prospectus, in
each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as are described
in the Prospectus and such as do not materially and adversely affect the value
of such property and do not materially interfere with the use made or proposed
to be made of such property by the Company, the Operating Partnership or any of
their respective subsidiaries. The real property, improvements, equipment and
personal property held under lease by the Company, the Operating Partnership or
their respective subsidiaries are held under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not materially interfere
with the use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company, the Operating Partnership or any
of their respective subsidiaries.

(o) The Company, the Operating Partnership and their
respective subsidiaries have filed all necessary federal, state and foreign
income and franchise tax returns and have paid all taxes required to be paid by
any of them and, if due and payable, any related or similar assessment, fine or
penalty levied against any of them, except insofar as the failure to file such
returns would not have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries, taken as a whole. The Company,
the Operating Partnership and their respective subsidiaries have made adequate
charges, accruals and reserves in their respective financial statements in
respect of all federal, state and foreign income and franchise taxes for all
periods as to which the tax liability of the Company, the Operating Partnership
or any of their

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respective subsidiaries has not been finally determined, except to the extent of
any inadequacy that would not have a material adverse effect on the Company, the
Operating Partnership and their respective subsidiaries, taken as a whole.

(p) Except as described in the Prospectus, the Company, the
Operating Partnership and each of their respective subsidiaries are insured by
recognized financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks that the Company
believes are adequate to insure against potential losses, with such policies
including, but not limited to, policies covering real and personal property
owned or leased by the Company, the Operating Partnership or any of their
respective subsidiaries against theft, damage, destruction, acts of vandalism
and such other risks. Neither the Company nor the Operating Partnership has any
reason to believe that they or any of their respective subsidiaries will not be
able (i) to renew their existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct their business as now conducted and at a
cost that would not result in a Material Adverse Change in the Company, the
Operating Partnership or any of their respective subsidiaries. Neither the
Company, the Operating Partnership nor any of their respective subsidiaries has
been denied any insurance coverage for which it has sought or applied.

(q) Except as otherwise disclosed in the Prospectus or as
would not, individually or in the aggregate, result in a Material Adverse Change
in the Company, the Operating Partnership and their respective subsidiaries,
taken as a whole, (i) neither the Company, the Operating Partnership nor any of
their respective subsidiaries is in violation of any federal, state, local or
foreign laws and regulations relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum and petroleum products
(collectively, "Materials of Environmental Concern"), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations required for
the operation of the business of the Company, the Operating Partnership or

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any of their respective subsidiaries under applicable Environmental Laws, or
noncompliance with the terms and conditions thereof, nor has the Company, the
Operating Partnership or any of their respective subsidiaries received any
written communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company, the Operating Partnership
or any of their respective subsidiaries is in any such violation; (ii) there is
no claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company, the Operating
Partnership or any of their respective subsidiaries has received written notice,
and no written notice by any person or entity alleging potential liability for
investigatory costs, cleanup costs, governmental responses costs, natural
resources damages, property damages, personal injuries, attorneys' fees or
penalties arising out of, based on or resulting from the presence, or release
into the environment, or any Material of Environmental Concern at any location
owned, leased or operated by the Company, the Operating Partnership or any of
their respective subsidiaries, now or in the past (collectively, "Environmental
Claims"), pending or, to the best knowledge of the Company and the Operating
Partnership, threatened against the Company, the Operating Partnership or any of
their respective subsidiaries or, to the best knowledge of the Company or the
Operating Partnership, against any person or entity whose liability for any
Environmental Claim the Company, the Operating Partnership or any of their
respective subsidiaries has retained or assumed either contractually or by
operation of law; and (iii) to the best of knowledge of the Company and the
Operating Partnership, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that reasonably could result in a violation of any
Environmental Law or form the basis of a potential Environmental Claim against
the Company, the Operating Partnership or any of their respective subsidiaries
or against any person or entity whose liability for any Environmental Claim the
Company, the Operating Partnership or any of their respective subsidiaries has
retained or assumed either contractually or by operation of law.

(r) In the ordinary course of their business, the Company and
the Operating Partnership conduct periodic reviews of the effect of
Environmental Laws on the business, operations and properties of the Company,
the Operating Partnership and their respective subsidiaries, in the course of
which they identify and evaluate associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such review and the
amount of their established reserves, the Company and the Operating Partnership
have reasonably concluded that such associated costs and liabilities would not,
individually or in the aggregate, result in a Material Adverse Change in the
Company, the Operating Partnership and their respective subsidiaries, taken as a
whole.

(s) Except as otherwise described in the Prospectus, there are
no business relationships or related-party transactions of the type described in
Item 404 of Regulation S-K of the Commission involving the Company, the
Operating Partnership or any of their respective subsidiaries, except for such
transactions that would be considered immaterial under such Item 404. The
descriptions in the Prospectus Supplement under the caption "Certain
Relationships and Related Transactions" and the descriptions of such matters
incorporated by reference in the Prospectus are complete and accurate in all
material respects.

(t) The Company will elect to be taxed as a "real estate
investment trust" ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), effective beginning in its taxable year 1996. The Company has at
all times beginning on January 1, 1996 qualified for taxation as a REIT under
the Code and intends to continue to operate in such manner.

(u) The Common Stock (including the Shares) is registered
pursuant to Section 12(g) of the Exchange Act and is listed on the New York
Stock Exchange (the "NYSE"), and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or delisting the Common Stock from

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<PAGE> 10
the NYSE, nor has the Company received any notification that the Commission or
the NYSE is contemplating terminating such registration or listing.

(v) Neither the Company, the Operating Partnership nor any of
their respective subsidiaries is, or, after giving effect to the issue and sale
of the Shares by the Company will be, an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940.

(w) The conditions for use of Form S-3, as set forth in the
General Instructions thereto, have been satisfied.

(x) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were filed with the Commission,
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission under the Exchange Act, and, when
read together with the other information in the Prospectus, at the respective
times the Registration Statement and any amendments thereto became effective, at
the date hereof and at the Closing Date, did not and do not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

Any certificate signed by an officer of the Company or the
Operating Partnership and delivered to the Representatives or their counsel
shall be deemed to be a representation and warranty by the Company or the
Operating Partnership, as the case may be, as to the matters covered thereby.

2. Purchase, Sale and Delivery of the Shares.

(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $19.130175, the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.

(b) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the office of Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York, or at such other place as shall be
agreed upon by you and the Company, at 10:00 A.M. on the third or fourth
business day (as permitted under Rule 15c6-1 under the Exchange Act) (unless
postponed in accordance with the provisions of Section 9 hereof) following the
date of the effectiveness of the Registration Statement (or, if the Company has
elected to rely upon Rule 430A of the Regulations, the third or fourth business
day (as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the public offering price of the Shares), or such other time
not later than ten business days after such date as shall be agreed upon by you

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<PAGE> 11
and the Company (such time and date of payment and delivery being herein called
the "Closing Date"). Payment shall be made to the Company by wire transfer in
same day funds, against delivery to you for the respective accounts of the
Underwriters of certificates for the Shares to be purchased by them.
Certificates for the Shares shall be registered in such name or names and in
such authorized denominations as you may request in writing at least 48 hours
prior to the Closing Date. The Company will permit you to examine and package
such certificates for delivery at least 24 hours prior to the Closing Date.

(c) In addition, the Company hereby grants to the Underwriters
the option to purchase up to 525,000 Additional Shares at the same purchase
price per share to be paid by the Underwriters to the Company for the Firm
Shares as set forth in this Section 2, for the sole purpose of covering
over-allotments in the sale of Firm Shares by the Underwriters. This option may
be exercised at any time, in whole or in part, on or before the thirtieth day
following the date of the Prospectus, by written notice by you to the Company.
Such notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised and the date and time, as reasonably
determined by you, when the Additional Shares are to be delivered (such date and
time being herein sometimes referred to as the "Additional Closing Date");
provided, however, that the Additional Closing Date shall not be earlier than
the Closing Date or earlier than the second full business day after the date on
which the option shall have been exercised nor later than the eighth full
business day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). Certificates for the Additional Shares shall be registered in
such name or names and in such authorized denominations as you may request in
writing at least 48 hours prior to the Additional Closing Date. The Company will
permit you to examine and package such certificates for delivery at least 24
hours prior to the Additional Closing Date.

(d) The number of Additional Shares to be sold to each
Underwriter shall be the number which bears the same ratio to the aggregate
number of Additional Shares being purchased as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such number
increased as set forth in Section 9 hereof) bears to the total number of Firm
Shares being purchased from the Company, subject, however, to such adjustments
to eliminate any fractional shares as you in your sole discretion shall make.

(e) Payment for the Additional Shares shall be made by wire
transfer in same day funds at the office Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York, or such other location as may be mutually
acceptable, upon delivery of the certificates for the Additional Shares to you
for the respective accounts of the Underwriters.

3. Offering. Upon your authorization of the release of the Firm
Shares, the Underwriters propose to offer the Shares for sale to the public upon
the terms set forth in the Prospectus.

4. Covenants of the Company and the Operating Partnership. The
Company and the Operating Partnership jointly and severally covenant and agree
with the Underwriters that:

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<PAGE> 12
(a) The Company will notify you immediately (and, if requested
by you, will confirm such notice in writing) (i) when any post-effective
amendment to the Registration Statement becomes effective, (ii) of any request
by the Commission for any amendment of or supplement to the Registration
Statement or the Prospectus or for any additional information, (iii) of the
mailing or the delivery to the Commission for filing of the Prospectus or any
amendment of or supplement to the Registration Statement or the Prospectus or
any document to be filed pursuant to the Exchange Act during any period when the
Prospectus is required to be delivered under the Securities Act, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of the
initiation, or the threatening, of any proceedings therefor, (v) of the receipt
of any comments or inquiries from the Commission, and (vi) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or threatening of
any proceeding for that purpose. If the Commission shall propose or enter a stop
order at any time, the Company will make every reasonable effort to prevent the
issuance of any such stop order and, if issued, to obtain the lifting of such
order as soon as possible. The Company will not file any post-effective
amendment to the Registration Statement or any amendment of or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Shares which differs
from the prospectus filed with the Commission pursuant to Rule 424(b) of the
Securities Act Regulations, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Securities Act Regulations) to which
the Representatives or Underwriters' Counsel (as hereinafter defined) shall
reasonably object, will furnish the Representatives with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement or use any such prospectus to which the Representatives or counsel
for the Underwriters shall reasonably object.

(b) If any event shall occur as a result of which the
Prospectus would, in the judgment of the Underwriters or the Company include an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if it shall
be necessary at any time to amend or supplement the Prospectus or Registration
Statement to comply with the Securities Act or the Securities Act Regulations,
or to file under the Exchange Act so as to comply therewith any document
incorporated by reference in the Registration Statement or the Prospectus or in
any amendment thereof or supplement thereto, the Company will notify you
promptly and prepare and file with the Commission an appropriate amendment or
supplement (in form and substance satisfactory to you) which will correct such
statement or omission or which will effect such compliance.

(c) The Company has delivered to you four signed copies of the
Registration Statement as originally filed, including exhibits and all documents
incorporated or deemed to be incorporated by reference therein and all
amendments thereto, and the Company will promptly deliver to each of the
Underwriters, from time to time during the period that the Prospectus is
required to be delivered under the Securities Act or the Exchange Act, such
number

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<PAGE> 13
of copies of the Prospectus and the Registration Statement, and all amendments
of and supplements to such documents, if any, as you may reasonably request.

(d) The Company will endeavor in good faith, in cooperation
with you, to qualify the Shares for offering and sale under the securities laws
relating to the offering or sale of the Shares of such jurisdictions as you may
designate and to maintain such qualification in effect for so long as required
for the distribution thereof; except that in no event shall the Company be
obligated in connection therewith to qualify as a foreign corporation or to
execute a general consent to service of process.

(e) The Company will make generally available (within the
meaning of Section 11(a) of the Securities Act) to its security holders and to
you as soon as practicable, but not later than 45 days after the end of its
fiscal quarter in which the first anniversary date of the effective date of the
Registration Statement occurs (or if such fiscal quarter is the Company's fourth
fiscal quarter, not later than 90 days after the end of such quarter), an
earnings statement (in form complying with the provisions of Rule 158 of the
Regulations) covering a period of at least twelve consecutive months beginning
after the effective date of the Registration Statement (as defined in Rule
158(c) under the Securities Act).

(f) During the period of 90 days from the date of the
Prospectus, the Company and the Operating Partnership will not, directly or
indirectly without your prior written consent, issue, sell, offer or agree to
sell, grant any option to purchase, or otherwise dispose (or announce any offer,
sale, grant of an option to purchase or other disposition) of, any shares of
Common Stock (or any securities convertible into, exchangeable or exercisable
for shares of Common Stock), other than (i) the Company's sale of Shares
hereunder and the Company's issuance of Common Stock upon the exercise of
presently outstanding stock options, (ii) the exchange of outstanding units in
the Operating Partnership for Common Stock, (iii) the issuance, in connection
with bona fide acquisitions of real property or interests therein, of shares of
Common Stock or units in the Operating Partnership such that the aggregate
number of shares of Common Stock issued, or which may be issued upon conversion
or exchange of such units, will not exceed 3,500,000 (the "Permitted
Securities"), provided, however, that as a precondition to any such issuance,
the Company or the Operating Partnership, as the case may be, shall obtain the
undertaking of each such holder that it will not engage in any of the
aforementioned transactions during the period of 90 days from the date of the
Prospectus and place on the face of any such Permitted Security a legend to that
effect.

(g) The Company will obtain the undertaking of each of its
officers and directors and such of its stockholders as have been heretofore
designated by you and listed on Schedule II attached hereto that, during the
period of 180 days from the date of the Prospectus, each of them will not,
directly or indirectly, without your prior written consent, issue, sell, offer
or agree to sell, grant any option to purchase, or otherwise dispose (or
announce any offer, sale, grant of an option to purchase or other disposition)
of, any shares of Common Stock (or any securities convertible into, exercisable
for or exchangeable for shares of Common Stock).

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<PAGE> 14
(h) During a period of three years from the date of the
Prospectus, the Company will furnish to you copies of (i) all reports to its
stockholders; and (ii) all reports, financial statements and proxy or
information statements filed by the Company with the Commission or any national
securities exchange.

(i) The Company will apply the proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Base Prospectus and the
Prospectus Supplement.

(j) Immediately following the execution of this Agreement, the
Company will prepare a prospectus supplement, dated the date hereof (the
"Prospectus Supplement"), containing the plan of distribution of the Shares and
such other information as may be required by the Securities Act or the
Securities Act Regulations or as the Representatives and the Company deem
appropriate, and will file or transmit for filing with the Commission in
accordance with Rule 424(b) of the Securities Act Regulations copies of the
Prospectus (including such Prospectus Supplement).

(k) If the Company elects to rely upon Rule 462(b), the
Company shall file the 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing, either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Securities Act.

(l) The Company, during the period when the Prospectus is
required to be delivered under the Securities Act or the Exchange Act, will file
all documents required to be filed with the Commission pursuant to Section 13,
14 or 15 of the Exchange Act within the time periods required by the Exchange
Act and the rules and regulations thereunder.

5. Payment of Expenses. Whether or not the transactions contemplated
in this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any Preliminary Prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement, the Agreement Among Underwriters and the Selling Agreement) and all
other documents related to the public offering of the Shares (including those
supplied to the Underwriters in quantities as hereinabove stated), (ii) the
issuance, transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) the qualification of the Shares
under state or foreign securities or Blue Sky laws, including the costs of
printing and mailing a preliminary and final "Blue Sky Memorandum" and the fees
of counsel in connection therewith and such counsel's disbursements in relation
thereto, (iv) listing the Shares on the NYSE, (v) filing fees of the Commission
and the National Association of Securities Dealers, Inc.(the "NASD"), (vi) the
cost

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<PAGE> 15
of printing certificates representing the Shares and (vii) the cost and charges
of any transfer agent or registrar; provided, however, except as provided for in
Section 11, that the Company shall have no obligation to reimburse the
Underwriters or the Representatives for (a) fees, disbursements and
out-of-pocket expenses of counsel for the Underwriters or the Representatives
other than pursuant to clause (iii) above or (b) expenses in connection with the
offering that are customarily borne by the representatives in public offerings
of securities of real estate investment trusts.

6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company and the Operating Partnership herein contained, as of
the date hereof and as of the Closing Date (for purposes of this Section 6
"Closing Date" shall refer to the Closing Date for the Firm Shares and any
Additional Closing Date, if different, for the Additional Shares), to the
absence from any certificates, opinions, written statements or letters furnished
to you or to Latham & Watkins ("Underwriters' Counsel") pursuant to this Section
6 of any misstatement or omission, to the performance by the Company and the
Operating Partnership of their respective obligations hereunder, and to the
following additional conditions:

(a) On the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
Securities Act or proceedings therefor initiated or threatened by the
Commission. The Prospectus (including the Prospectus Supplement referred to in
Section 4(j) hereof) shall have been filed or transmitted for filing with the
Commission pursuant to Rule 424(b) of the Securities Act Regulations within the
prescribed time period, and prior to Closing Date the Company shall have
provided evidence satisfactory to the Underwriters of such timely filing or
transmittal.

(b) On the Closing Date you shall have received the opinion of
Morrison & Foerster LLP, counsel for the Company and the Operating Partnership,
dated the Closing Date addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:

(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Maryland.

(ii) The Company is duly qualified and in good standing
as a foreign corporation in each jurisdiction in which the character or
location of its properties (owned, leased or licensed) or the nature or
conduct of its business makes such qualification necessary, except for
those failures to be so qualified or in good standing which will not in
the aggregate have a material adverse effect on the Company, the Operating
Partnership and their respective subsidiaries, taken as a whole.

(iii) The Company has all requisite corporate power and
authority to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Registration
Statement and the Prospectus.

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<PAGE> 16
(iv) The Operating Partnership has been duly formed
under the laws of the State of California, with a stated term beyond the
term of the documents being executed in connection with the transactions
contemplated hereby; the partnership agreement of the Operating
Partnership has been duly authorized, executed and delivered by each
partner thereto and is valid, legally binding and enforceable in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and by the effect of general principles of equity; and
all of the partnership interests in the Operating Partnership have been
duly and validly authorized and issued and (except as described in the
Prospectus) are owned directly or indirectly by the Company free and clear
of all liens, encumbrances, equities or claims. All issued and outstanding
securities of the Operating Partnership have been duly and validly
authorized and issued in compliance with the federal and state securities
laws. The units of the Operating Partnership to be issued in connection
with the acquisitions described in the Prospectus Supplement under the
caption "Recent Activities" will be duly and validly issued in compliance
with the federal and state securities laws when issued in the manner
described in the Prospectus.

(v) The Operating Partnership has been duly qualified as
a foreign limited partnership and is in good standing in each jurisdiction
in which the character or location of its properties (owned, leased or
licensed) or the nature or conduct of its business makes such
qualification necessary, except for those failures to be so qualified or
in good standing which will not in the aggregate have a material adverse
effect on the Company, the Operating Partnership and their respective
subsidiaries, taken as a whole.

(vi) The Operating Partnership has all requisite power
and authority to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Registration
Statement and the Prospectus.

(vii) Each subsidiary of the Company or the Operating
Partnership that is a "significant subsidiary" (as such term is defined in
Rule 1-02 of Regulation S-X of the Commission) (collectively, the
"Material Subsidiaries") has been duly organized and is validly existing
as a corporation in good standing under the laws of the jurisdiction of
its incorporation.

(viii) Each Material Subsidiary is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which the
character or location of its properties (owned, leased or licensed) or the
nature or conduct of its business makes such qualification necessary,
except for those failures to be so qualified or in good standing which
will not in the aggregate have a material adverse effect on the Company,
the Operating Partnership and their respective subsidiaries taken as a
whole.

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<PAGE> 17
(ix) Each Material Subsidiary has all requisite power
and authority to own, lease and operate its properties and conduct its
business as now being conducted and as described in the Registration
Statement and the Prospectus.

(x) All of the capital stock or partnership units in
each Material Subsidiary has been duly and validly authorized and issued
and (except as described in the Prospectus) is owned directly or
indirectly by the Company or the Operating Partnership, as the case may
be, free and clear of all liens, encumbrances, equities or claims.

(xi) The Company has an authorized capital stock as set
forth in the Registration Statement and the Prospectus. All of the
outstanding shares of Common Stock are duly and validly authorized and
issued, are fully paid and nonassessable. The Shares to be delivered on
the Closing Date have been duly and validly authorized and, when delivered
by the Company in accordance with this Agreement, will be duly and validly
issued, fully paid and nonassessable and will not have been issued in
violation of or subject to any preemptive rights. The Common Stock, the
Firm Shares and the Additional Shares conform to the descriptions thereof
contained in the Registration Statement and the Prospectus.

(xii) The Common Stock currently outstanding is listed,
and the Shares to be sold under this Agreement to the Underwriters are
duly authorized for listing, on the NYSE.

(xiii) This Agreement and the transactions contemplated
herein have been duly and validly authorized by the Company and the
Operating Partnership and this Agreement has been duly and validly
executed and delivered by the Company and the Operating Partnership.

(xiv) To the best knowledge of such counsel and except
as described in the Prospectus, there is no litigation or governmental
proceeding to which the Company, the Operating Partnership or any of the
Material Subsidiaries is a party or to which any property of the Company,
the Operating Partnership or any of the Material Subsidiaries is subject
or which is pending or contemplated against the Company, the Operating
Partnership or any of the Material Subsidiaries which might result in any
material adverse change or any development involving a material adverse
change in the business, business prospects, properties, operations,
condition (financial or other) or results of operations of the Company,
the Operating Partnership and their respective subsidiaries taken as a
whole, which might materially and adversely affect the transactions
contemplated by this Agreement or which is required to be disclosed in the
Registration Statement and the Prospectus. The descriptions of litigation
matters in the Base Prospectus under the captions "Risk Factors --
Litigation Related to Consolidation" and "Risk Factors -- Chapter 11
Reorganization of Partnership Consolidation by Senior Management" are
complete and accurate in all material respects.

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<PAGE> 18
(xv) The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby do
not and will not (A) conflict with or result in a breach of any of the
terms and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company, the Operating Partnership or
any of the Material Subsidiaries pursuant to any agreement, instrument,
franchise, license or permit known to such counsel to which the Company,
the Operating Partnership or any of the Material Subsidiaries is a party
or by which any of such entities or their respective properties or assets
may be bound that is material to the Company, the Operating Partnership
and their subsidiaries, taken as a whole (collectively, the "Material
Contracts") or (B) violate or conflict with any provision of the
partnership agreement of the Operating Partnership, the certificate of
incorporation or by-laws of the Company or any of the Material
Subsidiaries, or, to the best knowledge of such counsel, any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company, the Operating Partnership or any of the Material Subsidiaries or
any of their respective properties or assets, except for those violations
or conflicts that would not have a material adverse effect on the Company,
the Operating Partnership and their subsidiaries, taken as a whole. To
such counsel's knowledge, no consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company, the Operating Partnership or any of the
Material Subsidiaries or any of their respective properties or assets is
required for the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby, except for (A)
such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters (as to which such counsel need express no opinion) and (B)
such as have been made or obtained under the Securities Act or the rules
of the NYSE.

(xvi) At the time the Registration Statement became
effective and on the date hereof, the Registration Statement and the
Prospectus as amended or supplemented (other than the financial statements
and schedules and other financial data included or incorporated by
reference therein, as to which no opinion need be rendered) complied and
comply as to form in all material respects with the requirements of the
Securities Act and the Securities Act Regulations.

(xvii) The documents incorporated or deemed to be
incorporated by reference in the Prospectus (other than the financial
statements and schedules and other financial data included or incorporated
by reference therein, as to which no opinion need be rendered), at the
time they were filed with the Commission, complied as to form in all
material respects with the requirements of the Securities Act and the
Securities Act Regulations.

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<PAGE> 19
(xviii) The Registration Statement, including any Rule
462(b) Registration Statement, is effective under the Securities Act, and,
to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereof or the Rule 462(b) Registration Statement has been
issued and no proceedings therefor have been initiated or threatened by
the Commission. Any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) under the Regulations has been made in the
manner and within the time period required by such Rule 424(b).

(xix) To the best knowledge of such counsel and except
as described in the Prospectus, no holder of securities of the Company or
the Operating Partnership has any rights to the registration of securities
of the Company or securities of the Operating Partnership that are
convertible, exchangeable or exercisable for securities of the Company
because of the filing of the Registration Statement or otherwise in
connection with the sale of the Shares contemplated hereby.

(xx) To the best knowledge of such counsel, there are no
business relationships or related party transactions of the nature
described in Item 404 of Regulation S-K of the Commission involving the
Company or the Operating Partnership, except as disclosed in the
Prospectus or except for such transactions that would be considered
immaterial under such Item. To the best knowledge of such counsel, the
descriptions in the Prospectus Supplement under the caption "Certain
Relationships and Related Transactions" (except for the financial or
numerical data included therein, as to which counsel need not render an
opinion) are accurate in all material respects.

(xxi) Commencing with its fiscal year ending December
31, 1996, the Company has been organized in conformity with the
requirements for qualification as a REIT and its method of operation
enables it to continue to meet the requirements for qualification and
taxation as a REIT under the Code, and the conversion rights of the
limited partners of the Operating Partnership or of other holders of
securities of the Operating Partnership will not cause the Company to fail
to satisfy the diversity test of Section 856(a)(6) of the Code.

(xxii) The Operating Partnership is properly treated (A)
as a partnership for federal income tax purposes and (B) not as an
association or publicly traded partnership taxable as a corporation.

(xxiii) Neither the Company, the Operating Partnership
nor any Material Subsidiary is, or, after giving effect to the issue and
sale of the Shares by the Company will be, an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940.

(xxiv) The statements in the Base Prospectus under the
captions "Risk Factors -- Certain Tax Risks", "Certain Provisions of the
Company's Charter and Bylaws" and "Federal Income Tax Consequences" and
(ii) in Item 15 of the Registration Statement, insofar as such statements
constitute matters of law, summaries of legal

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<PAGE> 20
matters, the Company's charter or by-law provisions, legal documents or
legal proceedings, or legal conclusions, has been reviewed by such counsel
and, as of the date of the Prospectus Supplement and as of the date
hereof, fairly present and summarize, in all material respects, the
matters referred to therein.

(xxv) In addition, such opinion shall also contain a
statement that such counsel has participated in conferences with officers
and representatives of the Company and the Operating Partnership,
representatives of the independent public accountants for the Company and
the Operating Partnership and the Underwriters at which the contents of
the Registration Statement and the Prospectus and related matters were
discussed and, although they are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or Prospectus or
incorporated therein by reference, and they have not made any independent
check or verification thereof, on the basis of the foregoing, no facts
have come to the attention of such counsel which would lead such counsel
to believe that either the Registration Statement at the time it became
effective (including the information incorporated therein by reference or
deemed to be part of the Registration Statement, as amended (except for
financial statements and schedules and other financial statistical data
included therein, as to which such counsel need make no statement) or any
subsequent amendment thereof made prior to the Closing Date as of the date
of such amendment, contained an untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus, including the documents incorporated or deemed to be
incorporate therein, (except for financial statements and schedules and
other financial or statistical data included or incorporated by reference
therein, as to which counsel need make no statement) as of its date (or
any subsequent amendment thereof or subsequent supplement thereto made
prior to the Closing Date as of the date of such amendment or supplement)
and as of the Closing Date contained or contains an untrue statement of a
material fact or omitted or omits to state any material fact required to
be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.

In rendering such opinion, such counsel may rely as to matters involving
the application of laws other than the laws of the United States,
California and any other jurisdictions in which they are admitted, to the
extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriters' Counsel) of other counsel
reasonably acceptable to Underwriters' Counsel, familiar with the
applicable laws; provided, that such opinion shall expressly state that
the Underwriters may rely on such opinion as if it were addressed to them.
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of
the Company and the Operating Partnership and certificates or other
written statements of officers of departments of various jurisdictions
having custody of documents respecting the existence or good standing of
the Company, the Operating Partnership and their respective subsidiaries,
provided that copies of any such statements or certificates shall be

20
<PAGE> 21
delivered to Underwriters' Counsel and such opinion shall state that such
counsel and the Underwriters are justified in so relying upon any such
certificate. The opinion of such counsel for the Company shall state that
the opinion of any such other counsel is in form satisfactory to such
counsel and, in their opinion, you and they are justified in relying
thereon.

(c) All proceedings taken in connection with the sale of the
Firm Shares and the Additional Shares as herein contemplated shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and the
Underwriters shall have received from said Underwriters' Counsel a favorable
opinion, dated as of the Closing Date with respect to the issuance and sale of
the Shares, the Registration Statement and the Prospectus and such other related
matters as you may reasonably require, and the Company shall have furnished to
Underwriters' Counsel such documents as they request for the purpose of enabling
them to pass upon such matters.

(d) At the Closing Date you shall have received a certificate
of the Chief Executive Officer and Chief Financial Officer of the Company on
behalf of the Company and as the sole general partner of the Operating
Partnership, dated the Closing Date to the effect that (i) the condition set
forth in subsection (a) of this Section 6 has been satisfied, (ii) as of the
date hereof and as of the Closing Date the representations and warranties of the
Company and the Operating Partnership set forth in Section 1 hereof are
accurate, (iii) as of the Closing Date the obligations of the Company and the
Operating Partnership to be performed hereunder on or prior thereto have been
duly performed and (iv) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company, the Operating Partnership and their respective subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a material adverse change, in the business prospects,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, the Operating Partnership and their respective
subsidiaries taken as a whole, except in each case as described in or
contemplated by the Prospectus.

(e) At the time this Agreement is executed and at the Closing
Date, you shall have received a letter, from Arthur Andersen LLP, independent
public accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to financial statements and certain information of the Company and its
subsidiaries contained or incorporated by reference in the Registration
Statement and the Prospectus.

(f) Prior to the Closing Date the Company and the Operating
Partnership shall have furnished to you such further information, certificates
and documents as you may reasonably request.

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<PAGE> 22
(g) You shall have received from each person who is a director
or officer of the Company or such stockholder as have been heretofore designated
by you and listed on Schedule II hereto an agreement to the effect that such
person will not, directly or indirectly, without your prior written consent,
issue, sell, offer or agree to sell, grant any option to purchase, or otherwise
dispose (or announce any offer, sale, grant of an option to purchase or other
disposition) of, any shares of Common Stock (or any securities convertible into,
exchangeable or exercisable for shares of Common Stock) for a period of 180 days
after the date of the Prospectus.

(h) At the Closing Date, the Shares shall have been approved
for listing on the NYSE.

(i) At the Closing Date, you shall have received the opinion
of Frank E. Austin, General Counsel of the Company, dated the Closing Date
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:

(i) The statements in the Base Prospectus under the
captions "Risk Factors -- Risks Associated with Acquisitions -- Assumption
of General Partner Liabilities", "Risk Factors -- Risks Relating to Real
Estate -- Management, Leasing and Brokerage Risks; Lack of Control of
Associated Companies", "Risk Factors -- Risks Relating to Real Estate --
Environmental Matters", "Risk Factors -- Risks Relating to Real Estate --
Potential Liability Under the Americans with Disabilities Act", "Risk
Factors -- Limitation on Ownership of Common Stock May Preclude
Acquisition of Control", "Risk Factors -- Additional Capital
Requirements", "Description of Preferred Stock", "Description of Common
Stock", "Description of Warrants" and "Plan of Distribution" and the
statements in the Prospectus Supplement under the captions "The Company,"
"Recent Activities", "Price Range of Common Stock and Distribution
History", "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Recent Activities," "Management," "Certain
Relationships and Related Transactions" and "Underwriting", insofar as
such statements constitute matters of law, summaries of legal matters, the
Company's charter or by-law provisions, legal documents or legal
proceedings, or legal conclusions, has been reviewed by such counsel and
fairly present and summarize, in all material respects, the matters
referred to therein.

(ii) In addition, such opinion shall also contain a
statement that such counsel has participated in conferences with officers
and representatives of the Company and the Operating Partnership,
representatives of the independent public accountants for the Company and
the Operating Partnership and the Underwriters at which the contents of
the Registration Statement and the Prospectus and related matters were
discussed and, no facts have come to the attention of such counsel which
would lead such counsel to believe that either the Registration Statement
at the time it became effective (including the information incorporated
therein by reference or deemed to be part of the Registration Statement,
as amended (except for financial statements and schedules and other
financial statistical data included or incorporated by reference

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<PAGE> 23
therein, as to which such counsel need make no statement), or any
subsequent amendment thereof made prior to the Closing Date as of the date
of such amendment, contained an untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus, including the information incorporated or deemed to be
incorporated therein, (except for financial statements and schedules and
other financial or statistical data included therein, as to which counsel
need make no statement) as of its date (or any subsequent amendment
thereof or subsequent supplement thereto made prior to the Closing Date as
of the date of such amendment or supplement) and as of the Closing Date
contained or contains an untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief or opinion with
respect to the financial statements and schedules and other financial data
included therein).

If any of the conditions specified in this Section 6 shall not
have been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
canceled by you at, or at any time prior to, the Additional Closing Date. Notice
of such cancellation shall be given to the Company in writing, or by telephone,
telex or telegraph, confirmed in writing.

7. Indemnification.

(a) The Company and the Operating Partnership, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act against any and all
losses, liabilities, claims, damages and expenses whatsoever as incurred
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, as originally filed or any amendment thereof, or any
related Preliminary Prospectus, preliminary prospectus supplement or the
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged

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<PAGE> 24
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
neither the Company nor the Operating Partnership will be liable in any such
case (i) to the extent but only to the extent that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company or the Operating Partnership by or on behalf of any Underwriter
through you expressly for use therein and (ii) with respect to any Preliminary
Prospectus or preliminary prospectus supplement to the extent that any such
loss, claim, damage or liability results from the fact that an Underwriter sold
Shares to a person as to whom there was not sent or given, at or prior to
written confirmation of such sale, a copy of the Prospectus or Prospectus
Supplement as then amended or supplemented in any case where such delivery is
required by the Securities Act if the Company has previously furnished copies
thereof to such Underwriter and the loss, claim, damage or liability of the
Underwriters results from an untrue statement or omission of a material fact
contained in the Preliminary Prospectus or preliminary prospectus supplement
which was corrected in the Prospectus or Prospectus Supplement as then amended.
This indemnity agreement will be in addition to any liability which the Company
and the Operating Partnership may otherwise have including under this Agreement.

(b) Each Underwriter severally, and not jointly, agrees to
indemnify and hold harmless the Company, each of the directors of the Company,
each of the officers of the Company who shall have signed the Registration
Statement, the Operating Partnership and each other person, if any, who controls
the Company or the Operating Partnership within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, as
originally filed or any amendment thereof, or any related Preliminary
Prospectus, preliminary prospectus supplement or the Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company or the Operating Partnership by or on behalf of any Underwriter
through you expressly for use therein; provided, however, that in no case shall
any Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under this Agreement. The Company and
the Operating Partnership acknowledge that the statements set forth in the last
paragraph of the outside front cover, the stabilization language on the inside
front cover and the statements set forth in the second paragraph under the
caption "Underwriting" in the Prospectus Supplement constitute the only
information furnished in writing by or on behalf of any Underwriter expressly
for use in the Registration Statement, as originally filed or in any amendment
thereof, any related Preliminary Prospectus or preliminary

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<PAGE> 25
prospectus supplement or the Prospectus or in any amendment thereof or
supplement thereto, as the case may be.

(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7, except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability that it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.

8. Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company, the
Operating Partnership and the Underwriters shall contribute to the aggregate
losses, claims, damages, liabilities and expenses of the nature contemplated by
such indemnification provision (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claims asserted, but after deducting in the
case of losses, claims, damages, liabilities and expenses suffered by the
Company or the Operating Partnership any contribution received by the Company or
the Operating Partnership from persons, other than the Underwriters, who may
also be liable for contribution, including persons who control the Company or
the Operating Partnership within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act, officers of the Company who signed the
Registration Statement and directors of the Company) as incurred to which the
Company, the Operating Partnership and one or more of the Underwriters may be
subject, in such proportions as is appropriate to reflect the relative benefits
received by the Company, the Operating Partnership and the Underwriters from the

25
<PAGE> 26
offering of the Shares or, if such allocation is not permitted by applicable law
or indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 7 hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company, the Operating Partnership and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Operating Partnership on the one hand and the Underwriters on the other
hand shall be deemed to be in the same proportion as (x) the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and (y) the underwriting discounts and
commissions received by the Underwriters, respectively, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault of
the Company, the Operating Partnership, and the Underwriters shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, the Operating
Partnership, or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Operating Partnership and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 8, (i) in no case shall any Underwriter be liable
or responsible for any amount in excess of the underwriting discount applicable
to the Shares purchased by such Underwriter hereunder, and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding the provisions of
this Section 8 and the preceding sentence, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. For purposes of this Section 8, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as such Underwriter, and each person, if any, who controls the
Company or the Operating Partnership within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company or the
Operating Partnership, as the case may be, subject in each case to clauses (i)
and (ii) of this Section 8. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties, notify each party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 8 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its consent; provided, however, that such consent was not unreasonably
withheld.

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<PAGE> 27
9. Default by an Underwriter.

(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder, and if
the Firm Shares or Additional Shares with respect to which such default relates
do not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, the Firm Shares or Additional Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase shall be
purchased by the non-defaulting Underwriters in proportion to the respective
proportions which the numbers of Firm Shares set forth opposite their respective
names in Schedule I hereto bear to the aggregate number of Firm Shares set forth
opposite the names of the non-defaulting Underwriters.

(b) In the event that such default relates to more than 10% of
the Firm Shares or Additional Shares, as the case may be, you may in your
discretion arrange for yourself or for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Additional Shares, as the case may be, to which such default relates
on the terms contained herein. In the event that within 5 calendar days after
such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as provided
in this Section 9, this Agreement, or in the case of a default with respect to
the Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares, shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting Underwriter or Underwriters of its or
their liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder.

(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
you or the Company shall have the right to postpone the Closing Date or
Additional Closing Date, as the case may be for a period, not exceeding five
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment or
supplement to the Registration Statement or the Prospectus which, in the opinion
of Underwriters' Counsel, may thereby be made necessary or advisable. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares or Additional Shares.

10. Survival of Representations and Agreements. All representations
and warranties, covenants and agreements of the Underwriters, the Company and
the Operating Partnership contained in this Agreement, including the agreements
contained in Section 5, the indemnity agreements contained in Section 7 and the
contribution agreements contained in Section 8, shall remain operative and in
full force and effect regardless of any investigation made

27
<PAGE> 28
by or on behalf of any Underwriter or any controlling person thereof or by or on
behalf of the Company, any of its officers and directors, the Operating
Partnership or any controlling person of the Company or the Operating
Partnership, and shall survive delivery of and payment for the Shares to and by
the Underwriters. The representations contained in Section 1 and the agreements
contained in Sections 5, 7, 8 and 11(d) hereof shall survive the termination of
this Agreement, including termination pursuant to Section 9 or 11 hereof.

11. Effective Date of Agreement; Termination.

(a) This Agreement shall become effective upon the execution
of this Agreement.

(b) You shall have the right to terminate this Agreement at
any time prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing Date,
as the case may be, if (A) any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, the market for the Company's securities or securities
in general; or (B) if trading on the NYSE or the American Stock Exchange shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required, on
the NYSE or the American Stock Exchange by such exchanges or by order of the
Commission or any other governmental authority having jurisdiction; or (C) if a
banking moratorium has been declared by a state or federal authority or if any
new restriction materially adversely affecting the distribution of the Firm
Shares or the Additional Shares, as the case may be, shall have become
effective; or (D) there shall have occurred any Material Adverse Change with
respect to the Company, the Operating Partnership and their respective
subsidiaries taken as a whole; or (E) (i) if the United States becomes engaged
in hostilities or there is an escalation of hostilities involving the United
States or there is a declaration of a national emergency or war by the United
States or (ii) if there shall have been such change in political, financial or
economic conditions if the effect of any such event in (i) or (ii) as in your
judgment makes it impracticable or inadvisable to proceed with the offering,
sale and delivery of the Firm Shares or the Additional Shares, as the case may
be, on the terms contemplated by the Prospectus.

(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, or telegraph, confirmed in writing by letter.

(d) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to Section 9(b) or 11(b) hereof),
or if the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all
out-of-pocket expenses (including the fees and expenses of their counsel),
incurred by the Underwriters in connection herewith.

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<PAGE> 29
12. Notices. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and , if sent to
any Underwriter, shall be mailed, delivered, or telexed or telegraphed and
confirmed in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245
Park Avenue, New York, N.Y. 10167, Attention: Keith Locker; if sent to the
Company, shall be mailed, delivered, or telegraphed and confirmed in writing
to the Company, 400 South El Camino Real, Suite 100, San Mateo, CA
94402-1708, Attention: Frank Austin.

13. Parties. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriters, the Company, the Operating
Partnership and the controlling persons, directors, officers, employees and
agents referred to in Section 7 and 8, and their respective successors and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained. The term "successors and assigns"
shall not include a purchaser, in its capacity as such, of Shares from any of
the Underwriters.

14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.

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<PAGE> 30
If the foregoing correctly sets forth the understanding among you,
the Company and the Operating Partnership, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.

Very truly yours,

GLENBOROUGH REALTY TRUST INCORPORATED

By________________________________

Name_____________________________

Title____________________________

GLENBOROUGH PROPERTIES, L.P.
By Glenborough Realty Trust Incorporated
Its General Partner

By________________________________

Name_____________________________

Title____________________________

Accepted as of the date first above written

BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY LLC
JEFFERIES & COMPANY, INC.

On behalf of themselves and the other Underwriters named
in Schedule I hereto.

BEAR, STEARNS & CO. INC.

By ________________________________

Name_____________________________

Title____________________________
<PAGE> 31
SCHEDULE I

Number of Firm
Name of Underwriter Shares to be Purchased
- --------------------------------------------------------------------------------
Bear, Stearns & Co. Inc. . . . . . . . . . . . . . . . . . . 1,200,000
Robertson, Stephens & Company LLC . . . . . . . . . . . . . . 1,200,000
Jefferies & Company, Inc. . . . . . . . . . . . . . . . . . . 600,000

A.G. Edwards & Sons, Inc. . . . . . . . . . . . . . . . . . . 100,000
J.P. Morgan Securities Inc. . . . . . . . . . . . . . . . . . 100,000
PaineWebber Incorporated . . . . . . . . . . . . . . . . . . 100,000

Arnhold and S. Bleichroeder, Inc. . . . . . . . . . . . . . . 50,000
Crutenden Roth Incorporated . . . . . . . . . . . . . . . . . 50,000
Legg Mason Wood Walker, Incorporated. . . . . . . . . . . . . 50,000
The Shemano Group, Inc. . . . . . . . . . . . . . . . . . . . 50,000
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000
=========
<PAGE> 32
SCHEDULE II

GPA, Ltd.

<PAGE> 1
EXHIBIT 5.1

March 18, 1997

Glenborough Realty Trust Incorporated
Glenborough Properties, L.P.
400 South El Camino Real
San Mateo, CA 94402-1708

Ladies and Gentlemen:

We have acted as counsel to Glenborough Realty Trust Incorporated, a
Maryland corporation (the "Company"), and Glenborough Properties, L.P., a
California limited partnership (the "Operating Partnership"), in connection with
the issuance and sale by the Company of up to 3,500,000 shares (the "Firm
Shares") of its common stock, par value $.001 per share (the "Common Stock"),
plus up to an additional 525,000 shares (the "Additional Shares") of Common
Stock which may be issued upon exercise of the Underwriters' over-allotment
option, (the Firm Shares and the Additional Shares, collectively, the "Shares")
pursuant to the terms of an Underwriting Agreement (the "Underwriting
Agreement") dated March 17, 1997, among the Company, the Operating Partnership,
and the several underwriters named in Schedule I of the Underwriting Agreement
(the "Underwriters"). The Shares are the subject of a Registration Statement
(the "Registration Statement") filed by the Company on Form S-3 under the
Securities Act of 1933, as amended (the "Act").

In connection with this opinion, we have made such examinations and
inquiries, and examined such corporate records, documents, instruments,
certificates of public officials and of the Company and the Operating
Partnership, and such questions of law as we have deemed necessary for the
purpose of rendering the opinions set forth herein. We also have examined the
Registration Statement on Form S-3 (No. 333-19279) and Amendment Nos. 1 and 2
thereto each filed by the Company with the Securities and Exchange Commission
(the "Commission") pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Act"), and the related form of final prospectus, dated February
25, 1997 (the "Base Prospectus"), as supplemented by a prospectus supplement
dated March 17, 1997 (the "Prospectus Supplement," and together with the Base
Prospectus, the "Prospectus"), in the form in which each was transmitted to the
Commission for

<PAGE> 2

Glenborough Realty Trust Incorporated
Glenborough Properties, L.P.
March 18, 1997
Page 2

filing pursuant to Rule 424(b)(5) under the Act. We have also examined evidence
satisfactory to us that the Registration Statement, as so amended, became
effective under the Act on February 25, 1997. The Registration Statement, as
amended when it became effective, is hereinafter referred to as the
"Registration Statement."

In such examination, we have assumed the genuineness of all signatures
and the authenticity of all items submitted to us as originals and the
conformity with originals of all items submitted to us as copies. In making our
examination of documents executed by entities other than the Company and the
Operating Partnership, we have assumed that each other entity had the power to
enter into and perform all of its obligations thereunder and we also have
assumed the due authorization by each such other entity of all requisite actions
and the due execution and delivery of such documents by each such other entity.

Based upon and subject to the foregoing, it is our opinion that:

(i) the Shares have been duly and validly authorized, and

(ii) when delivered by the Company in accordance with the Underwriting
Agreement, will be duly and validly issued, fully paid and nonassessable.

We express no opinion as to matters governed by laws of any jurisdiction
other than the substantive laws of the State of California, the State of
Maryland and the State of New York, and the federal laws of the United States of
America as in effect on the date hereof.

Very truly yours,

/s/ Morrison & Foerster LLP

<PAGE> 1
EXHIBIT 8.1

March 18, 1997

Glenborough Realty Trust Incorporated
400 South El Camino Real
San Mateo, CA 94402-1708

Ladies and Gentlemen:

We have acted as counsel to Glenborough Realty Trust Incorporated, a
Maryland corporation (the "Company"), and Glenborough Properties, L.P., a
California limited partnership (the "Operating Partnership"), in connection with
the issuance and sale by the Company of up to 3,500,000 shares (the "Firm
Shares") of its common stock, par value $.001 per share (the "Common Stock"),
plus up to an additional 525,000 shares (the "Additional Shares") of Common
Stock which may be issued upon exercise of the Underwriters' over-allotment
option, (the Firm Shares and the Additional Shares, collectively, the "Shares")
pursuant to the terms of an Underwriting Agreement (the "Underwriting
Agreement") dated March 17, 1997, among the Company, the Operating Partnership,
and the several underwriters named in Schedule I of the Underwriting Agreement
(the "Underwriters"). The Shares are the subject of a Registration Statement
(the "Registration Statement) filed by the Company on Form S-3 under the
Securities Act of 1933, as amended (the "Act"). We have been requested to
provide you with our opinion as to whether the Company currently is organized in
conformity with the requirements for qualification and taxation as a real estate
investment trust ("REIT"), within the meaning of Section 856(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). Capitalized terms not otherwise
defined herein shall have the meaning given to them in the Registration
Statement.

For purposes of the opinion set forth below, we have relied, with your
consent, upon the accuracy and completeness of the statements and representa-
tions (which statements and representations we have neither investigated nor
verified) contained in the certificate of the Company dated March 18, 1997 (the
"Certificate"). We have also relied upon the accuracy of the Registration
Statement.

<PAGE> 2
Glenborough Realty Trust Incorporated
March 18, 1997
Page Two

Based upon such statements, representations and assumptions, and subject
to, the next two succeeding paragraphs, we are of the opinion that, as of the
date hereof, and for its taxable year ended December 31, 1996, the Company has
operated in a manner that would qualify it as a REIT under the Code, and if it
continues to operate in the same manner, it will continue to so qualify.

Our opinion is based upon the documents referred to above and the
current provisions of the Code, Treasury Regulations promulgated thereunder,
published pronouncements of the Internal Revenue Service and case law, any of
which may be changed at any time, possibly with retroactive effect. You should
also be aware that opinions of counsel are not binding upon the Internal Revenue
Service or the courts. Any change in applicable law, or any inaccuracy in the
statements, representations and assumptions on which we have relied may affect
the continuing validity of the opinion set forth herein.

This opinion addresses only the operation of the Company in a manner
that qualifies it as a REIT as of the date hereof and during the taxable year
ended December 31, 1996. We undertake no obligation to update this opinion, or
to ascertain after the date hereof whether circumstances occurring after such
date may affect the conclusions set forth herein.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act.

Very truly yours,

/s/ Morrison & Foerster LLP

<PAGE> 1
EXHIBIT 10.1

LEASE AGREEMENT

by and between

GLENBOROUGH PROPERTIES, L.P.
a California limited partnership

and

GLENBOROUGH HOTEL GROUP,
a Nevada corporation
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
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ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Leased Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Option to Extend Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 Confirmation of Percentage Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Additional Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4 Net Lease Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Payment of Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Notice of Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Adjustment of Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Utility Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 No Termination, Abatement, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Abatement Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Ownership of the Leased Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Lessee's Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Lessor's Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1 Condition of the Leased Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Use of the Leased Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.3 Lessor to Grant Easements, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.1 Compliance with Legal and Insurance Requirements, etc . . . . . . . . . . . . . . . . . . 23
8.2 Legal Requirement Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.3 Environmental Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.1 Maintenance and Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.2 Encroachments, Restrictions, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.1 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.2 Salvage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.3 Joint Use Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Permitted Contests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.1 General Insurance Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.2 Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.3 Worker's Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.4 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.5 Form Satisfactory, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.6 Increase in Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.7 Blanket Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.8 No Separate Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.1 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance . . . . . . . . 35
14.3 Reconstruction in the Event of Damages or
Destruction Not Covered by Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.4 Lessee's Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.5 Abatement of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.6 Damage Near End of Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.2 Parties' Rights and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.3 Total Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.4 Allocation of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.5 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.6 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.7 Lessee's Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
16.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
16.2 Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
16.5 Application of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Lessor's Right to Cure Lessee's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

ARTICLE XVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Provisions Relating to Purchase of the Leased Property . . . . . . . . . . . . . . . . . . . . . 44

ARTICLE XIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
19.1 Personal Property Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
19.2 Sublease Rent Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

</TABLE>

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19.3 Sublease Tenant Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
19.4 Lessee Ownership Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
19.5 Lessee Officer and Employee Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . 45
19.6 Payments to Affiliates of Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

ARTICLE XXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

ARTICLE XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
22.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

ARTICLE XXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
23.1 Subletting and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
23.2 Attornment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

ARTICLE XXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Officer's Certificates; Financial Statements;
Lessor's Estoppel Certificates and Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 48

ARTICLE XXV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Lessor's Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

ARTICLE XXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

ARTICLE XXVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

ARTICLE XXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Acceptance of Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

ARTICLE XXIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
No Merger of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

ARTICLE XXX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Conveyance by Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE XXXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE XXXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE XXXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Appraisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE XXXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
34.1 Lessor May Grant Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
34.2 Lessee's Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

</TABLE>
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34.3 Breach by Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

ARTICLE XXXV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
35.1 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
35.2 Transfer of Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
35.3 Waiver of Presentment, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

ARTICLE XXXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Lessor's Option to Purchase Assets of Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

ARTICLE XXXVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Lessor's Option to Terminate Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

ARTICLE XXXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Compliance with Franchise Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

ARTICLE XXXIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Furniture Fixture and Equipment Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

ARTICLE XL
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

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iv
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LEASE AGREEMENT (SCOTTSDALE)

THIS LEASE AGREEMENT (hereinafter called "Lease"), made as of the 1st
day of March, 1997, by and between GLENBOROUGH PROPERTIES, L.P., a California
limited partnership (hereinafter called "Lessor"), and GLENBOROUGH HOTEL GROUP,
a Nevada corporation (hereinafter called "Lessee"), provides as follows.

W I T N E S S E T H:

Contemporaneously with the execution hereof, Lessor acquired the
"Leased Property" (as hereinafter defined).

In furtherance of the consummation of such series of transactions,
Lessor and Lessee wish to enter into this Lease.

NOW, THEREFORE, Lessor, in consideration of the payment of rent by
Lessee to Lessor, the covenants and agreements to be performed by Lessee, and
upon the terms and conditions hereinafter stated, does hereby rent and lease
unto Lessee, and lessee does hereby rent and lease from Lessor, the Leased
Property.

ARTICLE I

1.1 Leased Property. The Leased Property is comprised of Lessor's
interest in the following:

(a) the parcel of property described in Exhibit "A"
attached hereto and by reference incorporated herein (the "Land");

(b) all buildings, structures and other improvements of
every kind including, but not limited to, alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site and off-site), parking
areas and roadways appurtenant to such buildings and structures presently
situated upon the Land (collectively, the "Leased Improvements");

(d) all equipment, machinery, fixtures, and other items
of property required or incidental to the use of the Leased Improvements as a
hotel, including all components thereof, now and hereafter permanently affixed
to or incorporated into the Leased Improvements, including without limitation,
all furnaces, boilers, heaters, electrical equipment, heating, plumbing,
lighting, ventilating, refrigerating, incineration, air and water pollution
control, waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection equipment, all of
which to the greatest extent permitted by law are hereby deemed by the parties
hereto to constitute real estate,

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together with all replacements, modifications, alterations and additions
thereto (collectively, the "Fixtures");

(e) all furniture and furnishings and all other items of
personal property (excluding Inventory and personal property owned by Lessee)
located on, and used in connection with, the operation of the Leased
Improvements as a hotel, together with all replacements, modifications,
alterations and additions thereto; and

(f) all existing leases of space within the Leased
Property (including any security deposits or collateral held by Lessor pursuant
thereto).

THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS,
MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH
WOULD BE DISCLOSED BY ANY INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE
SURVEY THEREOF.

1.2 Term. The term of the Lease (the "Term") shall commence on
the date hereof (the "Commencement Date") and shall end on the fifth
anniversary of the last day of the month in which the Commencement Date occurs,
unless sooner terminated in accordance with the provisions hereof.

1.3 Option to Extend Term. Lessor hereby grants to Lessee an option
to extend the Term for five (5) years ("Option Period") on the following terms
and conditions:

(a) Lessee must give Lessor notice in writing of its exercise
of the option to extend the Term not less than two hundred ten (210) days nor
more than two hundred seventy (270) days before the date the Term would end but
for said exercise.

(b) All terms and conditions of this Lease shall apply during
the Option Period, except that the Base Rent and the Percentage Rent for the
Option Period shall be determined as provided in Subparagraph (c)

(c) The Base Rent and the Percentage Rent for the Option
Period shall be the then Fair Market Rent for the Leased Property determined,
as hereinafter provided, as of the commencement of the Option Period. In
determining the Fair Market Rent, the parties (or any appraisers) shall provide
for both a base rent and a percentage rent in a manner comparable to the Base
Rent and Percentage Rent during the initial five years of the Term. In
determining the Fair Market Rent, the parties (or any appraisers) may provide
that the Base Rent be subject to periodic increases

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based upon the Consumer Price Index or such other adjustments if such parties
(or any appraisers) shall determine that as of the commencement of the Option
Period, five-year leases at such time for comparable properties would provide
for adjustments during the term thereof for increase in the Consumer Price
Index or other adjustments; provided, however, if such adjustments are provided
for, they shall only provide for increases and in no event shall any rent be
decreased from the amount previously paid. In determining the Fair Market Rent
for the Leased Property, the parties (or any appraisers) shall take into
account that the respective obligations of Lessor and Lessee, including, but
not being limited to, payment of taxes, maintenance and insurance, will remain
the same during the option period. If the parties are unable to agree upon the
Fair Market Rent for the Leased Property at least one hundred eighty (180) days
prior to the commencement of the Option Period, then the Fair Market Rent shall
be determined by appraisal conducted pursuant to Article XXXIII consistent with
the provisions of this Subparagraph (c).

(d) Notwithstanding any provision herein to the contrary, the Base
Rent and the Percentage Rent during the Option Period shall not be less than
the Base Rent and the Percentage Rent payable during the first five years of
the Term following the Commencement Date. If the Option to Extend is
exercised, wherever reference is made to the Term, it shall include the Option
Period. If the appraisal process has not been completed by the commencement of
the Option Period, the Base Rent and Percentage Rent payable at the end of the
initial five years of the Term shall continue during the Option Period until
the Base Rent and Percentage Rent for the Option Period has been determined and
on the first day of the first calendar month following such determination,
Lessee shall pay, in addition to any payments then due, any additional amount
that may be required since the commencement of the Option Period as a
consequence of any change in the Base Rent and/or Percentage Rent, unless the
first day for payment of Percentage Rent since the commencement of the Option
Period is not yet due, in which event Percentage Rent shall be calculated from
the commencement of the Option Period and shall be due on such first payment
date.

ARTICLE II

Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context other wise requires, (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as are at the time applicable, (c) all
references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease and (d) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to

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this Lease as a whole and not to any particular Article, Section of other
subdivision:

Additional Charges: As defined in Section 3.3.

Affiliate: As used in this Lease the term "Affiliate" of a person
shall mean (a) any person that, directly or indirectly, controls or is
controlled by or is under common control with such person, (b) any other person
that owns, beneficially, directly or indirectly, five percent or more of the
outstanding capital stock, shares or equity interests of such person, or (c)
any officer, director, employee, partner or trustee of such person or any
person controlling, controlled by or under common control with such person
(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such person). The term "person" means and includes
individuals, corporations, general and limited partnerships, stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof, For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests.

Award: As Defined in Section 15.1(c).

Base Rate: The rate of interest announced publicly by Citibank, N.A.,
in New York, New York, from time to time, as such bank's base rate, If no such
rate is announced or becomes discontinued, then such other rate as Lessor may
reasonably designate.

Base Rent: As defined in Article III.

Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
this is not a day on which national banks in the City of New York, New York, or
in the municipality wherein the Leased Property is located are closed.

CERCLA: The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.

Code: The Internal Revenue Code of 1986, as amended.

Commencement Date: As defined in Section 1.2 of the Lease.

Condemnation, Condemnor: As defined in Section 15.1.

Consolidated Financials: For any fiscal year or other

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accounting period for Lessee and its consolidated subsidiaries, statements of
earnings and retained earnings and of changes in financial position for such
period and for the period from the beginning of the respective fiscal year to
the end of such period and the related balance sheet as at the end of such
period, together with the notes thereto, all in reasonable detail and setting
forth in comparative form the corresponding figures for the corresponding
period in the proceeding fiscal year, and prepared in accordance with generally
accepted accounting principles and audited by independent certified public
accountants acceptable to Lessor in its sole discretion.

Consolidated Net Worth: At any time, the sum of the following for
Lessee and any consolidated subsidiaries, on a consolidated basis determined in
accordance with generally accepted accounting principles;

(a) The amount of capital or stated capital (after deducting the cost
of any share held in its treasury), plus

(b) the amount of capital surplus and retained earnings (or, in the
case of a capital or retained earnings deficit, minus the amount of such
deficit), minus

(c) the sum of the following (without duplication of deductions with
respect to items already deducted in arriving at surplus and retained
earnings): (1) unamortized debt discount and expense; and (2) any write-up in
the book value of assets resulting from a revaluation thereof subsequent to the
most recent Consolidated Financials prior to the date thereof, except any net
write-up in value of foreign currency in accordance with generally accepted
accounting principles.

CPI: The Consumer Price Index of the Bureau of Labor Statistics of
the United States Department of Labor for all Urban Consumers - U.S. City
Average - All Items. In the event the compilation and/or publication of the
CPI shall be transferred to any other governmental department or bureau or
agency or shall be otherwise changed or discontinued, then the index most
nearly the same as the CPI shall be used to make such calculation. In the
event that Sublessor and Sublessee cannot agree on such alternative index, then
the matter shall be submitted for decision to the American Arbitration
Association in Los Angeles, California, in accordance with the then rules of
said association and the decision of the arbitrators shall be binding upon the
parties. The cost of the Arbitration shall be paid equally by Lessor and
Lessee.

Date of Taking: As defined in Section 15.1(b).

Encumbrance: As defined in Section XXXIV.

Environmental Authority: Any department, agency or other body

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or component of any Government that exercises any form of jurisdiction or
authority under any Environmental Law.

Environmental Authorization: Any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.

Environmental Laws: All applicable federal, state, local and foreign
laws and regulations relating to pollution of the environment (including
without limitation, ambient air, surface water, ground water, land surface or
subsurface stratus), including without limitation laws and regulations relating
to emissions, discharges, Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials. Environmental Laws include but are not limited to CERCLA, FIFRA,
RCRA, SARA and TSCA.

Environmental Liabilities: Any and all obligations to pay the amount
of any judgment or settlement, the cost of complying with any settlement,
judgement or order for injunctive or other equitable relief, the cost of
compliance or corrective action in response to any notice, demand or request
from an Environmental Authority, the amount of any civil penalty or criminal
fine, and any court costs and reasonable amount for attorney's fees, fees for
witnesses and experts, and costs of investigation and preparation for defense
of any claim or any Proceeding, regardless of whether such Proceeding is
threatened, pending or completed, that may be or have been against or imposed
upon Lessor, Lessee, any Predecessor, the Leased Property or any property used
therein and arising out of:

(a) Failure of Lessee, Lessor, any Predecessor or the Leased Property
to comply at any time with all Environmental Laws;

(b) Presence of any Hazardous Materials on, in, under, at or in any
way affecting the Leased Property;

(d) Identification of Lessee, Lessor or any Predecessor as a
potentially responsible part under CERCLA or under any Environmental Law
similar to CERCLA;

(e) Presence at any time of any above-ground and/or underground
storage tanks, as defined in RCRA or in any applicable Environmental Law on,
in, at or under the Leased Property or any adjacent site of facility; or

(f) Any and all claims for injury or damage to persons or property
arising out of exposure to Hazardous Materials originating

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or located at the Leased Property, or resulting from operation thereof or any
adjoining property.

Event of Default: As defined in Section 16.1.

Facility: The hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property.

Fair Market Rent: The fair market rent of the Leased Property means
the rental which a willing tenant not compelled to rent would pay a willing
landlord not compelled to lease for the use and occupancy of such Leased
Property pursuant to the Lease for the term in question, (a) assuming that
Lessee is not in default thereunder and (b) determined in accordance with the
appraisal procedures set forth in Article XXXIII or in such other manner as
shall be mutually acceptable to Lessor and Lessee.

Fair Market Value: The fair market value of the Leased Property and/or
the Inventory means an amount equal to the price that a willing buyer not
compelled to buy would pay a willing seller not compelled to sell for such
Leased Property and/or Inventory, (a) assuming the same is unencumbered by this
Lease, (b) determined in accordance with the appraisal procedures set forth in
Article XXXIII or in such other manner as shall be mutually acceptable to
Lessor and Lessee, (c) assuming, in the case of the Leased Property, that such
seller must pay customary closing costs and title premiums, and (d) taking into
account the positive or negative effect on the value of the Leased Property
attributable to the interest rate, amortization schedule, maturity date,
prepayment penalty and other terms and conditions of any encumbrances that is
assumed by the transferee. In addition, in determining the Fair Market Value
with respect to damaged or destroyed Leased Property such value shall be
determined as if such Leased Property had not been so damaged or destroyed.

FF&E Allowance: The quarterly furniture, fixture and equipment
allowance set forth on Exhibit B hereto, as adjusted pursuant to Article XL,
which Lessor shall make available to Lessee pursuant to Article XL.

FIERA: The Federal Insecticide, Fungicide, and Rodenticide Act, as
amended.

Fiscal Year: The 12-month period from January 1 to December 31.

Fixtures: As defined in Section 1.1.

Franchise Agreement: Any Franchise Agreement with a national
franchisor (such as Country Suites by Carlson) under which the Facility is
operated.

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Government: The United State of America, any state, district or
territory thereof, any foreign nation, any state, district, department,
territory or other political division thereof, or any political subdivision of
any of the foregoing.

Hazardous Materials: All chemicals, pollutants, contaminants, wastes
and toxic substances, including without limitation:

(a) Solid or hazardous waste, as defined in RCRA or in any
Environmental Law;

(b) Hazardous substances, as defined in CERCLA or in any
Environmental Law;

(d) Insecticides, fungicides, or rodenticides, as defined in FIFRA or
in any Environmental Law; and

(e) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenols, asbestos and urea formaldehyde.

Impositions: Collectively, all taxes (including, without limitation,
all ad valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or its business conducted upon the Leased Property), assessments
(including, without limitation, all assessments for public improvements or
benefit, whether or not commenced or completed prior to the date hereof and
whether or not to be completed within the Term, ground rents, water, sewer or
other rents and charges, excises, tax inspection, authorization and similar
fees and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property or the business conducted thereon
by Lessee (including all interest and penalties thereon caused by any failure
in payment by Lessee), which at any time prior to, during or with respect to
the Term hereof may be assessed or imposed on or with respect to or be a lien
upon (a) Lessor's interest in the Leased Property, (b) the Leased Property, or
any part thereof or any rent therefrom or any estate, right, title or interest
therein, or (c) any occupancy, operation, use or possession of, or sales from,
or activity conducted on or in connection with the Leased Property, or the
leasing or use of the Leased Property or any part thereof by Lessee. Nothing
contained in this definition of Impositions shall be construed to require
Lessee to pay (1) any tax based on net income (whether denominated as a
franchise or a capital stock or other tax) imposed on Lessor or any other
person, or (2) any net revenue tax of Lessor or any other person, or (3) any
tax imposed with respect to the sale, exchange or other disposition by Lessor
of any Leased Property or the proceeds thereof, or (4) any single

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business, gross receipts (other than a tax on any rent received by Lessor from
Lessee), transaction privilege or similar taxes as the same relate to or are
imposed upon Lessor, except to the extent that any tax, assessment, tax levy or
charge that Lessee is obligated to pay pursuant to the first sentence of this
definition and that is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge set forth in
clause (1) or (2) is levied, assessed or imposed expressly in lieu thereof.

Indemnified Party: Either of a Lessee Indemnified Party or a Lessor
Indemnified Party.

Indemnifying Party: Any party obligated to indemnify an Indemnified
Party pursuant to Sections 83. or 22.1.

Insurance Requirements: All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.

Inventory: All "Inventories of Merchandise" and "Inventories of
Supplies" as defined in the Uniform System of Accounts for Hotels (8th Revised
Edition, 1986) as published by the Hotel Association of New York City, Inc., as
same may hereafter be revised.

Land: As defined in Article I.

Lease: This Lease.

Leased Improvements: Leased Property: Each as defined in Article I.

Legal Requirements: All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
maintenance, construction, use or alteration thereof (whether by Lessee or
otherwise), whether or not hereafter enacted and in force, including (a) all
laws, rules or regulations pertaining to the environment, occupational health
and safety and public health, safety or welfare, and (b) any laws, rules or
regulations that may (1) require repairs, modifications or alterations in or to
the Leased Property or (2) in any way adversely affect the use and enjoyment
thereof; and all permits, licenses and authorizations and regulations relating
thereto and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Lessee (other than
encumbrances created by Lessor without the consent of Lessee), at any time in
force affecting the Leased Property.

Lending Institution: Any insurance company, credit company, federally
insured commercial or savings bank, national banking

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association, savings and loan association, employees welfare, pension or
retirement fund or system, corporate profit sharing or pension trust, college
or university, or real estate investment trust, including any corporation
qualified to be treated for federal tax purposes as a real estate investment
trust, such trust having a net worth of at lease $10,000,000.

Lessee: The Lessee designated on this Lease and its respective
permitted successors and assigns.

Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as
a result of a direct or indirect ownership interest (including a stockholder's
interest) in Lessee, the officers, directors, stockholders, employees, agents
and representatives of Lessee and any corporate stockholder, agent, or
representative of Lessee, and the respective heirs, personal representatives,
successors and assigns of any such officer, director, stockholder, employee,
agent or representative.

Lessor: The Lessor designated on this Lease and its respective
successors and assigns.

Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any other
Person against whom any claim for indemnification may be asserted hereunder as
a result of a direct or indirect ownership interest (including a stockholder's
or partnership interest) in Lessor, the officers, directors, stockholders,
employees, agents and representatives of the general partner of Lessor and any
partner, agent, or representative of Lessor, and the respective heirs, personal
representatives, successors and assigns of any such officer, director, partner,
stockholder, employee, agent or representative.

Minimum Price: The sum of (a) the equity in the Leased Property at
the time of acquisition of the Leased Property by Lessor (i.e. based upon the
appraised value thereof as established by Robert A. Stanger & Co., Inc. as of
June 30, 1994, if the Leased Property was acquired by Lessor from Glenborough
Realty Trust Incorporated as part of the original capitalization of Lessor, or
that portion of the purchase price of the Leased Property paid by Lessor is
cash) plus (b) other capital expenditures on the Leased Property by Lessor
after the date hereof plus (c) the unpaid principal balance of all encumbrances
against the Leased Property at the time of purchase of the Leased Property by
Lessee, less (x) all proceeds received by Lessor from any financing or
refinancing of the Leased Property after the date hereof (after payment of any
debt refinanced and net of any costs and expenses incurred in connection with
such financing or refinancing, including, without limitation, loan points,
commitment fees and commissions and legal fees) and (y) the net amount (after
deduction of all reasonable legal fees and other costs and expenses, including
without

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limitation expert witness fees, incurred by Lessor in connection with obtaining
any such proceeds or award) of all insurance proceeds received by Lessor and
awards received by Lessor from any partial Taking of the Leased Property that
are not applied to restoration.

Notice: A notice given pursuant to Article XXXII.

Officer's Certificate: A certificate of Lessee signed by the chief
financial officer or another officer authorized so to sign by the board of
directors or by-laws of Lessee, or any other person whose power and authority
to act has been authorized by delegation in writing by any such officer.

Option Period: As defined in Section 1.3.

Other Revenues: Shall mean gross revenues from the operation of the
Leased Property, including parking; telephone; laundry; incidental services;
food and beverage sales; or otherwise, and whether such revenues are received
or accrue from operations conducted by Lessee or any permitted sublessee or
licensee of Lessee, but excluding the following:

(a) Revenues from the rental of guest rooms (whether to individuals,
groups or transients);

(b) The amount of all credit, rebates or refunds to customers, guests
or patrons relating to the services and other items including in the
computation of Other Revenues;

(c) All sales taxes or any other taxes imposed on the services and
other items included in the computation of Other Revenues; and

(d) All gratuities collected from customers, guests or patrons and
paid to employees which relate to the services and other items included in
Other Revenues.

Overdue Rate: On any date, a rate equal to the Base Rate plus 5% per
annum, but in no event greater that the maximum rate then permitted under
applicable law.

Payment Date: Any due date for the payment of any installment of Base
Rent.

Percentage Rent: As defined in Section 3.1(b), 3.1(c).

Person: Any Government, natural person, corporation, partnership or
other legal entity.

Predecessor: Any Person whose liabilities arising under any
Environmental Law have or may have been retained or assumed by Lessee, either
contractually or by operation of law, relating to the Leased Property.

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Primary Intended Use: As defined in Section 7.2(b).

Proceeding: Any judicial action, suit or proceeding (whether civil or
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or

entity (including a grand jury), and any arbitration, mediation or other
non-judicial process for dispute resolution.

RCRA: The Resource Conservation and Recovery Act, as amended.

Real Estate Taxes: All real estate taxes, including general and
special assessments, if any, which are imposed upon the Land, and any
improvements thereon.

Rejectable Offer Price: An amount equal to the greater of (a) the Fair
Market Value, determined as of the applicable purchase date, or (b) the Minimum
Price.

Release: A "Release" as defined in CERCLA or in any Environmental
Law, unless such Release has been properly authorized and permitted in writing
by all applicable Environmental Authorities or is allowed by such Environmental
Law without authorizations or permits.

Rent: Collectively, the Base Rent, Percentage Rent, and Additional
Charges.

Room Revenues: Shall mean gross revenues from the operation of the
Leased Property from the rental of guest rooms, whether to individuals, groups
or transients, whether such revenues are received or accrue from operations
conducted by Lessee or any permitted sublessee or licensee of Lessee, but
excluding the following:

(a) The amount of all credit, rebates or refunds to customers, guests
or patrons;

(b) All sales taxes or any other taxes imposed on the rental of
guest rooms; and

(c) All gratuities collected from customers, guests or patrons and
paid to employees which relate to the rental of guest rooms.

SARA: The Superfund Amendments and Reauthorization Act of 1986, as
amended.

State: The State or Commonwealth of the United States in which the
Leased Property is located.

Subsidiaries: Corporations in which Lessee owns, directly or
indirectly, more than 50% of the voting stock or control, as applicable
(individually, a "Subsidiary").

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Taking: A taking or voluntary conveyance during the Term hereof of all
or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of, any condemnation
or other eminent domain proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.

Term: As defined in Section 1.2.

TSCA: The Toxic Substances Control Act, as amended.

Unavoidable Delays: Delays due to strikes, lock-outs, labor unrest,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or
other causes beyond the control of the party responsible for performing an
obligation hereunder, provided that lack of funds shall not be deemed a cause
beyond the control of either party hereto unless such lack of funds is caused
by the failure of the other party hereto to perform any obligations of such
party under this Lease or any guaranty of this Lease.

Uneconomic for its Primary Intended Use: A state or condition of the
Facility such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board of directors or other governing
body of Lessee, the Facility cannot be operated on a commercially practicable
basis for its Primary Intended Use, taking into account, among other relevant
factors, the number of usable rooms and projected revenues, such that Lessee
intends to, and shall, complete the cessation of operations from the Leased
Facility.

Uniform System: Shall mean the Uniform System of Accounts for Hotels
(8th Revised Edition, 1986) as published by the Hotel Association of New York
City, Inc., as same may hereafter be revised.

Unsuitable for its Primary Intended Use: A state or condition of the
Facility such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board of directors or other governing
body of Lessee, due to casualty damage or loss through Condemnation, the
Facility cannot function as a integrated hotel facility consistent with
standards applicable to a well maintained and operated hotel.

ARTICLE III

3.1 Rent. Lessee will pay to Lessor in lawful money of the United
States of America which shall be legal tender for the payment of public and
private debts, in immediately available funds, at Lessor's address set forth in
Article XXXII hereof or at such other place or to such other Person, as Lessor
from time to time may designate in a Notice, all Base Rent, Percentage Rent and

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Additional Charges, during the Term, as follows:

(a) Base Rent: The annual sum set forth on Exhibit B hereto for the
Leased Property, payable in advance in equal, consecutive monthly installments,
on or before the first day of each calendar month of the Term ("Base Rent");
provided however, that the first and last monthly payments of Base Rent shall
be pro rated as to any partial month (subject to adjustment as provided in
Sections 5.2, 14.5, 15.3, 15.5, and 15.6); and

(b) Percentage Rent: For each Fiscal Year during the Term commencing
with the Fiscal Year ending December 31, 1997, Tenant shall pay percentage rent
("Percentage Rent") quarterly in an amount calculated by the following
formulas:

(i) Percentage Rent from Room Revenues:

The Percentage Rent applicable to the Room
Revenues of the Leased Property as
set forth on Exhibit B hereto

less

an amount equal to the Base Rent paid year to
date for the applicable Fiscal Year

less

an amount equal to Percentage Rent from Room
Revenues paid year to date for the
applicable Fiscal Year

equals

Percentage Rent from Room Revenues for the
applicable quarter.

(ii) Percentage Rent from Other Revenues:

5% of Other Revenues.

(c) Officer's Certificates. Additionally an Officer's Certificate
shall be delivered to Lessor quarterly, together with such quarterly Percentage
Rent payment, setting forth the calculation of such rent payment for such
quarter within 45 days after each of the first three quarters of each Fiscal
Year (or part thereof) in the Term. Such quarterly payments shall be based on
the formulas set forth in Section 3.1(b). There shall be no reduction in the
Base Rent regardless of the result of the Revenue computations.

In addition, on or before March 31 each year, commencing with

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<PAGE> 20
March 31, 1998, Lessee shall deliver to Lessor an Officer's Certificate
reasonably acceptable to Lessor setting forth the computation of the actual
Percentage Rent that accrued for each quarter of the Fiscal Year that ended on
the immediately preceding December 31 and shall pay to Lessor Percentage Rent,
if due and payable, for the last quarter of the applicable Fiscal Year.
Additionally, if the annual Percentage Rent due and payable for any Fiscal Year
(as shown in the applicable Officer's Certificate) exceeds the amount actually
paid as Percentage Rent by Lessee for such year, Lessee also shall pay such
excess to Lessor at the time such certificate is delivered. If the Percentage
Rent actually due and payable for such Fiscal Year is shown by such certificate
to be less than the amount actually paid as Percentage Rent for the applicable
Fiscal Year, Lessor, at its option, shall reimburse such amount to Lessee or
credit such amount against the next month's Base Rent and, to the extent
necessary, the next quarter's Percentage Rent payments, which credits shall
continue until the amount due Lessee has been paid or otherwise discharged.
Any interest payable to Lessor shall be deemed to be and shall be payable as
Additional Charges.

The obligation to pay Percentage Rent shall survive the expiration or
earlier termination of the Term, and final reconciliation, taking into account
among other relevant adjustments, any adjustments which are accrued after such
expiration or termination date but which related to Percentage Rent accrued
prior to such termination date, and Lessee's good faith best estimate of the
amount of any unresolved contractual allowances, shall be made not later than
two years after such expiration or termination date, but Lessee shall advise
Lessor within 60 days after such expiration or termination date of Lessee's
best estimate at that time of the approximate amount of such adjustments, which
estimate shall not be binding on Lessee or have any legal effect whatsoever.

(c) Adjustments for Changes in CPI: The threshold set forth on
Exhibit B hereto which is used to determine when there will be a change in the
percentage that is used to calculate Percentage Rent from Room Revenues shall
be adjusted annually as of the first day of each Fiscal Year commencing January
1, 1997, for any increase, but not because of any decrease, in the CPI from the
beginning of the previous Fiscal Year.

3.2 Confirmation of Percentage Rent. Lessee shall utilize, or
cause to be utilized, an accounting system for the Leased Property in
accordance with its usual and customary practices, and in accordance with
generally accepted accounting principles and the Uniform System, that will
accurately record all data necessary to compute Percentage Rent, and Lessee
shall retain, for at least four years after the expiration of each Fiscal Year
(and in any event until the reconciliation described in Section 3.1(c) for such
Fiscal Year has been made), reasonably adequate records conforming

15
<PAGE> 21
to such accounting system showing all data necessary to compute Percentage Rent
for the applicable Fiscal Years. Lessor, at its expense (except as provided
hereinbelow), shall have the right from time to time by its accountants or
representatives to audit the information that formed the basis for the data set
forth in any Officer's Certificate provided under Section 3.1(c) and, in
connection with such audits, to examine all Lessee's records (including
supporting data and sales and excise tax returns) reasonably required to verify
Percentage Rent, subject to any prohibitions or limitations on disclosure of
any such data under Legal Requirements. If any such audit discloses a
deficiency in the payment of Percentage Rent, and either Lessee agrees with the
result of such audit or the matter is otherwise determined or compromised,
Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally
agreed or determined, together with interest at the Overdue Rate from the date
when said payment should have been made to the date of payment thereof;
provided, however, that as to any audit that is commenced more than two years
after the date Percentage Rent for any Fiscal Year is reported by Lessee to
Lessor, the deficiency, if any, with respect to such Percentage Rent shall bear
interest at the Overdue Rate only from the date such determination of
deficiency is made unless such deficiency is the result of gross negligence or
willful misconduct on the part of Lessee, is which case interest at the Overdue
Rate will accrue from the date such payment should have been made to the date
of payment thereof. If any such audit discloses that the Percentage Rent
actually due from Lessee for any Fiscal Year exceed those reported by Lessee by
more than 3%, Lessee shall pay the cost of such audit and examination. Any
proprietary information obtained by Lessor pursuant to the provisions of this
Section shall be treated as confidential, except that such information may be
used, subject to appropriate confidentiality safeguards, in any litigation
between the parties and except further that Lessor may disclose such
information to prospective lenders. The obligations of Lessee contained in
this Section shall survive the expiration or earlier termination of this Lease.

3.3 Additional Charges. In addition to the Base Rent and
Percentage Rent, (a) Lessee also will pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions that Lessee
assumes or agrees to pay under this Lease, and (b) in the event of any failure
on the part of Lessee to pay any of those items referred to in clause (a) of
this Section 3.3, Lessee also will promptly pay and discharge every fine,
penalty, interest and cost that may be added for non-payment or late payment of
such items (the items referred to in clauses (a) and (b) of this Section 3.3
being additional rent hereunder and being referred to herein collectively as
the "Additional Charges"), and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided either in this Lease or by
statutes or otherwise in the case of non-payment of the Additional Charges as
in the case of non-payment of the Base Rent. If any installment of Base Rent,

16
<PAGE> 22
Percentage Rent or Additional Charges (but only as to those Additional Charges
that are payable directly to Lessor) shall not be paid within fifteen calendar
days after the due date, Lessee will pay Lessor on demand, as Additional
Charges, a late charge (to the extent permitted by law) equal to five percent
(5%) of such overdue amount together with interest computed at the Overdue
Rate on such overdue amount from the due date to the date of payment thereof.
To the extent that Lessee pays any Additional Charges to Lessor pursuant to any
requirement of this Lease, Lessee shall be relieved of its obligation to pay
such Additional Charges to the entity to which they would otherwise be due and
Lessor shall pay same from monies received from Lessee.

3.4 Net Lease Provision. The Rent shall be paid absolutely net to
Lessor, so that this Lease shall yield to Lessor the full amount of the
installments of Base Rent, Percentage Rent and Additional Charges throughout
the Term, all as more fully set forth in Article V, but subject to any other
provisions of this Lease that expressly provide for adjustment or abatement of
Rent or other charges or expressly provide that certain expenses or maintenance
shall be paid or performed by Lessor.

ARTICLE IV

4.1 Payment of Impositions. Subject to Article XII relating to
permitted contents, Lessee will pay, or cause to be paid, all Impositions
(other than Real Estate Taxes, which shall be paid by Lessor) before any fine,
penalty, interest or cost may be added for non- payment, such payments to be
made directly to the taxing or other authorities where feasible, and will
promptly furnish to Lessor copies of official receipts or other satisfactory
proof evidencing such payments. Lessee's obligation to pay such Impositions
shall be deemed absolutely fixed upon the date such Impositions become a lien
upon the Leased Property or any part thereof. If any such Imposition may, at
the option of the taxpayer, lawfully be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and in such event, shall pay such
installments during the Term hereof (subject to Lessee's right to contest
pursuant to the provisions of Article XII) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto. Lessor, at its expense, shall, to the extent required or permitted by
applicable law, prepare and file all tax returns in respect of Lessor's net
income, gross receipts, sales and use, single business, transaction privilege,
rent, ad valorem, franchise taxes, Real Estate Taxes and taxes on its capital
stock, and Lessee, at its expense, shall, to the extent required or permitted
by applicable laws and regulations prepare and file all other tax returns and
reports in respect of any Imposition as may be required

17
<PAGE> 23
by governmental authorities. If any refund shall be due from any taxing
authority in respect of any Imposition paid by Lessee, the same shall be paid
over to or retained by Lessee if no Event of Default shall have occurred
hereunder and be continuing. If an Event of Default shall have occurred and be
continuing, any such refund shall be paid over to or retained by Lessor. Any
such funds retained by Lessor due to an Event of Default shall be applied as
provided in Article XVI. Lessor and Lessee shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made
with respect to the Leased Property as may be necessary to prepare any required
returns and reports. Lessee shall file all personal property tax returns in
such jurisdictions where it is legally required to so file. Lessor, to the
extent it possesses the same, and Lessee, to the extent it possesses the same,
will provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, Lessor shall provide Lessee with copies of assessment notices in
sufficient time for Lessee to file a protest. Lessee may, upon notice to
Lessor, at Lessee's option and at Lessee's sole expense, protect, appeal, or
institute such other proceedings (in it's or Lessor's name) as Lessee may deem
appropriate to effect a reduction of real estate or personal property
assessments for those Impositions to be paid by Lessee, and Lessor, at Lessee's
expense as aforesaid, shall fully cooperate with Lessee in such protest,
appeal, or other action. Lessee hereby agrees to indemnify, defend, and hold
harmless Lessor from and against any claims, obligations, and liabilities
against or incurred by Lessor in connection with such cooperation. Billings
for reimbursement of personal property taxes by Lessee to Lessor shall be
accompanied by copies of a bill therefor and payments thereof which identify
the personal property with respect to which such payments are made. Lessor,
however, reserves the right to affect any such protest, appeal or other action
and, upon notice to Lessee, shall control any such activity, which shall then
go forward at Lessor's sole expense. Upon such notice, Lessee, at Lessor's
expense, shall cooperate fully with such activities.

4.2 Notice of Impositions. Lessor shall give prompt Notice to
Lessee of all Impositions payable by Lessee hereunder of which Lessor at any
time has knowledge, provided that Lessor's failure to give any such Notice
shall in no way diminish Lessee's obligations hereunder to pay such
Impositions, but such failure shall obviate any default hereunder for a
reasonable time after Lessee receives Notice of any Imposition which it is
obligated to pay during the first taxing period applicable thereto.

4.3 Adjustment of Impositions. Impositions imposed in respect of
the tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof after

18
<PAGE> 24
termination shall survive such termination.

4.4 Utility Charges. Lessee will be solely responsible for obtaining
and maintaining utility services to the Leased Property and will pay or cause
to be paid all charges for electricity, gas, oil, water, sewer and other
utilities used in the Leased Property during the Term.

4.5 Insurance Premiums. Lessee will pay or cause to be paid all
premiums for the insurance coverages required to be maintained by it under
Article XIII.

ARTICLE V

5.1 No Termination, Abatement, etc. Except as otherwise
specifically provided in this Lease, and except for loss of Franchise Agreement
solely by reason of any action or inaction by Lessor, Lessee, to the extent
permitted by law, shall remain bound by this Lease in accordance with its terms
and shall neither take any action without the written consent of Lessor to
modify, surrender or terminate the same, nor seek nor be entitled to any
abatement, deduction, deferment or reduction of the Rent, or setoff against the
Rent, nor shall the obligations of lessee be otherwise affected by reason of
(a) any damage to, or destruction of, any Leased Property or any portion
thereof from whatever cause for any Taking of the Leased Property or any
portion thereof, (b) the lawful or unlawful prohibition of, or restriction
upon, Lessee's use of the Leased Property, or any portion thereof, or the
interference with such use by any Person, corporation, partnership or other
entity, or by reason of eviction by paramount title, (c) any claim which Lessee
has or might have against Lessor by reason of any default or breach of any
warranty by Lessor under this Lease or any other agreement between Lessor and
Lessee, or to which Lessor and Lessee are parties, (d) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceeding affecting Lessor or any assignee or
transferee of Lessor, or (e) for any other cause whether similar or dissimilar
to any of the foregoing other than a discharge of Lessee from any such
obligations as a matter of law. Lessee hereby specifically waives all rights,
arising from any occurrence whatsoever, which may now or hereafter be
conferred upon it by law to (1) modify, surrender or terminate this Lease or
quit or surrender the Leased Property or any portion thereof, or (2) entitle
Lessee to any abatement, reduction, suspension or deferment of the Rent or
other sums payable by Lessee hereunder, except as otherwise specifically
provided in this Lease. The obligations of Lessee hereunder shall be separate
and independent covenants and agreements and the Rent and all other sums
payable by Lessee hereunder shall continue to be payable in all events unless
the obligations to pay the same shall be terminated pursuant to the express
provisions of the Lease or by termination of this Lease other than by reason of
an Event of Default.

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<PAGE> 25
5.2 Abatement Procedures. In the event of a partial Taking as
described in Section 15.5, the Lease shall not terminate, but the Base Rent
shall be abated in the manner and to the extent that is fair, just and
equitable to both Lessee and Lessor, taking into consideration, among other
relevant factors, the number of usable rooms, the amount of square footage, or
the revenues affected by such partial Taking. If Lessor and Lessee are unable
to agree upon the amount of such abatement within 30 days after such partial
Taking, the matter may be submitted by either party to a court of competent
jurisdiction for resolution.

ARTICLE VI

6.1 Ownership of the Leased Property. Lessee acknowledges that
the Leased Property is the property of Lessor and that Lessee has only the
right to the possession and use of the Leased Property upon the terms and
conditions of this Lease.

6.2 Lessee's Personal Property. Lessee will acquire and maintain
throughout the Term such Inventory as is required to operate the Leased
Property in the manner contemplated by this Lease. Lessee may (and shall as
provided hereinbelow), at its expense, install, affix or assemble or place on
any parcels of the Land or in any of the Leased Improvements, any items of
personal property (including Inventory) owned by Lessee. Lessee, at the
commencement of the Term, and from time to time thereafter, shall provide
Lessor with an accurate list of all such items of Lessee's personal property
(collectively, the "Lessee's Personal Property"). Lessee may, subject to the
first sentence of this Section 6.2 and the conditions set forth below, remove
any of Lessee's Personal Property set forth on such list at any time during the
Term or upon the expiration or any prior termination of the Term. All of
Lessee's Personal Property, other than Inventory, not removed by Lessee within
ten days following the expiration or earlier termination of the Term shall be
considered abandoned by Lessee and may be appropriated, sold, destroyed or
otherwise disposed of by Lessor without first giving Notice thereof to Lessee,
without any payment to Lessee and without any obligation to account therefor.
Lessee will, at its expense, restore the Leased Property to the condition
required by Section 9.1(d), including repair of all damage to the Leased
Property caused by the removal of Lessee's Personal Property, whether effected
by Lessee or Lessor. Upon the expiration or earlier termination of the Term,
Lessee shall sell and Lessor, or its designee, shall have the option to
purchase all Inventory on hand at the Leased Property at the time of such
expiration or termination for a sale price equal to the lesser of Lessee's
actual cost of such Inventory, as evidenced by invoices, receipts, or other
reasonable documentation, or the then Fair Market Value thereof. The option
provided for herein shall be exercised by written notice to Lessee which Lessor
shall give on or before the date of such expiration or earlier termination.
Lessee

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<PAGE> 26
may make such financing arrangements, title retention agreements, leases or
other agreements with respect to the Lessee's Personal Property as it sees fit
provided that Lessee first advises Lessor of any such arrangement and such
arrangement expressly provides that in the event of Lessee's default
thereunder, Lessor (or its designee) may assume Lessee's obligations and rights
under such arrangement.

6.3 Lessor's Lien. To the fullest extent permitted by applicable
law, Lessor is granted a lien and security interest on all Lessee's personal
property now or hereinafter placed in or upon the Leased Property, and such
lien and security interest shall remain attached to such Lease's personal
property until payment in full of all Rent and satisfaction of all of Lessee's
obligations hereunder; provided, however, Lessor shall subordinate its lien and
security interest to that of any non-Affiliate of Lessee which finances such
Lessee's personal property or any non-Affiliate conditional seller of such
Lessee's personal property, the terms and conditions of such subordination to
be satisfactory to Lessor in the exercise of reasonable discretion. Lessee
shall, upon the request of Lessor, execute such financing statements or other
documents or instruments reasonably requested by Lessor to perfect the lien and
security interests herein granted.

ARTICLE VII

7.1 Condition of the Leased Property. Lessee acknowledges receipt
and delivery of possession of the Leased Property. Lessee has examined and
otherwise has knowledge of the condition of the Leased Property and has found
the same to be satisfactory for its purposes hereunder. Lessee is leasing the
Leased Property "as is" in its present condition. Lessee waives any claim or
action against Lessor in respect of the condition of the Leased Property.
LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF
THE LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT
THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT.
Provided, however, to the extent permitted by law, Lessor hereby assigns to
Lessee all of Lessor's rights to proceed against any predecessor in title other
than Lessee (or an Affiliate of Lease which conveyed the Property to Lessor)
for breaches of warranties or representations or for latent defects in the
Leased Property. Lessor shall fully cooperate with Lessee in the prosecution
of any such claim, in Lessor's or Lessee's name, all at Lessee's sole cost and
expense. Lessee hereby agrees to indemnify, defend and hold harmless Lessor
from and against any claims, obligations and liabilities against or incurred by
Lessor in connection with such cooperation.

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<PAGE> 27
7.2 Use of the Leased Property.

(a) Lessee covenants that it will proceed with all due
diligence and will exercise its best effort to obtain and to maintain all
approvals needed to use and operate the Leased Property and the Facility under
applicable local, state and federal law.

(b) Lessee shall use or cause to be used the Leased Property
only as a hotel facility, and for such other uses as may be necessary or
incidental to such use or such other use as otherwise approved by Lessor (the
"Primary Intended Use"). Lessee shall not use the Leased Property or any
portion thereof for any other use without the prior written consent of Lessor,
which consent may be granted, denied or conditioned in Lessor's sole
discretion. No use shall be made or permitted to be made of the Leased
Property, and no acts shall be done, which will cause the cancellation or
increase the premium of any insurance policy covering the Leased Property or
any part thereof (unless another adequate policy satisfactory to Lessor is
available and Lessee pays any premium increase), nor shall Lessee sell or
permit to be kept, used or sold in or about the Leased Property any article
which may be prohibited by law or fire underwriter's regulations. Lessee
shall, at its sole cost, comply with all of the requirements pertaining to the
Leased Property of any insurance board, association, organization or company
necessary for the maintenance of insurance, as herein provided, covering the
Leased Property and Lessee's Personal Property.

(c) Subject to the provisions of Articles XIV, XV, XXI
and XXII, Lessee covenants and agrees that during the Term it will (1) operate
continuously the Lease Property as a hotel facility, (2) keep in full force
and effect and comply with all the provision of the Franchise Agreement, (3)
not terminate or amend the Franchise Agreement without the consent of Lessor,
(4) maintain appropriate certifications and licenses for such use and (5) will
seek to maximize the gross revenues generated therefrom consistent with sound
business practices.

(d) Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Facility, nor shall Lessee cause or
permit any nuisance thereon.

(e) Lessee shall neither suffer nor permit the Leased
Property or any portion thereof, or Lessee's Personal Property, to be used in
such a manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as
the case may be) title thereto or to any portion thereof, or (2) may reasonably
make possible a claim or claims of adverse usage or adverse possession by the
public, as such, or of implied dedication of the Lease Property or any portion
thereof, except as necessary in the ordinary and prudent operation of the
Facility on the Leased Property.

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<PAGE> 28
(f) Neither Lessee or an Affiliate of Lessee shall
operate or manage any hotel or motel that is within the greater of (i) a 10
mile radius of the Leased Property or (ii) the area surrounding the Leased
Property defined as the Protected Area in the Franchise Agreement other than
pursuant to this Lease or another lease, agreement or arrangement with Lessor
or an Affiliate of Lessor.

7.3 Lessor to Grant Easements, etc. Lessor will, from time to
time, so long as no Event of Default has occurred and is continuing, at the
request of Lessee and at Lessee's cost and expense (but subject to the approval
of Lessor, which approval shall not be unreasonably withheld or delayed), (a)
grant easements and other rights in the nature of easements with respect to the
Leased Property to third parties, (b) release existing easements or other
rights in the nature of easements which are for the benefit of the Leased
Property, (c) dedicate or transfer unimproved portions of the Leased Property
for road, highway or other public purposes, (d) execute petitions to have the
Leased Property annexed to any municipal corporation or utility district, (e)
execute amendments to any covenants and restrictions affecting the Leased
Property and (f) execute and deliver to any person any instrument appropriate
to confirm or effect such grants, releases, dedications, transfers, petitions
and amendments (to the extent of its interests in the Leased Property), but
only upon delivery to Lessor of an Officer's Certificate stating that such
grant, releases, dedication, transfer, petition or amendment is not detrimental
to the proper conduct of the business of Lessee on the Leased Property and does
not materially reduce the value of the Leased Property.

ARTICLE VIII

8.1 Compliance with Legal and Insurance Requirements, etc.
Subject to Section 8.3(b) below and Article XII relating to permitted contests,
Lessee, at its expense, will promptly (a) comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property, and (b) procure,
maintain and comply with appropriate licenses and other authorizations required
by any use of the Leased Property and Lessee's Personal Property than being
made, and for the proper erection, installation, operation and maintenance of
the Leased Property or any part thereof.

8.2 Legal Requirement Covenants. Subject to Section 8.3(b) below,
Lessee covenants and agrees that the Leased Property and Lessee's Personal
Property shall not be used for any unlawful purpose, and that Lessee shall not
permit or suffer to exist any unlawful use of the Leased Property by others.
Lessee shall acquire and maintain all appropriate licenses, certifications,
permits ad other authorizations and approvals needed to operate the

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<PAGE> 29
Leased Property in its customary manner for the Primary Intended Use, and any
other lawful use conducted on the Leased Property as may be permitted from time
to time hereunder. Lessee further covenants and agrees that Lessee's use of
the Leased Property and maintenance, alteration, and operation of the same, and
all parts thereof, shall at all times conform to all Legal Requirements, unless
the same are finally determined by a court of competent jurisdiction to be
unlawful (and Lessee shall cause all such sub-tenants, invitees or others to so
comply with all Legal Requirements). Lessee may, however, upon prior Notice to
Lessor, contest the legality or applicability of any such Legal Requirement or
any license or certification decision if Lessee maintains such action in good
faith, with due diligence, without prejudice to Lessor's rights hereunder, and
at Lessee's sole expense. If by the terms of any such Legal Requirement
compliance therewith pending the persecution of any such proceeding may legally
be delayed without the incurrence of any lien, charges or liability of any kind
against the Facility or Lessee's leasehold interest therein and without
subjecting Lessee or Lessor to any liability, civil or criminal, for failure so
to comply therewith, Lessee may delay compliance therewith until the final
determination of such proceeding. If any lien, charge or civil or criminal
liability would be incurred by reason of any such delay, Lessee, on the prior
written consent of Lessor, which consent shall not be unreasonably withheld,
may nonetheless contest as aforesaid any delay as aforesaid provided that such
delay would not subject Lessor to criminal liability and Lessee both (a)
furnishes to Lessor security reasonably satisfactory to Lessor against any loss
or injury by reason of such contest or delay and (b) prosecutes the contest
with due diligence and in good faith.

8.3 Environmental Covenants. Lessor and Lessee (in addition to,
and not in diminution of, Lessee's covenants and undertakings in Sections 8.1
and 8.2 hereof) covenant and agree as follows:

(a) At all times hereafter until such time as all
liabilities, duties or obligations of Lessee to the Lessor under the Lease have
been satisfied in full, Lessee shall fully comply with all Environmental Laws
applicable to the Leased Property and the operations thereon. Lessee agrees to
give Lessor prompt written notice of (1) all Environmental Liabilities; (2)
all pending, threatened or anticipated Proceedings, and all notices, demands,
requests or investigations, relating to any Environmental Liability or relating
to the issuance, revocation or change in any Environmental Authorization
required for operation of the Leased Property; (3) all Releases at, on, in,
under or in any way affecting the Leased Property, or any Release known by
Lessee at, on, in or under any property adjacent to the Leased Property; and
(4) all facts, events or conditions that could reasonably lead to the
occurrence of any of the above-referenced matters.

(b) Lessor hereby agrees to defend, indemnify and save

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<PAGE> 30
harmless any and all Lessee Indemnified Parties from and against any and all
Environmental Liabilities other than Environmental Liabilities which were
caused by the acts or grossly negligent failures to act of Lessee.

(c) Lessee hereby agrees to defend, indemnify and save
harmless any and all Lessor Indemnified Parties from and against any and all
Environmental Liabilities caused by the acts or grossly negligent failures to
act of Lessee.

(d) If any Proceeding is brought against any Indemnified
Party in respect of an Environmental Liability with respect to which such
Indemnified Party may claim indemnification under either Section 8.3(b) or (c),
the Indemnifying Party, upon request, shall at its sole expense resist and
defend such Proceeding, or cause the same to be resisted and defended by
counsel designated by the Indemnified Party and approved by the Indemnifying
Party, which approval shall not be unreasonably withheld; provided, however,
that such approval shall not be required in the case of defense by counsel
designated by any insurance company undertaking such defense pursuant to any
applicable policy of insurance. Each Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel will be at the sole
expense of such Indemnified Party unless such counsel has been approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding made without its consent, which shall not be unreasonably withheld,
but if settled with the consent of the Indemnifying Party, or if settled
without its consent (if its consent shall be unreasonably withheld), or if
there be a final, nonappealable judgment for an adversary party in any such
Proceeding, the Indemnifying Party shall indemnify and hold harmless the
Indemnified Parties from and against any liabilities incurred by such
Indemnified Parties by reason of such settlement or judgment.

(f) The indemnification rights and obligations provided
for in this Article VIII shall be in addition to any indemnification rights and
obligations provided for elsewhere in this Lease.

(g) The indemnification rights and obligations provided
for in this Article VIII shall survive the termination of this Agreement.

For purposes of this Section 8.3, all amounts for which any
Indemnified Party seeks information shall be computed net of (a) any actual
income tax benefit resulting therefrom to such Indemnified Party, (b) any
insurance proceeds received (net of tax effects) wit respect thereto, and (c)
any amounts recovered (net of tax effects) from any third parties based on
claims the Indemnified

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Party has against such third parties which reduce the damages that would
otherwise be sustained; provided that in all cases, the timing of the receipt
of realization of insurance proceeds or income tax benefits or recoveries from
third parties shall be taken into account in determining the amount of
reduction of damages. Each Indemnified Party agrees to use its reasonable
efforts to pursue, or assign to Lessee or Lessor, as the case may be, any
claims or rights it may have against any third party which would materially
reduce the amount of damages otherwise incurred by such Indemnified Party.

Notwithstanding anything to the contrary contained in this
Agreement, if Lessor shall become entitled to the possession of the Leased
Property by virtue of the termination of the Lease or repossession of the
Leased Property, then Lessor may assign its indemnification rights under
Section 8.3 of this Agreement (but not any other rights hereunder) to any
Person to whom the Lessor subsequently transfers the Leased Property, subject
to the following conditions and limitations, each of which shall be deemed to
be incorporated into the terms of such assignment, whether or not specifically
referred to therein:

(1) The indemnification rights referred to in
this section may be assigned only if a known Environmental
Liability then exists or if a Proceeding is then pending or,
to the knowledge of Lessee or Lessor, then threatened with
respect to the Leased Property;

(2) Such indemnification rights shall be limited
to Environmental Liabilities relating to or specifically
affecting the Leased Property; and

(3) Any assignment of such indemnification rights
shall be limited to the immediate transferee of Lessor, and
shall not extend to any such transferee's successors or
assigns.

ARTICLE IX

9.1 Maintenance and Repair. (a) Lessee, at its sole expense,
will keep the Leased Property and all private roadways, sidewalks and curbs
appurtenant thereto that are under Lessee's control, including windows and
plate glass, parking lots, mechanical, electrical and plumbing systems and
equipment (including conduit and ductware), and non-load bearing interior
walls, in good order and repair, except for ordinary wear and tear (whether or
not the need for such repairs occurred as a result of Lessee's use, any prior
use, the elements or the age of the Leased Property, or any portions thereof),
and, except as otherwise provided in Section 9.1(b), Article XIV or Article XV,
with reasonable promptness, make all necessary and appropriate repairs,

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replacements, and improvements thereto of every kind and nature, whether
interior or exterior ordinary or extraordinary, foreseen or unforseen or
arising by reason of a condition existing prior to the commencement of the Term
of this Lease (concealed or otherwise), or required by any governmental agency
having jurisdiction over the Leased Property, except as to the structural
elements of the Leased Improvements. Lessee, however, shall be permitted to
prosecute claims against Lessor's predecessor in title for breach of any
representation or warranty or for any latent defects in the Leased Property to
be maintained by Lessee unless Lessor is already diligently pursuing such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to
take any action, the taking or omission of which might materially impair the
value or the usefulness of there Leased Property or any part thereof for its
Primary Intended Use.

(b) Notwithstanding Lessee's obligations under Section
9.1(a) above, unless caused by Lessee's negligence or willful misconduct or
that of its employees or agents, Lessor shall be required to bear the cost of
painting (or repainting) the exterior of the Leased Property and maintaining
any underground utilities and the structural elements of the Leased
Improvements, including the roof of the Facility (but excluding windows and
plate glass, parking lots, mechanical, electrical and plumbing systems and
equipment, including conduit and ductware, and non-load bearing walls). Except
as set forth in the preceding sentence and in Article XL, Lessor shall not
under any circumstances be required to build or rebuild any improvement on the
Leased Property, or to make any repairs, replacements, alterations, restoration
or renewals of any nature or description to the Leased Property, whether
ordinary or extraordinary, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto, in connection with this Lease, or to maintain
the Leased Property in any way. Lessee hereby waives, to the extent permitted
by law, the right to make repairs at the expenses of Lessor pursuant to any law
in effect at the time of the execution of this Lease or hereafter enacted.
Lessor shall have the right to give, record and post, as appropriate, notices
of nonresponsibility under any mechanic's lien laws now or hereafter existing.

(c) Nothing contained in this Lease and no action or
inaction by Lessor shall be construed as (1) constituting the request of
Lessor, expressed or implied, to any contractor, subcontractor, laborer,
materialman or vendor to or for the performance of any labor or services or the
furnishing of any materials or other property for the construction, alteration,
addition, repair or demolition of or to the Leased Property or any part
thereof, or (2) giving Lessee any right, power or permission to contract for or
permit the performance of any labor or services or the furnishing of any
materials or other property in such fashion as would permit the making of any
claim against Lessor in

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<PAGE> 33
respect thereof or to make any agreement that may create, or in any way be the
basis for any right, title, interest, lien, claim or other encumbrance upon the
estate of Lessor in the Leased Property, or any portion thereof.

(d) Lessee will, upon the expiration or prior termination
of the Term, vacate and surrender the Leased Property to Lessor in the
condition in which the Leased Property was originally received from Lessor,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease and except for ordinary wear and tear
(subject to the obligation of Lessee to maintain the Leased Property in good
order and repair, as would a prudent owner, during the entire Term of the
Lease), or damage by casualty or Condemnation (subject to the obligations of
Lessee to restore or repair as set forth in the Lease).

9.2 Encroachments, Restrictions, Etc. If any of the Leased
Improvements, at any time, materially encroach upon any property, street or
right-of-way adjacent to the Leased Property, or violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or impair the rights of
others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor or at the behest of any
person affected by an such encroachment, violation or impairment, Lessee shall,
at its expense, subject to its right to contest the existence of any
encroachment, violation or impairment and in such case, in the event of an
adverse final determination, either (a) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Lessor or
Lessee or (b) make such changes in the Leased Improvements, and take such other
action, as Lessee in the good faith exercise of its judgment deems reasonably
practicable to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements for the
Primary Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation, impairment
or encroachment. Any such alteration shall be made in conformity with the
applicable requirements of Article X. Lessee's obligations under this Section
9.2 shall be in addition to and shall in no way discharge or diminish any
obligation of any insurer under any policy of title or other insurance held by
Lessor.

ARTICLE X

10.1 Alterations. Subject to the provisions hereinafter provided
for Lessor's consent, Lessee shall have the right to make

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<PAGE> 34
additions, modifications or improvements to the Leased Property from time to
time as Lessee, in its discretion, may deem to be desirable for its permitted
uses and purposes, provided that such action will not significantly alter the
character or purposes or significantly detract from the value or operating
efficiency thereof and will not significantly impair the revenue-producing
capability of the Leased Property or adversely affect the ability of the Lessee
to comply with the provisions of this Lease. The cost of such additions,
modifications or improvements to the Leased Property shall be paid by Lessee,
and all such additions, modifications and improvements shall, without payment
by Lessor at any time, be included under the terms of this Lease and upon
expiration or earlier termination of this Lease shall pass to and become the
property of Lessor.

Notwithstanding the foregoing, Lessee shall not make any additions,
modifications or improvements to the Leased Property without Lessor's prior
written consent if any such addition, modification or improvement involves
puncturing, relocating or removing the roof or any existing walls or the cost
thereof exceeds $10,000. If Lessor's consent is required, Lessee shall present
to Lessor, in written form, detailed plans for any such proposed addition,
modification or improvement, together with cost estimates and the name of the
contractor who will perform the work and the name of the architect, if any.
All consents by Lessor shall be deemed conditioned upon: (i) Lessee's acquiring
all applicable permits required by governmental authorities; (ii) the
furnishing of copies of such permits, together with a copy of the plans and
specifications to Lessor prior to commencement of work thereon and (iii) the
compliance by Lessee of all conditions of said permits in a prompt and
expeditious manner. Lessor, at its option, may require that a lien and
completion bond be furnished in an amount equal to 1-1/2 times the estimated
cost of the work. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to be furnished to or for Lessee at or for use
on the Leased Property, which claims are or may be secured by any mechanics' or
materialmen's lien against the Leased Property or any interest therein. Lessee
shall give Lessor not less than ten days notice prior to the commencement of
any work in, on, or about the Leased Property and Lessor shall have the right
to post notices of non-responsibility in or on the Leased Property, as provided
by law.

10.2 Salvage. All materials which are scrapped or removed
in connection with the making of repairs required by Articles IX or X shall be
or become the property of Lessor or Lessee depending on which party is paying
for or providing the financing for such work; provided, however, Lessee shall
not be entitled to retain any salvaged materials to the extent the value
thereof exceeds the cost of any repairs or replacements made by Lessee.

10.3 Joint Use Agreements. If Lessee constructs additional

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<PAGE> 35
improvements that are connected to the Leased Property or share maintenance
facilities, HVAC, electrical, plumbing or other systems, utilities, parking or
other amenities, the parties shall enter into a mutually agreeable
cross-easement or joint use agreement to make available necessary services and
facilities in connection with such additional improvements, to protect each of
their respective interests in the properties affected, and to provide for
separate ownership, use, and/or financing of such improvements.

ARTICLE XI

Liens. Subject to the provision of Article XII relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, included as exceptions in the title policy
insuring Lessor's interest in the Leased Property, (c) restrictions, liens and
other encumbrances which are consented to in writing by Lessor or any easements
granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for
those taxes upon Lessor which Lessee is not required to pay hereunder (e)
subleases permitted by Article XXV hereof, (f) liens for Impositions or for
sums resulting from noncompliance with Legal Requirements so long as (1) the
same are not yet payable or are payable without the addition of any fine or
penalty or (2) such liens are in the process of being contested as permitted by
Article XII, (g) liens of mechanics, laborers, materialmen, suppliers or
vendors for sums either disputed or not yet due provided that (1) the payment
of such sums shall not be postponed under any related contract for more than 60
days after the completion of the action giving rise to such lien and such
reserve or other appropriate provisions as shall be required by law or
generally accepted accounting principles shall have been made therefor or (2)
any such liens are in the process of being contested as permitted by Article
XII hereof, and (h) any liens which are the responsibility of Lessor pursuant
to the provisions of Article XXXIV of this Lease.

ARTICLE XII

Permitted Contests. Lessee shall have the right to contest the
amount or validity of any Imposition to be paid by Lessee or any Legal
Requirement or Insurance Requirement or any lien, attachment, levy,
encumbrance, charge or claim ("Claims") not otherwise permitted by Article XI,
by appropriate legal proceedings in good faith and with due diligence (but this
shall not be deemed or construed in any way to relieve, modify or extend
Lessee's covenants to pay or its covenants to cause to be paid any such charges
at the time and in the manner as in this Article provided),

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<PAGE> 36
on condition, however, that such legal proceedings shall not operate to relieve
Lessee from its obligations hereunder and shall not cause the sale or risk the
loss of the Leased Property, or any part thereof, or cause Lessor or Lessee to
be in default under any mortgage, deed of trust or security deed encumbering
the Leased Property or any interest therein. Upon the request of Lessor,
Lessee shall either (a) provide a bond or other assurance reasonably
satisfactory to Lessor that all Claim which may be assessed against the Leased
Property together with interest and penalties, if any, thereon will be paid, or
(b) deposit within the time otherwise required for payment with a bank or trust
company as trustee upon terms reasonably satisfactory to Lessor, as security
for the payment of such Claims, money in an amount sufficient to pay the same,
together with interest and penalties in connection therewith, as to all Claims
which may be assessed against or become a Claim on the Leased Property, or any
part thereof, in said legal proceedings. Lessee shall furnish Lessor and any
lender of Lessor with reasonable evidence of such deposit within five days of
the same. Lessor agrees to join in any such proceedings if the same be
required to legally prosecute such contest of the validity of such Claims;
provided however, that Lessor shall not thereby be subjected to any liability
for the payment of any costs or expenses in connection with any proceedings
brought by Lessee; and Lessee covenants to indemnify and save harmless Lessor
form any such costs or expenses. Lessee shall be entitled to any refund of any
Claims and such charges and penalties or interest thereon which have been paid
by Lessee or paid by Lessor and for which Lessor has been fully reimbursed. In
the event that Lessee fails to pay any Claims when due or to provide the
security thereof as provided in this paragraph and to diligently prosecute any
contest of the same, Lessor may, upon ten days advance Notice to Lessee, pay
such charges together with any interest and penalties and the same shall be
payable by Lessee to Lessor as Additional Charges at the next Payment Date
provided for in this Lease. Provided, however, that should Lessor reasonably
determine that the giving of such Notice would risk loss to the Leased Property
or cause damage to Lessor, then Lessor shall give such Notice as is practical
under the circumstances. Lessor reserves the right to contest any of the
Claims as its expense not pursued by Lessee. Lessor and Lessee agree to
cooperate in coordinating the contest of any claims.

ARTICLE XIII

13.1 General Insurance Requirements. During the Term of this
Lease, Lessor, as hereinafter provided in subparagraph (a) below, and Lessee,
as hereinafter provided in subparagraph (b) below, shall at all time keep the
Leased Property insured with the kinds and amounts of insurance described
below. This insurance shall be written by companies authorized to use
insurance in the State. The policies must name Lessor as the insured or as an
additional named insured, as the case may be. Losses shall be payable to
Lessor or Lessee as provided in this Lease. Any loss adjustment shall

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<PAGE> 37
require the written consent of Lessor and Lessee, each acting reasonably and in
good faith. Evidence of insurance shall be deposited with Lessor. The
policies on the Leased Property, including the Leased Improvements, Fixtures
and Lessee's Personal Property, shall include:

(a) Lessor shall obtain the following insurance and pay all
premiums associated therewith:

(1) Building insurance on the "Special From"
(formerly "All Risk" form)(including earthquake and flood in reasonable amounts
as determined by Lessor) in an amount not less than 100% of the then full
replacement cost thereof (as defined in Section 13.2) or such other amount
which is acceptable to Lessor, and personal property insurance on the "Special
Form" in the full amount of the replacement cost thereof;

(2) Insurance for loss or damage (direct and
indirect) from steam boilers, pressure vessels or similar apparatus, now or
hereafter installed in the Facility, in the minimum amount of $5,000,000 or in
such greater amounts as are then customary or as may be reasonably requested by
Lessor from time to time;

(3) Loss of income insurance on the "Special
Form", in the amount of one year Base Rent for the benefit of Lessor, and
unless otherwise agreed by the parties, without duplication, business
interruption insurance on the "Special Form" in the amount of one year's gross
revenues of the Facility for the benefit of Lessor and Lessee to the extent of
their respective interests in such revenues;

(4) Insurance covering such other hazards and in
such amounts as may be customary for comparable properties in the area of the
Leased Property and is available from insurance companies, insurance pools or
other appropriate companies authorized to do business in the State at rates
which are economically practicable in relation to the risks covered as may be
reasonably requested by Lessor;

(b) Lessee shall obtain the following insurance and, except
as hereinafter provided, pay all premiums associated therewith;

(1) Commercial general liability insurance, with
amounts not less than $10,000,000 covering each of the following: bodily
injury, death, or property damage liability per occurrence, personal and
advertising injury, general aggregate, products and completed operations, with
respect to Lessor, and "all risk legal liability" (including liquor law or
"dram shop" liability) with respect to Lessor and Lessee;

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(2) Fidelity bonds with limits and deductibles as
may be reasonably requested by Lessor, covering Lessee's employees in job
classifications normally bonded under prudent hotel management practices in the
United States or otherwise required by law;

(3) Workmen's compensation insurance to the
extent necessary to protect Lessor and the Leased Property against Lessee's
workman's compensation claims;

(4) Vehicle liability insurance for owned,
non-owned, and hired vehicles, in the amount of $1,000,000;

(5) Such other insurance as Lessor may reasonably
request for facilities such as the Leased Property and the operation thereof;
and

Lessee shall keep in force the foregoing insurance coverages
at its expense and any other "casualty" coverages required by Lessor.

13.2 Replacement Cost. The term "full replacement cost" as
used herein shall mean the actual replacement cost of the Leased Property
requiring replacement from time to time including an increased cost of
construction endorsement, if available, and the cost of debris removal. In the
event either party believes that full replacement cost (the then-replacement
cost less such exclusions) has increased or decreased at any time during the
Lease Term, it shall have the right to have such full replacement cost
re-determined.

13.3 Worker's Compensation. Lessee, at its sole cost, shall at
all times maintain adequate worker's compensation insurance coverage for all
persons employed by Lessee on the Leased Property. Such worker's compensation
insurance shall be in accordance with the requirements of applicable local,
state and federal law.

13.4 Waiver of Subrogation. All insurance policies carried by
Lessor or Lessee covering the Leased Property, the Fixtures, the Facility,
Lessee's Personal Property and Worker's Compensation, including, without
limitation, contents, fire and casualty insurance, shall expressly waive any
right of subrogation on the party of the insurer against the other party. The
parties hereto agree that their policies will include such waiver clause or
endorsement so long as the same are obtainable without extra cost, and in the
event of such an extra charge the other party, at its election, may pay the
same, but shall not be obligated to do so.

13.5 Form Satisfactory, etc. All of the policies of insurance
referred to in this Article XIII shall be written in a form, with deductibles
and by insurance companies satisfactory to Lessor.

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Subject to the right to reimbursement or credit specified in Section 13.1 (b),
Lessor and Lessee, in a timely manner, shall pay all of the premiums for the
insurance coverage provided for in this Article XIII in the manner provided in
Section 13.1 (a) and Section 13.1 (b), and the party responsible for obtaining
such insurance shall deliver such policies or certificates thereof to the other
party prior to their effective date (and, with respect to any renewal policy,
30 days prior to the expiration of the existing policy), and in the event of
the failure of the party responsible for obtaining any such insurance coverage
either to effect such insurance as herein called for or to pay the premiums
therefor, or to deliver such policies or certificates thereof to the other
party at the times required, such other party shall be entitled, but shall have
no obligation, to affect such insurance and pay the premiums therefor, and the
party responsible for obtaining any such insurance coverage shall reimburse
such other party for any premium or premiums paid by such other party for the
coverages required under Sections 13.1(a) and 13.1(b) upon written demand
therefor. Lessee's failure to repay the same within 30 days after Notice of
such failure from Lessor shall constitute an Event of Default within the
meaning of Section 16.1(a). Each insurer mentioned in this Article XIII shall
agree, by endorsement to the policy or policies issued by it, or by independent
instrument furnished to Lessor and Lessee, that it will give to Lessor and
Lessee 30 days' written notice before the policy or policies in question shall
be materially altered, allowed to expire or canceled.

13.6 Increase in Limits. If either Lessor or Lessee at any
time deems the limits of the personal injury or property damage under the
comprehensive public liability insurance then carried to be either excessive or
insufficient, Lessor or Lessee shall endeavor in good faith to agree on the
proper and reasonable limits for such insurance to be carried and such
insurance shall thereunder be carried with the limits thus agreed on until
further change pursuant to the provisions of this Section.

13.7 Blanket Policy. Notwithstanding anything to be contrary
contained in this Article XIII, Lessor or Lessee may bring the insurance
provided for herein to be obtained by Lessor or Lessee, as the case may be,
within the coverage of a so called blanket policy or policies of insurance
carried and maintained by Lessor or Lessee, as the case may be; provided,
however, that the coverage afforded by such policy or policies will not be
reduced or diminished or otherwise be different form that which would exist
under a separate policy meeting all other requirements of this Lease by reason
of the use of such blanket policy of insurance, and provided further that the
requirements of this Article XIII are otherwise satisfied.

13.8 No Separate Insurance. Lessee shall not on Lessee's own
initiative or pursuant to the request or requirement of any third party, take
out separate insurance concurrent in form or

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contributing in the event of loss with that required in this Article to be
furnished, or increase the amount of any then existing insurance by securing an
additional policy or additional policies, unless all parties have an insurable
interest in the subject matter of the insurance, including in all cases Lessor,
are included therein as additional insureds, and the loss is payable under such
additional separate insurance in the same manner as losses are payable under
this Lease. Lessee shall immediately notify Lessor that Lessee has obtained
any such separate insurance or of the increasing of any of the amounts of the
then existing insurance.

ARTICLE XIV

14.1 Insurance Proceeds. Subject to the provisions of Section
14.6, all proceeds payable by reason of any loss or damage to the Leased
Property, or any portion thereof, and insured under any policy of insurance
required by Article XIII of this Lease shall be paid to Lessor and held in
trust by Lessor in an interest-bearing account, shall be made available, if
applicable, for reconstruction or repair, as the case may be, of any damage to
or destruction of the Leased Property, or any portion thereof, and, if
applicable, shall be paid out by Lessor from time to time for the reasonable
costs of such reconstruction or repair upon satisfaction of reasonable terms
and conditions specified by Lessor. Any excess proceeds of insurance remaining
after the completion of the restoration or reconstruction of the Leased
Property shall be paid to Lessee. If neither Lessor nor Lessee is required or
elects to repair and restore, and the Lease is terminated without purchase by
Lessee as described in Section 14.2, all such insurance proceeds shall be
retained by Lessor. All salvage resulting from any risk covered by insurance
shall belong to Lessor.

14.2 Reconstruction in the Event of Damage or Destruction Covered
by Insurance.

(a) Except as provided in Section 14.6, if during the Term
the Leased Property is totally or partially destroyed by a risk covered by the
insurance described in Article XIII and the Facility thereby is rendered
Unsuitable for its Primary Intended Use, Lessee shall, at Lessee's option,
within 30 days after the occurrence of such event notify Lessor that Lessee has
elected to either (1) restore the Facility to substantially the same condition
as existed immediately before the damage or destruction and otherwise in
accordance with the terms of the Lease, or (2) offer to acquire the Leased
Property from Lessor for a purchase price equal to the Rejectable Offer Price
of the Leased Property. If Lessee elects to restore the Facility, it shall
proceed to do so in a prompt and diligent manner and the insurance proceeds
shall be paid out by Lessor from time to time for the reasonable costs of such
restoration upon satisfaction of reasonable terms and conditions, and any
excess proceeds remaining after such

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<PAGE> 41
restoration shall be paid to Lessor. If Lessee offers to acquire title to the
Leased Property and such offer is accepted by Lessor, Lessee shall receive the
insurance proceeds. If Lessee offers to acquire title to the Leased Property,
Lessor shall have a period of 60 days to accept Lessee's offer to purchase the
Leased Property. If Lessor does not accept the Lessee's offer, the Lease shall
terminate five days after the expiration of said 60 day period (or five days
after such earlier date as Lessor shall notify Lessee that it has rejected such
offer with respect to the Leased Property) without further liability hereunder
and Lessor shall be entitled to retain all insurance proceeds.

(b) Except as provided in Section 14.6, if during the
Term the Leased Property is partially destroyed by a risk covered by the
insurance described in Article XIII, but the Facility is not thereby rendered
Unsuitable for its Primary Use, Lessee shall restore in a prompt and diligent
manner the Facility to substantially the same condition as existed immediately
before the damage or destruction and otherwise in accordance with the terms of
the Lease. Such damage or destruction shall not terminate this Lease;
provided, however, that if Lessee cannot within a reasonable time obtain all
government approvals, including building permits, licenses and conditional use
permits, after diligent efforts to do so, to perform all required repair and
restoration work and to operate the Facility for its Primary Intended Use in
substantially the same manner as existed immediately prior to such damage or
destruction and otherwise in accordance with the terms of the Lease, Lessee may
offer to purchase the Leased Property for a purchase price equal to the
Rejectable Offer Price of the Leased Property determined without regard to such
damage or destruction. If Lessee makes such offer and Lessor does not accept
the same, Lessee shall withdraw such offer, in which event this Lease shall
remain in full force and effect and Lessee shall immediately proceed to restore
the Facility to substantially the same condition as existed immediately before
such damage or destruction and otherwise in accordance with the terms of the
Lease. If Lessee restores the Facility, the insurance proceeds shall be paid
out by Lessor form time to time for the reasonable costs of such restoration
upon satisfaction of reasonable terms and conditions specified by Lessor, and
any excess proceeds remaining after such restoration shall be paid to Lessor.

(c) If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessor from the insurance required under Article
XIII, Lessee shall be obligated to contribute any excess amounts needed to
restore the Facility prior to commencing work thereon. Such difference shall
be paid by Lessee to Lessor to be held in trust, together with any other
insurance proceeds, for application to the cost of repair and restoration.

(d) If Lessor accepts Lessee's offer to purchase the
Leased Property under this Article, this Lease shall terminate as

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to the Leased Property upon payment of the purchase price, and Lessor shall
remit to Lessee all insurance proceeds pertaining to the Leased Property being
held in trust by Lessor.

14.3. Reconstruction in the Event of Damages or
Destruction Not Covered by Insurance. Except as provided in
Section 14.6, if during the Term the Facility is totally or materially
destroyed by a risk not covered by the insurance described in Article XIII,
whether or not such damages or destruction renders the Facility Unsuitable for
its Primary Intended Use, Lessee at its option, within 30 days after the
occurrence of such event, shall notify Lessor that Lessee has elected to either
(a) restore the Facility to substantially the same condition it was in
immediately before such damage or destruction and such damage or destruction
shall not terminate this Lease which Lessee shall proceed to do in a prompt and
diligent manner, or (b) terminate this Lease with respect to the Leased
Property, in which event the Lease shall terminate five days after the date of
such notice without further penalty hereunder. If such damage or destruction
is not material, Lessee shall restore the Facility to substantially the same
condition as existed immediately before the damage or destruction and otherwise
in accordance with the terms of the Lease, which Lessee shall proceed to do in
a prompt and diligent manner.

14.4 Lessee's Property. All insurance proceeds payable by reason
of any loss of or damage to any of Lessee's Personal Property shall be paid to
Lessee; provided however, no such payments shall diminish or reduce the
insurance payments otherwise payable to or for the benefit of Lessor hereunder.

14.5 Abatement of Rent. Any damage or destruction due to casualty
notwithstanding, this Lease shall remain in full force and effect and Lessee's
obligation to make rental payments and to pay all other charges required by
this Lease shall remain unabated during the first six months of any period
required for the applicable repair and restoration. Thereafter Base Rent shall
be equitably abated.

14.6 Damage Near End of Term. Notwithstanding any provisions of
Section 14.2 or 14.3 appearing to the contrary, if damage to or destruction of
the Facility renders it unsuitable for its Primary Intended Use occurs during
the last 12 months of the Term, the Lessee shall have the right to terminate
the Lease by giving written notice to Lessor within 30 days after the
occurrence of such event, whereupon all secured Rent shall be paid immediately,
and this Lease shall automatically terminate five days after the date of such
notice.

14.7 Waiver. Lessee hereby waives any statutory rights of
termination that ma arise by reason of any damage or destruction of the
Facility that Lessor is obligated to restore or may restore

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under any of the provisions of this Lease.

ARTICLE XV

15.1 Definitions.

(a) "Condemnation" means a Taking resulting from (a) the
exercise of any governmental power, whether by legal proceedings or otherwise,
by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any
Condemnor, either under threat of condemnation or while legal proceeds for
condemnation are pending.

(b) "Date of Taking" means the date the Condemnor has the
right to possession of the property being condemned.

(c) "Award" means all compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation.

(d) "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having the power of
Condemnation.

15.2 Parties' Rights and Obligations. If during the Term there is
any Condemnation of all or any part of the Leased Property or any interest in
this Lease, the rights and obligations of Lessor and Lessee shall be determined
by this Article XV.

15.3 Total Taking. If title to the fee of the whole of the Leased
Property is condemned by any Condemnor, subject to the provisions of Section
15.7, this Lease shall cease and terminate as the Date of Taking by the
Condemnor. If title to the fee of less than the whole of the Leased Property
is so taken or condemned, which nevertheless renders the Leased Property
Unsuitable or Uneconomic for its Primary Intended Use, Lessee and Lessor shall
each have the option, by notice to the other, at any time prior to the Date of
Taking, to terminate this Lease as of the Date of Taking. Upon such date, if
such Notice has been given, this Lease shall thereupon cease and terminate.
All Base Rent, Percentage Rent and Additional Charges paid or payable by Lessee
hereunder shall be apportioned as of the Date of Taking, and Lessee shall
promptly pay Lessor such amounts. In the event of any such termination, the
provisions of Section 15.7 shall apply.

15.4 Allocation of Award. The total Award made with respect to the
Leased Property or for loss of rent, or for Lessor's loss of business beyond
the Term, shall be solely the property of and payable to Lessor. Any Award
made for loss of business during the remaining Term, if any, for the taking of
Lessee's Personal Property, or for removal and relocation expenses of Lessee in
any such proceedings shall be the sole property of and payable to Lessee. In
any Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective

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expense; provided, however, Lessee shall not initiate, prosecute or acquiesce
in any proceedings that may result in a diminution of any Award payable to
Lessor.

15.5 Partial Taking. If title to less than the whole of the Leased
Property is condemned, and the Leased Property is not Unsuitable for its
Primary Intended Use, and not Uneconomic for its Primary Intended Use, or if
Lessee or Lessor is entitled but neither elects to terminate this Lease as
provided in Section 15.3, Lessee at its cost shall with all reasonable dispatch
restore the untaken portion of any Leased Improvements so that such Leased
Improvements constitute a complete architectural unit of the same general
character and condition (as nearly as may be possible under the circumstances)
as the Leased Improvements existing immediately prior to the Condemnation.
Lessor shall contribute to the cost of restoration that part of its Award
specifically allocated to such restoration, if any, together with severance and
other damages awarded for the taken Leased Improvements; provided, however,
that the amount of such contribution shall not exceed such cost.

15.6 Temporary Taking. If the whole or any part of the Leased
Property or of Lessee's interest under this Lease is condemned by any Condemnor
for its temporary use or occupancy, the Lease shall not terminate by reason
thereof, and Lessee shall continue to pay, in the manner and at the terms
herein specified, the full amount of Base Rent and Additional Charges. In
addition, Lessee shall pay Percentage Rent at a rate equal to the average
Percentage Rent during the last three preceding Fiscal Years (or if three
Fiscal Years shall not have elapsed, the average during the preceding Fiscal
Years). Except only to the extend that Lessee may be prevented from so doing
pursuant to the terms of the order of the Condemnor, Lessee shall continue to
perform and observe all of the other terms, covenants, conditions and
obligations hereof on the part of the Lessee to be performed and observed, as
though such Condemnation had not occurred. In the event of any Condemnation as
in this Section 15.6 described, the entire amount of any Award made for such
Condemnation allocable to the Term of this Lease, whether paid by way of
damages, rent or otherwise, shall be paid to Lessee. Lessee covenants that
upon the termination of any such period of temporary use or occupancy it will,
at its sole cost and expense (subject to Lessor's contribution as set forth
below), promptly restore the Leased Property as nearly as may be reasonably
possible to the condition in which the same was immediately prior to such
Condemnation, unless such period of temporary use or occupancy extends beyond
the expiration of the Term, in which case Lessee shall not be required to make
such restoration. If restoration is required hereunder, Lessor shall
contribute to the cost of such restoration that portion of its entire Award
that is specifically allocated to such restoration in the judgment or order of
the court, if any, and Lessee shall fund the balance of such costs in advance
of restoration in a manner reasonably satisfactory to Lessor.

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Notwithstanding the foregoing, if the temporary taking is to be for a
period of more than 30 days pursuant to the terms of the order providing
therefor, Lessee, upon 30 days prior written notice to Lessor given at any time
on or after the Date of Taking by the Condemnor in connection with such
temporary taking, may terminate this Lease if the temporary taking renders the
hotel Uneconomic or Unsuitable for its Primary Intended Purpose.

15.7 Lessee's Offer. In the event of the termination of this Lease
as provided in Section 15.3, Lessee shall offer to acquire the Leased Property
without regard to such taking and, if accepted, Lessee shall receive the entire
Award. If Lessor does not accept Lessee's offer to purchase the Leased
Property, Lessee shall withdraw its offer to purchase the Leased Property and,
if so withdrawn, Lessee may terminate the Lease with respect to the Leased
Property without further liability hereunder, except for payment of Rent as
provided in the penultimate sentence of Section 15.3 or for matters which by
their express terms survive termination of this Lease, and Lessor shall be
entitled to retain the Award except as provided in Section 15.4.

ARTICLE XVI

16.1 Events of Default. If any one or more of the following events
individually, an "Event of Default") occurs:

(a) if Lessee fails to make payment of the Base Rent when
the same becomes due and payable for a period of ten days after receipt by the
Lessee of Notice form the Lessor thereof;

(b) if Lessee fails to make payment of annual Percentage
Rent when the same becomes due and payable and such condition continues for a
period of 90 days after the end of the applicable Fiscal Year;

(c) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of 30 days after receipt by the Lessee of Notice thereof from
Lessor, unless such failure cannot with due diligence be cured within a period
of 30 days, in which case it shall not be deemed an Event of Default if Lessee
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof provided, however, in no event shall such cure
period extend beyond 90 days after such Notice; or

(d) if the Lessee shall file a petition in bankruptcy or
reorganization for an arrangement pursuant to any federal or state bankruptcy
law or any similar federal or state law, or shall be adjudicated a bankrupt or
shall make an assignment for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a petition
or answer proposing the adjudication of the Lessee as a bankrupt or its

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<PAGE> 46
reorganization pursuant to any federal or state bankruptcy law or any similar
federal or state law shall be filed in any court and the Lessee shall be
adjudicated a bankrupt and such adjudication shall not be vacated or set aside
or stayed within 60 days after the entry of an order in respect thereof, or if
a receiver of the Lessee or the whole or substantially all of the assets of the
Lessee shall be appointed in any proceeding brought by the Lessee or if any
such receiver, trustee or liquidator shall be appointed in any proceeding
brought against the Lessee and shall not be vacated or set aside or stayed
within 60 days after such anointment; or

(e) if Lessee is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or, in any manner, permits
the sale or divestiture of substantially all of its assets; or

(f) if the estate or interest of Lessee in the Leased
Property or any part thereof is voluntarily or involuntarily transferred,
assigned, conveyed, levied upon or attached in any proceeding (unless Lessee is
contesting such lien or attachment in good faith in accordance with Article XII
hereof); or

(g) if, except as a result of damage, destruction or
partial or complete Condemnation, Lessee voluntarily causes operations on the
Leased Property for a period in excess of 30 days; or

(h) if an event of default has been declared by the
franchisor under the Franchise Agreement with respect to the Facility on the
Leased Property as a result of any action or failure to act by the Lessee or
any Person with whom the Lessee contracts for management services at the
Facility;

then, and in any such event, Lessor may exercise one or more
remedies available to it herein or at law or in equity, including but not
limited to its right to terminate the Lease by giving Lessee not less than ten
days' Notice of such termination.

If litigation is commenced with respect to any alleged default
under this Lease, the prevailing party in such litigation shall receive, in
addition to its damages incurred, such sum as the court shall determine as its
reasonable attorneys' fees, and all costs and expenses incurred in connection
therewith.

No Event of Default (other than a failure to make a payment of
money) shall be deemed to exist under clause (c) during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Lessee remedies such default or Event of Default
without further delay.

16.2 Surrender. If an Event of Default occurs (and the event

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giving rise to such Event of Default has not been cured within the curative
period relating thereto as set forth in Section 16.1) and is continuing,
whether or not this Lease has been terminated pursuant to Section 16.1, Lessee
shall, if requested by Lessor so to do, immediately surrender to Lessor the
Leased Property including, without limitation, any and all books, records,
files, licenses, permits and keys relating thereto, and quit the same and
lessor may enter upon and repossess the Leased Property by reasonable force,
summary proceedings, ejectment or otherwise, and may remove Lessee and all
other persons and any and all personal property from the Leased Property,
subject to rights of any hotel guests and to any requirement of law. Lessee
hereby waives any and all requirements of applicable laws for service of notice
to re-enter the Leased Property. Lessor shall be under no obligation to, but
may if it so chooses, relet the Leased Property or otherwise mitigate Lessor's
damages.

16.3 Damages. Neither (a) the termination of this Lease, (b) the
repossession of the Leased Property, (c) the failure of Lessor to relet the
Leased Property, nor (d) the reletting of all or any portion thereof, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Lessee shall forthwith pay to Lessor all Rent due and payable
with respect to the Leased Property to and including the date of such
termination.

Lessee shall forthwith pay to Lessor, at Lessor's option, as
and for liquidated and agreed current damages for Lessee's default, either:

(1) Without termination of Lessee's right to possession
of the Lease Property, each installment of Rent and other sums payable by
Lessee to Lessor under the Lease as the same becomes due and payable, which
Rent and other sums shall bear interest at the Overdue Rate, and Lessor may
enforce, by action or otherwise, any other term or covenant of this Lease; or

(2) the sum of:
(A) the unpaid Rent which had been earned at
the time of termination, repossession or reletting, and

(B) the worth at the time of termination,
repossession or reletting of the amount by which the unpaid
Rent for the balance of the Term after the time of
termination, repossession or reletting, exceeds the amount of
such rental loss that Lessee proves could be reasonably
avoided, and

(C) any other amount necessary to compensate
Lessor for all the detriment proximately caused by Lessee's
failure to perform its obligations under this Lease or

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which in the ordinary course of things, would be likely to
result therefrom. The worth at the time of termination,
repossession or reletting of the amount referred to in
subparagraph (B) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of New York at the
time of award plus 1%.

Percentage Rent for the purposes of this Section 16.3 shall be a sum equal to
(i) the average of the annual amounts of the Percentage Rent for the three
Fiscal Years immediately preceding the Fiscal Year in which the termination,
re-entry or repossession takes place, or (ii) if three Fiscal Years shall not
have elapsed, the average of the Percentage Rent during the preceding Fiscal
Years during which the Lease was in effect, or (iii) if one Fiscal Year has not
elapsed, the amount derived by annualizing the Percentage Rent from the
effective date of this Lease.

16.4 Waiver. If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (a) any right to a
trial by jury in the event of summary proceedings to enforce the remedies set
forth in this Article XVI, and (b) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt and Lessor waives
any right to "pierce the corporate vail" of Lessee other than to the extent
funds shall have been inappropriately paid any Affiliate of Lessee following a
default resulting in an Event of Default.

16.5 Application of Funds. Any payments received by Lessor under any
of the provisions of this Lease during the existence or continuance of any
Event of Default shall be applied to Lessee's obligations in the order that
Lessor may determine or as may be prescribed by the laws of the State.

ARTICLE XVII

Lessor's Right to Cure Lessee's Default. If Lessee fails to make
any payment or to perform any act required to be made or performed under this
Lease including, without limitation, Lessee's failure to comply with the terms
of any Franchise Agreement, and fails to cure the same within the relevant time
periods provided in Section 16.1, Lessor, without waiving or releasing any
obligation of Lessee, and without waiving or releasing any obligation or
default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Lessee,
and may, to the extent permitted by law, enter upon the Leased Property for
such purpose and, subject to section 16.4, take all such action thereon as, in
Lessor's opinion, may be necessary or appropriate therefor. No such entry
shall be deemed an eviction of Lessee. All sums so paid by Lessor and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses, in each case to the extent

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permitted by law) so incurred, together with a late charge thereon (to the
extent permitted by law) at the Overdue Rate from the date on which such sums
or expenses are paid or incurred by Lessors, shall be paid by Lessee to Lessor
on demand. The obligations of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier termination of this Lease.

ARTICLE XVIII

Provisions Relating to Purchase of the Leased Property. If Lessee
purchases the Leased Property from Lessor pursuant to any of the terms of this
Lease, Lessor shall, upon receipt from Lessee of the applicable purchase price,
together with full payment of any unpaid Rent due and payable with respect to
any period ending on or before the date of the purchase, deliver to Lessee an
appropriate limited or special warranty deed or other conveyance conveying the
entire interest of Lessor in and to the Leased Property to Lessee free and
clear of all encumbrances other than (a) those that Lessee has agreed hereunder
to pay or discharge, (b) those mortgage liens, if any, that Lessee has agreed
in writing to accept and to take title subject to, (c) those liens and
encumbrances subject to which the Leased Property was conveyed to Lessor, (d)
encumbrances, easements, licenses or rights of way required to be imposed on
the Leased Property under Section 7.3, and (e) any other encumbrances permitted
to be imposed on the Leased Property under the provisions of Section XXXIV that
are assumable at no cost to Lessee or to which Lessee may take subject without
cost to Lessee. The difference between the applicable purchase price and the
total of the encumbrances assumed or taken subject tot shall be paid in cash to
Lessor or as Lessor may direct. in federal or other immediately available
funds, except as otherwise mutually agreed by Lessor and Lessee. All expenses
of such conveyance, including, without limitation the cost of title examination
or title insurance, if desired by Lessee, Lessee's attorneys' fees incurred in
connection with such conveyance and release, and transfer taxes and recording
fees, shall be paid by Lessee. Lessor shall pay its attorney's fees.

ARTICLE XIX

19.1 Personal Property Limitation. Anything contained in this Lease
to the contrary notwithstanding, the average of the adjusted tax bases of the
items of personal property that are leased to the Lessee under this Lease at
the beginning and at the end of any Fiscal Year shall not exceed 15% of the
average of the aggregate adjusted tax bases of the Leased Property at the
beginning and at the end of such Fiscal Year. This Section 19.1 is intended to
ensure that the Rent qualifies as "rents from real property," within the
meaning of Section 856(d) of the Code, or any similar or successor provisions
thereto, and shall be interpreted in a manner consistent with such intent.

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19.2 Sublease Rent Limitation. Anything contained in this Lease to
the contrary notwithstanding, Lessee shall not sublet the Leased Property on
any basis such that the rental to be paid by the sublessee thereunder would be
based, in whole or in part, on either (a) the income or profits derived by the
business activities of the sublessee, or (b) any other formula such that any
portion of the Rent would fail to qualify as "rents from real property" within
the meaning of Section 856(d) of the Code, or any similar or successor
provision thereto.

19.3 Sublease Tenant Limitation. Anything contained in this Lease
to the contrary notwithstanding, Lessee shall not sublease the Leased Property
to any Person in which Glenborough Realty Trust Incorporated owns, directly or
indirectly, a 10% or more interest, within the meaning of Section 856(d)(2)(B)
of the Code, or any similar or successor provisions thereto.

19.4 Lessee Ownership Limitation. Anything contained in this Lease
to the contrary notwithstanding, neither Lessee or an Affiliate of the Lessee
shall acquire, directly or indirectly, a 10% or more interest in Glenborough
Realty Trust Incorporated, within the meaning of Section 856(d)(2)(B) of the
Code, or any similar or successor provision thereto.

19.5 Lessee Officer and Employee Limitation. Anything contained in
this Lease to the contrary notwithstanding, except with the prior written
approval of Glenborough Realty Trust Incorporated, none of the officers or
employees of the Lessee (or any Person who furnishes or renders services to the
tenants of the Leased Property, or manages or operates the Lease Property)
shall be officers or employees to Glenborough Realty Trust Incorporated (or any
Person who serves as an advisor of Glenborough Realty Trust Incorporated). In
addition, if a Person serves as both (a) a director of the Lessee (or any
Person who furnishes or renders services to the tenants of the Leased Property,
or manages or operates the Leased Property) and (b) a director and officer (or
employee) of Glenborough Realty Trust Incorporated (or any Person who serves as
an advisor of Glenborough Realty Trust Incorporated) that Person shall not
receive any compensation for serving as a director of the Lessee (or any Person
who furnishes or renders services to the tenants of the Leased Property, or
manages or operates the Leased Property).

19.6 Payments to Affiliates of Lessee. During the term, Lessee shall
not pay any fees to any Affiliate of Lessee in connection with the Facility.

ARTICLE XX

Holding Over. If Lessee for any reason remains in possession of the
Leased Property after the expiration or earlier termination

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of the Term, such possession shall be as a tenant at sufferance during which
time Lessee shall pay as rental each month two times the aggregate of (a)
one-twelfth of the aggregate Base Rent and Percentage Rent payable with respect
to the last Fiscal Year of the Term, (b) all Additional Charges accruing during
the applicable month and (c) all other sums, if any, payable by Lessee under
this Lease with respect to the Leased Property. During such period, Lessee
shall be obligated to perform and observe all of the terms, covenants and
conditions of this Lease, but shall have no rights hereunder other than the
right, to the extent given by law to tenancies of sufferance, to continue its
occupancy and use of the Leased Property. Nothing contained herein shall
constitute the consent, express or implied, of Lessor to the holding over of
Lessee after the expiration or earlier termination of this Lease.

ARTICLE XXI

Risk of Loss. During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property in consequence of the
damage or destruction thereof by fire, the elements, casualties, theft, riots,
wars or otherwise, or in consequence of foreclosure, attachments, levies or
executions (other than those caused by Lessor and those claiming from, through
to under Lessor) is assumed by Lessee, and, in the absence of gross negligence,
willful misconduct or breach of this Lease by Lessor pursuant to Section 34.3,
Lessor shall in no event be answerable or accountable therefor, nor shall any
of the events mentioned in this Section entitle Lessee to any abatement of Rent
except as specifically provided in this Lease.

ARTICLE XXII

22.1 Indemnification. Notwithstanding the existence of any
insurance, and without regard to the policy limits of any such insurance or
self-insurance, but subject to Section 16.4 and Article VIII, Lessee will
protect, indemnify, hold harmless and defend Lessor from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses), to the extent permitted by law, imposed upon or incurred by or
asserted against Lessor Indemnified Parties by reason of: (a) any accident,
injury to or death of persons or loss of or damage to property occurring on or
about the Leased Property or adjoining sidewalks, including without limitation
any claims under liquor liability, "dram shop" or similar laws, (b) any past,
present or future use, misuse, non-use, condition, management, maintenance or
repair by Lessee or any of its agents, employees or invitees of the Leased
Property or Lessee's Personal Property or any litigation, proceeding or claim
by governmental entities or other third parties to which a Lessor Indemnified
Party is made a

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party or participant related to such use, misuse, non-use, condition,
management, maintenance, or repair thereof by Lessee or any of its agents
employees or invitees, including any failure of Lessee or any of its agents,
employees or invitees to perform any obligations under this Lease or imposed by
applicable law (other than arising out of Condemnation proceedings), (c) any
Impositions that are the obligations of Lessee pursuant to the applicable
provisions of this Lese, (d) any failure on the part of Lessee to perform or
comply with any of the terms of this Lease, and (e) the non-performance of any
of the terms and provisions of any and all existing and future subleases of the
Leased Property to be performed by the landlord thereunder.

Lessor shall indemnify, save harmless and defend Lessee Indemnified
Parties from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses imposed upon or incurred by or
asserted against Lessee Indemnified Parties as a result of (a) the gross
negligence or willful misconduct of Lessor arising in connection with this
Lease or (b) any failure on the pat of Lessor to perform or comply with any of
the terms of this Lease.

Any amounts that become payable by an Indemnifying Party under this
Section shall be paid within ten days after liability therefor on the pat of
the Indemnifying Party is determined by litigation or otherwise, and if not
timely paid, shall bear a late charge (to the extent permitted by law) at the
Overdue Rate from the date of such determination to the date of Payment. An
Indemnifying Party, at its expenses, shall contest, resist and defend any such
claim, action or proceeding asserted or instituted against the Indemnified
Party. The Indemnified Party, at its expense, shall be entitled to participate
in any such claim, action, or proceeding, and the Indemnifying Party may not
compromise or otherwise dispose of the same without the consent of the
Indemnified Party, which may not be unreasonably withheld. Nothing herein
shall be construed as indemnifying a Lessor Indemnified Party against its own
grossly negligent acts or omissions or wilful misconduct.

Lessee's or Lessor's liability for a breach of the provisions of this
Article shall survive any termination of this Lease.

ARTICLE XXIII

23.1 Subletting and Assignment. Subject to the provision of
Article XIX and Section 23.2 and any other express conditions or limitation set
forth herein, Lessee may, but only with the consent of Lessor, (a) assign this
Lease or sublet all or any part of the Leased Property to an Affiliate of
Lessee, or (b) sublet any retail or restaurant portion of the Leased
Improvements in the normal course of the Primary Intended Use; provided that
any subletting shall not individually as to any one such subletting, or in the
aggregate, materially diminish the actual or potential Percentage

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Rent payable under this Lease. In the case of subletting, the sublessee shall
comply with the provisions of Section 23.2, and in the case of an assignment,
the assignee shall assume in writing and agree to keep and perform all of the
terms of this Lease on the part of Lessee to be kept and performed and shall
be, and become, jointly and severally liable with Lessee for the performance
thereof. Notwithstanding the above, Lessee may assign the Lease to an
Affiliate without the consent of Lessor; provided that any such assignee
assumes in writing and agrees to keep and perform all of the terms of the Lease
on the part of Lessee to be kept and performed and shall be and become jointly
and severally liable with Lessee for the performance thereof. In case of
either an assignment or subletting made during the Term, Lessee shall remain
primarily liable, as principal rather than as surety, for the prompt payment of
the Rent and for the performance and observance of all of the covenants and
conditions to be performed by Lessee hereunder. An original counterpart of
each such sublease and assignment and assumption, duly executed by Lessee and
such sublessee or assignee, as the case may be, in form and substance
satisfactory to Lessor, shall be delivered promptly to Lessor.

23.2 Attornment. Lessee shall insert in each sublease permitted
under Section 23.1 provisions to the effect that (a) such sublease is subject
and subordinate to all of the terms and provisions of this Lease and to the
rights of Lessor hereunder,, (b) if this Lease terminates before the
expiration of such sublease, the sublessee thereunder will, at Lessor's option,
attorn to Lessor and waive any right the sublessee may have to terminate the
sublease or to surrender possession thereunder as a result of the termination
of this Lease, and (c) if the sublessee receives a written Notice from Lessor
or Lessor's assignees, if any, stating that an uncured Event of Default exists
under this Lease, the sublessee shall thereafter be obligated to pay all
rentals accruing under said sublease directly to the party giving such Notice,
or as such party may direct. All rentals received from the sublessee by Lessor
or Lessor's assignees, if any, as the case may be, shall be credited against
the amounts owing by Lessee under this Lease.

ARTICLE XXIV

Officer's Certificates; Financial Statements;
Lessor's Estoppel Certificates and Covenants.

(a) At any time and from time to time upon not less than 20 days
Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, whether to the
knowledge of Lessee any existing default or Event of Default exists thereunder
by Lessor or Lessee, and such other information as may be reasonably requested

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by Lessor. Any such certificate furnished pursuant to this Section may be
relied upon by Lessor, any lender and any prospective purchaser of the Leased
Property.

(b) Lessee will furnish the following statements to
Lessor:

(1) with reasonable promptness, such
information respecting the financial condition and
affairs of Lessee including audited financial
statements prepared by the sums certified independent
accounting firm that prepares the returns for Lessor
or such other accounting firm as may be approved by
Lessor, as Lessor may reasonably request from time to
time; and

(2) the most recent Consolidated
Financials of Lessee within 45 days after each
quarter of any Fiscal Year (or, in the case of the
final quarter in any Fiscal Year, the most recent
audited Consolidated Financials of Lessee within 90
days); and

(3) on or about the 15th day of each
month, a detailed profit and loss statement for the
Leased Property for the preceding month, a balance
sheet for the Leased Property as of the end of the
preceding month, and a detailed accounting of
revenues for the Leased Property for the preceding
month, each in form acceptable to Lessor.

(c) At any time and from time to time upon not less than
20 days notice by Lessee, Lessor will furnish to Lessee or to any person
designated by Lessee an estoppel certificate certifying that this Lease is
unmodified and in full force and effect (or that this Lease is in full force
and effect as modified and setting forth the modifications), the date to which
Rent has been paid, whether to the knowledge of Lessor there is any existing
default or Event of Default on Lessee's part hereunder, and such other
information as may be reasonably requested by Lessee.

(d) Lessee covenants that during the Term it will
maintain a ratio of recourse debt-to-Consolidated Net Worth of 50% or less,
exclusive of capitalized leases.

ARTICLE XXV

Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized representatives as frequently as reasonably requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining
thereto and make copies thereof, during usual

49
<PAGE> 55
business hours upon reasonable advance notice, subject only to any business
confidentiality requirements reasonably requested by Lessee.

ARTICLE XXVI

No Waiver. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.

ARTICLE XXVII

Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.

ARTICLE XXVIII

Acceptance of Surrender. No surrender to Lessor of this Lease or of
the Leased Property or any part thereof, or of any interest therein, shall be
valid or effective unless agreed to and accepted in writing by Lessor and no
act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.

ARTICLE XXIX

No Merger of Title. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person or
entity may acquire, own or hold directly or indirectly (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.

ARTICLE XXX

Conveyance by Lessor. If Lessor or any successor owner of the

50
<PAGE> 56
Leased Property conveys the Lease Property in accordance with the terms hereof
other than as security for a debt, and the grantee or transferee of the Lease
Property expressly assumes all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer, Lessor or such
successor owner, as the case may be, shall thereupon be released from all
future liabilities and obligations of Lessor under this Lease arising or
accruing from and after the date of such conveyance or other transfer as to the
Leased Property and all such future liabilities and obligations shall thereupon
be binding upon the new owner.

ARTICLE XXXI

Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes
due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace periods, if
any, Lessee shall peaceably and quietly have, hold and enjoy the Lease Property
for the Term hereof, free of any claim or other action by Lessor or anyone
claiming by, through or under Lessor, but subject to all liens and encumbrances
subject to which the Leased Property was conveyed to Lessor hereafter consented
to by Lessee or provided for herein. Notwithstanding the foregoing, Lessee
shall have the right by separate and independent action to pursue any claim it
may have against Lessor as a result of breach by Lessor of the covenant of
quiet enjoyment contained in this Section.

ARTICLE XXXII

Notices. All notices, demands, requests, consents approvals and other
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served or mailed (by registered or certified mail, return receipt
requested and postage prepaid), addressed to Lessor in care of Glenborough
Realty Trust Incorporated, at its principal office, Attention: President, and
addressed to Lessee as set forth in this Lease, or to such other address or
addresses as either party may hereafter designate. Personally delivered Notice
shall be effective upon receipt, and Notice given by mail shall be complete at
the time of deposit in the U.S. Mail system, but any prescribed period of
Notice and any right or duty to do any act or make any responses within any
prescribed period or on a date certain after the service of such Notice given
by mail shall be extended five days.

ARTICLE XXXIII

Appraisers. If it becomes necessary to determine the Fair Market
Value or Fair Market Rent of the Leased Property for any purpose of this Lease,
the party required or permitted to give

51
<PAGE> 57
Notice of such required determination shall include in the Notice the name of a
person selected to act as appraiser on its behalf. Within 10 days after
Notice, Lessor (or Lessee, as the case may be) shall by Notice to Lessee (or
Lessor, as the case may be) appoint a second person as appraiser on its behalf.
The appraisers thus appointed, each of whom must be a member of the American
Institute of Real Estate Appraisers (or any successor organization thereto)
with at least five years experience in the State appraising property similar to
the Leased Property, shall, within 45 days after the date of the Notice
appointing the first appraiser, proceed to appraise the Leased Property to
determine the Fair Market Value or Fair Market Rent thereof as of the relevant
date (giving effect to the impact, if any, of inflation from the date of their
decision to relevant date); provided, however, that if only one appraiser shall
have been so appointed, then the determination of such appraiser shall be final
and binding upon the parties. To the extent consistent with sound appraisal
practice as then existing at the time of any such appraisal such appraisal
shall be made on a basis consistent with the basis on which the Leased Property
was appraised for purposes of determining its Fair Market Value at the time the
Leased Property was acquired by Lessor. If two appraisers are appointed and if
the difference between the amounts so determined does not exceed 5% of the
lesser of such amounts, then the Fair Market Value or Fair Market Rent shall be
an amount equal to 50% of the sum of the amounts so determined. If the
difference between the amounts so determined exceeds 5% of the lesser of such
amounts, then such two appraiser shall have 20 days to appoint a third
appraiser. If no such appraiser shall have been appointed within such 20 days
or within 90 days of the original request for determination of Fair Market
Value or Fair Market Rent, whichever is earlier, either Lessor or Lessee may
apply to any court having jurisdiction to have such appointment made by such
court. Any appraiser appointed by the original appraisers or by such court
shall be instructed to determine the Fair Market Value or Fair Market Rent
within 45 days after appointment of such appraiser. The determination of the
appraiser which differs most in the terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and 50% of the
sum of the remaining two determinations shall be final and binding upon Lessor
and Lessee as the Fair Market Value or Fair Market Rent of the Leased Property,
as the case may be. This provision for determining by appraisal shall be
specifically enforceable to the extent such remedy is available under
applicable law, and any determination hereunder shall be final and binding upon
the parties except as otherwise provided by applicable law. Lessor and Lessee
shall each pay the fees and expenses of the appraiser appointed by it and each
shall pay one-half of the fees and expenses of the third appraiser and one-half
of all other costs and expenses incurred in connection with each appraisal.

52
<PAGE> 58

ARTICLE XXXIV

34.1 Lessor May Grant Liens. Without the consent of Lessee, Lessor
may, subject to the terms and conditions set forth below in this Section 34.1,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement ("Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing. Any such Encumbrance
shall (a) contain the right to prepay (whether or not subject to a prepayment
penalty); (b) provide that it is subject to the rights of Lessee under this
Lease, (c) contain the Agreement by the holer of the Encumbrance that it will
(1) give Lessee the same notice, if any, given to Lessor of any default or
acceleration of any obligation underlying any such Encumbrance or any sale in
foreclosure under Encumbrance, (2) permit Lessee to cure any such default on
Lessor's behalf within any applicable cure period, and Lessee shall be
reimbursed by Lessor for any and all costs incurred in effecting such cure,
including without limitation out-of-pocket costs incurred to affect any such
cure (including reasonable attorneys' fees) and (3) permit Lessee to appear by
its representative and to bid at any sale in foreclosure made with respect to
any such encumbrance. Upon the request of Lessor, Lessee shall subordinate
this Lease to the lien of a new mortgage on the Leased Property, on the
condition that the proposed mortgagee executes a non-disturbance agreement
recognizing this Lease, and agreeing, for itself and its successors and
assigns, to comply with the provisions of this Article XXXIV.

34.2 Lessee's Right to Cure. Subject to the provisions of Section
34.3, if Lessor breaches any covenant to be performed by it under this Lease,
Lessee, after Notice to and demand upon Lessor, without waiving or releasing
any obligation hereunder, and in addition to all other remedies available to
Lessee, may (but shall be under no obligation at any time thereafter to) make
such payment or perform such act for the account and at the expense of Lessor.
All sums so paid by Lessee and all costs and expenses (including, without
limitation, reasonable attorneys' fees) so incurred, together with interest
thereon at the Overdue Rate from the date on which such sums or expenses are
paid or incurred by Lessee, be paid by Lessor to Lessee on demand or, following
entry of a final, nonappealable judgment against Lessor for such sums, may be
offset by Lessee against the Base Rent payments next accruing or coming due.
The rights of Lessee hereunder to cure and to secure payment from Lessor in
accordance with this Section 34.2 shall survive the termination of this Lease
with respect to the Leased Property.

34.3 Breach by Lessor. It shall be a breach of this Lease if Lessor
fails to observe or perform any term, covenant or condition of this Lease on
its part to be performed and such failure continues for a period of 30 days
after Notice thereof from Lessee, unless such failure cannot with due diligence
be cured within a

53
<PAGE> 59
period of 30 days, in which case such failure shall not be deemed to continue
if Lessor, within such 30 day period, proceeds promptly and with due diligence
to cure the failure and diligently completes the curing thereof. The time
within which Lessor shall be obligated to cure and such failure also shall be
subject to extension of time due to the occurrence of any Unavoidable Delay.
If Lessor fails to cure any such breach within the grace period described above
and the amount of damage, as determined by entry of a final nonappealable
judgment as provided in Section 34.2 above, exceeds the Base Rent payable for
the balance of the Term, and the amount of such judgment is not paid within 60
days of the date as of which it becomes final, Lessee, without waiving or
releasing any obligations hereunder, and in addition to all other remedies
available to Lessee at law or in equity, may purchase the Leased Property from
Lessor for a purchase price equal to the then Fair Market Value. If Lessee
elects to purchase the Leased Property it shall deliver a Notice thereof to
Lessor specifying a settlement date to occur not less than 90 days subsequent
to the date of such Notice in which it shall purchase the Leased Property, and
the same shall be thereupon conveyed in accordance with the provisions of
Article XVIII.

ARTICLE XXXV

35.1 Miscellaneous. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of, Lessee or
Lessor arising prior to any date of termination of this Lease shall survive
such termination. If any term or provision of this Lease or any application
thereof is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable
law, the parties agree that such charges shall be fixed at the maximum
permissible rate. Neither this Lease or any provision hereof may be changed,
waived, discharged or terminated except by a written instrument in recordable
form signed by Lessor and Lessee. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The headings in this Lease are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Lease shall be governed by and construed in accordance
with the laws of the State, but not including its conflict of laws rules.

35.2 Transfer of Licenses. Upon the expiration or earlier
termination of the Term, Lessee shall use its best efforts (i) to transfer to
Lessor or Lessor's nominee all licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities, that may be necessary for the
operation of the Facility

54
<PAGE> 60
(collectively, "Licenses"), or (ii) if such transfer is prohibited by law or
Lessor otherwise elects, to cooperate with Lessor or Lessor's nominee in
connection with the processing by Lessor or Lessor's nominee of any
applications for, all Licenses; provided, in either case, that the costs and
expenses of any such transfer or the processing of any such application shall
be paid by Lessor or Lessor's nominee.

35.3 Waiver of Presentment, etc.. Lessee waives all presentments,
demands for payment and for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance and waives
all notices of the existence, creation, or incurring of new or additional
obligations, except as expressly granted herein.

ARTICLE XXXVI

Lessor's Option to Purchase Assets of Lessee. Effective on not less
than 90 days prior Notice given at any time within 180 days before the
expiration of the Term, but not later than 90 days prior to such expiration, or
upon such shorter Notice period as shall be appropriate if this Lease is
terminated prior to its expiration date, Lessor shall have the option to
purchase all (but not less than all) of the assets of Lessee, tangible and
intangible, relating to the Leased Property (other than this Lease), at the
expiration or termination of this Lease for an amount (payable in cash on the
expiration date of this Lease) equal to the fair market value thereof as
appraised in conformity with Article XXXIII, except that the appraisers need
not be members of the American Institute of Real Estate Appraisers, but rather
shall be appraisers having at least ten years experience in valuing similar
assets. Notwithstanding any such purchase, Lessor shall obtain no rights to
any trade name or logo used in connection with the Franchise unless separate
agreement as to such use is reached with the applicable franchisor.

ARTICLE XXXVII

Lessor's Option to Terminate Lease. In the event Lessor enters into a
bona fide contract to sell the Leased Property to a non- Affiliate, Lessor may
terminate the Lease by giving not less than 30 days prior Notice to Lessee of
Lessor's election to terminate the Lease effective upon the closing under such
contract. Effective upon such closing, this Lease shall terminate and be of no
further fore and effect except as to any obligations of the parties existing as
of such date that survive termination of this Lease. As compensation for the
early termination of its Leasehold estate under this Article XXXVII, Lessor
shall within 90 days of such closing either (a) pay to Lessee the fair market
value of Lessee's leasehold estate hereunder as of the closing of the sale

55
<PAGE> 61
of the Leased Property or (b) offer to lease to Lessee one or more substitute
hotel facilities pursuant to one or more leases that would create for the
Lessee leasehold estates that have an aggregate fair market value of no less
then the fair market value of the original leasehold estate, both such values
as determined as of the closing of the sale of the Leased Property. The fair
market value of Lessee's leasehold estate shall exclude any unexercised option
to extend the term, whether or not the option is then exercisable. If Lessor
elects and complies with the option described in (b) above, regardless of
whether Lessee entered into the lease(s) described therein, Lessor shall have
no further obligations to Lessee with respect to compensation for the early
termination of this Lease. In the event Lessor and Lessee are unable to agree
upon the fair market value of an original or replacement leasehold estate, it
shall be determined by appraisal using the appraisal procedure set forth in
Article XXXIII.

For this purpose of this Section, fair market value of the leasehold
estate means, as applicable, an amount equal to the price that a willing buyer
not compelled to buy would pay a willing seller not compelled to sell for
Lessee's leasehold estate under this Lease or an offered replacement leasehold
estate.

ARTICLE XXXVIII

Compliance with Franchise Agreement. To the extent any of the
provisions of the Franchise Agreement impose a greater obligation on Lessee
than the corresponding provisions of the Lease, then Lessee shall be obligated
to comply with the provisions of the Franchise Agreement, it being the intent
of the parties hereto that Lessee comply in every respect with the provisions
of the Franchise Agreement so as to avoid any default thereunder.

ARTICLE XXXIX

Furniture Fixture and Equipment Allowance. Lessor shall be obligated
to pay Lessee for each quarter in any Fiscal Year during the Term, an amount
equal to the quarterly FF&E Allowance set forth on Exhibit B hereto. For the
first and last quarter of the term, the FF&E Allowance shall be prorated as to
any partial quarter. The FF&E Allowance shall be adjusted annually as of the
first day of each Fiscal Year, commencing January 1, 1998, for any increase,
but not because of any decrease, in the CPI, from the beginning of the previous
Fiscal Year. Upon written request by Lessee to Lessor stating the specific use
to be made and the reasonable approval thereof by Lessor, such funds shall be
made available by Lessor for use by Lessee for replacement or refurbishing of
furniture, fixtures and equipment that constitute Leased Property in connection
with the Primary Intended Use; provided, however, that no amounts made
available under this Article shall be used to

56
<PAGE> 62
purchase property (other than "real property" within the meaning of Treasury
Regulations Section 1.856-3(d)), to the extent that doing so would cause the
Lessor to recognize income other than "rents from real property" as defined in
Section 856(d) of the Code. Lessor's obligation shall be cumulative, but not
compounded, and any amounts that have accrued hereunder shall be payable in
future periods for such uses and in accordance with the procedure set forth
herein. Lessee shall have no interest in any accrued obligation of Lessor
hereunder after the termination of this Lease.

ARTICLE XL

Subordination. This Lease and the rights and interests of the parties
hereunder shall be and become subject and subordinate to the lien of any
mortgage, deed of trust or other encumbrance (together with any interest
thereon, advances made thereunder and any conditions, renewals, extensions or
replacements thereof), now or hereafter placed, charged or enforced against the
Leased Property are a part, or any portion or portions thereof. It is the
intention of the parties that this provision shall be self-executing and no
further instrument shall be required to effect such subordination. Lessee
agrees to execute any and all documents and other agreements requested by any
lender which may be requested to evidence the foregoing.

IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.

"LESSOR"

GLENBOROUGH PROPERTIES, L.P., a
California limited partnership.
By: Glenborough Realty Trust Incorporated
Its: General Partner

By: ____________________________
Title: ________________________

"LESSEE"

GLENBOROUGH HOTEL GROUP

By: ____________________________
Title: _________________________

57
<PAGE> 63
EXHIBIT A

The Land, as Defined in Section 1.1 of the Attached
Lease Agreement is described as follows:

That certain real property commonly known as the Country Suites Hotel,
10801 North 89th Place, Scottsdale, AZ 85260, which is more particularly
described as follows:

The North 470 feet of Lot 4, Edwards Business Park, a subdivision
recorded in Book 257 of Maps, Page 20, records of Maricopa County,
Arizona, as measured perpendicular to the North line of said Lot 4.

58
<PAGE> 64
EXHIBIT B

The rent payment for the Leased Property equals the sum of (i) the
greater of the Base Rent or the Percentage Rent from Room Revenues
plus (ii) the Percentage Rent from Other Revenues.

Calculation of Base Rent and Percentage Rent from Room Revenues:

The annual Base Rent will be $360,000 vs. Percentage Rent
equal to 45% of the first $3,200,000 in Room Revenues plus 60%
of the Room Revenues over $3,200,000.

The quarterly FF&E Allowance for 1997 shall be as follows:

First Quarter $ 8,150

Second through Fourth Quarter $24,450

The quarterly FF&E Allowsnce for the following calendar years shall be
as follows:

<TABLE>
<CAPTION>
Quarterly
Year Allowance
---- ---------
<S> <C>
1998 28,525
1999 32,600
2000 36,675
2001 40,750
2002 44,825
2003 48,900
2004 52,975
2005 57,050
2006 61,125
1st 2 mos. 2007 43,467

</TABLE>
Notwithstanding any provision to the contrary in Article XXXIX, there
will be no CPI adjustment for the FF&E Allowance.

THE THRESHOLD FOR THE CALCULATION OF PERCENTAGE RENT FROM ROOM
REVENUES HAS BEEN ADJUSTED FOR INCREASES IN THE CPI FOR THE CALENDAR
YEAR 1996. THE FIRST ADJUSTMENT WILL BE MADE RETROACTIVE TO JANUARY 1,
1998, WHEN THE CPI IS AVAILABLE THROUGH DECEMBER, 1997. AS OF JANUARY
1, 1998, THE THRESHOLD WILL BE ADJUSTED FOR ANY INCREASE IN THE CPI
DURING THE ENTIRE CALENDAR YEAR 1997, AND NOT JUST FROM THE
COMMENCEMENT OF THE LEASE.

<PAGE> 1
GLENBOROUGH REALTY TRUST INCORPORATED EXHIBIT 12.1
Computation of Ratio of Earnings to Fixed Charges
for the five years ended December 31, 1996
and the three and nine month periods ended September 30, 1996

<TABLE>
<CAPTION>
GRT Predecessor Entities, Combined The Company
Three Nine
Months Months
Twelve months ended December 31, Ended Ended
1991 1992 1993 1994 1995 9/30/96 9/30/96
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS, AS DEFINED
Net Income (loss) $1,301 ($2,681) $4,418 $1,580 $524 $1,003 ($3,409)
Extraordinary items (25) (556) (2,274) - - 186 7,423
Federal & state income taxes - 700 24 176 357 - -
Minority interest 55 (8) 5 43 - 69 312
Fixed charges 1,180 1,860 1,301 1,140 2,129 1,125 2,546
------------------------------------------------------------------
$2,511 (685) $3,474 $2,939 $3,010 $2,383 $6,872
==================================================================
FIXED CHARGES, AS DEFINED $1,180 $1,860 $1,301 $1,140 $2,129 $1,125 $2,546
==================================================================
RATIO OF EARNINGS TO
FIXED CHARGES 2.13 (0.37) 2.67 2.58 1.41 2.12 2.70
==================================================================
</TABLE>

<PAGE> 1

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 25, 1997)

<TABLE>
<S> <C> <C>
LOGO 3,500,000 SHARES
LOGO
COMMON STOCK
</TABLE>

(PAR VALUE $.001 PER SHARE)
------------------------

Glenborough Realty Trust Incorporated is a self-administered and
self-managed real estate investment trust that
owns a portfolio of 55 office, industrial, retail, multi-family and hotel
properties located in 17 states throughout the country. In addition, three
associated companies provide comprehensive asset, partnership and property
management services for 65 additional properties that are not owned by the
Company. The combined portfolios encompass approximately 11 million rentable
square feet in 21 states.

The 3,500,000 shares of Common Stock of the Company offered hereby are all
being sold by the Company. The Company plans to use the net proceeds of this
offering to fund acquisition activities and repay outstanding indebtedness. The
Common Stock is listed on the New York Stock Exchange under the symbol "GLB." On
March 17, 1997, the last reported sale price of the Common Stock on the New York
Stock Exchange was $20 1/4 per share.

The shares of Common Stock are subject to certain restrictions on ownership
and transfer designed to assist the Company in maintaining its status as a real
estate investment trust for federal income tax purposes. See "Restrictions on
Ownership and Transfer of Common Stock" in the accompanying Prospectus.

SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK.

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

<TABLE>
<CAPTION>
====================================================================================================
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNT(1)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Per Share.............................................. $20.25 $1.12 $19.13
- ----------------------------------------------------------------------------------------------------
Total(3)............................................... $70,875,000 $3,919,388 $66,955,612
====================================================================================================
</TABLE>

(1) The Company and the Operating Partnership (as hereinafter defined) have
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(2) Before deducting expenses payable by the Company estimated at $900,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
525,000 additional shares of Common Stock to cover over-allotments, if any.
If all of these shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $81,506,250,
$4,507,296 and $76,998,954, respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered severally by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made against
payment therefor on or about March 21, 1997 at the offices of Bear, Stearns &
Co. Inc., 245 Park Avenue, New York, New York 10167.
------------------------

BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY

JEFFERIES & COMPANY, INC.

THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH 17, 1997
<PAGE> 2

[CHART/GRAPH]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OPEN MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.

S-2
<PAGE> 3

PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus
Supplement and the accompanying Prospectus and incorporated by reference herein
and therein. Unless indicated otherwise, the information contained in this
Prospectus Supplement assumes that the Underwriters' over-allotment option is
not exercised. As used herein, the term "Company" means Glenborough Realty Trust
Incorporated, a Maryland corporation, and its consolidated subsidiaries for the
periods from and after December 31, 1995 (the date of the Consolidation referred
to below) and the Company's predecessor partnerships and companies for periods
prior to the Consolidation, and the term "Operating Partnership" means
Glenborough Properties, L.P. in which the Company holds a 1% interest as sole
general partner, and an approximate 91% limited partner interest. The offering
of 3,500,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"), made hereby is herein referred to as the "Offering." The last reported
sale price on the New York Stock Exchange (the "NYSE") on March 17, 1997 was
$20 1/4 per share. Unless otherwise indicated, ownership percentages of the
Common Stock have been computed on a fully converted basis, assuming an exchange
of Operating Partnership units for Common Stock on a one-for-one basis. This
Prospectus Supplement and the accompanying Prospectus, and the documents
incorporated herein and therein, contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934 (the "Exchange Act"), which statements
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" in the
accompanying Prospectus and elsewhere in this Prospectus Supplement and the
accompanying Prospectus.

THE COMPANY

The Company is a self-administered and self-managed real estate investment
trust ("REIT") that owns a diversified portfolio of 55 office, industrial,
retail, multi-family and hotel properties (the "Properties" and each a
"Property") located in 17 states throughout the country. The Company's principal
growth strategy is to capitalize on the opportunity to acquire portfolios or
individual properties from public and private partnerships on attractive terms.
This strategy has evolved from the Company's predecessors' experience since 1978
in managing real estate partnerships and their assets and, since 1989, in
acquiring portfolios and management interests from third parties. In addition,
three associated companies (the "Associated Companies") provide comprehensive
asset, partnership and property management services for a diversified portfolio
of 65 additional properties that are not owned by the Company. The combined
portfolios encompass approximately 11 million rentable square feet in 21 states.

Today's real estate limited partnership market encompasses some ten million
owners of units in public and private limited partnerships, representing
original equity investments in excess of $70 billion, according to 1997
estimates of industry consultant Robert A. Stanger & Co., Inc. Because there is
only a limited market for their partnership interests, investors in such
partnerships, many of which invested in diversified portfolios of properties,
often seek to increase the liquidity of their investments on a tax deferred
basis. Unlike most other REITs, the Company actively seeks to purchase
diversified portfolios, which the Company believes are available to be purchased
on favorable terms. Additionally, because the Company has established an UPREIT
structure, it has the flexibility to address general and limited partner
concerns and to structure transactions that may defer tax gains.

The Company seeks to enhance, expand and diversify its real estate holdings
by acquiring portfolios and individual properties, improving individual property
performance and constantly reviewing the mix of its holdings by redeploying
assets and reinvesting the proceeds. The Company seeks to acquire individual
properties and diversified portfolios that can be purchased at attractive prices
and have characteristics consistent with the Company's growth strategy. The
Company believes that its growth strategies may be aided by the Associated
Companies, which may acquire general partnership interests, enter into asset
management

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<PAGE> 4

and property management agreements with third parties, and lease hotels that may
in the future be acquired by the Company.

As a result of the Company's primary strategy of acquiring diversified
portfolios rather than focusing on a single property type or economic region,
the Company's portfolio is broadly diversified with respect to both property
type and location. The Company's 55 Properties are located in 17 states and are
comprised of 11 office Properties, 14 industrial Properties, 21 retail
Properties, three multi-family Properties and six hotel Properties. The Company
believes such diversification reduces the risks associated with owning and
operating a single property type or owning properties in a single geographic
region.

The following table sets forth, as of December 31, 1996, certain
information with respect to the Company's Properties on a pro forma basis,
assuming that the acquisition of the CIGNA Properties and the E&L Properties
(each defined below) were completed and that such acquisitions and the
acquisition of the Scottsdale Hotel (defined below) and all the Properties
acquired by the Company during 1996 had been completed on January 1, 1996. For
similar information regarding the Properties, see "Properties -- General."

PRO FORMA PROPERTY TABLE BY TYPE OF PROPERTY(1)

<TABLE>
<CAPTION>
PROPERTY REVENUES FOR
YEAR ENDED
DECEMBER 31, 1996(2) AVERAGE OCCUPANCY
NUMBER OF SQUARE --------------------- FOR YEAR ENDED
TYPE OF PROPERTY PROPERTIES FEET/UNITS AMOUNT PERCENT DECEMBER 31, 1996(2)
---------------------- --------- --------- ----------- ------- --------------------
<S> <C> <C> <C> <C> <C>
Office................ 13 907,406 $12,414,230 29.7% 95
Industrial............ 27 2,753,076 10,468,852 25.1 97%
Retail................ 22 778,450 6,638,388 15.9 96
Multi-family.......... 4 866 5,968,579 14.3 94
Hotels................ 6 726 6,252,460 15.0 70(3)
-- --
----------- -----
Total/Weighted
Average... 72 $41,742,509 100.0% 95%(4)
== =========== =====
</TABLE>

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

(1) Includes 17 properties expected to be acquired. See "-- Recent Activities."

(2) Represents average economic occupancy (calculated using month-end actual
occupancy rates), and actual 1996 revenues, except for the TRP Properties
and Carlsberg Properties (each defined below), which reflect occupancy rates
as of December 31, 1996 and property revenues on an annualized basis based
on results since the acquisition, as average rates and actual property
revenues are not available for this period for these properties.

(3) This occupancy rate reflects the first year operations of Scottsdale Hotel
acquired by the Company in February 1997. The average occupancy for the
hotels owned by the Company in 1996 was 72%.

(4) Excluding hotel Properties.

The Company's seven executive officers, and its directors who are not
employees of the Company, collectively own approximately 14% of the Company's
Common Stock and will own approximately 10% after giving effect to the Offering.
The executive officers have been with the Company or its predecessors for an
average of nine years. The Company and the Associated Companies employ an
experienced staff of approximately 430 employees who provide a full range of
real estate services from their headquarters in San Mateo, California and from
29 property management offices located across the country.

The Company commenced operations on December 31, 1995 through the merger of
eight public limited partnerships and a management company with and into the
Company (the "Consolidation"). A portion of the Company's operations is
conducted through the Operating Partnership in which the Company holds a 1%
interest as the sole general partner and an approximate 91% limited partner
interest. The Company intends to elect treatment as a REIT when it files its tax
return for the year ended December 31, 1996.

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<PAGE> 5

RECENT ACTIVITIES

Consistent with the Company's strategy for growth, the Company has, during
1996 and during the first quarter of 1997 through the date of this Prospectus
Supplement, acquired, or entered into agreements to acquire, 40 properties in 10
states, aggregating approximately 2.6 million rentable square feet, 762
apartment units, and 227 hotel rooms, for an aggregate total purchase price of
approximately $170 million. In June 1996, the Company sold two industrial
properties to redeploy capital into properties the Company believes have
characteristics more suited to its overall growth strategy and operating goals.
In addition, in July 1996, the Company entered into a $50 million line of credit
("Line of Credit") and a $6.1 million term loan ("Term Loan") with Wells Fargo
Bank, N.A. ("Wells Fargo Bank"), and in October 1996, the Company completed a
public offering of 3,666,000 shares of Common Stock.

The following is a summary of the Company's acquisition, sales and
financing activities during 1996 and the first quarter of 1997 through the date
of this Prospectus Supplement.

COMPLETED ACQUISITIONS

Acquisitions from Partnerships and Other Third Party Sellers

Scottsdale Hotel. In February 1997, the Company acquired a 163-suite hotel
Property (the "Scottsdale Hotel"), which began operations in January 1996 and is
located in Scottsdale, Arizona. The total acquisition cost, including
capitalized costs, was approximately $12.1 million, which consisted of
approximately $4.7 million of mortgage debt assumed, and the balance in cash.
The cash portion was financed through advances under the Line of Credit. Like
four of the Company's other hotel Properties, the Scottsdale Hotel is marketed
as a Country Suites by Carlson.

Carlsberg Acquisition. In November 1996, the Company acquired from various
partnerships and their general partner, a Southern California syndicator, a
portfolio of six Properties (including one property on which the Company made a
mortgage loan which included a purchase option), aggregating approximately
342,000 square feet, together with associated management interests (the
"Carlsberg Properties"). The total acquisition cost, including the mortgage loan
and capitalized costs, was approximately $23.2 million, which consisted of (i)
approximately $8.9 million of mortgage debt assumed, (ii) approximately $350,000
in the form of 24,844 shares of Common Stock of the Company (based on a per
share value of $14.09) and (iii) the balance in cash. The cash portion was
financed through advances under the Line of Credit. The Carlsberg Properties
consist of five office Properties and one retail Property, located in two
states. Concurrently with the Company's acquisition of the Carlsberg Properties,
one of the Associated Companies assumed management of a portfolio of 13
additional properties with an aggregate of one million square feet under a
venture with an affiliate of the seller.

TRP Acquisition. In October 1996, the Company acquired a portfolio of 12
properties, aggregating approximately 784,000 square feet and 538 multi-family
units, together with associated management interests (the "TRP Properties"). The
total acquisition cost, including capitalized costs, was approximately $43.8
million, which consisted of (i) approximately $16.3 million of mortgage debt
assumed, (ii) approximately $760,000 in the form of 52,387 partnership units in
the Operating Partnership (based on a per unit value of $14.50), (iii)
approximately $2.6 million in the form of 182,000 shares of Common Stock of the
Company (based on a per share value of $14.50) and (iv) the balance in cash. The
cash portion was financed through advances under the Line of Credit. The TRP
Properties consist of three office, six industrial, one retail and two
multi-family Properties, located in six states.

San Antonio Hotel. In August 1996, the Company acquired a 64-room hotel
property (the "San Antonio Hotel"), which is located in San Antonio, Texas. The
total acquisition cost, including capitalized costs, was approximately $2.8
million, which was paid in cash. The acquisition was financed through advances
under the Line of Credit.

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<PAGE> 6

financed through advances under the Line of Credit. In addition, the Company
committed an additional $1.8 million for future expansion and tenant
improvements, which the Company expects will also be paid in cash.

Acquisitions from Entities Controlled by Associated Companies

Bond Street Property. In September 1996, the Company acquired a two-story,
40,595 square foot office building in Farmington Hills, Michigan (the "Bond
Street Property"). The total acquisition cost, including capitalized costs, was
approximately $3.2 million, which consisted of $391,000 in the form of 26,067
partnership units in the Operating Partnership (based on a per unit value of
$15.00), and the balance paid in cash. The cash portion was financed through
advances under the Line of Credit.

UCT Property. In July 1996, the Company acquired a 23-story, 272,443 square
foot office building in St. Louis, Missouri (the "UCT Property"). The total
acquisition cost, including capitalized costs, was approximately $18.8 million,
which consisted of $350,000 in the form of 23,333 partnership units in the
Operating Partnership (based on a per unit value of $15.00), and the balance
paid in cash. The cash portion was financed through advances under the Line of
Credit.

PENDING ACQUISITIONS

CIGNA Properties. In January 1997, the Company entered into a definitive
agreement with two limited partnerships organized by affiliates of CIGNA Corp.
to acquire a portfolio of six properties, aggregating approximately 616,000
square feet and 224 multi-family units (the "CIGNA Properties"). The total
acquisition cost, including capitalized costs, is expected to be approximately
$45.5 million, which will be paid entirely in cash from the proceeds of the
Offering. The CIGNA Properties consist of two office properties, two R&D
properties, a neighborhood shopping center and a multifamily property, located
in four states. These acquisitions are subject to a number of contingencies,
including approval of the acquisition by a majority in interest of the voting
power of the limited partners of each of the selling partnerships, satisfactory
completion of environmental and engineering due diligence and customary closing
conditions. Accordingly, there can be no assurance that any or all of these
acquisitions will be completed.

E&L Properties. In February 1997, the Company entered into definitive
agreements with various partnerships and their general partner, a Southern
California syndicator, to acquire a portfolio of up to 11 properties,
aggregating approximately 524,000 square feet, together with associated
management interests (the "E&L Properties"). The total acquisition cost,
including capitalized costs, is expected to be approximately $22.2 million,
which will consist of (i) approximately $9.5 million of mortgage debt assumed,
(ii) approximately $7.8 million in the form of 410,537 partnership units in the
Operating Partnership (based on a per unit value of $19.075), (iii)
approximately $650,000 in the form of 34,076 shares of Common Stock of the
Company (based on a per share value of $19.075) to be issued in connection with
the acquisition of the management interests relating to the E&L Properties, and
(iv) the balance in cash. The cash portion of the acquisition cost will be
funded with proceeds of the Offering. The E&L Properties consist of one office
and ten industrial properties, all located in Southern California. These
acquisitions are subject to a number of contingencies, including the approval of
the acquisition by a majority of the voting power of the limited partners of
each of the selling partnerships, satisfactory completion of environmental and
engineering due diligence and customary closing conditions. Accordingly, there
can be no assurance that any or all of these acquisitions will be completed, and
it is possible that fewer than all of these acquisitions may be completed.

Other Acquisition Opportunities. The Company maintains an active
acquisition department which identifies, evaluates, negotiates and consummates
portfolio and individual property investments. Currently, the Company is
considering acquisitions involving, in the aggregate, in excess of $200 million
in total capitalized costs. The acquisitions are subject to a number of
contingencies, including a review of the physical and economic characteristics
of the properties involved, negotiation of detailed terms, which among other
things could alter the scope of the acquisitions, and formal documentation.
Accordingly, the Company cannot reach a conclusion that any of these
acquisitions is probable, and there can be no assurance that these current

S-6
<PAGE> 7

discussions, or other discussions involving potential acquisition opportunities
will result in any agreement or consummation of any transaction. See "Risk
Factors -- Risks Associated with Acquisitions" in the accompanying Prospectus.

Possible Tender Offer Acquisitions. In addition to its current program of
negotiated property and portfolio acquisitions, the Company intends to consider
opportunities to acquire interests in properties and portfolios of properties
through tender offers for public and private limited partnerships. Depending
upon the opportunity and the circumstances, these offers may be made with or
without the cooperation of the general partner. As the Company is currently
evaluating this addition to its acquisition strategy and no tender offer
transactions have been initiated, there is no certainty that the Company will
adopt this strategy or that any such transactions will be completed. See "Risk
Factors -- Risks Associated with Tender Offers" in the accompanying Prospectus.

1996 PROPERTY SALES

As part of its strategy to achieve sustainable long-term growth in Funds
from Operations (as defined below, "Funds from Operations," or "FFO"), the
Company periodically reviews its current portfolio of properties for
opportunities to redeploy capital from certain existing Properties to other
properties that the Company believes have characteristics more suited to its
overall growth strategy and operating goals. Consistent with this strategy, in
June 1996, the Company sold two self-storage facilities (the "All American
Industrial Properties") held in its industrial portfolio. The sales price for
these two facilities was approximately $2.9 million and generated a book value
gain of approximately $321,000.

FINANCING ACTIVITIES

Line of Credit. In 1996, the Company entered into the $50 million Line of
Credit with Wells Fargo Bank. The Line of Credit has a term of two years,
subject to annual extensions at the option of the Company. The Line of Credit
bears interest at an annual rate equal to LIBOR plus 2.375%, which will be
reduced to LIBOR plus 1.75% upon completion of the Offering. If the Line of
Credit lender terminates the Line of Credit (other than by reason of the
Company's default thereunder), at the Company's option, any remaining balance
outstanding under the Line of Credit will be converted to a ten-year term loan,
bearing interest at a fixed rate of 275 points over the then 10-year treasury
rate, with a twenty-year amortization schedule. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Term Loan. In 1996, the Company entered into the $6.1 million Term Loan
with Wells Fargo Bank. The Term Loan has a term of two years, bears interest at
the same rate as the Line of Credit and is secured by first mortgage liens on 10
"QuikTrip" facilities owned by the Company, with full recourse to the Company.
Required payments under the Term Loan are interest only for the first year, and
principal and interest payments in the second year based on monthly principal
payments of $25,500 plus interest on the outstanding balance.

Public Offering. In October 1996, the Company completed a public offering
of 3,666,000 shares of its Common Stock at a price of $13.875 per share (the
"Prior Offering"). The net proceeds of approximately $47.8 million were used for
the acquisition of certain Properties and to repay approximately $24.0 million
of the then outstanding balance under the Line of Credit.

Increased Distribution. In January 1997, the Company announced a 6.7%
increase in its regular quarterly distribution from $.30 to $.32 per share of
Common Stock. See "Distribution Policy."

S-7
<PAGE> 8

THE OFFERING

All of the shares of Common Stock offered hereby are being sold by the
Company. None of the Company's stockholders is selling any shares of Common
Stock in the Offering.

<TABLE>
<S> <C>
Shares of Common Stock Offered................. 3,500,000
Shares of Common Stock Outstanding
Before this Offering(1)..................... 10,305,673
Shares of Common Stock Outstanding
After this Offering(1)(2)................... 14,250,286
To fund acquisition activities, repay
outstanding indebtedness and for general
corporate purposes. See "Use of
Use of Proceeds................................ Proceeds."
NYSE Symbol.................................... "GLB"
</TABLE>

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

(1) Assumes the exchange of all 644,120 existing units of the Operating
Partnership eligible for exchange to Common Stock.

(2) Assumes the issuance of 34,076 shares of Common Stock and the issuance of
410,537 units of the Operating Partnership in connection with the pending
acquisition of the E&L Properties, and the exchange of the units for shares
of Common Stock.

RISK FACTORS

See "Risk Factors" beginning at page 6 of the accompanying Prospectus for
certain factors relating to an investment in the Common Stock.

S-8
<PAGE> 9

THE COMPANY

The Company is a self-administered and self-managed REIT that owns a
diversified portfolio of 55 office, industrial, retail, multi-family and hotel
Properties located in 17 states throughout the country. In addition, the three
Associated Companies provide comprehensive asset, partnership and property
management services for a diversified portfolio of 65 additional properties that
are not owned by the Company. The combined portfolios encompass approximately 11
million rentable square feet in 21 states.

The Company was incorporated in the state of Maryland on August 26, 1994.
On December 31, 1995, the Company completed the Consolidation in which
Glenborough Corporation, a California corporation ("Old GC"), and eight public
limited partnerships (the "Partnerships" and, collectively with Old GC, the "GRT
Predecessor Entities") merged with and into the Company. A portion of the
Company's operations are conducted through the Operating Partnership, in which
the Company holds a 1% interest as the sole general partner and an approximate
91% limited partnership interest.

The Company's executive offices are located at 400 South El Camino Real,
Suite 1100, San Mateo, California 94402-1708, and its telephone number is (415)
343-9300.

GROWTH STRATEGY

The Company seeks to achieve sustainable long-term growth in Funds from
Operations primarily through the following strategies:

- Acquiring portfolios or individual properties on attractive terms, often
from public and private partnerships;

- Acquiring properties from entities controlled by the Associated
Companies;

- Improving the performance of Properties in the Company's portfolio; and

- Constantly reviewing the Company's current portfolio for opportunities to
redeploy capital from certain existing Properties into other properties
which the Company believes have characteristics more suited to its
overall growth strategy and operating goals.

Acquisitions

The Company primarily seeks to acquire portfolios and individual properties
with certain of the following characteristics: (i) a stable stream of income,
both historical and projected; (ii) existing management fees and costs that,
when internalized, would augment the Company's investment return; (iii)
properties generally constructed after 1970; (iv) little or no exposure to
hazardous materials; (v) prudent debt levels; (vi) potential for substantial
overhead savings that could be converted to distributions; (vii) low-to-moderate
vacancy levels; (viii) diversified tenant risk; (ix) low-to-moderate deferred
maintenance; (x) substantial geographic overlap with the Company's existing
portfolio, to capitalize on the Company's existing management capabilities; and
(xi) predominantly comprised of office, industrial, retail, multi-family
properties, and/or hotel properties.

Portfolio Acquisitions. The Company seeks to grow by acquiring diversified
portfolios of real estate, and believes that the primary, though not exclusive,
holders of such diversified portfolios are public and private limited
partnerships. Today's real estate limited partnership market encompasses some
ten million owners of units in public and private limited partnerships,
representing original equity investments in excess of $70 billion, according to
1997 estimates of Robert A. Stanger & Co., Inc. According to Stanger, few of the
private partnerships, and less than half of the public partnerships, are traded
in any active secondary market, and a substantial percentage of the public
partnerships' portfolios are diversified either geographically or by property
type or both.

The Company believes the majority of the limited partners in these
partnerships would be interested in solutions providing liquidity. The principal
options available to such limited partners include (i) selling their units for
cash on the secondary market, which according to Stanger has a pricing structure
that typically

S-9
<PAGE> 10

discounts unit values relative to underlying asset values, and (ii) more
recently, selling their units for cash to large, well-financed investors who
solicit limited partners to sell their interests at prices that are higher than
prevailing secondary market prices but generally lower than the seller's
underlying asset value. In addition to their discounted pricing structure, these
solutions may not be preferred by limited partners who, as a result of past tax
benefits or other factors, may incur significant tax liabilities as a result of
such sale.

Moreover, the Company believes it is often not feasible for a partnership
or other entity with a diversified portfolio to provide liquidity to its
investors on a cost-effective basis by liquidating and dissolving. For example,
if overhead costs are significant, a gradual sell-off of assets over time may be
considered prohibitively expensive and a bulk sale may be considered the most
efficient liquidation strategy. The Company also believes that the number of
potential bulk purchasers of such diversified portfolios is limited. Most REITs
actively seeking to grow through acquisitions pursue a strategy that focuses
either on specific property types or geographic regions or both, and thus do not
provide an outlet for bulk sales by partnerships and other holders of
diversified portfolios.

Given the limited alternatives available to partnerships and other holders
of diversified portfolios as described above, the Company believes that its
emphasis on diversified portfolios, its long-term investment strategy and
self-managed structure enable it to compete very effectively for the acquisition
in bulk of such diversified portfolios. The Company believes it can offer
consideration (in the form of units of the Operating Partnership, Common Stock
of the Company, and/or cash) which both exceeds that otherwise available to such
limited partners and meets the Company's investment criteria. Furthermore, the
Company's UPREIT structure allows it to make such acquisitions on a basis which
is tax-deferred to the seller's investors.

Individual Property Acquisitions. From time to time the Company will
acquire individual properties that it believes will enhance the Company's
profitability and take advantage of existing management resources.

Possible Tender Offer Acquisitions. In addition to its current program of
negotiated portfolio and individual property acquisitions, the Company intends
to consider opportunities to acquire interests in portfolios and individual
properties through tender offers for public and private limited partnerships.
Depending upon the opportunity and the circumstances, such offers may be made
with or without the cooperation of the general partner of such partnerships. As
the Company is currently evaluating this addition to its acquisition strategy
and no tender offer transactions have been initiated, there is no certainty that
the Company will adopt this strategy or that any such transactions will be
completed. See "Risk Factors -- Risks Relating to Tender Offers" in the
accompanying Prospectus.

The Associated Companies

The Company seeks to acquire properties from entities controlled by the
Associated Companies described below.

Glenborough Corporation. Glenborough Corporation ("GC"), a California
corporation formerly known as Glenborough Realty Corporation, serves as general
partner of several real estate limited partnerships for whom it provides
management services, asset management and property management services. GC also
provides property management services for a limited portfolio of properties
owned by unaffiliated third parties.

The Company owns 100% of the 19,000 shares (representing 95% of total
outstanding shares) of non-voting preferred stock of GC. Three individuals, one
of whom, Sandra L. Boyle, is an executive officer of the Company, each own
33 1/3% of the 1,000 shares (representing 5% of total outstanding shares) of
voting common stock of GC. The Company and GC intend that the Company's interest
in GC comply with REIT qualification standards.

The Company, through its ownership of preferred stock of GC, is entitled to
receive cumulative, preferred annual dividends of $1.465 per share, which GC
must pay before it pays any dividends with respect to the common stock of GC.
Once GC pays the required cumulative preferred dividend, it will pay any
additional dividends in equal amounts per share on both the preferred stock and
the common stock at 95% and 5%, respectively. Through the preferred stock, the
Company is also entitled to receive a preferred liquidation value of $174.00 per
share plus all cumulative and unpaid dividends. The preferred stock is subject
to redemption at

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<PAGE> 11

the option of GC after December 31, 2005, for a redemption price of $174.00 per
share. As the holder of preferred stock of GC, the Company has no voting power
with respect to the election of the directors of GC; all power to elect
directors of GC is held by the owners of the common stock of GC.

This structure is intended to provide the Company with a significant
portion of the economic benefits of the operations of GC. The Company accounts
for the financial results of GC using the equity method.

Glenborough Inland Realty Corporation. Glenborough Inland Realty
Corporation ("GIRC") provides management services for certain partnerships
sponsored by Rancon Financial Corporation, an unaffiliated corporation which has
significant real estate assets in the Inland Empire region of Southern
California (the "Rancon Partnerships"). These services include asset management,
property development, Securities and Exchange Commission reporting, accounting,
investor relations, property management services, and may in the future also
include general partner services.

The Company owns 100% of the 19,000 shares (representing 95% of total
outstanding shares) of non-voting preferred stock of GIRC. Three individuals,
one of whom, Frank E. Austin, is an executive officer of the Company, each own
33 1/3% of the 1,000 shares (representing 5% of total outstanding shares) of
voting common stock of GIRC. The Company and GIRC intend that the Company's
interest in GIRC comply with REIT qualification standards.

The Company, through its ownership of preferred stock, is entitled to
receive cumulative, preferred annual dividends of $0.80 per share, which GIRC
must pay before it pays any dividends with respect to the common stock. Once
GIRC pays the required cumulative preferred dividend, it will pay any additional
dividends in equal amounts per share on both the preferred stock and the common
stock at 95% and 5%, respectively. Through the preferred stock, the Company is
also entitled to receive a preferred liquidation value of $55.00 per share plus
all cumulative and unpaid dividends. The preferred stock is subject to
redemption at the option of GIRC after December 31, 2005, for a redemption price
of $55.00 per share plus cumulative and unpaid dividends. As the holder of
preferred stock of GIRC, the Company has no voting power with respect to the
election of the directors of GIRC; all power to elect directors of GIRC is held
by the owners of the common stock of GIRC.

This structure is intended to provide the Company with a significant
portion of the economic benefits of the operations of GIRC. The Company accounts
for the financial results of GIRC using the equity method.

Glenborough Hotel Group. The Operating Partnership leases its hotel
properties to Glenborough Hotel Group ("GHG"). The Operating Partnership holds a
first mortgage on another hotel, which is managed by GHG under a contract with
its owner. GHG also manages two other hotels owned by Outlook Income Fund 9, a
partnership whose general partner is GC, as well as two resort condominium
hotels.

The Company owns 100% of the 50 shares of non-voting preferred stock of
GHG. Three individuals, one of whom, Terri Garnick, is an executive officer of
the Company, each own 33 1/3% of the 1,000 shares of voting common stock of GHG.
The Company and GHG intend that the Company's interest in GHG comply with REIT
qualification standards.

The Company, through its ownership of preferred stock, is entitled to
receive cumulative, preferred annual dividends of $600 per share, which GHG must
pay before it pays any dividends with respect to the common stock. Once GHG pays
the required cumulative preferred dividend, it will pay 75% of any additional
dividends to holders of the preferred stock, and 25% to holders of the common
stock. Through the preferred stock, the Company is also entitled to receive a
preferred liquidation value of $40,000 per share plus all cumulative and unpaid
dividends. The preferred stock will be subject to redemption at the option of
GHG after December 31, 1999, for a redemption price of $40,000 per share. As the
holders of preferred stock of GHG, the Company has no voting power with respect
to the election of the directors of GHG; all power to elect directors of GHG is
held by the owners of the common stock of GHG.

This structure is intended to provide the Company with a significant
portion of the economic benefits of the operations of GHG. The Company accounts
for the financial results of GHG using the equity method.

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<PAGE> 12

Internal Growth

The Company seeks market rent increases as leases are renewed. In addition,
many of the commercial leases provide for rent increases that are either fixed
or based on a consumer price index ("CPI"). Such increases, together with
anticipated future rents from space now vacant, provide an opportunity for
increased revenues. The leases for the hotel portfolio provide the Company with
either a base rent amount or a percentage of the hotel's revenue, whichever is
higher; thus, the Company will participate in increasing hotel revenues, if any.

Redeployment of Assets

The Company periodically reviews the existing Properties, and sells certain
Properties and reinvests the proceeds in other properties which the Company
believes have characteristics more suited to its overall growth strategy and
operating goals. For example, the Company may: (i) sell properties that have
matured beyond a point of significant future growth potential and replace them
with properties with comparable cash flow but higher growth potential; (ii) sell
some smaller or management intensive properties and replace them with larger or
more management-efficient properties; and (iii) seek to reduce the number of
cities in which it does business. By redeploying assets in this manner, the
Company believes it can achieve certain economies of scale with respect to
staffing and overhead levels. For example, the Company recently sold the All
American Industrial Properties located outside Minneapolis that were
geographically isolated, required outside management and did not otherwise fit
the Company's portfolio strategy.

FINANCING POLICIES

Conservative Debt Strategy. On a pro forma basis, and giving effect to the
Offering and the application of the net proceeds therefrom, the Company's total
indebtedness as of December 31, 1996 would have been $80.6 million, which
represents a debt to total market capitalization (debt divided by the sum of
market value of equity plus debt) ratio of approximately 22%. This ratio is
consistent with the Company's conservative strategy of maintaining its debt to
total market capitalization ratio at a level of 30% or less. In addition, the
Company's Articles of Incorporation (the "Charter") limits the Company's ability
to incur additional debt if the Company's total debt would exceed 50% of the
greater of the Company's fair market value or total market capitalization (sum
of market value of equity plus debt), as defined in the Charter. This debt
limitation contained in the Company's Charter cannot be changed without the
affirmative vote of the stockholders of the Company in accordance with Maryland
General Corporation Law.

Limited Floating Interest Rate Debt. The Company seeks to limit the amount
of its indebtedness that is subject to floating interest rates. On a pro forma
basis, giving effect to the Offering and the application of the net proceeds
therefrom, as of December 31, 1996, $23.1 million, or 29%, the Company's
aggregate indebtedness, would be subject to floating rates of interest.

INVESTMENT POLICIES

The Company seeks to invest in income-producing property, both directly and
through joint ventures with unaffiliated third parties, including institutional
investors. Prospective real estate investment opportunities undergo an
underwriting process that evaluates the following: (i) reasonably anticipated
levels of net cash and ultimate sales value, based on evaluation of a range of
factors including, but not limited to, rental levels under existing leases; (ii)
financial strength of tenants; (iii) levels of expense required to maintain
operating services and routine building maintenance at competitive levels; and
(iv) levels of capital expenditures required to maintain the capital components
of the building in good working order and in conformance with building codes,
health, safety and environmental and other standards.

The Company conducts physical site inspections of each property under
consideration and also engages outside professionals to independently inspect
properties prior to acquisition. The Company either engages outside
professionals to conduct Phase I Environmental Assessments for all acquisitions,
or relies on either: (i) the availability of a recent report prepared for a
third party; or (ii) in the case of a property managed by an

S-12
<PAGE> 13

Associated Company, the experience of the Associated Company in managing the
property, when the incremental benefit of obtaining a report is believed by the
Company to be outweighed by the cost. Based upon the results of these
inspections, assessments, reports and experience, the Company evaluates the
risks associated with a proposed acquisition prior to its completion and takes
appropriate corrective measures.

The Company emphasizes equity real estate investments, but may also invest
in mortgages, securitized mortgage portfolios or other assets consistent with
maintaining qualification as a REIT. The Company will not invest in derivative
financial instruments except for the limited purpose of prudently hedging
interest rate risk under variable interest rate debt. The Company has no plans
to invest in derivative financial instruments.

The Board of Directors of the Company reviews the investment policies of
the Company periodically to determine that the investment policies being
followed by the Company at any time are in the best interests of the Company's
stockholders. The Board of Directors may alter the Company's investment policies
if they determine in the future that such a change is in the best interests of
the Company and its stockholders. The methods of implementing the Company's
investment policies may vary as new investment and financing techniques are
developed or for other reasons.

The Company has also adopted a policy that no acquisition of properties
from GPA, Ltd. or Robert or Andrew Batinovich or their families or from other
entities in which they have an interest will be made without the approval of at
least two-thirds of the Company's independent directors.

S-13
<PAGE> 14

ORGANIZATIONAL DIAGRAM
(at December 31, 1996)

(1) The remaining interests in the Operating Partnership, other
than the interests held by the Company, are: (i) a 7.38%
limited partner interest held by GPA, Ltd., a California
limited partnership ("GPA"), (ii) a 0.16% limited partner
interest held by Robert Batinovich, and (iii) an aggregate of
0.67% of limited partner interests held by certain other
persons. GPA is owned by Robert Batinovich, who holds a 1%
general partner interest, and Glenborough Partners, a
California limited partnership, which holds a 99% limited
partner interest. The Company owns a 4.0% limited partner
interest in Glenborough Partners, and Robert Batinovich and
Andrew Batinovich and members of their immediate families own
an approximate 21% aggregate interest (including both general
partner and limited partner interests) in Glenborough
Partners. The remaining 75% interests in Glenborough Partners
are held in aggregate by approximately 400 private investors.
See "Certain Relationships and Related Transactions."

S-14
<PAGE> 15

RECENT ACTIVITIES

Consistent with the Company's strategy for growth, the Company has, during
1996 and during the first quarter of 1997 through the date of this Prospectus
Supplement, acquired, or entered into agreements to acquire, 40 properties in 10
states, aggregating approximately 2.6 million rentable square feet, 762
apartment units, and 227 hotel rooms, for an aggregate total investment of
approximately $170 million. In June 1996, the Company sold the All American
Industrial Properties to redeploy capital into properties the Company believes
have characteristics more suited to its overall growth strategy and operating
goals. In addition, in July 1996, the Company entered into the $50 million Line
of Credit with Wells Fargo Bank, and in October 1996, the Company completed a
public offering of 3,666,000 shares of Common Stock. The following is a summary
of the Company's acquisition, sales and financing activities during 1996 and the
first quarter of 1997 through the date of this Prospectus Supplement.

COMPLETED ACQUISITIONS

Acquisitions from Partnerships and Other Third Party Sellers

Carlsberg Acquisition. In November 1996, the Company acquired from various
partnerships and their general partner, a Southern California syndicator, the
Carlsberg Properties, a portfolio of six Properties (including one property on
which the Company made a mortgage loan which included a purchase option),
aggregating approximately 342,000 square feet, together with associated
management interests. The total acquisition cost including the mortgage loan and
capitalized costs, was approximately $23.2 million, which consisted of (i)
approximately $8.9 million of mortgage debt assumed, (ii) approximately $350,000
in the form of 24,844 shares of Common Stock of the Company (based on a per
share value of $14.09) and (iii) the balance in cash. The cash portion was
financed through advances under the Line of Credit. The Carlsberg Properties
consist of five office Properties and one retail Property, located in two
states. Concurrently with the Company's acquisition of the Carlsberg Properties,
one of the Associated Companies assumed management of a portfolio of 13
additional properties with an aggregate of one million square feet under a
venture with an affiliate of the seller.

The shares of Common Stock issued in connection with the Carlsberg
Properties acquisition are unregistered, but the holders of these shares have
certain piggyback and demand registration rights. The piggyback rights are
available for a one-year period commencing on the date of completion of the
acquisition. At the end of the piggyback period, the holders will have the right
to demand registration under the Securities Act of any unsold shares that cannot
then be sold freely without registration. The holder of such shares will then be
limited within the first six months to the sale of not more than 25% of the
original of number shares issued, within the first 12 months to the sale of not
more than 50% of the original number of shares issued and within 18 months to
the sale of not more than 75% of the original number of shares issued.

TRP Acquisition. In October 1996, the Company acquired the TRP Properties,
a portfolio of 12 properties, aggregating approximately 784,000 square feet and
538 multi-family units, together with associated management interests. The total
acquisition cost, including capitalized costs, was approximately $43.8 million,
which consisted of (i) approximately $16.3 million of mortgage debt assumed,
(ii) approximately $760,000 in the form of 52,387 partnership units in the
Operating Partnership (based on a per unit value of $14.50), (iii) approximately
$2.6 million in the form of 182,000 shares of Common Stock of the Company (based
on a per share value of $14.50) and (iv) the balance in cash. The cash portion
was financed through advances under the Line of Credit. The TRP Properties
consist of three office, six industrial, one retail and two multi-family
Properties, located in six states.

S-15
<PAGE> 16

The Operating Partnership units issued in connection with the TRP
Properties acquisition are accompanied by an option permitting the holder of the
units to require the Operating Partnership to redeem the units. If the holder
requires a redemption, the Company, as general partner of the Operating
Partnership, will have the option to acquire the units by delivering the Common
Stock on a one-for-one basis, or causing the Operating Partnership to distribute
cash in an amount equal to the fair market value of the units being redeemed.
The shares of the Company's Common Stock to be issued upon redemption of the
Operating Partnership units will have certain piggyback and demand registration
rights. The piggyback rights are available for a one-year period commencing on
the date any of the Operating Partnership units are redeemed for shares of
Common Stock. At the end of the piggyback period, the holders will have the
right to demand registration under the Securities Act of any unsold shares that
cannot then be sold freely without registration. The holders of shares issued
upon redemption of the Operating Partnership units will be limited to the sale
of not more than 15,000 shares in any three-month period during the first three
years after issuance.

The shares of the Common Stock issued in connection with this transaction
are unregistered, but the holders of these shares will have the same piggyback
and demand registration rights as applicable to the Operating Partnership units.
The holders of these shares, however, are restricted from selling any of such
shares until the first anniversary of the closing, and thereafter will be
limited to the sale of not more than 50,000 shares in any six-month period
during the first three years after issuance.

San Antonio Hotel. In August 1996, the Company acquired the San Antonio
Hotel, a 64-room hotel property, which is located in San Antonio, Texas. The
total acquisition cost, including capitalized costs, was approximately $2.8
million, which was paid in cash. The acquisition was financed with an advance on
the Line of Credit.

Kash n' Karry. In August 1996, the Company also expanded an existing
shopping center in Tampa, Florida through a purchase-leaseback transaction with
the anchor tenant. The Company's initial acquisition cost, including capitalized
costs, was approximately $1.6 million, all of which was paid in cash which was
financed through advances under the Line of Credit, and in addition the Company
committed an additional $1.8 million for future expansion and tenant
improvements, which the Company expects will also be paid in cash.

Acquisitions from Entities Controlled by Associated Companies

Bond Street Property. In September 1996, the Company acquired the Bond
Street Property, a two-story, 40,595 square foot office building, in Farmington
Hills, Michigan. The total acquisition cost, including capitalized costs, was
approximately $3.2 million, which consisted of $391,000 in the form of 26,067
partnership units in the Operating Partnership (based on a per unit value of
$15.00), and the balance paid in cash. The cash portion was financed through
advances under the Line of Credit.

The Operating Partnership units delivered in connection with the Bond
Street Property acquisition are accompanied by an option permitting a holder of
the units to require the Operating Partnership to redeem the units beginning one
year following the closing of the acquisition of the Bond Street Property. If
the holder requires a redemption, the Company, as general partner for the
Operating Partnership, will have the option to acquire the units by either (i)
paying cash in an amount equal to the fair market value, on the date of receipt
of the notice of redemption, of the units being acquired, or (ii) delivering a
number of shares of the Company's Common Stock having a fair market value equal
to the fair market value of the units being acquired. If the shares of the
Company's Common Stock are issued to acquire units of the Operating Partnership,
the holder of those shares will have the right for one year to participate in
any offerings filed by the Company or, if no registered offering is filed by the
Company within that year, to demand registration of the shares under the
securities laws if a sufficient number of holders so request. In any event, a
holder is limited to the sale of not more than 35,000 shares in any three month
period.

S-16
<PAGE> 17

Partnership (based on a per unit value of $15.00), and the balance paid in cash.
The cash portion was financed through advances under the Line of Credit.

The Operating Partnership units delivered in connection with the UCT
Property acquisition are accompanied by an option permitting a holder of the
units to require the Operating Partnership to redeem the units beginning July
15, 1997. If the holder requires a redemption, the Company, as general partner
for the Operating Partnership, will have the option to acquire the units by
either (i) paying cash in an amount equal to the fair market value, on the date
of receipt of the notice of redemption, of the units being acquired, or (ii)
delivering a number of shares of the Company's Common Stock having a fair market
value equal to the fair market value of the units being acquired. If shares of
the Company's Common Stock are issued to acquire units of the Operating
Partnership, the holder of those shares will have the right for one year to
participate in any offerings filed by the Company or, if no registered offering
is filed by the Company within that year, to demand registration of the shares
under the securities laws if a sufficient number of holders so request. In any
event, though, a holder will be limited to the sale of not more than 35,000
shares in any three month period.

PENDING ACQUISITIONS

CIGNA Properties. In January 1997, the Company entered into a definitive
agreement with two limited partnerships organized by affiliates of CIGNA Corp.
to acquire the CIGNA Properties, a portfolio of six properties, aggregating
approximately 616,000 square feet and 224 multi-family units. The total
acquisition cost, including capitalized costs, is expected to be approximately
$45.5 million, which will be paid entirely in cash from the proceeds of the
Offering. The CIGNA Properties consist of two office properties, two R&D
properties, a neighborhood shopping center and a multi-family property, located
in four states. These acquisitions are subject to a number of contingencies,
including approval of the acquisition by a majority in interest of the voting
power of the limited partners of each of the selling partnerships, satisfactory
completion of environmental and engineering due diligence and customary closing
conditions. Accordingly, there can be no assurance that any or all of these
acquisitions will be completed.

The following table sets forth for each of the CIGNA Properties, the name,
the property type, general location, year completed, approximate square footage
(or, in the case of the multi-family property, units) and, for the year ended
December 31, 1996, average occupancy rate, average effective rent per leased
square foot (or, in the case of the multifamily property, average rent per
unit), annual effective base rent, property revenues and percentage of the total
CIGNA Properties' revenues.

S-17
<PAGE> 18

CIGNA PROPERTIES

<TABLE>
<CAPTION>
AVERAGE PROPERTY REVENUES
OCCUPANCY FOR AVERAGE ANNUAL FOR YEAR
THE YEAR EFFECTIVE EFFECTIVE ENDED 12/31/96
YEAR SQUARE ENDED RENT/LEASED BASE --------------------
PROPERTY CITY ST COMPLETED FEET/UNITS 12/31/96(1) SQUARE FEET RENT(3) AMOUNT PERCENT
- ------------------ ---------- --- --------- ---------- ------------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE
Westford
Corporate
Center........ Westford MA 1987 163,247 100% $ 8.73 $1,425,303 $1,816,614 23.2 %
Woodlands
Plaza......... St. Louis MO 1983 72,276 96% 15.04 1,043,701 1,040,250 13.3 %
INDUSTRIAL
Lake Point...... Orlando FL 1985 134,984 100% 8.77 1,183,364 1,366,256 17.5 %
Woodlands Tech
Center........ St. Louis MO 1986 98,037 83% 7.63 616,981 786,648 10.1 %
RETAIL
Piedmont
Plaza......... Apopka FL 1985 147,750 97% 6.22 891,626 1,160,614 14.9 %
------- ------- ---------- --------- -----
Subtotal/Total... 616,294 8.72 5,160,975 6,170,382 79.0 %
======= ======= ========== ========= =====
MULTI-FAMILY
Overlook
Apartments.... Scottsdale AZ 1988 224 94% 610.36(2) 1,537,325 1,640,641 21.0 %
------- ----- ---------- --------- -----
Total/Weighted
Average..... 96% $6,698,300 $7,811,023 100.0 %
===== ========== ========= =====
</TABLE>

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

(1) Represents average economic occupancy (calculated using month-end actual
occupancy rates).

(2) Represents average monthly rent per unit.

(3) As used herein, "Effective Base Rent" represents base rent less concessions.

The following table sets forth combined financial information for the CIGNA
Properties for the year ended December 31, 1996.

COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE CIGNA PROPERTIES
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
REVENUES............................................. $ 7,811
CERTAIN EXPENSES:
Operating.......................................... 1,947
Real estate taxes.................................. 729
------
2,676
------
REVENUES IN EXCESS OF CERTAIN
EXPENSES........................................... $ 5,135
======
</TABLE>

S-18
<PAGE> 19

The following table sets forth lease expirations for the CIGNA Properties
other than multi-family for 1997 and thereafter.

LEASE EXPIRATIONS -- CIGNA PROPERTIES

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
RENTABLE SQUARE ANNUAL BASE RENT
YEAR OF NUMBER OF FOOTAGE SUBJECT TO ANNUAL BASE RENT REPRESENTED BY
LEASE EXPIRATION LEASES EXPIRING EXPIRING LEASES UNDER EXPIRING LEASES EXPIRING LEASES(1)
- ------------------------ --------------- ------------------ --------------------- -------------------
<S> <C> <C> <C> <C>
1997(2)................. 11 58,616 $ 675,145 13.1%
1998.................... 9 39,798 411,384 8.0%
1999.................... 14 235,283 2,036,241 39.5%
2000.................... 9 49,705 492,026 9.6%
2001.................... 9 57,932 618,517 12.0%
2002.................... 2 11,873 76,958 1.5%
2003.................... 3 4,800 44,160 0.9%
2004.................... 0 0 0 0.0%
2005.................... 1 2,900 57,600 1.1%
2006.................... 3 31,013 146,676 2.9%
Thereafter.............. 1 107,400 590,700 11.5%
--
------- ---------- -----
Total......... 62 599,320(3) $ 5,148,407(4) 100.0%
== ======= ========== =====
</TABLE>

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

(1) Annual base rent expiring during each period, divided by total base rent
(both adjusted for contractual increases).

(2) Includes leases that have initial terms of less than one year.

(3) This figure is based on square footage actually leased (which excludes
vacant space), which accounts for the difference between this figure and
"Total Rentable Area" in the preceding table (which includes vacant space).

(4) This figure is based on square footage actually leased (which excludes
vacant space) and incorporates contractual rent increases arising after
1996, and thus differs from "Total Annual Effective Base Rent" in the
preceding table, which is based on 1996 rents.

E&L Properties. In February 1997, the Company entered into definitive
agreements with various partnerships and their general partner, a Southern
California syndicator, to acquire the E&L Properties, a portfolio of up to 11
properties, aggregating approximately 524,000 square feet, together with
associated management interests. The total acquisition cost, including
capitalized costs, is expected to be approximately $22.2 million, which will
consist of (i) approximately $9.5 million of mortgage debt assumed, (ii)
approximately $7.8 million in the form of 410,537 partnership units in the
Operating Partnership (based on a per unit value of $19.075), (iii)
approximately $650,000 in the form of 34,076 shares of Common Stock of the
Company (based on a per share value of $19.075) to be issued in connection with
the acquisition of the management interests relating to the E&L Properties, and
(iv) the balance in cash. The cash portion of the acquisition cost will be
funded with proceeds of the Offering. The E&L Properties consist of one office
and ten industrial properties, all located in Southern California. These
acquisitions are subject to a number of contingencies, including the approval of
the acquisition by a majority of the voting power of the limited partners of
each of the selling partnerships, satisfactory completion of environmental and
engineering due diligence and customary closing conditions. Accordingly, there
can be no assurance that any or all of these acquisitions will be completed, and
it is possible that fewer than all of these acquisitions may be completed.

The Operating Partnership units to be issued in connection with the E&L
Properties acquisition will be accompanied by an option permitting a holder of
the units to require the Operating Partnership to redeem the units. If the
holder requires a redemption, the Company, as general partner of the Operating
Partnership, will have the option to acquire the units by delivering Common
Stock on a one-for-one basis, or causing the

S-19
<PAGE> 20

Operating Partnership to distribute cash in an amount equal to the fair market
value of the units being redeemed. The shares of the Company's Common Stock to
be issued upon redemption of the Operating Partnership units will have certain
piggyback and demand registration rights. The shares of the Company's Common
Stock to be issued in connection with the E&L Properties acquisition will be
unregistered, but the holders of these shares will have similar piggyback and
demand registration rights as applicable to the Operating Partnership Units
issued in the transaction.

The following table sets forth for each of the E&L Properties, the name,
the property type, general location, year completed, approximate square footage
and, for the year ended December 31, 1996, average occupancy, average effective
rent per leased square foot, annual effective base rent, property revenues and
percentage of the total E&L Properties' revenues.

E&L PROPERTIES

<TABLE>
<CAPTION>
PROPERTY REVENUES
AVERAGE AVERAGE FOR YEAR
OCCUPANCY FOR EFFECTIVE ANNUAL ENDED 12/31/96
YEAR SQUARE YEAR ENDED RENT/LEASED EFFECTIVE --------------------
PROPERTY CITY ST COMPLETED FEET 12/31/96(1) SQUARE FEET BASE RENT AMOUNT PERCENT
- -------------------- -------------- ---- --------- ------- ------------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial
Chatsworth........ Chatsworth CA 1975 29,764 100% $ 5.84 $ 173,799 $ 182,018 6.2%
Sandhill
Industrial
Park............ Carson CA 1975 90,922 97% 4.47 394,142 394,142 13.5%
Arrow/San Dimas
Center.......... San Dimas CA 1980 35,996 91% 5.44 178,244 183,372 6.3%
Kraemer Business
Park............ Anaheim CA 1974 55,246 92% 5.61 284,882 284,882 9.7%
Piedmont Belshaw.. Carson CA 1973 23,826 88% 3.61 75,600 75,909 2.6%
Piedmont
Dominguez....... Carson CA 1973 85,120 84% 5.55 396,891 407,574 13.9%
Piedmont Dunn
Way............. Placentia CA 1968 59,832 94% 5.15 289,903 292,030 10.0%
Monroe Business
Park............ Placentia CA 1988 38,655 89% 5.21 179,283 180,561 6.2%
Piedmont Upland... Upland CA 1978 27,414 73% 4.23 84,660 86,062 2.9%
Katella/Glassell
Business Park... Orange CA 1976 46,912 91% 10.02 427,961 430,544 14.7%
Office
Academy Center.... Rolling Hills CA 1974 29,960 85% 15.58 396,769 408,276 14.0%
------- --- ------ ---------- ---------- -----
Total/Weighted
Average....... 523,647 90% $ 6.10 $2,882,134 $2,925,370 100.0%
======= === ====== ========== ========== =====
</TABLE>

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

(1) Represents average economic occupancy (calculated using month-end actual
occupancy rates).

S-20
<PAGE> 21

The following table sets forth combined financial information for the E&L
Properties for the year ended December 31, 1996.

COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE E&L PROPERTIES
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
REVENUES............................................. $ 2,925
CERTAIN EXPENSES:
Operating.......................................... 418
Real estate taxes.................................. 157
------
575
------
REVENUES IN EXCESS OF CERTAIN EXPENSES............... $ 2,350
======
</TABLE>

The following table sets forth lease expirations for the E&L Properties for
1997 and thereafter.

LEASE EXPIRATIONS -- E&L PROPERTIES

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
RENTABLE SQUARE ANNUAL BASE RENT ANNUAL BASE RENT
YEAR OF LEASE NUMBER OF FOOTAGE SUBJECT TO UNDER EXPIRING REPRESENTED BY
EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES EXPIRING LEASES(1)
- ---------------------------------- --------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C>
1997(2)........................... 108 223,297 $1,412,576 52.0%
1998.............................. 44 108,598 616,124 22.7%
1999.............................. 15 56,788 269,264 9.9%
2000.............................. 5 21,469 120,384 4.4%
2001.............................. 15 53,420 299,844 11.0%
Thereafter........................ 0 0 0 0.0%
--- ------- ---------- -----
Total................... 187 463,572(3) $2,718,192(4) 100.0%
=== ======= ========== =====
</TABLE>

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

(1) Annual base rent expiring during each period, divided by total base rent
(both adjusted for contractual increases).

(2) Leases for these types of properties have terms of one to three years and
typically require minimal tenant improvements. The Company believes the
lease expirations generally provide an opportunity for rent increases.

(4) This figure is based on square footage actually leased (which excludes
vacant space) and incorporates contractual rent increases arising after
1996, and thus differs from "Total Annual Effective Annual Base Rent" in the
preceding table, which is based on 1996 rents.

S-21
<PAGE> 22

consummation of any transaction. See "Risk Factors -- Risks Associated with
Acquisitions" in the accompanying Prospectus.

1996 PROPERTY SALES

As part of its strategy to achieve sustainable long-term growth in FFO, the
Company periodically reviews its current portfolio of properties for
opportunities to redeploy capital from certain existing Properties to other
properties that the Company believes have characteristics more suited to its
overall growth strategy and operating goals. Consistent with this strategy, in
June 1996, the Company sold the All American Industrial Properties held in its
industrial portfolio. The sales price for these two facilities was approximately
$2.9 million and generated a book value gain of approximately $321,000.

FINANCING ACTIVITIES

Line of Credit. In 1996, the Company entered into the $50 million Line of
Credit with Wells Fargo Bank. The Line of Credit has a term of two years,
subject to annual extensions at the option of the Company. The Line of Credit
bears interest at an annual rate equal to LIBOR plus 2.375%, which will be
reduced to LIBOR plus 1.75%, upon completion of the Offering. If the Line of
Credit lender terminates the Line of Credit (other than by reason of the
Company's default thereunder), at the Company's option, any remaining balance
outstanding under the Line of Credit will be converted to a ten-year term loan,
bearing interest at a fixed rate of 275 points over the then 10-year treasury
rate, with a twenty-year amortization schedule. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Increased Distribution. In January 1997, the Company announced a 6.7%
increase in its regular quarterly distribution from $.30 to $.32 per share of
Common Stock. See "Distribution Policy."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock offered
hereby are expected to be approximately $66.1 million (approximately $76.1
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to contribute such proceeds to the Operating Partnership to
purchase an additional proportionate interest in the Operating Partnership. The
Operating Partnership will use the net proceeds to fund acquisition activities,
repay outstanding indebtedness, including indebtedness incurred in connection
with the Scottsdale Hotel acquisition, and for general corporate purposes.

The only indebtedness to be repaid with the net proceeds from the Offering
are outstanding borrowings under the Line of Credit. As of March 17, 1997, the
interest rate on the Line of Credit was 7.8750% and the initial maturity date of
the Line of Credit was July 14, 1998, subject to certain extension provisions.

The Company is continuously engaged, in the ordinary course of its
business, in the evaluation of properties for acquisition. Pending application
of any remaining portion of net proceeds, the Company will invest that portion
in interest-bearing accounts and short-term, interest-bearing securities that
are consistent with the Company's intention to qualify for taxation as a REIT.
Such investments may include, for example, government and government agency
securities, certificates of deposit and interest-bearing bank deposits.

S-22
<PAGE> 23

PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY

On January 31, 1996, the Company's Common Stock began trading on the NYSE
under the symbol "GLB." On March 17, 1997, the last reported sale price per
share of the Company's Common Stock on the NYSE was $20 1/4. The following table
sets forth the high and low closing prices per share of the Company's Common
Stock for the periods indicated, as reported on the NYSE composite tape, and the
distributions per share paid by the Company with respect to the periods
indicated.

<TABLE>
<CAPTION>
QUARTERLY PERIOD HIGH LOW DISTRIBUTIONS
---------------------------------------------- ---- --- -------------
<S> <C> <C> <C>
1996
First Quarter(1)............................ $14 1/4 $13 $0.30
Second Quarter.............................. 15 1/8 13 1/2 $0.30
Third Quarter............................... 14 5/8 13 3/8 $0.30
Fourth Quarter.............................. 17 5/8 13 5/8 $0.32

1997
First Quarter(2)............................ $20 1/2 16 3/4 (3)
</TABLE>

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

(1) Although the Consolidation occurred on December 31, 1995 and the Company
began paying distributions on its Common Stock based on earnings in the
first quarter of 1996, the Common Stock did not begin trading on the NYSE
until January 31, 1996.

(2) High and low stock closing prices through March 17, 1997.

(3) Distributions for the quarter ending March 31, 1997 had not been declared as
of March 17, 1997.

DISTRIBUTION POLICY

Since the Consolidation, the Company has paid regular quarterly
distributions to holders of its Common Stock. The Company paid quarterly
distributions of $0.30 per share for the first, second and third quarters of
1996 on May 13, 1996, August 14, 1996 and October 15, 1996, respectively. In
January 1997, the Company announced a 6.7% increase in its regular quarterly
distribution, increasing the quarterly distribution from $0.30 to $0.32 per
share. The distributions for the fourth quarter of 1996 of $0.32 per share were
paid on February 19, 1997. Distributions are declared quarterly by the Company
based on financial results for the prior calendar quarter.

The Company makes distributions to stockholders if, as and when declared by
its Board of Directors out of funds legally available therefor. The Company
expects to continue its policy of paying quarterly distributions, but there can
be no assurance that distributions will continue or be paid at any specific
level.

The Board of Directors, in setting the level of the stockholders'
distributions, takes into account, among other things, the Company's financial
performance, debt covenants and its need of funds for working capital reserves,
capital improvements and new investment opportunities. At present, the Company
intends to retain from net cash receipts from operations amounts necessary for
working capital reserves, debt payments and capital improvements and
replacements for existing properties, and to distribute the balance to
stockholders as distributions. The Company does not, however, intend to
distribute net cash receipts from sales or refinancings of assets, but instead
to retain such funds to make new investments or for other corporate purposes,
taking into account the income tax impact, if any, of reinvesting such proceeds
rather than distributing them. These policies are within the discretion of the
Board of Directors and may be changed from time to time subject only to the
distribution requirements under the REIT provisions of the Internal Revenue Code
of 1996, as amended (the "Code") and other legal restrictions. See "Federal
Income Tax Consequences -- Annual Distribution Requirements" in the accompanying
Prospectus.

The Company believes it will have sufficient available cash to make
distributions at a level necessary to maintain REIT status. Additionally, the
Company would be required to make a special distribution with respect to
accumulated earnings and profits, if any, from any portion of a year in which it
does not elect REIT status, including any earnings and profits attributable to
the Company and GC.

S-23
<PAGE> 24

Although the Company believes that a small portion of its distributions for
1997 will be classified as a return of capital for federal income tax purposes,
it cannot currently predict the portion of 1997 or future distributions that may
be so classified. See "Federal Income Tax Consequences -- Taxation of
Stockholders -- Taxation of Taxable Domestic Stockholders" in the accompanying
Prospectus. No part of the 1996 distributions were classified as a return of
capital for federal income tax purposes.

S-24
<PAGE> 25

CAPITALIZATION

The following table sets forth the historical capitalization of the Company
as of December 31, 1996, and on a pro forma basis as if (i) the acquisition of
the CIGNA Properties, the E&L Properties and the Scottsdale Hotel, and (ii) the
Offering and the application of the net proceeds therefrom as described in "Use
of Proceeds" had each been completed on December 31, 1996. This capitalization
table should be read in conjunction with all financial statements and notes
thereto included in this Prospectus Supplement and the accompanying Prospectus
or incorporated herein and therein by reference.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Mortgage loans(1)............................................ $ 54,584 $ 68,757
Line of Credit(2)............................................ 21,307 11,835
-------- --------
Total debt........................................... 75,891 80,592
-------- --------
MINORITY INTEREST(3)........................................... 8,831 16,662
-------- --------
STOCKHOLDERS' EQUITY:
Common stock: $0.001 par value, 50,000,000 shares authorized,
9,661,553 and 13,195,629 issued and outstanding,
respectively(4)........................................... 10 13
Additional paid-in capital................................... 105,952 172,655
Deferred compensation........................................ (399) (399)
Retained deficit............................................. (7,963) (7,963)
-------- --------
Total stockholders' equity........................... 97,600 164,306
-------- --------
TOTAL CAPITALIZATION......................................... $ 182,322 $ 261,560
======== ========
</TABLE>

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

(1) The pro forma balance reflects the assumption of mortgage loans in
connection with the acquisition of the Scottsdale Hotel and E&L Properties.

(2) The pro forma balance reflects a net decrease in borrowings under the Line
of Credit due to repayment of such borrowings.

(3) The pro forma minority interest reflects the issuance of 410,537 units of
partnership interest in the Operating Partnership in connection with the E&L
Properties acquisition.

(4) The pro forma outstanding Common Stock includes the issuance of 34,076
shares of Common Stock in connection with the E&L Properties acquisition.

S-25
<PAGE> 26

SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA

The following table sets forth selected financial and other data on a
historical, as adjusted and pro forma basis for the Company, and on a historical
combined basis for the GRT Predecessor Entities.

The following unaudited pro forma operating and other data have been
prepared to reflect (i) the Consolidation and related transactions, (ii) the
Line of Credit, (iii) all property acquisitions completed in 1996 and the
acquisition of the Scottsdale Hotel, the CIGNA Properties, and the E&L
Properties, as described under the caption "Recent Activities" and (iv) the
Offering and the application of the net proceeds therefrom as set forth in "Use
of Proceeds," as if each of such transactions had occurred and had been
completed on January 1, 1996. The unaudited pro forma balance sheet data has
been prepared to reflect (i) the acquisition of the Scottsdale Hotel, the CIGNA
Properties and the E&L Properties described under the caption "Recent
Activities" and (ii) the Offering and the application of the net proceeds
therefrom as set forth in "Use of Proceeds" as if each of such transactions had
occurred and had been completed on December 31, 1996. In the opinion of
management, all adjustments necessary to reflect the effects of the transactions
have been made.

The following unaudited as adjusted operating data, balance sheet data, and
other data have been prepared to reflect the Consolidation and related
transactions as if such transactions had occurred on January 1, 1994.

The pro forma selected financial and other data is unaudited and is not
necessarily indicative of the consolidated results which would have occurred if
the transactions had been consummated in the periods presented, or on any
particular date in the future, nor does it purport to represent the financial
position, results of operations or cash flows for future periods. The following
table should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and with all financial statements
and notes thereto included in this Prospectus Supplement and the accompanying
Prospectus or incorporated herein and therein by reference.

S-26
<PAGE> 27

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
PRO FORMA HISTORICAL AS ADJUSTED HISTORICAL AS ADJUSTED HISTORICAL HISTORICAL HISTORICAL
1996 1996 1995 1995 1994 1994 1993 1992
--------- ---------- ----------- ---------- ----------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental Revenue................. $ 41,920 $ 17,943 $13,495 $ 15,454 $12,867 $ 13,797 $ 13,546 $ 13,759
Fees and reimbursements........ 311 311 260 16,019 260 13,327 15,439 14,219
Interest and other income...... 1,427 1,080 982 2,698 1,109 3,557 3,239 3,150
Equity in earnings of
Associated Companies......... 1,640 1,598 1,691 -- 1,649 -- -- --
Total Revenues(1).............. 45,298 21,253 16,428 34,171 15,885 30,681 32,224 31,128
Property operating expenses.... 13,029 5,266 4,084 8,576 3,673 6,782 7,553 8,692
General and administrative..... 1,851 1,393 983 15,947 954 13,454 14,321 13,496
Interest expense............... 6,832 3,913 2,767 2,129 2,767 1,140 1,301 1,466
Depreciation and
Amortization................. 7,767 4,575 3,654 4,762 3,442 4,041 4,572 4,933
Income (loss) from operations
before minority interest and
extraordinary income......... 15,819 (1,131) 4,077 524 4,516 1,580 2,144 (2,139)
Net income (loss)(2)........... 14,677 (1,609) 3,796 524 (3,093) 1,580 4,418 (2,681)
Per share (3):
Net income (loss) before
extraordinary items........ $ 1.11 $ (0.21) $ 0.66 -- $ 0.72 -- -- --
Net income (loss)............ 1.11 (0.24) 0.66 -- (0.54) -- -- --
Distributions(4)............. 1.28 1.22 1.20 -- 1.20 -- -- --
BALANCE SHEET DATA:
Net investment in real
estate....................... 241,788 161,945 -- $ 77,574 -- $ 63,994 $ 70,245 $ 75,022
Mortgage loans receivable,
net.......................... 9,905 9,905 -- 7,465 -- 19,953 18,825 18,967
Total assets................... 264,758 185,520 -- 105,740 -- 117,321 102,635 108,168
Total debt..................... 80,592 75,891 -- 36,168 -- 17,906 12,172 15,350
Stockholders' equity........... 164,306 97,600 -- 55,628 -- 80,558 85,841 87,172
OTHER DATA:
EBIDA(5)....................... $ 30,418 $ 14,273 $11,361 $ 9,291 $11,258 $ 10,269 $ 10,326 $ 8,815
Cash flow provided by (used
for):
Operating activities......... 23,586 4,138 4,656 (10,608) 5,742 22,426 12,505 6,891
Investing activities......... (119,022) (61,833) 3,263 8,656 1,710 (1,947) (2,002) (1,437)
Financing activities......... 99,161 (54,463) (7,933) (17,390) (6,408) (2,745) (8,927) (9,476)
FFO(6)......................... 24,838 11,491 9,638 7,162 9,536 9,129 9,025 7,349
CAD(7),(8)..................... 22,216 10,497 8,856 3,237 8,754 6,919 6,921 4,731
Debt to total market
capitalization(9)............ 21.9% 29.5% -- -- -- -- -- --
</TABLE>

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

(1) Certain revenues which are included in the historical combined amounts for
1995 and prior are not included on a pro forma or as adjusted basis. These
revenues are included in three unconsolidated Associated Companies, GHG, GC
and GIRC, on a pro forma basis and on an as adjusted basis, from which the
Company receives lease payments and dividend income.

(2) Historical 1996 and as adjusted 1994 net losses reflect $7,237 of
Consolidation and litigation costs incurred in connection with the
Consolidation. As adjusted 1994 data give effect to the Consolidation and
related transactions as if such transactions had occurred on January 1,
1994, whereas historical 1996 data reflect such transactions in the periods
they were expensed. The Consolidation and litigation costs were expensed on
January 1, 1996, the Company's first day of operations. Net loss in 1992
includes a non-recurring writedown of $4,282 on GPI's investment in the
master agreement that resulted from GPI's in-substance foreclosure on the
AFP Partners' properties.

(3) Pro Forma net income per share is based upon pro forma weighted average
shares outstanding (assuming units of partnership interest in the Operating
Partnership held by minority interests are not converted into shares) of
13,195,629 for 1996. As adjusted net income per share is based upon as
adjusted weighted average shares outstanding of 5,753,709 for 1995 and 1994.

(4) Consists of distributions declared for the period then ended.

(5) EBIDA represents and is computed as earnings before interest expense,
depreciation, amortization, loss provisions and minority interests. The
Company believes that in addition to cash flows and net income, EBIDA is a
useful financial performance measurement for assessing the operating
performance of an equity REIT because, together

S-27
<PAGE> 28

with net income and cash flows, EBIDA 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. To evaluate EBIDA and the
trends it depicts, the components of EBIDA, such as rental revenues, rental
expenses, real estate taxes and general and administrative expenses, should
be considered. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Excluded from EBIDA are financing
costs such as interest as well as depreciation and amortization, each of
which can significantly affect a REIT's results of operations and liquidity
and should be considered in evaluating a REIT's operating performance.
Further, EBIDA does not represent net income or cash flows from operating,
financing and investing activities as defined by generally accepted
accounting principles and does not necessarily indicate that cash flows will
be sufficient to fund cash needs. It should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.

(6) Funds from Operations represents income (loss) from operations before
minority interests and extraordinary items plus depreciation and
amortization except amortization of deferred financing costs and loss
provisions. In 1996, consolidation and litigation costs were also added back
to net income to determine FFO. Management generally considers FFO to be a
useful financial performance 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 net income or cash flows from
operations as defined by GAAP and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. It should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. FFO does not measure
whether cash flow is sufficient to fund all of the Company's cash needs
including principal amortization, capital improvements and distributions to
stockholders. FFO also does not represent cash flows generated from
operating, investing or financing activities as defined by GAAP. Further,
FFO as disclosed by other REITs may not be comparable to the Company's
calculation of FFO.

(7) Cash available for distribution ("CAD") represents net income (loss)
(computed in accordance with GAAP), excluding extraordinary gains or losses
or loss provisions, plus depreciation and amortization including
amortization of deferred financing costs, less lease commissions and capital
expenditures. CAD should not be considered an alternative to net income as a
measure of the Company's financial performance or to cash flow from
operating activities (computed in accordance with GAAP) as a measure of the
Company's liquidity, nor is it necessarily indicative of sufficient cash
flow to fund all of the Company's cash needs.

(8) CAD for the year ended December 31, 1995 excludes approximately $6,782 that
represents the net proceeds received from the prepayment of the Finley
mortgage loan and the repayment of the wrap note payable.

(9) Debt to total market capitalization is calculated as total debt at period
end divided by total debt plus the market value of the Company's outstanding
common stock, on a fully converted basis, based upon a sales price of the
Company's Common Stock of $20.25 per share on a pro forma basis and the
closing price of the Common Stock of $17.625 on December 31, 1996.

S-28
<PAGE> 29

PRO FORMA FINANCIAL INFORMATION

The following unaudited, pro forma consolidated balance sheet as of
December 31, 1996 has been prepared to reflect (i) the Line of Credit described
under the caption "Recent Activities," (ii) the property acquisitions and
pending acquisitions described under the caption "Recent Activities" and (iii)
the Offering, and the application of the net proceeds therefrom as set forth in
"Use of Proceeds" as if such transactions had occurred on December 31, 1996. The
unaudited, pro forma consolidated statements of operations for the year ended
December 31, 1996 have been prepared to reflect (i) the Consolidation and
related transactions, (ii) the Line of Credit described under the caption
"Recent Activities," (iii) the Property acquisitions and pending acquisitions
described under the caption "Recent Activities" and (iv) the Offering and the
application of the net proceeds therefrom as set forth in "Use of Proceeds," as
if such transactions had occurred on January 1, 1996. These unaudited, pro forma
consolidated financial statements should be read in conjunction with the
financial statements and notes of the Company, included elsewhere in this
Prospectus Supplement and included in the Company's filings under the Exchange
Act, which are incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. In the opinion of management, all adjustments necessary
to reflect the effects of the transactions have been made.

The pro forma consolidated financial information is unaudited and is not
necessarily indicative of the results of which would have occurred if the
transactions had been consummated in the periods presented, or on any particular
date in the future, nor does it purport to represent the financial position,
results of operations or cash flows for future periods.

S-29
<PAGE> 30

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED PRO FORMA BALANCE SHEET

AS OF DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
REPAYMENT
PROPERTY OF
HISTORICAL(1) ACQUISITIONS(2) OFFERING(3) DEBT(4) PRO FORMA
------------- ---------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Rental property, net...... $ 161,945 $ 79,843 $ -- $ -- $241,788
Investments in Associated
Companies.............. 7,350 -- -- -- 7,350
Mortgage loans receivable,
net.................... 9,905 -- -- -- 9,905
Cash and cash
equivalents............ 1,355 (57,189) 66,056 (9,472) 750
Other Assets.............. 4,965 -- -- 4,965
-------- ------- ------- ------- --------
Total Assets...... $ 185,520 $ 22,654 $66,056 $(9,472) $264,758
======== ======= ======= ======= ========
LIABILITIES
Mortgage loans............ $ 54,584 $ 14,173 $ -- $ -- $ 68,757
Line of Credit............ 21,307 -- -- (9,472) 11,835
Other liabilities......... 3,198 -- -- -- 3,198
-------- ------- ------- ------- --------
Total
Liabilities..... 79,089 14,173 -- (9,472) 83,790
-------- ------- ------- ------- --------
MINORITY INTEREST........... 8,831 7,831 -- -- 16,662
-------- ------- ------- ------- --------
STOCKHOLDERS' EQUITY
Common stock.............. 10 -- 3 -- 13
Additional paid-in
capital................ 105,952 650 66,053 -- 172,655
Deferred compensation..... (399) -- -- -- (399)
Retained earnings
(deficit).............. (7,963) -- -- -- (7,963)
-------- ------- ------- ------- --------
Total Equity
(Deficit)....... 97,600 650 66,056 -- 164,306
-------- ------- ------- ------- --------
Total Liability
and
Stockholders'
Equity.......... $ 185,520 $ 22,654 $66,056 $(9,472) $264,758
======== ======= ======= ======= ========
</TABLE>

S-30
<PAGE> 31

GLENBOROUGH REALTY TRUST INCORPORATED

NOTES AND ADJUSTMENTS TO PRO FORMA CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER UNIT AND PER SHARE AMOUNTS)

1. Reflects the historical consolidated balance sheet of the Company as of
December 31, 1996, which includes the acquisitions of the following
properties and property portfolios:

<TABLE>
<CAPTION>
PROPERTY PURCHASE PRICE DATE ACQUIRED
---------------------------------------------------- -------------- -------------------
<S> <C> <C>
UCT Property........................................ $ 18,844 July 15, 1996
San Antonio Hotel................................... 2,805 August 1, 1996
Kash n' Karry Property.............................. 1,617 August 2, 1996
Bond Street Property................................ 3,185 September 24, 1996
TRP Properties...................................... 43,798 October 17, 1996
Carlsberg Properties................................ 23,152 November 19, 1996
</TABLE>

UCT Property. In July 1996, the Company acquired the UCT Property, a
23-story, 272,443 square foot office building, in St. Louis, Missouri. The
total acquisition cost, including capitalized costs, was approximately
$18,844, which consisted of $350 in the form of 23,333 partnership units in
the Operating Partnership (based on a per unit value of $15.00), and the
balance paid in cash. The cash portion was financed through advances under
the Line of Credit.

San Antonio Hotel. In August 1996, the Company acquired the San Antonio
Hotel, a 64-room hotel property, which is located in San Antonio, Texas. The
total acquisition cost, including capitalized costs, was approximately
$2,805, which was paid in cash. The acquisition was financed with an advance
on the Line of Credit.

Kash n' Karry. In August 1996, the Company also expanded an existing shopping
center in Tampa, Florida through a purchase-leaseback transaction with the
anchor tenant. The Company's initial acquisition cost, including capitalized
costs, was approximately $1,617, all of which was paid in cash which was
financed through advances under the Line of Credit, and in addition the
Company committed an additional $1,800 for future expansion and tenant
improvements, which the Company expects will also be paid in cash.

Bond Street Property. In September 1996, the Company acquired the Bond Street
Property, a two-story, 40,595 square foot office building, in Farmington
Hills, Michigan. The total acquisition cost, including capitalized costs, was
approximately $3,185, which consisted of $391 in the form of 26,067
partnership units in the Operating Partnership (based on a per unit value of
$15.00), and the balance paid in cash.

TRP Acquisition. In October 1996, the Company acquired the TRP Properties, a
portfolio of 12 properties, aggregating approximately 784,000 square feet and
538 multi-family units, together with associated management interests. The
total acquisition cost, including capitalized costs, was approximately
$43,798, which consisted of (i) approximately $16,300 of mortgage debt
assumed, (ii) approximately $760 in the form of 52,387 partnership units in
the Operating Partnership (based on a per unit value of $14.50), (iii)
approximately $2,600 in the form of 182,000 shares of Common Stock of the
Company (based on a per share value of $14.50) and (iv) the balance in cash.
The cash portion was financed through advances under the Line of Credit. The
TRP Properties consist of three office, six industrial, one retail and two
multi-family Properties, located in six states.

S-31
<PAGE> 32

GLENBOROUGH REALTY TRUST INCORPORATED

NOTES AND ADJUSTMENTS TO PRO FORMA CONSOLIDATED -- (CONTINUED)
BALANCE SHEET AS OF DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER UNIT AND PER SHARE AMOUNTS)

form of 24,844 shares of Common Stock of the Company (based on a per share
value of $14.09) and (iii) the balance in cash. The cash portion was financed
through advances under the Line of Credit. The Carlsberg Properties consist
of five office Properties and one retail Property, located in two states.
Concurrently with the Company's acquisition of the Carlsberg Properties, one
of the Associated Companies assumed management of a portfolio of 13
additional properties with an aggregate of one million square feet under a
venture with an affiliate of the seller.

2. Reflects the acquisition of the following properties:

<TABLE>
<CAPTION>
ACQUISITION COSTS
-----------------
<S> <C>
Scottsdale Hotel...................................... $12,132
CIGNA Properties...................................... 45,463
E&L Properties........................................ 22,248
</TABLE>

Scottsdale Hotel. In February 1997, the Company acquired the Scottsdale
Hotel, a 163-suite hotel Property, which began operations in January 1996 and
is located in Scottsdale, Arizona. The total acquisition cost, including
capitalized costs, was approximately $12,132, which consisted of
approximately $4,675 of mortgage debt assumed, and the balance in cash. The
cash portion was financed through advances under the Line of Credit. Like
four of the Company's other hotel Properties, the Scottsdale Hotel is
marketed as a Country Suites by Carlson.

CIGNA Properties. In January 1997, the Company entered into a definitive
agreement with two limited partnerships organized by affiliates of CIGNA
Corp. to acquire the CIGNA Properties, a portfolio of six properties,
aggregating approximately 616,000 square feet and 224 multi-family units. The
total acquisition cost, including capitalized costs, is expected to be
approximately $45,463, which will be paid entirely in cash from the proceeds
of the Offering. The CIGNA Properties consist of two office properties, two
office/R&D properties, a neighborhood shopping center and a multi-family
property, located in four states. These acquisitions are subject to a number
of contingencies, including approval of the acquisition by a majority in
interest of the voting power of the limited partners of each of the selling
partnerships, satisfactory completion of environmental and engineering due
diligence and customary closing conditions. Accordingly, there can be no
assurance that any or all of these acquisitions will be completed.

E&L Properties. In February 1997, the Company entered into definitive
agreements with various partnerships and their general partner, a Southern
California syndicator, to acquire the E&L Properties, a portfolio of up to 11
properties, aggregating approximately 524,000 square feet, together with
associated management interests. The total acquisition cost, including
capitalized costs, is expected to be approximately $22,248, which will
consist of (i) approximately $9,498 of mortgage debt assumed, (ii)
approximately $7,831 in the form of 410,537 partnership units in the
Operating Partnership (based on per unit value of $19.075), (iii)
approximately $650 in the form of 34,076 shares of Common Stock of the
Company (based on per share value of $19.075) to be issued in connection with
the acquisition of the management interests relating to the E&L Properties,
and (iv) the balance in cash. The cash portion of the acquisition cost will
be funded with proceeds of the Offering. The E&L Properties consist of one
office and ten industrial properties, all located in Southern California.
These acquisitions are subject to a number of contingencies, including the
approval of the acquisition by a majority of the voting power of the limited
partners of each of the selling partnerships, satisfactory completion of
environmental and engineering due diligence and customary closing conditions.
Accordingly, there can be no assurance that any or all of these acquisitions
will be completed, and it is possible that fewer than all of these
acquisitions may be completed.

S-32
<PAGE> 33

GLENBOROUGH REALTY TRUST INCORPORATED

NOTES AND ADJUSTMENTS TO PRO FORMA CONSOLIDATED -- (CONTINUED)
BALANCE SHEET AS OF DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER UNIT AND PER SHARE AMOUNTS)

These acquisitions are being funded with approximately $57,189 of the net
proceeds from the Offering, assumption of approximately $14,173 of mortgage
debt, the issuance of approximately 410,537 Operating Partnership units
with an aggregate approximate value of $7,831 (based on $19.075 per unit
value) and approximately 34,076 shares of unregistered Common Stock with an
aggregate approximate value of $650 (based on $19.075 per share value). The
assumed mortgages bear interest at rates of 7.3% to 8.4% and mature between
2006 and 2017.

3. Reflects the net proceeds from the Offering. In connection with the Offering,
the Company incurred costs of approximately $4,819.

4. Reflects the repayment of borrowings on the Line of Credit of approximately
$9,472. On a pro forma basis giving effect to the Offering, the net proceeds
therefrom and the acquisitions of the Scottsdale Hotel, the CIGNA properties,
and the E&L Properties, the Company would have approximately $38,165 of
remaining borrowing capacity on the Line of Credit.

S-33
<PAGE> 34

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS

AS OF DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PROPERTY OTHER
HISTORICAL(1) LINE OF CREDIT(2) ACQUISITIONS(3) ADJUSTMENTS(4) PRO FORMA
---------- ----------------- --------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental revenue................. $ 17,943 $ -- $24,237 $ (260) $ 41,920
Equity in earnings of
Associated Companies......... 1,598 -- -- 42 1,640
Fees, interest and other
income....................... 1,391 -- -- 347 1,738
---------- ------- --------------- -------------- ----------
Total Revenue........ 20,932 -- 24,237 129 45,298
---------- ------- --------------- -------------- ----------
OPERATING EXPENSES
Operating expenses............. 5,266 -- 7,806 (43) 13,029
General and administrative..... 1,393 -- -- 458 1,851
Depreciation and
amortization................. 4,575 -- 3,242 (50) 7,767
Interest expense............... 3,913 70 2,849 -- 6,832
---------- ------- --------------- -------------- ----------
Total operating
expenses........... 15,147 70 13,897 365 29,479
---------- ------- --------------- -------------- ----------
Income from operations before
minority interests........... 5,785 (70) 10,340 (236) 15,819
Minority interest.............. (292) -- -- (850) (1,142)
---------- ------- --------------- -------------- ----------
Net income(5).................. $ 5,493 $ (70) $10,340 $ (1,086) $ 14,677
======== ============= =========== =========== =========
Net income per common share.... $ 0.83 $ 1.11
======== =========
Weighted average common shares
outstanding.................. 6,632,707 13,195,629
======== =========
</TABLE>

S-34
<PAGE> 35

GLENBOROUGH REALTY TRUST INCORPORATED

NOTES AND ADJUSTMENTS TO PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)

1. Reflects the historical consolidated operations of the Company for the year
ended December 31, 1996, excluding the gain on the sale of the All American
Industrial Properties of $321, an extraordinary loss on refinancing of debt
of $186, Consolidation costs of $6,082 and Litigation costs of $1,155.
Consolidation and litigation costs all related to the formation of the
Company and are non-recurring.

2. Reflects the estimated interest on the pro forma repayment of the Company's
original secured bank line with the borrowings on the Line of Credit as well
as repayments as a result of the Offering. The repayment results in a net
increase in interest expense consisting of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Interest differential................................ $ 650
Interest on Line of Credit repayments................ (739)
Amortization of new loan fees........................ 101
Amortization of old loan fees........................ (37)
Unused Line of Credit fees........................... 95
---
$ 70
===
</TABLE>

Interest expense is reduced as a result of the repayment of borrowings on the
Line of Credit of approximately $9,472 at an assumed interest rate of 7.80%.
The Company's Line of Credit is subject to changes in LIBOR. Based upon the
pro forma Line of Credit balance as of December 31, 1996, a 1/8% increase or
decrease in LIBOR will result in increased or decreased annual interest
expense of approximately $15.

The amortization of the new loan fees is based upon total estimated fees and
costs of $1,121 over the respective terms of the Line of Credit and Term
Loan. The unused Line of Credit fees are based upon 0.25% of the pro forma
unused Line of Credit capacity as of December 31, 1996 of approximately
$38,165.

The Line of Credit provides for maximum borrowings of up to $50,000, but is
limited to a specified borrowing base ($50,000 on a pro forma basis), has an
initial term of two years which can be extended an additional three years at
the option of the Company, bears interest at LIBOR plus 2.375% (assumed to be
7.80%), requires monthly interest-only payments and requires annual unused
Line of Credit fees equal to 0.25% of the unused Line of Credit balance. The
Term Loan has a term of two years and bears interest at LIBOR plus 2.375%
(assumed to be 7.80%). In connection with obtaining the Line of Credit and
Term Loan, the Company incurred commitment fees and other costs totaling
approximately $1,121.

3. Reflects the historical 1996 operations of the Carlsberg Properties, TRP
Properties, UCT Property, Bond Street Property, Kash n' Karry Property and
the San Antonio Hotel (collectively "the 1996 Acquisitions") for the period
prior to acquisition, and the historical operations of the Scottsdale Hotel,
the CIGNA Properties and the E&L Properties for the year ended December 31,
1996.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
(OR PORTION OF 1996 PRIOR TO ACQUISITION)
---------------------------------------------------------------------------
1996 SCOTTSDALE CIGNA E&L COMBINED
ACQUISITIONS HOTEL PROPERTIES PROPERTIES TOTAL
------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................... $11,943 $ 1,558 $ 7,811 $ 2,925 $24,237
Operating expenses......... (4,324) (231) (2,676) (575) (7,806)
------- ------ ------ ------ -------
$ 7,619 $ 1,327 $ 5,135 $ 2,350 $16,431
======= ====== ====== ====== =======
</TABLE>

S-35
<PAGE> 36

GLENBOROUGH REALTY TRUST INCORPORATED

NOTES AND ADJUSTMENTS TO PRO FORMA CONSOLIDATED -- (CONTINUED)

Also, reflects estimated annual depreciation and amortization, based upon
estimated useful lives of 30-40 years on a straight-line basis.

Also, reflects the estimated interest on the pro forma mortgage debt
assumed of approximately $39,373 in connection with the acquisition of the
Carlsberg Properties, the TRP Properties, the Scottsdale Hotel and the E&L
Properties. The estimated interest on the mortgage loans assumed is based
upon an assumed weighted average rate of 8.20%.

4. Reflects the following adjustments:

<TABLE>
<S> <C> <C>
Rental revenue
Elimination of revenues of All American Industrial Properties..... $(260)
=====
Equity in earnings of the Associated Companies
GHG
Addition of the Scottsdale Hotel............................... $ 168
Addition of the San Antonio Hotel.............................. (158)
GC
Addition of the Carlsberg fee managed properties............... 141
Sale of the UCT Property to the Company........................ (77)
-----
Net additional income........................................ 74
Provision for income taxes................................... (32)
-----
Net additional equity in earnings to the Company............. $ 42
=====
Fees, interest and other income
Additional Interest on Grunow note receivable relating to the
Carlsberg Properties acquisition at 11% per annum.............. $ 347
=====
Operating expenses
Elimination of expenses of All American Industrial Properties..... $(128)
Additional expenses of the E&L Properties......................... 85
-----
$ (43)
=====
General and administrative expenses attributable to 1996 and 1997
acquisitions...................................................... $ 458
=====
Depreciation and amortization of All American Industrial
Properties........................................................ $ (50)
=====
</TABLE>

5. The pro forma taxable income before dividends paid deduction for the Company
for the year ended December 31, 1996 was approximately $17,330 which has been
calculated as pro forma net income from operations of approximately $14,677
plus GAAP basis depreciation and amortization of approximately $7,767 less
tax basis depreciation and amortization of $5,412 plus other book-to-tax
differences of approximately $298.

S-36
<PAGE> 37

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

The following discussion should be read in conjunction with "Selected
Historical and Pro Forma Financial and Other Data" and the Company's financials
included elsewhere in this Prospectus Supplement or the accompanying Prospectus
or incorporated by reference in this Prospectus Supplement or the accompanying
Prospectus.

BACKGROUND

The Company commenced operations on December 31, 1995 through the merger of
eight public limited partnerships and a management company with and into the
Company. A portion of the Company's operations is conducted through the
Operating Partnership in which the Company holds a 1% interest as the sole
general partner and an approximate 91% limited partner interest. The Company
intends to elect treatment as a REIT when it files its tax return for the year
ended December 31, 1996.

The statements of operations, equity and cash flows for the years ended
December 31, 1995, 1994 and 1993 of the GRT Predecessor Entities include the
historical operations of GC and the Partnerships. These statements have been
adjusted to reflect the consolidation of two joint ventures which were, in
aggregate, wholly owned by the Partnerships. The statements of operations,
equity and cash flows for the years ended December 31, 1995, 1994 and 1993 of
the GRT Predecessor entities are included as the Consolidation of these entities
to form the Company did not occur until December 31, 1995.

Certain components of the Company's results of operations are not
comparable to those of the GRT Predecessor Entities. The primary reason for the
difference is the segregation in 1996 of the operations (management fees and
reimbursements, as well as related expenses) of the Associated Companies, all of
which were combined in the GRT Predecessor Entities 1995 financial statements.
Effective January 1, 1996, the Company owns 100% of the preferred stock in each
of the Associated Companies and accounts for its interests under the equity
method. Also, contributing to the comparability difference is the change in the
operational structure of three original hotel properties, not including the San
Antonio Hotel which was acquired in 1996 and the Irving, Texas Hotel (the
"Hotels"). The Hotels were wholly owned by the GRT Predecessor Entities and,
thus, the operations of the Hotels were included in the financial statements of
the GRT Predecessor Entities. In order for the Company to qualify as a REIT,
neither the Company nor the Operating Partnership can operate the Hotels. Under
the current structure, the Company owns the Hotels but leases them to GHG. The
Company includes only the related lease payments earned from GHG in its
statement of operations. When comparing historical year ended December 31, 1996
to historical years ended December 31, 1995 and 1994, the decreases in fees and
reimbursements, property operating expenses and general and administrative
expenses are the primary components affected by these changes in structure.

RESULTS OF OPERATIONS

COMPARISON OF THE HISTORICAL YEAR ENDED DECEMBER 31, 1996 TO THE AS ADJUSTED
YEAR ENDED DECEMBER 31, 1995.

Set forth below is a discussion comparing the historical results of
operations for the year ended December 31, 1996 to the results of operations for
the year ended December 31, 1995 adjusted to reflect the Consolidation as if the
Consolidation had occurred on January 1, 1994.

S-37
<PAGE> 38

Following is a table of net operating income by property type, for
comparative purposes, presenting the results for the year ended December 31,
1996 and the as adjusted year ended December 31, 1995.

RESULTS OF OPERATIONS BY PROPERTY TYPE
HISTORICAL YEAR ENDED DECEMBER 31, 1996 AND AS ADJUSTED YEAR ENDED DECEMBER 31,
1995

<TABLE>
<CAPTION>
MULTI- PROPERTY ELIMINATING TOTAL
OFFICE INDUSTRIAL RETAIL FAMILY HOTEL TOTAL ENTRY(1) REPORTED
---------- ---------- ---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 HISTORICAL
Revenue................ $3,905,000 $4,260,000 $3,746,000 $1,519,000 $4,513,000 $17,943,000 $17,943,000
Operating Expenses..... 1,697,000 744,000 991,000 601,000 1,698,000 5,731,000 ($465,000) 5,266,000
Net Operating Income... 2,208,000 3,516,000 2,755,000 918,000 2,815,000 12,212,000 465,000 12,677,000
Percentage of Total
NOI.............. 18% 29% 23% 7% 23% 100%
1995 AS ADJUSTED
Revenue................ $1,280,000 $4,133,000 $3,366,000 $ 782,000 $3,934,000 $13,495,000 $13,495,000
Operating Expenses..... 599,000 775,000 814,000 448,000 1,718,000 4,354,000 ($270,000) 4,084,000
Net Operating Income... 681,000 3,358,000 2,552,000 334,000 2,216,000 9,141,000 270,000 9,411,000
Percentage of Total
NOI.............. 7% 37% 28% 4% 24% 100%
</TABLE>

- ---------------
(1) Eliminating entry represents internal market level property management fees
included in operating expenses to provide comparison to industry
performance.

Rental Revenues. Rental Revenues increased by $4,448,000, or 33%, to
$17,943,000 for the year ended December 31, 1996 from $13,495,000 for the as
adjusted year ended December 31, 1995. The increase consisted of increases in
revenues from the Office, Industrial, Retail, Multi-Family and Hotel properties
of $2,625,000, $127,000, $380,000, $737,000 and $579,000, respectively.
Moreover, of this increase, $4,442,000 represents rental revenues generated from
the acquisition in 1996 of 22 properties (the "1996 Acquisitions"). The increase
was offset by the elimination of revenues from the All American Industrial
Properties due to the sale of such properties in June 1996. These properties
represented annual revenues of approximately $600,000.

Fees and Reimbursements. Fees and reimbursements revenue consists
primarily of asset management fees paid to the Company by a controlled
partnership and increased slightly to $311,000 in 1996 from $260,000 in 1995.

Interest and Other Income. Interest and other income consists primarily of
interest on mortgage loans receivable and increased slightly to $1,080,000 in
1996 from $982,000 in 1995.

Equity in Earnings of Associated Companies. Equity in earnings of
Associated Companies decreased slightly from $1,691,000 in 1995 to $1,598,000 in
1996, primarily resulting from the acquisition of the UCT Property and Bond
Street Properties by the Company from entities controlled by the Associated
Companies. Prior to the acquisition by the Company of these Properties, the
partnerships owning these Properties paid all their fees and reimbursed all
their related salary costs to GC.

Property Operating Expenses. Property operating expenses increased by
$1,182,000, or 29%, to $5,266,000 in the year ended December 31, 1996 from
$4,084,000 for the as adjusted year ended December 31, 1995. Of this increase,
$1,722,000 represents expenses of the 1996 Acquisitions, offset in part by the
reduction in expenses resulting from the sale of the All American Industrial
Properties.

General and Administrative Expenses. General and administrative expenses
increased $410,000, or 42%, from $983,000 in 1995 to $1,393,000 in 1996. The
increase is due in part to increased overhead costs resulting from the 1996
Acquisitions, including a portion of the transaction costs relating to the 1996
Acquisitions.

Interest Expense. Interest expense increased by $1,146,000, or 41%, to
$3,913,000 in the year ended December 31, 1996 from $2,767,000 in the as
adjusted year ended December 31, 1995. Substantially all of the

S-38
<PAGE> 39

increase was the result of higher average borrowings during 1996 as compared to
1995. The increased borrowings in 1996 were used to finance the cash portion of
the 1996 Acquisitions.

Depreciation and Amortization. Depreciation and amortization increased
$921,000, or 25%, to $4,575,000 in 1996 from $3,654,000 in 1995. The increase
was primarily due to depreciation and amortization associated with the 1996
Acquisitions.

Gain on Sale of Rental Properties. Gain on sale of rental properties of
$321,000 during 1996 resulted from the sale of the All American Industrial
Properties held in the Company's industrial portfolio.

Consolidation Costs. Consolidation costs in 1996 consist of the costs
associated with preparing, printing and mailing the Prospectus/Consent
Solicitation Statement and other documents related to the Consolidation, and all
other costs incurred in the forwarding of the Prospectus/Consent Solicitation
Statement to investors.

Litigation Costs. Litigation costs consist of the legal fees incurred in
connection with defending two class action complaints filed by investors in
certain of the GRT Predecessor Entities as well as an accrual for the proposed
settlement in one case.

Loss on Debt Refinancing. Loss on debt refinancing of $186,000 during the
year ended December 31, 1996 resulted from the write-off of unamortized loan
fees when the $10,000,000 Imperial Bank line of credit was paid off with
proceeds from the Wells Fargo Bank Line of Credit.

COMPARISON OF THE AS ADJUSTED YEAR ENDED DECEMBER 31, 1995 TO THE AS ADJUSTED
YEAR ENDED DECEMBER 31, 1994

Set forth below is a discussion comparing the as adjusted results of
operations for the year ended December 31, 1995 to the as adjusted results of
operations for the year ended December 31, 1994, each adjusted to reflect the
Consolidation as if the Consolidation had occurred on January 1, 1994.

Rental Revenues. Rental revenues increased $628,000, or 5%, to $13,495,000
in 1995 from $12,867,000 in 1994. The increase was primarily due to a net
increase in occupancy at certain commercial properties and a small increase in
lease payments from the hotel properties.

Fees and Reimbursements. Fees and reimbursements remained unchanged from
1994 to 1995 and consist primarily of asset management fees paid to the Company
by a controlled partnership.

Interest and Other Income. Interest and other income decreased $127,000,
or 11%, to $982,000 in 1995 from $1,109,000 in 1994. The decrease was primarily
due to a decrease in interest earned on cash balances.

Equity in Earnings of Associated Companies. Equity in earnings of
Associated Companies increased slightly to $1,691,000 in 1995 from $1,649,000 in
1994. As adjusted amounts for both 1995 and 1994 include the effect of the
Rancon contracts as if such contracts commenced on January 1, 1994, as well as
the loss of certain other contracts which occurred in 1994 as if such losses
occurred prior to January 1, 1994. The portfolio of properties and partnerships
managed or controlled by the Associated Companies was otherwise unchanged from
1994 to 1995.

Property Operating Expenses. Property operating expenses increased by
$411,000, or 11%, to $4,084,000 in 1995 from $3,673,000 in 1994. The increase
was primarily due to expenses related to increased occupancy at certain
commercial properties.

General and Administrative. General and administrative expenses increased
slightly to $983,000 in 1995 from $954,000 in 1994. The number of properties
owned by the Company remained consistent.

Interest Expense. Interest expense remained unchanged from 1994 to 1995.

Depreciation and Amortization. Depreciation and amortization expense
increased $212,000, or 6%, in 1995 to $3,654,000 from $3,442,000 in 1994. The
increase was due to the depreciation and amortization of newly capitalized
costs.

S-39
<PAGE> 40

Loss Provision. During the year ended December 31, 1995, the Company had
recorded a loss provision of $863,000 to reduce the carrying value of its
mortgage loan receivable secured by the Eatontown, New Jersey property to its
estimated realizable value, which is equal to the value used for consolidation
purposes, in anticipation of a renegotiation of the terms of the note upon its
maturity on November 1, 1996. For the year ended December 31, 1994, the Company
had recorded a loss provision of $533,000 to reduce its investment in
Glenborough Partners to estimated fair market value.

COMPARISON OF THE HISTORICAL YEAR ENDED DECEMBER 31, 1996 TO THE HISTORICAL
YEAR ENDED DECEMBER 31, 1995.

Rental Revenue. Rental Revenue increased by $2,489,000, or 16%, to
$17,943,000 in 1996 from $15,454,000 in 1995. Of this increase, $4,442,000
represents rental revenues generated from the 1996 Acquisitions. The increase in
1996 revenues was offset by the elimination of revenues from the All American
Industrial Properties due to the sale of such properties in June 1996. The
increase in rental revenues was also offset by a decrease in hotel revenues due
to the change in the operational structure of the Hotels. As discussed above,
three of the original Hotels were owned and operated by the GRT Predecessor
entities prior to 1996 and accordingly, the revenues of the Hotels are included
in the 1995 statement of operations. However, under the current structure, the
Company owns the Hotels but leases them to GHG and accordingly, the 1996
statement of operations reflects only the lease payments due under the operating
leases. For the year ended December 31, 1996, each of the four originally owned
hotels increased their ADR (Average Daily Rate) and REVPAR (Revenue Per
Available Room).

Fees and Reimbursements and Equity in Earnings of Associated
Companies. Fees and reimbursements revenue decreased to $311,000 for the year
ended December 31, 1996 from $16,019,000 for the year ended December 31, 1995;
equity in earnings of the Associated Companies increased to $1,598,000 for the
year from the year ended December 31, 1996 from zero for the year ended December
31, 1995. As previously discussed, the primary reason for the difference between
1996 and 1995 results is the segregation in 1996 of the operations of the
Associated Companies, and the resulting recognition of earnings from them using
the equity method by the Company. In 1995, the earnings of the Associated
Companies were consolidated with the partnerships participating in the
Consolidation.

Interest and Other Income. Interest and other income decreased $1,618,000,
or 60%, in 1996 to $1,080,000 from $2,698,000 in 1995. This decrease resulted
primarily from the lower note receivable balance in 1996, primarily as a result
of the early prepayment of a note receivable in April 1995 and the early
repayment in January and June of 1995 of three of the four notes received from
the sale of the Laurel Cranford buildings. Also, in 1996, cash balances
decreased primarily as a result of the prepayment of the investor notes payable,
payment of declared dividends and the payment of costs associated with the
Consolidation.

Property Operating Expenses. Property operating expenses decreased
$3,310,000, or 39%, to $5,266,000 in 1996 from $8,576,000 in 1995. Of the
decrease, $4,993,000 is primarily the result of the change in the operational
structure of the hotels, as previously discussed. The decrease was offset by an
increase of $1,722,000 associated with the operating expenses of the 1996
Acquisitions.

General and Administrative. General and administrative expenses decreased
to $1,393,000 in 1996 from $15,947,000 in 1995. The decrease is due primarily to
the segregation in 1996 of the operations of the Associated Companies, as
previously discussed.

Interest Expense. Interest expense increased $1,784,000, or 84%, to
$3,913,000 in 1996 from $2,129,000 in 1995. Substantially all of the increase
was the result of higher average borrowings during 1996 as compared to 1995. The
increased borrowings were used to finance the 1996 Acquisitions.

Depreciation and Amortization. Depreciation and amortization remained
relatively constant, decreasing to $4,575,000 in 1996 from $4,762,000 in 1995.
Depreciation and amortization in 1995 includes the amortization of the
management contracts, which are now reflected in the results of the Associated
Companies in 1996. Depreciation and amortization in 1996 includes depreciation
and amortization related to the 1996 Acquisitions.

S-40
<PAGE> 41

COMPARISON OF THE HISTORICAL YEAR ENDED DECEMBER 31, 1995 TO THE HISTORICAL
YEAR ENDED DECEMBER 31, 1994

Rental Revenue. Rental Revenue increased by $1,657,000, or 12%, to
$15,454,000 in 1995 from $13,797,000 in 1994. This increase was primarily due to
a net increase in occupancy at certain commercial properties, the acquisition of
the Summerbreeze apartment complex and a significant increase in hotel revenues
due to overall increases in occupancy and average daily room rates.

Fees and Reimbursements. Fees and reimbursements increased by $2,692,000,
or 20%, to $16,019,000 in 1995 from $13,327,000 in 1994. The increase was
primarily due to an increase in property and asset management fees and related
expense reimbursements due to the acquisition of the Rancon and RGI management
contracts.

Interest and Other Income. Interest and other income decreased $859,000,
or 24%, to $2,698,000 in 1995 from $3,557,000 in 1994. Substantially all of the
decrease resulted from the early repayment of the Finley Square note receivable
in April 1995 and the early repayment in January and June of 1995 of three of
the four notes from the sale of the Laurel Cranford buildings.

Property Operating Expenses. Property operating expenses increased
$1,794,000, or 26%, to $8,576,000 in 1995 from $6,782,000 in 1994. The increase
was primarily due to the higher expenses related to increased occupancy rates
and to the acquisition of the Summerbreeze apartment complex in January 1995.

General and Administrative. General and administrative expenses, including
salaries, increased $2,493,000, or 19%, to $15,947,000 in 1995 from $13,454,000
in 1994. Substantially all of this increase resulted from expenses incurred by
Glenborough Realty Corporation in concluding its business as a stand alone
corporation prior to merging with the Company. Such expenses will not be
incurred again by the Company or the Associated Companies. In the same period,
general and administrative cost reductions resulting from property sales in 1994
were offset by increased general and administrative costs associated with the
Rancon and RGI management contracts acquired in 1995.

Interest Expense. Interest expense increased $989,000, or 87%, to
$2,129,000 in 1995 from $1,140,000 in 1994. Substantially all of the increase
was the result of increased debt levels primarily related to the financing of
the acquisition of the Rancon management contracts and a first deed of trust on
the Summerbreeze apartment complex acquired in 1995.

Depreciation & Amortization. Depreciation and amortization increased by
$721,000, or 18%, to $4,762,000 in 1995 from $4,041,000 in 1996, due primarily
to the acquisition of the Rancon and RGI management contracts on January 1,
1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company expects to meets its short-term liquidity requirements
generally through its working capital and cash generated by operations. As of
December 31, 1996, the Company had no material commitments for capital
improvements other than certain expansion related improvements estimated at
approximately $1,750,000 at its existing shopping center in Tampa, Florida.
Other planned capital improvements consist of tenant improvements, expenditures
necessary to lease and maintain the Properties and expenditures for furniture
and fixtures and building improvements at the Hotel Properties. The Company
believes that its cash generated by operations will be adequate to meet both
operating requirements and to make distributions in accordance with REIT
requirements in both the short and the long-term. In addition to cash generated
by operations, the Line of Credit provides for working capital advances.
However, there can be no assurance that the Company's results of operations will
not fluctuate in the future and at times affect (i) its ability to meet its
operating requirements and (ii) the amount of its distributions.

The Company expects to meet certain of its long-term liquidity
requirements, such as scheduled debt maturities and possible acquisitions,
through a combination of short and long-term borrowings and the issuance of debt
and equity securities of the Company.

Mortgage loans payable and secured bank lines increased from $33,685,000 at
December 31, 1995 to $75,891,000 at December 31, 1996. This increase was
primarily due to new borrowings in 1996 to fund the

S-41
<PAGE> 42

1996 Acquisitions. The $10,000,000 Imperial Bank line of credit that existed at
December 31, 1995 was replaced with the $50,000,000 Line of Credit provided by
Wells Fargo Bank that is secured by first mortgages on certain of the Company's
Properties. The proceeds from the Line of Credit were used to retire the
$10,000,000 Imperial Bank line of credit and to fund the 1996 Acquisitions. The
Line of Credit had an outstanding balance of $21,307,000 at December 31, 1996.
In addition to increased borrowings under the Line of Credit, approximately
$25,000,000 of new debt was assumed in connection with the 1996 Acquisitions and
a $6,120,000 term loan was obtained to partially finance a 1996 Acquisition.

In October 1996, the Company completed a public equity offering of
3,666,000 shares of Common Stock at an offering price of $13.875 per share. The
net proceeds from the offering of approximately $47.8 million were used to fund
certain of the 1996 Acquisitions and to repay outstanding indebtedness.

At December 31, 1996, the Company's total indebtedness included fixed-rate
debt of $44,657,000, or 59% of the Company's aggregate indebtedness, and
floating-rate indebtedness of $31,234,000, or 41% of the Company's aggregate
indebtedness. The Company's total market capitalization as of December 31, 1996
was $257,528,000 resulting in a ratio of debt to total market capitalization of
approximately 29.5%.

In January 1997, the Company filed a shelf registration statement (the
"January 1997 Shelf Registration Statement") with the Securities and Exchange
Commission to register $250.0 million of equity securities. The January 1997
Shelf Registration Statement was declared effective by the Securities and
Exchange Commission on February 25, 1997.

INFLATION

Substantially all of the leases at the retail Properties provide for
pass-through to tenants of certain operating costs, including real estate taxes,
common area maintenance expenses, and insurance. Leases at the multi-family
Properties generally provide for an initial term of one month or one year and
allow for rent adjustments at the time of renewal. Leases at the office
properties typically provide for rent adjustment and pass-through of certain
operating expenses during the term of the lease. All of these provisions permit
the Company to increase rental rates or other charges to tenants in response to
rising prices and therefore, serve to minimize the Company's exposure to the
adverse effects of inflation.

S-42
<PAGE> 43

THE PROPERTIES

GENERAL

The 55 Properties owned by the Company consist of 11 office Properties, 14
industrial Properties, 21 retail Properties, three multi-family Properties and
six hotel Properties, and are located in numerous local markets among four
geographic regions and 17 states.

The following table sets forth certain information with respect to the
Company's Properties on a pro forma basis assuming the acquisition of the
Properties acquired in 1996 and the acquisition of the Scottsdale Hotel had been
completed on January 1, 1996.

PROPERTY TABLE BY TYPE OF PROPERTY

<TABLE>
<CAPTION>
PROPERTY REVENUES FOR
YEAR ENDED
DECEMBER 31, 1996(1) AVERAGE OCCUPANCY
NUMBER OF TOTAL RENTABLE SQUARE ----------------------- FOR YEAR ENDED
TYPE OF PROPERTY PROPERTIES FEET/UNITS AMOUNT PERCENT DECEMBER 31, 1996(1)
- -------------------------- --------- --------------------- ----------- ------- --------------------
<S> <C> <C> <C> <C> <C>
Office.................... 11 641,923 $ 9,149,090 29.5% 94%
Industrial................ 14 2,026,368 5,798,854 18.7 99
Retail.................... 21 630,700 5,477,774 17.7 96
Multi-family.............. 3 642 4,327,937 13.9 94
Hotels.................... 6 726 6,252,460 20.2 70(2)
----------- -----
-- --
Total................ $31,006,115 100.0%
55 96%(3)
=========== =====
== ==
</TABLE>

- ---------------
(1) For the TRP Properties and the Carlsberg Properties, occupancy rates are
represented as of December 31, 1996, and property revenues are presented on
an annualized basis, as such average occupancy rates and property revenues
are not available for this period for these properties.

(2) This occupancy rate reflects the first year operations of Scottsdale Hotel
acquired by the Company in February 1997. The average occupancy for the
hotels owned by the Company in 1996 was 72%.

(3) Not including hotels.

The following table sets forth the region and type of the Company's
Properties by rentable square feet and/or units, along with average occupancy
for the year ended December 31, 1996 on a pro forma basis assuming the
acquisition of the Properties acquired in 1996 and the acquisition of the
Scottsdale Hotel had been completed on January 1, 1996.

RENTABLE SQUARE FEET

<TABLE>
<CAPTION>
RENTABLE SQUARE FEET
---------------------------------- HOTEL NO. OF
REGION OFFICE INDUSTRIAL RETAIL MULTIFAMILY UNITS ROOMS PROPERTIES
- ------------------------------ -------- ---------- -------- ----------------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
East.......................... 0 274,000 0 0 0 1
South......................... 0 629,829 223,678 0 286 22
Midwest....................... 383,497 813,776 12,800 0 0 12
West.......................... 258,426 308,763 394,222 642 440 20
------- --------- ------- --- ---
--
Total.................... 641,923 2,026,368 630,700 642 726
55
======= ========= ======= === ===
==
No. of Properties............. 11 14 21 3 6
55
</TABLE>

OFFICE PROPERTIES

The Company owns 11 office Properties aggregating 641,923 rentable square
feet. The leases for spaces within the office Properties have terms ranging from
one to 10 years. The office space leases generally require the tenant to
reimburse the Company for increases in building operating costs over a base
amount. Many of the leases contain fixed or CPI-based rent increases.

S-43
<PAGE> 44

The following table lists the office Properties of the Company, indicating
the property name, city, state, year completed, approximate square footage and,
for the year ended December 31, 1996 (except where indicated), average
occupancy, average effective rent per leased square foot, annual effective base
rent, Property revenues and percentage of Property revenues on a pro forma basis
assuming the acquisition of the office Properties acquired in 1996 had been
completed on January 1, 1996.

OFFICE PROPERTIES

<TABLE>
<CAPTION>
PRO FORMA
PROPERTY REVENUES
TOTAL AVERAGE AVERAGE FOR THE YEAR
RENTABLE OCCUPANCY FOR EFFECTIVE ANNUAL ENDED 12/31/96
YEAR SQUARE YEAR ENDED RENT/LEASED EFFECTIVE -------------------
PROPERTY CITY ST COMPLETED FEET 12/31/96 SQUARE FEET BASE RENT AMOUNT PERCENT
- ------------------------ --------------- ---- --------- -------- ------------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Vintage Point(1)........ Phoenix AZ 1985 55,948 83% $ 12.42 $ 576,816 $ 596,968 6.5%
Tradewinds Phoenix
Financial(1).......... AZ 1986 17,778 92 19.19 313,840 330,080 3.6
Dallidet Center(1)...... San Luis Obispo CA 1993 23,051 82 18.35 346,856 363,424 4.0
Hillcrest Office Fullerton
Plaza(1).............. CA 1974 34,623 85 12.55 369,376 370,336 4.0
Warner Village Medical Fountain Valley
Center(1)............. CA 1977 32,272 97 17.14 536,405 592,934 6.5
Bond Street Building.... Farmington MI 1986 40,595 98 13.75 546,861 557,946 6.1
Hills
University Club Tower... St. Louis MO 1974 272,443 97 11.61 3,069,337 4,080,778 44.6
One Professional
Square(1)............. Omaha NE 1980 34,352 88 12.26 370,618 392,309 4.3
Regency Westpointe...... Omaha NE 1981 36,107 96 15.44 535,235 545,995 6.0
4500 Plaza.............. Salt Lake City UT 1983 69,975 96 12.66 850,770 913,078 10.0
Globe Building(1)....... Mercer Island WA 1979 24,779 88 18.43 401,918 405,242 4.4
--
------- ------ ---------- ---------- -----
Total/Weighted
Average........... 641,923 94% $ 13.19 $7,918,032 $9,149,090 100.0%
======= == ====== ========== ========== =====
</TABLE>

- ---------------
(1) For these Properties, occupancy rates are presented as of December 31, 1996,
and base rent and Property revenues are presented on an annualized basis
based on results since the acquisition.

The following table sets forth, for the periods specified, the total
rentable area, aggregate average occupancy, average effective base rent per
leased square foot and total effective annual base rent for the office
Properties owned by the Company during each of the years indicated and on a pro
forma basis assuming the acquisition of the office Properties acquired in 1996
had been completed on January 1, 1996.

OFFICE PROPERTIES
HISTORICAL RENT AND OCCUPANCY

<TABLE>
<CAPTION>
AVERAGE EFFECTIVE TOTAL EFFECTIVE
TOTAL RENTABLE AVERAGE OCCUPANCY BASE RENT/ ANNUAL BASE RENT
YEAR AREA (SQ. FT.) RATE FOR THE PERIOD LEASED SQ. FT.(1) ($000S)(2)
- ----------------------------- -------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
1996(3)...................... 641,923 94% $ 13.19 $7,918
1995......................... 106,076 97 11.91 1,228
1994......................... 105,770 88 11.44 1,065
1993......................... 104,666 80 12.04 1,008
1992......................... 104,754 80 11.10 930
</TABLE>

- ---------------
(1) Total Effective Annual Base Rent divided by average occupancy in square
feet.

(2) Total Effective Annual Base Rent adjusted for any free rent given for the
period.

(3) Includes the Carlsberg Properties and the TRP Properties. For these
Properties, occupancy rates are presented as of December 31, 1996, and base
rents are presented on an annualized basis based on results since the
acquisition as this information is not available for the year ended December
31, 1996.

S-44
<PAGE> 45

The following table sets forth the contractual lease expirations for the
office Properties for 1997 and thereafter, as of December 31, 1996.

OFFICE PROPERTIES
LEASE EXPIRATIONS

<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
RENTABLE SQUARE ANNUAL BASE RENT ANNUAL BASE RENT
NUMBER OF FOOTAGE SUBJECT TO UNDER EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES ($000S) EXPIRING LEASES(1)
- ---------------------------- --------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
1997(2)..................... 147 143,834 $2,305 25.8%
1998........................ 44 132,455 2,052 22.9
1999........................ 41 90,026 1,453 16.2
2000........................ 18 57,532 967 10.8
2001........................ 27 63,800 1,094 12.2
2002........................ 3 4,395 72 0.8
2003........................ 2 8,348 144 1.6
2004........................ 1 3,544 68 0.8
2005........................ 2 25,250 449 5.0
2006........................ 0 0 0 0
Thereafter.................. 1 66,309 349 3.9
--- ------- ------ -----
Total.................. 286 595,493(3) $8,953(4) 100.0%
=== ======= ====== =====
</TABLE>

- ---------------
(1) Annual base rent expiring during each period, divided by total annual base
rent (both adjusted for contractual increases).

(2) Includes leases that have initial terms of less than one year.

(4) This figure is based on square footage actually leased (which excludes
vacant space) and incorporates contractual rent increases arising after
1996, and thus differs from "Total Effective Annual Base Rent" in the
preceding table, which is based on 1996 rents.

S-45
<PAGE> 46

The following table sets forth, the capitalized tenant improvements and
leasing commissions paid by the Company on the office Properties owned by the
Company during each of the five years indicated.

OFFICE PROPERTIES
CAPITALIZED TENANT IMPROVEMENTS AND LEASING COMMISSIONS

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Square footage renewed or re-leased.... 26,989 23,909 18,384 79,745 39,706
Capitalized tenant improvements and
commissions (in thousands)........... $ 192 $ 59 $ 58 $ 468(1) $ 617(2)
Average per square foot of renewed or
re-leased space...................... $ 7.12 $ 2.47 $ 3.18 $ 5.87 $ 15.54(2)
</TABLE>

- ---------------
(1) The significant increase in capitalized tenant improvements and commissions
in 1995 over the previous year is primarily the result of re-leasing 15,491
square feet at Regency Westpointe. The re-lease is for a term of ten years.
There were no commissions paid in this transaction. Tenant improvements
totaled $405,000. This tenant occupies 43% of Regency Westpointe.

(2) The significant increase in capitalized tenant improvements and commissions
in 1996 over the previous years is primarily the result of tenant
improvements provided in connection with a lease extension of space for the
principal tenant of the UCT Property. The lease was extended ten years and
expires in 2010.

INDUSTRIAL PROPERTIES

The Company owns 14 industrial Properties aggregating 2,026,368 square
feet. During June 1996, the Company sold two other industrial properties, which
had 97,200 square feet. The industrial Properties are designed for warehouse,
distribution and light manufacturing, ranging in size from 37,200 square feet to
474,426 square feet. As of December 31, 1996, seven of the industrial Properties
were leased to multiple tenants, seven were leased to single tenants, and all
seven of the single-tenant Properties are adaptable in design to multi-tenant
use.

The following table lists the industrial Properties of the Company
indicating the property name, city, state, year completed, approximate square
footage, and for the year ended December 31, 1996 (except where indicated),
average occupancy, average effective rent per leased square foot, annual
effective base rent, Property revenues and percentage of Property revenues on a
pro forma basis assuming the acquisition of the industrial Properties acquired
in 1996 had been completed on January 1, 1996.

S-46
<PAGE> 47

INDUSTRIAL PORTFOLIO

<TABLE>
<CAPTION>
AVERAGE PRO FORMA
OCCUPANCY AVERAGE REVENUES FOR YEAR
FOR YEAR EFFECTIVE ANNUAL ENDED 12/31/96
YEAR SQUARE ENDED RENT/LEASED EFFECTIVE --------------------
PROPERTY CITY ST COMPLETED FEET 12/31/96 SQUARE FEET BASE RENT AMOUNT PERCENT
- ----------------------- ------------- ---- --------- ---------- --------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hoover Industrial
Center(1)............ Mesa AZ 1985 57,441 100% $4.82 $ 276,610 $ 320,496 5.5%
Benicia Industrial
Park................. Benicia CA 1980 156,800 100 3.23 506,172 484,614 8.4
Rancho Bernardo(1)..... Rancho CA 1982 52,865 83 6.75 296,122 354,888 6.1
Bernardo
Navistar International
Trans. Corp.......... W. Chicago IL 1977 474,426 100 2.19 1,037,872 1,037,872 17.9
Park 100 -- Building
42................... Indianapolis IN 1980 37,200 93 6.09 210,687 228,700 3.9
Park 100 -- Building
46................... Indianapolis IN 1981 102,400 100 2.85 291,840 342,201 5.9
Case Equipment Corp.... Kansas City KS 1975 199,750 100 1.92 384,312 384,312 6.6
Navistar International
Trans. Corp. ........ Baltimore MD 1962 274,000 100 1.58 432,414 432,414 7.5
Case Equipment Corp.... Memphis TN 1950 205,594 100 1.68 346,115 346,115 6.0
Mercantile I(1)........ Dallas TX 1970 236,092 95 2.94 658,546 677,986 11.7
Quaker Industrial(1)... Dallas TX 1974 46,060 100 2.25 103,507 121,359 2.1
Pinewood
Industrial(1)........ Arlington TX 1971 42,083 100 3.36 141,552 136,558 2.4
Walnut Creek Business
Center (1)........... Austin TX 1984 100,000 100 5.14 513,902 645,264 11.1
Sea Tac II(2).......... Seattle WA 1984 41,657 100 5.14 214,250 286,075 4.9
--- ----- ------ ---- ---------- -----
Total/Weighted
Average............ 2,026,368 99% $2.70 $ 5,413,901 $ 5,798,854 100.0%
=== ===== ========== ========== =====
</TABLE>

(2) Mortgage receivable accounted for as real estate under GAAP. The property is
owned by a partnership managed by one of the Associated Companies.

Four of the single-tenant Properties have eight years remaining on leases
whose original terms were 20 years and include rent increases every three years
based on all or a percentage of the change in the CPI. Under these leases the
tenants are required to pay for all of the Properties' operating costs, such as
common area maintenance, property taxes, insurance, and all repairs including
structural repairs. These four Properties are leased to Navistar International
Transportation Corporation ("Navistar"), but two of the leases have been assumed
by Case Equipment Corporation ("Case"). Navistar has options under its leases to
purchase either or both of the Properties on March 1, 1999, and 2002. The option
price is equal to the lesser of (i) the greater of the appraised value or a
specified option floor price; or (ii) a price derived by applying a specified
capitalization rate to a specified rental amount. The Case leases give the
tenant a purchase option exercisable on March 1, 1999, and 2002 for an amount
equal to the greater of the appraised value or a specified minimum price.
Management believes, based on discussions with both tenants, that neither tenant
has any present intention to exercise any option to purchase.

The remaining warehouse Properties have leases whose terms range from one
to eight years. Most of the leases are "triple net" leases whereby the tenants
are required to pay their pro rata share of the Properties' operating costs,
common area maintenance, property taxes, insurance, and non-structural repairs.
Some of the leases are "industrial gross" leases whereby the tenant pays as
additional rent its pro rata share of common area maintenance and repair costs
and its share of the increase in taxes and insurance over a specified base year
cost. Many of these leases call for fixed or CPI-based rent increases.

S-47
<PAGE> 48

The Company holds fee title to all of the industrial Properties except a
41,657 square-foot warehouse facility in Seattle known as Sea Tac II. This
property is owned by a partnership managed by one of the Associated Companies.
The Company holds a participating first mortgage interest in Sea Tac II. In
accordance with GAAP, the Company accounts for the property as though it held
fee title, as substantially all risks and rewards of ownership have been
transferred to the Company as a result of the terms of the mortgage. The
participating mortgage had a principal balance of $2,333,338 as of December 31,
1996 and accrued interest of $1,201,164, as compared with an appraised value of
$2,000,000 as of June 30, 1994. The loan, which was modified in early 1994 and
accrues interest at 10%, allows the borrower to defer the payment of any
interest in excess of the property's cash flow. The loan also allows the Company
to receive 75% of the property value over the total loan balance at maturity.
The loan is due March 31, 2001, but the borrower may extend the loan for five
one-year periods for payment of a fee equal to 0.25% of the then outstanding
principal balance for each extension.

The following table sets forth, for the periods specified, the total
rentable area, aggregate average occupancy, average effective base rent per
leased square foot and total effective annual base rent for the industrial
Properties owned by the Company during each of the years indicated and on a pro
forma basis assuming the acquisition of the industrial Properties acquired in
1996 had been completed on January 1, 1996.

INDUSTRIAL PROPERTIES
HISTORICAL RENT AND OCCUPANCY

<TABLE>
<CAPTION>
AVERAGE OCCUPANCY AVERAGE EFFECTIVE TOTAL EFFECTIVE
TOTAL RENTABLE RATE FOR THE BASE RENT/ ANNUAL BASE
YEAR AREA (SQ. FT.) PERIOD LEASED SQ. FT.(1) RENT($000S)(2)
- ------------------------------------ -------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
1996(3)............................. 2,026,368 99% $2.70 $ 5,414
1995................................ 1,491,827 100 2.29 3,405
1994................................ 1,491,827 100 2.29 3,401
1993................................ 1,491,827 98 2.24 3,294
1992................................ 1,491,827 96 2.14 3,075
</TABLE>

- ---------------
(1) Total Effective Annual Base Rent divided by average occupancy in square
feet.

(2) Total Effective Annual Base Rent adjusted for any free rent given for the
period.

(3) Includes the TRP Properties. For these Properties, occupancy rates are
presented as of December 31, 1996, and base rents are presented on an
annualized basis based on results since the acquisition as this information
is not available for the year ended December 31, 1996.

The following table sets forth the contractual lease expirations for the
industrial Properties for 1997 and thereafter, as of December 31, 1996.

INDUSTRIAL PROPERTIES
LEASE EXPIRATIONS

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF RENTABLE SQUARE ANNUAL BASE RENT ANNUAL BASE RENT
LEASES FOOTAGE SUBJECT TO UNDER EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING EXPIRING LEASES LEASES ($000S) EXPIRING LEASES(1)
- ------------------------------------- --------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C>
1997(2).............................. 27 336,867 $1,229 22.1%
1998................................. 11 130,461 564 10.1
1999................................. 15 143,265 536 9.6
2000................................. 6 78,206 324 5.8
2001................................. 4 59,757 324 5.8
2002 to 2006......................... 0 0 0 0
Thereafter........................... 5 1,256,170 2,594 46.6
--------- ------ -----
--
Total........................... 2,004,726(3) $5,571(4) 100.0%
68
========= ====== =====
==
</TABLE>

S-48
<PAGE> 49

- ---------------
(1) Annual base rent expiring during each period, divided by total annual base
rent (both adjusted for contractual increases).

(2) Includes leases that have initial terms of less than one year.

(4) This figure is based on square footage actually leased (which excludes
vacant space) and incorporates contractual rent increases arising after
1996, and thus differs from "Total Effective Annual Base Rent" in the
preceding table, which is based on 1996 rents.

The following table sets forth the capitalized tenant improvements and
leasing commissions paid by the Company on the industrial Properties owned by
the Company during each of the five years indicated.

INDUSTRIAL PROPERTIES
CAPITALIZED TENANT IMPROVEMENTS AND LEASING COMMISSIONS

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Square footage renewed or re-leased..... 52,491 66,500 89,000 141,523 69,000
Capitalized tenant improvements and
commissions (in thousands)............ $ 21 $ 64 $ 60 $ 114 $ 74
Average per square foot of renewed or
released space........................ $ 0.40 $ 0.96 $ 0.67 $ 0.81 $ 1.07
</TABLE>

RETAIL PROPERTIES

The retail portfolio consists of 21 Properties with a total of 630,700
square feet. The following table lists the retail Properties of the Company,
indicating the property name, city, state, year completed, approximate square
footage, and for the year ended December 31, 1996 (except when indicated),
average occupancy, average effective rent per leased square foot, annual
effective base rent, Property revenues and percentage of Property revenues on a
pro forma basis assuming the acquisition of the Properties acquired in 1996 had
been completed on January 1, 1996.

RETAIL PROPERTIES

<TABLE>
<CAPTION>
PRO FORMA
PROPERTY REVENUES
AVERAGE AVERAGE FOR YEAR
OCCUPANCY FOR EFFECTIVE ANNUAL ENDED 12/31/96
YEAR SQUARE YEAR ENDED RENT/LEASED EFFECTIVE --------------------
PROPERTY CITY ST COMPLETED FEET 12/31/96 SQUARE FEET BASE RENT AMOUNT PERCENT
- ------------------- ---------- ---- --------- -------- ------------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Park Center(1)..... Santa Ana CA 1979 73,500 97% $ 6.18 $ 440,300 $ 589,683 10.8%
Sonora Plaza(4).... Sonora CA 1974 162,126 99 5.69 913,656 1,065,104 19.4
Westwood Plaza..... Tampa FL 1984 85,689 91 7.07 551,379 719,130 13.1
Atlanta Auto
Center(2)........ (2) (2) (2) 54,750 89 10.77 522,126 626,977 11.4
QuikTrip(3)........ (3) (3) (3) 32,000 100 32.28 1,033,000 1,033,000 18.9
Shannon Crossing... Atlanta GA 1981 64,039 94 6.88 414,092 437,728 8.0
Auburn
North(4)(5)...... Auburn WA 1978 158,596 97 5.53 851,333 1,006,152 18.4
------- --- ------ ---------- ---------- -----
Total/Weighted
Average...... 630,700 96% $ 7.82 $4,725,886 $5,477,774 100.0%
======= === ====== ========== ========== =====
</TABLE>

- ---------------
(1) Mortgage receivable accounted for as real estate under GAAP. The Property is
owned by a partnership managed by one of the Associated Companies.

(2) Represents six Properties located in Georgia with facilities ranging from
5,720 square feet to 10,920 square feet completed in 1985 and 1986.

S-49
<PAGE> 50

(3) Represents ten 3,200 square foot properties located in Georgia, Missouri and
Oklahoma completed in 1988 through 1990.

(4) For these Properties, occupancy rates are presented as of December 31, 1996,
and base rent and Property revenues are presented on an annualized basis
based on results since the acquisition.

(5) Includes a space at which the tenant has ceased operations and filed
bankruptcy. In connection with the Company's acquisition, a principal of the
former owner of the Property guaranteed the tenant's rental obligations
under the lease. Subsequently, the tenant's leasehold interest under the
lease was sold to a third party, who is awaiting approval from the
bankruptcy court. Payments to the Company under the lease have been kept
current by the third party.

The Company holds fee title to all of the retail Properties except the Park
Center community center. Park Center is owned by a partnership managed by one of
the Associated Companies. The Company holds a participating first mortgage
interest in Park Center. In accordance with GAAP, the Company accounts for Park
Center as though it held fee title, as substantially all risks and rewards of
ownership have been transferred to the Company as a result of the terms of the
mortgage. The participating mortgage had a principal balance of $5,448,427 as of
December 31, 1996 and accrued interest of $2,680,024, as compared with an
appraised value of $3,550,000 as of June 30, 1994. The loan, which was modified
in mid-1994 and accrues interest at 10%, allows the borrower to defer the
payment of any interest in excess of the property's cash flow. The loan also
allows the Company to receive 75% of the property value over the total loan
balance at maturity. The loan is due March 31, 2001, but the borrower may extend
the loan for five one-year periods for payment of a fee equal to 0.25% of the
then outstanding principal balance, for each extension.

Five of the retail Properties, representing 543,950 rentable square feet,
or 86% of the total rentable area, are anchored community shopping centers. The
anchor tenants of these centers are national or regional supermarkets and drug
stores.

Six of the retail Properties are located in the Atlanta metropolitan area
and are leased to tenants in the automotive care industry. The leases for the
retail Properties (excluding the QuikTrip leases described above) generally
include fixed or CPI-based rent increases and some include provisions for the
payment of additional rent based on a percentage of the tenants' gross sales
that exceed specified amounts. Retail tenants also typically pay as additional
rent their pro rata share of the Property operating costs including common area
maintenance, property taxes, insurance, and nonstructural repairs. Some of the
leases contain options to renew at market rates or specified rates.

Ten of the retail Properties are leased to QuikTrip Corporation on
long-term leases expiring after 2008. QuikTrip is a regional convenience store
operator with over 300 stores in six states. The leases require the tenant to
pay for all property costs and provide for periodic fixed increases of base
rent. Under such leases, the tenant has one five-year option to renew at
specified rental rates.

The following table sets forth, for the periods specified, the total
rentable area, aggregate average occupancy, average effective base rent per
leased square foot and total effective annual base rent for the retail
Properties owned by the Company during each of the years indicated and on a pro
forma basis assuming the acquisition of the retail Properties acquired in 1996
had been completed on January 1, 1996.

S-50
<PAGE> 51

RETAIL PROPERTIES
HISTORICAL RENT AND OCCUPANCY

<TABLE>
<CAPTION>
TOTAL
AVERAGE OCCUPANCY AVERAGE EFFECTIVE EFFECTIVE
TOTAL RENTABLE RATE FOR THE BASE RENT/ ANNUAL BASE
YEAR AREA (SQ. FT.) PERIOD LEASED SQ. FT.(1) RENT($000S)(2)
- ------------------------------------- -------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
1996(3).............................. 630,700 96% $ 7.82(4) $4,726
1995................................. 285,658 95 10.76 2,915
1994................................. 285,722 94 10.76 2,890
1993................................. 285,722 90 11.11 2,858
1992................................. 285,722 88 11.12 2,823
</TABLE>

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

(1) Total Effective Annual Base Rent divided by average occupancy in square
feet.

(2) Total Effective Annual Base Rent adjusted for any free rent given for the
period.

(4) Average effective base rent per leased square foot declined in 1996 due to
the acquisition of properties with lower base rents.

The following table sets forth the contractual lease expirations for the
retail Properties for 1997 and thereafter, as of December 31, 1996.

RETAIL PROPERTIES
LEASE EXPIRATIONS

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
RENTABLE SQUARE ANNUAL BASE RENT ANNUAL BASE RENT
NUMBER OF FOOTAGE SUBJECT TO UNDER EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRATION LEASES EXPIRING EXPIRING LEASES LEASES ($000S) EXPIRING LEASES(1)
- ---------------------------- --------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C>
1997(2)..................... 14 25,889 $ 302 5.7%
1998........................ 19 55,488 418 7.8
1999........................ 29 59,201 633 11.8
2000........................ 18 40,175 456 8.5
2001........................ 18 70,423 595 11.1
2002........................ 2 6,100 59 1.1
2003........................ 2 59,390 222 4.2
2004........................ 8 142,144 621 11.6
2005........................ 2 32,233 330 6.2
2006........................ 1 2,400 27 0.5
Thereafter.................. 13 118,777 1,685 31.5
--- ------- ------ -----
Total.................. 126 612,220(3) $5,348(4) 100.0%
=== ======= ====== =====
</TABLE>

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

(1) Annual base rent expiring during each period, divided by total annual base
rent (both adjusted for contractual increases).

(2) Includes leases that have initial terms of less than one year.

(4) This figure is based on square footage actually leased (which excludes
vacant space) and incorporates contractual rent increases arising after
1996, and thus differs from "Total Effective Annual Base Rent" in the
preceding table, which is based on 1996 rents.

S-51
<PAGE> 52

The following table sets forth the capitalized tenant improvements and
leasing commissions paid by the Company on the retail Properties owned by the
Company during each of the five years indicated.

RETAIL PROPERTIES
CAPITALIZED TENANT IMPROVEMENTS AND LEASING COMMISSIONS

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Square footage renewed or re-leased...... 26,403 31,443 46,833 33,294 32,998
Capitalized tenant improvements and
commissions (in thousands)............. $ 63 $ 59 $ 59 $ 98 $ 83
Average per square foot of renewed or
released space......................... $ 2.38 $ 1.87 $ 1.87 $ 2.94 $ 2.53
</TABLE>

MULTI-FAMILY PROPERTIES

The Company owns three multi-family Properties, aggregating 642 units, and
542,710 square feet of space. All of the units are rented to residential tenants
on either a month-to-month basis or for terms of one year or less.

The following table sets forth the name, city, state, year of completion,
number of units, approximate square footage and, for the year ended December 31,
1996 (except where indicated), average occupancy, Property revenues and
percentage of Property revenues on a pro forma basis assuming the acquisition of
the Properties acquired in 1996 had been completed on January 1, 1996.

MULTI-FAMILY PORTFOLIO

<TABLE>
<CAPTION>
PRO FORMA
AVERAGE PROPERTY REVENUES
OCCUPANCY FOR YEAR ENDED
FOR YEAR 12/31/96
YEAR # OF ENDED --------------------
PROPERTY CITY ST COMPLETED UNITS SQ. FT. 12/31/96 AMOUNT PERCENT
- --------------------- -------------- ---- --------- ----- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summerbreeze......... No. Hollywood CA 1981 104 73,284 93% $ 779,509 18.0%
Sahara Gardens(1).... Las Vegas NV 1983 312 277,056 92 1,968,014 45.5
Villas de
Mission(1)......... Las Vegas NV 1979 226 192,370 98 1,580,414 36.5
--
--- ------- ---------- -----
Total/Weighted
Average....... 642 542,710 94% $4,327,937 100.0%
=== ======= == ========== =====
</TABLE>

S-52
<PAGE> 53

The following table sets forth, for the periods specified, the total units,
average occupancy, monthly average Effective Base Rent per unit, and total
effective annual base rent, for the multi-family Properties, as of December 31,
1996.

MULTI-FAMILY PROPERTIES
HISTORICAL RENT AND OCCUPANCY

<TABLE>
<CAPTION>
MONTHLY
AVERAGE EFFECTIVE TOTAL EFFECTIVE
AVERAGE OCCUPANCY BASE RENT PER ANNUAL BASE
YEAR TOTAL UNITS RATE FOR THE PERIOD LEASED UNIT(1) RENT ($000S)(2)
- --------------------------------- ----------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
1996(3).......................... 642 94% $ 598(4) $ 4,328
1995............................. 104 94 630 739
1994............................. 104 98 632 774
1993............................. 104 93 632 734
1992............................. 104 98 633 758
</TABLE>

- ---------------
(1) Total Effective Annual Base Rent divided by Average Occupied Unit.

(2) Total Effective Annual Base Rent adjusted for any free rent given for the
period.

(4) Average effective monthly base rent per unit declined in 1996 due to the
acquisition of properties with lower base rents.

HOTELS

The hotel portfolio consists of six hotels ranging from 64 to 163 rooms,
comprising a total of 342,403 square feet of space and 726 rooms. Five of the
hotels are all-suite hotels which consist primarily of one-bedroom suites, but
each also includes some studio suites and two-bedroom suites. All of the hotels
operate under license agreements with Country Lodging by Carlson, Inc. The five
all-suite hotels are marketed as Country Suites by Carlson and the sixth hotel
is marketed as Country Inns and Suites by Carlson. Country Lodging is part of
the Carlson Companies, based in Minneapolis, Minnesota. The Carlson Companies
own, operate, and franchise Radisson Hotels, TGI Friday's Restaurants, Country
Kitchen Restaurants, and the Carlson Travel Agency Network. Currently there are
a total of more than 85 Country Inns and Suites, with 30 additional under
construction.

The following table sets forth for each of the Company's hotel Properties,
the Property name, city, state, year completed, number of rooms, approximate
square footage, average occupancy and for the year ended December 31, 1996
(except where indicated), Property revenues and percentage of total hotel
Properties' revenues, average daily rate ("ADR") and revenue per available room
("REVPAR") for the hotel Properties owned by the Company on a pro forma basis
assuming the acquisitions of the Properties acquired in 1996 had been completed
on January 1, 1996.

S-53
<PAGE> 54

HOTEL PORTFOLIO

<TABLE>
<CAPTION>
PRO FORMA
PROPERTY REVENUES
FOR YEAR ENDED
12/31/96
YEAR # OF SQUARE AVERAGE --------------------
PROPERTY CITY ST COMPLETED ROOMS FEET OCC. AMOUNT PERCENT ADR REVPAR
- -------------------- ------------ ---- --------- ----- ------- ------- ---------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Country Suites by
Carlson(1)........ Scottsdale AZ 1995 163 80,568 63% $1,558,000 24.9% $88.11 $53.22
Country Suites by
Carlson(2)........ Tucson AZ 1986 157 61,552 81 1,256,490 20.1 63.85 50.42
Country Suites by
Carlson(2)........ Ontario CA 1985 120 54,019 72 431,927 6.9 54.89 38.95
Country Suites by
Carlson(2)........ Arlington TX 1986 132 56,200 69 688,272 11.0 67.61 45.75
Country Suites by
Carlson(3)........ Irving TX 1986 90 45,032 75 2,005,771 32.1 76.56 57.28
Country Inns and
Suites by
Carlson(2)........ San Antonio TX 1994 64 29,330 55 312,000 5.0 58.68 32.03
--
--- ------- ---------- ----- ------ ------
Total/Weighted
Average....... 726 326,701 70% $6,252,460 100.0% $68.28 $46.28
=== ======= == ========== ===== ====== ======
</TABLE>

- ---------------
(1) Pro forma revenue reported consists of the pro forma lease payments to be
received from GHG, which leases the Hotel from the Company and operates it
for its own account.

(2) Revenue reported consists of the lease payments received from GHG, which
leases the Hotel from the Company and operates it for its own account.

(3) Mortgage receivable accounted for as real estate under GAAP. The Property is
owned by a partnership managed by one of the Associated Companies.

The Company holds fee title to five of the six hotels. The sixth, the
Country Suites in Irving, Texas, is owned by a partnership managed by one of the
Associated Companies. The Company holds a participating first mortgage interest
in the Property. In accordance with GAAP, the Company accounts for the Property
as though it held fee title, as substantially all the risks and rewards of
ownership have been transferred to the Company as a result of the terms of the
mortgage. The participating mortgage had a principal balance of $5,039,434 as of
December 31, 1996, with accrued interest of $2,571,306, as compared with an
appraised value of $2,650,000 as of June 30, 1994. The loan, which was modified
in early 1994 and accrues interest at 10%, allows the borrower to defer the
payment of any interest in excess of the Property's cash flow. The loan also
allows the Company to receive 75% of the Property value over the total loan
balance at maturity. The loan is due March 31, 2001, but the borrower may extend
the loan for five one-year periods for payment of a fee equal to 0.25% of the
then outstanding principal balance for each extension. The hotels owned in fee
title are leased to GHG; the Irving, Texas hotel is managed by GHG under terms
of a pre-existing contract.

S-54
<PAGE> 55

The following table contains, for the periods indicated, average occupancy,
ADR and REVPAR information for the Company's hotels as well as comparative
information for all U.S. hotels and all Country Lodging hotels.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Scottsdale, AZ(1)
Occupancy....................... -- -- -- -- 63%
ADR............................. -- -- -- -- $88.11
REVPAR.......................... -- -- -- -- $53.22
Tucson, AZ
Occupancy....................... 72% 77% 77% 79% 81%
ADR............................. $54.38 $54.46 $57.21 $58.93 $63.85
REVPAR.......................... $39.05 $42.16 $44.29 $46.53 $50.42
Ontario, CA
Occupancy....................... 59% 60% 56% 66% 72%
ADR............................. $52.93 $51.61 $52.02 $48.38 $54.89
REVPAR.......................... $31.42 $30.74 $29.35 $31.67 $38.95
Arlington, TX
Occupancy....................... 68% 61% 63% 70% 69%
ADR............................. $57.85 $51.58 $62.73 $64.96 $67.61
REVPAR.......................... $39.14 $31.46 $39.79 $45.63 $45.75
Irving, TX
Occupancy....................... 66% 76% 78% 76% 75%
ADR............................. $53.53 $50.22 $58.52 $66.55 $76.56
REVPAR.......................... $35.37 $38.33 $45.36 $50.57 $57.28
San Antonio, TX(2)
Occupancy....................... -- -- -- 53%(5) 55%(6)
ADR............................. -- -- -- 57.80(5) 58.68(6)
REVPAR.......................... -- -- -- 30.79(5) 32.03(6)
All U.S. Hotels(3)
Occupancy....................... 62% 64% 65% 66% 66%
ADR............................. $59.65 $60.99 $63.63 $66.88 $71.66
REVPAR.......................... $37.04 $38.85 $41.49 $44.14 $47.06
Country Lodging System(4)
Occupancy....................... 67% 71% 75% 75% 73%
ADR............................. $50.62 $50.00 $53.00 $56.00 $62.42
REVPAR.......................... $33.94 $35.72 $39.75 $41.00 $45.45
</TABLE>

- ---------------
(1) The Scottsdale Hotel opened in January 1996.

(2) The San Antonio Hotel opened in 1995.

(3) Source: Smith Travel Research and Country Hospitality.

(4) Source: Country Hospitality. Data for all years is limited to U.S.
properties.

(5) Information supplied for historical comparison only as this hotel was not
acquired by the Company until August 1996.

(6) Information represents a full year of operations including operations prior
to the Company's acquisition of the hotel in August 1996.

In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership can operate the hotels. Therefore, the Operating
Partnership has leased five of the hotels to GHG, each for a term of five years
pursuant to percentage leases (the "Percentage Leases"), which provide for rent
equal to the greater of the Base Rent (as defined in the Percentage Leases) or a
specified percentage of room revenues (the "Percentage Rent"). Each hotel is
separately leased to GHG. GHG's ability to make rent payments will, to a large
degree, depend on its ability to generate cash flow from the operations of the
hotels. Each Percentage Lease contains the provisions described below.

S-55
<PAGE> 56

Each Percentage Lease has a non-cancelable term of five years, subject to
earlier termination upon the occurrence of certain contingencies described in
the Percentage Lease. The lessee under the Percentage Lease has one five-year
renewal option at the then current fair market rent.

During the term of each Percentage Lease, the lessee is obligated to pay
the greater of Base Rent or Percentage Rent. Base Rent accrues and is required
to be paid monthly in advance. Percentage Rent is calculated by multiplying
fixed percentages by room revenues for each of the five hotels owned by the
Company. The applicable percentage changes when revenue exceeds a specified
threshold, and the threshold may be adjusted annually in accordance with changes
in the applicable CPI. Percentage Rent accrues and is due quarterly.

The table below sets forth the annual Base Rent and the Percentage Rent
formulas for each of the five hotels owned by the Company.

HOTEL LEASE RENT PROVISIONS

<TABLE>
<CAPTION>
AMOUNT OF
INITIAL PERCENTAGE RENT INCURRED
ANNUAL BASE FOR YEAR ENDED
HOTEL LOCATION RENT ANNUAL PERCENTAGE RENT FORMULAS DECEMBER 31, 1996
- --------------------- ----------- ------------------------------------------ ------------------------
<S> <C> <C> <C>
Ontario, CA.......... $ 240,000 24% of room revenue up to $1,575,000 plus $ 192,000
40% of room revenue above $1,575,000 and
5% of other revenue.
San Antonio, TX...... $ 312,000(2) 33% of room revenue up to $1,200,000 plus $ 0
40% of room revenue above $1,200,000 and
5% of other revenue.
Arlington, TX........ $ 360,000 27% of room revenue up to $1,600,000 plus $ 328,000
42% of room revenue above $1,600,000 and
5% of other revenue.
Tucson, AZ........... $ 600,000 40% of room revenue up to $1,350,000 plus $ 656,000
46% of room revenue above $1,350,000 and
5% of other revenue.
Scottsdale, AZ(1).... $ 360,000 45% of room revenue up to $3,200,000 plus $1,198,000(3)
60% of room revenue above $3,200,000 and
5% of other revenue.
</TABLE>

- ---------------
(1) Assumes the acquisition of the Scottsdale Hotel was completed on January 1,
1996.

(2) Hotel was acquired in August 1996, so rent for the year ended December 31,
1996 was less than a full year's base rent.

(3) Percentage lease revenue is shown on a pro forma basis assuming the
Scottsdale Hotel was purchased on January 1, 1996.

Other than real estate and personal property taxes, casualty insurance, a
fixed capital improvement allowance and maintenance of underground utilities and
structural elements, which are the responsibility of the Company, the Percentage
Leases require the lessee to pay rent, insurance, salaries, utilities and all
other operating costs incurred in the operation of the hotels.

Under the Percentage Leases, the Company is required to maintain the
underground utilities and the structural elements of the improvements, including
exterior walls (excluding plate glass) and roof. In addition, the Company must
fund periodic capital improvements to the buildings and grounds, and the
periodic repair, replacement and refurbishment of furniture, fixtures and
equipment, up to the following amounts per quarter for the first year of the
Percentage Lease: Ontario -- $22,750; Arlington -- $25,000; San
Antonio -- $10,500; Tucson -- $28,500; and Scottsdale -- $24,500. These amounts
increase annually in accordance with the CPI. These obligations carry forward to
the extent not expended, and any unexpended amounts remain the property of the
Company upon termination of the Percentage Leases. Except for capital
improvements and maintenance of structural elements and underground utilities,
GHG bears the obligation, at its expense, to maintain the hotels in good order
and repair, except for ordinary wear and tear, and to make non-structural,
foreseen and unforeseen, and ordinary and extraordinary repairs which may be
necessary and appropriate to keep the hotels in good order and repair.

S-56
<PAGE> 57

GHG will not be permitted to sublet all or any part of the hotels or assign
its interest under any of the Percentage Leases, other than to an affiliate of
the lessee, without the prior written consent of the Company. No assignment or
subletting will release GHG from any of its obligations under the Percentage
Leases.

If the Company enters into an agreement to sell or otherwise transfer a
hotel, the Company has the right to terminate the Percentage Lease with respect
to such hotel upon paying GHG the fair market value of its leasehold interest in
the remaining term of the Percentage Lease to be terminated.

GHG is the licensee under the franchise licenses on the hotels. The
franchise agreements are assignable to the Company, another lessee or a new
owner, with a payment of $2,500 per hotel.

MORTGAGE RECEIVABLES

Although the Company does not intend to engage in the business of making
real estate loans, the Company holds three notes receivable, secured by first
priority real property liens, which had a total outstanding principal balance at
December 31, 1996 of $10,678,000. The financial statement carrying value of the
Hovpark loan at December 31, 1996 was approximately $6.7 million, the estimated
fair value of the underlying collateral. Effective February 1, 1997, as the
result of repayment of principal by the borrower, the principal balance of this
loan was reduced to $500,000, and the maturity was extended to February 1, 2009.
All payments are current on all loans. In connection with the Grunow loan, the
Company entered into an Option Agreement which provides the Company with the
option to purchase the Grunow Medical building based upon an agreed upon
formula. The following table summarizes these three mortgages.

SUMMARY OF MORTGAGE RECEIVABLES

<TABLE>
<CAPTION>
COLLATERAL PROPERTIES PRINCIPAL BALANCE
- ---------------------------------------------- INTEREST -------------------------
NAME TYPE RATE MATURITY 12/31/96 12/31/95
- -------------------------- ------------------ -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Hovpark(1)................ Industrial/Office 8.00% 02/01/97 $7,563,000 $7,563,000
Laurel Cranford........... Industrial 9.00% 06/01/01 $ 511,000 $ 516,000
Grunow.................... Medical Office 11.00% 11/19/99 $2,694,000 N/A
</TABLE>

- ---------------
(1) This loan is currently secured by a pledge of partnership interests in the
borrower.

MANAGEMENT BUSINESS

The Company conducts its management operations through the Associated
Companies. The Company holds 100% of the preferred stock of each of the
Associated Companies. Although the Company holds none of the voting common stock
of the Associated Companies, the Company has the right, through its preferred
stock holdings, to receive a significant portion of the economic benefits of the
Associated Companies' operations. The voting common stock of the Associated
Companies is held by individuals. See "-- The Associated Companies."

The Associated Companies control a substantial asset management and
property management portfolio by virtue of GC's general partner interests in
certain limited partnerships, and through contracts with unaffiliated owners.
The current management operations of the Company, the Operating Partnership and
the Associated Companies are summarized in the following table.

S-57
<PAGE> 58

- ---------------
(1) Properties owned by the Operating Partnership or the Company (including the
CIGNA Properties and the E&L Properties to be acquired) and either (i)
leased to GHG, in the case of hotels, or (ii) managed by the Company.

(2) Properties owned by partnerships of which GC or an affiliate is the general
partner, or by third parties, and managed by GC, GIRC or GHG.

The portfolio of 65 properties managed by the Associated Companies includes
622 hotel rooms, approximately 4.9 million square feet of retail, industrial and
office properties, more than 2,000 multi-family residential units, and
approximately 284 acres of undeveloped land. The Associated Companies each
receive substantial fees for their management services. The Associated
Companies, in turn, pay a portion of their income to their stockholders,
including the Company, through distributions on their capital stock.

S-58
<PAGE> 59

MANAGEMENT PORTFOLIO

The following table lists the properties managed by the Associated
Companies as of December 31, 1996, indicating property name, city, state,
approximate square footage, size or number of units, if applicable, and acreage,
if applicable.

MANAGEMENT PORTFOLIO

<TABLE>
<CAPTION>
SQ.
ASSET CITY STATE FT.(1)
- --------------------------------------------------------------- ----------------- ----- ---------
<S> <C> <C> <C>
OFFICE
One West Madison............................................... Phoenix AZ 25,000
GSK Corporate Plaza............................................ Phoenix AZ 31,234
Grunow Medical Building........................................ Phoenix AZ 47,479
Rosemead Springs Center........................................ El Monte CA 129,503
University Tech Center......................................... Pomona CA 101,177
Civic Center II................................................ Rancho Cucamonga CA 17,857
Gateway Professional Center.................................... Sacramento CA 50,556
Park Plaza..................................................... Sacramento CA 67,688
Carnegie Business Center I..................................... San Bernardino CA 62,605
Carnegie Business Center II.................................... San Bernardino CA 50,804
One Vanderbilt Way............................................. San Bernardino CA 73,809
Two Vanderbilt Way............................................. San Bernardino CA 69,094
Lakeside Tower................................................. San Bernardino CA 112,814
One Carnegie Plaza............................................. San Bernardino CA 102,693
Two Carnegie Plaza............................................. San Bernardino CA 68,925
One Parkside................................................... San Bernardino CA 70,069
Santa Fe Railway............................................... San Bernardino CA 36,288
Inland Regional Center......................................... San Bernardino CA 81,079
Bristol Medical Center......................................... Santa Ana CA 52,311
26th Street Office............................................. Santa Monica CA 14,573
Montrose Office Building....................................... Rockville MD 187,161
Directors Plaza................................................ Memphis TN 131,727
Poplar Towers I................................................ Memphis TN 100,901
Bluemound Commerce Center...................................... Brookfield WI 48,113
---------
Total................................................. 1,733,460
=========
INDUSTRIAL
Magnolia Industrial............................................ Phoenix AZ 35,385
Fifth Street Industrial........................................ Phoenix AZ 109,699
San Sevaine Business Park...................................... Mira Loma CA 172,057
Rancon Centre Ontario.......................................... Ontario CA 245,000
SkyPark Airport Parking........................................ San Bruno CA 216,780
Wakefield Engineering Building................................. Temecula CA 44,200
Esplanade...................................................... Tustin CA 141,700
Bryant Lake Phases I & II...................................... Eden Prairie MN 80,057
Bryant Lake Phase III.......................................... Eden Prairie MN 91,732
Black Satchel.................................................. Charlotte NC 228,800
North Park Business Center..................................... Charlotte NC 319,960
The Commons at Great Valley.................................... Malvern PA 200,000
Totem Valley Business Center................................... Kirkland WA 121,645
---------
Total................................................. 2,007,015
=========
RETAIL
Baseline Mercado............................................... Mesa AZ 22,886
Mountain View Plaza............................................ Mojave CA 57,456
Weist Plaza.................................................... Riverside CA 145,778
Promotional Retail Phase II.................................... San Bernardino CA 104,865
Service Retail Center.......................................... San Bernardino CA 20,780
Outback Steak House............................................ San Bernardino CA 6,500
Bally's Health Club............................................ San Bernardino CA 25,000
</TABLE>

S-59
<PAGE> 60

<TABLE>
<CAPTION>
SQ.
ASSET CITY STATE FT.(1)
- --------------------------------------------------------------- ----------------- ---------
<S> <C> <C> <C>
Aztec Shopping Center.......................................... San Diego CA 23,789
Silver Creek Plaza............................................. San Jose CA 71,005
RCC Auto Center................................................ Temecula CA 25,761
Town & Country Center.......................................... Arlington Heights IL 323,591
Glenlake Plaza................................................. Indianapolis IN 93,593
Heritage Square................................................ San Antonio TX 75,528
San Mar Plaza.................................................. San Marcos TX 96,206
Vashon East.................................................... Seattle WA 53,143
---------
Total................................................. 1,145,881
=========

NO. UNITS
---------
MULTI-FAMILY

Green Meadows.................................................. Davis CA 120
Huntington Breakers............................................ Huntington Beach CA 342
Villa La Jolla................................................. La Jolla CA 385
La Jolla Canyon................................................ La Jolla CA 157
Pacific Bay Club............................................... San Diego CA 159
Shadowridge Woodbend........................................... Vista CA 240
Promontory Point............................................... Henderson NV 180
Lake Mead Estates.............................................. Las Vegas NV 160
Georgetown Apartments.......................................... Omaha NE 288
---------
Total................................................. 2,031
=========
HOTEL
Country Suites By Carlson...................................... Tempe AZ 139
Country Suites By Carlson...................................... Memphis TN 121
Condominium Resort Hotel....................................... Galveston TX 276
Condominium Resort Hotel....................................... Port Aransas TX 86
---------
Total................................................. 622
=========

LAND(2) ACREAGE
---------
Lake Elsinore Square (Retail).................................. Lake Elsinore CA 24.79
Mountain View Plaza (Retail)................................... Mojave CA 8.99
Perris-4th Avenue (Comm./Retail)............................... Perris CA 17.67
Perris-Ethanac (Comm./Retail).................................. Perris CA 23.76
Perris-Nuevo (Comm./Retail).................................... Perris CA 60.41
Rancon Centre Ontario (Industrial)............................. Ontario CA 33.76
Rancon Center (Office)......................................... Rancho Cucamonga CA 1.80
Rancon Center (Retail)......................................... Rancho Cucamonga CA 5.98
Rancon Commerce Center (Industrial)............................ Temecula CA 15.52
Rancon Towne Village (Retail).................................. Temecula CA 11.97
Tippecanoe (Commercial)........................................ San Bernardino CA 8.79
Tri-City Corporate Center (Office/Retail)...................... San Bernardino CA 70.33
---------
Total................................................. 283.77
=========
</TABLE>

- ---------------
(1) Total square footage of the management portfolio is 6,792,332 square feet,
including 1,905,976 square feet of hotel and multi-family properties as of
December 31, 1996.

(2) The 65 properties listed as actively managed elsewhere in this Prospectus
Supplement do not include the land portfolio.

S-60
<PAGE> 61

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
directors and the executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION
- ----------------------- ---- -----------------------------------------------------------
<S> <C> <C>
Robert Batinovich...... 60 Chairman, President and Chief Executive Officer
Andrew Batinovich...... 38 Director, Executive Vice President, Chief Operating Officer
and Chief Financial Officer
Sandra L. Boyle........ 48 Senior Vice President
Frank E. Austin........ 49 Senior Vice President, General Counsel and Secretary
Terri Garnick.......... 36 Senior Vice President, Treasurer and Chief Accounting
Officer
Stephen R. Saul........ 43 Vice President
Anna Cheng............. 42 Vice President
Patrick Foley.......... 65 Director
Richard A. Magnuson.... 39 Director
Laura Wallace.......... 43 Director
</TABLE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

THE FORMATION AND CONSOLIDATION

The Company began operations on December 31, 1995 concurrently with the
Consolidation, a merger and consolidation in which Old GC and the Partnerships
merged with and into the Company. To effect the Consolidation, the Company (i)
issued securities of the Company to the Partnerships in exchange for the assets
of the Partnerships, (ii) merged with Old GC, with the Company being the
surviving entity; (iii) obtained certain limited partnership interests held by
Old GC, which Old GC contributed to the Company; (iv) obtained nonvoting
preferred stock in three companies involved in the management of public and
private real estate partnerships and the operations of the Company's hotels; and
(v) through the Operating Partnership, acquired interests in certain warehouse
distribution facilities from GPA, Ltd., a California limited partnership, which
were controlled by Robert Batinovich. The Partnerships' assets included the
stock of an insurance holding company which is currently held by one of the
Associated Companies. Prior to the Consolidation, Robert Batinovich and GC (then
known as Glenborough Realty Corporation) were the general partners of the
Partnerships.

REDEMPTION AND REGISTRATION RIGHTS

Robert Batinovich, Andrew Batinovich, Sandra L. Boyle and Frank E. Austin
hold or control, in aggregate, limited partnership interests representing
approximately 21% of Glenborough Partners, a California limited partnership.
Glenborough Partners is a 99% limited partner of GPA, Ltd. which holds an
approximately 7% interest in the Operating Partnership, in which the Company has
a 1.0% general partnership interest and an approximate 91% limited partnership
interest. The officers named above, through their interest in Glenborough
Partners, share indirectly with the Company in the net income or loss or any
distributions of the Operating Partnership. Pursuant to the partnership
agreement of the Operating Partnership, GPA, Ltd. holds certain redemption
rights which are exercisable under which GPA, Ltd.'s interest in the Operating
Partnership may be redeemed in exchange for shares of the Company's Common
Stock. The Company has granted GPA, Ltd. certain demand and piggyback
registration rights with respect to shares of Common Stock that may be owned or
acquired by GPA, Ltd. in connection with the exercise of such redemption rights.
See "Description of Capital Stock -- Shares Eligible for Future
Sale -- Registration Rights." As of December 31, 1996, the portion of the shares
of Common Stock of the Company issuable upon redemption by GPA, Ltd. and covered
by the "demand" and "piggyback" registration rights which are attributable to
each of Robert

S-61
<PAGE> 62

Batinovich, Andrew Batinovich, Sandra L. Boyle and Frank E. Austin is 114,659
shares, 4,760 shares, 277 shares and 387 shares, respectively. In addition,
Robert Batinovich directly holds an approximately 0.3% interest in the Operating
Partnership, which includes similar redemption and registration rights to those
held by GPA, Ltd. As of December 31, 1996 the number of shares of the Common
Stock issuable upon redemption by Robert Batinovich and covered by the
registration rights was 12,727.

RELATED COMPANIES

GPA, Ltd.'s Relationship with the Company

The Company owns an approximate 4% limited partner interest in Glenborough
Partners, a California limited partnership, which in turn owns a 99% limited
partner interest in GPA, Ltd. Thus, the Company effectively owns an approximate
4% interest in GPA, Ltd. The value of this interest is reflected in the
Company's audited balance sheet.

GPA, Ltd.'s Relationship with the Operating Partnership

GPA, Ltd. owns an approximate 7% limited partner interest in the Operating
Partnership. Thus, because the Company owns an approximate 4% interest in GPA,
Ltd., the Company owns an approximate 1% indirect interest in the Operating
Partnership, in addition to its approximate 91% direct interest as limited and
general partner of the Operating Partnership.

GPA, Ltd.'s Relationship with GC

GC owns a 0.1% general partner interest in GPA, Ltd.

GPA, Ltd.'s Relationship with Robert Batinovich

Robert Batinovich and members of his immediate family own an approximate
21% aggregate interest (including both general partner and limited partner
interests) in Glenborough Partners, which in turn owns a 99% limited partner
interest in GPA, Ltd. In addition, Robert Batinovich owns an approximate 1%
general partner interest in GPA, Ltd. Thus, Robert Batinovich and members of his
immediate family own an approximate 22% aggregate interest in GPA, Ltd.

ACQUISITIONS FROM RELATED PARTIES

In 1996, the Company acquired the UCT Property and the Bond Street
Property. The UCT Property and the Bond Street Property were substantially or
partially owned by GPA, Ltd. and Robert Batinovich. Because of the ownership
interests of Robert and Andrew Batinovich and their families through GPA, Ltd.
or directly, these transactions involved a conflict of interest. The terms of
the transactions were reviewed by independent directors to determine if these
transactions were fair to the Company and its stockholders. The independent
directors, after completing their review and considering, among other things,
appraisals on each of the properties that show values in excess of the amounts
to be paid by the Company, unanimously approved each transaction, with Robert
and Andrew Batinovich abstaining. The Company believes that these transactions
were on terms that are at least as favorable as those that could have been
obtained with arms-length bargaining with a third-party, but there can be no
assurance that this was the case. See "Recent Activities."

The Company may acquire other properties in which GPA, Ltd. or Robert and
Andrew Batinovich or their families have an interest, although there are no
agreements or proposals to acquire properties currently under consideration
other than those referred to under the heading "Recent Activities." The
Company's Board of Directors has adopted a policy that no acquisition of
properties from GPA, Ltd. or Robert or Andrew Batinovich or their immediate
families or from other entities in which they have an interest will be made
without the Company first obtaining the approval of at least two-thirds of the
Company's independent Directors. In addition, the employment agreements of
Robert and Andrew Batinovich provide that in the event either of them or their
immediate family members or any entity in which any of them has an interest has
an opportunity during the term of the employment agreements to acquire any
interest in real property for investment purposes or the right to manage any
interest in real property, he or she must first offer the opportunity to the
Company or to a designated entity in which the Company has an interest, for such
reasonable period of time as may be necessary for a disinterested majority of
the Company's Board of Directors to evaluate the opportunity for investment or
acquisition by the Company.

S-62
<PAGE> 63

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Bear, Stearns &
Co. Inc. ("Bear Stearns"), Robertson, Stephens & Company LLC ("Robertson
Stephens") and Jefferies & Company, Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company the number of shares
of Common Stock set forth opposite their respective names below. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters are committed
to purchase all of such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER COMMON STOCK
------------------------------------------------------------------- ----------------
<S> <C>
Bear, Stearns & Co. Inc............................................ 1,200,000
Robertson, Stephens & Company LLC.................................. 1,200,000
Jefferies & Company, Inc........................................... 600,000
A.G. Edwards & Sons, Inc........................................... 100,000
J.P. Morgan Securities Inc......................................... 100,000
PaineWebber Incorporated........................................... 100,000
Arnhold and S. Bleichroeder, Inc................................... 50,000
Cruttenden Roth Incorporated....................................... 50,000
Legg Mason Wood Walker, Incorporated............................... 50,000
The Shemano Group, Inc............................................. 50,000
---------
Total.................................................... 3,500,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock to the public at the public offering price set forth
on the cover page of this Prospectus Supplement and to certain dealers at that
price less a concession not in excess of $0.67 per share. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $0.10 per share
on sales to certain other dealers. After the initial offering to the public, the
public offering price, concession and discount may be changed.

The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus Supplement, to purchase up to 525,000
additional shares of Common Stock (the "Option Shares") to cover
over-allotments, if any, at the public offering price per share set forth on the
cover page of this Prospectus Supplement, less the underwriting discount. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of total Option Shares that the number of Common Stock to be
purchased by it shown in the foregoing table bears to the Common Stock initially
offered hereby.

In the Underwriting Agreement, the Company and the Operating Partnership
have agreed to indemnify the several Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended
or to contribute to payments the Underwriters may be required to make in respect
thereof.

The Company and the Operating Partnership have agreed not to, directly or
indirectly, issue, sell, offer or agree to sell, grant any option to purchase,
or otherwise dispose (or announce any offer, sale, grant of an option to
purchase or other disposition) of, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock for a period of
90 days after the date of this Prospectus Supplement without the prior written
consent of Bear Stearns (except for issuances by the Company upon the exercise
of outstanding stock options, in connection with bona fide acquisitions of real
property or interests therein, of shares of Common Stock or partnership units in
the Operating Partnership such that the aggregate number of shares of Common
Stock issued, or which may be issued upon conversion or exchange of such units,
will not exceed 3,500,000). All directors and officers and certain stockholders
of the Company have agreed not to directly or indirectly issue, sell, offer or
agree to sell, grant any option to purchase or otherwise dispose of any shares
of Common Stock (or any securities convertible into, exercise for or
exchangeable for shares of Common Stock) for a period of 180 days after the date
of this Prospectus Supplement without the prior written consent of the
Representatives. In connection with the settlement of the Blumberg litigation,
Robert Batinovich, Andrew Batinovich and certain family members agreed not to
sell any of their shares of Common Stock until after December 31, 1997.

S-63
<PAGE> 64

Bear Stearns and Robertson Stephens have provided various financial
advisory services to the Company or affiliates of the Company, for which they
have received customary compensation. Bear, Stearns Funding, Inc. ("Bear Stearns
Funding"), an affiliate of Bear Stearns, has loaned the Company $20,000,000 at
an interest rate of 7.57% with a maturity date of January 1, 2006. Bear Stearns
Funding has also made certain loans to limited partnerships for which GIRC
provides management services.

The Shemano Group, Inc. ("Shemano"), a participating Underwriter, has
provided consulting services to the Company in connection with the Offering and
has agreed to continue to provide consulting services to the Company with
respect to certain securities matters. The Company has paid Shemano $25,000 to
date and has agreed to pay Shemano an additional $25,000 at the closing of the
Offering.

LEGAL MATTERS

The legality of the Common Stock offered by this Prospectus Supplement will
be passed upon for the Company by Morrison & Foerster LLP, Palo Alto,
California, and certain matters will be passed upon for the Underwriters by
Latham & Watkins, San Francisco, California. Morrison & Foerster LLP will rely
upon the opinion of Hogan & Hartson LLP, Baltimore, Maryland as to certain
matters of Maryland law. In addition, Morrison & Foerster LLP will provide an
opinion as the basis of the description of federal income tax consequences
contained in the accompanying Prospectus in the section entitled "Federal Income
Tax Consequences."

EXPERTS

The financial statements of the Company, the GRT Predecessor Entities,
Glenborough Hotel Group, Atlantic Pacific Assurance Company Limited and
Glenborough Inland Realty Corporation and related financial statement schedules
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, incorporated by reference herein, have been audited by Arthur Andersen
LLP, independent public accountants, to the extent and for the periods indicated
in their reports, and have been incorporated herein in reliance on such reports
given on the authority of that firm as experts in accounting and auditing.

In addition, the respective financial statements of the E&L Properties and
the CIGNA Properties included in this Prospectus Supplement, to the extent and
for the periods indicated in their reports, have also been audited by Arthur
Andersen LLP, independent public accountants, and are included herein in
reliance on such reports given on the authority of that firm as experts in
accounting and auditing.

S-64
<PAGE> 65

GLENBOROUGH REALTY TRUST INCORPORATED

INDEX TO FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES OF THE CIGNA PROPERTIES FOR THE
YEAR ENDED DECEMBER 31, 1996:
Report of Independent Public Accountants.......................................... F-2
Combined Statement of Revenues and Certain Expenses of the CIGNA Properties for
the year ended December 31, 1996............................................... F-3
Notes to Combined Statement of Revenues and Certain Expenses of the CIGNA
Properties for the year ended December 31, 1996................................ F-4
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES OF THE E&L PROPERTIES FOR THE
YEAR ENDED DECEMBER 31, 1996:
Report of Independent Public Accountants.......................................... F-5
Combined Statement of Revenue and Certain Expenses of the E&L Properties for the
year ended December 31, 1996................................................... F-6
Notes to Combined Statement of Revenue and Certain Expenses of the E&L Properties
for the year ended December 31, 1996........................................... F-7
</TABLE>

F-1
<PAGE> 66

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Glenborough Realty Trust Incorporated:

We have audited the accompanying combined statement of revenues and certain
expenses of the CIGNA Properties, as defined in Note 1, for the year ended
December 31, 1996. This combined financial statement is the responsibility of
the management of the Company. Our responsibility is to express an opinion on
this combined financial statement based on our audit.

We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.

The accompanying combined statement of revenues and certain expenses has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the CIGNA
Properties.

In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the revenues and certain expenses of the CIGNA
Properties for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California
February 11, 1997

F-2
<PAGE> 67

GLENBOROUGH REALTY TRUST INCORPORATED

COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES OF
THE CIGNA PROPERTIES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUES.......................................................................... $7,811
CERTAIN EXPENSES:
Operating....................................................................... 1,947
Real estate taxes............................................................... 729
------
2,676
------
REVENUES IN EXCESS OF CERTAIN EXPENSES............................................ $5,135
======
</TABLE>

The accompanying notes are an integral part of this statement.

F-3
<PAGE> 68

GLENBOROUGH REALTY TRUST INCORPORATED

NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES OF
THE CIGNA PROPERTIES
FOR THE YEAR ENDED DECEMBER 31, 1996

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICY

Property Acquired - The accompanying combined statement of revenues and
certain expenses include the operations (see "Basis of Presentation" below) of
the following six properties (the "CIGNA Properties") to be acquired by
Glenborough Realty Trust Incorporated (the "Company"), from an unaffiliated
third party.

<TABLE>
<CAPTION>
PROPERTY CITY STATE TYPE
------------------------------------------- ----------- ----- -------------
<S> <C> <C> <C>
Woodlands Plaza............................ St. Louis MO Office
Woodlands Tech............................. St. Louis MO Industrial
Lake Point................................. Orlando FL Industrial
Overlook Apartments........................ Scottsdale AZ Multi-family
Piedmont Plaza............................. Apopka FL Retail
Westford Corporate Center.................. Westford MA Office
</TABLE>

Basis of Presentation - The accompanying combined statement of revenues and
certain expenses is not intended to be a complete presentation of the actual
operations of the CIGNA Properties for the period presented. Certain expenses
may not be comparable to the expenses expected to be incurred by the Company in
the future operations of the CIGNA Properties; however, the Company is not aware
of any material factors relating to the CIGNA Properties that would cause the
reported financial information not to be indicative of future operating results.
Excluded expenses consist of property management fees, interest expense,
depreciation and amortization and other costs not directly related to the future
operations of the CIGNA Properties.

This combined financial statement has been prepared for the purpose of
complying with certain rules and regulations of the Securities and Exchange
Commission.

Revenue Recognition - All leases are classified as operating leases. Rental
revenue is recognized as earned over the terms of the leases.

2. LEASING ACTIVITY

The minimum future rental revenues from leases in effect as of January 1,
1997 are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR AMOUNT
--------------------------------------------------- -------
<S> <C>
1997............................................... 5,351
1998............................................... 5,024
1999............................................... 3,233
2000............................................... 2,310
2001............................................... 1,799
Thereafter......................................... 11,677
-------
Total.................................... $29,394
=======
</TABLE>

In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $1,171
for the year ended December 31, 1996. Certain leases contain lessee renewal
options.

F-4
<PAGE> 69

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Glenborough Realty Trust Incorporated:

We have audited the accompanying combined statement of revenues and certain
expenses of the E&L Properties, as defined in Note 1, for the year ended
December 31, 1996. This combined financial statement is the responsibility of
the management of the Company. Our responsibility is to express an opinion on
this combined financial statement based on our audit.

In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the revenues and certain expenses of the E&L
Properties for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California
January 31, 1997

F-5
<PAGE> 70

GLENBOROUGH REALTY TRUST INCORPORATED

COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES OF
THE E&L PROPERTIES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUES............................................................................ $2,925
CERTAIN EXPENSES:
Operating......................................................................... 418
Real estate taxes................................................................. 157
------
575
------
REVENUES IN EXCESS OF CERTAIN EXPENSES.............................................. $2,350
======
</TABLE>

The accompanying notes are an integral part of this statement.

F-6
<PAGE> 71

GLENBOROUGH REALTY TRUST INCORPORATED

NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES OF
THE E&L PROPERTIES
FOR THE YEAR ENDED DECEMBER 31, 1996

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Property Acquired -- The accompanying combined statement of revenues and
certain expenses include the operations (see "Basis of Presentation" below) of
the following E&L Properties to be acquired by Glenborough Realty Trust
Incorporated (the "Company") from Ellis & Lane Partnerships, an unaffiliated
third party.

<TABLE>
<CAPTION>
PROPERTY CITY STATE TYPE
------------------------------------------- ------------- ----- ----------
<S> <C> <C> <C>
Academy Center............................. Rolling Hills CA Office
Chatsworth Industrial Park................. Chatsworth CA Industrial
Sandhill Industrial Park................... Carson CA Industrial
Arrow/San Dimas Center..................... San Dimas CA Industrial
Katella/Glassell Business Park............. Orange CA Retail
Kraemer Business Park...................... Anaheim CA Industrial
Piedmont -- Belshaw........................ Carson CA Industrial
Piedmont -- Dominguez...................... Carson CA Industrial
Piedmont -- Dunn Way....................... Placentia CA Industrial
Monroe Business Park....................... Placentia CA Industrial
Piedmont -- Upland......................... Upland CA Industrial
</TABLE>

Basis of Presentation -- The accompanying combined statements of revenues
and certain expenses is not intended to be a complete presentation of the actual
operations of the E&L Properties for the period presented. Certain expenses may
not be comparable to the expenses expected to be incurred by the Company in the
future operations of the Properties; however, the Company is not aware of any
material factors relating to the E&L Properties that would cause the reported
financial information not to be indicative of future operating results. Excluded
expenses consist of property management fees, interest expense, depreciation and
amortization and other costs not directly related to the future operations of
the E&L Properties.

This combined financial statement has been prepared for the purpose of
complying with certain rules and regulations of the Securities and Exchange
Commission.

Revenue Recognition -- All leases are classified as operating leases.
Rental revenue is recognized as earned over the terms of the leases.

2. LEASING ACTIVITY

The minimum future rental revenues from leases in effect as of January 1,
1997 are as follows (in thousands)

<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------------------------------- ------
<S> <C>
1997................................................ 2,123
1998................................................ 1,060
1999................................................ 570
2000................................................ 438
2001................................................ 208
Thereafter.......................................... 6
-----
Total..................................... 4,405
=====
</TABLE>

F-7
<PAGE> 72

GLENBOROUGH REALTY TRUST INCORPORATED

NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES OF
THE E&L PROPERTIES
FOR THE YEAR ENDED DECEMBER 31, 1996 -- (CONTINUED)

In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $52 for
the year ended December 31, 1996. Certain leases contain lessee renewal options.

F-8
<PAGE> 73

PROSPECTUS

<TABLE>
<S> <C> <C>
LOGO $250,000,000
LOGO
PREFERRED STOCK,
COMMON STOCK AND WARRANTS
</TABLE>

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

Glenborough Realty Trust Incorporated (the "Company") may from time to time
offer in one or more series or classes (i) shares or fractional shares of its
preferred stock, par value $.001 (the "Preferred Stock"), (ii) shares of its
common stock, par value $0.001 per share (the "Common Stock") or (iii) warrants
to purchase shares of Preferred Stock or Common Stock (the "Warrants"), with an
aggregate public offering price of up to $250,000,000, on terms to be determined
at the time of the offering. The Preferred Stock, Common Stock and Warrants
(collectively, the "Offered Securities") may be offered, separately or together,
in separate classes or series in amounts, at prices and on terms to be set forth
in a supplement to this Prospectus (each a "Prospectus Supplement").

The specific terms of the Offered Securities in respect to which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable (i) in the case of Preferred
Stock, the specific title and stated value per share, any dividend, liquidation,
redemption, conversion, voting and other rights, and any initial public offering
price; (ii) in the case of Common Stock, the specific title and stated value and
any initial public offering price; and (iii) in the case of Warrants, the
duration, offering price, exercise price and detachability. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Offered Securities, in each case as may be
appropriate to preserve the status of the Company as a real estate investment
trust ("REIT") for federal income tax purposes.

The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal Income Tax Consequences relating
to, and any listing on a securities exchange of, the Offered Securities covered
by such Prospectus Supplement.

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

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE OFFERED SECURITIES.
------------------------

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

The date of this Prospectus is February 25, 1997.
<PAGE> 74

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS AND ANY APPLICABLE PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.

2
<PAGE> 75

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, and exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.,
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The address of the
Commission's Web Site is (http://www.sec.gov). In addition, the Common Stock is
listed on the New York Stock Exchange and similar information concerning the
Company can be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.

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

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

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

a. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995;

b. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1996;

c. The Company's Current Reports on Form 8-K dated June 30, 1996, July
15, 1996, September 30, 1996, October 17, 1996 and December 4, 1996 and
Current Reports on Form 8-K/A dated March 14, 1996, August 8, 1996,
December 30, 1996 and December 30, 1996;

d. The description of the Registrant's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-14162).

3
<PAGE> 76

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

Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus (or in the applicable Prospectus
Supplement).

Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to the Vice President, Capital Markets, Glenborough Realty Trust
Incorporated, 400 South El Camino Real, Suite 1100, San Mateo, California
95402-1708, telephone number (415) 343-9300.

As used herein, the term "Company" means Glenborough Realty Trust
Incorporated, a Maryland real estate investment trust, and its consolidated
subsidiaries for the periods from and after December 31, 1995 (the date of the
merger of eight public limited partnerships and Glenborough Corporation, a
California corporation, (the "Predecessors") with and into the Company (the
"Consolidation")). This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus. Unless otherwise indicated, ownership percentages
of the Company s Common Stock have been computed on a fully converted basis,
using an exchange of Operating Partnership units for Common Stock on a
one-for-one basis.

4
<PAGE> 77

THE COMPANY

The Company is a self-administered and self-managed real estate investment
trust (a "REIT") that owns a portfolio of 54 industrial, office, hotel, retail
and multifamily properties (the "Properties") located in 17 states throughout
the country, as of December 31, 1996. The Company's principal growth strategy is
to capitalize on the opportunity to acquire portfolios or single properties from
public and private partnerships on attractive terms. This strategy has evolved
from the Company's predecessors' experience since 1978 in managing real estate
partnerships and their assets and, since 1989, in acquiring management interests
from third parties. In addition, three associated companies (the "Associated
Companies") provide comprehensive asset, partnership and property management
services for 65 other properties that are not owned by the Company.

The Company expects to continue to enhance, expand and diversify its real
estate holdings by making property and portfolio acquisitions, improving
individual property performance and constantly reviewing the mix of its holdings
by selling appropriate properties and reinvesting the proceeds. The Company will
pursue the acquisition of individual properties and diversified portfolios that
can be purchased at attractive prices and have characteristics consistent with
the Company's growth strategy. The Company also intends to expand through the
growth of the Associated Companies, which it anticipates will occur through the
acquisition of general partnership interests, execution of asset management and
property management agreements with third parties and the leasing of hotels that
may in the future be acquired by the Company.

A portion of the Company's operations is conducted through a subsidiary
operating partnership (the "Operating Partnership") in which the Company holds a
1% interest as the sole general partner and in which the Company holds an
approximate 90.8% limited partner interest, as of December 31, 1996.

The Common Stock is listed on the New York Stock Exchange under the Symbol
"GLB." The Company commenced operations on December 31, 1995, through the merger
of eight public limited partnerships and a management company with and into the
Company. The Company's executive offices are located at 400 South El Camino
Real, Suite 1100, San Mateo, California 95402-1708 and its telephone number is
(415) 343-9300.

TAX STATUS OF THE COMPANY

The Company will elect to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its taxable year ended December 31, 1996. As a REIT, the Company generally will
not be subject to Federal income tax on net income that it distributes to its
stockholders. Even if the Company qualifies for taxation as a REIT, the Company
may be subject to certain Federal, state and local taxes on its income and
property. See "Federal Income Tax Consequences."

5
<PAGE> 78

RISK FACTORS

Prospective investors should read this entire Prospectus and the applicable
Prospectus Supplement carefully, including all appendices and supplements hereto
or thereto, and should consider carefully the following factors before
purchasing the Offered Securities offered hereby.

LITIGATION RELATED TO CONSOLIDATION

Recent business reorganizations sponsored by others involving the
conversion of partnerships into corporations have given rise to a number of
investor lawsuits. These lawsuits have included claims against the general
partners of the participating partnerships, the partnerships themselves and
related persons involved in the structuring of or benefiting from the conversion
or reorganization, as well as claims against the surviving entity and its
directors and officers. The lawsuits have included, among others, claims that
the structure of the reorganizations, as well as the manner in which they were
submitted for investor approval, involved violations of federal and state
securities laws, common law fraud and negligent misrepresentations, breaches of
fiduciary duty, unfair and deceptive trade practices, negligence and waste,
breaches of the partnership documents of the participating partnerships, failure
to comply with applicable reporting requirements, violations of the rules of the
NASD on suitability and fair practices, and violations of the Racketeer
Influenced and Corrupt Organizations Act. Two lawsuits have been filed
contesting the fairness of the Consolidation, one in California state court and
one in federal court. A settlement of the state court action has been approved
by the court, but objectors to the settlement have appealed that approval.
Plaintiffs in the federal court action have agreed voluntarily to take the
action off calendar pending resolution of the state court action. The Company
and the other defendants in the state court action have filed a responsive brief
and the appeal is now pending.

From time to time the Company is involved in other litigation arising out
of its business activities. It is possible that this litigation and the other
litigation previously described could result in significant losses in excess of
amounts reserved, which could have an adverse effect on the Company's results of
operations and the financial condition of the Company.

CHAPTER 11 REORGANIZATION OF PARTNERSHIP CONSOLIDATION BY SENIOR MANAGEMENT

Robert and Andrew Batinovich, two of the senior officers of the Company,
were also senior members of a management team that formed a publicly registered
limited partnership in 1986 to consolidate a number of predecessor partnerships.
That public partnership was involved in litigation with its primary creditor and
in order to prevent foreclosure filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code in May of 1992. The public
partnership, the primary subsidiary of which is GPA, Ltd., which owns an
approximately 7% limited partner interest in the Operating Partnership along
with other substantial real estate assets, settled the litigation and obtained
confirmation of a plan of reorganization in January 1994. Investors in the
Offered Securities should consider that the consolidation of partnerships into
GPA, Ltd.'s parent partnership did not achieve all of the objectives stated at
the time and should further consider the relevance of that fact to their
investment in the Offered Securities of the Company.

RISKS ASSOCIATED WITH ACQUISITIONS

Acquisitions Could Adversely Affect Operations or Stock Value

Consistent with its growth strategy, the Company is continually pursuing
and evaluating potential acquisition opportunities, and is from time to time
actively considering the possible acquisition of specific properties, which may
include properties managed or controlled by one of the Associated Companies or
owned by affiliated parties. It is possible that one or more of such possible
future acquisitions, if completed, could adversely affect the Company's funds
from operations or cash available for distribution, in the short term or the
long term or both, or increase the Company's debt, or be perceived negatively
among investors such that such an acquisition could be followed by a decline in
the market value of the Common Stock.

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Expansion Risk

The Company is experiencing a period of rapid expansion, which management
expects will continue in the near future. This growth has increased the
operating complexity of the Company as well as the level of responsibility for
both existing and new management personnel. The Company's ability to manage its
expansion effectively will require it to continue to update its operational and
financial systems and to expand, train and manage its employee base. The
Company's inability to effectively manage its expansion could have an adverse
effect on the Company's results of operations and financial condition.

Conflict of Interest

The Company has acquired, and from time to time may acquire, properties
from partnerships that Robert Batinovich, the Company's Chief Executive Officer,
and Andrew Batinovich, the Company's Chief Operating Officer, control, and in
which they and members of their families have substantial interests. It is also
possible that the Company may enter into transactions to acquire other
properties controlled by these individuals or in which they or members of their
families have substantial interests in the future. These transactions involve or
will involve conflicts of interest. These transactions may provide substantial
economic benefits such as the payments or unit issuances, relief or deferral of
tax liabilities, relief of primary or secondary liability for debt, and
reduction in exposure to other property-related liabilities. Despite the
presence of appraisals or fairness opinions or review by parties who have no
interest in the transactions, the transactions will not be the product of
arm's-length negotiation and there can be no assurance that these transactions
will be as favorable to the Company as transactions that the Company negotiates
with unrelated parties or will not result in undue benefit to Robert and Andrew
Batinovich and members of their families. Neither Robert Batinovich nor Andrew
Batinovich has guaranteed that any properties acquired from entities they
control or in which they or their families have a significant interest will be
as profitable as other investments made by the Company or will not result in
losses.

Assumption of General Partner Liabilities

The Company and its predecessors have acquired a number of their properties
by acquiring partnerships that own the properties or by first acquiring general
partnership interests and at a later date acquiring the properties, and the
Company may pursue acquisitions in this manner in the future. When the Company
uses this acquisition technique, a subsidiary of the Company becomes a general
partner. As a general partner the Company's subsidiary becomes generally liable
for the debts and obligations of the partnership, including debts and
obligations that may be contingent or unknown at the time of the acquisition. In
addition, the Company's subsidiary assumes obligations under the partnership
agreements, which may include obligations to make future contributions for the
benefit of other partners. The Company undertakes detailed due diligence reviews
to ascertain the nature and extent of obligations that its subsidiary will
assume when it becomes a general partner, but there can be no assurance that the
obligations assumed will not exceed the Company's estimates or that the assumed
liabilities will not have an adverse effect on the Company's results of
operations or financial condition. In addition, an Associated Company may enter
into management agreements pursuant to which it assumes certain obligations as
manager of properties. There can be no assurance that these obligations will not
have an adverse effect on the Associated Companies' results of operations or
financial condition, which could adversely affect the value of the Company's
preferred stock interest in those companies.

Risks Relating to Tender Offers

The Company may, as part of its growth strategy, acquire properties and
portfolio of properties through tender offer acquisitions of interests in public
and private partnerships. Tender offers often result in competing tender offers,
as well as litigation initiated by limited partners in the subject partnerships
or by competing bidders. Due to the inherent uncertainty of litigation, the
Company could be subject to adverse judgments in substantial amounts. As the
Company has not yet attempted an acquisition through the tender offer process,
and because of competing offers and possible litigation, there can be no
assurance that, if undertaken, the

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Company would be successful in acquiring properties through a tender offer or
that the tender offer process would not result in litigation and a significant
judgment adverse to the Company.

CERTAIN TAX RISKS

Consequences of Failure to Qualify as a REIT

The Company intends to elect to be treated as a REIT under the Code
commencing with its taxable year ending December 31, 1996. No assurance can be
given, however, that the Company will be able to operate in a manner which would
permit it to qualify to make this election. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which only
limited judicial or administrative interpretation exists, and involves the
determination of various factual matters and circumstances not entirely within
the Company's control. The Company will receive nonqualifying management fee
income and will own nonqualifying preferred stock in the Associated Companies.
As a result, the Company may approach the income and asset test limits imposed
by the Code and could be at risk of not satisfying those tests. In order to
avoid exceeding the asset test limit, for example, the Company may have to
reduce its interest in the Associated Companies. The Company is relying on the
opinion of its tax counsel regarding its ability to qualify as a REIT. This
legal opinion is not binding on the IRS. See "Federal Income Tax
Consequences -- Taxation of the Company."

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company would
also be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or distribution
to stockholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to stockholders would no longer be
required to be made. See "Federal Income Tax Consequences -- Failure to
Qualify."

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

Consequences of Failure of the Operating Partnership to Qualify as a
Partnership

The Company expects that the Operating Partnership, which is organized as a
limited partnership, will qualify for treatment as such under the Code. If the
Operating Partnership, or any of the other partnerships owned by the Operating
Partnership, fails to qualify for treatment as a partnership under the Code, the
Company would cease to qualify as a REIT, and both the Company and the Operating
Partnership would be subject to federal income tax (including any alternative
minimum tax on the Company's income, at corporate rates). See "Federal Income
Tax Consequences -- Failure to Qualify."

Possible Changes in Tax Laws

Income tax treatment of REITs may be modified, prospectively or
retroactively, by legislative, judicial or administrative action at any time. No
assurance can be given that legislation, regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to the qualification as a REIT or the federal income tax
consequences of this qualification. In addition to any direct effects the
changes might have, the changes might also indirectly affect the market value of
all real estate investments, and consequently the ability of the Company to
realize its investment objectives.

RISKS RELATING TO REAL ESTATE

Environmental Matters

All of the Properties presently owned by the Company have been subject to
Phase I environmental assessments by independent environmental consultants. Some
of the Phase I environmental assessments recommended further investigations in
the form of Phase II environmental assessments, including soil and

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groundwater sampling, and all of these investigations have been completed by the
Company or are in the process of being completed. Certain of the Properties
owned by the Company have been found to contain ACMs. The Company believes that
these materials have been adequately contained and that an ACM operations and
maintenance program has been implemented or is in the process of being
implemented for the Properties found to contain ACMs.

Some, but not all, of the properties owned by partnerships managed by the
Associated Companies have been subject to Phase I environmental assessments by
independent environmental consultants. The Associated Companies determine on a
case-by-case basis whether to obtain Phase I environmental assessments on these
properties and whether to undertake further investigation or remediation.
Certain of these properties contain ACMs. In each case the responsible
Associated Company believes that these materials have been adequately contained
and that an ACM operations and maintenance program has been implemented for the
properties found to contain ACMs.

Six of the Properties owned by the Company are leased in whole or in part
to an operator of auto care centers which include oil change and tune-up
facilities, and ten of the Properties are leased to operators of convenience
stores which sell petroleum-based fuels. These Properties and other of the
Properties contain, and/or may have contained in the past, underground storage
tanks for the storage of petroleum products and/or other hazardous or toxic
substances which create a potential for release of petroleum products and/or
other hazardous or toxic substances. Some of the Properties owned by the Company
are adjacent to or near properties that have contained in the past or currently
contain, underground storage tanks used to store petroleum products or other
hazardous or toxic substances. Several of the Properties have been contaminated
with petroleum products or other hazardous or toxic substances from on-site
operations or operations on adjacent or nearby properties. In addition, certain
of the Properties are on, adjacent to or near properties upon which others have
engaged or may in the future engage in activities that may release petroleum
products or other hazardous or toxic substances.

Although tenants of the Properties owned by the Company generally are
required by their leases to operate in compliance with all applicable federal,
state and local environmental laws, ordinances and regulations and to indemnify
the Company against any environmental liability arising from the tenants'
activities on the Properties, the Company could nevertheless be subject to
environmental liability relating to its management of the Properties or strict
liability by virtue of its ownership interest in the Properties and there can be
no assurance that the tenants would satisfy their indemnification obligations
under the leases. There can be no assurance that any environmental assessments
of the Properties owned by the Company, properties being considered for
acquisition by the Company, or the properties owned by the partnerships managed
by the Associated Companies have revealed all potential environmental
liabilities, that any prior owner or prior or current operator of such
properties did not create an environmental condition not known to the Company or
that an environmental condition does not otherwise exist as to any one or more
of such properties that could have an adverse effect on the Company's results of
operations and financial condition, either directly (with respect to properties
owned by the Company), or indirectly (with respect to properties owned by
partnerships managed by an Associated Company) by adversely affecting the
financial condition of the Associated Company and thus the value of the
Company's preferred stock interest in the Associated Company. Moreover, there
can be no assurance that (i) future environmental laws, ordinances or
regulations will not have an adverse effect on the Company's results of
operations and financial condition or (ii) the current environmental condition
of such properties will not be affected by tenants and occupants of such
properties, by the condition of land or operations in the vicinity of the
properties (such as the presence of underground storage tanks), or by third
parties unrelated to the Company.

Risks Related to Ownership and Financing of Real Estate

The Company is subject to risks generally incidental to the ownership of
real estate, including changes in general economic or local conditions, changes
in supply of or demand for similar or competing properties in an area, the
impact of environmental protection laws, changes in interest rates and
availability of financing which may render the sale or financing of a property
difficult or unattractive, changes in tax, real estate and zoning laws, and the
creation of mechanics' liens or similar encumbrances placed on the property by a
lessee or other

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parties without the Company's knowledge and consent. Should any of these events
occur, there could be an adverse effect on the Company's results of operations
and financial condition.

Availability of Real Estate for Acquisitions

The Company's growth is dependent upon acquisitions. There can be no
assurance that properties will be available for acquisition or, if available,
that the Company will be able to purchase such properties on favorable terms. If
such acquisitions are not available it could have a negative impact on the
growth of the Company, which could have an adverse effect on the performance of
the Company's Common Stock.

Competition for Acquisition of Real Estate

The Company faces competition from other businesses, individuals, fiduciary
accounts and plans and other entities in the acquisition, operation and sale of
its properties. Some of the Company's competitors are larger and have greater
financial resources than the Company. This competition may result in a higher
cost for properties the Company wishes to purchase.

Competition for Tenants

The Company is subject to the risk that when space becomes available at its
properties the leases may not be renewed, the space may not be let or relet, or
the terms of the renewal or reletting (including the cost of required
renovations or concessions to tenants) may be less favorable to the Company.
Although the Company has established annual property budgets that include
estimates of costs for renovation and reletting expenses that it believes are
reasonable in light of each property's situation, no assurance can be given that
these estimates will sufficiently cover these expenses. If the Company is unable
to promptly lease all or substantially all of the space at its properties, if
the rental rates are significantly lower than expected, or if the Company's
reserves for these purposes prove inadequate, then there could be an adverse
effect on the Company's results of operations and financial condition.

Tenants' Defaults

The ability of the Company to manage its assets is subject to federal
bankruptcy laws and state laws affecting creditors' rights and remedies
available to real property owners. In the event of the financial failure or
bankruptcy of a tenant, there can be no assurance that the Company could
promptly recover the tenant's premises from the tenant or from a trustee or
debtor-in-possession in any bankruptcy proceeding filed by or against that
tenant, or that the Company would receive rent in the proceeding sufficient to
cover its expenses with respect to the premises. In the event of the bankruptcy
of a tenant, the Company will be subject to the provisions of the federal
bankruptcy code, which in some instances may restrict the amount and
recoverability of claims held by the Company against the tenant. If any tenant
defaults on its obligations to the Company, there could be an adverse effect on
the Company's results of operations and financial condition.

Management, Leasing and Brokerage Risks; Lack of Control of Associated
Companies

The Company is subject to the risks associated with the property
management, leasing and brokerage businesses. These risks include the risk that
management contracts or service agreements may be terminated, that contracts
will not be renewed upon expiration or will not be renewed on terms consistent
with current terms, and that leasing and brokerage activity generally may
decline. Acquisition of properties by the Company from the Associated Companies
could result in a decrease in revenues to the Associated Companies and a
corresponding decrease in dividends received by the Company from the Associated
Companies. Each of these developments could have an adverse effect on the
Company's results of operations and financial condition.

To qualify for and to maintain the Company's status as a REIT while
realizing income from the Company's third-party management business, the capital
stock of Glenborough Hotel Group, a Nevada corporation ("GHG"), Glenborough
Corporation, a California corporation ("GC") and Glenborough Inland Realty
Corporation, a California corporation ("GIRC," and collectively with GHG and GC,
the "Associated Companies") (which conduct the Company's third-party management,
leasing and brokerage businesses) is divided into two classes. All of the voting
common stock of the Associated Companies, representing 5% of the

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total equity of GC and GIRC, and 25% of the total equity of GHG, is held by
individual stockholders. Nonvoting preferred stock representing the remaining
equity of each Associated Company is held entirely by the Company. Although the
Company holds a majority of the equity interest in each Associated Company, the
Company is not able to elect directors of any Associated Company and,
consequently, the Company has no ability to influence the day-to-day decisions
of each entity.

Uninsured Loss

The Company or in certain instances tenants of the properties carry
comprehensive liability, fire and extended coverage with respect to the
Company's properties, with policy specification and insured limits customarily
carried for similar properties. There are, however, certain types of losses
(such as from earthquakes and floods) that may be either uninsurable or not
economically insurable. Further, certain of the properties are located in areas
that are subject to earthquake activity and floods. Should a property sustain
damage as a result of an earthquake or flood, the Company may incur losses due
to insurance deductibles, co-payments on insured losses or uninsured losses.
Should an uninsured loss occur, the Company could lose some or all of its
capital investment, cash flow and anticipated profits related to one or more
properties, which could have an adverse effect on the Company's results of
operations and financial condition.

Illiquidity of Real Estate

Real estate investments are relatively illiquid and, therefore, will tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In addition, the Internal Revenue
Code of 1986, as amended (the "Code"), and individual agreements with sellers of
properties place limits on the Company's ability to sell properties, which may
adversely affect returns to holders of Common Stock. Eighteen of the properties
owned by the Operating Partnership were acquired on terms and conditions under
which they be disposed of only in a like-kind exchange or other non-taxable
transaction.

Potential Liability Under the Americans With Disabilities Act

As of January 26, 1992, all of the Company's properties were required to be
in compliance with the Americans With Disabilities Act (the "ADA"). The ADA
generally requires that places of public accommodation be made accessible to
people with disabilities to the extent readily achievable. Compliance with the
ADA requirements could require removal of access barriers and non-compliance
could result in imposition of fines by the federal government, an award of
damages to private litigants and/or a court order to remove access barriers.
Because of the limited history of the ADA, the impact of its application to the
Company's properties, including the extent and timing of required renovations,
is uncertain. Pursuant to certain lease agreements with tenants in certain of
the "single-tenant" Properties, the tenants are obligated to comply with the ADA
provisions. If the Company's costs are greater than anticipated or tenants are
unable to meet their obligations, there could be an adverse effect on the
Company's results of operations and financial condition.

ADDITIONAL CAPITAL REQUIREMENTS

The Company's future growth depends in large part upon its ability to raise
additional capital on satisfactory terms or at all. There can be no assurance
that the Company will be able to raise sufficient capital to achieve its
objectives. If the Company were to raise additional capital through the issuance
of additional equity securities or securities convertible into or exercisable
for equity securities, the interests of holders of the Offered Securities, could
be diluted. Likewise, the Company's Board of Directors is authorized to cause
the Company to issue Preferred Stock in one or more classes or series and to
determine the distributions and voting and other rights of the Preferred Stock.
Accordingly, the Board of Directors may authorize the issuance of Preferred
Stock with voting, distribution and other similar rights which could be dilutive
to or otherwise adversely affect the interests of holders of the Offered
Securities. If the Company were to raise additional capital through debt
financing, the Company will be subject to the risks described below, among
others.

LIMITATION ON OWNERSHIP OF COMMON STOCK MAY PRECLUDE ACQUISITION OF CONTROL

Provisions of the Company's Articles of Incorporation are designed to
assist the Company in maintaining its qualification as a REIT under the Code by
preventing concentrated ownership of the Company which

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might jeopardize REIT qualification. Among other things, these provisions
provide that (a) any transfer or acquisition of Common Stock that would result
in the disqualification of the Company as a REIT under the Code will be void,
and (b) if any person attempts to acquire shares of Common Stock that after the
acquisition would cause the person to own or to be deemed to own, by operation
of certain attribution rules set out in the Code, an amount of Common Stock in
excess of a predetermined limit, which, pursuant to Board action, currently is
8.8% of the outstanding shares of Common Stock (the "Ownership Limitation" and
as to the Common Stock, the transfer of which would cause any person to actually
own Common Stock in excess of the Ownership Limitation, the "Excess Shares"),
the transfer shall be void and the Common Stock subject to the transfer shall
automatically be transferred to an unaffiliated trustee for the benefit of a
charitable organization designated by the Board of Directors of the Company
until sold by the trustee to a third party or purchased by the Company. Robert
Batinovich and individuals or entities whose ownership of Common Stock is
attributed to Robert Batinovich in determining the number of shares of Common
Stock owned by him for purposes of compliance with Section 856 of the Code (the
"Attributed Owners"), are exempt from these restrictions, but are prohibited
from acquiring shares of Common Stock if, after the acquisition, they would own
in excess of 14% of the outstanding shares of Common Stock. This limitation on
the ownership of Common Stock may have the effect of precluding the acquisition
of control of the Company by a third party without the consent of the Board of
Directors. If the Board of Directors waives the Ownership Limitation for any
person, the Ownership Limitation shall be proportionally and automatically
reduced with regard to all other persons such that no five persons may own more
than 49% of the Common Stock (the aggregate Ownership Limitations as to all of
these persons, as adjusted, the "Adjusted Ownership Limitation"). See
"Description of Common Stock -- Restrictions on Ownership and Transfer of Common
Stock" and "Federal Income Tax Consequences."

OTHER RISKS

Debt Financing

The Company intends to incur additional indebtedness in the future,
including through borrowings under a credit facility, if a credit facility is
available, to finance property acquisitions. As a result, the Company expects to
be subject to risks associated with debt financing, including the risk that
interest rates may increase, the risk that the Company's cash flow will be
insufficient to meet required payments on its debt and the risk that the Company
may be unable to refinance or repay the debt as it comes due. The Company's
current $50 million secured revolving line of credit with Wells Fargo Bank, N.A.
provides that distributions may not exceed 90% of funds from operations and
that, in the event of a failure to pay principal or interest on borrowings
thereunder when due (subject to any applicable grace period), the Company and
its subsidiaries may not pay any distributions on the Common Stock or the
Preferred Stock. If the Company is unable to obtain acceptable financing to
repay indebtedness at maturity, the Company may have to sell properties to repay
indebtedness or properties may be foreclosed upon, which could have an adverse
effect on the Company's results of operations and financial condition.

Dependence on Executive Officers

The Company is dependent on the efforts of Robert and Andrew Batinovich,
its President and Chief Executive Officer and its Executive Vice President,
Chief Financial Officer and Chief Operating Officer, respectively, and of its
other executive officers. The loss of the services of any of them could have an
adverse effect on the results of operations and financial condition of the
Company.

Board of Directors May Change Investment Policies

The descriptions in this Prospectus of the major policies and the various
types of investments to be made by the Company reflect only the current plans of
the Company's Board of Directors. The Company's Board of Directors may change
the investment policies of the Company without a vote of the stockholders. If
the Company changes its investment policies, the risks and potential rewards of
an investment in the Company may also change. In addition, the methods of
implementing the Company's investment policies may vary as new investment
techniques are developed. See "Business and Properties -- Investment Policies."

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Effect of Market Interest Rates on Price of Common Stock

One of the factors that may influence the market price of the shares of
Common Stock in public markets will be the annual yield on the price paid for
shares of Common Stock from distributions by the Company. An increase in market
interest rates may lead prospective purchasers of the Common Stock to seek a
higher annual yield from their investments. Such circumstances may adversely
affect the market price of the Common Stock.

Shares Available for Future Sale

No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or future conversions or exercises of securities into or
for shares of Common Stock, or the availability of such securities for future
sales, including shares of Common Stock issuable upon exchange of Operating
Partnership units, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, may adversely affect the prevailing
market price for the Common Stock.

USE OF PROCEEDS

Unless otherwise indicated in the applicable Prospectus Supplement, the
Company intends to use the proceeds from any sale of Offered Securities for
general corporate purposes including, without limitation, the acquisition and
development of properties and the repayment of debt. Net proceeds from the sale
of the Offered Securities initially may be temporarily invested in short-term
securities.

RATIO OF EARNINGS TO FIXED CHARGES

The Company's ratio of earnings to fixed charges for the three and
nine-month periods ended September 30, 1996 was 2.12x and 2.70x, respectively.
Prior to the Consolidation, the Company's Predecessors combined ratio of
earnings to fixed charges for 1991, 1992, 1993, 1994 and 1995 was 2.13x,
(0.37x), 2.67x, 2.58x and 1.41x, respectively. The ratio of earnings to fixed
charges is computed as income from operations, before minority interest, income
taxes and extraordinary items, plus fixed charges (primarily interest expense)
divided by fixed charges. The ratio of earnings to fixed charges was less than
1.0 in 1992 due to a non-recurring loss provision that did not affect cash flow.
To date, the Company has not issued any shares of preferred stock; therefore,
the ratios of earnings to combined fixed charges and preferred share dividends
are unchanged from the ratios presented in this section.

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DESCRIPTION OF PREFERRED STOCK

Subject to limitations prescribed by Maryland law and the Company's
Articles of Incorporation and Articles Supplementary (collectively, the
"Charter"), the Board of Directors is authorized to issue, from the authorized
but unissued capital stock of the Company, Preferred Stock in such classes or
series as the Board of Directors may determine and to establish from time to
time the number of shares of Preferred Stock to be included in any such class or
series and to fix the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the shares of any such class or
series, and such other subjects or matters as may be fixed by resolution of the
Board of Directors. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company.

Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class or series of Preferred Stock will be described in the
Prospectus Supplement relating to that class or series, including a Prospectus
Supplement providing that Preferred Stock may be issuable upon the exercise of
Warrants issued by the Company. The description of Preferred Stock set forth
below and the description of the terms of a particular class or series of
Preferred Stock set forth in a Prospectus Supplement do not purport to be
complete and are qualified in their entirety by reference to the articles
supplementary relating to that class or series.

The rights, preferences, privileges and restrictions of the Preferred Stock
of each class or series will be fixed by the articles supplementary relating to
such class or series. A Prospectus Supplement, relating to each class or series,
will specify the terms of the Preferred Stock as follows:

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

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

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

(4) Whether such Preferred Stock is cumulative or not and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate;

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

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

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

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

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

(10) A discussion of any material federal income tax consequences
applicable to such Preferred Stock;

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

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

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

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

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(15) Any voting rights of such Preferred Stock.

Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock and Excess Stock of the Company, and to all equity
securities ranking junior to such Preferred Stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of the Company;
(ii) on a parity with all equity securities issued by the Company the terms of
which specifically provide that such equity securities rank on a parity with the
Preferred Stock with respect to dividends rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank senior to the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company.

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

All certificates representing shares of Preferred Stock will bear a legend
referring to the restrictions described above.

All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% of the outstanding Common Stock and Preferred Stock (or
1% if there are fewer than 2,000 stockholders) must file an affidavit with the
Company containing the information specified in the Charter within 30 days after
December 31 of each year. In addition, each stockholder shall upon demand be
required to disclose to the Company in writing such information with respect to
the direct, indirect and constructive ownership of shares as the Board of
Directors deems necessary to determine the Company's status as a real estate
investment trust and to insure compliance with the Ownership Limit.

The articles supplementary, if applicable, for the Offered Securities may
also contain provisions that further restrict the ownership and transfer of the
Offered Securities. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to the Offered Securities.

DESCRIPTION OF COMMON STOCK

The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock or upon the exercise of Warrants
issued by the Company. This description is in all respects subject to and
qualified in its entirety by reference to the applicable provisions of the
Company's Charter and its Bylaws. The Common Stock is listed on the New York
Stock Exchange under the symbol "GLB." Registrar and Transfer Company is the
Company's transfer agent.

GENERAL

The Company's Charter authorizes the Company to issue up to 50,000,000
shares of Common Stock with a par value of $.001 per share. As of December 31,
1996 there were 9,661,553 shares of Common Stock issued and outstanding and no
shares of Excess Stock were issued and outstanding. Under Maryland law,
stockholders generally are not liable for the Company's debts or obligations.

The holders of shares of Common Stock are entitled to one vote per share on
all matters voted on by stockholders, including election of directors, and,
except as provided in the Charter in respect of any other class of or series of
stock, the holders of these shares exclusively possess all voting power. The
Charter does not

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provide for cumulative voting in the election of directors. Subject to any
preferential rights of any outstanding shares or series of stock, holders of
shares of Common Stock are entitled to receive distributions, when and as
declared by the Board of Directors, out of funds legally available therefor.
Upon any liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata all assets of the Company legally
available for distribution to its stockholders after payment of, or adequate
provisions for, all known debts and liabilities of the Company. All shares of
Common Stock now outstanding are fully paid and nonassessable, as will be the
shares of Common Stock offered by this Prospectus or any Prospectus Supplement
when issued. The holders of the Common Stock offered hereby will have no
preemptive rights to subscribe to additional stock or securities issued by the
Company at a subsequent date.

RESTRICTIONS ON OWNERSHIP AND TRANSFER OF COMMON STOCK

For the Company to qualify as a REIT under the Code, not more than 50% of
the value of its outstanding shares of Common Stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year. Shares of Common
Stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. See "Federal Income Tax
Consequences -- Taxation of the Company -- Requirements for Qualification."

Because the Board of Directors believes it is essential for the Company to
qualify as a REIT, the Charter, subject to certain exceptions, provides that no
holder, other than Robert Batinovich and the individuals or entities whose
ownership of shares of Common Stock is attributed to Mr. Batinovich under the
Code (the "Attributed Owners"), may own an amount of Common Stock in excess of
the Ownership Limitation, which, pursuant to Board action, currently is 8.8% of
the outstanding shares of Common Stock. A qualified trust (as defined in the
Charter) generally may own up to 9.9% of the outstanding shares of Common Stock.
The Ownership Limitation provides that Robert Batinovich and the Attributed
Owners may hold up to 14% of the outstanding shares of Common Stock, including
shares which Robert Batinovich and the Attributed Owners may acquire pursuant to
an option held by GPA, Ltd. or Mr. Batinovich to cause the Company to redeem
their respective partnership interests in the Operating Partnership, assuming
GPA, Ltd. then dissolves and distributes these shares to the partners of GPA,
Ltd.

The Board of Directors may waive the Ownership Limitation if evidence
satisfactory to the Board of Directors and the Company's tax counsel is
presented that such ownership will not jeopardize the Company's status as a
REIT. As a condition to such waiver, the Board of Directors may require opinions
of counsel satisfactory to it and/or an undertaking from the applicant with
respect to preserving the REIT status of the Company. The Ownership Limitation
will not apply if the Board of Directors and the stockholders determine that it
is no longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT. Any transfer of Common Stock that would (a)
create actual or constructive ownership of Common Stock in excess of the
Ownership Limitation, (b) result in the Common Stock being owned by fewer than
100 persons, or (c) result in the Company's being "closely held" under Section
856(h) of the Code, shall be null and void, and the intended transferee will
acquire no rights to the Common Stock.

The Charter also provides that Common Stock involved in a transfer or
change in capital structure that results in a person (other than Robert
Batinovich and the Attributed Owners) owning in excess of the Ownership
Limitation or would cause the Company to become "closely held" (within the
meaning of Section 856(h) of the Code) will automatically be transferred to a
trustee for the benefit of a charitable organization until purchased by the
Company or sold to a third party without violation of the Ownership Limitation.
While held in trust, the Excess Shares will remain outstanding for purposes of
any stockholder vote or the determination of a quorum for such vote and the
trustee will be empowered to vote the Excess Shares. Excess Shares shall be
entitled to distributions, provided that such distributions shall be paid to a
charitable organization selected by the Board of Directors as beneficiary of the
trust. The trustee may transfer the Excess Shares to any individual whose
ownership of Common Stock would be permitted under the Ownership Limitation and
would not cause the Company to become "closely held." In addition, the Company
would have the right, for a period of 90 days, to purchase all or any portion of
the Excess Shares from the

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trustee at the lesser of the price paid for the Shares by the intended
transferee or the closing market price for the Common Stock on the date the
Company exercises its option to purchase.

The Ownership Limitation will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limitation would require an amendment to the Charter. Such amendments require
the affirmative vote of stockholders owning a majority of the outstanding Common
Stock. In addition to preserving the Company's status as a REIT, the Ownership
Limitation may have the effect of precluding an acquisition of control of the
Company by a third party without the approval of the Board of Directors.

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

All stockholders of record who own 5% or more of the value of the
outstanding Common Stock (or 1% if there are fewer than 2,000 stockholders of
record but more than 200, or 1/2% if there are 200 or fewer stockholders of
record) must file written notice with the Company containing the information
specified in the Charter by January 30 of each year. In addition, each
stockholder shall upon demand be required to disclose to the Company in writing
such information with respect to the direct, indirect and constructive ownership
of Common Stock as the Board of Directors deems necessary to determine the
effect, if any, of such ownership on the Company's status as a REIT and to
ensure compliance with the Ownership Limitation. The Company intends to use its
best efforts to enforce the Ownership Limitation and will make prohibited
transferees aware of their obligation to pay over any distributions received,
will not give effect on its books to prohibited transfers, will institute
proceedings to enjoin any transfer violating the Ownership Limitation, and will
declare all votes of prohibited transferees invalid.

DESCRIPTION OF WARRANTS

The Company has no Warrants outstanding (other than options issued under
the Company's employee stock option plan). The Company may issue Warrants for
the purchase of Preferred Stock or Common Stock. Warrants may be issued
independently or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent specified in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any provisions of the
Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.

The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following:

(1) The title of such Warrants;

(2) The aggregate number of such Warrants;

(3) The price or prices at which such Warrants will be issued;

(4) The designation, number of terms of the shares of Preferred Stock
or Common Stock purchasable upon exercise of such Warrants;

(5) The designation and terms of the Offered Securities, if any, with
which such Warrants are issued and the number of such Warrants issued with
each such Offered Security;

(6) The date, if any, on and after which such Warrants and the
related Preferred Stock or Common Stock will be separately transferable;

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(7) The price at which each share of Preferred Stock or Common Stock
purchasable upon exercise of such Warrants may be purchased;

(8) The date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire;

(9) The minimum or maximum amount of such Warrants which may be
exercised at any one time;

(10) Information with respect to book-entry procedures, if any;

(11) A discussion of certain federal income tax consequences; and

(12) Any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.

CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS

Certain provisions of the Company's Charter and Bylaws might discourage
certain types of transactions that involve an actual or threatened change in
control of the Company that might involve a premium price for the Company's
capital stock or otherwise be in the best interest of the stockholders. See
"Description of Common Stock -- Restrictions on Transfer." The issuance of
shares of preferred stock or other capital stock by the Board of Directors may
also have the effect of delaying, depriving or preventing a change in control of
the Company. The Bylaws of the Company contain certain advance notice
requirements in the nomination of persons for election to the Board of Directors
which could have the effect of discouraging a takeover or other transaction in
which holders of some, or a majority, of the Common Stock might receive a
premium for their Common Stock over the prevailing market price, or which such
holders might believe to be otherwise in their best interests.

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FEDERAL INCOME TAX CONSEQUENCES

The following summary of material federal income tax consequences is based
on current law and does not purport to deal with all aspects of taxation that
may be relevant to particular stockholders in light of their personal investment
or tax circumstances, or to certain types of stockholders (including insurance
companies, financial institutions and broker-dealers) subject to special
treatment under the federal income tax laws.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE OFFERED SECURITIES.

The Company believes that since January 1, 1996, it has operated in a
manner that permits it to satisfy the requirements for taxation as a REIT under
the applicable provisions of the Code. The Company intends to continue to
operate to satisfy such requirements. No assurance can be given, however, that
such requirements will be met.

The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the federal income tax treatment of a REIT and
its stockholders. Morrison & Foerster LLP has acted as tax counsel to the
Company in connection with Company's election to be taxed as a REIT.

In the opinion of Morrison & Foerster LLP, commencing with the Company's
taxable year that will end on December 31, 1996, the Company has been organized
in conformity with the requirements for qualification as a REIT, and its method
of operation has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to
maintain diversity of stock ownership and meet, through actual quarterly and
annual operating results, distribution levels and the various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by Morrison & Foerster LLP. Accordingly, no assurance can be given that
the actual results of the Company's operations for any particular taxable year
will satisfy such requirements. See "-- Failure to Qualify."

In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their Real
Estate Investment Trust Taxable Income ("REITTI") that is currently distributed
to stockholders. This treatment substantially eliminates the "double taxation"
(i.e., taxation at both the corporate and stockholder levels) that generally
results from the use of corporate investment vehicles.

If the Company fails to qualify as a REIT in any year, however, it will be
subject to federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities and the amount of cash available for distribution to
its stockholders could be reduced.

TAXATION OF THE COMPANY

General

In any year in which the Company qualifies as a REIT, it will not generally
be subject to federal income tax on that portion of its net income that it
distributes to stockholders. This treatment substantially eliminates the "double
taxation" on income at the corporate and stockholder levels that generally
results from investment in a corporation. However, the REIT will be subject to
federal income tax as follows: First, the REIT will be taxed at regular
corporate rates on any undistributed REITTI, including undistributed net capital
gains. Second, under certain circumstances, the REIT may be subject to the
federal "alternative minimum tax" on its items of tax preference. Third, if the
REIT has (i) net income from the sale or other disposition of "foreclosure
property" which is held primarily for sale to customers in the ordinary course
of business or

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(ii) other nonqualifying income from foreclosure property, it will be subject to
tax at the highest corporate rate on such income. Fourth, if the REIT has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business other than foreclosure property), such income will
be subject to a 100% tax. Fifth, if the REIT should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a real estate investment trust
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which the REIT fails the 75% gross income test or the 95% gross
income test, multiplied by (b) a fraction intended to reflect the REIT's
profitability. Sixth, if the REIT should fail to distribute during each calendar
year at least the sum of (i) 85% of its real estate investment trust ordinary
income for such year, (ii) 95% of its real estate investment trust capital gain
net income for such year, and (iii) any undistributed taxable income from prior
periods, the REIT would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, if the
REIT acquires any asset from a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
asset in the REIT's hands is determined by reference to the basis of the asset
(or any other property) in the hands of the C corporation, and the REIT
recognizes gain on the disposition of such asset during the 10 year period
beginning on the date on which such asset was acquired by the REIT, then, to the
extent of any built-in gain at the time of acquisition, such gain will be
subject to tax at the highest regular corporate rate, assuming the REIT will
make an election pursuant to IRS Notice 88-19.

Requirements for Qualification

The Code defines a real estate investment trust as a corporation, trust or
association (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) at any time during the last half of each taxable year; and (7) which
meets certain other tests, described below, regarding the nature of income and
assets. The Code provides that conditions (1) to (4), inclusive, must be met
during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (5) and (6) will not apply
until after the first taxable year for which an election is made by the Company
to be taxed as a REIT.

In order to assist the Company in complying with the ownership tests
described above, the Company has placed certain restrictions on the transfer of
the Common Stock and the Preferred Stock to prevent further concentration of
stock ownership. Moreover, to evidence compliance with these requirements, the
Company must maintain records which disclose the actual ownership of its
outstanding Common Stock and Preferred Stock. In fulfilling its obligations to
maintain records, the Company must and will demand written statements each year
from the record holders of designated percentages of its Common Stock and
Preferred Stock disclosing the actual owners of such Common Stock and Preferred
Stock. A list of those persons failing or refusing to comply with such demand
must be maintained as part of the Company's records. A stockholder failing or
refusing to comply with the Company's written demand must submit with his or her
tax returns a similar statement disclosing the actual ownership of Common Stock
and Preferred Stock and certain other information. In addition, the Company's
Charter provides restrictions regarding the transfer of its shares that are
intended to assist the Company in continuing to satisfy the share ownership
requirements. See "Description of Common Stock -- Restrictions on Ownership and
Transfer of Common Stock" and "Description of Preferred Stock."

In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section

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856 of the Code, including satisfying the gross income tests and the asset
tests, described below. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Partnership will be treated as
assets, liabilities and items of income of the Company for purposes of applying
the requirements described below.

Asset Tests

At the close of each quarter of the Company's taxable year, the Company
must satisfy two tests relating to the nature of its assets. First, at least 75%
of the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items and government securities (as well as certain temporary
investments in stock or debt instruments purchased with the proceeds of new
capital raised by the Company). Second, although the remaining 25% of the
Company's assets generally may be invested without restriction, securities in
this class may not exceed either (i) 5% of the value of the Company's total
assets as to any one non-government issuer or (ii) 10% of the outstanding voting
securities of any one issuer. The Company's investment in real property through
its interest in the Operating Partnership constitutes qualified assets for
purposes of the 75% asset test. In addition, the Company may own 100% of
"qualified REIT subsidiaries" as defined in the Code. All assets, liabilities,
and items of income, deduction, and credit of such a qualified REIT subsidiary
will be treated as owned and realized directly by the Company.

The Company has analyzed the impact of its ownership interests in the
Associated Companies on its ability to satisfy the asset tests. Based upon its
analysis of the estimated value of the Company's total assets as well as its
estimate of the value of the respective nonvoting preferred stock interests in
the Associated Companies, the Company believes that none of such preferred stock
interests will exceed 5% of the value of the Company's total assets on the last
day of any calendar quarter in 1996. The Company intends to monitor compliance
with the 5% test on a quarterly basis and believes that it will be able to
manage its operations in a manner to comply with the tests, either by managing
the amount of its qualifying assets or reducing its interests in the Associated
Companies, although there can be no assurance that such steps will be
successful. In rendering its opinion as to the qualification of the Company as a
REIT, counsel has relied upon the Company's representation as to the value of
its assets and the value of its interests in the Associated Companies. Counsel
has discussed with the Company its valuation analysis and the future actions
available to it to comply with the 5% tests but it has not independently
verified the valuations.

Gross Income Tests

There are three separate percentage tests relating to the sources of the
Company's gross income which must be satisfied for each taxable year. For
purposes of these tests, where the Company invests in a partnership, the Company
will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of the Company as it has in the hands of the partnership.
See " -- Tax Aspects of the Company's Investment in the Operating
Partnerships -- General."

The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i) rents
from real property (except as modified below); (ii) interest on obligations
collateralized by mortgages on, or interests in, real property; (iii) gains from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"); and (vii) commitment fees received for agreeing to
make loans collateralized by mortgages on real property or to purchase or lease
real property.

Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the

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Company, directly or constructively owns 10% or more of such tenant (a "related
party tenant"). In addition, if rent attributable to personal property, leased
in connection with a lease of real property, is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as rents from real property. Moreover, an
amount received or accrued generally will not qualify as rents from real
property (or as interest income) for purposes of the 75% and 95% gross income
tests if it is based in whole or in part on the income or profits of any person.
Rent or interest will not be disqualified, however, solely by reason of being
based on a fixed percentage or percentages of receipts or sales. Finally, for
rents received to qualify as rents from real property, the Company must
generally not operate or manage the property or furnish or render services to
tenants, other than through an "independent contractor" from whom the Company
derives no revenue. The "independent contractor" requirement, however, does not
apply to the extent that the services provided by the Company are "usually or
customarily rendered" in connection with the rental of space for occupancy only,
and are not otherwise considered "rendered to the occupant."

The Company will provide certain services with respect to properties owned
by the Operating Partnership. The Company believes that the services provided by
the Operating Partnership are usually or customarily rendered in connection with
the rental of space of occupancy only, and therefore that the provision of such
services will not cause the rents received with respect to its properties to
fail to qualify as rents from real property for purposes of the 75% and 95%
gross income tests. The Company does not intend to rent to related party tenants
or to charge rents that would not qualify as rents from real property because
the rents are based on the income or profits of any person (other than rents
that are based on a fixed percentage or percentages of receipts or sales).

Pursuant to the percentage leases ("Percentage Leases"), GHG leases from
the Operating Partnership the land, buildings, improvements, furnishings, and
equipment comprising the Hotels for a five-year period with a five-year renewal
option. The Percentage Leases provide that the lessee will be obligated to pay
to the Operating Partnership (a) the greater of a fixed rent (the "Base Rent")
or a percentage rent (the "Percentage Rent") (collectively, the "Rents") and (b)
certain other amounts, including interest accrued on any late payments or
charges (the "Additional Charges"). The Percentage Rent is calculated by
multiplying fixed percentages by the gross revenues from the operations of the
Hotels in excess of certain levels. The Base Rent accrues and is required to be
paid monthly. Percentage Rent is due quarterly; however, the lessee will not be
in default for non-payment of Percentage Rent due in any calendar year if the
lessee pays, within 90 days of the end of the calendar year, the excess of
Percentage Rent due and unpaid over the Base Rent with respect to such year.

In order for the Base Rent, the Percentage Rent, and the Additional Charges
to constitute "rents from real property," the Percentage Leases must be
respected as true leases for federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the Percentage Leases are true leases depends on an
analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including the
following: (a) the intent of the parties, (b) the form of the agreement, (c) the
degree of control over the property that is retained by the property owner
(e.g., whether the lessee has substantial control over the operation of the
property or whether the lessee was required simply to use its best efforts to
perform its obligations under the agreement), and (d) the extent to which the
property owner retains the risk of loss of the property (e.g., whether the
lessee bears the risk of increases in operating expenses or the risk of damage
to the property).

In addition, Section 7701(e) of the Code provides that a contract that
purports to be a service contract (or a partnership agreement) is treated
instead as a lease of property if the contract is properly treated as such,
taking into account all relevant factors, including whether or not: (a) the
service recipient is in physical possession of the property, (b) the service
recipient controls the property, (c) the service recipient has a significant
economic or possessory interest in the property (e.g., the property's use is
likely to be dedicated to the service recipient for a substantial portion of the
useful life of the property, the recipient shares the risk that the property
will decline in value, the recipient shares in any appreciation in the value of
the property, the recipient shares in savings in the property's operating costs,
or the recipient bears the risk of damage to or loss of the property), (d) the
service provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract, (e) the service provider

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does not use the property concurrently to provide significant services to
entities unrelated to the service recipient, and (f) the total contract price
does not substantially exceed the rental value of the property for the contract
period. Since the determination of whether a service contract should be treated
as a lease is inherently factual, the presence or absence of any single factor
may not be dispositive in every case.

Counsel is of the opinion that the Percentage Leases will be treated as
true leases for federal income tax purposes. Such opinion is based, in part, on
the following facts: (a) the Operating Partnership and the lessee intend for
their relationship to be that of a lessor and lessee and such relationship will
be documented by lease agreements, (b) the lessee has the right to exclusive
possession and use and quiet enjoyment of the Hotels during the term of the
Percentage Leases, (c) the lessee bears the cost of, and be responsible for,
day-to-day maintenance and repair of the Hotels, other than the cost of
maintaining underground utilities, structural elements and exterior painting,
and will dictate how the Hotels are operated, maintained, and improved, (d) the
lessee bears all of the costs and expenses of operating the Hotels (including
inventory costs) during the term of the Percentage Leases (other than real
property taxes, personal property taxes on property owned by the Operating
Partnership, casualty insurance and the cost of replacement or refurbishment of
furniture, fixtures and equipment, to the extent such costs do not exceed the
allowance for such costs provided by the Operating Partnership under the
Percentage Leases), (e) the lessee will benefit from any savings in the costs of
operating the Hotels during the term of the Percentage Leases, (f) in the event
of damage or destruction to a Hotel which renders the Hotel unsuitable for
continued use, the lessee will be at economic risk because the Operating
Partnership can elect to terminate the Percentage Lease as to such Hotel, in
which event the lessee can elect to rebuild at its cost less any insurance
proceeds, or accept such termination, (g) the lessee will indemnify the
Partnership against all liabilities imposed on the Partnership during the term
of the Percentage Leases by reason of (i) injury to persons or damage to
property occurring at the Hotels or (ii) the lessee's use, management,
maintenance or repair of the Hotels, (h) the lessee is obligated to pay
substantial fixed rent for the period of use of the Hotels, and (i) the lessee
stands to incur substantial losses (or reap substantial gains) depending on how
successfully it operates the Hotels. The Company has represented that the lessee
has and will have its own employees, physically distinct and separate office
space, furniture and equipment, and directors. Further, the Company has
represented that neither the Company nor the Operating Partnership will furnish
or render services to either the lessee or its customers.

Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Percentage Leases that discuss whether such
leases constitute true leases for federal income tax purposes. Therefore, the
opinion of counsel with respect to the relationship between the Operating
Partnership and the lessee is based upon all of the facts and circumstances, and
rulings and judicial decisions involving situations that are considered to be
analogous. Opinions of counsel are not binding upon the Service or any court,
and there can be no assurance that the Service will not assert successfully a
contrary position. If the Percentage Leases are recharacterized as service
contracts or partnership agreements, rather than true leases, part or all of the
payments that the Partnership receives from the lessee may not be considered
rent or may not otherwise satisfy the various requirements for qualification as
"rents from real property." In that case, the Company likely would not be able
to satisfy either the 75% or 95% gross income tests and, as a result, could lose
its REIT status.

In order for the Rents to constitute "rents from real property," several
other requirements also must be satisfied. One requirement is that the Rents
attributable to personal property leased in connection with the lease of the
real property comprising a Hotel must not be greater than 15% of the Rents
received under the Percentage Lease. The Rents attributable to the personal
property in a Hotel is the amount that bears the same ratio to total rent for
the taxable year as the average of the adjusted bases of the personal property
in the Hotel at the beginning and at the end of the taxable year bears to the
average of the aggregate adjusted bases of both the real and personal property
comprising the Hotel at the beginning and at the end of such taxable year (the
"Adjusted Basis Ratio"). Management has obtained an appraisal of the personal
property at each Hotel indicating that the appraised value of the personal
property at each Hotel is less than 15% of the value at which such Hotel is
acquired. However, the Company has represented that the Operating Partnership
will in no event acquire additional personal property for a Hotel to the extent
that such acquisition would cause the Adjusted Basis Ratio for that Hotel to
exceed 15%. There can be no assurance, however, that the Service

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would not assert that the personal property acquired from a particular
partnership had a value in excess of the appraised value, or that a court would
not uphold such assertion. If such a challenge were successfully asserted, the
Company could fail the 15% Adjusted Basis Ratio as to one or more of the
Percentage Leases, which in turn potentially could cause it to fail to satisfy
the 95% or 75% gross income test and thus could lose its REIT status.

Another requirement for qualification of the Rents as "rents from real
property" is that the Percentage Rent must not be based in whole or in part on
the income or profits of any person. The Percentage Rent, however, will qualify
as "rents from real property" if it is based on percentages of receipts or sales
and the percentages (a) are fixed at the time the Percentage Leases are entered
into, (b) are not renegotiated during the term of the Percentage Leases in a
manner that has the effect of basing Percentage Rent on income or profits, and
(c) conform with normal business practice. More generally, the Percentage Rent
will not qualify as "rents from real property" if, considering the Percentage
Leases and all the surrounding circumstances, the arrangement does not conform
with normal business practice, but is in reality used as a means of basing the
Percentage Rent on income or profits. Since the Percentage Rent is based on
fixed percentages of the gross revenues from the Hotels that are established in
the Percentage Leases, and the Company has represented that the percentages (i)
will not be renegotiated during the terms of the Percentage Leases in a manner
that has the effect of basing the Percentage Rent on income or profit and (ii)
conform with normal business practice, the Percentage Rent should not be
considered based in whole or in part on the income or profits of any person.
Furthermore, the Company has represented that, with respect to other hotel
properties that it acquires in the future, it will not charge rent for any
property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage of gross revenue,
as described above).

A further requirement for qualification of Rents as "rents from real
property" limits the relationship between the Company and its tenants. In the
case of a corporate tenant, the Company must not own 10% or more of the total
combined voting power of the tenant's stock and must not own 10% or more of the
total number of shares of all classes of the tenant's outstanding stock. In the
case of a tenant that is not a corporation, the Company must not own 10% or more
in interest of the tenant's assets or net profits. The Company intends to limit
its ownership interest in GHG to nonvoting preferred stock which will constitute
less than 10% of the total number of outstanding shares of GHG stock. The common
stock of GHG, which is the only voting stock of GHG, is and will continue to be
owned by persons who are not related to the Company within the definition in the
applicable statute. The common stockholders have a significant economic interest
in GHG and will elect the board of directors of GHG. Based upon the foregoing,
counsel is of the opinion that rental payments from GHG will not constitute
rentals from a party related to the Company.

The Company will receive nonqualifying management fee income. As a result,
the Company may approach the income test limits and could be at risk of not
satisfying such tests and thus not qualifying as a REIT. Counsel's opinion is
based on the Company's representation that the actual amount of nonqualifying
income will not exceed such limits.

The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends and interest on any
obligation not collateralized by an interest on real property are included for
purposes of the 95% test, but not for purposes of the 75% test. For purposes of
determining whether the Company complies with the 75% and 95% income tests,
gross income does not include income from prohibited transactions. A "prohibited
transaction" is a sale of dealer property, excluding certain property held by
the Company for at least four years and foreclosure property. See "-- Taxation
of the Company" and "-- Tax Aspects of the Company's Investment in the Operating
Partnership -- Sale of Properties."

The Company believes that it and the Operating Partnership has held and
managed its properties in a manner that has given rise to rental income
qualifying under the 75% and 95% gross income tests. Gains on sales of
properties will generally qualify under the 75% and 95% gross income tests.

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<PAGE> 97

Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
was due to reasonable cause and not to willful neglect; (ii) the Company reports
the nature and amount of each item of its income included in the 75% and 95%
gross income tests on a schedule attached to its tax return; and (iii) any
incorrect information on this schedule is not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. If these
relief provisions apply, the Company will, however, still be subject to a
special tax upon the greater of the amount by which it fails either the 75% or
95% gross income test for that year.

The 30% Test. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a prohibited transaction. In this regard, certain of the Company's
assets are subject to existing purchase options. See "Business and
Properties -- Industrial Properties." Although the Company believes, based on
the historical experience of certain predecessor partnerships, that it will
satisfy this 30% test, if, contrary to expectations, large numbers of such
options are exercised, more than 30% of the Company's gross income in a taxable
year could be derived from a proscribed source. The Company will, however, use
its best efforts to ensure that it will continue to satisfy each of the
foregoing income requirements.

ANNUAL DISTRIBUTION REQUIREMENTS

The Company, in order to qualify as a REIT, is required to make
distributions (other than capital gain distributions) to its stockholders each
year in an amount at least equal to (A) the sum of (i) 95% of the Company's
REITTI (computed without regard to the dividends paid deduction and the REIT's
net capital gain) and (ii) 95% of the net income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular distribution
payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REITTI, as adjusted, it will be subject to tax on the
undistributed amount at regular capital gains or ordinary corporate tax rates,
as the case may be. Furthermore, if the REIT should fail to distribute during
each calendar year at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the REIT would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed.

The Company believes that it has made and will make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
partnership agreement of the Operating Partnership authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that in the
future the Company may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REITTI on the other hand. Further, as described below, it is possible
that, from time to time, the Company may be allocated a share of net capital
gain attributable to the sale of depreciated property that exceeds its allocable
share of cash attributable to that sale. To avoid any problem with the 95%
distribution requirement, the Company will closely monitor the relationship
between its REITTI and cash flow and, if necessary, will borrow funds (or cause
the Operating Partnership or other affiliates to borrow funds) in order to
satisfy the distribution requirement. The Company (through the Operating
Partnership) may be required to borrow funds at times when market conditions are
not favorable.

If the Company fails to meet the 95% distribution requirement as a result
of an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.

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FAILURE TO QUALIFY

If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company, nor will they be
required to be made. In such event, to the extent of the Company's current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether the Company would be entitled to such statutory relief.

TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP

The following discussion summarizes certain federal income tax consequences
applicable solely to the Company's investment in the Operating Partnership.

General

The Company holds a direct ownership interest in the Operating Partnership.
In general, partnerships are "passthrough" entities which are not subject to
federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive distributions from the partnership. The Company includes its
proportionate share of the foregoing Operating Partnership items for purposes of
the various REIT income tests and in the computation of its REITTI. See
"-- Requirements for Qualification" and "-- Gross Income Tests." Any resultant
increase in the Company's REITTI increases its distribution requirements (see
"-- Requirements for Qualification" and "-- Annual Distribution Requirements"),
but is not subject to federal income tax in the hands of the Company provided
that such income is distributed by the Company to its stockholders. Moreover,
for purposes of the REIT asset tests (see "-- Requirements for Qualification"
and "-- Asset Tests"), the Company includes its proportionate share of assets
held by the Operating Partnership.

Entity Classification

The Company's interest in the Operating Partnership (and the Property
Partnerships) involves special tax considerations, including the possibility of
a challenge by the Internal Revenue Service (the "Service") of the status of the
Operating Partnership as a partnership (as opposed to an association taxable as
a corporation) for federal income tax purposes. If the Operating Partnership (or
any Property Partnership) were to be treated as an association, it would be
taxable as a corporation. In such a situation, the Operating Partnership (or
such Property Partnership) would be required to pay income tax at corporate
rates on its net income, and distributions to its partners would constitute
dividends that would not be deductible in computing net income. In addition, the
character of the Company's assets and items of gross income would change, which
would preclude the Company from satisfying the asset test and possibly the
income tests (see "-- Taxation of the Company Requirements for Qualification"
and "-- Taxation of the Company Asset Tests" and "-- Taxation of the Company
Gross Income Tests"), and in turn would prevent the Company from qualifying as a
REIT. See "-- Taxation of the Company Requirements for Qualification" and
"-- Failure to Qualify" above for a discussion of the effect of the Company's
failure to meet such tests for a taxable year.

Tax Allocations with Respect to Certain Properties

Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of

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<PAGE> 99

such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contributions of appreciated property. Consequently, the
partnership agreement of the Operating Partnership requires such allocations to
be made in a manner consistent with Section 704(c) of the Code.

In general, the limited partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership of the
contributed assets. This will tend to eliminate the Book-Tax Difference over the
life of the Operating Partnership. However, the special allocation rules under
Section 704(c) do not always entirely rectify the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed assets in the hands of the
Operating Partnership may cause the Company to be allocated lower depreciation
and other deductions, and possibly greater amounts of taxable income in the
event of a sale of such contributed assets in excess of the economic or book
income allocated to it as a result of such sale. This may cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements.
See "-- Requirements for Qualification -- Annual Distribution Requirements." In
addition, the application of Section 704(c) to the Operating Partnership is not
entirely clear and may be affected by authority that may be promulgated in the
future.

Basis in Operating Partnership Interest

The Company's adjusted tax basis in its partnership interest in the
Operating Partnership generally (i) is equal to the amount of cash and the basis
of any other property contributed to the Operating Partnership by the Company,
(ii) is increased by (a) its allocable share of the Operating Partnership's
income and (b) increases in its allocable share of indebtedness of the Operating
Partnership and (iii) is reduced, but not below zero, by the Company's allocable
share of (a) the Operating Partnership's loss and (b) the amount of cash
distributed to the Company, and by constructive distributions resulting from a
reduction in the Company's share of indebtedness of the Operating Partnership.

If the allocation of the Company's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnership below zero, the recognition of
such loss will be deferred until such time as the recognition of such loss would
not reduce the Company's adjusted tax basis below zero. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the nonrecourse indebtedness of the Operating Partnership (each such decrease
being considered a constructive cash distribution to the partners), would reduce
the Company's adjusted tax basis below zero, such distributions (including such
constructive distributions) constitute taxable income to the Company. Such
distributions and constructive distributions will normally be characterized as a
capital gain, and if the Company's partnership interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive distributions
will constitute long-term capital gains.

Sale of Properties

Generally, any gain realized by the Operating Partnership on the sale of
property held by the Operating Partnership for more than one year will be
long-term capital gain, except for any portion of gain attributable to
depreciation or cost recovery recapture on personal property. The Company's
share of any gain realized by the Operating Partnership on the sale of any
dealer property generally will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. See "Taxation of the Company"
and "-- Requirements for Qualification -- Gross Income Tests -- The 95% Test."
Under existing law, whether property is dealer property is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. The Operating Partnership intends to hold its properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating its properties, and to

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<PAGE> 100

make such occasional sales of properties as are consistent with the Company's
investment objectives. Based upon such investment objectives, the Company
believes that in general its properties should not be considered dealer property
and that the amount of income from prohibited transactions, if any, will not be
material.

TAXATION OF STOCKHOLDERS

Taxation of Taxable Domestic Stockholders

As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income. Stockholders that are corporations will not
be entitled to a dividends received deduction. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the stockholder has held its stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the Company makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
stockholder, reducing the tax basis of a stockholder's Common Stock by the
amount of such distribution (but not below zero), with distributions in excess
of the stockholder's tax basis taxable as capital gains (if the Common Stock is
held as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Stockholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.

In general, any loss upon a sale or exchange of Common Stock by a
stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gains.

Backup Withholding

The Company will report to its domestic stockholders and to the Service the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such stockholder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder that does not
provide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability.

Taxation of Tax-Exempt Stockholders

The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
unrelated business taxable income ("UBTI"). Revenue rulings, however, are
interpretive in nature and are subject to revocation or modification by the
Service. Based upon the ruling and the analysis therein, distributions by the
Company to a stockholder that is a tax-exempt entity should also not constitute
UBTI, provided that the tax exempt entity has not financed the acquisition of
its shares of Common Stock with "acquisition indebtedness" within the meaning of
the Code, and that the shares of Common Stock are not otherwise used in an
unrelated trade or business of the tax-exempt entity. In addition, REITs can
treat the beneficiaries of qualified pension trusts as the beneficial owners of
REIT shares owned by such pension trusts for purposes of determining if more
than 50% of the REIT's shares are owned by five or fewer individuals. However,
if a REIT relies on this new rule to meet the requirements of the five or fewer
rule, then pension trusts owning more than 10% of the REIT's shares can be
subject to UBTI on all or a

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portion of REIT dividends made to it. Owing to the Ownership Limit Provision,
the Company expects to satisfy the five or fewer rule even if each pension trust
stockholder is treated as one individual for purposes of this test.
Consequently, a pension trust stockholder should not, as a result of the
"pension-held REIT" rules, be subject to UBTI on dividends that it receives from
the Company.

Taxation of Foreign Stockholders

The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
stockholders are complex and no attempt is made herein to provide more than a
summary of such rules. Prospective foreign investors ("Non-U.S. Stockholders")
should consult with their own tax advisors to determine the impact of federal,
state, local and any foreign income tax laws with regard to an investment in the
Company, including any reporting requirements.

Distributions that are not attributable to gain from sales or exchanges by
the Company or the Operating Partnership of United States real property
interests and not designated by the Company as capital gain dividends will be
treated as dividends of ordinary income to the extent made out of current or
accumulated earnings and profits of the Company. Such distributions will
ordinarily be subject to a withholding tax equal to 30% of the gross amount of
the distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the shares is treated as effectively
connected with the Non-U.S. Stockholder's conduct of a United States trade or
business, the Non-U.S. Stockholder will generally be subject to a tax at
graduated rates, in the same manner as U.S. stockholders are taxed with respect
to such distributions (and may also be subject to the 30% branch profits tax in
the case of a stockholder that is a foreign corporation). The Company expects to
withhold tax at the rate of 30% on the gross amount of any distributions of
ordinary income made to a Non-U.S. Stockholder unless (i) a lower treaty rate
applies and proper certification is provided or (ii) the Non-U.S. Stockholder
files an IRS Form 4224 with the Company claiming that the distribution is
effectively connected income. Unless the Company's stock constitutes a USRPI (as
defined below) distributions in excess of current and accumulated earnings and
profits of the Company will not be taxable to a stockholder to the extent that
such distributions do not exceed the adjusted basis of the stockholder's shares
but rather will reduce the adjusted basis of such shares. To the extent that
distributions in excess of current accumulated earnings and profits exceed the
adjusted basis of a Non-U.S. Stockholder's shares, such distributions will give
rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to
tax on any gain from the sale or disposition of his shares in the Company, as
described below. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current and accumulated
earnings and profit, the distributions will be subject to withholding at the
same rate as dividends. However, amounts thus withheld are refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company. If the Company's
stock constitutes a USRPI, then such distribution will be subject to a 10%
withholding tax and may be subject to additional taxation under FIRPTA (as
defined below).

For any year in which the Company qualifies as a real estate investment
trust, distributions that are attributable to gain from sales or exchanges by
the Company of United States Real Property Interests ("USRPIs") will be taxed to
a Non-U.S. Stockholder under the Provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, distributions attributable to
gain from sales of USRPIs ("USRPI Capital Gains") are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a United States
business. Non-U.S. Stockholders would thus be taxed at the normal capital gain
rates applicable to U.S. stockholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a foreign corporate stockholder not entitled
to treaty exemption. The Company is required by applicable Treasury Regulations
to withhold 35% of any distribution to the extent such distribution is
attributable to USRPI Capital Gains. This amount is creditable against the
Non-U.S. Stockholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a real estate investment trust in which at all times
during a specified testing period less than 50% in value of the stock was held
directly

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or indirectly by foreign persons. It is currently anticipated that the Company
will be a "domestically controlled REIT," and therefore the sale of shares will
not be subject to taxation under FIRPTA. Because the Company's Common Stock is
publicly traded, no assurance can be given that the Company will continue to be
a domestically controlled REIT. However, a Non-U.S. Stockholder's sale of
Company's stock will still not be subject to taxation under FIRPTA as a sale of
USRPI if (i) the stock is "regularly traded on an established securities market"
(as defined by applicable Treasury Regulations) and (ii) such Non-U.S.
Stockholder held less than 5% of the Company's outstanding stock during a
specified testing period provided in the Code.

Gain not subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i)
investment in the shares is effectively connected with a United States trade or
business of the Non-U.S. Stockholder, in which case the Non-U.S. Stockholder
will be subject to the same treatment as U.S. stockholders with respect to such
gain, or (ii) the Non-U.S. Stockholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. If
the gain on the sale of shares were to be subject to taxation under FIRPTA, the
Non-U.S. Stockholder would be subject to the same treatment as U.S. stockholders
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).

If the proceeds of a disposition of Shares are paid by or through a United
States office of a broker, the payment is subject to information reporting and
backup withholding unless the disposing Non-U.S. Stockholder certifies as to his
name, address and non-United States status or otherwise establishes an
exemption. Generally, United States information reporting and backup withholding
will not apply to a payment of disposition proceeds if the payment is made
outside the United States through a non-United States office of a non-United
States broker. United States information reporting requirements (but not backup
withholding) will apply, however, to a payment of disposition proceeds outside
the United States if (i) the payment is made through an office outside the
United States of a broker that is either (a) a United States person, (b) a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States or (c) a
"controlled foreign corporation" for United States federal income tax purposes,
and (ii) the broker fails to obtain documentary evidence that the stockholder is
a Non-U.S. Stockholder and that certain conditions are met or that the Non-U.S.
Stockholder otherwise is entitled to an exemption.

STATE TAX CONSEQUENCES AND WITHHOLDING

The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Several states in which the Company may conduct business treat
REITs as ordinary corporations. The Company does not believe, however, that
stockholders will be required to file state tax returns, other than in their
respective states of residence, as a result of the ownership of Shares. However,
prospective stockholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the Company.

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

30
<PAGE> 103

PLAN OF DISTRIBUTION

The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents, which agents may be affiliated with the Company. Any
such underwriter or agent involved in the offer and sale of the Offered
Securities will be named in the applicable Prospectus Supplement. Direct sales
to investors may be accomplished through subscription offerings or concurrent
rights offerings to the Company's stockholders and direct placements to third
parties.

Sales of Offered Securities offered pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions on the
New York Stock Exchange or in negotiated transactions or any combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at other negotiated prices.

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

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

If so indicated in the applicable Prospectus Supplement, the Company may
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject, and
(ii) if the Offered Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by Contracts.

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

31
<PAGE> 104

EXPERTS

The consolidated financial statements and related financial statement
schedules included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated by reference herein and the statements
of revenues and certain expenses for the acquired properties, which reports are
included in the Company's Current Reports on Forms 8-K/A dated August 8 and
December 20, 1996, incorporated by reference herein, have been audited by Arthur
Andersen LLP, independent public accountants, to the extent and for the periods
indicated in their reports and have been incorporated herein in reliance on such
reports given on the authority of that firm as experts in accounting and
auditing.

LEGAL MATTERS

The validity of the Offered Securities will be passed upon for the Company
by Morrison & Foerster LLP, Palo Alto, California. In addition, the description
of the Company's qualifications and taxation as a REIT under the Code contained
in the Prospects under the caption "Federal Income Tax Consequences -- General"
is based upon the opinion of Morrison & Foerster LLP.

32
<PAGE> 105

Inside Front Cover

Map of the United States indicating the location of owned portfolios, portfolios
controlled by the Associated Companies and proposed acquisitions.

Pie chart indicating pro forma contribution to revenue by property type: Retail
15%, Multi-Family 14%, Industrial 24%, Office 29% and Hotel 18%.

Pie chart indicating pro forma square footage by property type: Retail 14%,
Multi-Family 13%, Industrial 50%, Office 17% and Hotel 6%.

Inside Back Cover

Six photographs of certain proposed acquisitions: Woodlands Plaza II, St. Louis,
MO; Overlook Apartments, Scottsdale, AZ; Lake Point Business Park, Orlando, FL;
Country Inn and Suites, Scottsdale, AZ; Sandhill Industrial Park, Carson, CA;
and Upland Industrial, Upland, CA.

S-14

Organizational Chart of the Company

S-58

Property Diagram
<PAGE> 106

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<PAGE> 107

(This page intentionally left blank)
<PAGE> 108

======================================================

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THIS PROSPECTUS
SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATIONS THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------

TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary......... S-3
The Company........................... S-9
Recent Activities..................... S-15
Use of Proceeds....................... S-22
Price Range of Common Stock and
Distribution History................ S-23
Capitalization........................ S-25
Selected Historical and Pro Forma
Financial and Other Data............ S-26
Pro Forma Financial Information....... S-29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... S-37
The Properties........................ S-43
Management............................ S-61
Certain Relationships and Related
Transactions........................ S-61
Underwriting.......................... S-63
Legal Matters......................... S-64
Experts............................... S-64
Index to Financial Information........ F-1
PROSPECTUS
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
The Company........................... 5
Tax Status of the Company............. 5
Risk Factors.......................... 6
Use of Proceeds....................... 13
Ratio of Earnings to Fixed Charges.... 13
Description of Preferred Stock........ 14
Description of Common Stock........... 15
Description of Warrants............... 17
Certain Provisions of the Company's
Charter and Bylaws.................. 18
Federal Income Tax Consequences....... 19
Plan of Distribution.................. 31
Experts............................... 32
Legal Matters......................... 32
</TABLE>

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3,500,000 SHARES
LOGO
LOGO
COMMON STOCK
------------------------
PROSPECTUS SUPPLEMENT
------------------------
BEAR, STEARNS & CO. INC.

ROBERTSON, STEPHENS & COMPANY

JEFFERIES & COMPANY, INC.
MARCH 17, 1997

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