<PAGE>
 
                                                                   EXHIBIT 10.11
 
                                                                  JAMES F. DUFFY


                              EMPLOYMENT AGREEMENT


     THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of October
15, 1996, by and between COLUMBUS REALTY TRUST, a Texas real estate investment
trust with offices at 15851 Dallas Parkway, Suite 855, Dallas, Texas 75240 (the
"Company") and James F. Duffy, an individual residing at 3887 Ridgelake Court,
Addison, Texas  75244 (the "Executive").

     WHEREAS, the Executive is currently employed by the Company as its Senior
Vice President-Construction;

     WHEREAS, the Company is awarding to Executive certain stock options;

     WHEREAS, the Company desires to continue to employ the Executive, and the
Executive desires to continue to be employed by the Company; and

     WHEREAS, this Agreement shall supersede and replace all prior employment
agreements between the Company and the Executive.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein and for other good and valuable consideration
(including, without limitation, the award of stock options), the adequacy and
receipt of which are hereby acknowledged, the parties hereto agree as follows:

     1.  Employment.  The Company hereby agrees to employ the Executive, and the
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Executive hereby agrees to be employed by the Company, for a term (the
"Employment Period") commencing on the date hereof and expiring on December 31,
1999 (the "Expiration Date"); provided that such Expiration Date shall
automatically be extended to December 31, 2000 and each December 31 thereafter,
if written notice is not given, by Executive to the Company or by the Company to
Executive, of such party's intent not to extend or renew this Agreement at least
six (6) months prior to the Expiration Date (as such date may have been
previously extended pursuant to this Paragraph 1).

     2.  Duties and Responsibilities.  During the Employment Period, the
         ---------------------------                                    
Executive shall devote substantially all of his best efforts and all of his
business time, skill and attention to the business of the Company.  Executive
shall hold the office of Senior Vice President-Construction of the Company and
shall, during the Employment Period, hold such additional offices to which
Executive may be elected by the Board of Trust Managers of the Company (the
"Board").  Executive shall perform such duties as may, from time to
<PAGE>
 
time be specifically enumerated by the Board, the Chairman of the Board, Chief
Executive Officer, Chief Operating Officer or any other executive officer of the
Company; provided that Executive's duties shall not be materially different than
those typically held by other comparable officers of real estate investment
trusts similar to the Company.  The foregoing is not intended to preclude the
Executive from owning and managing personal investments, including real estate
investments, subject to the restrictions set forth in Paragraph 11 hereof and
provided that the time devoted to such activities shall not be material and
shall not detract from the performance of the Executive's duties hereunder.

     3.  Compensation.
         ------------ 

         (a)  Annual Base Salary.  For all services rendered by the Executive
              ------------------                                             
     pursuant to this Agreement, the Company shall pay to the Executive an
     annual base salary in the amount of $116,000 for the period from the date
     hereof through December 31, 1996 (as adjusted from time to time, the
     "Annual Base Salary").  Effective January 1, 1997, the Annual Base Salary
     shall be increased to $125,000.  Thereafter, the Annual Base Salary may be
     increased as determined by the Executive Compensation Committee (herein so
     called) of the Board in its sole discretion.  In no event shall the Annual
     Base Salary be reduced.  All such compensation shall be paid bi-weekly or
     at such other regular intervals, not less frequently than monthly, as the
     Company may establish from time to time for executive employees of the
     Company.

         (b)  Bonus.  In addition to the compensation set forth in Paragraph
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     3(a) above, the Executive may be awarded such bonus for each calendar year
     of his employment hereunder as the Executive Compensation Committee shall
     determine in their sole discretion.  In determining such bonus, the
     Executive understands that the Executive Compensation Committee will
     consider, without limitation, the following factors with respect to the
     applicable calendar year:  the financial performance, business performance
     and growth of the Company and the Executive's department during such
     period; whether Executive's department has satisfied or achieved specified
     goals; Executive's responsibilities as an officer of the Company (including
     his participation in transactions of particular financial or business
     significance to the Company) during such period; the total compensation
     package paid to executive officers having similar responsibilities as the
     Executive who are employed by real estate investment trusts which are
     similar to the Company; and such other factors as the Executive
     Compensation Committee may deem appropriate in its sole discretion.

         (c)  Withholding.  The Company shall have the right to deduct and
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     withhold from such compensation all social security and other federal,
     state and local taxes and charges which currently are or which hereafter
     may be required by law to be so deducted and withheld.

                                      -2-
<PAGE>
 
          (d)  Expenses.  The Company shall promptly reimburse the Executive for
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     all out-of-pocket expenses actually and necessarily incurred by him in the
     conduct of the business of the Company against reasonable substantiation
     submitted with respect thereto.

     4.   Benefits.  The Executive shall be entitled to the following benefits:
          --------                                                             

          (a)  participation in the Company's Profit Sharing Plan, Share Option
     Plan, Management Incentive Plan, Employee Stock Purchase Plan and other
     benefit plans made generally available to executives of the Company;

          (b)  participation in any health insurance, disability insurance,
     group life insurance or other welfare benefit programs made generally
     available to executives of the Company; and

          (c)  paid vacation each year, to be taken at such times that are
     consistent with the reasonable business needs of the Company.  All vacation
     shall be subject to the policies and procedures of the Company.

     5.   Indemnification.  The Company shall indemnify the Executive in the
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performance of his duties pursuant to the Amended and Restated Bylaws of the
Company and to the fullest extent allowed by applicable law.

     6.   Termination of the Agreement.
          ---------------------------- 

          (a) Disability.  If the Executive shall fail, because of illness or
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     incapacity, to render the services contemplated by this Agreement for six
     successive months, the Board may determine, on the basis of the advice of
     an independent qualified physician, that the Executive has become disabled.
     If within thirty (30) days after the date on which written notice of such
     determination is given to the Executive, the Executive shall not have
     returned to the full-time performance of his duties hereunder, the Company
     may terminate this Agreement and the employment of the Executive hereunder
     in accordance with Paragraph 8 hereof.

          (b) Death.  Except as otherwise provided in this Agreement, if the
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     Executive shall die during the term of this Agreement, this Agreement shall
     be deemed to have been terminated as of the date of death of the Executive.

          (c) For Cause.  The Company, by notice to the Executive, may terminate
              ---------                                                         
     this Agreement prior to the Expiration Date for Cause (as hereafter
     defined).  As used herein, "Cause" shall mean (i) the continued failure by
     the Executive to substantially perform his duties hereunder (other than any
     such failure resulting from the Executive's incapacity due to physical or
     mental illness) for a period of thirty (30) days after a written demand for
     performance is delivered to the

                                      -3-
<PAGE>
 
     Executive by the Company, specifically identifying the manner in which the
     Company believes that the Executive has not satisfactorily performed his
     duties, (ii) the engaging by the Executive in misconduct which is injurious
     to the Company, monetarily or otherwise or (iii) the violation by the
     Executive of the provisions of Paragraphs 9, 10 or 11 hereof.

          (d) For Good Reason.  The Executive may terminate this Agreement prior
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     to the Expiration Date for "Good Reason" if any of the following events
     occurs without the Executive's express written consent:

                  (i) any assignment to Executive, without Executive's prior
          written consent, of duties materially different than those
          contemplated by Paragraph 2 hereof;

                  (ii) a reduction in the Executive's Annual Base Salary or any
          material reduction in other benefits (except for bonuses or similar
          discretionary payments) as in effect at the time in question, or any
          other failure by the Company to comply with Paragraph 3 hereof; or

                  (iii)  the failure of the Company to obtain a satisfactory
          agreement from any successor to assume and agree to perform this
          Agreement, as contemplated in Paragraph 15 hereof.

     7.   Date of Termination, Etc.  "Date of Termination" shall mean the date
          -------------------------                                           
Executive's employment is terminated pursuant to Paragraph 6 above.

     8.   Compensation Upon Termination, During Disability or Upon Change of
          ------------------------------------------------------------------
Control.
------- 

          (a) Disability or Death.  During any period that the Executive fails
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     to perform his duties hereunder as a result of incapacity due to physical
     or mental illness, the Executive shall continue to receive his Annual Base
     Salary at the rate in effect at the commencement of any such period until
     his employment is terminated pursuant to Paragraph 6(a) hereof, together
     with the average prorata bonus payable pursuant to Paragraph 3(b).  If the
     Executive's employment shall be terminated by reason of the Executive's
     death, the Annual Base Salary together with the average prorata bonus
     payable pursuant to Paragraph 3(b) which has accrued through the Date of
     Termination shall be paid to the Executive's estate or personal
     representative.  Following termination pursuant to Paragraph 6(a) or
     Paragraph 6(b) hereof, the Company will pay to the Executive, his estate or
     personal representative 2.99 times the Executive's Total Compensation (as
     defined below) for the immediately preceding twelve-month period to and
     including the date of termination.  "Total Compensation" shall mean
     compensation of any nature and from any source, including, without
     limitation, (i) Annual Base Salary, (ii) bonus

                                      -4-
<PAGE>
 
     awards (whether cash or noncash), (iii) the fair market value of any common
     shares or other shares of capital stock, stock options or other equity
     based compensation awarded to the Executive during the relevant twelve (12)
     month period, whether or not vested, restricted or subject to forfeiture
     (the fair market value which shall be determined as of the date of grant
     without taking into consideration any provisions as to vesting or
     forfeiture or provisions as to restriction on transfer) and (iv) all
     perquisites paid, awarded or otherwise available to the Executive during
     the relevant period.  The aforesaid amount shall be payable, at the option
     of the Executive, his estate or personal representative, either (A) in full
     immediately upon such termination or (B) semi-monthly over the remainder of
     the Employment Period.

          (b) For Cause or Without Good Reason.  If the Executive's employment
              --------------------------------                                
     shall be terminated, at any time prior to the Expiration Date, for Cause or
     by him other than for Good Reason, the Executive shall be paid the
     Executive's Annual Base Salary through the Date of Termination at the rate
     in effect at the time Notice of Termination is given.  The Company shall
     thereafter have no further obligations to the Executive under this
     Agreement.  Notwithstanding the foregoing, in the event of the termination
     by Executive of his employment without Good Reason at any time within the
     twelve (12) month period following the date of the occurrence of a "Change
     of Control" as defined below, the Company shall pay to Executive, in
     addition to Executive's Annual Base Salary through the Date of Termination,
     a lump sum payment in an amount equal to the prorata portion of Executive's
     Annual Base Salary which would have been payable to Executive during the
     three (3) month period following the Date of Termination.  In addition,
     notwithstanding the foregoing or any provisions of any stock option or
     stock award agreement, in the event of such termination following a "Change
     in Control," all unvested Common Shares of the Company owned or held by
     Executive (whether restricted or unrestricted) and all unvested options or
     other rights to acquire Common Shares of the Company shall become
     immediately vested and no longer subject to forfeiture or shall become
     fully vested and immediately exercisable for the sixty (60) days following
     Executive's termination of employment, as applicable.  In the event of any
     conflict between the provisions of any stock option award agreement or any
     agreement evidencing a grant of restricted stock or other similar award and
     the foregoing provisions, the foregoing provisions shall control.  A
     "Change in Control" for purposes of this Agreement shall mean the
     occurrence of any of the following events:  (i) any "person" or "group" of
     persons, as such terms are used in Sections 13 and 14 of the Securities
     Exchange Act of 1934, as amended (the "Exchange Act"), other than any
     employee benefit plan sponsored by the Company, becomes the "beneficial
     owner," as such term is used in Section 13 of the Exchange Act, of thirty
     percent (30%) or more of the Common Shares of the Company issued and
     outstanding immediately prior to such acquisition; (ii) any Common Shares
     of the Company are purchased pursuant to a tender or exchange offer other
     than an offer by the Company; or (iii) the dissolution or liquidation of
     the

                                      -5-
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     Company or the consummation of any merger or consolidation of the Company
     or any sale or other disposition of all or substantially all of its assets,
     if the shareholders of the Company immediately before such transaction own,
     immediately after consummation of such transaction, equity securities
     (other than options and other rights to acquire equity securities)
     possessing less than thirty percent (30%) of the voting power of the
     surviving or acquiring corporation.

          (c) Other than for Cause.  If the Executive's employment shall be
              --------------------                                         
     terminated by the Company other than (i) for Cause or (ii) upon death or
     disability, the Executive shall be paid the Executive's Annual Base Salary
     plus the average prorata bonus payable pursuant to Paragraph 3(b) through
     the Date of Termination.  In addition, the Company will pay to the
     Executive 2.99 times the Executive's Total Compensation for the immediately
     preceding twelve-month period.  The aforesaid amount shall be payable, at
     the option of the Executive, either (i) in full immediately upon such
     termination or (ii) semi-monthly over the remainder of the Employment
     Period.  In addition, the Executive shall be entitled, at the option of the
     Executive, (i) to exercise any options to purchase Shares granted to the
     Executive, whether or not then vested, in accordance with the terms of the
     applicable share option agreement or plan, or (ii) to retain any Shares
     awarded to the Executive whether or not vested on the Date of Termination.

          (d) For Good Reason.  If the Executive's employment shall be
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     terminated by the Executive for Good Reason, the Executive shall be paid
     the Executive's Annual Base Salary plus the average prorata bonus payable
     pursuant to Paragraph 3(b) through the Date of Termination.  In addition,
     the Company will pay to the Executive the lesser of (i) two times the
     Executive's Total Compensation for the immediately preceding twelve-month
     period or (ii) the Executive's Total Compensation for the preceding twelve-
     month period multiplied by the number of years, including any fractions
     thereof, remaining until the Expiration Date.  The Executive shall be
     entitled, at the option of the Executive, (i) to exercise any options to
     purchase Shares granted to the Executive whether or not then vested, in
     accordance with the terms of the applicable share option agreement or Plan
     and (ii) to retain any Shares awarded to the Executive (whether or not then
     vested).

          (e) Other Benefits.  In addition to all other amounts payable to the
              --------------                                                  
     Executive under this Paragraph 8, the Executive shall be entitled to
     receive all retirement benefits payable to him under the Company's benefit
     plans applicable to him and any other plan or agreement relating to
     retirement benefits as in effect on the Date of Termination.

          (f) No Requirement to Mitigate.  The Executive shall not be required
              --------------------------                                      
     to mitigate the amount of any payment provided for in this Paragraph 8 by
     seeking other employment or otherwise, nor shall the amount of any payment
     or benefit provided for in this Paragraph 8 be reduced by any compensation
     earned by him

                                      -6-
<PAGE>
 
     as the result of employment by, or any services provided to, another
     employer (whether or not a successor to the Company) or by retirement
     benefits after the Date of Termination, or otherwise.

     9.   Confidential Information.  The Executive understands and acknowledges
          ------------------------                                             
that during his employment with the Company, he will be exposed to Confidential
Information (defined below), all of which is proprietary and which will
rightfully belong to the Company.  The Executive will hold in a fiduciary
capacity for the benefit of the Company all such Confidential Information
obtained by the Executive during his employment with the Company and will not,
directly or indirectly, at any time, either during or after his employment with
the Company, without the Company's prior written consent, use, publish,
disseminate, or otherwise disclose any of such Confidential Information to any
individual or entity other than the Company or its employees, except as required
in the performance of his duties for the Company.  The Executive shall take all
reasonable steps to safeguard such Confidential Information and to protect such
Confidential Information against disclosure, misuse, loss or theft.  The term
"Confidential Information" shall mean any information not generally known in the
relevant trade or industry which was (i) obtained from the Company or its
predecessors or (ii) learned, discovered, developed, conceived, originated or
prepared during or as a result of the performance of any services by the
Executive on behalf of the Company or its predecessors.

     10.  Return of Documents.  All writings, records, and other documents and
          -------------------                                                 
things containing any Confidential Information shall be the exclusive property
of the Company, shall not be copied, summarized, extracted from, or removed from
the premises of the Company, except in pursuit of the business of the Company
and at the direction of the Company, and shall be delivered to the Company,
without retaining any copies, upon the termination of the Executive's employment
or at any time as requested by the Company.

     11.  Noncompete.  The Executive agrees that:
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          (a) At all times during which the Executive is employed by the
     Company, the Executive agrees to conduct all multifamily residential
     development, construction, acquisition and management activities through
     the Company.  In addition, if Executive terminates his employment hereunder
     prior to the Expiration Date without Good Reason (other than termination by
     Executive of his employment within the twelve (12) month period following
     the occurrence of a "Change of Control") or the Company terminates
     Executive's employment hereunder for Cause, then beginning on the Date of
     Termination and for a one (1) year period thereafter (such one (1) year
     period, the "Noncompetition Period"), the Executive shall not, within
     twenty (20) miles of (i) any of the multifamily residential properties
     owned by the Company on the first day of the Noncompetition Period, (ii)
     any tract of land owned by the Company with respect to which the Company
     has undertaken substantial development activities and on which the Company
     intends, as of the first day of the Noncompetition Period, to develop a
     multifamily residential

                                      -7-
<PAGE>
 
     property or (iii) any property which, prior to the first day of the
     Noncompetition Period, the Company had entered into a definitive purchase
     agreement to acquire or had proposed to acquire for the purposes of
     development thereof (the areas described in (i), (ii) and (iii) above being
     collectively referred to herein as the "Restricted Area"), directly or
     indirectly, engage in, or own, invest in, manage or control any venture or
     enterprise engaged in, any multifamily residential real estate development,
     construction, acquisition or management activities.  Nothing herein shall
     prohibit the Executive from being a passive owner of not more than five
     percent (5%) of the outstanding stock of any class of securities of a
     corporation or other entity  engaged in such business which is publicly
     traded, so long as he has no active participation in the business of such
     corporation or other entity.

          (b) If, at the time of enforcement of this Paragraph 11, a court shall
     hold that the duration, scope, area or other restrictions stated herein are
     unreasonable, the parties agree that reasonable maximum duration, scope,
     area or other restrictions may be substituted by such court for the stated
     duration, scope, area or other restrictions.

     12.  Remedies.  The parties hereto agree that both the Company and the
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Executive would suffer irreparable harm from a breach by the other party of any
of the covenants or agreements contained herein.  Therefore, in the event of the
actual or threatened breach by either party of any of the provisions of this
Agreement, the other party may, in addition and supplementary to other rights
and remedies existing in its favor, apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violation of the provisions hereof.

     13.  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
          -------------                                                        
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES.

     14.  Entire Agreement.  This Agreement sets forth the entire agreement of
          ----------------                                                    
the parties with respect to the subject matter hereof and is intended to
supersede all prior employment negotiations, understandings and agreements.
Notwithstanding the foregoing, no provisions of this Agreement are intended to
or shall be deemed to supersede (except as expressly set forth in Paragraph
8(b)), alter, impair or detract from in any manner any rights or benefits
awarded to Executive or to which Executive may otherwise be entitled pursuant to
any grant or award by the Company to the Executive of stock options, restricted
Common Shares or other rights with respect to securities of the Company, whether
now existing or hereafter granted.

                                      -8-
<PAGE>
 
     15.  Successors; Binding Agreement.
          ----------------------------- 

          (a) This Agreement shall inure to the benefit of and be enforceable by
     the Executive's personal or legal representatives, executors,
     administrators, successors, heirs, distributees, devisees and legatees.  If
     the Executive should die while any amount would still be payable to him
     hereunder if he had continued to live, all such amounts, unless otherwise
     provided herein, shall be paid in accordance with the terms of this
     Agreement to the Executive's devisee, legatee or other designee or, if
     there is no such designee, to the Executive's estate.

          (b) The Company will require any successor (whether direct or
     indirect, by purchase, merger, consolidation or otherwise) to all or
     substantially all of the business and/or assets of the Company to expressly
     assume and agree in writing to perform this Agreement in the same manner
     and to the same extent that the Company would be required to perform it if
     no such succession had taken place.  Failure of the Company to obtain and
     deliver to Executive such assumption and agreement prior to (but effective
     only upon) such succession shall be a breach of this Agreement, except that
     for purposes of implementing the foregoing, the date on which any such
     succession becomes effective shall be deemed the Date of Termination.  As
     used in this Agreement, "Company" shall mean the Company as hereinbefore
     defined and any successor to its business and/or assets as aforesaid which
     assumes and agrees to perform this Agreement, expressly, by operation of
     law, or otherwise.

     16.  Notices.  All notices provided for in this Agreement shall be in
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writing, and shall be deemed to have been duly given when delivered personally
to the party to receive the same, when given by telex, telegram or mailgram, or
when mailed first class postage prepaid, by registered or certified mail, return
receipt requested, addressed to the party to receive the same at his or its
address above set forth, or such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Paragraph 16.  All notices shall be deemed to have been given as of the date of
personal delivery, transmittal or mailing thereof.

     17.  Survival.  The Company's obligations under Paragraph 8 shall survive
          --------                                                            
the termination of this Agreement.  The Executive's obligations under Paragraphs
9, 10 and 11 shall survive the termination of this Agreement.

     18.  Severability.  If any provision in this Agreement is determined to be
          ------------                                                         
invalid, it shall not affect the validity or enforceability of any of the other
remaining provisions hereof.

                                      -9-
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.


                                    COLUMBUS REALTY TRUST:



                                    By:   /s/  WILL CURETON
                                       -----------------------------------------
                                      Name:      Will Cureton
                                           -------------------------------------
                                      Title:     Chief Operating Officer
                                            ------------------------------------



                                    EXECUTIVE:


                                           /s/   JAMES F. DUFFY
                                    --------------------------------------------
                                    James F. Duffy

                                      -10-