**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended March 31, 2006**

**Or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition periodfrom           to           **

**Commissionfile number 1-13531**

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**Trammell Crow Company**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **75-2721454**                     |
|------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification No.) |
| **2001 Ross Avenue  Suite 3400  Dallas, Texas**             |   | **75201**                          |
| (Address of  principal executive offices)                        |   | (Zip Code)                         |

 

**(214) 863-3000**

(Registrant’s telephonenumber, including area code)

**Not applicable**

(Former name, formeraddress and formerfiscal year, if changed since last report)

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (CheckOne): Large accelerated filer x Acceleratedfiler o Non-accelerated filer o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o No x

Therewere 36,060,566 shares of the registrant’s common stock outstanding as of May 1,2006.

 

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**TRAMMELL CROWCOMPANY AND SUBSIDIARIESINDEX**
|               | ** ** | ** **                                                                                                                                                            | ** ** | **Page  Number** |
|---------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|
| PART I.  |       | Financial Information                                                                                                                                                 |       |             | 3 |   |
| Item 1.       |       | Financial Statements                                                                                                                                                  |       |             | 3 |   |
|          |       | Condensed Consolidated  Balance Sheets as of March 31, 2006 (unaudited) and December 31,  2005                                                              |       |             | 3 |   |
|          |       | Condensed Consolidated  Statements of Income for the three months ended March 31, 2006 and 2005  (unaudited)                                                     |       |             | 4 |   |
|          |       | Condensed Consolidated  Statements of Stockholders’ Equity for the three months ended March 31,  2006 (unaudited) and the year ended December 31, 2005 |       |             | 5 |   |
|          |       | Condensed Consolidated  Statements of Cash Flows for the three months ended March 31, 2006 and  2005(unaudited)                                                  |       |             | 6 |   |
|          |       | Condensed Consolidated  Statements of Comprehensive Income for the three months ended March 31,  2006 and 2005 (unaudited)                                       |       |             | 7 |   |
|          |       | Notes to Condensed Consolidated Financial  Statements (unaudited)                                                                                                     |       |             | 8 |   |
| Item 2.       |       | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                                                                           |       |             | 28 |   |
| Item 3.       |       | Quantitative and Qualitative  Disclosures About Market Risk                                                                                                           |       |             | 38 |   |
| Item 4.       |       | Controls and Procedures                                                                                                                                               |       |             | 39 |   |
| PART II. |       | Other Information                                                                                                                                                     |       |             | 40 |   |
| Item 1.       |       | Legal Proceedings                                                                                                                                                     |       |             | 40 |   |
| Item 2.       |       | Unregistered Sales of Equity  Securities and Use of Proceeds                                                                                                          |       |             | 40 |   |
| Item 6.       |       | Exhibits                                                                                                                                                              |       |             | 41 |   |

 

2

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**PART I—FINANCIAL INFORMATION**

**ITEM1.**                *Financial Statements*

**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share data)**

| ** **                                                                                                                                                                                                 | ** **                        | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                 | ** **                        | **2006**           | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                                                                 | ** **                        | **(Unaudited)**    | ** ** | **(Note 1)**     | ** ** |
| **ASSETS**                                                                                                                                                                                                 |                              |               |       | ** **            |       |   |   |   |   |
| Current assets                                                                                                                                                                                             |                              |               |       |                  |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                  |                              |               | $          | 40,561                |       |   |   | $ | 76,919 |   |   |
| Restricted cash                                                                                                                                                                                            |                              |               | 4,476      |                  |       |   | 1,416 |   |   |
| Accounts receivable, net  of allowance for doubtful accounts of $3,262 in 2006 and $3,235 in 2005                                                                                                     |                              |               | 111,270    |                  |       |   | 127,784 |   |   |
| Receivables from  affiliates                                                                                                                                                                               |                              |               | 3,178      |                  |       |   | 2,146 |   |   |
| Notes and other  receivables                                                                                                                                                                               |                              |               | 19,747     |                  |       |   | 16,303 |   |   |
| Deferred income taxes                                                                                                                                                                                      |                              |               | 3,941      |                  |       |   | 3,935 |   |   |
| Real estate under  development                                                                                                                                                                             |                              |               | 162,475    |                  |       |   | 129,963 |   |   |
| Real estate and other  assets held for sale                                                                                                                                                                |                              |               | 3,133      |                  |       |   | 21,281 |   |   |
| Available for sale  securities                                                                                                                                                                             |                              |               | 1,723      |                  |       |   | 542 |   |   |
| Other current assets                                                                                                                                                                                       |                              |               | 30,496     |                  |       |   | 27,399 |   |   |
| Total current assets                                                                                                                                                                                       |                              |               | 381,000    |                  |       |   | 407,688 |   |   |
| Furniture and  equipment, net                                                                                                                                                                              |                              |               | 20,087     |                  |       |   | 19,787 |   |   |
| Deferred income  taxes                                                                                                                                                                                     |                              |               | 15,803     |                  |       |   | 16,270 |   |   |
| Real estate under development                                                                                                                                                                              |                              |               | 113,957    |                  |       |   | 117,210 |   |   |
| Real estate held  for investment                                                                                                                                                                           |                              |               | 104,636    |                  |       |   | 89,416 |   |   |
| Investments in  unconsolidated subsidiaries                                                                                                                                                                |                              |               | 185,444    |                  |       |   | 175,411 |   |   |
| Goodwill, net                                                                                                                                                                                              |                              |               | 75,238     |                  |       |   | 75,239 |   |   |
| Receivables from  affiliates                                                                                                                                                                               |                              |               | 6,466      |                  |       |   | 7,458 |   |   |
| Available for sale  securities                                                                                                                                                                             |                              |               | 16,901     |                  |       |   | 18,089 |   |   |
| Other assets                                                                                                                                                                                               |                              |               | 26,557     |                  |       |   | 21,599 |   |   |
|                                                                                                                                                                                                       |                              |               | $          | 946,089               |       |   |   | $ | 948,167 |   |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                             |                              |               |       | ** **            |       |   |   |   |   |
| Current liabilities                                                                                                                                                                                        |                              |               |       |                  |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                           |                              |               | $          | 31,356                |       |   |   | $ | 31,698 |   |   |
| Accrued expenses                                                                                                                                                                                           |                              |               | 92,244     |                  |       |   | 155,744 |   |   |
| Payables to affiliates                                                                                                                                                                                     |                              |               | 9          |                  |       |   | 4 |   |   |
| Income taxes payable                                                                                                                                                                                       |                              |               | 2,048      |                  |       |   | 16,313 |   |   |
| Current portion of  long-term debt                                                                                                                                                                         |                              |               | 2,391      |                  |       |   | 1,302 |   |   |
| Current portion of notes  payable on real estate                                                                                                                                                           |                              |               | 161,119    |                  |       |   | 133,941 |   |   |
| Liabilities related to  real estate and other assets held for sale                                                                                                                                         |                              |               | 1,268      |                  |       |   | 17,524 |   |   |
| Other current liabilities                                                                                                                                                                                  |                              |               | 9,041      |                  |       |   | 5,944 |   |   |
| Total current liabilities                                                                                                                                                                                  |                              |               | 299,476    |                  |       |   | 362,470 |   |   |
| Long-term debt,  less current portion                                                                                                                                                                      |                              |               | 85,046     |                  |       |   | 35,034 |   |   |
| Notes payable on  real estate, less current portion                                                                                                                                                        |                              |               | 126,364    |                  |       |   | 106,216 |   |   |
| Other liabilities                                                                                                                                                                                          |                              |               | 14,518     |                  |       |   | 13,448 |   |   |
| Total liabilities                                                                                                                                                                                          |                              |               | 525,404    |                  |       |   | 517,168 |   |   |
| Minority interest                                                                                                                                                                                          |                              |               | 35,185     |                  |       |   | 29,528 |   |   |
| Stockholders’ equity                                                                                                                                                                                  |                              |               |       |                  |       |   |   |   |   |
| Preferred stock; $0.01  par value; 30,000,000 shares authorized; none issued or outstanding                                                                                                           |                              |               | —     |                  |       |   | — |   |   |
| Common stock; $0.01 par  value; 100,000,000 shares authorized; 37,903,058 shares issued and 35,935,170  shares outstanding in 2006 and 37,903,058 shares issued and 36,040,317 shares  outstanding in 2005 |                              |               | 379        |                  |       |   | 379 |   |   |
| Paid-in-capital                                                                                                                                                                                            |                              |               | 186,940    |                  |       |   | 205,084 |   |   |
| Retained earnings                                                                                                                                                                                          |                              |               | 244,572    |                  |       |   | 240,887 |   |   |
| Accumulated other  comprehensive income                                                                                                                                                                    |                              |               | 1,876      |                  |       |   | 1,713 |   |   |
| Less:                                                                                                                                                                                                      | Treasury stock                    |               |       | (48,267               | )          |   |   | (32,776 | ) |   |
|                                                                                                                                                                                                       | Unearned stock  compensation, net |               |       | —                |       |   |   | (13,816 | ) |   |
| Total stockholders’  equity                                                                                                                                                                           |                              |               | 385,500    |                  |       |   | 401,471 |   |   |
|                                                                                                                                                                                                       |                              |               | $          | 946,089               |       |   |   | $ | 948,167 |   |   |

 

See accompanying notes.

3

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**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME(in thousands, except share and per share data)(Unaudited)**

| ** **                                                                                                                                      | ** **   | **For the Three Months  Ended March 31,**                                | ** **   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------|--------------|
| ** **                                                                                                                                      | ** **   | **       2006       ** | ** **   | **       2005       ** | ** ** |
| **REVENUES**                                                                                                                                    | ** **   |                                                                                         | ** **   | ** ** |   |   | ** ** | ** ** |   |
| ***User Services:***                                                                                                                            | *** *** | * *                                                                                     | *** *** | *** *** | * * | * * | *** *** | *** *** | * * |
| Facilities management                                                                                                                           |         |                                                                                         | $            | 65,034 |   |   |   | $ | 55,137 |   |   |
| Corporate advisory  services                                                                                                                    |         |                                                                                         | 45,833       |   |   |   | 24,673 |   |   |
| Project management  services                                                                                                                    |         |                                                                                         | 29,679       |   |   |   | 25,324 |   |   |
|                                                                                                                                            |         |                                                                                         | 140,546      |   |   |   | 105,134 |   |   |
| ***Investor Services:***                                                                                                                        |         |                                                                                         |         |   |   |   |   |   |   |
| Property management                                                                                                                             |         |                                                                                         | 33,852       |   |   |   | 34,087 |   |   |
| Brokerage                                                                                                                                       |         |                                                                                         | 30,760       |   |   |   | 27,780 |   |   |
| Construction management                                                                                                                         |         |                                                                                         | 3,012        |   |   |   | 2,215 |   |   |
|                                                                                                                                            |         |                                                                                         | 67,624       |   |   |   | 64,082 |   |   |
| Development and  construction                                                                                                                   |         |                                                                                         | 8,850        |   |   |   | 7,837 |   |   |
|                                                                                                                                            |         |                                                                                         | 217,020      |   |   |   | 177,053 |   |   |
| Gain on disposition of  real estate                                                                                                             |         |                                                                                         | 1,070        |   |   |   | 1,568 |   |   |
| **TOTAL  REVENUES**                                                                                                                             |         |                                                                                         | 218,090      |   |   |   | 178,621 |   |   |
| **COSTS AND EXPENSES**                                                                                                                          |         |                                                                                         |         |   |   |   |   |   |   |
| Salaries, wages and  benefits                                                                                                                   |         |                                                                                         | 146,090      |   |   |   | 125,711 |   |   |
| Commissions                                                                                                                                     |         |                                                                                         | 34,139       |   |   |   | 22,658 |   |   |
| General and  administrative                                                                                                                     |         |                                                                                         | 37,101       |   |   |   | 30,024 |   |   |
| Depreciation and  amortization                                                                                                                  |         |                                                                                         | 2,700        |   |   |   | 2,399 |   |   |
| Interest                                                                                                                                        |         |                                                                                         | 1,498        |   |   |   | 680 |   |   |
| **TOTAL  EXPENSES**                                                                                                                             |         |                                                                                         | 221,528      |   |   |   | 181,472 |   |   |
| Operating loss                                                                                                                                  |         |                                                                                         | (3,438       | ) |   |   | (2,851 | ) |   |
| Interest and other  income                                                                                                                      |         |                                                                                         | 869          |   |   |   | 921 |   |   |
| Loss from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries             |         |                                                                                         | (2,569       | ) |   |   | (1,930 | ) |   |
| Income tax benefit                                                                                                                              |         |                                                                                         | 1,002        |   |   |   | 737 |   |   |
| Minority interest,  net of income tax (expense) benefit of $147 and $(1,227) in 2006 and  2005, respectively                               |         |                                                                                         | (231         | ) |   |   | 1,988 |   |   |
| Income from  investments in unconsolidated subsidiaries, net of income tax expense of  $1,384 and $977 in 2006 and 2005, respectively |         |                                                                                         | 2,167        |   |   |   | 1,583 |   |   |
| Income from  continuing operations                                                                                                              |         |                                                                                         | 369          |   |   |   | 2,378 |   |   |
| Income (loss) from  discontinued operations, net of income tax (expense) benefit of $(1,473)  and $200 in 2006 and 2005, respectively      |         |                                                                                         | 2,305        |   |   |   | (325 | ) |   |
| Income before  cumulative effect of a change in accounting principle                                                                            |         |                                                                                         | 2,674        |   |   |   | 2,053 |   |   |
| Cumulative effect  of a change in accounting principle, net of income tax expense of $646                                                       |         |                                                                                         | 1,011        |   |   |   | — |   |   |
| Net income                                                                                                                                      |         |                                                                                         | $            | 3,685 |   |   |   | $ | 2,053 |   |   |
| **Basic  earnings per share:**                                                                                                                  |         |                                                                                         |         |   |   |   |   |   |   |
| Income from  continuing operations                                                                                                              |         |                                                                                         | $            | 0.01 |   |   |   | $ | 0.07 |   |   |
| Income (loss) from  discontinued operations                                                                                                     |         |                                                                                         | 0.07         |   |   |   | (0.01 | ) |   |
| Cumulative effect  of a change in accounting principle                                                                                          |         |                                                                                         | 0.03         |   |   |   | — |   |   |
| Net income                                                                                                                                      |         |                                                                                         | $            | 0.11 |   |   |   | $ | 0.06 |   |   |
| Basic  weighted-average common shares outstanding:                                                                                              |         |                                                                                         | 34,367,244   |   |   |   | 33,690,507 |   |   |
| **Diluted  earnings per share:**                                                                                                                |         |                                                                                         |         |   |   |   |   |   |   |
| Income from  continuing operations                                                                                                              |         |                                                                                         | $            | 0.01 |   |   |   | $ | 0.07 |   |   |
| Income (loss) from  discontinued operations                                                                                                     |         |                                                                                         | 0.06         |   |   |   | (0.01 | ) |   |
| Cumulative effect  of a change in accounting principle                                                                                          |         |                                                                                         | 0.03         |   |   |   | — |   |   |
| Net income                                                                                                                                      |         |                                                                                         | $            | 0.10 |   |   |   | $ | 0.06 |   |   |
| Diluted weighted-average  common shares outstanding:                                                                                            |         |                                                                                         | 36,905,745   |   |   |   | 36,144,031 |   |   |

 

See accompanying notes.

4

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYThree Months Ended March 31, 2006 (Unaudited) and Year EndedDecember 31, 2005 (Note 1)(in thousands, except share data)**

| ** **                                                                           | ** ** | **Common Shares** | ** ** | **Common  Stock Par** | ** ** | **Paid-In** | ** ** | **Retained** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Treasury** | ** ** | **Unearned  Stock** | ** ** | ** **       | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|-------------|------------|--------------|------------|---------------------------------------|------------|--------------|------------|---------------------|------------|------------------|------------|
| ** **                                                                           | ** ** | **Issued**             | ** ** | **Treasury**               | ** ** | **Value**   | ** ** | **Capital**  | ** ** | **Earnings**                          | ** ** | **Income**   | ** ** | **Stock**           | ** ** | **Compensation** | ** ** | **Total** | ** ** |
| Balance at January 1, 2005                                                      |       | 37,902,998             |       | 2,297,991                  |       |        | $          | 379          |       |                                  | $          | 196,314      |       |                | $          | 190,252          |       |   |   | $ | 2,043 |   |   |   | $ | (36,921 | ) |   |   | $ | (11,117 | ) |   | $ | 340,950 |   |
| Net income                                                                           |       | —                 |       | —                     |       |        | —     |         |       | —                                |       |         | 59,407     |                |       |             | —     |   |   |   | — |   |   |   | — |   |   | 59,407 |   |
| Stock-based compensation                                                             |       | 60                     |       | (1,405,392                 | )          |        | —     |         |       | 8,770                                 |       |         | (8,772     | )                   |       |             | —     |   |   |   | 24,195 |   |   |   | (2,699 | ) |   | 21,494 |   |
| Stock repurchase                                                                     |       | —                 |       | 970,142                    |       |        | —     |         |       | —                                |       |         | —     |                |       |             | —     |   |   |   | (20,050 | ) |   |   | — |   |   | (20,050 | ) |
| Foreign currency translation adjustment, net of  tax                            |       | —                 |       | —                     |       |        | —     |         |       | —                                |       |         | —     |                |       |             | (475       | ) |   |   | — |   |   |   | — |   |   | (475 | ) |
| Unrealized holding gains/(losses) on available for  sale securities, net of tax |       | —                 |       | —                     |       |        | —     |         |       | —                                |       |         | —     |                |       |             | 145        |   |   |   | — |   |   |   | — |   |   | 145 |   |
| Balance at December 31,  2005                                                   |       | 37,903,058             |       | 1,862,741                  |       |        | 379        |         |       | 205,084                               |       |         | 240,887    |                |       |             | 1,713      |   |   |   | (32,776 | ) |   |   | (13,816 | ) |   | 401,471 |   |
| Net income                                                                           |       | —                 |       | —                     |       |        | —     |         |       | —                                |       |         | 3,685      |                |       |             | —     |   |   |   | — |   |   |   | — |   |   | 3,685 |   |
| Cumulative effect of a change in accounting principle                                |       | —                 |       | —                     |       |        | —     |         |       | (15,473                               | )          |         | —     |                |       |             | —     |   |   |   | — |   |   |   | 13,816 |   |   | (1,657 | ) |
| Stock-based compensation                                                             |       | —                 |       | (756,853                   | )          |        | —     |         |       | (2,671                                | )          |         | —     |                |       |             | —     |   |   |   | 13,407 |   |   |   | — |   |   | 10,736 |   |
| Stock repurchase                                                                     |       | —                 |       | 862,000                    |       |        | —     |         |       | —                                |       |         | —     |                |       |             | —     |   |   |   | (28,898 | ) |   |   | — |   |   | (28,898 | ) |
| Foreign currency translation adjustment, net of  tax                            |       | —                 |       | —                     |       |        | —     |         |       | —                                |       |         | —     |                |       |             | 111        |   |   |   | — |   |   |   | — |   |   | 111 |   |
| Unrealized holding gains/(losses) on available for  sale securities, net of tax |       | —                 |       | —                     |       |        | —     |         |       | —                                |       |         | —     |                |       |             | 52         |   |   |   | — |   |   |   | — |   |   | 52 |   |
| Balance at  March 31, 2006                                                      |       | 37,903,058             |       | 1,967,888                  |       |        | $          | 379          |       |                                  | $          | 186,940      |       |                | $          | 244,572          |       |   |   | $ | 1,876 |   |   |   | $ | (48,267 | ) |   |   | $ | — |   |   | $ | 385,500 |   |

 

See accompanying notes.

5

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(Unaudited)**

| ** **                                                          | ** ** | **For the  Three Months  Ended March 31,** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **2006**                                                       | ** ** | **2005** | ** ** |
| **Operating activities**                                            |       |                                                           |       |   |   |
| Cash flows from earnings:                                           |       |                                                           |       |   |   |
| Net Income                                                          |       | $                                                              | 3,685      |   | $ | 2,053 |   |
| Reconciliation of net  income to net cash provided by earnings:     |       |                                                           |       |   |   |
| Depreciation and  amortization                                      |       | 2,700                                                          |       | 2,684 |   |
| Stock-based  compensation expense                                   |       | 2,042                                                          |       | 1,715 |   |
| Cumulative effect  of a change in accounting principle              |       | (1,657                                                         | )          | — |   |
| Amortization of employment  contracts                               |       | 602                                                            |       | 426 |   |
| Amortization of  contract intangibles                               |       | 244                                                            |       | 372 |   |
| Bad debt expense                                                    |       | 274                                                            |       | 84 |   |
| Gain on  disposition of real estate held for investment             |       | (65                                                            | )          | (28 | ) |
| Minority interest                                                   |       | 1,203                                                          |       | (3,215 | ) |
| Deferred income  tax provision                                      |       | 355                                                            |       | (199 | ) |
| Income from  investments in unconsolidated subsidiaries             |       | (3,551                                                         | )          | (2,560 | ) |
| Distributions of  earnings from unconsolidated subsidiaries         |       | 202                                                            |       | 223 |   |
| Net cash provided  by earnings                                      |       | 6,034                                                          |       | 1,555 |   |
| Changes in operating  assets and liabilities:                       |       |                                                           |       |   |   |
| Restricted cash                                                     |       | (3,060                                                         | )          | 2,828 |   |
| Accounts  receivable                                                |       | 19,456                                                         |       | 12,526 |   |
| Receivables from  affiliates                                        |       | (40                                                            | )          | (1,519 | ) |
| Notes receivable  and other assets                                  |       | (15,989                                                        | )          | (6,635 | ) |
| Real estate held  for sale                                          |       | (10,772                                                        | )          | (36,346 | ) |
| Notes payable on  real estate held for sale                         |       | 5,854                                                          |       | 28,414 |   |
| Accounts payable  and accrued expenses                              |       | (66,365                                                        | )          | (63,049 | ) |
| Payables to  affiliates                                             |       | 5                                                              |       | 112 |   |
| Income taxes  payable                                               |       | (14,167                                                        | )          | (20,142 | ) |
| Other liabilities                                                   |       | 4,088                                                          |       | 1,111 |   |
| Net cash flows  from changes in working capital                     |       | (80,990                                                        | )          | (82,700 | ) |
| Net cash used in  operating activities                              |       | (74,956                                                        | )          | (81,145 | ) |
| **Investing activities**                                            |       |                                                           |       |   |   |
| Expenditures for  furniture and equipment                           |       | (1,558                                                         | )          | (1,862 | ) |
| Proceeds from  sales and maturities of securities                   |       | 1,209                                                          |       | 130 |   |
| Payment for  purchase of securities                                 |       | (1,119                                                         | )          | (17,759 | ) |
| Additions to real  estate held for investment                       |       | (13,590                                                        | )          | (17,588 | ) |
| Net proceeds from  disposition of real estate held for investment   |       | 529                                                            |       | 28 |   |
| Investments in  unconsolidated subsidiaries                         |       | (8,081                                                         | )          | (8,035 | ) |
| Distributions from  unconsolidated subsidiaries                     |       | 2,914                                                          |       | 2,272 |   |
| Net cash used in  investing activities                              |       | (19,696                                                        | )          | (42,814 | ) |
| **Financing activities**                                            |       |                                                           |       |   |   |
| Principal payments  on long-term debt and capital lease obligations |       | (49,420                                                        | )          | (192 | ) |
| Proceeds from  long-term debt                                       |       | 100,521                                                        |       | — |   |
| Contributions from  minority interest                               |       | 3,809                                                          |       | 2,271 |   |
| Distributions to  minority interest                                 |       | (1,076                                                         | )          | (11,005 | ) |
| Proceeds from  notes payable on real estate held for investment     |       | 23,051                                                         |       | 17,126 |   |
| Payments on notes  payable on real estate held for investment       |       | (63                                                            | )          | (44 | ) |
| Proceeds from  exercise of stock options                            |       | 8,429                                                          |       | 272 |   |
| Excess tax  benefits from stock-based compensation                  |       | 391                                                            |       | — |   |
| Proceeds from  issuance of common stock                             |       | 1,550                                                          |       | 1,503 |   |
| Purchase of common  stock                                           |       | (28,898                                                        | )          | (11,123 | ) |
| Net cash provided  by (used in) financing activities                |       | 58,294                                                         |       | (1,192 | ) |
| Net decrease in  cash and cash equivalents                          |       | (36,358                                                        | )          | (125,151 | ) |
| Cash and cash  equivalents, beginning of period                     |       | 76,919                                                         |       | 163,637 |   |
| Cash and cash  equivalents, end of period                           |       | $                                                              | 40,561     |   | $ | 38,486 |   |

 

See accompanying notes.

6

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands)(Unaudited)**

| ** **                                                                                                                          | ** ** | **For the  Three Months** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                                                          | ** ** | **Ended March 31,**       | ** ** |
| ** **                                                                                                                          | ** ** | **2006**                            | ** ** | **2005** | ** ** |
| Net income                                                                                                                          |       | $                                   | 3,685      |   | $ | 2,053 |   |
| Other  comprehensive income:                                                                                                        |       |                                |       |   |   |
| Foreign currency translation adjustments, net of tax  (expense) benefit of $(75) in 2006 and $7 in 2005                             |       | 111                                 |       | (11 | ) |
| Unrealized holding gains/(losses) on available for  sale securities, net of tax (expense) benefit of $(31) in 2006 and $47 in  2005 |       | 52                                  |       | (111 | ) |
| Comprehensive income                                                                                                                |       | $                                   | 3,848      |   | $ | 1,931 |   |

 

See accompanying notes.

7

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General

The condensed consolidated interim financialstatements of Trammell Crow Company and subsidiaries (the “Company”) includedherein have been prepared in accordance with the requirements for interimfinancial statements and do not include all disclosures required underaccounting principles generally accepted in the United States (“GAAP”) forcomplete financial statements. These financial statements should be read inconjunction with the consolidated financial statements included in the Company’sAnnual Report on Form 10-K for the year ended December 31,2005. In the opinion of management, all adjustments and eliminations,consisting only of recurring adjustments, necessary for a fair presentation ofthe financial statements for the interim periods have been made. Interimresults of operations are not necessarily indicative of the results to beexpected for the full year.

The Company hasexperienced and expects to continue to experience quarterly variations inrevenues and net income as a result of several factors. The Company’s quarterlyrevenues tend to increase throughout the year, particularly in the last quarterof the year, because its clients have demonstrated a tendency to closetransactions toward the end of the year. The timing and introduction of newcontracts, the disposition of investments in real estate assets, therecognition of incentive fees (often in the latter part of the fiscal year ascontractual targets are met) and other factors may also cause quarterlyfluctuations in the Company’s results of operations.

*Reclassifications*

In accordance withFinancial Accounting Standards Board (“FASB”) Statement of Financial AccountingStandards No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*(“FAS 144”),certain assets and liabilities at December 31, 2005, and certain revenuesand expenses for the three months ended March 31, 2005, were reclassifiedto conform to the presentation at and for the three months ended March 31,2006 (see Notes 8 and 10). As a result, certain balances differ from theamounts reported in previously filed documents. Also, certain distributionsfrom unconsolidated subsidiaries were reclassified in the Company’sconsolidated statements of cash flows. Therefore, cash flows from operatingactivities and investing activities differ from previously filed documents. Thesereclassifications had no impact on the Company’s consolidated balance sheets,statements of operations or earnings per share amounts.

*Use of Estimates*

The preparation of thefinancial statements in accordance with GAAP requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Actual results could differ from thoseestimates.

*Income Taxes*

The Company accounts forincome taxes using the liability method. Deferred income taxes result fromtemporary differences between the carrying amounts of assets and liabilitiesfor financial reporting 

8

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General (Continued)

purposesand the amounts used for federal income tax purposes, and are measured usingthe enacted tax rates and laws that are expected to be in effect when thedifferences reverse.

*Earnings Per Share*

Theweighted-average common shares outstanding used to calculate dilutedearnings per share reflect the dilutive effect of common stock equivalents,including unvested restricted stock and options to purchase shares of commonstock. Diluted weighted-average common shares outstanding included thefollowing: 

| ** **                                          | ** ** | **For the Three Months** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                          | ** ** | **Ended March 31,**           | ** ** |
| ** **                                          | ** ** | **2006**                                | ** ** | **2005** | ** ** |
| Basic  weighted-average common shares outstanding   |       | 34,367,244                              |       | 33,690,507 |   |
| Diluted effect of  common stock equivalents         |       | 2,538,501                               |       | 2,453,524 |   |
| Diluted weighted-average  common shares outstanding |       | 36,905,745                              |       | 36,144,031 |   |

 

*Non-ControllingInterests in Consolidated Limited Life Subsidiaries*

In May 2003, the FASBissued Statement of Financial Accounting Standards No. 150, *Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity* (“FAS 150”). Certainprovisions of FAS 150 would have required the Company to classifynon-controlling interests in consolidated limited life subsidiaries asliabilities adjusted to their settlement values in the Company’s financial statements.In November 2003, the FASB indefinitely deferred application of themeasurement and recognition provisions (but not the disclosure requirements) ofFAS 150 with respect to these non-controlling interests. As of March 31,2006, the estimated settlement value of non-controlling interests in theCompany’s consolidated limited life subsidiaries was $4,811, as compared tobook value (included in minority interest on the Company’s balance sheet) of$4,722. The excess of settlement value over book value is driven by an evenlarger estimated appreciation of certain consolidated real estate assets andinvestments from the Company’s book value, offset by estimated selling costsand debt prepayment penalties, if any.

*Effect of AdoptingNew Accounting Pronouncements*

*Consolidation*

In June 2005, the FASB ratified the consensus in *Determining Whether a General Partner, or the General Partners as aGroup, Controls a Limited Partnership or Similar Entity When the LimitedPartners Have Certain Rights* (“EITF 04-5”), which states thatthe general partner in a limited partnership is presumed to control thatlimited partnership. That presumption may be overcome if the limited partnershave either (1) the substantive ability—either by a single limited partneror through a simple majority vote—to dissolve (liquidate) the limitedpartnership or otherwise remove the general partner without cause or (2) substantiveparticipating rights. Substantive participating rights provide the limitedpartners 

9

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General (Continued)

with the ability toeffectively participate in significant decisions that would be expected to bemade in the ordinary course of the limited partnership’s business and therebypreclude the general partner from exercising unilateral control over thepartnership.

Theeffective date for applying the guidance in EITF 04-5 to the Company’sgeneral partner interests was June 29, 2005, for all new limitedpartnerships or limited partnerships amended after that date and January 1,2006, for all other limited partnerships. The Company has completed itsevaluation of the impact of EITF 04-5 for all of its general partnerinterests existing prior to June 29, 2005. As a result of this evaluation,the Company consolidated two real estate partnerships that had previously beenaccounted for using the equity method. These consolidations as of January 1,2006 did not impact net income, net income per share or stockholders’ equity,but did result in the following non-cash changes to the Company’s balancesheet:

| **ASSETS**                                                     | ** ** | ** ** | ** ** |
|----------------------------------------------------------------|------------|------------|------------|
| Real estate                                                    |       | $          | 4,551      |   |
| Investments in unconsolidated subsidiaries                     |       | (1,102     | )          |
| Other Current Assets                                           |       | 90         |       |
| Other assets                                                   |       | 9          |       |
| Net non-cash  change in assets                                 |       | $          | 3,548      |   |
| **LIABILITIES**                                                | ** ** | ** ** | ** ** |
| Notes payable on real estate                                   |       | $          | 2,040      |   |
| Accrued expenses                                               |       | 118        |       |
| Other current liabilities                                      |       | 14         |       |
| Net non-cash  change in liabilities                            |       | 2,172      |       |
| Minority interest                                              |       | 1,721      |       |
| Cash from  consolidation of previously unconsolidated entities |       | $          | 345        |   |

 

*Stock-Based Compensation*

On December 16, 2004, the FASB issued Statementof Financial Accounting Standards No. 123 (revised 2004), *Share-Based Payment* (“FAS 123R”), which is a revision ofStatement of Financial Accounting Standards No. 123, *Accountingfor Stock-Based Compensation* (“FAS 123”). Generally, theapproach in FAS 123R is similar to the approach described in FAS 123. However,FAS 123R requires all share-based payments to employees, including grants ofemployee stock options, to be recognized in the income statement based on theirfair values. Pro forma disclosure is no longer an alternative.

Prior to adoption of FAS 123R, the Company elected touse the intrinsic method under Accounting Principles Board Opinion No. 25,*Accounting for Stock Issued to Employees*(“APB 25”),to account for its stock-based compensation arrangements (see Note 9 forfurther discussion on the Company’s stock-based compensation plans). Compensationexpense for stock options was recognized to the extent the market price of theunderlying stock on the date of grant exceeded the exercise price of the option.The Company 

10

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General (Continued)

recognized compensationexpense related to restricted stock grants over the vesting period of theunderlying grant in an amount equal to the fair market value of the Company’sstock on the date of grant. No compensation expense was recognized related tothe difference between the employee’s cost and the market value of stockpurchased under the Company’s employee stock purchase plan.

The Company adopted FAS 123R effective January 1,2006 using the modified-prospective transition method, and results for priorperiods were not adjusted. Under this method, the Company recognizescompensation cost for both unvested stock-based awards outstanding at January 1,2006 (based on the grant-date fair value determined in accordance with FAS 123)and stock-based awards made subsequent to January 1, 2006 (based on thegrant-date fair value determined in accordance with FAS 123R). For awards withpro rata vesting, the Company recognizes compensation expense using theaccelerated expense attribution method described in FASB Interpretation No. 28,*Accounting for Stock Appreciation Rights and OtherVariable Stock Option or Award Plans*.

FAS 123R also requires the Company to estimateforfeitures of stock-based awards upon grant and to reevaluate this estimateduring the requisite service period. Prior to the adoption of FAS 123R, theCompany’s policy had been to reverse expense related to forfeitures ofrestricted stock as they occurred. In the three months ended March 31,2006, the Company recorded a cumulative effect of a change in accounting of$1,657, less income taxes of $646, which represented a reversal of expensetaken for those shares of unvested restricted stock granted prior to adoptionthat the Company estimates will be forfeited before vesting. All other impactsof adopting FAS 123R to the Company’s consolidated statement of income and netincome per share were not material.

FAS 123R also requires the benefits of tax deductionsin excess of recognized compensation cost to be reported as a financing cashflow, rather than as an operating cash flow as previously required. Thisrequirement reduces net operating cash flows and increases net financing cashflows. The amount of financing cash flows recognized for such excess taxdeductions related to the exercise of stock options and vesting of restrictedstock was $391 in the first quarter of 2006.

11

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General (Continued)

For the first quarter of 2006,the Company recognized total stock-based compensation expense of $2,042, with arelated income tax benefit realized of $802. Pro forma information regardingnet income and net income per share for the three months ended March 31,2005, shown in the table below, was determined as if the Company had appliedthe fair value recognition provisions of FAS 123 prior to January 1, 2006.

| ** **                                                                                                                              | ** ** | **For the Three  Months Ended  March 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Net income, as  reported                                                                                                                |       |                                                                     | $          | 2,053 |   |   |
| Add: Stock-based  employee compensation expense included in net income, net of related tax  effects                                     |       |                                                                     | 1,061      |   |   |
| Deduct:  Stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       |                                                                     | 1,793      |   |   |
| Pro forma net  income                                                                                                                   |       |                                                                     | $          | 1,321 |   |   |
| Net income per share:                                                                                                                   |       |                                                                     |       |   |   |
| Basic—as reported                                                                                                                  |       |                                                                     | $          | 0.06 |   |   |
| Basic—pro forma                                                                                                                    |       |                                                                     | $          | 0.04 |   |   |
| Net income per  share:                                                                                                                  |       |                                                                     |       |   |   |
| Diluted—as reported                                                                                                                |       |                                                                     | $          | 0.06 |   |   |
| Diluted—pro forma                                                                                                                  |       |                                                                     | $          | 0.04 |   |   |

 

The Company typicallyissues shares related to stock-based compensation plans from its treasury. In2006, the Company received authorization from its Board of Directors torepurchase up to $50,000 of its common stock from time to time in open marketpurchases or privately negotiated transactions. As of March 31, 2006, theCompany’s remaining availability to purchase shares related to thisauthorization totaled approximately $21,200.

**2.**   VariableInterest Entities

The Company was involved in the formation of a legalentity to act primarily as an agent of the Company to enter into policies withinsurance carriers. The policies are for various types of insurance, includinggeneral liability, workers’ compensation and automotive. The entity iswholly-owned by an employee of the Company who holds the appropriate localinsurance agent’s license required to issue these insurance policies on behalfof the insurance carriers. The entity collects premiums and remits them to theinsurance carriers. In exchange, the entity receives commissions from theinsurance carriers and remits a portion of the commission revenue to theCompany (determined at the Company’s full discretion) in accordance with a facilitiesand services agreement. Based upon its evaluation, the Company consolidatesthis entity as the primary beneficiary of a variable interest entity (“VIE”)under FASB Interpretation No. 46 (revised December 2003), *Consolidation of Variable Interest Entities* (“FIN 46R”). Asof March 31, 2006, the Company had $3,909 recorded in restricted cash and$315 recorded in available for sale securities 

12

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**2.**   Variable Interest Entities (Continued)

(non-current) that areheld by the VIE and serve as collateral for the VIE’s obligations to theinsurance carriers.

In 2005, the Company restructured a consolidatedentity established to develop an office building by admitting a majorityinterest partner. Based upon its evaluation at this reconsideration event, theCompany consolidates this entity as the primary beneficiary of a VIE. Theentity’s note payable balance of $28,951 at March 31, 2006, isnon-recourse to the Company and is collateralized by the underlying real estateproject.

In 2005, the Company acquired $110,000 of tax creditsthrough a program enacted by the Community Renewal Tax Relief Act of 2000. Thisprogram creates tax credits for equity investments in Community DevelopmentEntities (“CDEs”). The CDEs make qualified loans to Qualified Active Low-IncomeCommunity Businesses. Also in 2005, the Company obtained 0% to 0.01% managinginterests in various CDEs established to make these loans. The CDEs’ equityused to fund the loans was contributed by its 99.99% to 100% third-partyinvestor members. Through March 31, 2006, the CDEs have made qualifiedloans totaling approximately $59,875. The Company has determined that each ofthese CDEs is a VIE. However, based upon its evaluation, the Company is not theprimary beneficiary of the entities. The Company believes that its maximumexposure to loss as a result of its involvement with these VIEs is notmaterial. Additionally, in 2005, the Company obtained a 49% membership interestin a related entity that acts as the administrative member performing loanservicing and tax matters for the CDEs. Based upon the Company’s evaluation,this entity is also a VIE since the entity’s equity was funded from up-frontfees received from the CDEs. However, based upon its evaluation, the Company isnot the primary beneficiary of the entity. The Company believes that itsmaximum exposure to loss as a result of its involvement with this VIE is notmaterial.

In 2004, the Company issued a budget guarantyrelating to a development project. Under the budget guaranty, the Company isresponsible for all costs in excess of an approved budget of approximately$35,500. The Company was involved in the design of the underlying entity andhas determined that its budget guaranty represents a variable interest in a VIEfor which the Company is not the primary beneficiary. The Company cannotestimate its actual maximum exposure to loss as a result of its involvementwith this VIE because the budget guaranty is unlimited. However, based on theCompany’s experience of minimal payments under similar arrangements and theexistence of a guaranteed maximum price contract between the general contractorand the owner of the project that mitigates the Company’s risk, the Companybelieves that its exposure to loss is not material.

The Company is part of aco-lender group with an independent third party that issued a mezzanine loan tothe owner of two office buildings. In 2000, the Company provided $567 ofthe total $5,667 mezzanine loan. At that time, another independent third-partylender provided the senior financing of $19,100 to the owner. The Company alsoprovides building management and leasing services for the buildings under along-term contract at market rates for such services. The mezzanine loanarrangement is considered to be a variable interest in the entity that owns theproperty, which the Company believes is a VIE. However, based upon the Company’sevaluation, the Company is not the primary beneficiary of the entity, and,therefore, the Company has not consolidated the VIE. The VIE sold one of itsbuildings 

13

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**2.**   Variable Interest Entities (Continued)

in 2004and paid a portion of the Company’s note receivable at that time. The Company’smaximum exposure to loss as a result of its involvement with this VIE islimited to its outstanding note balance of $430 as of March 31, 2006.

**3.**   RealEstate

Certainreal estate assets owned by the Company secure the outstanding balances ofunderlying mortgage or construction loans. All real estate is included in theCompany’s Development and Investment segment (see Note 13). Real estateowned by the Company consisted of the following: 

| ** **                                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                      | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Real estate under  development (current)                        |       | $                  | 162,475    |                  |       | $ | 129,963 |   |   |
| Real estate  included in assets held for sale (see Note 8) |       | 3,118              |       |                  | 21,024     |   |   |
| Real estate under  development (non-current)                    |       | 113,957            |       |                  | 117,210    |   |   |
| Real estate held  for investment(1)                             |       | 104,636            |       |                  | 89,416     |   |   |
|                                                            |       | $                  | 384,186    | (2)                   |       | $ | 357,613 | (2) |   |

----

(1)                 Netof accumulated depreciation of $3,176 and $2,075****atMarch 31, 2006, and December 31, 2005, respectively.

(2)                 Includesbalances for lease intangibles and tenant origination costs of $(1,782) and$1,674 at March 31, 2006, and $(1,627) and $1,833 at December 31,2005, respectively. The Company records lease intangibles and tenantorigination costs upon acquiring buildings with in-place leases. The balancesare shown net of amortization (recorded as an increase to or a reduction ofrental income for lease intangibles and as amortization expense for tenantorigination costs).

In 2003, the Company sold a parcel of land for $1,750of which $1,125 of the consideration received was in the form of aninterest-bearing note from the buyer. The Company retained a unilateral rightto repurchase the property at any time through 2006, in addition to maintainingthe right to approve any plans for development on the property. If the Companyexercises its repurchase option, the Company would repay the amount it receivedfrom the buyer, plus a return on the buyer’s investment. Because of the Company’scontinuing involvement in and option to repurchase the property, thetransaction was recorded as a financing transaction rather than a sale. As of March 31,2006, real estate under development (non-current) included $1,647 andcurrent portion of notes payable on real estate included $1,750 related to thisparcel of land.

14

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**4.**   Investmentsin Unconsolidated Subsidiaries

Investmentsin unconsolidated subsidiaries consisted of the following:

| ** **  | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** **     |
|-------------|------------|--------------------------|------------|-----------------------------|----------------|
| Real estate |       | $ 51,814            |       |                        | $ 44,496  |   |   |
| Other       |       | 133,630                  |       |                        | 130,915        |   |   |
|        |       | $ 185,444           |       |                        | $ 175,411 |   |   |

 

In April 2005, the Company exercised its optionto acquire additional shares of Savills plc (“Savills”), a property servicesfirm headquartered in the United Kingdom and a leading provider of real estateservices in Europe, Asia-Pacific and Australia. The exercise of the optionresulted in the issuance of 5,243,229 shares by Savills at a price of 701.28pence per share, for a total cost of £36,770 ($70,392). The exercise pricerepresented a 20% premium to the average mid-market closing price of the sharesin trading on the London Stock Exchange for the five trading days preceding theexercise of the option. Preceding its exercise of the option, also in April 2005,the company acquired 1,677,970 of Savills’ Ordinary Shares in open marketpurchases at an average price of 650.00 pence per share, having the effect ofreducing the number of shares purchasable under the option. The option exerciseand the market purchase together increased the Company’s ownership stake toapproximately 19.6% of Savills’ Ordinary Shares then outstanding. The aggregatecost of the market purchases and the shares issued upon exercise of the optionwas $91,272. The purchases were funded by borrowings under the Company’s lineof credit. The investment is classified as an “other” investment in the tableabove.

Of the total Savills’ purchase price, approximately$3,251 has been allocated to the value of customer relationships, property andfacilities management contracts and backlog. These allocated amounts are beingamortized over periods up to ten years. The estimated difference between thecarrying value of the investment and the amount of underlying equity in netassets of $67,371 will be evaluated for impairment as part of the investment asa whole when evidence of a loss in value occurs.

The summarized financial information below does notinclude the results of Savills because Savills qualifies as a foreign privateissuer.

Summarizedoperating results for unconsolidated subsidiaries accounted for on the equitymethod were as follows:

| ** **     | ** ** | **For the Three Months** | ** ** |
|----------------|------------|-----------------------------------------|------------|
| ** **     | ** ** | **Ended March 31,**                | ** ** |
| ** **     | ** ** | **2006**                                | ** ** | **2005** | ** ** |
| Total revenues |       | $ 24,021                           |       | $ 19,549 |   |
| Total expenses |       | 22,586                                  |       | 17,763 |   |
| Net income     |       | $ 1,435                            |       | $ 1,786 |   |

 

15

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**5.**   AccruedExpenses

Accruedexpenses consisted of the following: 

| ** **                                                                                                          | ** ** | **March 31,** | ** **    | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|--------------------|---------------|-----------------------|------------|
| ** **                                                                                                          | ** ** | **2006**           | ** **    | **2005**              | ** ** |
| Payroll and  bonuses                                                                                                |       |               | $ 19,988 |                  |       |   | $ 68,683 |   |   |
| Commissions                                                                                                         |       |               | 20,765        |                  |       |   | 34,449 |   |   |
| Development costs                                                                                                   |       |               | 19,766        |                  |       |   | 24,016 |   |   |
| Deferred income                                                                                                     |       |               | 13,932        |                  |       |   | 13,193 |   |   |
| Interest                                                                                                            |       |               | 592           |                  |       |   | 398 |   |   |
| Insurance                                                                                                           |       |               | 2,623         |                  |       |   | 2,144 |   |   |
| Restructuring  charges                                                                                              |       |               | 1,629         |                  |       |   | 1,810 |   |   |
| Other                                                                                                               |       |               | 12,963        |                  |       |   | 12,574 |   |   |
|                                                                                                                |       |               | 92,258        |                  |       |   | 157,267 |   |   |
| Less: Accrued  expenses included in liabilities related to real estate and other assets held  for sale (see Note 8) |       |               | 14            |                  |       |   | 1,523 |   |   |
|                                                                                                                |       |               | $ 92,244 |                  |       |   | $ 155,744 |   |   |

 

**6.**   Long-TermDebt

Long-termdebt consisted of the following:

| ** **                                                                                                   | ** ** | **March 31,  2006** | ** **    | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------------|---------------|-----------------------------|------------|
| Borrowings under  $175,000 line of credit with a bank (the “Credit Facility”)                      |       |                     | $ 85,000 |                        |       |   | $ 35,000 |   |   |
| Borrowings under  $25,000 short-term revolving line of credit with a bank (the “Swing  Line”) |       |                     | 2,000         |                        |       |   | — |   |   |
| Borrowings under  £1,100 short-term borrowing facility with a bank (the “European Facility”)  |       |                     | 370           |                        |       |   | 1,286 |   |   |
| Other                                                                                                        |       |                     | 67            |                        |       |   | 50 |   |   |
| Total long-term  debt                                                                                        |       |                     | 87,437        |                        |       |   | 36,336 |   |   |
| Less: Current  portion of long-term debt                                                                     |       |                     | 2,391         |                        |       |   | 1,302 |   |   |
|                                                                                                         |       |                     | $ 85,046 |                        |       |   | $ 35,034 |   |   |

 

The Company is subject to various covenants associatedwith the Credit Facility, such as maintenance of minimum net worth andliquidity and certain key financial data. There are also certain restrictionson investments and acquisitions that can be made by the Company. In addition,the Company may not pay dividends or make other distributions on account of itscommon stock exceeding 50% of the previous year’s net income beforedepreciation and amortization. In February 2006, the Company amended itsCredit Facility to allow for additional repurchases or other distributions onaccount of its common stock in 

16

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**6.**   Long-Term Debt (Continued)

an amount up to $100,000through December 31, 2006 and to reduce the minimum required net worthcovenant. At March 31, 2006, the Company is in compliance with allcovenants of the Credit Facility.

The covenants associatedwith the Credit Facility and the amount of the Company’s other borrowings andcontingent liabilities may have the effect of limiting the credit available tothe Company under the Credit Facility to an amount less than the $175,000commitment. At March 31, 2006, the Company has unused borrowing capacityof $81,943 (taking in account borrowings and letters of credit outstanding)under its Credit Facility. Borrowings under the Swing Line are unsecured andreduce borrowing capacity under the Credit Facility.

**7.**   NotesPayable on Real Estate

TheCompany had loans (the majority of which were construction loans) secured byreal estate, which consisted of the following:

| ** **                                                                                                                | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** **     |
|---------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|----------------|
| Current portion  of notes payable on real estate                                                                          |       | $ 161,119           |       |                        | $ 133,941 |   |   |
| Notes payable on  real estate included in liabilities related to real estate and other assets  held for sale (see Note 8) |       | 1,254                    |       |                        | 16,001         |   |   |
| Total notes  payable on real estate, current portion                                                                      |       | 162,373                  |       |                        | 149,942        |   |   |
| Notes payable on  real estate, non-current portion                                                                        |       | 126,364                  |       |                        | 106,216        |   |   |
| Total notes payable on  real estate                                                                                       |       | $ 288,737           |       |                        | $ 256,158 |   |   |

 

At March 31, 2006, $12,913 of the current portionand $5,584 of the non-current portion of notes payable on real estate arerecourse to the Company (beyond being recourse to the single-purpose entitythat held the real estate asset and was the obligor on the note payable). Withrespect to a project to which $3,322 of the current recourse obligationsrelated, the Company has an agreement to sell the project upon completion, theproceeds of which will be used to repay the related note payable.

The Company has aparticipating mortgage loan obligation related to a real estate projectclassified as real estate under development. The participating mortgage loan issubordinate to a construction loan on the underlying project. The mortgagelender participates in net operating cash flow of the mortgaged real estateproject, if any, and capital proceeds, net of related expenses, upon the saleof the project, after payment of amounts due under the construction loan. Thelender receives 6% fixed interest on the outstanding balance of its note,compounded monthly, and participates in 35% to 80% of proceeds remaining afterthe construction loan is paid, based on reaching various internal rates ofreturn. The amount of the participating liability and the related debt discountare****$13,617 and $945, respectively, at March 31,2006 and $12,809 and $1,835, respectively, at December 31, 2005. In thethree months ended March 31, 2006 and 2005, the Company amortized $1,697and $1,329, respectively, of the debt discount, which has been capitalized toreal estate under development.

17

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**8.**   RealEstate and Other Assets Held for Sale and Related Liabilities

Real estate and other assets held for sale includecompleted real estate projects or land for sale in their present condition thathave met all of the “held for sale” criteria of FAS 144 and other assetsdirectly related to such projects. Liabilities related to real estate and otherassets held for sale have been included as a single line item in the Company’sbalance sheet. In accordance with FAS 144, balances related to assetsclassified as held for sale at March 31, 2006, or sold in the three monthsended March 31, 2006, that were not classified as held for sale at December 31,2005, were reclassified to real estate and other assets held for sale in theCompany’s balance sheet as of December 31, 2005.

Realestate and other assets held for sale and related liabilities were as follows:

| ** **                                                               | ** ** | **March 31,  2006** | ** **   | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------|--------------|-----------------------------|------------|
| **Assets:**                                                              |       |                     |         |                        |       |   |   |   |   |
| Real estate held for sale (see Note 3)                                   |       |                     | $ 3,118 |                        |       |   | $ 21,024 |   |   |
| Other current assets                                                     |       |                     | 15           |                        |       |   | 72 |   |   |
| Other assets                                                             |       |                     | —       |                        |       |   | 185 |   |   |
| Total real estate  and other assets held for sale                        |       |                     | 3,133        |                        |       |   | 21,281 |   |   |
| **Liabilities:**                                                         |       |                     |         |                        |       |   |   |   |   |
| Accrued expenses (see Note 5)                                            |       |                     | 14           |                        |       |   | 1,523 |   |   |
| Notes payable on real estate held for sale (see Note  7)                 |       |                     | 1,254        |                        |       |   | 16,001 |   |   |
| Total liabilities  related to real estate and other assets held for sale |       |                     | 1,268        |                        |       |   | 17,524 |   |   |
| **Net real estate and other  assets held for sale**                      |       |                     | $ 1,865 |                        |       |   | $ 3,757 |   |   |

 

**9.**   Stock-basedCompensation

Under the Trammell Crow Company 1997 Option Plan (the “AssumedOption Plan”), the Company issued options to purchase 2,423,769 shares of theCompany’s common stock at an exercise price of $3.85 per share. Alloptions available under the Assumed Option Plan were granted on August 1,1997. The options vested at the closing of the Company’s initial publicoffering on December 1, 1997, and became exercisable 30 days afterthat date. The options expire 10 years from the date of grant and are notcontingent on continued employment with the Company. At March 31, 2006,common shares reserved for future issuance under the Assumed Option Plantotaled 293,679.

The Trammell Crow Long-Term Incentive Plan (the “Long-TermPlan”) originally provided for the issuance of up to 5,334,878 shares of commonstock. In May 1999, the Long-Term Plan was amended to increase the numberof shares available for future awards to 8,634,878 shares of common stock. Optionsto acquire shares of common stock granted by the Company under the Long-TermPlan have exercise prices equal to the fair market value of the common stock onthe date of grant and expire 7 to 10 years from the date of grant.

18

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**9.**   Stock-based Compensation (Continued)

Except for options granted to members of the Board ofDirectors and options granted in connection with acquisitions of real estateservice companies, options vest over periods ranging from three to five years,and generally have partial vesting on anniversaries of the grant date. TheCompany has not granted any options since 2003.

The Long-Term Plan also provided for the awards ofStock Appreciation Rights, Restricted Stock and Performance Units. Therestricted stock that has been issued under this plan vests over periods of upto five years from the date of grant.

At March 31, 2006, common shares reserved forfuture issuance under the Long-Term Plan totaled 4,708,684 shares, of which874,575 common shares were available for future awards.

The Company has also established the Trammell CrowCompany Employee Stock Purchase Plan (the “ESPP”). Employees may elect to havebi-weekly payroll deductions of 1% to 10% of gross earnings, which is used topurchase, on a semi-annual basis, stock of the Company at a 15% discount frommarket value, which is established on the date of issuance. The ESPP isavailable to all employees and requires a twelve-month holding period for stockpurchased under the plan. The Company has reserved 3,000,000 shares of commonstock for issuance under the ESPP, of which 2,131,606 had been issued through March 31,2006. For the quarter ended March 31, 2006, activity related to the ESPPplan was not material.

19

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**9.**   Stock-based Compensation (Continued)

The Company’s stock optionactivity for the three months ended March 31, 2006, was as follows:

| ** **                                                | ** ** | **Exercise Price  of $3.85 (below  market price  at grant date)** | ** **     | **Exercise price  of $9.74 to  $14.50 (at  market price  at grant date)** | ** ** | **Exercise price  of $14.51 to  $22.75 (at  market price  at grant date)** | ** **     | **Exercise price  of $22.76 to  $36.00 (at  market price  at grant date)** | ** ** | **Total** | ** **     |
|-----------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|----------------|--------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|----------------|---------------------------------------------------------------------------------------------------------------|------------|-----------|----------------|
| **Options outstanding:**                                  |       |                                                                                            |           |                                                                                                         |       |                                                                                                          |           |                                                                                                          |       |      |           |   |   |   |   |   |   |   |   |
| December 31, 2005                                    |       |                                                                                            | 412,255        |                                                                                                         |       |                                                                                                          | 2,740,586      |                                                                                                          |       |      | 1,588,380      |   |   |   | 144,621 |   |   | 4,885,842 |   |
| Granted                                                   |       |                                                                                            | —         |                                                                                                         |       |                                                                                                          | —         |                                                                                                          |       |      | —         |   |   |   | — |   |   | — |   |
| Exercised                                                 |       |                                                                                            | (110,635       | )                                                                                                            |       |                                                                                                          | (424,652       | )                                                                                                             |       |      | (194,325       | ) |   |   | — |   |   | (729,612 | ) |
| Forfeited                                                 |       |                                                                                            | (7,941         | )                                                                                                            |       |                                                                                                          | (5,879         | )                                                                                                             |       |      | (3,046         | ) |   |   | (4,076 | ) |   | (20,942 | ) |
| March 31, 2006                                       |       |                                                                                            | 293,679        |                                                                                                         |       |                                                                                                          | 2,310,055      |                                                                                                          |       |      | 1,391,009      |   |   |   | 140,545 |   |   | 4,135,288 |   |
| **Weighted-average exercise price of options:**      | ** ** |                                                                                            |           |                                                                                                         |       |                                                                                                          |           |                                                                                                          |       |      |           |   |   |   |   |   | ** ** | ** ** | ** ** |
| Granted                                                   |       |                                                                                            | —         |                                                                                                         |       |                                                                                                          | —         |                                                                                                          |       |      | —         |   |   |   | — |   |   |   |   |
| Exercised                                                 |       |                                                                                            | $              | 3.85                                                                                                         |       |                                                                                                          |           | $                                                                                                             | 11.62      |      |           |   | $ | 17.65 |   |   |   | — |   |   |   |   |
| Forfeited                                                 |       |                                                                                            | $              | 3.85                                                                                                         |       |                                                                                                          |           | $                                                                                                             | 12.59      |      |           |   | $ | 17.50 |   |   |   | $ | 29.44 |   |   |   |   |
| Outstanding at  March 31, 2006                       |       |                                                                                            | $              | 3.85                                                                                                         |       |                                                                                                          |           | $                                                                                                             | 11.83      |      |           |   | $ | 17.73 |   |   |   | $ | 28.64 |   |   |   |   |
| Weighted-average fair value  of options granted |       |                                                                                            | —         |                                                                                                         |       |                                                                                                          | —         |                                                                                                          |       |      | —         |   |   |   | — |   |   |   |   |
| Weighted-average  remaining contractual life              |       |                                                                                            | 1.3 years |                                                                                                         |       |                                                                                                          | 3.2 years |                                                                                                          |       |      | 2.4 years |   |   |   | 2.1 years |   |   |   |   |
| **Options exercisable:**                                  | ** ** |                                                                                            |           |                                                                                                         |       |                                                                                                          |           |                                                                                                          |       |      |           |   |   |   |   |   | ** ** | ** ** | ** ** |
| Number of options                                         |       |                                                                                            | 293,679        |                                                                                                         |       |                                                                                                          | 2,050,847      |                                                                                                          |       |      | 1,391,009      |   |   |   | 140,545 |   |   | 3,876,080 |   |
| Weighted-average exercise price                      |       |                                                                                            | $              | 3.85                                                                                                         |       |                                                                                                          |           | $                                                                                                             | 11.63      |      |           |   | $ | 17.73 |   |   |   | $ | 28.64 |   |   |   |   |

 

As of March 31, 2006, the aggregate intrinsicvalue of stock options outstanding was $90,320. The aggregate intrinsic valueof exercisable stock options as of March 31, 2006 was $84,545. During thethree months ended March 31, 2006, the total intrinsic value of optionsexercised was $15,228. The amount of the tax benefit realized related to thoseexercises for the same period was $323.

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**9.**   Stock-based Compensation(Continued)

The Company’s restrictedstock activity for the three months ended March 31, 2006, was as follows:

| ** **                        | ** ** | **Shares** | ** ** | **Weighted average  grant-date fair value  per share** | ** ** |
|-----------------------------------|------------|------------|------------|----------------------------------------------------------------------------|------------|
| **Restricted Stock outstanding:** | ** ** | ** ** | ** ** |                                                                       | ** ** | ** ** |   |
| December 31,  2005           |       | 1,857,151  |       |                                                                       | $          | 13.61 | ** ** |   |
| Granted                           |       | 9,525      |       |                                                                       | 34.98      | ** ** |   |
| Vested                            |       | (177,624   | )          |                                                                       | 8.55       | ** ** |   |
| Forfeited                         |       | (53,376    | )          |                                                                       | 8.35       | ** ** |   |
| March 31, 2006               |       | 1,635,676  |       |                                                                       | $          | 14.45 | ** ** |   |

 

As of March 31, 2006,the total compensation cost related to unvested restricted stock awards not yetrecognized was $10,042, net of expected forfeitures, and the weighted-averageperiod over which these awards are expected to be recognized was 2.7 years. Thetotal fair value of restricted stock that vested in the first quarter of 2006was $7,680.

**10.**   Gainon Disposition of Real Estate and Discontinued Operations

During the first quarterof 2006, the Company sold three real estate projects (excluding those accountedfor as discontinued operations) for an aggregate net sales price of $2,118****resulting in an aggregate gain on disposition of****$908. The Company also recognized $162 of deferred gainfrom previous period dispositions. During the first quarter of 2005, theCompany recognized total gain on disposition of real estate (excluding thoseaccounted for as discontinued operations) of $1,568. This gain was comprised ofa sale of a real estate project with a net sales price of $820 and a settlementrelated to the estimated cost****to completeconstruction related to a previous period disposition.

The Company’s income(loss) from discontinued operations consists of the operations and gains ondisposition of real estate projects held for sale or sold subsequent to theadoption of FAS 144, effective January 1, 2002, that are considered “componentsof an entity” as defined by FAS 144 and for which the Company does nothave or expect to have any significant involvement in the operations of theproject after the disposal. As required by FAS 144, certain revenues andexpenses for the three months ended March 31, 2005, have been reclassifiedto conform to the presentation for the three months ended March 31, 2006.

In the first quarter of2006, the Company sold three real estate projects that were considereddiscontinued operations under FAS 144. The aggregate net sales price forthese projects was $22,745, and the Company recognized an aggregate gain ondisposition of $4,881. In the first quarter of 2005, theCompany sold one realestate project that was considered a discontinued operation under FAS 144.The net sales price for this project was $1,834, and the Company recognized again on disposition of $84. The gain on disposition related to these projectshas been reported as discontinued operations, net of applicable income taxes,in the consolidated statements of income.

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**10.**   Gain on Disposition of Real Estate and Discontinued Operations(Continued)

Thecomponents of discontinued operations were as follows:

| ** **                                                       | ** ** | **For the Three Months  Ended March 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **   2006   **                       | ** ** | **   2005   ** | ** ** |
| **Revenues**                                                     | ** ** | ** **                                                         |       |   | ** ** | ** ** |   |
| Development and  construction                                    |       | $                                                                  | —     |   |   | $ | 1,232 |   |   |
| Gain on  disposition of real estate                              |       | 4,881                                                              |       |   | 84 |   |   |
| Total Revenues                                                   |       | 4,881                                                              |       |   | 1,316 |   |   |
| **Costs  and Expenses**                                          | ** ** | ** **                                                         |       |   | ** ** | ** ** |   |
| Salaries, wages,  and benefits                                   |       | 3                                                                  |       |   | 33 |   |   |
| Commissions                                                      |       | 306                                                                |       |   | — |   |   |
| General and  administrative                                      |       | 113                                                                |       |   | 901 |   |   |
| Depreciation and  amortization                                   |       | —                                                             |       |   | 285 |   |   |
| Interest                                                         |       | —                                                             |       |   | 638 |   |   |
| Total Expenses                                                   |       | 422                                                                |       |   | 1,857 |   |   |
| Operating income (loss)                                          |       | 4,459                                                              |       |   | (541 | ) |   |
| Interest and  other income                                       |       | 145                                                                |       |   | 16 |   |   |
| Income (loss)  from discontinued operations, before income taxes |       | 4,604                                                              |       |   | (525 | ) |   |
| Income tax  (expense) benefit                                    |       | (1,473                                                             | )          |   | 200 |   |   |
| Minority Interest                                                |       | (826                                                               | )          |   | — |   |   |
| Income (loss) from  discontinued operations, net of income taxes |       | $                                                                  | 2,305      |   |   | $ | (325 | ) |   |

 

**11.**   FinancialInstruments

The Company’s participation in derivative transactionshas been limited to risk management purposes. Derivative instruments are notheld or issued for trading purposes. From time to time, the Company enters intointerest rate cap agreements in order to limit its interest expense on theCredit Facility or on certain construction loans related to consolidated realestate projects. These interest rate cap agreements are not designated aseffective hedges and therefore are marked to market each period with the changein fair market value recognized in current period earnings.

In the first quarter of 2005, the Company had suchagreements with notional amounts ranging from $2,498 to $11,400 and the Companywas to receive payments if the 30-day LIBOR-based floating interest rateexceeded rates ranging from 3.25% to 3.5%. These agreements had expired or hadbeen terminated prior to 2006. In addition, at March 31, 2006, the companyheld two such agreements with notional amounts of $25,650 and $18,500 and underboth agreements, the Company receives payments if the 30-day LIBOR-basedfloating interest rate exceeds 5.5%. These agreements expire on January 2,2008 and April 1, 2009. Through March 31, 2006, amounts recorded relatedto these interest rate cap agreements were not material.

22

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**11.**   Financial Instruments (Continued)

Accounts receivable,accounts payable and accrued expenses and other liabilities are carried atamounts that reasonably approximate their fair values. The fair values of theCompany’s long-term debt and notes payable on real estate reasonablyapproximate their fair values based on the Company’s incremental borrowingrates for similar types of borrowing arrangements.

**12.**   Commitmentsand Contingencies

The Company has guaranteed repayment of a maximum of$7,131 of real estate notes payable of its unconsolidated subsidiaries, ofwhich $7,090 is outstanding at March 31, 2006. These notes are secured bythe underlying real estate projects and have maturity dates through December 2009.

In 2004, the Company issued a debt repayment guarantyof an unconsolidated subsidiary in conjunction with a $30,000 loan agreement.As part of this loan agreement, the Company issued a repayment guaranty of upto 50% of the loan balance plus any accrued and unpaid interest. In accordancewith the terms of the guaranty, at such time as the principal balance has beenreduced to $15,000 or less and a target loan-to-value ratio has been reached,the Company’s guaranty is reduced to 25% of the loan balance. In exchange forthe guaranty, the Company receives a priority return with respect to itscapital contribution based on the outstanding amount of principal on the loan.The Company estimates that its likely exposure under the guaranty is notmaterial and has determined that the present value of the priority return isthe best estimate of the fair value of the guaranty under FASB Interpretation No. 45,*Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Direct Guarantees of Indebtedness of Others*(“FIN 45”). The Company initially recorded a liability offset by an increase inits investment in unconsolidated subsidiary balance of $1,886. The underlyingnote was paid down to $15,000 in the second quarter of 2005, resulting in adecrease in the Company’s guaranty. As a result, the Company decreased theliability balance, with a corresponding decrease to the investment balance. Theliability balance was $472 at March 31, 2006.

In 2004, the Company also issued a $1,000 debtrepayment guaranty on a $10,185 construction loan in order to obtain adevelopment fee contract and allow a third-party owner to obtain financing fora construction project. The guaranty expires upon project completion andachievement of a specified leasing target. The third-party owner has agreed totransfer a separate parcel of land to the Company, should the Company berequired to perform under the guaranty. The loan matures in November 2009.The Company estimates that its likely exposure under the guaranty is notmaterial and has recorded the fair value of the guaranty in an amountequivalent to the consideration received, or $102.

The Company issued several other debt repaymentguarantees of unconsolidated subsidiaries that are subject to the provisions ofFIN 45. The Company estimates that its likely exposure under these guaranteesis not material. On this basis, the Company estimates that the fair value ofthese guarantees is equivalent to the amount necessary to secure the guaranteesusing letters of credit from a bank, and the aggregate amount is nominal.

23

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**12.**   Commitments and Contingencies (Continued)

At March 31, 2006, the Company had outstandingletters of credit totaling $18,653, including $2,992, $4,307 and $8,290 ofwhich collateralize amounts recorded in accrued expenses, other currentliabilities and other liabilities, respectively. The letters of credit expireat varying dates through March 2007.

In addition, at March 31, 2006, the Company hadnumerous completion and budget guarantees relating to development projects. Theseguarantees are made with third-party owners in the normal course of business.Each of these guarantees requires the Company to complete construction of therelevant project within a specified time frame and/or within a specifiedbudget, with the Company potentially being liable for costs to complete inexcess of such budget. However, the Company generally has “guaranteed maximumprice” contracts with reputable general contractors with respect to projectsfor which the Company provides these guarantees. These contracts are intendedto pass the budget risk to such contractors. Management does not expect toincur any material losses under these guarantees.

From time to time, the Company acts as a generalcontractor with respect to construction projects. The Company does not considerthese activities to be a material part of its business. In connection withthese activities, the Company seeks to subcontract construction work forcertain projects to reputable subcontractors. Should construction defects ariserelated to the underlying projects, the Company could potentially be liable tothe client for the costs to repair such defects, but the Company wouldgenerally look to the subcontractor that performed the work to remedy thedefect. Management does not expect to incur material losses with respect toconstruction defects.

As of March 31, 2006, the Company had madenon-refundable earnest money deposits totaling $5,710 in conjunction withcontracts to acquire approximately $154,997 of real estate from other entities.

The Company and one of itssubsidiaries were defendants in a lawsuit styled* **Bank One Oklahoma, N.A.,et al.*(the “Bank”) *v. Trammell Crow Services, Inc.and Trammell Crow Company*, No. 03 C 3624, filed in the USDistrict Court for the Northern District of Illinois, originally filed on April 2,2003. On January 25, 2006, the Company and the Bank resolved the lawsuitbetween them. The claims filed by each party have been dismissed. The Companyaccrued the amount required under the terms of the settlement as of December 31,2005.

From time to time, theCompany is involved in litigation matters that arise in the ordinary course ofits business, some of which involve claims for damages which are substantial inamount. The ultimate liability for these matters cannot be determined. However,based on the information currently available, the Company does not believe thatthe resolution of any such matters to which it is currently a party will have amaterial adverse effect on the Company’s results of operations, financialcondition or liquidity.

**13.**   SegmentInformation

*Description ofServices by Segment*

The Global Servicessegment includes property and facilities management, brokerage and corporateadvisory, and project and construction management services delivered to bothuser and investor clients. The Development and Investment segment includesdevelopment activities performed on behalf of 

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**13.**   Segment Information (Continued)

investorand user clients on a fee basis, as well as development and investmentactivities pursuant to which the Company takes an ownership position. TheDevelopment and Investment segment results also include activities related tothe Company’s operating real estate projects prior to disposition.

*Measurement ofSegment Profit or Loss and Segment Assets*

The Company evaluatesperformance and allocates resources among its two reportable segments based onincome before income taxes. The accounting policies of the reportable segmentsare the same as those described in the summary of significant accountingpolicies.

*Factors ManagementUsed to Identify the Company’s Reportable Segments*

The Company’s reportable segments are defined by thenature of the service provided and activities conducted. Because developmentservices require specialized knowledge, the Company’s organization structureallows the group of individuals with specialized knowledge and experience indevelopment activities to perform these services with greater focus through theCompany’s Development and Investment segment. The organizational structure ofthe Global Services segment allows the Company to leverage resources inspecific geographic areas, as non-development services provided to user andinvestor clients often require similar expertise.

During the three months ended March 31, 2006 and2005, approximately 95% and 96%, respectively, of the Company’s revenues werefrom clients located in the United States. For the three months ended March 31,2006, one individual client accounted for $22,705, or 10%, of the Company’sconsolidated revenues. For the three months ended March 31, 2005, the sameclient accounted for $23,948, or 13%, of the Company’s consolidated revenues. Revenuesfrom this client are included primarily in the Company’s Global Servicessegment.

25

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**13.**   Segment Information (Continued)

Summarized financialinformation for reportable segments was as follows:

| ** **                                                                                                                                 | ** ** | **For the Three Months  Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                                                                 | ** ** | **   2006   **                       | ** ** | **    2005    ** | ** ** |
| **Global  Services:**                                                                                                                      | ** ** | ** **                                                         | ** ** |   | ** ** | ** ** |   |
| Total revenues                                                                                                                             |       | $                                                                  | 208,213    |   |   | $ | 169,216 |   |   |
| Costs and expenses                                                                                                                         |       | 202,626                                                            |       |   | 165,249 |   |   |
| Operating income                                                                                                                           |       | 5,587                                                              |       |   | 3,967 |   |   |
| Interest and other  income                                                                                                                 |       | 684                                                                |       |   | 777 |   |   |
| Income from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries |       | 6,271                                                              |       |   | 4,744 |   |   |
| Minority interest,  before income taxes                                                                                                    |       | 126                                                                |       |   | 189 |   |   |
| Income from  investments in unconsolidated subsidiaries, before income taxes                                                               |       | 2,830                                                              |       |   | 701 |   |   |
| Income from  continuing operations, before income taxes                                                                                    |       | 9,227                                                              |       |   | 5,634 |   |   |
| Income from  discontinued operations, before income taxes                                                                                  |       | 464                                                                |       |   | — |   |   |
| Income before  cumulative effect of a change in accounting principle                                                                       |       | 9,691                                                              |       |   | 5,634 |   |   |
| Cumulative effect  of a change in accounting principle, before income taxes                                                                |       | 984                                                                |       |   | — |   |   |
| Income before  income taxes                                                                                                                |       | $                                                                  | 10,675     |   |   | $ | 5,634 |   |   |
| **Development and Investment:**                                                                                                            | ** ** | ** **                                                         | ** ** |   | ** ** | ** ** |   |
| Total revenues                                                                                                                             |       | $                                                                  | 9,877      |   |   | $ | 9,405 |   |   |
| Costs and expenses                                                                                                                         |       | 18,902                                                             |       |   | 16,223 |   |   |
| Operating loss                                                                                                                             |       | (9,025                                                             | )          |   | (6,818 | ) |   |
| Interest and other  income                                                                                                                 |       | 185                                                                |       |   | 144 |   |   |
| Loss from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries   |       | (8,840                                                             | )          |   | (6,674 | ) |   |
| Minority interest,  before income taxes                                                                                                    |       | (504                                                               | )          |   | 3,026 |   |   |
| Income from  investments in unconsolidated subsidiaries, before income taxes                                                               |       | 721                                                                |       |   | 1,859 |   |   |
| Loss from  continuing operations, before income taxes                                                                                      |       | (8,623                                                             | )          |   | (1,789 | ) |   |
| Income (loss) from  discontinued operations, before income taxes                                                                           |       | 3,314                                                              |       |   | (525 | ) |   |
| Loss before  cumulative effect of a change in accounting principle                                                                         |       | (5,309                                                             | )          |   | (2,314 | ) |   |
| Cumulative effect  of a change in accounting principle, before income taxes                                                                |       | 673                                                                |       |   | — |   |   |
| Loss before income  taxes                                                                                                                  |       | $                                                                  | (4,636     | ) |   | $ | (2,314 | ) |   |
| **Total:**                                                                                                                                 | ** ** | ** **                                                         | ** ** |   | ** ** | ** ** |   |
| Total revenues                                                                                                                             |       | $                                                                  | 218,090    |   |   | $ | 178,621 |   |   |
| Costs and expenses                                                                                                                         |       | 221,528                                                            |       |   | 181,472 |   |   |
| Operating loss                                                                                                                             |       | (3,438                                                             | )          |   | (2,851 | ) |   |
| Interest and other  income                                                                                                                 |       | 869                                                                |       |   | 921 |   |   |
| Loss from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries   |       | (2,569                                                             | )          |   | (1,930 | ) |   |
| Minority interest,  before income taxes                                                                                                    |       | (378                                                               | )          |   | 3,215 |   |   |
| Income from  investments in unconsolidated subsidiaries, before income taxes                                                               |       | 3,551                                                              |       |   | 2,560 |   |   |
| Income from  continuing operations, before income taxes                                                                                    |       | 604                                                                |       |   | 3,845 |   |   |
| Income (loss) from  discontinued operations, before income taxes                                                                           |       | 3,778                                                              |       |   | (525 | ) |   |
| Income before  cumulative effect of a change in accounting principle                                                                       |       | 4,382                                                              |       |   | 3,320 |   |   |
| Cumulative effect  of a change in accounting principle, before income taxes                                                                |       | 1,657                                                              |       |   | — |   |   |
| Income before income  taxes                                                                                                                |       | $                                                                  | 6,039      |   |   | $ | 3,320 |   |   |

 

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2006 (dollars in thousands, except per share data) (Unaudited)**

**13.**   Segment Information (Continued)

| ** **                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| **Total  Assets:**          | ** ** | ** **         | ** ** |                  | ** ** | ** ** |   |
| Global Services             |       | $                  | 416,493    |                  |       | $ | 434,712 | ** ** |   |
| Development and  Investment |       | 529,596            |       |                  | 513,455    | ** ** |   |
| Total consolidated  assets  |       | $                  | 946,089    |                  |       | $ | 948,167 | ** ** |   |

 

**14.**   SupplementalCash Flow Information

**Supplementalcash flow information is summarized below:**

| ** **                                      | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|
| ** **                                      | ** ** | **March 31,**               | ** ** |
| ** **                                      | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| **Non-cash  activities:**                       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Restricted stock  forfeitures, net of issuances |       | $                                | (1,441     | ) | $ | (1,822 | ) |
|                                                 |            |                                  |            |  |  |  |  |

 

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**ITEM 2.**                *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*

The following discussionshould be read in conjunction with the Company’s unaudited CondensedConsolidated Financial Statements and the notes thereto included in Item 1 ofthis Quarterly Report on Form 10-Q.

**Overview**

Trammell Crow Company (the “Company”) is one of thelargest diversified commercial real estate service companies in the world. TheCompany delivers brokerage, project management and building management servicesthrough its Global Services group and undertakes development and investmentactivities through its Development and Investment group. The Company serves twodifferent types of clients: user clients, who include large corporations,healthcare systems, public sector clients and other end users that occupycommercial property in connection with their business operations; and investorclients, who include pension funds, advisors and others who own or manage realestate assets primarily for investment purposes.

Services provided to user clients by the Company’sGlobal Services group, which has approximately 6,300 employees, consist of:corporate advisory services, project management and facilities management. Corporateadvisory services are brokerage and brokerage-related services that includeprimarily tenant representation brokerage services, as well as othertransaction or portfolio services such as acquisition/disposition brokerage,lease administration and lease audits. Project management services includefacility planning, construction oversight, space planning, site consolidations,multi-location expansion programs, facilities design, signage conversions,portfolio-wide operational refits and upgrades, and workplace moves, adds, andchanges. Facilities management services are building management services thatinclude administration and day-to-day operation, maintenance and repair ofclient-occupied facilities, office services, and call center services.

Services provided to investor clients by the Company’sGlobal Services group consist of: brokerage, construction management andproperty management. Brokerage services include project leasing (when theCompany is engaged as the owner’s leasing agent for renewals, expansions andleasing of vacant space in investor-owned properties) and capital markets(investment sales and capital sourcing) services. Construction managementservices are project management services that primarily include space planningand tenant finish coordination, typically in conjunction with propertymanagement and leasing assignments. Property management services are buildingmanagement services that include all aspects of building operations,maintenance and repair, tenant relations and oversight of building improvementprocesses.

Global Services clients are served through a networkof offices in the United States, Canada, Europe, Asia-Pacific and Latin/SouthAmerica. Operations outside of the United States are primarily focused on theprovision of services to user clients, which generally include U.S.-basedmulti-nationals who have outsourced their services requirements to the Companyon a portfolio basis. The Company’s international service delivery is enhancedby its affiliations and alliances with Savills plc (“Savills”), a leadingproperty services company based in the United Kingdom with operationsthroughout Europe and Asia; Trammell Crow Meghraj, a leading property servicescompany in India; and JJ Barnicke, a leading Canadian real estate servicesprovider.

The Development and Investmentgroup, with approximately 250 employees, provides development services to usersand investors and pursues opportunistic but risk-mitigated development andinvestment in commercial real estate across a wide spectrum of product types,including industrial, office and retail properties; healthcare facilities ofall types (medical office buildings, hospitals and ambulatory surgery centers);higher education facilities, including student housing; andresidential/mixed-use projects. The Company acts as the general manager of thedevelopment process, providing services that are vital in all 

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stagesof the process, including: (i) site identification, due diligence andacquisition; (ii) evaluating project feasibility, budgeting, schedulingand cash flow analysis; (iii) procurement of approvals and permits,including zoning and other entitlements; (iv) project finance advisoryservices; (v) coordination of project design and engineering; (vi) constructionbidding and management and tenant finish coordination; and (vii) projectclose-out and tenant move coordination. The Company may pursue development andinvestment activity on behalf of its user and investor clients (with noownership), in partnership with its clients (through co-investment—either on anindividual project basis or through a fund or program) or for its own account(100% Company ownership).

**Results of Operations—Three Months Ended March 31,2006 Compared to Three Months Ended March 31, 2005**

In accordance withStatement of Financial Accounting Standards No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*(“FAS 144”),certain revenues and expenses for the three months ended March 31, 2005,have been reclassified to conform to the presentation for the three monthsended March 31, 2006. As a result, certain balances differ from theamounts reported in previously filed documents. See *Income(Loss) from Discontinued Operations, Net of Income Taxes*, below, foradditional information.

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| ** **                                                                                                                          | ** ** | **For the Three Months  Ended March 31,** | ** **   | ** ** | ** **   | ** **        | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|--------------|------------|--------------|-------------------|------------|
| ** **                                                                                                                          | ** ** | **2006**                                                           | ** **   | **2005**   | ** **   | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                                                                                                          | ** ** | **($ in thousands)**                                     | ** **   |
| **REVENUES:**                                                                                                                       |       |                                                               |         |       |         |              |       |   |   |   |   |
| ***User  Services:***                                                                                                               |       |                                                               |         |       |         |              |       |   |   |   |   |
| Facilities  management                                                                                                              |       | $                                                                  | 65,034       |       | $            | 55,137            |       | $ | 9,897 |   |   | 17.9 | % |   |
| Corporate  advisory services                                                                                                        |       | 45,833                                                             |         | 24,673     |         | 21,160            |       |   | 85.8 | % |   |
| Project  management services                                                                                                        |       | 29,679                                                             |         | 25,324     |         | 4,355             |       |   | 17.2 | % |   |
|                                                                                                                                |       | 140,546                                                            |         | 105,134    |         | 35,412            |       |   | 33.7 | % |   |
| ***Investor  Services:***                                                                                                           |       |                                                               | *** *** |       | *** *** |              |       |   |   |   |   |
| Property  management                                                                                                                |       | 33,852                                                             |         | 34,087     |         | (235              | )          |   | (0.7 | )% |   |
| Brokerage                                                                                                                           |       | 30,760                                                             |         | 27,780     |         | 2,980             |       |   | 10.7 | % |   |
| Construction  management                                                                                                            |       | 3,012                                                              |         | 2,215      |         | 797               |       |   | 36.0 | % |   |
|                                                                                                                                |       | 67,624                                                             |         | 64,082     |         | 3,542             |       |   | 5.5 | % |   |
| Development and  construction                                                                                                       |       | 8,850                                                              |         | 7,837      |         | 1,013             |       |   | 12.9 | % |   |
|                                                                                                                                |       | 217,020                                                            |         | 177,053    |         | 39,967            |       |   | 22.6 | % |   |
| Gain on disposition  of real estate                                                                                                 |       | 1,070                                                              |         | 1,568      |         | (498              | )          |   | (31.8 | )% |   |
| **TOTAL  REVENUES**                                                                                                                 |       | 218,090                                                            |         | 178,621    |         | 39,469            |       |   | 22.1 | % |   |
| **COST  AND EXPENSES:**                                                                                                             |       |                                                               | ** **   |       |         |              |       |   |   |   |   |
| Salaries, wages  and benefits                                                                                                       |       | 146,090                                                            |         | 125,711    |         | 20,379            |       |   | 16.2 | % |   |
| Commissions                                                                                                                         |       | 34,139                                                             |         | 22,658     |         | 11,481            |       |   | 50.7 | % |   |
| General and  administrative                                                                                                         |       | 37,101                                                             |         | 30,024     |         | 7,077             |       |   | 23.6 | % |   |
| Depreciation and  amortization                                                                                                      |       | 2,700                                                              |         | 2,399      |         | 301               |       |   | 12.5 | % |   |
| Interest                                                                                                                            |       | 1,498                                                              |         | 680        |         | 818               |       |   | 120.3 | % |   |
| **TOTAL  EXPENSES**                                                                                                                 |       | 221,528                                                            |         | 181,472    |         | 40,056            |       |   | 22.1 | % |   |
| Operating Loss                                                                                                                      |       | (3,438                                                             | )            | (2,851     | )            | (587              | )          |   | (20.6 | )% |   |
| Interest and  other income                                                                                                          |       | 869                                                                |         | 921        |         | (52               | )          |   | (5.6 | )% |   |
| Loss from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries |       | (2,569                                                             | )            | (1,930     | )            | (639              | )          |   | (33.1 | )% |   |
| Income tax  benefit                                                                                                                 |       | 1,002                                                              |         | 737        |         | 265               |       |   | 36.0 | % |   |
| Minority  interest, net of income taxes                                                                                             |       | (231                                                               | )            | 1,988      |         | (2,219            | )          |   | (111.6 | )% |   |
| Income from  investments in unconsolidated subsidiaries, net of income taxes                                                        |       | 2,167                                                              |         | 1,583      |         | 584               |       |   | 36.9 | % |   |
| Income from  continuing operations                                                                                                  |       | 369                                                                |         | 2,378      |         | (2,009            | )          |   | (84.5 | )% |   |
| Income (loss)  from discontinued operations, net of  income taxes                                                                   |       | 2,305                                                              |         | (325       | )            | 2,630             |       |   | 809.2 | % |   |
| Income before  cumulative effect of a change in  accounting principle                                                               |       | 2,674                                                              |         | 2,053      |         | 621               |       |   | 30.2 | % |   |
| Cumulative effect  of a change in accounting principle, net of income taxes                                                         |       | 1,011                                                              |         | —     |         | 1,011             |       |   | — |   |   |
| **Net  income**                                                                                                                     |       | $                                                                  | 3,685        |       | $            | 2,053             |       | $ | 1,632 |   |   | 79.5 | % |   |

*** ***

***Segment Performance.******  ***TheGlobal Services segment income before income taxes increased 91% from $5.6million in the first quarter of 2005 to $10.7 million in the first quarter of 2006.Revenues for this segment increased 23%, from $169.2 million in the firstquarter of 2005 to $208.2 million in the first quarter of 2006. Increases inall of the user services revenues lines (facilities management up 18%,corporate advisory services up 86%, and project management up 17%) contributedto the increase in income before income taxes, as did the 11% increase inbrokerage revenues from investor customers. The 

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revenue increasesreflect the impact of the Company’s success winning new outsourcing business—boththrough new contract awards and expansions with existing customers—and itscontinued efforts to grow its brokerage business.

The Development and Investment segment posted a lossbefore income taxes of $2.3 million in the first quarter of 2005 as compared toa $4.6 million loss in the first quarter of 2006. Segment operating expensesincreased 17%, from $16.2 million in the first quarter of 2005 to $18.9 millionin the first quarter of 2006. The increase reflects investments in additionalpersonnel to drive and support growth and increases in real estate operatingexpense, interest, and depreciation and amortization associated with increasedreal estate development and investment activity.

***Revenues.******  ***Facilitiesmanagement revenue increased from the first quarter of 2005 to the firstquarter of 2006. This increase is primarily the result of the addition ofseveral new customers as well as the expansion of existing client relationshipssubsequent to the first quarter of 2005. Reimbursement of salaries, wages,benefits and out-of-pocket general and administrative costs, a component offacilities management revenue, comprised the majority of the revenue increasesfrom 2005. The composition of facilities management revenue, includingmanagement fees and reimbursements, can vary significantly from period toperiod based on the terms of the underlying management agreements in effecteach period.

Corporate advisory services revenue increased for thefirst quarter of 2006 over the first quarter of 2005, driven largely byincreases in commissions generated from tenant representation transactions. Theincrease in commission revenues was in part the result of an increase in thenumber of tenant representation brokers as the Company has focused on expandingits brokerage network. In addition, transaction volumes have increased asclients continue to show a willingness to make real estate commitments.

The revenue growth in project management was theresult of the addition of new clients and the expansion of services provided toexisting clients (due to increases in clients’ portfolios, the scope of theCompany’s services under certain outsourcing contracts and transaction volume).

Property management revenue remained relatively flatfor the three months ended March 31, 2006 as compared to the same periodin 2005. Square footage under management decreased slightly, primarily due tosales of buildings in the Company’s management portfolio to REITs or otherinvestors that self-manage their properties or use other service providers. Inaddition, some square footage decreases resulted from existing clients takingservices in-house or to other service providers. These decreases were partiallyoffset by additions to square footage related to new business.

Brokerage revenue increased in the first quarter of2006 from the same period in 2005, primarily due to increases in projectleasing commissions. Project leasing increased due to improving marketfundamentals, such as decreasing vacancies and increasing rents in certainmarkets. Investment sales revenues also increased slightly as real estateremains a favored asset class among certain investors as a result of improvingleasing fundamentals and relatively low interest rates.

Construction management revenue increased in the firstquarter of 2006 compared to the first quarter of 2005. Construction managementrevenue is generated from services including space planning and tenant finishcoordination for investor clients in conjunction with property management andleasing assignments, and are directly related to tenants’ real estate demands.The increase in construction management revenue resulted from a higher volumeof construction projects as tenant leasing activity increased and is consistentwith the increase in brokerage revenue.

Development andconstruction revenue increased in the first quarter of 2006 as compared to thefirst quarter of 2005, driven in part by an increase in development fees. Inaddition, development and construction revenue increased slightly due to anincrease in rental revenue from acquisitions of operating real estateproperties.

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Through approximately 1990, the Company focused itscommercial real estate development business on office, industrial and retail projectsprimarily for investor clients. Since that time, the Company has expanded itsfocus to include other types of commercial development and development for userclients. National initiative teams source development and acquisitionopportunities with both user and investor clients in healthcare, highereducation, on-airport distribution and residential/mixed-use, and initiativepersonnel support local development teams in the execution of the resultingprojects. By expanding its focus to include development for user clients and inthese initiatives, particularly those in the healthcare sector, the Companyseeks to mitigate the cyclicality traditionally inherent in the commercialdevelopment business. The Company seeks to establish funds and programs withcapital partners and to channel increasing amounts of development andinvestment activity into those funds and programs. The Company’s in processinventory of projects has grown to $4.0 billion at the end of the first quarterof 2006, up from $3.1 billion at the end of the first quarter of 2005.

The Company’s gain on disposition of real estatedecreased in the first quarter 2006 as compared to the first quarter of 2005.In the first quarter of 2006, the Company sold three real estate projects withan aggregate net sales price of $2.1 million, resulting in an aggregate gain ondisposition of $0.9 million, and recognized deferred gain of $0.2 millionrelating to previous period dispositions. In the first quarter of 2005, theCompany recognized total gain on disposition of real estate of $1.6 million. Thisgain was comprised of a sale of a real estate project with a net sales price of$0.8 million and a settlement related to the estimated cost to completeconstruction related to a previous period disposition.

In addition, Development and Investment income isgenerated from investments in unconsolidated subsidiaries and from theoperation and/or disposition of real estate classified as “discontinuedoperations.” The impact of Development and Investment project sales accountedfor as income from the Company’s unconsolidated subsidiaries or as income fromdiscontinued operations is a regular part of, and can contribute significantlyto, Development and Investment results in any given period. See *Income from Investments in Unconsolidated Subsidiaries, Net of IncomeTaxes*and *Income (Loss) fromDiscontinued Operations, Net of Income Taxes*, below, for additionalinformation.

***Costs and Expenses.******  ***Salaries,wages and benefits expense includes all compensation paid to Company employeesother than brokerage commissions. As such, it includes salaries, benefits andannual incentive bonuses for employees whose compensation is reimbursed byclients (“reimbursed employees”); salaries, benefits and annual incentive bonusesfor employees whose compensation is not so reimbursed (“unreimbursed employees”);long-term incentive compensation associated with stock-based awards to certainemployees; and transaction-related incentive compensation other thanbrokerage commissions, primarily paid in connection with development andinvestment transactions, including those transactions recorded as income fromdiscontinued operations. Salaries, wages and benefits expense for bothreimbursed and unreimbursed employees increased in the first quarter 2006 fromthe first quarter of 2005. Salaries,****wages andbenefits for reimbursed employees grew as the Company increased its facilitiesmanagement and project management headcount to service client expansions andnew clients. The increased expense for unreimbursed employees resulted from anincrease in personnel to support the Company’s overall growth. In addition, theCompany experienced a sharp increase of $4.1 million in employee medicalcosts in the first quarter 2006 as compared to the first quarter of 2005. Thisincrease was unusual based on the Company’s historical experience and theCompany does not see any factors that lead it to believe this trend will besustained on a go forward basis. The Company is self-insured for employeemedical costs with third-party stop-loss insurance for large individual claims.

The increase in commission expense during the firstquarter 2006 was directly attributable to the increases in the Company’scorporate advisory services and brokerage revenue discussed above.

General and administrative expenses increased in thefirst quarter of 2006 as compared to the first quarter of 2005, due in part toincreased client-reimbursed out-of-pocket general and administrative expenses,due to growth in the Company’s facilities management and project managementservice lines. 

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The increase in the firstquarter of 2006 is also due in part to an increase in legal and professionalfees. In addition, the acquisition of several operating real estate propertieshas led to increased real estate operating expenses in 2006. These properties,which the Company plans to redevelop, lease and sell, include acquisitions madethrough the Company’s fifth discretionary development and investment fund (“FundV”).

Depreciation and amortization expenses remainedrelatively flat in the first quarter of 2006 as compared to the first quarterof 2005. Interest expense increased in the first quarter of 2006, primarily asa result of higher average outstanding balances under the Company’s revolvingline of credit as compared to the first quarter of 2005. This increasedinterest expense was primarily due to amounts drawn to fund the Company’sacquisition of an additional ownership interest in Savills in the secondquarter of 2005, as well as to fund the Company’s first quarter 2006 stockrepurchases.

***Minority Interest,Net of Income Taxes.******  ***Minorityinterest fluctuated from income in the first quarter of 2005 to expense in thefirst quarter of 2006. This fluctuation is primarily due to expense recognizedin the first quarter of 2006 related to a gain on disposition of a consolidatedreal estate project in Fund V, which is shared with outside partners. Inaddition, a portion of the first quarter 2005 income relates to the minorityinterest owners’ share of fees earned by the Company related to certain realestate projects.

***Income fromInvestments in Unconsolidated Subsidiaries, Net of Income Taxes.******  ***Inthe ordinary course of business, a significant portion of the Company’sdevelopment and investment activities are conducted, and are expected to beconducted in future periods, through unconsolidated subsidiaries. The Companyalso has certain investments in unconsolidated subsidiaries which are notrelated to its development and investment activities. Income from investmentsin unconsolidated subsidiaries fluctuates from period to period based on thevolume and profitability of transactions carried out by the underlyingunconsolidated subsidiaries. The increase in income from investments inunconsolidated subsidiaries in the first quarter of 2006 as compared to 2005,reflects, among other things, the Company’s increased investment in Savills(made in April 2005). For the first quarter 2006, income from investmentsin unconsolidated subsidiaries also includes the Company’s share of theoperating results of Trammell Crow Meghraj, the Company’s Indian affiliate(investment made in October 2005) and of Trammell Crow Company KrombachPartners, the affiliate through which the Company provides services in the St.Louis area (formed in October 2005). In the first quarter of 2006, incomefrom the Company’s investment in Savills was partially offset by amortization ofthe portion of the Savills purchase price allocated to certain intangibleassets.

***Income (Loss) fromDiscontinued Operations, Net of Income Taxes.******  ***Income(loss) from discontinued operations consists of the operations of real estateproperties and gain on disposition of real estate properties held for sale orsold, that were considered components of an entity under FAS 144 and in whichthe Company had not retained or did not expect to retain significant continuinginvolvement. Dispositions of real estate assets have been and continue to be asignificant part of the Company’s activities and, as a result of applying theprovisions of FAS 144, the Company expects a significant amount of theseactivities to be classified as discontinued operations in future periods. Becausegains on sale of real estate projects accounted for as income from discontinuedoperations give rise to indirect costs, such as incentive and othercompensation expense of Development and Investment segment personnel, andfund-level minority interest associated with the gains, the portion of theCompany’s net income attributable to sales was significantly less than theamount shown as income from discontinued operations. During the first quarterof 2006, the Company sold three real estate projects that were considereddiscontinued operations for an aggregate net sales price of $22.7 million,resulting in an aggregate gain on disposition (before income taxes) of $4.9million. The Company sold one real estate project in the first quarter of 2005that was considered a discontinued operation for a net sales price of $1.8million, resulting in a gain on disposition of $0.1 million.

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***Cumulative Effectof a Change in Accounting Principle, Net of Income Taxes.******  ******The income from cumulative effectof a change in accounting principle is due to the implementation of Statementof Financial Accounting Standards No. 123 (revised 2004),******Share-BasedPayment******, effective January 1, 2006(“FAS 123R”).***FAS 123R requires the Company to estimateforfeitures of share-based payments upon grant and to reevaluate this estimateduring the requisite service period. Prior to the adoption of FAS 123R,the Company’s policy had been to reverse expense related to forfeitures ofrestricted stock as they occurred. In the three months ended March 31,2006, the Company recorded a cumulative effect of a change in accountingprinciple, net of income taxes, which represented a reversal of expense takenfor those shares of unvested restricted stock granted prior to adoption thatthe Company estimates will be forfeited before vesting.

***Net Income.******  ******Net income increased due to thefluctuations in revenues and expenses described above. In addition, net incomefor the first quarter 2006 was adversely impacted due to an increase in theCompany’s effective income tax rate. This increase reflects projected 2006 realestate sales occurring in states with higher state income tax rates as comparedto the rates applied to 2005 sales.***

**New AccountingPronouncement**

The Company adopted FAS 123R effective January 1,2006, using the modified-prospective transition method, and results for priorperiods were not adjusted. Prior to adoption of FAS 123R, the Company electedto use the intrinsic method under Accounting Principles Board Opinion No. 25,*Accounting for Stock Issued to Employees*,to account for its stock-based compensation arrangements. Compensationexpense for stock options was recognized to the extent the market price of theunderlying stock on the date of grant exceeded the exercise price of the option.The Company recognized compensation expense related to restricted stock grantsover the vesting period of the underlying award in an amount equal to the fairmarket value of the Company’s stock on the date of grant. No compensationexpense was recognized related to the difference between the employee’s costand the market value of stock purchased under the Company’s employee stock purchaseplan.

FAS 123R requires all stock-based awards to employeesto be recognized in the income statement based on their fair values. FAS 123Ralso requires the Company to estimate forfeitures of share-based payments upongrant and to reevaluate this estimate during the requisite service period. Priorto the adoption of FAS 123R, the Company’s policy had been to reverse expenserelated to forfeitures of restricted stock as they occurred. See *Cumulative Effect of a Change in Accounting Principle, Net of IncomeTaxes*. All other impacts of adopting FAS 123R to the Company’sconsolidated statement of income and net income per share were not material.

For the first quarter of 2006, the Company recognizedtotal stock-based compensation expense of $2.0 million, with a relatedincome tax benefit realized of $0.8 million.

As of March 31, 2006,the total compensation cost related to unvested restricted stock awards not yetrecognized was $10.0 million, net of expected forfeitures, and the weighted-averageperiod over which these awards are expected to be recognized was 2.7 years.

**Quarterly Resultsof Operations and Seasonality**

The results of operationsfor any quarter are not necessarily indicative of results for any futureperiod. The Company’s revenues and net income during the fourth fiscal quarterhistorically have been significantly greater than in each of the first threefiscal quarters, primarily because its clients have demonstrated a tendency toclose transactions toward the end of the fiscal year. The timing andintroduction of new contracts, the disposition of investments in real estateassets, the recognition of incentive fees (often in the latter part of thefiscal year as contractual targets are met) and other factors may also cause quarterlyfluctuations in the Company’s results of operations.

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**Liquidity andCapital Resources**

The Company’s liquidity and capital resourcesrequirements include the funding of working capital needs, primarily costsincurred in providing services to its clients before collection of relatedbillings; the funding of capital investments, including the acquisition of orinvestments in other real estate service companies; the repurchase of itsshares if authorized by the Board of Directors; expenditures for real estateand payments on notes payable associated with its development and investmentactivities; and expenditures related to upgrading the Company’s managementinformation systems. The Company finances its operations with internallygenerated funds and borrowings under the Credit Facility (described below). Theportion of the Company’s development and investment business that includes theacquisition and development of real estate is financed with loans secured byunderlying real estate, external equity, internal sources of funds, or acombination thereof.

Net cash used in operating activities totaled $75.0million for the first quarter of 2006, compared to $81.1 million in the firstquarter of 2005. This decrease in cash used was due to greater collections ofaccounts receivable in the first quarter of 2006 as compared to the firstquarter of 2005. In addition, there was a decrease in income tax payments inthe first quarter of 2006 on account of 2005 activity, as compared to suchpayments in the first quarter of 2005 on account of 2004 activity, primarily dueto the timing of payments made for each period. These cash inflows were offsetby an increase in restricted cash, primarily due to an increase in cash that isrestricted for use by the Company’s consolidated insurance company to pay insurancepremiums to third-party insurance companies. In addition, cash used in realestate activities, net of related borrowings, was $4.9 million in thefirst quarter of 2006, compared to $7.9 million for the same period of 2005 asa result of decreased real estate investment activity in the first quarter of 2006.

Net cash used in investing activities totaled $19.7million for the first quarter of 2006, compared to $42.8 million for the firstquarter of 2005. This decrease in cash used is primarily due to the Company’swholly-owned captive insurance company making purchases, net of sales proceeds,of $17.6 million in marketable securities in 2005, as compared to receiving$0.1 million of proceeds from sales, net of purchases, in 2006. Also,expenditures made in the first quarter of 2006 related to real estateclassified as “held for investment” were $13.6 million during the first quarterof 2006, as compared to $17.6 million during the first quarter of 2005. Inaddition, cash used decreased due to a decrease in investments inunconsolidated subsidiaries, net of distributions, to $5.2 million in the firstquarter of 2006 as compared to $5.8 million in the same period of 2005.

Net cash provided by financing activities totaled$58.3 million during the first quarter of 2006 as compared to cash used of $1.2million during the same period of 2005. The increase in cash provided in 2006is primarily due to borrowings, net of principal debt payments, under theCompany’s line of credit of $51.1 million, compared to principal debt payments,net of borrowings, of $0.2 million in the comparable 2005 period. The Companyused the 2006 borrowings to fund its purchase of shares of its own stock, andincome tax and incentive payments on account of 2005 results. In addition, theCompany received proceeds from the exercise of employee stock options of $8.4million in 2006, as compared to $0.3 million in 2005. Also contributing to theincrease in cash was an increase in proceeds from borrowings, net of payments,of $23.0 million on notes payable related to real estate held for investment ascompared to $17.1 million in the same period of 2005. In addition, the Companyreceived contributions, net of distributions, from minority interest holders of$2.7 million in the first quarter of 2006, compared to distributions, net ofcontributions, of $8.7 million in the first quarter of 2005. Also, the Companyrepurchased shares of its own stock totaling $28.9 million in the first quarterof 2006, as compared to $11.1 million of stock repurchases in the comparableperiod in 2005.

In June 2005, the Company obtained a$175.0 million revolving line of credit (the “Credit Facility”) arrangedby Bank of America, N.A., as the administrative agent, which replaced theCompany’s previous $150.0 million revolving line of credit. The Companycan obtain loans under the terms of the Credit 

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Facility, which are BaseRate Loans or Eurodollar Rate Loans. Base Rate Loans bear interest at a baserate plus a margin up to 0.25% depending on the Company’s leverage ratio. Thebase rate is the higher of the prime lending rate or an average federal fundsrate plus 0.5%. Eurodollar Rate Loans bear interest at the Eurodollar rate plusa margin, which ranges from 1.75% to 2.0%, depending upon the Company’sleverage ratio. The Eurodollar rate is based on the British Bankers AssociationLIBOR rate.

The Credit Facility contains various covenants such asthe maintenance of minimum equity, liquidity, revenues, interest coverageratios and fixed charge ratios. The Credit Facility also includes restrictionson recourse indebtedness and total indebtedness, restrictions on liens andcertain restrictions on investments and acquisitions that can be made by theCompany. In addition, the Company may not pay dividends, repurchase common shares,or make other distributions on account of its common stock exceeding 50% of theprevious year’s net income before depreciation and amortization. In February 2006,the Company amended its Credit Facility to allow for repurchases or otherdistributions on account of its common stock in an amount up to $100.0 millionthrough December 31, 2006 and to reduce the minimum required net worthcovenant. The Credit Facility is guaranteed by certain significant subsidiariesof the Company and is secured by a pledge of a stock of such significantsubsidiaries and a pledge of certain intercompany indebtedness.

The Company’s participation in derivative transactionshas been limited to risk management purposes, and derivative instruments arenot held for trading purposes. If a certain interest coverage ratio is notmaintained, as defined in the agreement, the Credit Facility requires theCompany to enter into one or more interest rate agreements for the Company’sfloating rate indebtedness in excess of $30.0 million (other thanconstruction loans under which interest is capitalized in accordance withaccounting principles generally accepted in the United States) ensuring the netinterest on such excess is fixed, capped or hedged.

The Company also has a $25.0 million short-termrevolving line of credit (the “Swing Line”) with Bank of America, N.A. Eachloan obtained by the Company under the Swing Line matures in five businessdays, but no later than June 28, 2008, and bears interest at a 30-dayLIBOR-based rate (plus an applicable margin as defined per the agreement).Borrowings under the Swing Line are unsecured and reduce borrowing capacityunder the Credit Facility.

At March 31, 2006, the Company had outstandingborrowings of $85.0 million under the Credit Facility and $2.0 million underthe Swing Line. The covenants contained in the Credit Facility and the amountof the Company’s other borrowings and contingent liabilities may have theeffect of limiting the borrowing capacity available to the Company under theCredit Facility to an amount less than the $175.0 million commitment. TheCompany’s unused borrowing capacity (taking into account borrowings and lettersof credit outstanding) under the Credit Facility was $81.9 million at March 31,2006. Since many of the financial covenants in the Credit Facility aredependent on the Company’s “EBITDA,” as defined in the Credit Facilityagreement and calculated on a trailing four-quarter basis, a decline in theCompany’s overall operations could adversely impact the Company’s ability tocomply with these financial covenants and, in turn, the Company’s borrowingcapacity.

At March 31, 2006, the Company was in compliancewith all covenants of the Credit Facility. The Company expects to continue toborrow under the Credit Facility to finance future strategic acquisitions andinvestments, fund its co-investment activities and provide the Company with anadditional source of working capital.

In 2005 and 2006, the Company entered into twointerest rate cap agreements in order to limit its interest expense onconstruction loans with 30-day LIBOR-based floating interest ratesrelated to consolidated real estate projects. The interest rate cap agreementshave notional amounts of $25.7 million and $18.5 million, and the Companyreceives payments if the LIBOR-based interest rate exceeds 5.5%. 

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These agreements expire onJanuary 2, 2008 and April 1, 2009. Through March 31, 2006,amounts recorded related to these interest rate cap agreements were notmaterial.

The Company does not anticipate paying any dividendsin the foreseeable future. The Company believes that funds generated fromoperations, together with existing cash and available credit under the CreditFacility and loans secured by underlying real estate, will be sufficient tofinance its current operations, planned capital expenditure requirements,payment obligations for development purchases, investments in development andinvestment funds and programs, share repurchases, acquisitions of andinvestments in service companies, signing bonuses or loans for new employeesand internal growth for the foreseeable future. The Company’s need, if any, toraise additional funds to meet its working capital and capital requirementswill depend upon numerous factors, including the success and pace of implementationof its growth strategy. The Company regularly considers capital raisingalternatives to be able to take advantage of available avenues to supplementits working capital, including strategic corporate partnerships or otheralliances, bank borrowings and the sale of equity and/or debt securities.

In February 2006, theCompany announced that its Board of Directors had authorized the purchase of upto $50.0 million of its common stock from time to time in open market purchasesor in privately negotiated transactions. The repurchase of shares is intendedto be accretive to future earnings per share for holders who retain theirshares. The Company’s intent with respect to its stock repurchase programs isto reserve the repurchased shares for issuance in connection with the Company’sequity-based incentive plans, as well as for other corporate purposes. Through March 31,2006, the Company had repurchased 862,000 shares of stock for an aggregate costof $28.9 million.

**Off-balanceSheet Arrangements**

The Company hasoff-balance sheet arrangements consisting of certain debt repayment guaranteesthat have been provided by the Company as security for the obligations ofothers (primarily unconsolidated subsidiaries of the Company) in the normalcourse of the Company’s real estate development business. The Company has notmade any material payments under such arrangements in the three months ended March 31,2006 or 2005. The Company has guaranteed a maximum of $7.13 million of suchnotes payable, of which $7.09 million was outstanding at March 31, 2006.Payments required under these arrangements, if any, could be indicative ofimpairment in the Company’s investments in the underlying unconsolidatedsubsidiaries and therefore could result in additional expense to the Company.

**Forward-LookingStatements**

Certain statementscontained or incorporated by reference in this Quarterly Report on Form 10-Q,including without limitation statements containing the words “believe,” “anticipate,”“attainable,” “forecast,” “will,” “may,” “expect(ation),” “envision,” “project,”“budget,” “objective,” “goal,” “target(ing),” “estimate,” “could,” “should,” “would,”“conceivable,” “intend,” “possible,” “prospects,” “forsee,” “look(ing) for,” “lookto” and words of similar import, are forward-looking statements withinthe meaning of the federal securities laws. Such forward-lookingstatements involve known and unknown risks, uncertainties and other matterswhich may cause the actual results, performance or achievements of the Companyor industry results to be materially different from any future results,performance or achievements expressed or implied by such forward-lookingstatements. Such risks, uncertainties and other matters include, but are notlimited to (i) the ability of the Company to retain its major clients andrenew its contracts, (ii) the ability of the Company to attract new userand investor clients, (iii) the ability of the Company to managefluctuations in net earnings and cash flow which could result from the Company’sparticipation as a principal in real estate investments, (iv) the Company’sability to continue to pursue its growth strategy, (v) the Company’sability to pursue strategic acquisitions on favorable terms and managechallenges and issues commonly encountered as a result of those acquisitions, (vi) theCompany’s ability to compete in highly competitive national and local businesslines, (vii) the Company’s ability to attract and 

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retainqualified personnel in all areas of its business (particularly senior management),(viii) the timing of individual transactions, (ix) the ability of theCompany to identify, implement and maintain the benefit of cost reductionmeasures and achieve economies of scale, and (x) the ability of theCompany to compete effectively in the international arena and manage the risksof operating in the international arena (including foreign currency exchangerisk). In addition, the Company’s ability to achieve certain anticipatedresults will be subject to other factors affecting the Company’s business thatare beyond the Company’s control, including but not limited to general economicconditions (including interest rates, the cost and availability of capital forinvestment in real estate, clients’ willingness to make real estate commitmentsand other factors impacting the value of real estate assets), the effect ofgovernment regulation on the conduct of the Company’s business and the threatof terrorism and acts of war. Given these uncertainties, readers are cautionednot to place undue reliance on such forward-looking statements. The Companydisclaims any obligation to update any such statements or publicly announce anyupdates or revisions to any of the forward-looking statements containedherein to reflect any change in the Company’s expectation with regard theretoor any change in events, conditions, circumstances or assumptions underlyingsuch statements. Reference is hereby made to the disclosures contained in “Item1A. Risk Factors” of the Company’s Annual Report on Form 10-K filedwith the Securities and Exchange Commission on March 15, 2006.

**ITEM3.****           ***Quantitative and Qualitative Disclosures About Market Risk*

The Company’s primary market risk exposure is tochanges in interest rates. The Company is exposed to market risk related to itsCredit Facility and loans secured by real estate properties as discussed in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Liquidityand Capital Resources” and in Notes 6 and 7 to the Company’s CondensedConsolidated Financial Statements. The Credit Facility and the majority of theloans secured by real estate bear interest at variable rates and are subject tofluctuations in the market. During the first three months of 2006, the Companyborrowed $85.0 million, net of principal debt payments, under the CreditFacility, primarily to fund incentive compensation and income tax payments andrepurchases of its common stock. From time to time, the Company purchasesinterest rate agreements to hedge, cap or lock a portion, but not all, of itsexposure to fluctuations in interest rates, and, as such, the effects ofinterest rate changes may be limited.

The Company’s earnings arealso somewhat affected by fluctuations in the value of the U.S. dollar ascompared to foreign currencies as a result of the operations of the Company andits consolidated and unconsolidated subsidiaries in Canada, Europe, Asia andAustralia. Due to the increase in the Company’s ownership interest in Savillsfrom approximately 10.0% to 19.6% in April 2005, the impact offluctuations in currency exchange rates may become more significant to theCompany’s results of operations.

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**ITEM4.****           ***Controls and Procedures*

As of the end of the period covered by this report,the Company carried out an evaluation under the supervision and with theparticipation of management, including its Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the Company’s disclosure controlsand procedures (as defined in 13a-15(e) of the Securities ExchangeAct of 1934 (the “Exchange Act”)). Based on that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdesign and operation of the Company’s disclosure controls and procedures areeffective in ensuring that material information relating to the Company(including its consolidated subsidiaries) required to be included in theCompany’s periodic filings or submissions with the Securities and ExchangeCommission is recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the Securities and ExchangeCommission. There were no changes in the Company’s internal control overfinancial reporting (as defined in Rule 13a-15(f) under theExchange Act) that occurred during the Company’s last fiscal quarter that havematerially affected or are reasonably likely to materially affect the Company’sinternal control over financial reporting.

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**PART II—OTHERINFORMATION**

**ITEM 1.**                LegalProceedings

The Company and one of itssubsidiaries were defendants in a lawsuit styled* **Bank One Oklahoma, N.A.,et al.*(the “Bank”) *v. Trammell Crow Services, Inc.and Trammell Crow Company*, No. 03 C 3624, filed in the USDistrict Court for the Northern District of Illinois, originally filed on April 2,2003. On January 25, 2006, the Company and the Bank resolved the lawsuitbetween them. The claims filed by each party have been dismissed.

From time to time, theCompany is involved in litigation matters that arise in the ordinary course ofits business, some of which involve claims for damages which are substantial inamount. The ultimate liability for these matters cannot be determined. However,based on the information currently available, the Company does not believe thatthe resolution of any such matters to which it is currently a party will have amaterial adverse effect on the Company’s results of operations, financialcondition or liquidity.

**ITEM 2.**                UnregisteredSales of Equity Securities and Use of Proceeds

Purchasesunder the Company’s stock repurchase programs in the first quarter of 2006 wereas follows:

| **Period**                                           | ** ** | ** ** | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number (or  Approximate Dollar  Value) of Shares that  May Yet Be Purchased  Under the Plans or  Programs** | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 1,  2006 – January 31, 2006   |       |       | —     |                                         |       |                                         | —     |                                                                                                                             |       |                                                                                                                                                                              | —     |   |   |   | — |   |   |
| February 1,  2006 – February 28, 2006 |       |       | —     |                                         |       |                                         | —     |                                                                                                                             |       |                                                                                                                                                                              | —     |   |   |   | — |   |   |
| March 1,  2006 – March 31, 2006       |       |       | 862,000    | (1)                                          |       |                                         | $          | 33.43                                                                                                                            |       |                                                                                                                                                                              |       | 862,000 |   |   |   | $ | 21,200,000 |   |   |
| Total                                                |       |       | 862,000    |                                         |       |                                         | $          | 33.43                                                                                                                            |       |                                                                                                                                                                              |       | 862,000 |   |   |   | $ | 21,200,000 |   |   |

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(1)                 On February 22,2006, the Company announced that its Board of Directors had authorized it torepurchase up to $50.0 million of its common stock from time to time in openmarket purchases or in privately negotiated transactions.

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**ITEM 6.**                *Exhibits*

(a)   Exhibits:

| 3.1(1)   |   | Certificate of Incorporation of the Company                                                                                                                                  |
|----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2(1)   |   | Bylaws of the Company                                                                                                                                                        |
| 3.2.1(2) |   | First Amendment to the Bylaws of the Company                                                                                                                                 |
| 3.2.1(3) |   | Second Amendment to the Bylaws of the Company                                                                                                                                |
| 3.2.1(4) |   | Third Amendment to the Bylaws of the Company                                                                                                                                 |
| 4.1(5)   |   | Form of Certificate for Shares of Common Stock  of the Company                                                                                                          |
| 10.1(6)  |   | First Amendment of Credit Agreement dated  February 22, 2006, between the Company and Bank of America, N.A.                                                             |
| 31.1     |   | Certification by the Chief Executive Officer of the  Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                  |
| 31.2     |   | Certification by the Chief Financial Officer of the  Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                  |
| 32.1     |   | Certification by the Chief Executive Officer of the  Company Pursuant to 18 U.S.C. § 1350, adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2     |   | Certification by the Chief Financial Officer of the  Company Pursuant to 18 U.S.C. § 1350, adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

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(1)                 Previouslyfiled as an exhibit to the Company’s Registration Statement on Form S-1(File Number 333-34859) filed with the Securities and ExchangeCommission on September 3, 1997, and incorporated herein by reference.

(2)                 Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with theSecurities and Exchange Commission on August 11, 2000, and incorporatedherein by reference.

(3)                 Previouslyfiled as an exhibit to the Company’s Form 10-K filed with theSecurities and Exchange Commission on March 31, 2003, and incorporatedherein by reference.

(4)                 Previouslyfiled as Exhibit 3.2.3 to the Company’s Form 10-K filed withthe Securities and Exchange Commission on March 15, 2004, and incorporatedherein by reference.

(5)                 Previouslyfiled as Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A(File Number 333-34859) filed with the Securities and ExchangeCommission on October 23, 1997, and incorporated herein by reference.

(6)                 Previouslyfiled as Exhibit 10.1 to the Company’s Form 8-K filed with theSecurities and Exchange Commission on February 28, 2006, and incorporatedherein by reference.

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|                          | TRAMMELL  CROW COMPANY |
|--------------------------|------------------------|
|                     | By:                    | /s/  DEREK R. MCCLAIN |
|                     |                   | Derek R. McClain |
|                     | * *               | *Chief  Financial Officer* |
| * *                 | * *               | *(Principal  Financial Officer and duly authorized to  sign this report on behalf of the Registrant)* |
| Date: May 10,  2006 | * *               |

 

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**Exhibit Index**
| Exhibit  Number | ** ** | **Description**                                                                                                                                                                        |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1(1)          |       | Certificate of Incorporation of the Company                                                                                                                                            |
| 3.2(1)          |       | Bylaws of the Company                                                                                                                                                                  |
| 3.2.1(2)        |       | First Amendment to the Bylaws of the Company                                                                                                                                           |
| 3.2.1(3)        |       | Second Amendment to the Bylaws of the Company                                                                                                                                          |
| 3.2.1(4)        |       | Third Amendment to the Bylaws of the Company                                                                                                                                           |
| 4.1(5)          |       | Form of Certificate for Shares of Common Stock  of the Company                                                                                                                    |
| 10.1(6)         | ** ** | First Amendment of Credit Agreement dated  February 22, 2006, between the Company and Bank of America, N.A.                                                                       |
| 31.1            |       | Certification by the Chief Executive Officer of the  Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                            |
| 31.2            |       | Certification by the Chief Financial Officer of the  Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                            |
| 32.1            |       | Certification by the Chief Executive Officer of the  Company Pursuant to 18 U.S.C. § 1350, adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2            |       | Certification by the Chief Financial Officer of the  Company Pursuant to 18 U.S.C. § 1350, adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

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(1)                 Previouslyfiled as an exhibit to the Company’s Registration Statement on Form S-1(File Number 333-34859) filed with the Securities and ExchangeCommission on September 3, 1997, and incorporated herein by reference.

(2)                 Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with theSecurities and Exchange Commission on August 11, 2000, and incorporatedherein by reference.

(3)                 Previouslyfiled as an exhibit to the Company’s Form 10-K filed with theSecurities and Exchange Commission on March 31, 2003, and incorporatedherein by reference.

(4)                 Previouslyfiled as Exhibit 3.2.3 to the Company’s Form 10-K filed withthe Securities and Exchange Commission on March 15, 2004, and incorporatedherein by reference.

(5)                 Previouslyfiled as Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A(File Number 333-34859) filed with the Securities and ExchangeCommission on October 23, 1997, and incorporated herein by reference.

(6)                 Previouslyfiled as Exhibit 10.1 to the Company’s Form 8-K filed with theSecurities and Exchange Commission on February 28, 2006, and incorporatedherein by reference.

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