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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

|(Mark One)                           |                                                                                         
|------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                    | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934    
|For the year ended December 31, 2004
|OR                                  
|o                                    | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-16785

American Spectrum Realty, Inc.(Exact name of Registrant as specified in its charter)

|State of Maryland(State or other jurisdiction of incorporation or organization)   |  | 52-2258674(I.R.S. Employer Identification No.)                  
|--------------------------------------------------------------------------------- |  | ----------------------------------------------------------------
|5850 San Felipe, Suite 450
Houston, Texas(Address of principal executive offices) |  | 77057(Zip Code)                                                 
|(713) 706-6200(Registrant's telephone number, including area code)               
|Securities registered under Section 12(b) of the Act:                            
|Title of each classCommon Stock, $.01 par value                                   |  | Name of each exchange on which registeredAmerican Stock Exchange
|Securities registered pursuant to Section 12(g) of the Act: None                 

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

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). Yes o    No ý

As of June 30, 2004, the last business day of the Company's most recent completed second quarter, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $8,218,962. The aggregate market value was computed with reference to the price on the American Stock Exchange at which the voting stock
was last sold as of such date. For this purpose, 533,365 shares of Common Stock (adjusted to give effect to one-for-four reverse stock split which became effective
March 2, 2004) held by officers and directors are deemed to be held by affiliates but exclusion of shares held by any person should not be construed to indicate that such person is an affiliate
of the Registrant for any other purpose.

As
of March 1, 2005, 1,510,286 shares of Common Stock ($.01 par value) were outstanding (adjusted to give effect to the one-for-four reverse stock split
which became effective March 2, 2004).

DOCUMENTS INCORPORATED BY REFERENCE:

Part III: Portions of the Registrant's definitive proxy statement to be issued in connection with the Registrant's annual stockholder's meeting to be held
May 6, 2005, which will be filed on or before April 6, 2005.



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TABLE OF CONTENTS



|        |  |                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------
|        |  | PART I                                                                                        
|Item 1  |  | Business                                                                                      
|Item 2  |  | Properties                                                                                    
|Item 3  |  | Legal Proceedings                                                                             
|Item 4  |  | Submission of Matters to a Vote of Security Holders                                           
|        |  | PART II                                                                                       
|Item 5  |  | Market for Registrant's Common Stock and Related Stockholder Matters                          
|Item 6  |  | Selected Financial Data                                                                       
|Item 7  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations         
|Item 7A |  | Quantitative and Qualitative Disclosure About Market Risk                                     
|Item 8  |  | Financial Statements and Supplementary Data                                                   
|Item 9  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure          
|Item 9A |  | Controls and Procedures                                                                       
|        |  | PART III                                                                                      
|Item 10 |  | Directors and Executive Officers of the Registrant                                            
|Item 11 |  | Executive Compensation                                                                        
|Item 12 |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|Item 13 |  | Certain Relationships and Related Transactions                                                
|Item 14 |  | Principal Accountant Fees and Services                                                        
|        |  | PART IV                                                                                       
|Item 15 |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                               

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PART I

ITEM 1. BUSINESS

General Description of Business

American Spectrum Realty, Inc. ("ASR" or the "Company") is a Maryland corporation established on August 8, 2000. The Company is a
full-service real estate corporation, which owns, manages and operates income-producing properties. Substantially all of the Company's assets are held through an operating partnership (the
"Operating Partnership") in which the Company, as of December 31, 2004, held a .91% general partner interest and an 86.59% limited partnership interest. As of December 31, 2004, through
its majority-owned subsidiary, the Operating Partnership, the Company owned and operated 25 properties, which consisted of 18 office buildings, four industrial properties, two shopping centers, and
one apartment complex. The 25 properties are located in seven states.

During
2004, the Company sold three properties, which consisted of one office building, one industrial property and a parcel of undeveloped land, and acquired two office buildings in
Houston, Texas. During 2003, the Company sold eleven properties, which consisted of two apartment complexes, two office buildings, six industrial properties and one shopping center, and acquired four
office buildings in Houston, Texas. During 2002, the Company sold two shopping center properties and one apartment property, and purchased three office properties in Houston, Texas. The property sales
are part of the Company's strategy to sell its non-core property typesapartment and shopping center propertiesand to sell its properties located in the Midwest
and Carolina's, its non-core markets. The Company will focus primarily on office and industrial properties located in Texas, California and Arizona.

The
Company is the sole general partner of the Operating Partnership. As the sole general partner of the Operating Partnership, the Company generally has the exclusive power to manage
and conduct the business of the Operating Partnership under its partnership agreement. The Company's interest as a limited partner in the Operating Partnership entitles it to share in any cash
distributions from, and in profits and losses of, the Operating Partnership. If the Company receives any distributions from the Operating Partnership, it will, in turn, pay dividends to its common
stockholders so that the amount of dividends paid on each share of common stock equals the amount of distributions paid on each limited partnership unit in the Operating Partnership ("OP Unit") to the
extent permitted by law. Most of the properties are owned by the Operating Partnership through subsidiary limited partnerships or limited liability companies.

Holders
of the OP Units have the option to redeem their units and to receive, at the option of the Company, in exchange for each four OP Units (i) one share of Common Stock of the
Company, or (ii) cash equal to the market value of one share of Common Stock of the Company at the date of conversion, but no fractional shares will be issued.

Management
continues to consider whether it is in the best interest of the Company to elect to be treated as a real estate investment trust (or REIT), as defined under the Internal
Revenue Code of 1986, as amended. The Company currently operates in a manner that will permit it to elect REIT status; however, the Company may enter into transactions which will preclude it from
electing REIT status in the future. In general, a REIT is a company that owns or provides financing for real estate and pays annual distributions to investors of at least 90% of its taxable income. A
REIT typically is not subject to federal income taxation on its net income, provided applicable income tax requirements are satisfied. For the tax year 2004, the Company was taxed as a C corporation.
It is anticipated that the Company will be taxed as a C corporation for the 2005 tax year.

Business Objectives and Strategy

The Company's fundamental business objective is to maximize stockholder value. The Company intends to achieve its business objective through opportunistic
investments and by executing its other operating strategies.

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The
Company's future growth will be focused on multi-tenant suburban office and industrial properties in the high growth markets of Texas, Arizona and California. Properties in
non-core markets are expected to be sold and the net proceeds redeployed into funding future acquisitions in core markets and to pay for capital expenditures and reduce debt.

Opportunities to Acquire Undervalued and Undermanaged Properties.The Company believes it is positioned to invest in
properties, either individually or in portfolios, at attractive prices, often at costs lower than replacement cost. This will be accomplished using the Company's knowledge of its core geographical
markets and core property types, as well as its established capability to identify, and negotiate with, highly-motivated sellers, which include individuals as well as such institutions as banks,
insurance companies and pension funds. The Company will not set a maximum target purchase price but rather it will tailor its acquisitions to under performing properties, which the Company believes
are attractively priced due to relative physical or operating deficiencies. The Company believes that its real estate expertise will allow it to, when necessary, reposition, renovate or redevelop
these properties to make them competitive in their local markets.

Competitive Advantages.The Company believes it has competitive advantages that will enable it to be selective with respect
to real estate investment opportunities and allow it to successfully pursue its growth strategy. Based on its management's experience, the Company expects that its presence in geographically diverse
markets will increase its exposure to opportunities for attractive acquisitions of various types of properties throughout its operating region and provide it with competitive advantages which enhance
its ability to do so, including:



Property Management Strategies.The Company has procedures and expertise which permit it to manage effectively a variety of
types of properties throughout the United States. The decentralized structure with strong local management enables it to operate efficiently. In seeking to maximize revenues, minimize costs and
increase the value of the properties, the Company follows aggressive property
management policies. Among the property management techniques emphasized are regular and comprehensive maintenance programs, regular and comprehensive financial analyses, the use of a master property
and casualty insurance program, aggressive restructuring or conversion of tenant spaces and frequent appearances before property tax assessors, planning commissions and other local governmental
bodies. The Company believes that its management of the properties will be a substantial factor in its ability to realize its objectives of maximizing earnings.

Managing and Monitoring Investments.The Company has actively managed the property portfolio and administered its
investments. The Company will monitor issues including the financial advantages of property sales, minimization of real estate taxes, and insurance costs. Also, the Company will actively analyze
diversification, review tenant financial statements to deal with potential problems quickly and will restructure investments in the case of underperforming and non-performing properties.

Competition

The Company competes with other entities both to locate suitable properties for acquisition and to locate purchasers for its properties. While the markets in
which it competes are highly fragmented with no

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dominant
competitors, the Company faces substantial competition in both its leasing and property acquisition activities. There are numerous other similar types of properties located in close proximity
to each of its properties. The amount of leasable space available in any market could have a material adverse effect on the Company's ability to rent space and on the rents charged. Competition for
acquisition of existing properties from institutional investors and publicly traded REITs has increased substantially in the past several years. In many of the Company's markets, institutional
investors and owners and developers of properties compete vigorously for the acquisition, development and leasing of space. Many of these competitors have greater resources and more experience than
the Company.

Employees

As of December 31, 2004, ASR employed 41 individuals, including on-site property management and maintenance personnel.

Environmental Matters

Various federal, state and local laws and regulations subject property owners and operators to liability for reporting, investigating, remediating, and monitoring
of regulated hazardous substances released on or from a property. These laws and regulations often impose strict liability without regard to whether the owner or operator knew of, or actually caused,
the release. The presence of, or the failure to properly report, investigate, remediate, or monitor hazardous substances could adversely affect the financial condition of the Company or the ability of
the Company to operate the properties. In addition, these factors could hinder the Company's ability to borrow against the properties. The presence of hazardous substances on a property also could
result in personal injury or similar claims by private plaintiffs. In addition, there are federal, state and local laws and regulations which impose requirements on the storage, use, management and
disposal of regulated hazardous materials or substances. The failure to comply with those requirements could result in the imposition of liability, including penalties or fines, on the owner or
operator of the properties. Future laws or regulations could also impose unanticipated material environmental liabilities on the Company in connection with any of the properties. The Company is aware
that three of its properties may contain hazardous substances above reportable levels. The Company is currently evaluating this situation to determine an appropriate course of action.

The
Company may decide to acquire a property with known or suspected environmental contamination after it evaluates that business risk, the potential costs of investigation or
remediation, and the potential costs to cure identified non-compliances with environmental laws or regulations. In connection with its acquisition of properties, the Company may seek to
have the seller indemnify it against environmental conditions or non-compliances existing as of the date of purchase, and under appropriate circumstances, it may obtain environmental
insurance. In some instances, the Company may become the assignee of or successor to the seller's indemnification rights arising from the seller's acquisition agreement for the property. Additionally,
the Company may try to structure its leases for the property to require the tenant to assume all or some of the responsibility for environmental compliance and remediation, and to provide that
material non-compliance with environmental laws or regulations will be deemed a default under the lease. However, there can be no assurances that, despite these efforts, liability will not
be imposed on the Company under applicable federal, state, or local environmental laws or regulations relating to the properties.

Insurance

The Company currently carries comprehensive liability, fire, terrorism, extended coverage and rental loss insurance covering all of its properties, with policy
specifications and insured limits which the Company believes are adequate and appropriate under the circumstances. There are, however, types of losses that are not generally insured because they are
either uninsurable or not economically feasible to insure. In addition, costs to carry all of the types of insurance above may not always be economically feasible.

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Should
an uninsured loss or a loss in excess of insured limits occur, the Company could lose its capital invested in the property, as well as the anticipated future revenues from the
property and, in the case of debt which is with recourse to the Company, would remain obligated for any mortgage debt or other financial obligations related to the property. Any such loss would
adversely affect the Company. Moreover, the Company will generally be liable for any unsatisfied obligations other than non-recourse obligations. The Company believes that its properties
are adequately insured. No assurance can be given that material losses in excess of insurance proceeds will not occur in the future.

Capital Expenditures

Capital expenditure requirements include both normal recurring capital expenditures, and tenant improvements and lease commissions relating to the leasing of
space to new or renewing tenants. The Company has a history of acquiring properties which required renovation, repositioning or management changes to improve their performance and to enable them to
compete effectively. The Company plans to continue to invest in these types of properties. These properties may require major capital expenditures or significant tenant improvements in order to
maximize their cash flows.

Acquisitions

On October 21, 2004, the Company acquired an office property in Houston, Texas, consisting of approximately 81,538 rentable square feet. The aggregate
acquisition costs of approximately $5,900,000 included proceeds from a previously sold property, the assumption of existing debt and seller financing.

On
August 2, 2004, the Company acquired a 42,860 square foot office property in Houston, Texas, which is adjacent to an office property owned by the Company. The Company
previously held the note on the property. Acquisition costs of approximately $2,084,000 included the settlement of the note, the issuance of 10,000 shares of restricted Common Stock and cash.

Dispositions

On September 30, 2004, the Company sold Van Buren, a 16.65 acre parcel of undeveloped land located in Arizona, for $3,111,000.

On
August 24, 2004, the Company sold Parkade Center, a 220,684 square foot office property located in Missouri, for $4,127,000.

On
July 30, 2004, the Company sold Westlakes, a 95,370 square foot industrial property located in Texas, for $4,975,000.

These
three properties sold during 2004 produced net proceeds of approximately $4,316,000 of which $1,191,000 was used to assist the funding of an office property acquisition in a
tax-deferred exchange. A net loss of $2,298,000 was incurred in connection with the transactions, which is reflected as discontinued operations in the consolidated statements of
operations.

ITEM 2. PROPERTIES

The Location and Type of the Company's Properties

The Company's 25 properties consist of 18 office, four industrial, two shopping center and one apartment complex located in four geographic regions in seven
states. The following table sets forth the location, type and size of the properties (by rentable square feet and/or units) along with annualized net

6

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rent,
rented square feet, occupancy, and rent per square foot as of December 31, 2004. All properties listed below are encumbered by debt.

|Property/State                  |  | Type            |  | Total Gross
Leasable
Area
(Square Feet) |  | Percent of
Gross Leasable
Area Occupied(1) |   | Rented
Square Feet |  | Annualized Net
Rent (dollars in thousands) |        | Rent per
Square Foot
|------------------------------- |  | --------------- |  | --------------------------------------- |  | ------------------------------------------ | - | ------------------ |  | ------------------------------------------ | ------ | --------------------
|Arizona/California Region       |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Pacific Spectrum, AZ            |  | Office          |  | 70,968                                  |  | 68                                         | % | 48,569             |  | $                                          | 739    |                     
|Mira Mesa, CA                   |  | Office          |  | 88,095                                  |  | 76                                         | % | 66,810             |  |                                            | 1,305  |                     
|Sorrento II, CA                 |  | Office          |  | 88,073                                  |  | 74                                         | % | 65,474             |  |                                            | 968    |                     
|Creekside Office, CA            |  | Office          |  | 47,810                                  |  | 100                                        | % | 47,810             |  |                                            | 1,160  |                     
|Bristol Bay, CA                 |  | Office          |  | 50,073                                  |  | 88                                         | % | 44,223             |  |                                            | 1,097  |                     
|7700 Building, CA               |  | Office          |  | 208,589                                 |  | 83                                         | % | 173,958            |  |                                            | 4,654  |                     
|Sorrento I, CA (2)              |  | Industrial      |  | 43,036                                  |  |                                           |   |                   |  |                                            |       |                     
|                                |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Arizona/California Region Total |  |                 |  | 596,644                                 |  | 75                                         | % | 446,844            |  |                                            | 9,923  |                     
|                                |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Upper Midwest Region            |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Countryside Office Park, IL     |  | Office          |  | 92,873                                  |  | 94                                         | % | 87,350             |  | $                                          | 1,380  |                     
|Northwest Corporate Center, MO  |  | Office          |  | 87,800                                  |  | 99                                         | % | 86,604             |  |                                            | 1,384  |                     
|Morenci Professional Park, IN   |  | Industrial      |  | 105,600                                 |  | 81                                         | % | 85,200             |  |                                            | 380    |                     
|The Lakes, MO                   |  | Apartment       |  | 311,912                                 |  | 92                                         | % | 286,684            |  |                                            | 2,816  |                     
|                                |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Upper Midwest Region Total      |  |                 |  | 598,185                                 |  | 91                                         | % | 545,838            |  |                                            | 5,960  |                     
|                                |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Carolina Region                 |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Columbia, SC                    |  | Shopping Center |  | 56,487                                  |  | 76                                         | % | 42,642             |  | $                                          | 204    |                     
|Richardson Plaza, SC            |  | Shopping Center |  | 108,138                                 |  | 85                                         | % | 91,558             |  |                                            | 600    |                     
|                                |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Carolina Region Total           |  |                 |  | 164,625                                 |  | 82                                         | % | 134,200            |  |                                            | 804    |                     
|                                |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Texas Region                    |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Southwest Point, TX             |  | Industrial      |  | 101,156                                 |  | 96                                         | % | 96,900             |  | $                                          | 613    |                     
|Technology, TX                  |  | Industrial      |  | 109,012                                 |  | 85                                         | % | 92,752             |  |                                            | 980    |                     
|San Felipe, TX                  |  | Office          |  | 102,141                                 |  | 96                                         | % | 98,462             |  |                                            | 1,548  |                     
|11500 Northwest Freeway, TX     |  | Office          |  | 81,538                                  |  | 92                                         | % | 74,836             |  |                                            | 1,054  |                     
|800 Sam Houston Parkway, TX     |  | Office          |  | 42,748                                  |  | 80                                         | % | 34,206             |  |                                            | 419    |                     
|888 Sam Houston Parkway, TX     |  | Office          |  | 45,980                                  |  | 94                                         | % | 43,304             |  |                                            | 578    |                     
|16350 Park Ten Place, TX        |  | Office          |  | 72,724                                  |  | 89                                         | % | 64,634             |  |                                            | 961    |                     
|16360 Park Ten Place, TX        |  | Office          |  | 68,899                                  |  | 91                                         | % | 62,354             |  |                                            | 954    |                     
|5450 Northwest Central, TX      |  | Office          |  | 56,350                                  |  | 95                                         | % | 53,761             |  |                                            | 741    |                     
|8100 Washington, TX             |  | Office          |  | 44,060                                  |  | 100                                        | % | 44,060             |  |                                            | 537    |                     
|8300 Bissonnet, TX              |  | Office          |  | 90,021                                  |  | 89                                         | % | 79,709             |  |                                            | 996    |                     
|12000 Westheimer, TX            |  | Office          |  | 57,719                                  |  | 97                                         | % | 56,124             |  |                                            | 782    |                     
|                                |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Texas Region Total              |  |                 |  | 872,348                                 |  | 92                                         | % | 801,102            |  |                                            | 10,163 |                     
|                                |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     
|Total/Weighted Average          |  |                 |  | 2,231,802                               |  | 86                                         | % | 1,927,984          |  |                                            | 26,850 |                     
|                                |  |                 |  |                                         |  |                                            |   |                    |  |                                            |        |                     

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For the year ended December 31, 2004, no tenant contributed 10% or more of the total rental revenue of the Company. A complete listing of
properties owned by the Company at December 31, 2004, is included as part of Schedule III in Item 15.

Office Properties

The Company owns 18 office properties with total rentable square footage of 1,396,461. The office properties range in size from 42,748 square feet to 208,589
square feet, and have remaining lease terms ranging from less than one to 10 years. The office leases generally require the tenant to reimburse the Company for increases in building operating
costs over a base amount. Certain of the leases provide for rent increases that are either fixed or based on a consumer price index. As of December 31, 2004, the

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weighted
average occupancy of the office properties was 88%. The weighted average base rent per square foot, calculated as total annualized base rents divided by gross leasable area actually occupied
as of December 31, 2004, was $17.25 as of such date.

The
following table sets forth, for the periods specified, the number of expiring leases, the total rentable area subject to expiring leases, average occupancy represented by expiring
leases, and total effective annual base rent represented by expiring leases.

OFFICE PROPERTIES  LEASE EXPIRATIONS

|Expiration Year |  | Number of Expiring Leases |  | Rentable Square Footage Subject to Expiring Leases |     | Annual Base Rent Under Expiring Leases (dollars in thousands) |        | Percentage of Total Annual Base Rent Represented by Expiring Leases(1) |    
|--------------- |  | ------------------------- |  | -------------------------------------------------- | --- | ------------------------------------------------------------- | ------ | ---------------------------------------------------------------------- | ---
|2005(2)         |  | 213                       |  | 334,940                                            |     | $                                                             | 6,237  |                                                                        | 29 
|2006            |  | 119                       |  | 232,552                                            |     |                                                               | 4,407  |                                                                        | 20 
|2007            |  | 102                       |  | 243,635                                            |     |                                                               | 3,849  |                                                                        | 17 
|2008            |  | 35                        |  | 104,835                                            |     |                                                               | 1,722  |                                                                        | 8  
|2009            |  | 42                        |  | 163,303                                            |     |                                                               | 2,838  |                                                                        | 13 
|Thereafter      |  | 13                        |  | 147,211                                            |     |                                                               | 2,807  |                                                                        | 13 
|                |  |                           |  |                                                    |     |                                                               |        |                                                                        |    
|Total           |  | 524                       |  | 1,226,476                                          | (3) | $                                                             | 21,860 | (4)                                                                    | 100
|                |  |                           |  |                                                    |     |                                                               |        |                                                                        |    

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Industrial Properties

The Company owns four industrial properties aggregating 358,804 square feet. The industrial properties are primarily designed for warehouse, distribution and
light manufacturing and range in size from 43,036 square feet to 109,012 square feet. As of December 31, 2004, multiple tenants occupied two of the industrial properties, one of the properties
was partially occupied by a single tenant, and one was unoccupied. The unoccupied property, Sorrento I, was classified as "Real estate held for sale" at December 31, 2004. Sorrento I was sold
on March 1, 2005. As of December 31, 2004, the weighted average occupancy of the industrial properties held for investment was 77%. The weighted average base rent per square foot,
calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2004, was $7.17 as of such date.

The
industrial properties have leases whose remaining terms range from less than one to six years. Most of the leases are industrial gross leases whereby the tenant pays as additional
rent its pro rata share of common area maintenance and repair costs and its share of the increase in taxes and insurance over a base amount. Certain of these leases call for fixed or
consumer-price-index-based rent increases. Some of the leases are triple net leases whereby the tenants are required to pay their pro rata share of the properties' operating costs, common area
maintenance, property taxes, insurance and non-structural repairs.

8

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The
following table sets forth, for the periods specified, the number of expiring leases, the total rentable area subject to expiring leases, average occupancy represented by expiring
leases and total effective annual base rent represented by expiring leases.

INDUSTRIAL PROPERTIES  LEASE EXPIRATIONS

|Expiration Year |  | Number of Expiring Leases |  | Rentable Square Footage Subject to Expiring Leases |     | Annual Base Rent Under Expiring Leases (dollars in thousands) |       | Percentage of Total Annual Base Rent Represented by Expiring Leases(1) |    
|--------------- |  | ------------------------- |  | -------------------------------------------------- | --- | ------------------------------------------------------------- | ----- | ---------------------------------------------------------------------- | ---
|2005(2)         |  | 38                        |  | 157,652                                            |     | $                                                             | 1,163 |                                                                        | 59 
|2006            |  | 14                        |  | 30,433                                             |     |                                                               | 177   |                                                                        | 9  
|2007            |  | 12                        |  | 29,117                                             |     |                                                               | 178   |                                                                        | 9  
|2008            |  | 5                         |  | 31,391                                             |     |                                                               | 282   |                                                                        | 14 
|2009            |  | 4                         |  | 24,465                                             |     |                                                               | 127   |                                                                        | 7  
|Thereafter      |  | 2                         |  | 7,250                                              |     |                                                               | 47    |                                                                        | 2  
|                |  |                           |  |                                                    |     |                                                               |       |                                                                        |    
|Total           |  | 75                        |  | 280,308                                            | (3) | $                                                             | 1,974 | (4)                                                                    | 100
|                |  |                           |  |                                                    |     |                                                               |       |                                                                        |    

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Shopping Center Properties

The Company owns two shopping center properties with total rentable square footage of 164,625. The shopping center properties have remaining lease terms ranging
from less than one to 16 years. The shopping center leases generally require the tenant to reimburse the Company for increases in certain building operating costs over a base amount. Certain of
the leases provide for rent increases that are either fixed or based on a percentage of tenants' sales. As of December 31, 2004, the weighted average occupancy of the shopping center properties
was 82%. The weighted average base rent per square foot, calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2004, was $5.99 as of such
date.

The
following table sets forth, for the periods specified, the number of expiring leases, the total rentable area subject to expiring leases, average occupancy represented by expiring
leases and total effective annual base rent represented by expiring leases.

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SHOPPING CENTER PROPERTIES  LEASE EXPIRATIONS

|Expiration Year |  | Number of Expiring Leases |  | Rentable Square Footage Subject to Expiring Leases |     | Annual Base Rent Under Expiring Leases (dollars in thousands) |     | Percentage of Total Annual Base Rent Represented by Expiring Leases(1) |    
|--------------- |  | ------------------------- |  | -------------------------------------------------- | --- | ------------------------------------------------------------- | --- | ---------------------------------------------------------------------- | ---
|2005(2)         |  | 5                         |  | 9,900                                              |     | $                                                             | 105 |                                                                        | 13 
|2006            |  | 7                         |  | 55,012                                             |     |                                                               | 293 |                                                                        | 36 
|2007            |  |                          |  |                                                   |     |                                                               |    |                                                                        |   
|2008            |  | 2                         |  | 34,500                                             |     |                                                               | 152 |                                                                        | 19 
|2009            |  | 1                         |  | 3,100                                              |     |                                                               | 25  |                                                                        | 3  
|Thereafter      |  | 1                         |  | 31,688                                             |     |                                                               | 229 |                                                                        | 29 
|                |  |                           |  |                                                    |     |                                                               |     |                                                                        |    
|Total           |  | 16                        |  | 134,200                                            | (3) |                                                               | 804 | (4)                                                                    | 100
|                |  |                           |  |                                                    |     |                                                               |     |                                                                        |    

---

Apartment Property

The Company owns a 408-unit apartment property located in St. Louis, Missouri. All of the units are rented to residential tenants on either a
month-to-month basis or for terms of one year or less. As of December 31, 2004, the apartment property was approximately 92% occupied. The weighted average base rent per
square foot, calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2004, was $9.82 as of such date.

ITEM 3. LEGAL PROCEEDINGS

The following is information concerning legal proceedings to which the Company or its subsidiaries is a party or of which any of their property is subject:

Lewis Matter

On August 2, 2004, the Orange County Superior Court approved the final accounting in the Robert L. Lewis matter. This matter, initiated on or about
September 27, 2001 by Robert L. Lewis, Madison Liquidity Investors 103 LLC and Madison Liquidity Investors 112 LLC, alleged claims against the Company and others for breach of fiduciary duty,
breach of contract, intentional interference with prospective economic advantage, and intentional interference with contractual relations related to the Company's 2001 consolidation transaction (the
"Consolidation"), although the Consolidation was disclosed in a Prospectus/Consent Solicitation filed with the Securities and Exchange Commission and was approved by a majority vote of the limited
partners of the partnerships. In October 2003, counsel for the plaintiffs and counsel for the defendants executed a Memorandum of Understanding regarding a proposed settlement in this matter.
By the terms of that Memorandum, the defendants agreed to pay a total of $6,500,000 to settle this action and all other claims known and unknown relating to the facts set forth in the plaintiff's
complaints. The settlement of $6,500,000 was funded, in its entirety, by insurance coverage. In 2004, the Court approved the settlement as fair, adequate and reasonable and the defendants' insurers

10

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deposited
$6,500,000 into an escrow account for the purposes of settlement. Subsequently, $1,640,000 was disbursed for attorney fees and expenses, while the remaining $4,860,000 was distributed to the
plaintiffs.

Other Matters

Certain claims and lawsuits have arisen against the Company in its normal course of business. The Company believes that such claims and lawsuits will not have a
material adverse effect on the Company's financial position, cash flow or results of operations.

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

No matters were submitted during the fourth quarter of 2004 to a vote of the holders of the Company's common stock, through the solicitation of proxies or
otherwise.

11

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PART II

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

Market Information

The Company's Common Stock trades on the American Stock Exchange under the symbol AQQ. The following table sets forth the high and low closing prices per share
(adjusted to give effect to the one-for-four reverse stock split of the Company's Common Stock which became effective March 2, 2004) of the Company's Common Stock for
the periods indicated, as reported by the American Stock Exchange.

|     |                | Common Stock
|---- | -------------- | ------------
|2003 |                |             
|     | First Quarter  |             
|     | Second Quarter |             
|     | Third Quarter  |             
|     | Fourth Quarter |             
|2004 |                |             
|     | First Quarter  |             
|     | Second Quarter |             
|     | Third Quarter  |             
|     | Fourth Quarter |             

Company Purchases of Equity Securities

|Period(1)           |  | (a) Total
Number of
Shares
Purchased |  | (b) Average
Price Paid per
Share(2) |      | (c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs |        | (d) Maximum Number
(or Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
|------------------- |  | ------------------------------------ |  | ----------------------------------- | ---- | ------------------------------------------------------------------------------------ | ------ | ----------------------------------------------------------------------------------------------------------------
|October 1-31, 2004  |  | 15,044                               |  | $                                   | 8.25 |                                                                                      | 15,044 |                                                                                                                 
|November 1-30, 2004 |  | 48,283                               |  |                                     | 8.25 |                                                                                      | 48,283 |                                                                                                                 
|December 1-31, 2004 |  |                                     |  |                                     |     |                                                                                      |       |                                                                                                                 
|                    |  |                                      |  |                                     |      |                                                                                      |        |                                                                                                                 
|Total               |  | 63,327                               |  | $                                   | 8.25 |                                                                                      | 63,327 |                                                                                                                 
|                    |  |                                      |  |                                     |      |                                                                                      |        |                                                                                                                 

---

Holders

The approximate number of holders of the shares of the Company's Common Stock was 5,300 as of March 1, 2005.

Distributions

No dividends were declared to holders of the Company's Common Stock in 2004 and 2003.

In
2003, the Company's Board of Directors established a policy of meeting on or about the 45th day after the end of each calendar quarter to consider the declaration and
payment of a dividend.

12

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Management
continues to consider whether it is in the best interest of the Company to elect to be treated as a real estate investment trust (or REIT), as defined under the Internal
Revenue Code of 1986, as amended. The Company currently operates in a manner that will permit it to elect REIT status; however, the Company may enter into transactions which will preclude it from
electing REIT status in the future. In general, a REIT is a company that owns or provides financing for real estate and pays annual distributions to investors of at least 90% of its taxable income. A
REIT typically is not subject to federal income taxation on its net income, provided applicable income tax requirements are satisfied. For the tax year 2004, the Company was taxed as a C corporation.
It is anticipated that the Company will be taxed as a C corporation for the 2005 tax year.

Recent Sales of Unregistered Securities

In August 2004, the Company issued 10,000 shares to the seller of an office property as part of the Company's consideration for the acquisition of the
property. The shares, which are currently held in escrow, will be released in August 2005 so long as the property's largest tenant does not default on its lease agreement. The consideration for
the shares amounted to $70,700 based on a value of $7.07 per share. In 2003, the Company issued 129,945 shares to two directors in connection with the cancellation of debt and issued 15,243 shares to
John N. Galardi, a director and principal stockholder of the Company, for a purchase price of $250,000 (shares adjusted to give effect to the one-for-four reverse stock split).
These issuances of Common Stock by
the Company were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder.

The
following table provides information as of December 31, 2004 regarding the compensation plan under which equity securities of the Company are authorized for issuance:

Number of Securities to Be Issued Upon Exercise of Outstanding Options

Weighted Average Per Share Exercise Price of Outstanding Options

Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plan (excluding securities reflected
in first column)33,625

$
26.76

119,000


The
share and per share data presented in the above table have been adjusted to give effect to the one-for-four reverse stock split which became effective
March 2, 2004.

See
Note 16Stock Option and Restricted Share Plansin the Consolidated Financial Statements for information regarding the material features of the above
plan.

13

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ITEM 6. SELECTED FINANCIAL DATA

Set forth below is selected financial data for the Company. Consolidated balance sheet and operating data are presented as of and for each of the five years ended
December 31. The selected financial data for the year ended 2000 reflects the balance sheet data and operating data for Sierra Pacific Pension Investors "84 ("SPPI84"), which is treated as
having acquired the properties in the Consolidation for accounting purposes. For 2001, operating data includes the results of operations of SPPI84 for the
entire year, and the acquired entities from October 20, 2001, through December 31, 2001. Prior year amounts have been reclassified to conform with current year presentation.

This
selected financial data should be read in conjunction with the financial statements of the Company, including the notes thereto, included in Item 15.

(Dollars
in thousands, except for per share and per unit data)

|                    |                                                            | 2004                              |   | 2003    |        | 2002 |         | 2001    |   | 2000    |       
|------------------- | ---------------------------------------------------------- | --------------------------------- | - | ------- | ------ | ---- | ------- | ------- | - | ------- | ------
|OPERATING DATA:     |                                                            |                                   |   |         |        |      |         |         |   |         |       
|                    | Total revenues                                             |                                   | $ | 27,158  |        | $    | 23,956  |         | $ | 24,922  |       
|                    | Property operating expense                                 |                                   |   | 10,582  |        |      | 9,358   |         |   | 9,191   |       
|                    | General and administrative                                 |                                   |   | 4,438   |        |      | 6,801   |         |   | 8,586   |       
|                    | Depreciation and amortization                              |                                   |   | 10,433  |        |      | 8,641   |         |   | 7,702   |       
|                    | Interest expense                                           |                                   |   | 11,996  |        |      | 10,139  |         |   | 9,606   |       
|                    | Litigation settlement                                      |                                   |   |        |        |      |        |         |   | 1,200   |       
|                    | Impairment of real estate assets                           |                                   |   |        |        |      |        |         |   | 1,403   |       
|                    | Deferred income tax benefit (expense)                      |                                   |   | 2,222   |        |      | (278    | )       |   | 5,591   |       
|                    | Net (loss) income from continuing operations               |                                   |   | (7,499  | )      |      | (9,282  | )       |   | (6,156  | )     
|                    | Net (loss) income                                          |                                   |   | (9,107  | )      |      | (14,348 | )       |   | (7,130  | )     
|                    | Basic and diluted per share data:(1)                       |                                   |   |         |        |      |         |         |   |         |       
|                    | Net loss from continuing operations                        |                                   | $ | (4.83   | )      | $    | (6.26   | )       | $ | (4.45   | )     
|                    | Net loss                                                   |                                   |   | (5.87   | )      |      | (9.67   | )       |   | (5.16   | )     
|                    | Dividends per share(1)                                     |                                   |   | N/A     |        |      | N/A     |         |   | 2.00    |       
|                    | Per unit data:(2)                                          |                                   |   |         |        |      |         |         |   |         |       
|                    | Limited partner income from continuing operations per unit |                                   |   | N/A     |        |      | N/A     |         |   | N/A     |       
|                    | Limited partner income                                     |                                   |   | N/A     |        |      | N/A     |         |   | N/A     |       
|BALANCE SHEET DATA: |                                                            |                                   |   |         |        |      |         |         |   |         |       
|                    | Real estate held for investment, net                       |                                   | $ | 168,531 |        | $    | 165,991 |         | $ | 155,636 |       
|                    | Total assets                                               |                                   |   | 187,545 |        |      | 208,003 |         |   | 253,557 |       
|                    | Total long term debt                                       |                                   |   | 149,589 |        |      | 142,008 |         |   | 137,027 |       
|                    | Stockholders' and partners' equity                         |                                   |   | 11,427  |        |      | 20,435  |         |   | 30,857  |       
|OTHER DATA:         |                                                            |                                   |   |         |        |      |         |         |   |         |       
|                    | Cash flow provided by (used in):                           |                                   |   |         |        |      |         |         |   |         |       
|                    |                                                            | Operating activities- continuing  |   | $       | (2,393 | )    | $       | (4,691  | ) | $       | (3,447
|                    |                                                            | Operating activities-discontinued |   |         | (235   | )    |         | 1,223   |   |         | 3,893 
|                    |                                                            | Investing activities              |   |         | 5,540  |      |         | 27,518  |   |         | (3,566
|                    |                                                            | Financing activities              |   |         | (5,260 | )    |         | (21,901 | ) |         | 1,624 

---

14

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

OVERVIEW

The Company is a full-service real estate corporation, which owns, manages and operates income-producing properties. Substantially all of the
Company's assets are held through its Operating Partnership in which the Company, as of December 31, 2004, held a .91% general partner interest and an 86.59% limited partnership interest. As of
December 31, 2004, through its majority-owned subsidiary, the Operating Partnership, the Company owned and operated 25 properties, which consisted of 18 office buildings, four industrial
properties, two shopping centers, and one apartment complex. The 25 properties are located in seven states.

During
2004, the Company sold three properties, which consisted of one office building, one industrial property and a parcel of undeveloped land, and acquired two office buildings in
Houston, Texas. During 2003, the Company sold eleven properties, which consisted of two apartment complexes, two office buildings, six industrial properties and one shopping center, and acquired four
office buildings in Houston, Texas. During 2002, the Company sold two shopping center properties and one apartment property, and purchased three office properties in Houston, Texas. The property sales
are part of the Company's strategy to sell its non-core property typesapartment and shopping center propertiesand to sell its properties located in the Midwest
and Carolina's, its non-core markets. The Company will focus primarily on office and industrial properties located in Texas, California and Arizona.

The
properties owned by the Company were 86% occupied at December 31, 2004 and 83% occupied at December 31, 2003. Properties held for investment at December 31, 2004
and 2003 were 88% and 85% occupied, respectively. Properties held for investment considered stabilized, not undergoing major redevelopment, were 90% occupied at December 31, 2004 and 88%
occupied at December 31, 2003 and properties under redevelopment were 77% occupied at December 31, 2004 compared to 64% at December 31, 2003. The Company continues to aggressively
pursuing prospective tenants to further increase its occupancy, which should have the effect of improving operational results.

In
the accompanying financial statements, properties sold or held for sale are classified as "Real estate held for sale" as of December 31, 2004, and their results of operations
for the three years ended December 31, 2004 are shown in the section "Discontinued operations". Therefore the revenues and expenses reported for the fiscal years ended December 31, 2002,
2003 and 2004 reflect results from properties currently held for investment by the Company. The following discussion and analysis of the financial condition and results of operations of the Company
should be read in conjunction with the selected financial data in Item 6 and the consolidated financial statements of the Company, including the notes thereto, included in Item 15.

The
share data in this Item 7 has been adjusted to give effect to the one-for-four reverse stock split which became effective March 2, 2004.

CRITICAL ACCOUNTING POLICIES

The major accounting policies followed by the Company are listed in Note 2Summary of Significant Accounting Policiesof the Notes
to the Consolidated Financial Statements. The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America,
which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the results of operations during the reporting period. Actual results could differ materially from those estimates.

15

---



The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements:



16

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RESULTS OF OPERATIONS

Comparison of the year ended December 31, 2004 to the year ended December 31, 2003

The following table shows a comparison of rental revenues and certain expenses:

|                    |                               |   |            |            |   | Variance   |           
|------------------- | ----------------------------- | - | ---------- | ---------- | - | ---------- | ----------
|
|Rental revenue      |                               | $ | 26,923,000 |            | $ | 23,817,000 |           
|Operating expenses: |                               |   |            |            |   |            |           
|                    | Property operating expenses   |   |            | 10,582,000 |   |            | 9,358,000 
|                    | General and administrative    |   |            | 4,438,000  |   |            | 6,801,000 
|                    | Depreciation and amortization |   |            | 10,433,000 |   |            | 8,641,000 
|                    | Interest expense              |   |            | 11,996,000 |   |            | 10,139,000

Rental revenue.The increase of $3,106,000, or 13.0%, was attributable to (i) $2,273,000 in revenue generated from six
office properties acquired in May 2003 through October 2004, (ii) higher revenues of $637,000 for properties owned on December 31, 2004 and 2003 ("Same Properties") and
(iii) a $196,000 payment received from the owner of a neighboring property for past use of common parking areas. The increase in Same Properties revenue was primarily attributable to the
Company's office properties, particularly to an office property located in San Diego, California in which, as a result of aggressive lease up efforts, occupancy rose to 76% at December 31, 2004
from 35% at December 31, 2003. Rental revenue from the six acquired office properties was included in the Company's results since their respective dates of acquisition. The weighted average
occupancy of properties held for investment increased to 88% at December 31, 2004 from 85% at December 31, 2003.

Property operating expenses.The increase of $1,224,000, or 13.1%, was due to the expenses of $1,271,000 related to the six
acquired office properties mentioned above, offset in part by a reduction in operating expenses for other properties owned by the Company due to the continued monitoring and controlling of expenses.

General and administrative.The decrease of $2,363,000 was in large part due to a decrease in compensation expense of
$1,335,000, primarily due to the closure of the Company's offices in New York and San Diego and the downsizing of its administrative staff, especially in the St. Louis and California offices. The
closure of these offices and the downsizing resulted in a decrease in other administrative costs of approximately $400,000. Further, professional fees decreased approximately $500,000 due to the
settlement of two major lawsuits in 2003 and the hiring of in-house legal counsel. Both of these factors contributed to the reduced fees for outside legal services incurred during 2004
compared to 2003.

Depreciation and amortization.The increase of $1,792,000 was related to depreciation of capital improvements and
amortization of capitalized lease costs incurred in 2004 and 2003 and also the depreciation related to the six acquired properties mentioned above. During 2004 and 2003, the Company incurred
approximately $8,295,000 in capital improvements, primarily for renovations and tenant improvements, and $2,380,000 in capitalized lease costs. The tenant improvement and leasing costs corresponded
with the Company's increased occupancy.

Interest expense.The increase of $1,857,000 was primarily due to (i) the interest expense associated with the six
acquired properties mentioned of approximately $700,000, (ii) higher interest expense and fees on increased debt on three of its properties of approximately $800,000, and (iii) the
Company recording additional interest of approximately $350,000 at the default rate on debt related to one of its shopping center properties.

In
July 2004, the Company refinanced a $5,330,000 loan on Northwest Corporate Center, one of its office properties, with a new loan agreement in the amount of $5,750,000. The new
loan bears interest at a fixed rate of 6.26% per annum and matures in August 2014. In May 2004, the Company refinanced a $3,132,000 loan on Mira Mesa, one of its office properties, with
a new one-year loan agreement in the

17

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amount
of $7,500,000 bearing interest at 7.95%. In December 2003, the Company refinanced a $3,000,000 loan on San Felipe, one of its office properties, with a one-year loan in the
amount of $5,350,000 bearing interest at 7.95%. In August 2004, the loan was refinanced again with a new loan in the amount of $5,500,000. The new loan bears interest at a fixed rate of 5.65%
per annum and matures in August 2014.

In
July 2002, the lender under a loan agreement related to the South Carolina shopping center properties notified the Company it was technically in default under its loan
agreement for non-compliance with certain covenants, including covenants requiring improvements to shopping center properties. Thereafter, the lender notified the Company that it was in
default for failure to pay a matured portion of the loan, which matured in November 2002. In early 2003, the lender sold the loan to the major tenant in two of the shopping centers. In
December 2003, the Company sold one of the shopping center properties and repaid $3,935,000, which included the pay-off of the matured portion of the loan. As of December 31,
2004, the remaining balance of the loan was approximately $2,756,000. The Company continues to discuss the non-compliance matter with the new lender. The new lender has not accelerated the
loan.

Income taxes.The Company recognized a deferred income tax benefit of $2,222,000 for 2004 compared to a deferred income tax
expense of $278,000 for 2003, primarily due to an increase in taxable losses for 2004.

Minority interest.The share of loss for the year ended December 31, 2004 for the holders of OP Units was $1,299,000
compared to $2,124,000 for the year ended December 31, 2003. The 2004 loss represents an average of 12.5% limited partner interest in the Operating Partnership not held by the Company during
2004. The 2003 loss represents the 12.9% limited partner interest in the Operating Partnership not held by the Company during 2003.

Loss on extinguishment of debt.During 2004, the Company recorded a net loss on early extinguishment of debt of $729,000. The
net loss consisted of (i) a prepayment penalty of $687,000, which was offset in part by the write-off of an unamortized loan premium of $74,000, in connection with the refinance of
Mira Mesa, (ii) a prepayment penalty of $120,000 and the write-off of unamortized loan costs of $94,000 in connection with the 2004 refinance of San Felipe, and (iii) a
$98,000 gain related to the purchase of interests of former limited partners of Fund II in the $8,800,000 promissory note related to the settlement of the Teachout litigation (See Litigation
Settlement in 2002-2003 Comparison). The Company purchased 2,347 of the 86,653 interests outstanding at $60 per unit, which reduced its debt obligation related to the settlement $238,338.
See Note 9-Notes Payable, Litigation Settlement-of the Notes to Consolidated
Financial Statements. During 2003, in connection with the 2003 refinance of San Felipe, the Company recorded a loss on early extinguishments of debt of $145,000 related to the write-off of
an unamortized loan discount and prepayment penalty.

The
net loss on early extinguishment of debt is included in other income in the consolidated statements of operations.

Discontinued operations.The Company recorded a loss from operations of discontinued operations of $295,000 during 2004
related to the three properties sold and one property classified as held for sale as of December 31, 2004. The Company recorded a loss from operations of discontinued operations of $1,762,000
during 2003 related to the fourteen properties sold in 2003 and 2004 and one property classified as held for sale as of December 31, 2004. See Note 5Discontinued
Operationsof the Notes to Consolidated Financial Statements.

18

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The
net loss from discontinued operations before net (loss) gain on sale, impairment of real estate assets and income tax benefit is summarized below.

|                                      |  | Year Ended
December 31, 2004 |       | Year Ended
December 31, 2003 |  
|------------------------------------- |  | ---------------------------- | ----- | ---------------------------- | -
|Rental revenue                        |  | $                            | 1,423 |                              | $
|Total expenses                        |  |                              | 1,718 |                              |  
|                                      |  |                              |       |                              |  
|Net loss from discontinued operations |  | $                            | (295  | )                            | $
|                                      |  |                              |       |                              |  

Gain on sale of discontinued operations.The Company sold three propertiesone office building, one industrial
property and a parcel of undeveloped landduring 2004 for an aggregate sales price of $12,214,000. Losses totaling $2,597,000 were recorded on the sale of the office building and the
parcel of undeveloped land. The sale of the industrial property generated a gain of $299,000. The Company sold eleven properties during 2003 for an aggregate sales price of $61,162,000 and recognized
a net gain of $2,540,000, after taking into consideration an impairment charge totaling $7,500,000 relating to four of the eleven properties. The impairment charges were based on the anticipated sales
prices less costs to sell as compared to the carrying value of the assets. An income tax benefit on discontinued operations of $985,000 was recorded during the year ended December 31, 2004
compared to $1,656,000 during the year ended December 31, 2003.

Comparison of the year ended December 31, 2003 to the year ended December 31, 2002

The following table shows a comparison of rental revenues and certain expenses:

|                    |                               |   |            |            |   | Variance   |          
|------------------- | ----------------------------- | - | ---------- | ---------- | - | ---------- | ---------
|
|Rental revenue      |                               | $ | 23,817,000 |            | $ | 24,713,000 |          
|Operating expenses: |                               |   |            |            |   |            |          
|                    | Property operating expenses   |   |            | 9,358,000  |   |            | 9,191,000
|                    | General and administrative    |   |            | 6,801,000  |   |            | 8,586,000
|                    | Depreciation and amortization |   |            | 8,641,000  |   |            | 7,702,000
|                    | Interest expense              |   |            | 10,139,000 |   |            | 9,606,000

Rental revenue.The reduction of 3.6% was primarily the result of a decrease in occupancy, particularly in certain properties
located in San Diego, California due to the expiration of leases of three major tenants. This reduction was offset in part by revenue related to acquired properties. For 2003, revenue included results
from seven office properties acquired during 2002 and 2003. The office properties were acquired in the following months: one in each of November 2003, October 2003, July 2003,
May 2003 and August 2002; and two in May 2002. Rental revenue from the acquired properties was included in the Company's results since their respective dates of acquisition.

The
weighted average occupancy of properties held for investment was 86% at December 31, 2002 and 85% at December 31, 2003. Occupancy increased to 85% at the end of the
fourth quarter of 2003 from 80% at September 30, 2003 and 79% at June 30, 2003.

Property operating expenses.The increase of $167,000 was primarily due to property operating expenses of $1,158,000 related
to the above mentioned property acquisitions, partially offset by a decrease in expenses for existing properties of $991,000 due to expense control measures put in place during the past year and, to a
lesser extent, a reduction in bad debt expense. In addition to investigating alternative sources for the services it purchases, the Company continues to monitor and control expenses.

General and administrative.This decrease of 20.8% was due to (i) a reduction of compensation expense in 2003 due to
downsizing of staff and lower compensation expense related to common stock grants, (ii) the inclusion of non recurring expenses related to the Company's 2001 consolidation

19

---



transaction,
(iii) lower professional fees, especially for legal services, and (iv) expense control measures put in place during the past year. During 2003, the Company recorded an
aggregate charge of $142,000 consisting of severance payments to the administrative support related to the closure of its administrative offices in St. Louis, Missouri and New York, New York and a
$200,000 charge related to a severance agreement with an officer of the Company. The charges were included in general and administrative expenses. The New York office was closed in
October 2003.

Depreciation and amortization.The increase of $939,000 was due to the acquisition of the seven properties previously
mentioned and, to a lesser extent, depreciation of improvements and amortization of capitalized lease costs incurred during 2002 and 2003 for the existing properties.

Interest expense.The increase of $533,000 was primarily due to interest associated with the seven new properties acquired
and an accrued loan guarantee fee, offset in part by reduced interest on an outstanding payable due to a settlement agreement and the conversion of debt to common stock. The loan guarantee fee, which
is payable to two of the Company's directors and a company they are affiliated with, is in consideration of their guarantees of certain indebtedness of the Company as of December 31, 2003. The
Company agreed to pay the annual guarantee fee equal to between .25% and .75% (depending on the nature of the guarantee) of the outstanding balance as of December 31 of the guaranteed
obligations. The guarantee fee is to be paid for a maximum of 3 years on any particular obligation.

Litigation settlement.During 2002, the Company accrued a litigation settlement expense of $1,200,000 associated with the
settlement of the Teachout litigation which represents the Company's agreement to pay legal fees to plaintiff's counsel. Under the settlement, the Company reaffirmed its previously announced
obligation to pay the former limited partners of Fund II, or their assignees or transferees, the loans which were made and called by the former general partner of Fund II as part of the Consolidation.
Pursuant to the settlement, the Company established a definitive repayment plan and secured the repayment obligation with a second deed of trust on an office building owned by the Company. The
repayment plan consists of a promissory note in the amount of $8,800,000 (the amount of such loans, plus interest as of December 31, 2002), which shall accrue interest at 6% per annum.
Interest-only payments, which are payable quarterly, commenced June 2, 2002. The note may be prepaid in whole or in part at any time without penalty.

Impairment of real estate assets held for investment.During 2002 the Company recorded impairment charges related to
properties held for investment totaling $1,403,000 on the Company's two remaining shopping center properties located in South Carolina. The impairment was based on an estimated decrease in the fair
market value of the properties. No impairment charges were recorded during 2003 related to properties held for investment.

Net loss on sale of real estate assets.The Company recorded a $47,000 net loss on sales of real estate assets during 2002.
The Company recorded a $348,000 loss attributable to the sale of Beach & Lampson, a shopping center property sold in April 2002. This loss was partially offset by the recognition of a
$232,000 deferred gain associated with the sale of the Tower Industrial property and a $69,000 gain as a result of compensation for a strip of land condemned for highway purposes at one of its office
properties.

Net gain (loss) on extinguishment of debt.During 2003, in connection with the refinance of an office property in Houston,
Texas, the Company recorded a loss on early extinguishment of debt of $145,000 related to the write-off of an unamortized loan discount and a prepayment penalty. During 2002, in connection
with the refinance of an industrial property in Houston, Texas, the Company recorded a gain on early extinguishment of debt of $131,000 related to the write-off of an unamortized loan
premium.

Income taxes.The Company recognized a deferred income tax expense of $278,000 for 2003 and a deferred income tax benefit
$5,591,000 for 2002. In 2002, management reevaluated an earlier decision and determined that it may sell certain of the Company's real estate assets outside of tax-deferred exchanges. If
the Company elects REIT status, during the 10-year period following such election, the Company will be subject to an entity level tax on the income it recognizes upon the sale of assets
contributed by certain

20

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partnerships
that it held before electing REIT status in an amount up to the amount of the built-in gains at the time the Company becomes a REIT. The potential tax related to this
built-in gain for book purposes was approximately $13,165,000. Therefore, in 2002, the Company recognized a deferred tax liability for this potential tax and recorded this liability as a
charge to equity. In addition, based on the current strategic plans of the Company, management has determined that it was more likely than not that future taxable income, primarily from the gain on
the sale of real estate assets, would be sufficient to enable the Company to realize all of its deferred tax assets which is primarily the tax benefit of net operating loss carryforwards. Therefore,
as of December 31, 2002 and 2003, no valuation allowance was recorded and the valuation allowance previously recorded in 2001 was reversed in 2002. The tax effect of the impairments recorded,
the reversal of the previously recorded allowance, and the tax benefits of the current year tax assets have been recorded in the statement of operations as an income tax benefit.

Minority interest.The share of loss for the year ended December 31, 2003 of the holders of OP Units was $2,124,000
compared to $935,000 for the year ended December 31, 2002. The 2003 loss represents an average of 12.9% limited partner interest in the Operating Partnership not held by the Company during
2003. The 2002 loss represents the 11.6% limited partner interest in the Operating Partnership not held by the Company during 2002.

Discontinued operations.The Company recorded a net loss from the operations of discontinued operations of $1,762,000 for the
year ended December 31, 2003 compared to a net loss of $250,000 for the year ended December 31, 2002. The discontinued operations represent results from the fifteen properties sold or
held for sale in 2003 compared to the seventeen properties sold or held for sale in 2002. See Note 4Discontinued Operationsof the Notes to Consolidated Financial
Statements.

The
net loss from discontinued operations before net gain on sale, impairment of real estate assets and income tax benefit is summarized below.

|                                                      |  | Year Ended
December 31, 2003 |        | Year Ended
December 31, 2002 |  
|----------------------------------------------------- |  | ---------------------------- | ------ | ---------------------------- | -
|Rental revenue                                        |  | $                            | 8,632  |                              | $
|Total expenses                                        |  |                              | 10,394 |                              |  
|Loss on early extinguishment of debt                  |  |                              |       |                              |  
|Minority interest related to partially owned property |  |                              |       |                              |  
|                                                      |  |                              |        |                              |  
|Net loss from discontinued operations                 |  | $                            | (1,762 | )                            | $
|                                                      |  |                              |        |                              |  

Gain on sale of discontinued operations, impairment of real estate assets and income tax benefit.The Company sold eleven
properties (six industrial properties, two office properties, two apartment properties and one shopping center property) during the year ended December 31, 2003 for an aggregate sales price of
$61,162,000 and recognized a net gain on sale of $2,540,000, after taking into consideration an impairment charge totaling $7,500,000 recorded during 2003 related to four of the eleven properties
sold. The four properties consisted of two office and two industrial properties. The impairment was based on the anticipated sales price less cost to sell as compared to the carrying value of the
assets. The sale of the eleven properties generated net proceeds of approximately $12,080,000, of which $560,000 was used to assist the funding of an office property acquisition in a
tax-deferred exchange. The Company recorded a gain on sale of discontinued operations $1,127,000 for the year ended December 31, 2002 related to the sale of two properties (one
shopping center property and one apartment property). These two properties were sold for an aggregate sales price of $12,100,000. During 2002, the Company recorded an impairment charge of $3,343,000
related to three of the properties sold in 2003 and 2004. Income tax benefits on discontinued operations of $1,656,000 and $1,492,000 were recorded during the years ended December 31, 2003 and
2002, respectively.

21

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LIQUIDITY AND CAPITAL RESOURCES

During 2004, the Company derived cash from collection of rents, sale of an industrial property (although three properties were sold, proceeds from one property
sale were used in a tax-deferred exchange and the other sale did not generate cash proceeds), and proceeds from refinancing of debt on an office property in California (although four
properties were refinanced, only one generated cash proceeds). Major uses of cash included payment for capital improvements to real estate assets, primarily for tenant improvements, payment of
operational expenses, repayment of borrowings, purchase of an office building in Houston, Texas, and repurchase of common stock.

The
Company reported a net loss of $9,107,000 for the year ended December 31, 2004 compared to a net loss of $14,348,000 for the year ended December 31, 2003. These results
include the following non-cash items:

|                                                                   |  | Years Ended December 31, |       
|------------------------------------------------------------------ |  | ------------------------ | ------
|
|Non-Cash Charges:                                                  |  |                          |       
|Depreciation and amortization from real estate held for investment |  | $                        | 10,433
|Impairment of real estate assets                                   |  |                          |      
|Net loss on extinguishment of debt                                 |  |                          | 729   
|Deferred income tax expense                                        |  |                          |      
|Mark-to-market adjustments on interest rate protection agreements  |  |                          |      
|Deferred compensation expense                                      |  |                          | 101   
|Non-Cash Items:                                                    |  |                          |       
|Deferred income tax benefit                                        |  |                          | (2,222
|Deferred rental income                                             |  |                          | (525  
|Net gain on extinguishment of debt                                 |  |                          |      
|Minority interest                                                  |  |                          | (1,299
|Interest on receivable from principal stockholders                 |  |                          | (66   
|Amortization of loan premiums                                      |  |                          | (515  
|Amortization of note receivable discount                           |  |                          | (58   
|Mark-to-market adjustments on interest rate protection agreements  |  |                          | (65   

Net
cash provided by investing activities for the year ended December 31, 2004 amounted to $5,540,000. This amount was primarily attributable to proceeds of $10,166,000 received
from the sale of three properties during the period, partially offset by funds used for capital improvements (primarily tenant improvements) for the year ended December 31, 2004 amounting to
$4,516,000. Net cash provided by investing activities of $27,518,000 during 2003 consisted of $40,179,000 in proceeds generated from property sales, partially offset by (i) funding of capital
expenditures of $3,779,000, primarily for tenant build-outs, (ii) acquisition of properties of $7,174,000 and (iii) acquisition of a note receivable secured by a property
adjacent to a property owned by the Company of $1,730,000. Net cash used in investing activities of $3,566,000 for 2002 consisted of (i) $4,407,000 paid for capital expenditures, which in large
part were related to major renovations on an apartment property (which was sold in September 2003) and (ii) $268,000 paid as part of the consideration for a property acquisition, offset
by $1,109,000 in proceeds received from the sales of real estate assets.

Net
cash used by financing activities amounted to $5,260,000 for the year ended December 31, 2004. Net funds provided from borrowings totaled $21,009,000, which consisted of
$19,976,000 to refinance debt on four properties and $1,133,000 from other borrowings, as discussed below. Scheduled principal payments for the year ended December 31, 2004 amounted to
$2,849,000. Net cash used in financing activities amounted to $21,901,000 during 2003. Repayments of borrowings of $36,937,000 during 2003 consisted of scheduled principal payments of $3,468,000,
payment of refinanced loans of $4,300,000, and repayment of loans in connection with the sale of properties of $29,169,000. Proceeds from borrowings in 2003, which totaled $15,793,000, consisted of
(i) $8,215,000 to fund the acquisition of two properties and the note receivable referred to above, (ii) $6,690,000 to refinance debt on two properties, (iii) $858,000 to

22

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fund
insurance premiums and service fees and (iv) $30,000 from an affiliate of a related party which completed the funding of an $830,000 loan on Valencia (an industrial property located in
Arizona sold in April 2003) entered into in December of 2002. The mortgage of $830,000 was repaid in conjunction with the sale of the property in April 2003. In addition, funds were used
to pay amounts due related to the Teachout settlement of $250,000, to acquire units in the Operating Partnership for $223,000, to pay off notes to former limited partners of $237,000 and to purchase
shares of common stock of the Company for $297,000 pursuant to a stock repurchase plan (see Note 16). Also, John N. Galardi, a director and principal stockholder of the Company, purchased
15,243 shares of the Company's common stock for $250,000 in May 2003. Net cash provided by financing activities amounted to $1,624,000 during 2002. Proceeds received from borrowings during 2002
totaled $24,382,000, which was primarily received from refinancing of existing debt. Repayment of borrowings during 2002, which amounted to $17,563,000, was primarily for repayment of the refinanced
debt and $3,865,000 for scheduled principal payments. Note payments to former limited partners totaling $2,055,000 and distributions totaling $3,134,000 were also made during 2002.

In
December 2004, the Company received a $532,000 loan from John N. Galardi. The note bears interest at a fixed interest rate of 12% per annum and matures in December 2005.

In
October 2004, in connection with the acquisition of an office property in Houston, Texas, the Company assumed a loan in the amount of $4,384,000. The loan bears interest at a
fixed rate of 5.93% per annum and matures in June 2014. The Company also entered into an agreement that provided for seller financing of $316,000, bearing interest at a fixed rate of 5.93% per
annum and maturing in June 2014.

In
October 2004, the Company refinanced a $1,176,000 loan on 888 Sam Houston Parkway, one of its office properties, and entered into a revolving credit promissory note in the
amount of $2,250,000, of which $1,226,000 has been drawn to cover the repayment of existing debt and financing costs. The availability on the note as of December 31, 2004 was $1,024,000. The
note bears interest at prime plus 1% per annum and matures in November 2006.

In
August 2004, the Company refinanced a $5,350,000 loan on San Felipe, one of its office properties with a new loan agreement in the amount of $5,500,000. The new loan bears
interest at a fixed rate of 5.65% per annum and matures in August 2014. The Company funded closing costs of approximately
$178,000 and escrowed $327,000 for future capital expenditures, real estate taxes and insurance related to the August 2004 refinance. Net proceeds of $2,059,000 were received in
December 2003 related to the December 2003 refinance of the original $3,000,000 loan on the property.

In
July 2004, the Company refinanced a $5,330,000 loan on Northwest Corporate Center, one of its office properties, with a new loan agreement in the amount of $5,750,000. The new
loan bears interest at a fixed rate of 6.26% per annum and matures in August 2014. No proceeds were received directly as a result of the refinance, however $350,000 is being held in escrow by
the lender to assist the funding of future capital expenditures at the property.

In
May 2004, the Company refinanced a $3,132,000 loan on Mira Mesa, one of its office properties, with a new one-year loan agreement in the amount of $7,500,000. The
new loan, which contains two six-month extension options, bears interest at a fixed rate of 7.95% per annum. Net proceeds of $3,440,000 were received as a result of the refinance.

In
May 2004, the Company financed insurance premiums of $373,000 on its properties and agreed to pay a service fee of $85,000 over one year. The insurance premium note was paid in
full in February 2005. The Company financed an additional insurance premium during 2004 of $133,000, with scheduled payments through June 2005.

In
2002, the lender under a loan agreement related to the South Carolina shopping center properties notified the Company it was technically in default under its loan agreement for
non-compliance with certain covenants, including covenants requiring improvements to shopping center properties. Thereafter, the lender notified the Company that it was in default for
failure to pay a matured portion of the loan, which matured in November 2002. In early 2003, the lender sold the loan to the major tenant in two of the

23

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shopping
centers. In December 2003, the Company sold one of the shopping center properties and repaid $3,935,000, which included the pay-off of the matured portion of the loan. As
of December 31, 2004, the remaining balance of the loan was approximately $2,756,000. The Company continues to discuss the non-compliance matter with the new lender. The new lender
has not accelerated the loan.

The
Company expects to meet its short-term liquidity requirements for normal property operating expenses and general and administrative expenses from cash generated by
operations and cash currently held. In addition, the Company anticipates capital costs to be incurred related to re-leasing space and improvements to properties, state income taxes and
other fees for professional services. The funds to meet these obligations will be obtained from proceeds of the sale of assets, refinancing activity and the use of lender held funds. Based on current
analysis, the Company believes that the cash generated by these anticipated activities will be adequate to meet these obligations. There can be no assurance, however, that these activities will occur
and that substantial
cash will be generated. If these activities do not occur, the Company will not have sufficient cash to meet its obligations if all leasing projections are met.

In
addition, as of December 31, 2004, the Company has substantial debt becoming due in 2005 and 2006. Based on the Company's historical losses and current debt level, there can be
no assurances as to the Company's ability to obtain funds necessary for the refinancing of these maturing debts. If refinancing transactions are not consummated, the Company will seek extensions
and/or modifications from the existing lenders. If these refinancings do not occur, the Company will not have sufficient cash to meet its obligations.

CONTRACTUAL OBLIGATIONS

The following table aggregates the Company's contractual obligations as of December 31, 2004 (dollars in thousands):

|                          |  | Total |         | Less than
1 year |   | 1-3 years |  | 3-5 years |        | More than
5 years
|------------------------- |  | ----- | ------- | ---------------- | - | --------- |  | --------- | ------ | -----------------
|Long-term debt(1)         |  | $     | 147,234 |                  | $ | 18,821    |  | $         | 10,952 |                  
|Litigation settlements(2) |  |       | 9,512   |                  |   |          |  |           | 9,512  |                  
|Capital expenditures(3)   |  |       | 2,620   |                  |   | 2,620     |  |           |       |                  
|Employee obligations(4)   |  |       | 167     |                  |   | 167       |  |           |       |                  
|                          |  |       |         |                  |   |           |  |           |        |                  
|Total                     |  | $     | 159,533 |                  | $ | 21,608    |  | $         | 20,464 |                  
|                          |  |       |         |                  |   |           |  |           |        |                  

---

INFLATION

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

24

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FORWARD-LOOKING STATEMENTS

This Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements are based on management's beliefs and expectations, which may not be correct. Important factors that
could cause actual results to differ materially from the expectations reflected in these forward-looking statements include the following: the Company's level of indebtedness and ability to refinance
its debt; the fact that the Company's predecessors have had a history of losses in the past; unforeseen liabilities which could arise as a result of the prior operations of companies or properties
acquired in the Consolidation; risks inherent in the Company's acquisition and development of properties in the future, including risks associated with the Company's strategy of investing in
under-valued assets; general economic, business and market conditions, including the impact of the current economic downturn; changes in federal and local laws and regulations; increased competitive
pressures; and other factors, including the factors set forth below, as well as factors set forth elsewhere in this Report on Form 10-K.

RISK FACTORS

The Company's high level of debt increases its risk of default and may have a negative impact on the results of operations. This could adversely affect the Company's ability to
make distributions and the market price of its Common Stock.

The
Company's high level of debt increases the Company's risk of default on its obligations and adversely affects the Company's funds from operations and its ability to make
distributions to its stockholders. Further, due to the high level of debt, the Company may be restricted in its ability to refinance some or all of its indebtedness and the terms of any new or
refinanced debt may not be as favorable as those of some of its existing indebtedness. The Company has a higher ratio of indebtedness to assets than many REITs. This could adversely affect the market
price for the Company's Common Stock.

The Company will need to refinance mortgage loans and sell properties to meet its obligations.

The
Company expects to require substantial cash to meet its operating requirements, including budgeted capital expenditures if the leasing projections are met. To meet these obligations,
the Company will be required to refinance mortgage indebtedness and/or sell certain assets to provide cash. The Company cannot provide assurance that it will be successful in refinancing the mortgage
indebtedness and that it will have sufficient cash to meet its obligations. In addition to fulfill the Company's growth strategy, the Company may be required to raise additional cash through debt or
equity financing.

There are risks inherent in the Company's acquisition and development strategy. The Company may not make profitable investments.

The
Company plans to pursue its growth strategy through the acquisition and development of additional properties. The Company does not know that this strategy will succeed. The Company
may have difficulty finding new properties, negotiating with new or existing tenants or securing acceptable financing. In addition, investing in additional properties is subject to many risks. Also,
the Company's acquisition strategy of investing in under-valued assets subjects the Company to increased risks. The Company may not succeed in turning around these properties. The Company may not make
a profit on these investments.

The Company has a history of losses. The Company cannot assure the stockholders that it will become profitable in the future.

The
Company has incurred losses in each of the three years ended December 31, 2004. The Company cannot assure the stockholders that it will not continue to have losses after
depreciation and amortization under generally accepted accounting principles.

25

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Real property investments entail risk. The Company's properties may not be profitable, may not result in distributions and/or may depreciate.

Properties
acquired by the Company: (i) may not operate at a profit; (ii) may not perform to the Company's expectations; (iii) may not appreciate in value;
(iv) may depreciate in value; (v) may not ever be sold at a profit; and/or (vi) may not result in dividends. The marketability and value of any properties will depend upon many
factors beyond the Company's control, including but not limited to general economic conditions, zoning laws, tax laws and the availability of financing.

The Company may not be able to enter into favorable leases upon the expiration of current leases and on current vacant space.

Over
the next three years, approximately 57% of the square footage of the Company's total rentable square footage of industrial, office and shopping center properties will expire. In
addition, 14% of the Company's total rentable square footage was vacant as of December 31, 2004 (2% of which includes Sorrento I, a vacant property classified as held for sale which was
subsequently sold on March 1, 2005). The Company may be unable to enter into leases for all or a portion of this space. If the Company enters into leases, the Company may not do so at
comparable lease rates, without incurring additional expenses. If the Company is unsuccessful in leasing the space, or cannot re-lease the space at current rental rates or higher rental
rates, it could reduce the distributions to shareholders and adversely affect the market price of the Company's Common Stock.

The Company may invest in joint ventures, which adds another layer of risk to its business.

The
Company may acquire properties through joint ventures, which could subject the Company to certain risks that may not otherwise be present if investments were made directly by the
Company. These risks include: (i) the potential that the Company's joint venture partner may not perform; (ii) the joint venture partner may have economic or business interests or goals
which are inconsistent with or adverse to those of the Company; (iii) the joint venture partner may take actions contrary to the requests or instructions of the Company or contrary to the
Company's objectives or policies; and (iv) the joint venturers may not be able to agree on matters relating to the property they jointly own.

The
Company also may participate with other investors, including possibly investment programs or other entities affiliated with management, in investments as
tenants-in-common or in some other joint ownership or venture. The risks of such joint ownership may be similar to those mentioned above for joint ventures and, in the case of
a tenancy-in-common, each co-tenant normally has the right, if an unresolvable dispute arises, to seek partition of the property, which partition might decrease the
value of each portion of the divided property.

The Company could incur unforeseen environmental liabilities.

Various federal, state and local laws and regulations subject property owners and operators to liability for reporting, investigating, remediating, and monitoring
regulated hazardous substances released on or from a property. These laws and regulations often impose strict liability without regard to whether the owner or operator knew of, or actually caused, the
release. The presence of, or the failure to properly report, investigate, remediate, or monitor hazardous substances could adversely affect the financial condition of the Company or the ability of the
Company to operate the properties. In addition, these factors could hinder the Company's ability to borrow against the properties. The presence of hazardous substances on a property also could result
in personal injury or similar claims by private plaintiffs. In addition, there are federal, state and local laws and regulations which impose requirements on the storage, use, management and disposal
of regulated hazardous materials or substances. The failure to comply with those requirements could result in the imposition of liability, including penalties or fines, on the owner or operator of the
properties. Future laws or regulations could also impose unanticipated material environmental liabilities on the Company in connection with any of the properties. The costs of complying with these
environmental laws and regulations for the Company's properties could adversely affect the Company's operating costs and, if contamination is present, the value of those properties.

26

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The Company faces intense competition in all of its markets.

Numerous
properties compete with the Company's properties in attracting tenants to lease space. Additional properties may be built in the markets in which the Company's properties are
located. The number and quality of competitive properties in a particular area will have a material effect on the Company's ability to lease space at existing properties or at newly acquired
properties and on the rents charged. Some of these competing properties may be newer or better located than the Company's properties. There are a significant number of buyers of properties, including
institutional investors and publicly traded REITs. Many of these competitors have significantly greater financial resources and experience than the Company. This has resulted in increased competition
in acquiring attractive properties. This competition can adversely affect the Company's ability to acquire properties and increase its distributions.

The Company may never elect REIT status.

The Company is not required to make a REIT election and the Board of Directors may determine not to make a REIT election. The Company is currently taxed as a C
corporation and subject to a corporate income tax. Distributions to stockholders are also subject to tax. If the Company qualifies as a REIT, it will cease to be taxed as a C corporation. If the
Company does not elect REIT status, the Company will pay federal and possibly state income taxes on its taxable income. The Company could fail to qualify as a REIT if it fails to meet certain asset,
distribution and share ownership tests. The Company has taken and expects to continue to take certain actions in order to retain its ability to qualify as a REIT. Maintaining this status could
adversely affect the Company's ability to pursue its business objectives by precluding certain uses of cash which otherwise might be preferable. Likewise, if the Company chooses to disregard these
actions in favor of pursuing certain business objectives, such
action could preclude the Company's ability to qualify as a REIT in the future. There can be no assurance that the Company will qualify as a REIT or will choose to make such election if it does
qualify.

If the Company elects REIT status, it may incur additional taxes at the time of such election.

A
REIT is subject to an entity level tax for a ten-year period on the sale of property with a fair market value in excess of basis it held before electing REIT status. If the
Company elects REIT status, during the 10-year period following such election, the Company will be subject to an entity level tax on the income it recognizes upon the sale of assets
including all the assets transferred to it as part of the consolidation it held before electing REIT status in an amount up to the amount of the built-in gains at the time the Company
becomes a REIT.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATES

The Company's primary market risk exposure is to changes in interest rates obtainable on its secured and unsecured borrowings.

It
is the Company's policy to manage its exposure to fluctuations in market interest rates for its borrowings through the use of fixed rate debt instruments to the extent that reasonably
favorable rates are obtainable with such arrangements. In order to maximize financial flexibility when selling properties and minimize potential prepayment penalties on fixed rate loans, the Company
has also entered into variable rate debt arrangements.

The
Company had no swap contracts at December 31, 2004. As of December 31, 2003, the Company had interest rate swap contracts in notional amounts of approximately
$9,600,000 on properties that were sold or refinanced in 2004. The interest rate swap contracts were reflected at fair value on the Company's balance sheet in accrued and other liabilities and the
changes in the fair value of the hedge were recognized as adjustments to interest expense. During the years ended December 31, 2004 and 2003, the Company recorded a benefit of $65,000 and a
charge of $162,000, respectively, attributable to changes in the fair value of its derivatives financial instruments.

27

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At
December 31, 2004, the Company's total indebtedness included fixed-rate debt of approximately $153,935,000 and floating-rate indebtedness of
approximately $5,165,000. The Company continually reviews the portfolio's interest rate exposure in an effort to minimize the risk of interest rate fluctuations. The Company does 1not have any other
material market-sensitive financial instruments.

The
table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates. Weighted average variable rates are based on rates in effect at the reporting date.

|                      |  | Expected Maturity Date
|--------------------- |  | ----------------------
|
|
|Secured Fixed         |  | $                     
|Average interest rate |  |                       
|Secured Variable      |  | $                     
|Average interest rate |  |                       
|Unsecured Fixed       |  | $                     
|Average interest rate |  |                       
|Bonds                 |  | $                     
|Average interest rate |  |                       

The Company believes that the fair values of such instruments approximate carrying value at December 31, 2004.

A
change of 1.00% in the index rate to which the Company's variable rate debt is tied would change the annual interest incurred by the Company by $51,654, or $.03 per share, based upon
the balances outstanding on variable rate instruments and the weighted average number of common shares outstanding at December 31, 2004.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this Form 10-K. See Item 15.Exhibits,
Financial Statement Schedules And Reports On Form 8-K.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

Since December 31, 2004, management, including the Company's Chief Executive Officer and Acting Chief Financial Officer, evaluated the effectiveness of the
Company's disclosure controls and procedures. Based on such evaluation, as of December 31, 2004, the Chief Executive Officer and Acting Chief Financial Officer concluded that the disclosure
controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.

There
have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation
referred to above.

28

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 is incorporated by reference from the Company's definitive proxy statement to be filed on or before April 6, 2005 for
its annual stockholder's meeting to be held May 6, 2005.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by reference from the Company's definitive proxy statement to be filed on or before April 6, 2005 for
its annual stockholder's meeting to be held May 6, 2005.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is incorporated by reference from the Company's definitive proxy statement to be filed on or before April 6, 2005 for
its annual stockholder's meeting to be held May 6, 2005.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated by reference from the Company's definitive proxy statement to be filed on or before April 6, 2005 for
its annual stockholder's meeting to be held May 6, 2005.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is incorporated by reference from the Company's definitive proxy statement to be filed on or before April 6, 2005 for
its annual stockholder's meeting to be held May 6, 2005.

29

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

|        |  |                                                                                                                    |  | Page No.
|------- |  | ------------------------------------------------------------------------------------------------------------------ |  | --------
|(a) (1) |  | Financial Statements                                                                                               |  |         
|        |  | Report of Independent Registered Public Accounting Firm                                                            |  | 31      
|        |  | Consolidated Balance Sheets at December 31, 2004, and 2003                                                         |  | 32      
|        |  | Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002                         |  | 33      
|        |  | Consolidated Statements of Stockholders' and Partners' Equity for the years ended December 31, 2004, 2003 and 2002 |  | 34      
|        |  | Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003, and 2002                        |  | 35      
|        |  | Notes to Consolidated Financial Statements                                                                         |  | 37      
|(2)     |  | Financial Statement Schedules                                                                                      |  |         
|        |  | Schedule II  Valuation and Qualifying Accounts                                                                    |  | 64      
|        |  | Schedule III  Real Estate and Accumulated Depreciation                                                            |  | 65      
|(3)     |  | Exhibits to Financial Statements                                                                                   |  |         
|        |  | The Exhibit Index attached hereto is hereby incorporated by reference to this Item.                                |  | 69      
|        |  | On October 12, 2004, a report on Form 8-K was filed with respect to Item 8.01.                                     |  |         
|        |  | On October 26, 2004 a report on Form 8-K was filed with respect to Item 8.01.                                      |  |         
|        |  | On November 15, 2004, a report on Form 8-K was filed with respect to Item 2.02.                                    |  |         
|        |  | On December 20, 2004, a report on Form 8-K was filed with respect to Item 8.01.                                    |  |         
|(b)     |  | Exhibits                                                                                                           |  |         

30

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
American Spectrum Realty, Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheets of American Spectrum Realty, Inc. as of December 31, 2004 and 2003 and the related
consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. We have also audited the schedules listed in the
accompanying index. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules
based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and schedules are free of material misstatement. An audit includes consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.

As
more fully described in Note 19, the Company needs to sell assets to fund the cash requirements for other than normal property operations and refinance or extend debt as it
matures.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Spectrum Realty, Inc. at
December 31, 2004 and 2003, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004,in conformity with accounting
principles generally accepted in the United States of America.

Also,
in our opinion, the schedules present fairly, in all material respects, the information set forth therein.

/s/ BDO Seidman, LLP

Dallas,
Texas
February 25, 2005

31

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AMERICAN SPECTRUM REALTY, INC.        CONSOLIDATED BALANCE SHEETS        (Dollars in thousands, except share amounts)

|                                                                                                                                                                              |                                            | December 31, 2004                                               |                            | December 31, 2003 |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------------------------------------------------- | -------------------------- | ----------------- | -------
|ASSETS                                                                                                                                                                        |                                            |                                                                 |                            |                   |        
|Real estate held for investment                                                                                                                                               |                                            | $                                                               | 195,834                    |                   | $      
|Accumulated depreciation                                                                                                                                                      |                                            |                                                                 | 27,303                     |                   |        
|                                                                                                                                                                              |                                            |                                                                 |                            |                   |        
|Real estate held for investment, net                                                                                                                                          |                                            |                                                                 | 168,531                    |                   |        
|Real estate held for sale                                                                                                                                                     |                                            |                                                                 | 2,595                      |                   |        
|Cash and cash equivalents                                                                                                                                                     |                                            |                                                                 | 589                        |                   |        
|Tenant and other receivables, net of allowance for doubtful accounts of $223 and $147, respectively (including $244 and $271, respectively, from related party)               |                                            |                                                                 | 721                        |                   |        
|Mortgage loan receivable, net of discount of $0 and $83, respectively                                                                                                         |                                            |                                                                 |                           |                   |        
|Deferred rents receivable                                                                                                                                                     |                                            |                                                                 | 1,566                      |                   |        
|Insurance proceeds receivable  litigation settlement                                                                                                                         |                                            |                                                                 |                           |                   |        
|Investment in management company                                                                                                                                              |                                            |                                                                 | 4,000                      |                   |        
|Prepaid and other assets, net                                                                                                                                                 |                                            |                                                                 | 9,543                      |                   |        
|                                                                                                                                                                              |                                            |                                                                 |                            |                   |        
|                                                                                                                                                                              |                                            |                                                                 | Total Assets               |                   | $      
|                                                                                                                                                                              |                                            |                                                                 |                            |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                          |                                            |                                                                 |                            |                   |        
|Liabilities:                                                                                                                                                                  |                                            |                                                                 |                            |                   |        
|Notes payable, including premiums of $2,355 and $2,945, respectively                                                                                                          |                                            | $                                                               | 149,589                    |                   | $      
|Notes payable, litigation settlement                                                                                                                                          |                                            |                                                                 | 9,512                      |                   |        
|Liabilities related to real estate held for sale                                                                                                                              |                                            |                                                                 | 1,712                      |                   |        
|Litigation settlement payable                                                                                                                                                 |                                            |                                                                 |                           |                   |        
|Accounts payable                                                                                                                                                              |                                            |                                                                 | 2,330                      |                   |        
|Deferred tax liability                                                                                                                                                        |                                            |                                                                 | 1,109                      |                   |        
|Accrued and other liabilities (including $185 and $579, respectively, to related parties)                                                                                     |                                            |                                                                 | 6,374                      |                   |        
|                                                                                                                                                                              |                                            |                                                                 |                            |                   |        
|                                                                                                                                                                              |                                            |                                                                 | Total Liabilities          |                   |        
|                                                                                                                                                                              |                                            |                                                                 |                            |                   |        
|Minority interest                                                                                                                                                             |                                            |                                                                 | 5,492                      |                   |        
|Commitments and Contingencies:                                                                                                                                                |                                            |                                                                 |                            |                   |        
|Redeemable Common Stock                                                                                                                                                       |                                            |                                                                 |                           |                   |        
|Stockholders' Equity:                                                                                                                                                         |                                            |                                                                 |                            |                   |        
|Preferred stock, $.01 par value; authorized, 25,000,000 shares, none issued and outstanding                                                                                   |                                            |                                                                 |                           |                   |        
|Common stock, $.01 par value; authorized, 100,000,000 shares; issued, 1,597,160 and 1,578,224 shares, respectively; outstanding, 1,509,801 and 1,555,442 shares, respectively |                                            |                                                                 | 16                         |                   |        
|                                                                                                                                                                              |                                            | Additional paid-in capital                                      |                            |                   | 46,031 
|                                                                                                                                                                              |                                            | Accumulated deficit                                             |                            |                   | (32,623
|                                                                                                                                                                              |                                            | Receivable from principal stockholders                          |                            |                   | (950   
|                                                                                                                                                                              |                                            | Deferred compensation                                           |                            |                   | (55    
|                                                                                                                                                                              |                                            | Treasury stock, at cost, 87,359 and 22,782 shares, respectively |                            |                   | (992   
|                                                                                                                                                                              |                                            |                                                                 |                            |                   |        
|                                                                                                                                                                              |                                            |                                                                 | Total Stockholders' Equity |                   |        
|                                                                                                                                                                              |                                            |                                                                 |                            |                   |        
|                                                                                                                                                                              | Total Liabilities and Stockholders' Equity |                                                                 | $                          | 187,545           |        
|                                                                                                                                                                              |                                            |                                                                 |                            |                   |        

The
accompanying notes are an integral part of these consolidated financial statements

32

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AMERICAN SPECTRUM REALTY, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (Dollars in thousands, except per share and unit amounts)

|                                                                                                     |                                                | Years Ended December 31,          |          
|---------------------------------------------------------------------------------------------------- | ---------------------------------------------- | --------------------------------- | ---------
|
|REVENUES:                                                                                            |                                                |                                   |          
|Rental revenue                                                                                       |                                                | $                                 | 26,923   
|Interest and other income                                                                            |                                                |                                   | 235      
|                                                                                                     |                                                |                                   |          
|                                                                                                     |                                                | Total revenues                    |          
|                                                                                                     |                                                |                                   |          
|EXPENSES:                                                                                            |                                                |                                   |          
|Property operating expense                                                                           |                                                |                                   | 10,582   
|General and administrative                                                                           |                                                |                                   | 4,438    
|Depreciation and amortization                                                                        |                                                |                                   | 10,433   
|Interest expense                                                                                     |                                                |                                   | 11,996   
|Litigation settlement                                                                                |                                                |                                   |         
|Impairment of real estate assets                                                                     |                                                |                                   |         
|                                                                                                     |                                                |                                   |          
|                                                                                                     |                                                | Total expenses                    |          
|                                                                                                     |                                                |                                   |          
|OTHER INCOME (LOSS):                                                                                 |                                                |                                   |          
|Net loss on sale of real estate assets                                                               |                                                |                                   |         
|Net (loss) gain on extinguishment of debt                                                            |                                                |                                   | (729     
|                                                                                                     |                                                |                                   |          
|                                                                                                     |                                                | Total other income (loss)         |          
|                                                                                                     |                                                |                                   |          
|Net loss before deferred income tax (expense) benefit, minority interest and discontinued operations |                                                |                                   | (11,020  
|Deferred income tax (expense) benefit                                                                |                                                |                                   | 2,222    
|                                                                                                     |                                                |                                   |          
|Net loss before minority interest and discontinued operations                                        |                                                |                                   | (8,798   
|Minority interest                                                                                    |                                                |                                   | 1,299    
|                                                                                                     |                                                |                                   |          
|Net loss before discontinued operations                                                              |                                                |                                   | (7,499   
|Discontinued operations:                                                                             |                                                |                                   |          
|                                                                                                     | Loss from discontinued operations              |                                   |          
|                                                                                                     | (Loss) gain on sale of discontinued operations |                                   |          
|                                                                                                     | Impairment of real estate assets               |                                   |          
|                                                                                                     | Income tax benefit                             |                                   |          
|                                                                                                     |                                                |                                   |          
|                                                                                                     |                                                | Loss from discontinued operations |          
|                                                                                                     |                                                |                                   |          
|                                                                                                     |                                                | Net loss                          |          
|                                                                                                     |                                                |                                   |          
|Basic and diluted per share data:                                                                    |                                                |                                   |          
|                                                                                                     | Net loss before discontinued operations        |                                   | $        
|                                                                                                     | Loss from discontinued operations              |                                   |          
|                                                                                                     |                                                |                                   |          
|                                                                                                     | Net loss                                       |                                   | $        
|                                                                                                     |                                                |                                   |          
|Basic weighted average shares used                                                                   |                                                |                                   | 1,551,189

The
accompanying notes are an integral part of these consolidated financial statements

33

---





AMERICAN SPECTRUM REALTY INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' AND PARTNERS' EQUITY        (Dollars in thousands)

|                                                                   |  | Common
Stock |    | Additional
Paid-In
Capital |   | Accumulated
Deficit |   | Deferred
Compensation |         | Receivable
from
Principal
Stockholders |   | Treasury
Stock |   | Total
Equity |       
|------------------------------------------------------------------ |  | ------------ | -- | -------------------------- | - | ------------------- | - | --------------------- | ------- | -------------------------------------- | - | -------------- | - | ------------ | ------
|Balance, December 31, 2001                                         |  | $            | 14 |                            | $ | 56,543              |   | $                     | (2,038  | )                                      | $ | (1,415         | ) | $            |      
|Purchase adjustment related to consolidation transaction           |  |              |   |                            |   | (13,165             | ) |                       |        |                                        |   |               |   |              |      
|Issuance of common stock to officer                                |  |              |   |                            |   | 70                  |   |                       |        |                                        |   | (70            | ) |              |      
|Common stock repurchase                                            |  |              |   |                            |   |                    |   |                       |        |                                        |   |               |   |              |      
|Retirement of common stock                                         |  |              |   |                            |   | (14                 | ) |                       |        |                                        |   |               |   |              |      
|Receivable from principal stockholders                             |  |              |   |                            |   | 1,188               |   |                       |        |                                        |   |               |   |              | (1,188
|Amortization of deferred compensation                              |  |              |   |                            |   |                    |   |                       |        |                                        |   | 834            |   |              |      
|Dividends to common stockholders                                   |  |              |   |                            |   | (2,772              | ) |                       |        |                                        |   |               |   |              |      
|Net loss                                                           |  |              |   |                            |   |                    |   |                       | (7,130  | )                                      |   |               |   |              |      
|                                                                   |  |              |    |                            |   |                     |   |                       |         |                                        |   |                |   |              |       
|Balance, December 31, 2002                                         |  |              | 14 |                            |   | 41,850              |   |                       | (9,168  | )                                      |   | (651           | ) |              | (1,188
|Issuance of common stock                                           |  |              |   |                            |   | 250                 |   |                       |        |                                        |   |               |   |              |      
|Conversion of operating partnership units to common stock          |  |              | 1  |                            |   | 1,681               |   |                       |        |                                        |   |               |   |              |      
|Conversion of debt to common stock                                 |  |              | 1  |                            |   | 2,130               |   |                       |        |                                        |   |               |   |              |      
|Restricted stock forfeited                                         |  |              |   |                            |   |                    |   |                       |        |                                        |   | 124            |   |              |      
|Acquisition of minority interest in the operating partnership      |  |              |   |                            |   | (147                | ) |                       |        |                                        |   |               |   |              |      
|Common stock repurchase                                            |  |              |   |                            |   |                    |   |                       |        |                                        |   |               |   |              |      
|Amortization of deferred compensation                              |  |              |   |                            |   |                    |   |                       |        |                                        |   | 332            |   |              |      
|Accrued interest on receivable from principal stockholders         |  |              |   |                            |   |                    |   |                       |        |                                        |   |               |   |              | (3    
|Fractional shares payments due on one-for-four reverse stock split |  |              |   |                            |   | (22                 | ) |                       |        |                                        |   |               |   |              |      
|Net loss                                                           |  |              |   |                            |   |                    |   |                       | (14,348 | )                                      |   |               |   |              |      
|                                                                   |  |              |    |                            |   |                     |   |                       |         |                                        |   |                |   |              |       
|Balance, December 31, 2003                                         |  |              | 16 |                            |   | 45,742              |   |                       | (23,516 | )                                      |   | (195           | ) |              | (1,191
|Issuance of common stock                                           |  |              |   |                            |   | 71                  |   |                       |        |                                        |   |               |   |              |      
|Conversion of operating partnership units to common stock          |  |              |   |                            |   | 218                 |   |                       |        |                                        |   |               |   |              |      
|Common stock repurchase                                            |  |              |   |                            |   |                    |   |                       |        |                                        |   |               |   |              |      
|Restricted stock forfeited                                         |  |              |   |                            |   |                    |   |                       |        |                                        |   | 39             |   |              |      
|Amortization of deferred compensation                              |  |              |   |                            |   |                    |   |                       |        |                                        |   | 101            |   |              |      
|Payments on receivable from principal stockholders                 |  |              |   |                            |   |                    |   |                       |        |                                        |   |               |   |              | 241   
|Net loss                                                           |  |              |   |                            |   |                    |   |                       | (9,107  | )                                      |   |               |   |              |      
|                                                                   |  |              |    |                            |   |                     |   |                       |         |                                        |   |                |   |              |       
|Balance, December 31, 2004                                         |  | $            | 16 |                            | $ | 46,031              |   | $                     | (32,623 | )                                      | $ | (55            | ) | $            | (950  
|                                                                   |  |              |    |                            |   |                     |   |                       |         |                                        |   |                |   |              |       

The accompanying notes are an integral part of these consolidated financial statements

34

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AMERICAN SPECTRUM REALTY, INC        CONSOLIDATED STATEMENTS OF CASH FLOWS        (Dollars in thousands)

|                                                                            |                                                                       | Years Ended December 31,                                                       |       
|--------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |                                                                       |                                                                                |       
|Net loss                                                                    |                                                                       | $                                                                              | (9,107
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                       |                                                                                |       
|                                                                            | Loss from discontinued operations                                     |                                                                                |       
|                                                                            | Depreciation and amortization                                         |                                                                                |       
|                                                                            | Impairment of real estate assets                                      |                                                                                |       
|                                                                            | Net gain on sales of real estate assets                               |                                                                                |       
|                                                                            | Loss (gain) on extinguishment of debt                                 |                                                                                |       
|                                                                            | Deferred income tax (benefit) expense                                 |                                                                                |       
|                                                                            | Deferred rental income                                                |                                                                                |       
|                                                                            | Minority interest                                                     |                                                                                |       
|                                                                            | Deferred compensation expense                                         |                                                                                |       
|                                                                            | Mark to market adjustments on swap agreements                         |                                                                                |       
|                                                                            | Interest on receivable from principal stockholders                    |                                                                                |       
|                                                                            | Amortization of note payable premiums, included in interest expense   |                                                                                |       
|                                                                            | Amortization of note receivable discount, included in interest income |                                                                                |       
|Changes in operating assets and liabilities:                                |                                                                       |                                                                                |       
|                                                                            | (Increase) decrease in tenant and other receivables                   |                                                                                |       
|                                                                            | (Decrease) increase in accounts payable                               |                                                                                |       
|                                                                            | Increase in prepaid and other assets                                  |                                                                                |       
|                                                                            | Increase (decrease) in accrued and other liabilities                  |                                                                                |       
|                                                                            |                                                                       |                                                                                |       
|                                                                            |                                                                       | Net cash used in operating activities  continuing operations:                 |       
|                                                                            |                                                                       |                                                                                |       
|                                                                            |                                                                       | Net cash (used in) provided by operating activities  discontinued operations: |       
|                                                                            |                                                                       |                                                                                |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |                                                                       |                                                                                |       
|Capital improvements to real estate assets                                  |                                                                       |                                                                                | (4,516
|Real estate acquisitions                                                    |                                                                       |                                                                                | (138  
|Proceeds received from sales of real estate assets                          |                                                                       |                                                                                | 10,166
|Collections on mortgage loan receivable                                     |                                                                       |                                                                                | 28    
|Mortgage loan receivable acquisition                                        |                                                                       |                                                                                |      
|                                                                            |                                                                       |                                                                                |       
|                                                                            |                                                                       | Net cash provided by (used in) investing activities:                           |       
|                                                                            |                                                                       |                                                                                |       
|                                                                            |                                                                       |                                                                                |       

35

---



|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                                                      |         |   |        |         |   |         |         |  
|---------------------------------------------------------------------------------------- |  | ---------------------------------------------------- | ------- | - | ------ | ------- | - | ------- | ------- | -
|Proceeds from borrowings  refinances                                                    |  |                                                      | 19,976  |   |        | 6,690   |   |         | 23,246  |  
|Proceeds from borrowings  real estate acquisitions                                      |  |                                                      |        |   |        | 8,215   |   |         |        |  
|Proceeds from borrowings  other                                                         |  |                                                      | 1,133   |   |        | 888     |   |         | 1,136   |  
|Repayment of borrowings  property sales                                                 |  |                                                      | (7,041  | ) |        | (29,169 | ) |         |        |  
|Repayment of borrowings  refinance                                                      |  |                                                      | (15,796 | ) |        | (4,300  | ) |         | (13,698 | )
|Repayment of borrowings  scheduled payments                                             |  |                                                      | (2,849  | ) |        | (3,468  | ) |         | (3,865  | )
|Note payments to former limited partners                                                 |  |                                                      | (141    | ) |        | (237    | ) |         | (2,055  | )
|Repurchase of common stock                                                               |  |                                                      | (532    | ) |        | (297    | ) |         | (14     | )
|Note payments on litigation settlement                                                   |  |                                                      |        |   |        | (250    | ) |         |        |  
|Distributions to common stockholders                                                     |  |                                                      |        |   |        |        |   |         | (2,772  | )
|Distributions to unitholders in the operating partnership                                |  |                                                      |        |   |        |        |   |         | (362    | )
|Issuance of common stock                                                                 |  |                                                      |        |   |        | 250     |   |         |        |  
|Acquisition of minority interest in the operating partnership                            |  |                                                      |        |   |        | (223    | ) |         |        |  
|Collection of advance to affiliate                                                       |  |                                                      |        |   |        |        |   |         | 8       |  
|                                                                                         |  |                                                      |         |   |        |         |  
|                                                                                         |  | Net cash (used in) provided by financing activities: |         |   | (5,260 | )       |   | (21,901 | )       |  
|                                                                                         |  |                                                      |         |   |        |         |  
|Increase (decrease) in cash                                                              |  |                                                      | (2,348  | ) |        | 2,149   |   |         | (1,496  | )
|Cash, beginning of period                                                                |  |                                                      | 2,937   |   |        | 788     |   |         | 2,284   |  
|                                                                                         |  |                                                      |         |   |        |         |  
|Cash, end of period                                                                      |  | $                                                    | 589     |   | $      | 2,937   |   | $       | 788     |  
|                                                                                         |  |                                                      |         |   |        |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                       |  |                                                      |         |   |        |         |   |         |         |  
|Cash paid for interest                                                                   |  | $                                                    | 11,628  |   | $      | 12,632  |   | $       | 13,435  |  
|Cash paid for income taxes                                                               |  |                                                      | 268     |   |        | 36      |   |         | 38      |  
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                  |  |                                                      |         |   |        |         |   |         |         |  
|Financing in connection with acquisitions of real estate assets                          |  | $                                                    | 4,384   |   | $      | 6,909   |   | $       | 10,818  |  
|Note receivable settled through acquisition of real estate asset                         |  |                                                      | 1,722   |   |        |        |   |         |        |  
|Financing settled through divestitures                                                   |  |                                                      |        |   |        | 16,885  |   |         |        |  
|Deposit held in escrow used for acquisition of real estate asset                         |  |                                                      | 1,191   |   |        |        |   |         |        |  
|Trust deed note receivable from sale of real estate asset                                |  |                                                      |        |   |        |        |   |         | 1,100   |  
|Conversion of debt to related parties into common stock                                  |  |                                                      |        |   |        | 2,131   |   |         |        |  
|Conversion of operating partnership units into common stock                              |  |                                                      | 218     |   |        | 1,682   |   |         |        |  
|Issuance of common stock in acquisition of real estate asset                             |  |                                                      | 71      |   |        |        |   |         |        |  
|Issuance of operating partnership units in acquisitions of real estate assets            |  |                                                      |        |   |        | 1,572   |   |         |        |  
|Payable to principal shareholders offset against receivable from principal shareholders  |  |                                                      | 241     |   |        |        |   |         |        |  
|Receivable from related party regarding certain issues asserted by principal shareholder |  |                                                      |        |   |        | 270     |   |         |        |  

The
accompanying notes are an integral part of these consolidated financial statements

36

---





AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements

NOTE 1. DESCRIPTION OF BUSINESS

GENERAL

American Spectrum Realty, Inc. ("ASR" or the "Company") is a Maryland corporation established on August 8, 2000. The Company is a
full-service real estate corporation, which owns, manages and operates income-producing properties. Substantially all of the Company's assets are held through an operating partnership (the
"Operating Partnership") in which the Company, as of December 31, 2004, holds a .91% general partner interest and an 86.59% limited partnership interest. As of December 31, 2004, through
its majority-owned subsidiary, the Operating Partnership, the Company owned and operated 25 properties, which consisted of 18 office buildings, four industrial properties, two shopping centers, and
one apartment complex. The 25 properties are located in seven states.

During
2004, the Company sold three properties, which consisted of one office building, one industrial property and a parcel of undeveloped land, and acquired two office buildings in
Houston, Texas. During 2003, the Company sold eleven properties, which consisted of two apartment complexes, two office buildings, six industrial properties and one shopping center, and acquired four
office buildings in Houston, Texas. During 2002, the Company sold two shopping center properties and one apartment property, and purchased three office properties in Houston, Texas. The property sales
are part of the Company's strategy to sell its non-core property typesapartment and shopping center propertiesand to sell its properties located in the Midwest
and Carolina's, its non-core markets. The Company will focus primarily on office and industrial properties located in Texas, California and Arizona.

The
Company is the sole general partner of the Operating Partnership. As the sole general partner of the Operating Partnership, the Company generally has the exclusive power to manage
and conduct the business of the Operating Partnership under its partnership agreement. The Company's interest as a limited partner in the Operating Partnership entitles it to share in any cash
distributions from, and in profits and losses of, the Operating Partnership. If the Company receives any distributions from the Operating Partnership, it will, in turn, pay dividends to its common
stockholders so that the amount of dividends paid on each share of common stock equals the amount of distributions paid on each limited partnership unit in the Operating Partnership ("OP Unit"). Most
of the properties are owned by the Operating Partnership through subsidiary limited partnerships or limited liability companies.

Holders
of the OP Units have the option to redeem their units and to receive, at the option of the Company, in exchange for each four OP Units (i) one share of Common Stock of the
Company, or (ii) cash equal to the market value of one share of Common Stock of the Company at the date of conversion, but no fractional shares will be issued.

Management
continues to consider whether it is in the best interest of the Company to elect to be treated as a real estate investment trust (or REIT), as defined under the Internal
Revenue Code of 1986, as amended. The Company currently operates in a manner that will permit it to elect REIT status; however, the Company may enter into transactions which will preclude it from
electing REIT status in the future. In general, a REIT is a company that owns or provides financing for real estate and pays annual distributions to investors of at least 90% of its taxable income. A
REIT typically is not subject to federal income taxation on its net income, provided applicable income tax requirements are satisfied. For the tax year 2004, the Company was taxed as a C corporation.
It is anticipated that the Company will be taxed as a C corporation for the 2005 tax year.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.

37

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All
significant intercompany transactions, receivables and payables have been eliminated in consolidation.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform with the current year presentation. In accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which was effective for the Company beginning January 1, 2002, real estate designated as held for sale subsequent to January 1,
2002 will be accounted for in accordance with the provisions of SFAS No. 144 and the results of operations of these properties are included in income from discontinued operations. Prior periods
have been reclassified for comparability, as required.

Pursuant
to a one-for-four stock split of the Company's Common Stock, every four shares of Common Stock outstanding as of the close of business on March 1,
2004 became one share of new post-split Common Stock. Share and per share data (except par value) in the consolidated financial statements and notes for all periods presented have been
adjusted to reflect the reverse stock split.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of
operations during the reporting period. Actual results could materially differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 153,Exchanges of Nonmonetary Assetsan amendment of APB Opinion
No. 29,to address the measurement of exchanges of nonmonetary assets. SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring after June 30, 2005. The
adoption of SFAS No. 153 is not expected to have a material impact on the Company's consolidated financial statements.

In
December 2004, the FASB revised SFAS No. 123,Share-Based Payment("SFAS No. 123R"). SFAS No. 123R is a
revision of SFAS No. 123 and supersedes APB No. 25. SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. That cost will be recognized over the period in which an employee is required to provide service in exchange for the award.
SFAS No. 123R also requires a public entity to initially measure the cost of employee services rendered in exchange for an award of liability instruments at its current fair value. The fair
value of that award is to be remeasured subsequently at each reporting date through the settlement date. Changes in the fair value during the required service period are to be recognized as
compensation cost over that period. The adoption of SFAS No. 123R is not expected to have a material impact on the Company's consolidated financial statements.

38

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REAL ESTATE

Rental properties are stated at cost, net of accumulated depreciation, unless circumstances indicate that cost, net of accumulated depreciation, cannot be
recovered, in which case the carrying value of the property is reduced to estimated fair value. Estimated fair value (i) is based upon the Company's plans for the continued operation of each
property and (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates multiplied by annualized
net operating income based upon the age, construction and use of the building. The fulfillment of the Company's plans related to each of its properties is dependent upon, among other things, the
presence of economic conditions which will enable the Company to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in
the economy, actual results of operating and disposing of the Company's properties could be materially different from current expectations.

Depreciation
is provided using the straight-line method over the useful lives of the respective assets. The useful lives are as follows:

Building and Improvements

5 to 40 yearsTenant Improvements

Term of the related leaseFurniture and Equipment

3 to 5 years


CASH EQUIVALENTS

Cash equivalents include all highly liquid investments with a maturity of three months or less at the date of purchase.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalents, tenant and other receivables, a mortgage loan receivable, notes payable, accounts
payable and accrued expenses. Management believes that the carrying value of the Company's financial instruments approximate their respective fair market values at December 31, 2004 and
December 31, 2003.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company follows Statement of Financial Accounting Standard No. 133, as amended, which establishes accounting and reporting standards for derivative
financial instruments, including certain derivative instruments embedded in other contracts and hedging activities. All derivatives, whether designed as hedging relationships or not, are required to
be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged
risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income
and ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

The
Company had no swap contracts at December 31, 2004. At December 31, 2003, the Company had interest rate swap contracts in notional amounts of approximately $9,600,000.
The interest rate swap contracts were reflected at fair value on the Company's balance sheet in accrued and other liabilities and the changes in the fair value of the hedge are recognized as
adjustments to interest expense. During the

39

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year
ended December 31, 2004 and 2003, the Company recorded a benefit of $65,000 and a charge of $162,000, respectively, attributable to changes in the fair value of its derivative financial
instruments.

DEFERRED FINANCING AND OTHER FEES

Fees paid in connection with the financing and leasing of the Company's properties are amortized over the term of the related note payable or lease and are
included in other assets.

STOCK-BASED COMPENSATION

The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") in October 1995. This
standard establishes a fair value approach to valuing stock options awarded to employees as compensation. In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
CompensationTransition and Disclosure" ("FAS 148"), which amended FAS 123. FAS 148 provides alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. Additionally, FAS 148 amends the disclosure requirements of FAS 123 to require prominent disclosures in the annual and
interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. FAS 148 is effective for financial
statements for fiscal years ending after December 15, 2002. In compliance with FAS 148, the Company has elected to continue to follow the intrinsic value method in accounting for its
stock-based employee compensation arrangement as defined by APB No. 25 "Accounting for Stock Issued to Employees".

The
Company has in effect its Omnibus Stock Incentive Plan (the "Plan"), which is described more fully in Note 16. The Company has elected, as permitted by FAS 123, to use
the intrinsic value based method of accounting for stock options consistent with Accounting Principles Board Opinions No. 25, "Accounting for Stock Issued to Employees". The intrinsic value
method measures compensation cost for stock options as the excess, if any, of the quoted market price of the Company's stock at the measurement date over the exercise price. No stock-based employee
compensation cost is reflected in net income related to stock options, as all options granted under the Plan had an exercise price equal to the fair market value of the underlying common stock on the
date of grant.

The
following table illustrates the effect on net income (loss) and earnings per share if the Company had applied the fair value recognition of the provisions of FAS 123 to
stock-based employee compensation (thousands of dollars):

Years Ended December 31,2004

2003

2002Net loss, as reported

$
(9,107
)
$
(14,348
)
$
(7,130
)Deduct: Employee compensation expense for stock option grants under fair value method, net of related tax effects


(145
)

(280
)

(476
)Pro forma net loss

$
(9,252
)
$
(14,628
)
$
(7,606
)Per share data:Basic and diluted, as reported

$
(5.87
)
$
(9.67
)
$
(5.16
)Basic and diluted, proforma

$
(5.96
)
$
(9.86
)
$
(5.50
)


40

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MINORITY INTEREST

Unit holders in the Operating Partnership (other than the Company) held a 12.50% and 12.61% limited partnership interest in the Operating Partnership at
December 31, 2004 and December 31, 2003, respectively. Each of the holders of the interests in the Operating Partnership (other than the Company) has the option (exercisable after the
first anniversary of the issuance of the OP Units) to redeem its OP Units and to receive, at the option of the Company, in exchange for each four OP Units, either (i) one share of Common Stock
of the Company, or (ii) cash equal to the value of one share of Common Stock of the Company at the date of conversion, but no fractional shares will be issued.

RENTAL REVENUE

Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments increase during the term of the lease. The
Company records rental income for the full term of each lease on a straight-line basis. Accordingly, a receivable is recorded from tenants equal to the excess of the amount that would have
been collected on a straight-line basis over the amount collected and currently due (Deferred Rent Receivable). When a property is acquired, the term of existing leases is considered to
commence as of the acquisition date for purposes of this calculation.

Many
of the Company's leases provide for Common Area Maintenance ("CAM")/Escalations ("ESC") as the additional tenant revenue amounts due to the Company in addition to base rent. CAM/ESC
represents increases in certain property operating expenses (as defined in each respective lease agreement) over the actual operating expense of the property in the base year. The base year is stated
in the lease agreement; typically, the year in which the lease commenced. Generally, each tenant is responsible for his prorated share of increases in operating expenses. Tenants are billed an
estimated CAM/ESC charge based on the budgeted operating expenses for the year. Within 90 days after the end of each fiscal year, a reconciliation and true up billing of CAM/ESC charges is
performed based on actual operating expenses.

The
Company's portfolio of leases turns over continuously, with the number and value of expiring leases varying from year to year. The Company's ability to re-lease the space
to existing or new tenants at rates equal to or greater than those realized historically is impacted by, among other things, the economic conditions of the market in which a property is located, the
availability of competing space, and the level of improvements which may be required at the property. No assurance can be given that the rental rates that the Company will obtain in the future will be
equal to or greater than those obtained under existing contractual commitments.

For
the years ended December 31, 2004, 2003 and 2002, no tenants represented 10% or more of rental revenue of the Company.

NET LOSS PER SHARE

Net loss per share is calculated based on the weighted average number of common shares outstanding. Stock options outstanding of 37,375 at December 31,
2004 and OP Units (other than those held by the Company) outstanding of 862,985 at December 31, 2004 have not been included in the net loss per share calculation since their effect would be
antidilutive.

INCOME TAXES

In preparing the Company's consolidated financial statements, management estimates the income tax in each of the jurisdictions in which the Company operates. This
process includes an assessment of current

41

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tax
expense, the results of tax examinations, and the effects of temporary differences resulting from the different treatment of transactions for tax and financial accounting purposes. These
differences may result in deferred tax assets or liabilities which are included in the consolidated balance sheet. The realization of deferred tax assets as a result of future taxable income must be
assessed and to the extent that the realization is doubtful, a valuation allowance is established. The Company's income tax provision is based on calculations and assumptions that will be subject to
examination by the taxing authorities in the jurisdictions in which the Company operates. Should the actual results differ from the Company's estimates, the Company would have to adjust the income tax
provision in the period in which the facts and circumstances that give rise to the revision become known. Tax law and rate changes are reflected in the income tax provision in the period in which such
changes are enacted.

SEGMENTS

The Company owns a diverse portfolio of properties comprising office, industrial, shopping center properties, and an apartment property. Each of these property
types represents a reportable segment with distinct uses and tenant types and requires the Company to employ different management strategies. The properties contained in the segments are located in
various regions and markets within the United States. The office portfolio consists primarily of suburban office buildings. The industrial portfolio consists of properties designed for warehouse,
distribution and light manufacturing for single-tenant or multi-tenant use. The shopping center portfolio consists of community shopping centers located in South Carolina. The Company's sole remaining
apartment property is located in Missouri and is rented to residential tenants on either a month-by-month basis or for terms generally of one year or less.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company maintains an allowance reserve for accounts receivable which may not be ultimately collected. The allowance balance maintained is based upon
historical collection experience, current aging of amounts due and specific evaluations of the collectibility of individual balances. All tenant account balances over 90 days past due are fully
reserved. Accounts are written off against the reserve when they are deemed to be uncollectible.

42

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NOTE 3. REAL ESTATE

The cost and accumulated depreciation of rental property held for investment as of December 31, 2004 and 2003 are as follows (dollars in thousands):

|                           |  | Land |        | Buildings and Improvements |   | Total Cost |  | Accumulated Depreciation |         | Net Recorded Value
|-------------------------- |  | ---- | ------ | -------------------------- | - | ---------- |  | ------------------------ | ------- | ------------------
|2004:                      |  |      |        |                            |   |            |  |                          |         |                   
|Office properties          |  | $    | 33,061 |                            | $ | 123,882    |  | $                        | 156,943 |                   
|Industrial properties      |  |      | 3,170  |                            |   | 13,889     |  |                          | 17,059  |                   
|Shopping center properties |  |      | 2,010  |                            |   | 4,397      |  |                          | 6,407   |                   
|Apartment property         |  |      | 3,060  |                            |   | 12,114     |  |                          | 15,174  |                   
|Other                      |  |      |       |                            |   | 251        |  |                          | 251     |                   
|                           |  |      |        |                            |   |            |  |                          |         |                   
|Total                      |  | $    | 41,301 |                            | $ | 154,533    |  | $                        | 195,834 |                   
|                           |  |      |        |                            |   |            |  |                          |         |                   
|2003:                      |  |      |        |                            |   |            |  |                          |         |                   
|Office properties          |  | $    | 29,783 |                            | $ | 114,776    |  | $                        | 144,559 |                   
|Industrial properties      |  |      | 3,170  |                            |   | 13,851     |  |                          | 17,021  |                   
|Shopping center properties |  |      | 2,010  |                            |   | 4,376      |  |                          | 6,386   |                   
|Apartment property         |  |      | 3,060  |                            |   | 12,104     |  |                          | 15,164  |                   
|Other                      |  |      |       |                            |   | 248        |  |                          | 248     |                   
|                           |  |      |        |                            |   |            |  |                          |         |                   
|Total                      |  | $    | 38,023 |                            | $ | 145,355    |  | $                        | 183,378 |                   
|                           |  |      |        |                            |   |            |  |                          |         |                   

ACQUISITIONS

2004.

On October 21, 2004, the Company acquired an office property in Houston, Texas, consisting of approximately 81,538 rentable square feet. The aggregate
acquisition costs of approximately $5,900,000 included proceeds from a previously sold property, the assumption of existing debt and seller financing.

On
August 2, 2004, the Company acquired a 42,860 square foot office property in Houston, Texas, which is adjacent to an office property owned by the Company. The Company
previously held the note on the property. Acquisition costs of approximately $2,084,000 included the settlement of the note, the issuance of 10,000 shares of restricted Common Stock and cash. The
shares, which are currently held in escrow, will be released in August 2005 so long as the property's largest tenant does not default on its lease agreement. The Company also entered into an
agreement with the seller in which the seller will participate in any profits generated from the future sale of the property or, if demanded by the Company or seller after the third anniversary date
of the agreement, a sum determined by the property's fair market value at that time.

2003.

During 2003, the Company acquired four office properties, three of which were from an affiliated entity. The properties are located in Houston, Texas and consist
of approximately 250,437 rentable square feet. Acquisition costs of approximately $16,088,000 included assumed or new mortgage indebtedness of $13,465,000, the issuance of 382,537 OP Units (valued for
this purpose at $4.11 per unit), proceeds from a tax deferred exchange of $543,000, deferred payments of $191,000 with the remainder in cash.

43

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DISPOSITIONS

2004.

On September 30, 2004, the Company sold Van Buren, a 16.65 acre parcel of undeveloped land located in Arizona, for $3,111,000.

On
August 24, 2004, the Company sold Parkade Center, a 220,684 square foot office property located in Missouri, for $4,127,000.

On
July 30, 2004, the Company sold Westlakes, a 95,370 square foot industrial property located in Texas, for $4,975,000.

The
three properties sold during 2004 produced proceeds of approximately $4,316,000 (net of debt repayments and sales costs) of which $1,191,000 was used to assist the funding of an
office property acquisition in a tax-deferred exchange. A net loss of $2,298,000 was incurred in connection with the transactions, which is reflected as discontinued operations in the
consolidated statements of operations.

2003.

During 2003, the Company sold eleven properties for an aggregate sales price of $61,162,000. The properties, which totaled 1,477,833 square feet, consisted of six
industrial properties, two office buildings, two apartment complexes and one shopping center property. Reference is made to the Company's Annual Report on Form 10-K for 2003 for
more information with respect to the 2003 property dispositions.

In
the accompanying consolidated statement of operations for the years ended December 31, 2004, 2003 and 2002, the results of operations for properties mentioned above are shown
in the section "Discontinued operations" through their respective sale date.

INTANGIBLE ASSETS PURCHASED

Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements,
above and below market leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities in accordance with Statement of Financial Accounting
Standards No. 141), and allocates the
purchase price to the acquired assets and assumed liabilities. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases.

The
Company evaluates acquired "above and below" market leases at their fair value (using a discount rate which reflects the risks associated with the leases acquired) equal to the
difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management's estimate of fair market lease rates for each corresponding
in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options
for below-market leases. Based on its acquisitions to date, the Company's allocation to intangible assets for assets purchased has been immaterial.

IMPAIRMENT OF REAL ESTATE HELD FOR INVESTMENT

During 2002, the Company recorded impairment charges of $1,403,000 to provide for a decrease in the estimated fair market value of the Company's two remaining
shopping center properties located in South Carolina. Based upon a review of changes in property conditions, capital requirements, and market conditions, the Company determined that the carrying value
of certain of these properties were above what

44

---



it
anticipated to be recoverable. The Company reviewed current market conditions including capitalization rates and investor return requirements in determining the reasonable values.

FUTURE MINIMUM RENTS

The Company leases its office, industrial and shopping center properties under non-cancelable operating lease agreements. Future minimum rents to be
received as of December 31, 2004, are as follows (dollars in thousands):

Year Ending
December 31,

Future Minimum
Rents2005

$
21,6792006


16,9372007


12,4932008


8,9682009


5,787Thereafter


5,353$
71,217


NOTE 4. DISCONTINUED OPERATIONS

Real estate assets held for sale.

As of December 31, 2004, Sorrento I, a 43,100 square foot industrial property located in San Diego, California was classified as "Real estate held for
sale". Sorrento I, which had been unoccupied since December 2002, was sold March 1, 2005.

As
of December 31, 2003, Sorrento I, and the three properties sold during the third quarter of 2004 were classified as "Real estate held for sale". The three properties sold
during 2004 consisted of a 220,684 square foot office property located in Columbia, Missouri, a 95,370 square foot industrial property located in San Antonio, Texas and a 16.65 acre parcel of
undeveloped land located in Phoenix, Arizona. The sales generated net proceeds of approximately $4,316,000, of which $1,191,000 was used to assist the funding of an office property acquisition in a
tax-deferred exchange.

The
carrying amounts of the properties classified as "Real estate held for sale" at December 31, 2004 and 2003 are summarized below (dollars in thousands).

December 31,Condensed Consolidated Balance Sheet2004

2003Real estate

$
2,421

$
16,799Other


174


482Real estate assets held for sale

$
2,595

$
17,281Notes payable, net

$
1,694

$
9,043Accounts payable


5


207Accrued and other liabilities


13


519Liabilities related to real estate held for sale

$
1,712

$
9,769


45

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Net income (loss) from discontinued operations.

Net loss from discontinued operations for the year ended December 31, 2004 includes the operations of Sorrento I and the three properties sold during 2003.
The three properties sold during 2003 generated
a net loss on sale of discontinued operations of $2,298,000. An income tax benefit on discontinued operations of $985,000 was recorded during the year ended December 31, 2004.

Net
loss from discontinued operations for the year ended December 31, 2003 includes the operations of Sorrento I, the three properties sold during 2004 and eleven properties sold
during 2003. The eleven properties sold in 2003 generated a net gain on sale of discontinued operations of $2,540,000. The net gain recognized for 2003 was after taking into consideration an
impairment charge totaling $7,500,000 recorded in 2003 related to four of the eleven properties. The impairment was based on the anticipated sales price less cost to sell as compared to the carrying
value of the assets. An income tax benefit on discontinued operations of $1,656,000 was recorded during the year ended December 31, 2003.

Net
loss from discontinued operations for the year ended December 31, 2002 includes the operations of the Sorrento I, the fourteen properties sold during 2003 and 2004, and the
operations of two properties sold in 2002. The two properties sold during 2002 generated a net gain on sale of discontinued operations of $1,127,000. An impairment charge of $3,343,000 related to
three sold properties and an income tax benefit on discontinued operations of $1,492,000 was recorded during the year ended December 31, 2002.

The
condensed consolidated statements of operations of discontinued operations are summarized below (dollars in thousands):

Year Ended December 31,Condensed Consolidated Statements of Operations2004

2003

2002Rental revenue

$
1,423

$
8,632

$
15,469Total expenses


1,718


10,394


15,433Loss on early extinguishment of debt








(184
)Minority interest related to partially owned property








(102
)Net loss from discontinued operations before net (loss) gain on sale, impairment and income tax benefit


(295
)

(1,762
)

(250
)Net (loss) gain on sale of discontinued operations


(2,298
)

2,540


1,127Impairment of real estate assets





(7,500
)

(3,343
)Income tax benefit


985


1,656


1,492Net loss from discontinued operations

$
(1,608
)
$
(5,066
)
$
(974
)


NOTE 5. MORTGAGE LOAN RECEIVABLE

On October 27, 2003, the Company acquired a note secured by a property adjacent to an office property owned by the Company. The property consists of 42,860
square feet and is located in Houston, Texas. The purchase of this note was funded with a new loan to the Company from the lender that owned the note. Loan costs of approximately $41,000 were incurred
in connection with the transaction. The note bore interest at 7.5% per annum. The receivable balance of the note at December 31, 2003 was $1,666,504, net of discount of $83,253.

On
August 2, 2004 the Company acquired the property. Acquisition costs of approximately $2,084,000 included the settlement of the note, the issuance of 10,000 shares of restricted
Common Stock and cash.

46

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NOTE 6. INVESTMENT IN MANAGEMENT COMPANY

Pursuant to the Company's 2001 consolidation transaction ("the Consolidation"), the Company acquired a portion of the property management business of CGS Real
Estate Company, Inc ("CGS"). The Company recorded a $4,000,000 investment in the property management business as determined by an exchange value computation.

SFAS
No. 142"Goodwill and Other Intangible Assets"requires intangible assets that are not subject to amortization be tested for impairment annually, or
more frequently if events or changes in circumstances indicate that the asset might be impaired. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be
recognized in an amount equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Subsequent reversal of a
previously recognized impairment loss is prohibited.

At
December 31, 2004, the Company evaluated its investment in the management company in accordance with SFAS No. 142 and determined that the fair value had not decreased
below carrying value and that no impairment was necessary.

NOTE 7. RELATED PARTY TRANSACTIONS

In December 2004, the Company received a $532,000 loan from John N. Galardi, a director and a principal stockholder of the Company. The note bears interest
at a fixed interest rate of 12% per annum and matures in December 2005.

In
September 2004, the Company began managing an apartment complex owned by an affiliated entity of Mr. Carden. During the year ended December 31, 2004, the Company
received management fees of $20,000 from this entity.

In
March 2004, the Company paid $224,520 ("Guarantee Fee") to William J. Carden, John N. Galardi and CGS Real Estate Company, Inc. ("the Guarantors") in consideration for
their guarantees of certain obligations of the Company as of December 31, 2003. Mr. Carden is the Chief Executive Officer, a director and a principal stockholder of the Company. The
Company has agreed to pay the Guarantors an annual guarantee fee equal to between .25% and .75% (depending on the nature of the guarantee) of the outstanding balance as of December 31 of the
guaranteed obligations. The Guarantee Fee is to be paid for a maximum of three years on any particular obligation. In December 2004, the Company paid $187,944 related to the Guarantee Fee
payable for the 2004 year. The payments were made in the form of an offset against certain sums owed to the Company by the Guarantors.

During
2003, the Company made payments totaling $1,000,000, on its indebtedness to an affiliated entity, reducing the balance due to $251,321. The Company also has a balance due of
$14,800 to another affiliated entity as of December 31, 2004.

During
2003, the Company acquired three office properties from an affiliated entity. The properties are located in Houston, Texas and consist of approximately 160,742 rentable square
feet. Acquisition costs
of approximately $10,703,000 included assumed or new mortgage indebtedness, the issuance of 382,537 OP Units, deferred payments of $190,469 and cash.

In
May 2003, the successor of Brown Parker and Leahy, LLP cancelled its $199,180 note, plus $45,891 of accrued interest thereon, in exchange for 14,943 shares of the Company's
common stock (after effect of the one-for-four reverse stock split which became effective March 2, 2004). Timothy R. Brown, a director of the Company, was a partner of
Brown Parker Leahy, LLP.

47

---



In
May 2003, Mr. Galardi cancelled his $1,600,000 note, plus $286,036 of accrued interest thereon, in exchange for 115,002 shares of the Company's common stock (after
effect of the one-for-four reverse stock split).

In
May 2003, Mr. Galardi purchased a total of 15,243 shares of the Company's common stock for $16.40 per share (after effect of the one-for-four
reverse stock split).

In
February 2003, the Company reached an agreement with CGS Real Estate Company, Inc. whereby CGS acknowledged that it owed the Company a net amount of $270,375 which
related to several issues asserted by William J. Carden that were owed by CGS to the Company and by the Company to CGS.    This amount is payable on March 15, 2006 with interest
accruing from March 15, 2003 at an annual rate of 6% and payable quarterly commencing on June 15, 2003. An affiliate of Mr. Carden is a principal stockholder of CGS.
Mr. Carden is an officer and a director of CGS, and an affiliate of Mr. Galardi is a principal stockholder of CGS. Mr. Carden and Mr. Galardi have agreed to guarantee this
obligation of CGS, and they have secured this guarantee with an assignment to the Company of their right to receive $270,375 of principal payments on the notes payable to them and their affiliates by
reason of the settlement of the Teachout litigation, plus all interest payable on such principal amount of notes. In March 2004, as part of the payment of the 2003 Guarantee Fee, interest due
on this obligation for 2004 was paid in advance and $26,606 was applied to the principal due on this obligation. In December 2004, as part of the payment of the 2004 Guarantee Fee, interest due
on this obligation for 2005 was paid in advance. The principal balance due as of December 31, 2004 is $243,858.

In
connection with the settlement of the Teachout litigation, Mr. Galardi and Mr. Carden acknowledged that they owe the Company the sum of $1,187,695 as indemnification
against a portion of the Company's settlement obligation. Mr. Galardi and certain affiliates of Mr. Carden and/or Mr. Galardi are beneficiaries, in part, of the settlement of the
Teachout litigation and are owed an amount in excess of this obligation pursuant to that settlement. Mr. Galardi and Mr. Carden have agreed to pay the Company the principal sum of this
obligation, plus interest thereon at the annual rate of 6% from March 15, 2003, in the form of an assignment to the Company of their right to receive $1,187,695 of principal payments on the
notes payable to them and their affiliates by reason of the settlement of the Teachout litigation, plus all interest payable on such principal amount of notes. The receivable of $1,187,695 and accrued
interest are reflected as a component of equity in the Company's consolidated financial statements. In March 2004, as part of the payment of the 2003 Guarantee Fee, interest due on
this obligation for 2004 was paid in advance and $116,875 was applied to the principal due on this obligation. In December 2004, as part of the payment of the 2004 Guarantee Fee, interest due
on this obligation for 2005 was paid in advance and $120,340 was applied to the principal due on this obligation. The balance due as of December 31, 2004 is $950,480.

For
the years ended December 31, 2004, 2003 and 2002, the Company paid $134,890, $98,763 and $112,800, respectively, for real estate related services to a firm in which Patricia
A. Nooney, an executive officer of the Company, holds an ownership interest.

For
the years ended December 31, 2004, 2003 and 2002, the Company incurred professional fees of $54,505, $19,240 and $112,887, respectively, to a law firm in which Timothy R.
Brown, a director of the Company, is a partner.

In
December 2002, the Company received proceeds of $800,000 from a loan on one of its industrial properties. The loan was provided by an affiliated entity of Mr. Carden.
The mortgage was repaid upon the sale of the property in April 2003.

48

---





NOTE 7. RELATED PARTY TRANSACTIONS

In October 2002, the Company received proceeds of $1,532,000 from two bridge loans on one of its shopping center properties. One of the loans, which
totaled $700,000, was provided by an affiliated entity of Mr. Carden. The mortgages were repaid upon the sale of the property in October 2002.

In
connection with the Consolidation, the Company assumed a $2,207,081 obligation to an affiliated entity of Mr. Carden. In October 2002, this obligation, which totaled
$2,500,103, was paid in connection with the sale of an apartment property.

During
2002, the Company made payments totaling $521,808 on its obligation to ASJ, Ltd., which is owned by Mr. Carden, his wife and a trust for his children. The payments
reduced the balance due to ASJ, Ltd. to $200,000 as of December 31, 2002. During 2003, the obligation was reduced by $111,321 to offset certain amounts which became payable from the
related party. In January 2004, the Company paid the remaining balance due of $88,679.

Effective
January 1, 2002, the Company acquired a receivable in the amount of $177,000 from a related party in connection with the Company's assumption of an executive suite in an
office building owned by the Company. The Company cancelled this receivable by offsetting the amount of the receivable against the amount payable by the Company to an entity owned by the related
party.

NOTE 8. NOTES PAYABLE

The Company had the following notes payable outstanding as of December 31, 2004, and 2003 (dollars in thousands):

|                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | 2004 |         | 2003   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | ---- | ------- | -------
|Secured loans from various lenders, including unamortized premiums of $2,355 and $2,945 at December 31, 2004 and 2003, respectively, bearing interest at fixed rates between 5.65% and 10.50% at December 31, 2004, and 5.00%
and 10.50% at December 31, 2003, with monthly principal and interest payments ranging between $2 and $269 at December 31, 2003 and $3 and $269 at December 31, 2003, and maturing at various dates through August 1, 2014. |       | $    | 131,653 |        
|Secured loans from various banks bearing interest at variable rates ranging between 5.50% and 7.50% at December 31, 2004, and 5.14% and 6.50% at December 31, 2003 and maturing at various dates through May 1, 2008.                                                                                                                                                                                                                                    |       |      | 5,165   |        
|Secured Series A & B Bonds with a fixed interest rate of 6.39%, monthly principal and interest payments of $74, and a maturity date of September 30, 2031.                                                                                                                                                                                                                                                                                               |       |      | 11,377  |        
|Secured Series C Bonds with a fixed interest rate of 9.50%, semi-annual principal and interest payments ($75 at December 31, 2004 and $97 at December 31, 2003), and a maturity date of November 1, 2006.                                                                                                                                                                                                                                                |       |      | 325     |        
|Unsecured loans from various lenders, bearing interest at fixed rates between 5.45% and 20.00% at December 31, 2004 and 4.99% and 20.00% at December 31, 2003, and maturing at various dates through December 15, 2005.                                                                                                                                                                                                                                  |       |      | 537     |        
|Unsecured loan from John N. Galardi, a director and principal stockholder, with a fixed interest rate of 12.00%, due December 14, 2005.                                                                                                                                                                                                                                                                                                                  |       |      | 532     |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |      |         |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Total |      | $       | 149,589
|                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |      |         |        

Debt premiums are amortized into interest expense over the terms of the related mortgages using the effective interest method. As of
December 31, 2004 and 2003, the unamortized debt premiums included in the above schedule were $2,355,000 and $2,945,000, respectively.

In
December 2004, the Company received a $532,000 loan from John N. Galardi. The note bears interest at a fixed interest rate of 12% per annum and matures in December 2005.

49

---



In
October 2004, in connection with the acquisition of an office property in Houston, Texas, the Company assumed a loan in the amount of $4,384,000. The loan bears interest at a
fixed rate of 5.93% per annum and matures in June 2014. The Company also entered into an agreement that provided for seller financing of $316,000, bearing interest at a fixed rate of 5.93% per
annum and maturing in June 2014.

In
October 2004, the Company refinanced a $1,176,000 loan on 888 Sam Houston Parkway, one of its office properties, and entered into a revolving credit promissory note in the
amount of $2,250,000, of which $1,226,000 has been drawn to cover the repayment of existing debt and financing costs. The availability on the note as of December 31, 2004 was $1,024,000. The
note bears interest at prime plus 1% per annum and matures in November 2006.

In
August 2004, the Company refinanced a $5,350,000 loan on San Felipe, one of its office properties, with a new loan agreement in the amount of $5,500,000. The new loan bears
interest at a fixed rate of 5.65% per annum and matures in August 2014. The Company funded closing costs of approximately $178,000 and escrowed $327,000 for future capital expenditures, real
estate taxes and insurance related to the August 2004 refinance. Net proceeds of $2,059,000 were received in December 2003 related to the December 2003 refinance of the original
$3,000,000 loan on the property.

In
July 2004, the Company refinanced a $5,330,000 loan on Northwest Corporate Center, one of its office properties, with a new loan agreement in the amount of $5,750,000. The new
loan bears interest at a fixed rate of 6.26% per annum and matures in August 2014. No proceeds were received directly as a result of the refinance, however $350,000 is being held in escrow by
the lender to assist the funding of future capital expenditures at the property.

In
May 2004, the Company refinanced a $3,132,000 loan on Mira Mesa, one of its office properties, with a new one-year loan agreement in the amount of $7,500,000. The
new loan, which contains two six-month extension options, bears interest at a fixed rate of 7.95% per annum. Net proceeds of $3,440,000 were received as a result of the refinance.

In
May 2004, the Company financed insurance premiums of $373,000 on its properties and agreed to pay a service fee of $85,000 over one year. The insurance premium note was paid in
full in February 2005. The Company financed an additional insurance premium during 2004 of $133,000, with scheduled payments through June 2005.

In
November 2003, in connection with the acquisition of an office property in Houston, Texas, the Company obtained a loan in the amount of $4,574,000. The loan, which was due to
mature in November 2004, bore interest at a fixed rate of 5% per annum. In October 2004, the maturity date of the loan was extended to November 2005. The loan will bear interest
at a fixed rate of 8% under the terms of the extension.

In
October 2003, the Company entered into a $4,100,000 loan agreement in connection with the acquisition of an office property in Houston, Texas and the acquisition of a note
secured by another office property in Houston. The loan, of which $3,700,000 had been funded as of December 31, 2004, matures in November 2006 and bears interest at a fixed rate of 6%
per annum.

In
September 2003, a note payable in the amount of $510,000 was repaid with the proceeds from the sale of Emerald Pointe. The note bore interest at prime plus 1%.

In
August 2003, the Company refinanced a $1,300,000 loan secured by Van Buren, a parcel of undeveloped land, and entered into a two-year loan agreement in the amount
of $1,340,000. The loan bore

50

---



interest
at a fixed rate of 12% per annum and matured August 1, 2005. In September 2004, the loan was paid in connection with the sale of the property.

In
July 2003, in connection with the acquisition of an office property in Houston, Texas, the Company assumed a loan in the amount of $1,723,000. The loan bears interest at a
fixed rate of 7.41% per annum and matures in May 2005. The Company also entered into an agreement that provided for seller financing of $710,000, bearing interest at a fixed rate of 7.41% per
annum and maturing in July 2005.

In
May 2003, in connection with the acquisition of an office property in Houston, Texas, the Company assumed a loan in the amount of $3,180,000. The loan bears interest at a fixed
rate of 6.80% per annum and matures in August 2012. The Company also entered into an agreement that provided for seller financing of $464,000, bearing interest at a fixed rate of 6.80% per
annum and maturing in May 2005.

In
May 2003, the successor of Brown Parker and Leahy, LLP cancelled its $199,180 note, plus $45,891 of accrued interest thereon, in exchange for 14,943 shares of the Company's
common stock.

In
May 2003, John N. Galardi cancelled his $1,600,000 note, plus $286,036 of accrued interest thereon, in exchange for 115,002 shares of the Company's common stock.

In
May 2003, the Company financed insurance premiums of $643,000 on its properties and agreed to pay a service fee of $85,000 over one year. The insurance premium note was paid in
full in February 2004. The Company financed an additional insurance premium during 2003 of $130,000, which was paid in full in June 2004.

In
2002, the lender under a loan agreement related to the South Carolina shopping center properties notified the Company it was technically in default under its loan agreement for
non-compliance with certain covenants, including covenants requiring improvements to shopping center properties. Thereafter, the lender notified the Company that it was in default for
failure to pay a matured portion of the loan, which matured in November 2002. In early 2003, the lender sold the loan to the major tenant in two of the shopping centers. In
December 2003, the Company sold one of the shopping center properties and repaid $3,935,000, which included the pay-off of the matured portion of the loan. As of December 31,
2004, the remaining balance of the loan was approximately $2,756,000. The Company continues to discuss the non-compliance matter with the new lender. The new lender has not accelerated the
loan.

The
required principal payments on the Company's debt for the next five years and thereafter, as of December 31, 2004, including debt noted in Note 9
 Notes Payable, Litigation Settlement, are as follows (dollars in thousands):

Year Ending December 31,2005

$
18,8212006


18,7312007


1,7332008


5,0672009


8,518Thereafter


103,876Subtotal


156,746Premiums (net of accumulated amortization of $1,600)


2,355Total

$
159,101


51

---



NOTE 9. NOTES PAYABLE, LITIGATION SETTLEMENT

As the result of the settlement of the Teachout litigation, which was documented in the third quarter of 2003, the Company reaffirmed its previously announced
obligation to pay the former limited partners of Sierra Pacific Development Fund II ("Fund II") as of the date of the Consolidation, or their assignees or transferees, the loans which were made and
called by the former general partner of Fund II as part of the Consolidation. Pursuant to the settlement, the Company established a repayment plan and secured the debt with a second deed of trust on
an office property owned by the Company. This repayment plan consists of a promissory note in the amount of $8,800,000, which bears interest at 6% per annum and matures in March 2006. The note
is payable to the former limited partners of Fund II, each of whom has a pro-rata interest in the note. Interest-only payments, which are payable quarterly, commenced
June 2, 2003. The note may be prepaid in whole or in part at any time without penalty.

As
part of the settlement, the Company agreed to pay legal fees totaling $1,200,000 to the plaintiff's counsel. The Company made a scheduled payment of $250,000 in the third quarter of
2003 with the remaining $950,000 consisting of two promissory notes. The first note, in the amount of $700,000, bears interest at 6% per annum and matures in March 2006.
Interest-only payments, which are payable quarterly, commenced June 2, 2003. The second promissory note, in the amount of $250,000, bears no interest and matures in
March 2006. The notes, which are secured by a second deed of trust on an office property owned by the Company, may be prepaid in whole or in part at any time without penalty.

During
the fourth quarter of 2004, the Company purchased 2,347 of the 86,653 interests outstanding in the $8,800,000 promissory note. The Company paid $140,820 (or $60 per unit), which
reduced it debt obligation related to the settlement by $238,338.

In
connection with the settlement, William J. Carden and John N. Galardi acknowledged that they owe the Company the sum of $1,187,695 as indemnification against a portion of the
Company's settlement obligation. Mr. Carden is the Chief Executive Officer, a director and a principal stockholder of the Company. Mr. Galardi is a director and principal stockholder of
the Company. Mr. Galardi and certain affiliates of Mr. Carden and/or Mr. Galardi are beneficiaries, in part, of the settlement of the Teachout litigation and are owed an amount in
excess of this obligation pursuant to that settlement. Mr. Galardi and Mr. Carden have agreed to pay the Company the principal sum of this obligation, plus interest thereon at the annual
rate of 6% from March 15, 2003, in the form of an assignment to the Company of their right to receive $1,187,695 of principal payments on the notes payable to them and their affiliates by
reason of the settlement of the Teachout litigation, plus all interest payable on such principal amount of notes. The receivable of $1,187,695 and accrued interest are reflected as a component of
equity in the Company's consolidated financial statements. In March 2004, the interest due for all of 2004 and $116,875 in principal was paid. In December 2004, the interest due for all
of 2005 and $120,340 in principal was paid. The payments were made in the form of an offset against certain sums owed to the Company by the Guarantors. See Note 7  Related
Party Transactions.

NOTE 10. NET (LOSS) GAIN ON EARLY EXTINGUISHMENT OF DEBT

During 2004, the Company recorded a net loss on early extinguishment of debt of $729,000. The net loss consisted of (i) a prepayment penalty of $687,000,
which was offset in part by the write-off of an unamortized loan premium of $74,000, in connection with the refinance of Mira Mesa, (ii) a prepayment penalty of $120,000 and the
write-off of unamortized loan costs of $94,000 in connection with the 2004 refinance of San Felipe, and (iii) a $98,000 gain related to the purchase of interests of former limited
partners of Fund II in the $8,800,000 promissory note related to the settlement of the Teachout litigation. The Company purchased 2,347 of the 86,653 interests outstanding at $60 per unit, which
reduced its debt obligation related to the settlement $238,338.

52

---



During
2003, in connection with the 2003 refinance of San Felipe, the Company recorded a loss on early extinguishments of debt of $145,000 related to the write-off of an
unamortized loan discount and prepayment penalty.

During
2002, in connection with the refinance of Southwest Pointe, the Company recorded a gain on early extinguishment of debt of $131,000 related to the write-off of an
unamortized loan premium.

The
net (loss) gain on early extinguishment of debt is included in other income in the consolidated statements of operations.

NOTE 11. MINORITY INTEREST

Unit holders in the Operating Partnership (other than the Company) held a 12.50% and 12.61% limited partnership interest in the Operating Partnership at
December 31, 2004 and December 31, 2003, respectively. Each of the holders of the interests in the Operating Partnership (other than the Company) has the option (exercisable after the
first anniversary of the issuance of the OP Units) to redeem its OP Units and to receive, at the option of the Company, in exchange for each four OP Units, either (i) one share of Common Stock
of the Company, or (ii) cash equal to the value of one share of Common Stock of the Company at the date of conversion, but no fractional shares will be issued.

During
the year ended December 31, 2004, a total of 35,772 OP Units were exchanged for 8,943 shares of Common Stock.

During
the year ended December 31, 2003, a total of 202,056 OP Units were exchanged for 50,514 shares of Common Stock.

During
the year ended December 31, 2003, the Company issued a total of 382,537 OP Units to an affiliated entity in connection with the acquisition of three office properties in
Houston, Texas.

In
July 2003, the Company purchased 7,329 OP Units from Nooney Development Partners, L.P. for $223,000 pursuant to an agreement entered into at the time of the Consolidation.

NOTE 12. REDEEMABLE COMMON STOCK

On October 23, 2001, the Company issued 5,000 shares of its Common Stock, $.01 par value per share, with the holder's right to compel the sale of the stock
back to the Company (the "Put") at a fixed price of $60.00 per share during the period from October 31, 2002 to November 30, 2002. The Put exercise period was subsequently extended to
November 30, 2004 through December 31, 2004. In December 2004, the Company received notice that the holder exercised its right to sell the Common Stock back to the Company for
$60.00 per share or a total of $300,000 and subsequently agreed to pay the sum in twelve monthly installments of $25,000 in 2005.

NOTE 13. REPURCHASE OF COMMON STOCK

On October 11, 2004 the Company offered to purchase up to 250,000 shares at $8.25 per share to holders of fewer than 100 shares pursuant to an odd lot buy
back program previously postponed. Shareholders with fewer than 100 shares as of October 8, 2004 were eligible to participate. The offer, which expired December 1, 2004, resulted in
63,327 odd lot shares validly tendered.

In
September 2004, in conjunction with a resignation agreement, an employee relinquished 1,250 shares of restricted common stock.

53

---



In
May 2003, the Company's Board of Directors authorized the repurchase of up to 75,000 shares of its common stock from the proceeds of property sales. Such purchases would be
made from time to time in open market transactions.

During
2003, the Company repurchased a total of 16,174 shares at an average price of $14.04 per share in open market transactions. The total cost of the stock repurchases amounted to
$234,268.

During
2003, the Company repurchased 45 shares for $2,457, or $54.00 per share, pursuant to a litigation settlement.

In
December 2003, the Company repurchased 6,563 shares of restricted stock from an employee for cash of $59,750 and the reversal of deferred compensation of $124,605.

NOTE 14. INCOME TAXES

The provision for income taxes on income consists of the following for the periods ended December 31, 2004, 2003 and 2002 (thousands of dollars):

2004

2003

2002Current expense (benefit):Federal








State








Deferred expense (benefit):Federal

$
(1,989
)
$
234

$
(4,883
)State


(233
)

44


(708
)$
(2,222
)
$
278

$
(5,591
)


The
Company has federal and state net operating loss carryforwards of approximately $10,882,000 and $9,872,000, respectively, as of December 31, 2004.

The
Company is a loss corporation as defined in Section 382 of the Internal Revenue Code. Therefore, if certain changes in the Company's ownership should occur, there could be a
significant annual limitation on the amount of loss carryforwards and future recognized losses that can be utilized and ultimately some amount of loss carryforwards may not be available. Such changes
could result in additional tax provision. The net operating loss expires in 2022 through 2023.

54

---



For
the three years ended December 31, 2004, the reported income tax expense (benefit) differs from the amount of benefit determined by applying the United States statutory
federal income tax rate of 34% to loss before income taxes as a result of the following:

December 31,
2004

December 31,
2003

December 31,
2002Expected income tax benefit at statutory federal rate

$
(3,747
)
$
(3,991
)
$
(4,584
)Income not taxable


(478
)

(164
)

(426
)Charges not deductible


39


118


1,229Minority interest


578


701


318Net change in valuation allowance








(1,387
)Prior losses with current benefit








(741
)Losses with no current benefit


1,386


3,614


Income tax expense (benefit)

$
(2,222
)
$
278

$
(5,591
)


The
components of deferred tax assets and liabilities consist of the following as of December 31, 2004 and December 31, 2003, respectively (thousands of dollars):

December 31, 2004

December 31, 2003Deferred tax assets:Net operating losses

$
4,090

$
631Allowance for bad debts


116


147Capitalized lease costs


276


371Less: Valuation allowance





Total deferred tax asset


4,482


1,149Deferred tax liabilities:Built-in gains


(4,996
)

(5,066
)Straight-line rents receivable


(595
)

(399
)Total deferred tax liabilities


(5,591
)

(5,465
)Net deferred tax liabilities

$
(1,109
)
$
(4,316
)


Management
continues to consider whether it is in the best interest of the Company to elect to be treated as a real estate investment trust or REIT, as defined under the Internal Revenue
Code of 1986, as amended. Based on its current tax situation, the election will not be made for its 2004 taxable year. However, the Company plans to operate in a manner that will permit it to elect
REIT status in the future. In general, a REIT is a company that owns or provides financing for real estate and pays annual distributions to investors of at least 90% of its taxable income. A REIT
typically is not subject to federal income taxation on its net income, provided applicable income tax requirements are satisfied. For the tax year 2004, the Company was taxed as a C corporation.

SFAS
No. 109, "Accounting for Income Taxes", requires a valuation allowance against deferred tax assets if, based on available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized. For 2001, based on management's intent to become a REIT, which would make the Company not generally liable for federal corporate income taxes, and
its intent to sell real estate assets only through tax deferred exchanges, management recorded a valuation allowance against the entire net deferred tax asset since uncertainty existed as to the
ultimate tax asset to be realized.

55

---



In
2002, management reevaluated an earlier decision and determined that it may sell certain of the Company's real estate assets outside of tax-deferred exchanges. If the
Company elects REIT status, during the 10-year period following such election, the Company will be subject to an entity level tax on the income it recognizes upon the sale of assets
contributed by certain partnerships that it held before electing REIT status in an amount up to the amount of the
built-in gains at the time the Company becomes a REIT. The potential tax related to this built-in gain for book purposes is approximately $13,165,000. Therefore, in 2002, the
Company recognized a deferred tax liability for this potential tax and has recorded this liability as a charge to equity. During 2002, the deferred tax liability for the built-in gains was
reduced primarily due to the tax effect of impairments recorded for certain real estate assets held.

Based
on the current strategic plans of the Company, management has determined that it was more likely than not that future taxable income, primarily from the gain on the sale of real
estate assets, would be sufficient to enable the Company to realize all of its deferred tax assets. Therefore, for the three years ended December 31, 2004, no valuation allowance has been
recorded and the valuation allowance previously recorded in 2001 has been reversed. The tax effect of the impairments recorded and the reversal of the previously recorded allowance along with the tax
benefits of the current year tax assets have been recorded in the statement of operations as an income tax benefit.

NOTE 15. NET LOSS PER SHARE

Net loss per share is calculated based on the weighted average number of common shares outstanding. Stock options outstanding and OP Units have not been included
in the net loss per share calculation since their effect would be antidilutive. Net loss per share is as follows (in thousands, except for shares and per share amounts):

Years Ended December 31,2004

2003

2002Net loss before discontinued operations

$
(7,499
)
$
(9,282
)
$
(6,156
)Discontinued operations:Loss from discontinued operations


(295
)

(1,762
)

(250
)(Loss) gain on sale of discontinued operations


(2,298
)

2,540


1,127Impairment of real estate assets





(7,500
)

(3,343
)Income tax benefit


985


1,656


1,492Loss from discontinued operations


(1,608
)

(5,066
)

(974
)Net loss

$
(9,107
)
$
(14,348
)
$
(7,130
)Basic and diluted per share data:Net loss before discontinued operations

$
(4.83
)
$
(6.26
)
$
(4.45
)Loss from discontinued operations


(1.04
)

(3.41
)

(0.70
)Net loss

$
(5.87
)
$
(9.67
)
$
(5.16
)Basic weighted average shares used


1,551,189


1,483,675


1,381,860


56

---





NOTE 16. STOCK OPTION AND RESTRICTED SHARE PLANS

The Company has in effect the Plan, which is administered by the Board of Directors and provides for the granting of incentive and non-qualified stock
options, stock appreciation rights, restricted stock, performance units and performance shares. The Board has reserved a total of 180,000 shares under the Plan. As of December 31, 2004, 119,000
ASR shares were available for issuance to executive officers, directors or other key employees of the Company.

The
following table summarizes activity and outstanding options under the plan:

Shares
Under
Option

Weighted
Average
Exercise PriceOutstanding on January 1, 2002

21,812

$
60.00Granted(1)

25,563

$
26.08Outstanding on December 31, 2002

47,375

$
41.68Granted(1)

8,750

$
12.20Outstanding on December 31, 2003

56,125

$
37.08Granted(1)

6,250

$
11.16Forfeited

(28,750
)
$
43.54Outstanding on December 31, 2004

33,625

$
26.76Exercisable as of:December 31, 2002

23,546

$
44.24December 31, 2003

31,328

$
42.80December 31, 2004

21,766

$
33.31


---

The
following table summarizes certain information for options outstanding on December 31, 2003:

Range of Exercise Price

Number
Outstanding

Weighted Average
Remaining
Contractual
Life

Weighted
Average
Exercise
Price$11.16 - $12.20

15,000

8.8 years

$
11.77$20.12 - $27.16

11,188

6.5 years

$
24.77$60.00 - $60.00

7,437

5.8 years

$
60.00


The
following table summarizes certain information for options exercisable on December 31, 2004:

Range of Exercise Price

Number
Exercisable

Weighted
Average
Exercise
Price$11.16 - $12.20

5,938

$
11.93$20.12 - $27.16

8,391

$
24.77$60.00 - $60.00

7,437

$
60.00


The
Company accounts for the Plan under APB Opinion 25. Therefore, no compensation cost has been recognized for the granting of options. For the pro forma disclosures presented in
Note 1, the estimated fair value of the options is amortized to expense over the options' vesting period. The estimated fair value of options granted during the periods ended
December 31, 2004, 2003 and 2002, were $6.60,

57

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$6.96
and $17.80 per share, respectively. The fair value of each option is estimated, as of the grant date, using the Black-Scholes option pricing model with the following assumptions used for the
grants: expected volatility of 41%, 40% and 53% the 2004, 2003 and 2002, respectively; risk-free interest rate of 4.50%, 3.85% and 3.85% for 2004, 2003 and 2002, respectively; and expected
lives of 10 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models
do not necessarily provide a reliable single measure of the fair value of its employee stock options.

In
addition, during fiscal 2002, the Company issued 2,500 shares of restricted stock under the Plan. This stock is subject to repurchase by the Company on termination of the grantee's
employment for a price of $.04 per share. No shares were issued under the Plan as restricted stock during fiscal 2003 and 2004. For the shares issued in 2002, the repurchase option lapsed as follows:
50% on the date of grant and 50% on the date, which was six months following the date of issuance. The recipient has the right to vote all shares, to receive and retain all cash dividends payable to
holders of ASR shares of record on or after the date of issuance and to exercise all other rights, powers and privileges of a holder of ASR shares, with the exception that the recipient may not
transfer the ASR shares during the restriction period. Compensation expense is recognized on a straight-line basis over the vesting period. For the period ended December 31, 2002,
2003 and 2004, $834,000, $332,000 and $101,000, respectively, was recognized as expense for restricted shares issued. An additional $55,000 of compensation expense will be expensed over the remaining
vesting period.

NOTE 17. COMMITMENTS AND CONTINGENCIES

The following is information concerning legal proceedings to which the Company or its subsidiaries is a party or of which any of their property is subject:

Lewis Matter

On August 2, 2004, the Orange County Superior Court approved the final accounting in the Robert L. Lewis matter. This matter, initiated on or about
September 27, 2001 by Robert L. Lewis, Madison Liquidity Investors 103 LLC and Madison Liquidity Investors 112 LLC, alleged claims against the Company and others for breach of fiduciary duty,
breach of contract, intentional interference with prospective economic advantage, and intentional interference with contractual relations related to the Company's 2001 consolidation transaction,
although the consolidation was disclosed in a Prospectus/Consent Solicitation filed with the Securities and Exchange Commission and was approved by a majority vote of the limited partners of the
partnerships. In October 2003, counsel for the plaintiffs and counsel for the defendants executed a Memorandum of Understanding regarding a proposed settlement in this matter. By the terms of
that Memorandum, the defendants agreed to pay a total of $6,500,000 to settle this action and all other claims known and unknown relating to the facts set forth in the plaintiff's complaints. The
settlement was funded, in its entirety, by insurance coverage. In 2004, the Court approved the settlement as fair, adequate and reasonable and the defendants' insurers deposited $6,500,000 into an
escrow account for the purposes of settlement. Subsequently, $1,640,000 was disbursed for attorney fees and expenses, while the remaining $4,860,000 was distributed to the plaintiffs.

58

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Other Matters

Certain claims and lawsuits have arisen against the Company in its normal course of business. The Company believes that such claims and lawsuits will not have a
material adverse effect on the Company's financial position, cash flow or results of operations.

In
connection with the acquisition of an office property in 2004, the Company entered into an agreement with the seller in which the seller will participate in any profits generated from
the future sale of the property or, if demanded by the Company or seller after the third anniversary date of the agreement, a sum determined by the property's fair market value at that time.

The
Company has become aware that three of its properties may contain hazardous substances above reportable levels. The Company is currently evaluating this situation to determine an
appropriate course of action.

NOTE 18. SEGMENT INFORMATION

As of December 31, 2004, the Company owned a diverse portfolio of properties comprising office, industrial, shopping center properties, and an apartment
property. Each of these property types represents a reportable segment with distinct uses and tenant types and requires the Company to employ different management strategies. The properties contained
in the segments are located in various regions and markets within the United States. The office portfolio consists primarily of suburban office buildings. The industrial portfolio consists of
properties designed for warehouse, distribution and light manufacturing for single-tenant or multi-tenant use. The shopping center portfolio consists of community shopping centers located in South
Carolina. The Company's sole remaining apartment property is located in Missouri and is rented to residential tenants on either a month-by-month basis or for terms generally of
one year or less.

The
accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance of its property types based
on net operating income derived by subtracting property operating expenses from rental revenue. Significant information

59

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used
by the Company for its reportable segments as of and for the years ended December 31, 2004, 2003, and 2002 is as follows (dollars in thousands):

|                            |  | Office |         | Industrial |   | Shopping
Center |  | Apartment |       | Other |   | Property
Total
|--------------------------- |  | ------ | ------- | ---------- | - | --------------- |  | --------- | ----- | ----- | - | --------------
|2004                        |  |        |         |            |   |                 |  |           |       |       |   |               
|Rental revenue              |  | $      | 20,847  |            | $ | 2,348           |  | $         | 1,008 |       | $ | 2,720         
|Property operating expenses |  |        | 8,073   |            |   | 528             |  |           | 230   |       |   | 1,716         
|                            |  |        |         |            |   |                 |  |           |       |       |   |               
|Net operating income (NOI)  |  | $      | 12,774  |            | $ | 1,820           |  | $         | 778   |       | $ | 1,004         
|                            |  |        |         |            |   |                 |  |           |       |       |   |               
|Real estate assets, net     |  | $      | 135,783 |            | $ | 14,309          |  | $         | 5,053 |       | $ | 13,337        
|                            |  |        |         |            |   |                 |  |           |       |       |   |               
|2003                        |  |        |         |            |   |                 |  |           |       |       |   |               
|Rental revenue              |  | $      | 17,723  |            | $ | 2,412           |  | $         | 918   |       | $ | 2,707         
|Property operating expenses |  |        | 6,923   |            |   | 595             |  |           | 314   |       |   | 1,452         
|                            |  |        |         |            |   |                 |  |           |       |       |   |               
|Net operating income (NOI)  |  | $      | 10,800  |            | $ | 1,817           |  | $         | 604   |       | $ | 1,255         
|                            |  |        |         |            |   |                 |  |           |       |       |   |               
|Real estate assets, net     |  | $      | 131,205 |            | $ | 15,331          |  | $         | 5,451 |       | $ | 13,905        
|                            |  |        |         |            |   |                 |  |           |       |       |   |               
|2002                        |  |        |         |            |   |                 |  |           |       |       |   |               
|Rental revenue              |  | $      | 18,107  |            | $ | 2,509           |  | $         | 1,025 |       | $ | 2,689         
|Property operating expenses |  |        | 6,262   |            |   | 716             |  |           | 356   |       |   | 1,443         
|                            |  |        |         |            |   |                 |  |           |       |       |   |               
|Net operating income (NOI)  |  | $      | 11,845  |            | $ | 1,793           |  | $         | 669   |       | $ | 1,246         
|                            |  |        |         |            |   |                 |  |           |       |       |   |               
|Real estate assets, net     |  | $      | 119,079 |            | $ | 16,082          |  | $         | 5,845 |       | $ | 14,484        
|                            |  |        |         |            |   |                 |  |           |       |       |   |               

60

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The following is a reconciliation of segment revenues, income and assets to consolidated revenues, income and assets for the periods presented
above (dollars in thousands):

|                                                                                                                     |                                           | 2004 |         | 2003    |   | 2002    |        
|-------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ---- | ------- | ------- | - | ------- | -------
|REVENUES                                                                                                             |                                           |      |         |         |   |         |        
|Total revenues for reportable segments                                                                               |                                           | $    | 26,923  |         | $ | 23,817  |        
|Other revenues                                                                                                       |                                           |      | 235     |         |   | 139     |        
|                                                                                                                     |                                           |      |         |         |   |         |        
|Total consolidated revenues                                                                                          |                                           | $    | 27,158  |         | $ | 23,956  |        
|                                                                                                                     |                                           |      |         |         |   |         |        
|NET INCOME                                                                                                           |                                           |      |         |         |   |         |        
|NOI for reportable segments                                                                                          |                                           | $    | 16,341  |         | $ | 14,459  |        
|Unallocated amounts:                                                                                                 |                                           |      |         |         |   |         |        
|                                                                                                                     | Interest and other income                 |      |         | 235     |   |         | 139    
|                                                                                                                     | General and administrative expenses       |      |         | (4,438  | ) |         | (6,801 
|                                                                                                                     | Depreciation and amortization             |      |         | (10,433 | ) |         | (8,641 
|                                                                                                                     | Interest expense                          |      |         | (11,996 | ) |         | (10,139
|                                                                                                                     | Litigation settlement                     |      |         |        |   |         |       
|                                                                                                                     | Impairment of real estate assets          |      |         |        |   |         |       
|                                                                                                                     | Net loss on sale of real estate assets    |      |         |        |   |         |       
|                                                                                                                     | Net (loss) gain on extinguishment of debt |      |         | (729    | ) |         | (145   
|Net loss from operations before deferred income tax benefit (expense), minority interest and discontinued operations |                                           |      | (11,020 | )       |   | (11,128 | )      
|Deferred income tax benefit (expense)                                                                                |                                           |      | 2,222   |         |   | (278    | )      
|Minority interest                                                                                                    |                                           |      | 1,299   |         |   | 2,124   |        
|Loss from discontinued operations                                                                                    |                                           |      | (1,608  | )       |   | (5,066  | )      
|                                                                                                                     |                                           |      |         |         |   |         |        
|Net loss                                                                                                             |                                           | $    | (9,107  | )       | $ | (14,348 | )      
|                                                                                                                     |                                           |      |         |         |   |         |        
|ASSETS                                                                                                               |                                           |      |         |         |   |         |        
|Total assets for reportable segments                                                                                 |                                           | $    | 168,531 |         | $ | 165,991 |        
|Real estate held for sale                                                                                            |                                           |      | 2,595   |         |   | 17,281  |        
|Cash and cash equivalents                                                                                            |                                           |      | 589     |         |   | 2,937   |        
|Tenant and other receivables, net                                                                                    |                                           |      | 721     |         |   | 420     |        
|Deferred rent receivable                                                                                             |                                           |      | 1,566   |         |   | 1,045   |        
|Mortgage loan receivable, net of discount                                                                            |                                           |      |        |         |   | 1,667   |        
|Insurance proceeds receivable                                                                                        |                                           |      |        |         |   | 6,500   |        
|Investment in management company                                                                                     |                                           |      | 4,000   |         |   | 4,000   |        
|Deposits held in escrow                                                                                              |                                           |      |        |         |   |        |        
|Prepaid and other assets, net                                                                                        |                                           |      | 9,543   |         |   | 8,162   |        
|                                                                                                                     |                                           |      |         |         |   |         |        
|Total consolidated assets                                                                                            |                                           | $    | 187,545 |         | $ | 208,003 |        
|                                                                                                                     |                                           |      |         |         |   |         |        

NOTE 19. LIQUIDITY AND CAPITAL RESOURCES

The Company expects to meet its short-term liquidity requirements for normal property operating expenses and general and administrative payroll
expenses from cash generated by operations and cash currently held. In addition, the Company anticipates capital costs to be incurred related to leasing space and improvements to properties provided
the estimated leasing of space is complete, litigation settlement costs and other fees from professional services. The funds to meet these obligations will be obtained from proceeds of the sale of
assets, lender held funds and refinancing of properties. Based on current analysis, the Company believes that the cash generated by these anticipated sales will be adequate to meet these obligations.
There can be no assurance, however, that the sales of these assets will occur and that substantial cash will be generated. If these sales or refinancings do not occur, the Company will not have
sufficient cash to meet its obligations.

61

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NOTE 20. UNAUDITED QUARTERLY RESULTS OF OPERATIONS

The following represents an unaudited summary of quarterly results of operations for the year ended December 31, 2004 (dollars in thousands, except for per
share amounts):

|                                                                                           |                                            | Quarter Ended |       
|------------------------------------------------------------------------------------------ | ------------------------------------------ | ------------- | ------
|
|REVENUES:                                                                                  |                                            |               |       
|Rental revenue                                                                             |                                            | $             | 6,856 
|Interest and other income                                                                  |                                            |               | 80    
|                                                                                           |                                            |               |       
|                                                                                           | Total revenues                             |               |       
|                                                                                           |                                            |               |       
|EXPENSES:                                                                                  |                                            |               |       
|Operating expenses                                                                         |                                            |               | 3,621 
|Depreciation and amortization                                                              |                                            |               | 2,487 
|Interest expense                                                                           |                                            |               | 2,809 
|                                                                                           |                                            |               |       
|                                                                                           | Total expenses                             |               |       
|                                                                                           |                                            |               |       
|OTHER INCOME (LOSS):                                                                       |                                            |               |       
|Net (loss) gain on extinguishment of debt                                                  |                                            |               |      
|                                                                                           |                                            |               |       
|                                                                                           | Total other income (loss)                  |               |       
|Net loss before deferred income tax benefit, minority interest and discontinued operations |                                            |               | (1,981
|Deferred income tax benefit                                                                |                                            |               |      
|                                                                                           |                                            |               |       
|Net loss before minority interest and discontinued operations                              |                                            |               | (1,981
|Minority interest                                                                          |                                            |               | 263   
|                                                                                           |                                            |               |       
|Net loss before discontinued operations                                                    |                                            |               | (1,718
|                                                                                           |                                            |               |       
|(Loss) income from discontinued operations                                                 |                                            |               | (107  
|                                                                                           |                                            |               |       
|                                                                                           | Net (loss) income                          |               | $     
|                                                                                           |                                            |               |       
|Basic and diluted per share data:                                                          |                                            |               |       
|                                                                                           | Net loss before discontinued operations    |               | $     
|                                                                                           | (Loss) income from discontinued operations |               |       
|                                                                                           | Net (loss) income                          |               | $     

62

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The
following represents an unaudited summary of quarterly results of operations for the year ended December 31, 2003 (dollars in thousands, except for per share amounts):

|                                                                                           |                                                | Quarter Ended             |       
|------------------------------------------------------------------------------------------ | ---------------------------------------------- | ------------------------- | ------
|
|REVENUES:                                                                                  |                                                |                           |       
|Rental revenue                                                                             |                                                | $                         | 6,189 
|Interest and other income                                                                  |                                                |                           | 10    
|                                                                                           |                                                |                           |       
|                                                                                           |                                                | Total revenues            |       
|                                                                                           |                                                |                           |       
|EXPENSES:                                                                                  |                                                |                           |       
|Operating expenses                                                                         |                                                |                           | 3,740 
|Depreciation and amortization                                                              |                                                |                           | 2,041 
|Interest expense                                                                           |                                                |                           | 2,457 
|                                                                                           |                                                |                           |       
|                                                                                           |                                                | Total expenses            |       
|                                                                                           |                                                |                           |       
|OTHER INCOME (LOSS):                                                                       |                                                |                           |       
|Loss on extinguishment of debt                                                             |                                                |                           |      
|                                                                                           |                                                |                           |       
|                                                                                           |                                                | Total other income (loss) |       
|Net loss before deferred income tax expense, minority interest and discontinued operations |                                                |                           | (2,039
|Deferred income tax expense                                                                |                                                |                           |      
|                                                                                           |                                                |                           |       
|Net loss before minority interest and discontinued operations                              |                                                |                           | (2,039
|Minority interest                                                                          |                                                |                           | 294   
|                                                                                           |                                                |                           |       
|                                                                                           | Net loss before discontinued operations        |                           |       
|                                                                                           |                                                |                           |       
|                                                                                           | Net (loss) income from discontinued operations |                           |       
|                                                                                           |                                                |                           |       
|                                                                                           |                                                | Net loss                  |       
|                                                                                           |                                                |                           |       
|Basic and diluted per share data:                                                          |                                                |                           |       
|                                                                                           | Net loss before discontinued operations        |                           | $     
|                                                                                           | (Loss) income from discontinued operations     |                           |       
|                                                                                           | Net loss                                       |                           | $     

NOTE 21. SUBSEQUENT EVENTS

On March 1, 2005, the Company sold Sorrento I, a 43,036 square foot industrial property located in San Diego, California for a sales price of $4,918,000.
Proceeds of approximately $3,169,000 were received as a result of the transaction. The Company anticipates a gain will be recorded in the first quarter of 2005 as a result of the sale.

On
February 22, 2005, the Company refinanced debt of $2,385,000 on an office property located in Houston, Texas and entered into a new loan agreement in the amount of $2,350,000.
The note bears interest at a fixed rate of 5.59% per annum and matures in February 2015. No proceeds were generated from this refinance.

63

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AMERICAN SPECTRUM REALTY, INC.        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS        (Dollars in thousands)

|COLUMN A                     |                                                       | COLUMN B |   | COLUMN C |  | COLUMN D |       | COLUMN E
|---------------------------- | ----------------------------------------------------- | -------- | - | -------- |  | -------- | ----- | --------
|
|Year Ended December 31, 2004 |                                                       |          |   |          |  |          |       |         
|                             | Allowance for loss on real estate held for investment |          | $ | 1,403    |  | $        |      |         
|Year Ended December 31, 2003 |                                                       |          |   |          |  |          |       |         
|                             | Allowance for loss on real estate held for investment |          | $ | 1,403    |  | $        |      |         
|Year Ended December 31, 2002 |                                                       |          |   |          |  |          |       |         
|                             | Allowance for loss on real estate held for investment |          | $ |         |  | $        | 1,403 |         

---

64

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AMERICAN SPECTRUM REALTY, INC.  SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION  DECEMBER 31, 2004  (Dollars in thousands)

|COLUMN A                    |                                | COLUMN B |         | COLUMN C |   | COLUMN D |       | COLUMN E
|--------------------------- | ------------------------------ | -------- | ------- | -------- | - | -------- | ----- | --------
|
|
|Office Properties:          |                                |          |         |          |   |          |       |         
|                            | Mira Mesa, CA                  |          | $       | 7,500    |   | $        | 810   |         
|                            | San Felipe, TX                 |          |         | 5,483    |   |          | 2,290 |         
|                            | Sorrento II, CA                |          |         | 8,425    |   |          | 780   |         
|                            | Creekside, CA                  |          |         | 6,219    |   |          | 2,790 |         
|                            | Countryside Office Park, IL    |          |         | 4,904    |   |          | 2,027 |         
|                            | Bristol Bay, CA                |          |         | 7,354    |   |          | 1,620 |         
|                            | 7700 Building, CA              |          |         | 43,332   |   |          | 9,150 |         
|                            | Northwest Corporate Center, MO |          |         | 5,730    |   |          | 1,550 |         
|                            | 16350 Park Ten, TX             |          |         | 5,266    |   |          | 1,174 |         
|                            | 16360 Park Ten, TX             |          |         | 4,126    |   |          | 900   |         
|                            | 800 Sam Houston Parkway, TX    |          |         | 1,694    |   |          | 1,000 |         
|                            | 888 Sam Houston Parkway, TX    |          |         | 1,226    |   |          | 500   |         
|                            | 5450 Northwest Central, TX     |          |         | 2,769    |   |          | 854   |         
|                            | 12000 Westheimer, TX           |          |         | 3,583    |   |          | 1,878 |         
|                            | 8100 Washington, TX            |          |         | 2,390    |   |          | 600   |         
|                            | 8300 Bissonnet, TX             |          |         | 4,574    |   |          | 1,400 |         
|                            | Pacific Spectrum, AZ           |          |         | 5,637    |   |          | 1,460 |         
|                            | 11500 NW Freeway, TX           |          |         | 4,692    |   |          | 2,278 |         
|                            |                                |          |         |          |   |          |       |         
|Office Total                |                                | $        | 124,904 |          | $ | 33,061   |       | $       
|                            |                                |          |         |          |   |          |       |         
|Industrial Properties:      |                                |          |         |          |   |          |       |         
|                            | Southwest Point, TX            |          |         | 2,885    |   |          | 1,800 |         
|                            | Morenci Professional Park, IN  |          |         | 1,875    |   |          | 790   |         
|                            | Technology, TX                 |          |         | 7,616    |   |          | 580   |         
|                            |                                |          |         |          |   |          |       |         
|Industrial Total            |                                | $        | 12,376  |          | $ | 3,170    |       | $       
|                            |                                |          |         |          |   |          |       |         
|Shopping Center Properties: |                                |          |         |          |   |          |       |         
|                            | Columbia NE, SC(2)             |          | $       | 2,867    |   | $        | 1,050 |         
|                            | Richardson Plaza, SC(2)        |          |         | 3,829    |   |          | 960   |         
|                            |                                |          |         |          |   |          |       |         
|Shopping Center Total       |                                | $        | 6,696   |          | $ | 2,010    |       | $       
|                            |                                |          |         |          |   |          |       |         
|Apartment Properties:       |                                |          |         |          |   |          |       |         
|                            | The Lakes, MO                  |          |         | 11,701   |   |          | 3,060 |         
|                            |                                |          |         |          |   |          |       |         
|Apartment Total             |                                | $        | 11,701  |          | $ | 3,060    |       | $       
|                            |                                |          |         |          |   |          |       |         
|Other:                      |                                |          |         |          |   |          |       |         
|                            | American Spectrum Realty-FF&E  |          |         |         |   |          |      |         
|                            |                                |          |         |          |   |          |       |         
|Other Total                 |                                | $        |        |          | $ |         |       | $       
|                            |                                |          |         |          |   |          |       |         
|Combined Total              |                                | $        | 155,677 |          | $ | 41,301   |       | $       
|                            |                                |          |         |          |   |          |       |         
|Real Estate Held for Sale   |                                |          |         |          |   |          |       |         
|Industrial Properties:      |                                |          |         |          |   |          |       |         
|                            | Sorrento I, CA                 |          | $       | 1,576    |   | $        | 580   |         
|                            |                                |          |         |          |   |          |       |         
|Total                       |                                | $        | 1,576   |          | $ | 580      |       | $       
|                            |                                |          |         |          |   |          |       |         

65

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AMERICAN SPECTRUM REALTY, INC.  SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION  DECEMBER 31, 2004  (dollars in thousands)

|COLUMN A                    |                                | COLUMN F |        | COLUMN G |  | COLUMN H  |  | COLUMN I
|--------------------------- | ------------------------------ | -------- | ------ | -------- |  | --------- |  | --------
|
|Office Properties:          |                                |          |        |          |  |           |  |         
|                            | Mira Mesa, CA                  |          | $      | 1,790    |  | 1986      |  | 2001    
|                            | San Felipe, TX                 |          |        | 851      |  | 1977      |  | 2001    
|                            | Sorrento II, CA                |          |        | 1,517    |  | 1988      |  | 2001    
|                            | Creekside, CA                  |          |        | 1,309    |  | 1984      |  | 2001    
|                            | Countryside Office Park, IL    |          |        | 1,130    |  | 1984      |  | 2001    
|                            | Bristol Bay, CA                |          |        | 1,478    |  | 1988      |  | 2001    
|                            | 7700 Building CA               |          |        | 7,964    |  | 1989      |  | 2001    
|                            | Northwest Corporate Center, MO |          |        | 1,194    |  | 1983-1987 |  | 2001    
|                            | 16350 Park Ten, TX             |          |        | 860      |  | 1979      |  | 2002    
|                            | 16360 Park Ten, TX             |          |        | 731      |  | 1981      |  | 2002    
|                            | 800 Sam Houston Parkway, TX    |          |        | 30       |  | 1980      |  | 2004    
|                            | 888 Sam Houston Parkway, TX    |          |        | 160      |  | 1979      |  | 2002    
|                            | 5450 Northwest Central, TX     |          |        | 208      |  | 1979      |  | 2003    
|                            | 12000 Westheimer, TX           |          |        | 263      |  | 1981      |  | 2003    
|                            | 8100 Washington, TX            |          |        | 200      |  | 1980      |  | 2003    
|                            | 8300 Bissonnet, TX             |          |        | 270      |  | 1981      |  | 2003    
|                            | Pacific Spectrum, AZ           |          |        | 1,451    |  | 1986      |  | 2001    
|                            | 11500 NW Freeway, TX           |          |        | 40       |  | 1983      |  | 2004    
|                            |                                |          |        |          |  |           |  |         
|Office Total                |                                | $        | 21,446 |          |  |           |  |         
|                            |                                |          |        |          |  |           |  |         
|Industrial Properties:      |                                |          |        |          |  |           |  |         
|                            | Southwest Point, TX            |          |        | 413      |  | 1972      |  | 2001    
|                            | Morenci Professional Park, IN  |          |        | 532      |  | 1975-1979 |  | 2001    
|                            | Technology, TX                 |          |        | 1,540    |  | 1986      |  | 2001    
|                            |                                |          |        |          |  |           |  |         
|Industrial Total            |                                | $        | 2,485  |          |  |           |  |         
|                            |                                |          |        |          |  |           |  |         
|Shopping Center Properties: |                                |          |        |          |  |           |  |         
|                            | Columbia NE, SC(2)             |          | $      | 444      |  | 1991      |  | 2001    
|                            | Richardson Plaza, SC(2)        |          |        | 890      |  | 1992      |  | 2001    
|                            |                                |          |        |          |  |           |  |         
|Shopping Center Total       |                                | $        | 1,334  |          |  |           |  |         
|                            |                                |          |        |          |  |           |  |         
|Apartment Properties:       |                                |          |        |          |  |           |  |         
|                            | The Lakes, MO                  |          |        | 1,837    |  | 1985      |  | 2001    
|                            |                                |          |        |          |  |           |  |         
|Apartment Total             |                                | $        | 1,837  |          |  |           |  |         
|                            |                                |          |        |          |  |           |  |         
|Other:                      |                                |          |        |          |  |           |  |         
|                            | American Spectrum Realty-FF&E  |          | $      | 201      |  |          |  |        
|                            |                                |          |        |          |  |           |  |         
|Other Total                 |                                | $        | 201    |          |  |           |  |         
|Combined Total              |                                | $        | 27,303 |          |  |           |  |         
|                            |                                |          |        |          |  |           |  |         
|Real Estate Held for Sale   |                                |          |        |          |  |           |  |         
|Industrial Properties:      |                                |          |        |          |  |           |  |         
|                            | Sorrento I, CA                 |          | $      | 409      |  | 1986      |  | 2001    
|                            |                                |          |        |          |  |           |  |         
|Total                       |                                |          |        |          |  |           |  |         
|                            |                                |          |        |          |  |           |  |         

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AMERICAN SPECTRUM REALTY INC.  SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION  December 31, 2004  (Dollars in thousands)

Reconciliation of gross amount at which real estate was carried for the years ended December 31:

|                                 |                                     | 2004 |         | 2003   |   | 2002    |       
|-------------------------------- | ----------------------------------- | ---- | ------- | ------ | - | ------- | ------
|Rental Property:                 |                                     |      |         |        |   |         |       
|Balance at beginning of year     |                                     | $    | 183,378 |        | $ | 164,686 |       
|Additions during year:           |                                     |      |         |        |   |         |       
|                                 | Property acquisitions and additions |      |         | 12,479 |   |         | 18,977
|Retirements/sales                |                                     |      | (23     | )      |   | (285    | )     
|Impairment of real estate assets |                                     |      |        |        |   |        |       
|                                 |                                     |      |         |        |   |         |       
|Balance at end of year           |                                     | $    | 195,834 |        | $ | 183,378 |       
|                                 |                                     |      |         |        |   |         |       
|Accumulated Depreciation:        |                                     |      |         |        |   |         |       
|Balance at beginning of year     |                                     | $    | 17,387  |        | $ | 9,050   |       
|Additions during year:           |                                     |      |         |        |   |         |       
|                                 | Depreciation                        |      |         | 9,939  |   |         | 8,428 
|Retirements/sales                |                                     |      | (23     | )      |   | (91     | )     
|                                 |                                     |      |         |        |   |         |       
|Balance at end of year           |                                     | $    | 27,303  |        | $ | 17,387  |       
|                                 |                                     |      |         |        |   |         |       

67

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SIGNATURES

Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

|                     |  | AMERICAN SPECTRUM REALTY INC
|-------------------- |  | ----------------------------
|                     |  | By:                         
|Date: March 18, 2005 |  |                             
|Date: March 18, 2005 |  |                             
|Date: March 18, 2005 |  |                             
|Date: March 18, 2004 |  |                             
|Date: March 18, 2005 |  |                             
|Date: March 18, 2005 |  |                             
|Date: March 18, 2005 |  |                             

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EXHIBIT INDEX

|Exhibit No. |  | Exhibit Title                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Form of Amended and Restated Articles of Incorporation of the Company(1)                                                                                       
|3.2         |  | Bylaws of the Company(1)                                                                                                                                       
|3.3         |  | Amended and Restated Bylaws of the Company are incorporated herein by reference to Exhibit 3.01 to the Company's Form 10-Q for the quarter ended June 30, 2002.
|3.4         |  | Articles of Amendment of the Company are incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.    
|4.1         |  | Form of Stock Certificate(1)                                                                                                                                   
|10.1        |  | Form of Agreement and Plan of Merger of Sierra-Pacific Development Fund(1)                                                                                     
|10.2        |  | Form of Agreement and Plan of Merger of Sierra-Pacific Development Fund II(1)                                                                                  
|10.3        |  | Form of Agreement and Plan of Merger of Sierra-Pacific Development Fund III(1)                                                                                 
|10.4        |  | Form of Agreement and Plan of Merger of Sierra Pacific Pension Investors '84(1)                                                                                
|10.5        |  | Form of Agreement and Plan of Merger of Sierra Pacific Institutional Properties V(1)                                                                           
|10.6        |  | Form of Agreement and Plan of Merger of Nooney Income Fund Ltd., L.P.(1)                                                                                       
|10.7        |  | Form of Agreement and Plan of Merger of Nooney Income Fund Ltd., L.P.(1)                                                                                       
|10.8        |  | Form of Agreement and Plan of Merger of Nooney Real Property InvestorsTwo, L.P.(1)                                                                            
|10.9        |  | Omnibus Stock Incentive Plan(1)                                                                                                                                
|10.10       |  | Agreement of Limited Partnership of American Spectrum Realty Operating Partnership, L.P.(1)                                                                    
|10.11       |  | Agreement and Plan of Merger, dated August 6, 2000, between the Company and CGS Properties (Mkt./Col.), L.P.(1)                                                
|10.12       |  | Agreement and Plan of Merger, dated August 6, 2000, between the Company and Creekside/Riverside, L.L.C.(1)                                                     
|10.13       |  | Agreement and Plan of Merger, dated August 6, 2000, between the Company and McDonnell Associates, L.L.C.(1)                                                    
|10.14       |  | Agreement and Plan of Merger, dated August 6, 2000, between the Company and Pacific Spectrum, L.L.C.(1)                                                        
|10.15       |  | Agreement and Plan of Merger, dated August 6, 2000, between the Company and Pasadena Autumn Ridge L.P.(1)                                                      
|10.16       |  | Agreement and Plan of Merger, dated August 6, 2000, between the Company and Seventy Seven, L.L.C.(1)                                                           
|10.17       |  | Agreement and Plan of Merger, dated August 6, 2000, between the Company and Villa Redondo L.L.C.(1)                                                            
|10.18       |  | Agreement and Plan of Merger, dated August 6, 2000, between the Company and Third Coast L.L.C.(1)                                                              
|10.19       |  | Agreement and Plan of Contribution, dated August 6, 2000, between the Company and No.-So., Inc.(1)                                                             
|10.20       |  | Form of Restricted Stock Agreement(1)                                                                                                                          
|            |  |                                                                                                                                                                

69

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|10.21 |  | Form of Stock Option Agreement (Incentive Stock Options)(1)                                                                                                                                                                                                                                                                                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.22 |  | Form of Stock Option Agreement (Directors)(1)                                                                                                                                                                                                                                                                                                             
|10.23 |  | Form of Stock Option Agreement (Non-Qualified Options)(1)                                                                                                                                                                                                                                                                                                 
|10.24 |  | Form of Indenture Relating to Notes(1)                                                                                                                                                                                                                                                                                                                    
|10.25 |  | Contribution Agreement, dated May 31, 2000, between the Company and CGS Real Estate Company, Inc.(1)                                                                                                                                                                                                                                                      
|10.26 |  | Contribution Agreement, dated May 31, 2000, between the Company and American Spectrum Real Estate Services, Inc.(1)                                                                                                                                                                                                                                       
|10.27 |  | Agreement and Plan of Merger, dated May 31, 2001, between the Company and Lindbergh Boulevard Partners (Lindbergh), L.P.(1)                                                                                                                                                                                                                               
|10.28 |  | Agreement and Plan of Merger, dated May 31, 2001, between the Company and Nooney Rider Trail L.L.C.(1)                                                                                                                                                                                                                                                    
|10.29 |  | Agreement and Plan of Merger, dated May 31, 2001, between the Company and Back Bay L.L.C.(1)                                                                                                                                                                                                                                                              
|10.30 |  | Contribution Agreement, dated May 31, 2001, between American Spectrum Realty Management, Inc. and CGS Real Estate Company, Inc., American SpectrumMidwest, American SpectrumArizona, American SpectrumCalifornia and
American SpectrumTexas, Inc.(1)                                                                                                  
|10.31 |  | Amendment of Agreement Plan of Merger between the Company and Villa Redondo L.L.C. is incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2001                                                                                                                                                   
|10.32 |  | Amendment of Agreement Plan of Merger between the Company and Pasadena Autumn Ridge, L.P. is incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2001                                                                                                                                            
|10.33 |  | Amendment of Agreement Plan of Merger between the Company and Third Coast L.L.C. is incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2001                                                                                                                                                     
|10.34 |  | Registration Right's Agreement between the Company, the Operating Partnership, and other parties is incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2001                                                                                                                                     
|10.35 |  | Employment Agreement dated October 15, 2001 between the Company and Harry A. Mizrahi is incorporated herein by reference to Exhibit 10.01 to the Company's Form 10-Q for the quarter ended March 31, 2002                                                                                                                                                 
|10.36 |  | Employment Agreement dated April 3, 2002 between the Company and Paul E. Perkins is incorporated herein by reference to Exhibit 10.02 to the Company's Form 10-Q for the quarter ended March 31, 2002                                                                                                                                                     
|10.37 |  | Employment Agreement dated April 16, 2002 between the Company and Patricia A. Nooney is incorporated herein by reference to Exhibit 10.03 to the Company's Form 10-Q for the quarter ended March 31, 2002                                                                                                                                                 
|10.38 |  | Employment Agreement dated September 1, 2002 between the Company and Thomas N. Thurber is incorporated herein by reference to Exhibit 10.04 to the Company's Form 1-Q for the quarter ended June 30, 2002 (Exhibits pursuant to the
Agreement have not been filed by the Company, who hereby undertakes to file such exhibits upon the request of the SEC)
|      |  |                                                                                                                                                                                                                                                                                                                                                           

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|10.39 |  | Employment Agreement dated October 15, 2001 between the Company and William J. Carden is incorporated herein by reference to Exhibit 10.5 to the Company's Form 10-Q for the quarter ended September 30, 2002              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.40 |  | Letter Agreement dated February 25, 2003 between the Company and William J. Carden and John N. Galardi is incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2002
|10.41 |  | Letter Agreement dated February 25, 2003 between the Company and CGS Real Estate Company, Inc. is incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2002        
|10.42 |  | Letter Agreement dated February 25, 2003 between the Company and William J. Carden and John N. Galardi is incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2002
|10.43 |  | Amendment No. 1 to Employment Agreement dated October 6, 2003 between the Company and Patricia A. Nooney incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2003 
|21    |  | Significant Subsidiaries of the Company                                                                                                                                                                                    
|23    |  | Accountants' ConsentForm 10-K                                                                                                                                                                                             
|31    |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                    
|32    |  | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                      

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