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                                   FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

  /X/    Annual report pursuant to Section 13 or 15(d) of the
         Securities Exchange Act of 1934 for the fiscal year ended
         December 31, 1997

                                       or

  / /    Transition report pursuant to Section 13 or 15(d) of the
         Securities Exchange Act of 1934 for the transition period from to

                         COMMISSION FILE NUMBER 0-10421
                            ------------------------

                          CORNERSTONE PROPERTIES INC.

             (Exact name of Registrant as specified in its Charter)

                   NEVADA                              74-2170858
      (State or other jurisdiction of       (IRS Employer Identification No.)
      incorporation and organization)

                              126 EAST 56TH STREET
                               NEW YORK, NEW YORK
                    (Address of principal executive offices)

                                     10022
                                   (Zip Code)

                                 (212) 605-7100
              (Registrant's telephone number, including area code)

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

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<CAPTION>
TITLE OF EACH CLASS:                                    NAME OF EACH EXCHANGE ON WHICH REGISTERED:
------------------------------------------------------  ------------------------------------------------------
<S>                                                     <C>
Common Stock, no par value                              New York Stock Exchange
                                                        Dusseldorf Stock Exchange
                                                        Frankfurt Stock Exchange
</TABLE>

    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 /X/  No / /

    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 the registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]

    Aggregate market value of registrant's voting Common Stock held by
non-affiliates as of March 26, 1998: $1,794,658,239.

Number of shares of Common Stock outstanding as of March 26, 1998: 98,015,196.

Index of Exhibits: See Item 14(c) page 52.

                      DOCUMENTS INCORPORATED BY REFERENCE:

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<CAPTION>
                                                                                                     Part of Form 10-K
                                                                                                        into which
                                                                                                       incorporated
                                                                                                   ---------------------
<S>                                                                                                <C>
Proxy Statement for Annual Meeting of Stockholders to be held May 20, 1998.......................         Part III
</TABLE>

Total Number of Pages: 60
Exhibit Index: Page 49

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                                     PART I

ITEM 1. BUSINESS.

                                  THE COMPANY

    Cornerstone Properties Inc. ("Cornerstone" or the "Company") is a
self-advised real estate investment trust ("REIT") which owns, through
subsidiaries, interests in 19 Class A office properties comprising nearly 11
million rentable square feet (collectively, the "Properties," and each interest,
a "Property"). The Properties are located in ten major metropolitan areas
throughout the United States: Atlanta, Boston, Charlotte, suburban Chicago,
Denver, Minneapolis, New York City, Pittsburgh, Seattle and Washington, D.C. and
surrounding suburbs. All of the Properties were built between 1979 and 1991,
with the exception of the Pittsburgh Property, which was substantially renovated
in 1988. The Company's strategy is to own Class A office properties in prime
Central Business District ("CBD") locations and major suburban office markets in
U.S. metropolitan areas. Class A office properties are generally considered to
be those that have the most favorable locations and physical attributes, command
premium rents and experience the highest tenant retention rates within their
markets. The Company recently formed an umbrella limited partnership real estate
investment trust ("UPREIT"), which will allow the Company to acquire properties
in transactions that will provide sellers with tax-deferred treatment of capital
gains. As part of the UPREIT formation, all of the Company's interests in the
Properties are held by or through a Delaware limited partnership, Cornerstone
Properties Limited Partnership (the "Operating Partnership"), of which the
Company is the sole general partner. The Company currently owns directly or
indirectly 99.17% of the outstanding units of partnership interest in the
Operating Partnership (excluding certain preferred units owned by the Company).

    The Company focuses its professional and executive staff on the execution of
its acquisition and management strategy, including market research, budgeting,
leasing, capital planning, finance and asset management. The Company engages
prominent regional or national third-party management companies to provide
day-to-day property management functions at the local level. The Company
believes that its use of third-party property managers offers a flexible,
cost-efficient and demonstrably effective means for managing a national office
portfolio, as historically its Properties have consistently outperformed their
respective submarkets Class A property rent and occupancy levels. In all cases,
the Company retains full responsibility for capital planning, budgeting,
leasing, major tenant relationships, financing and strategic initiatives with
respect to its Properties.

    As a major owner of Class A office properties, management believes that the
Company is well positioned to capitalize on the expected improvement in the
fundamentals for office property markets in the United States. Management also
believes that the Company can continue to use its portfolio of premium quality
assets, proven access to multiple sources of debt and equity capital and
efficient management structure to expand nationally through the use of UPREIT
unit transactions and stock-for-asset transactions.

    The Company was incorporated under the laws of the State of Nevada in May
1981. The Company's principal place of business is located at Tower 56, 126 East
56th Street, New York, New York 10022.

                              BUSINESS OBJECTIVES

BUSINESS STRATEGY

    The Company's primary objective is to maximize long-term stockholder value
through growth in funds from operations ("FFO") per share and through
appreciation in the value of its holdings. The Company's strategies to
accomplish this objective are to:

    - Seek external growth by acquiring additional Class A office properties
      with local submarket and asset characteristics consistent with the
      Properties currently in its portfolio; and

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    - Generate internal growth by aggressively maintaining, managing and leasing
      its Properties, increasing rent, maintaining high occupancy and tenant
      retention levels and maximizing current returns and long-term value.

EXTERNAL GROWTH STRATEGY

    The Company will continue to pursue significant growth in its asset base to
the extent that appropriate Class A office properties and financing are
available on attractive terms. The Company will continue to implement its
external growth strategies by acquiring properties and portfolios of properties
with the following characteristics:

    - CLASS A OFFICE PROPERTIES. The Company believes that its strategy of
      investing in and owning Class A office properties has the following
      benefits: (i) Class A properties can currently be acquired at prices that
      produce attractive yields for the Company and are accretive to earnings;
      (ii) Class A properties typically maintain higher occupancies because,
      when overall vacancy rates are rising, tenants often take the opportunity
      to relocate to better located and higher quality buildings; and (iii)
      Class A properties generally attract tenants with strong credit, resulting
      in a more stable source of cash flow.

    - MAJOR METROPOLITAN AREAS. The Company intends to continue targeting
      properties located in the CBDs and major suburban submarkets of major
      metropolitan areas. Target markets typically exhibit underlying economic,
      demographic and employment trends that lead to the positive net absorption
      of Class A office space. The Company also expects future acquisitions to
      be concentrated in submarkets where high barriers to entry reduce the
      likelihood that new office space will be constructed; such barriers to
      entry may include a limited supply of attractive building sites and
      significant regulatory constraints on new development.

    - DISCOUNT TO REPLACEMENT COST. The Company expects to continue acquiring
      properties at discounts to replacement cost that possess one or more
      competitive advantages, such as a superior location, quality construction,
      high-quality tenancy, efficient floorplates and modern building systems.
      Because Class A properties being considered for acquisition by the Company
      are at prices below replacement cost, the opportunity exists for the
      Company to enhance property performance and operating income, thereby
      increasing asset values, before potentially competitive new construction
      is justified in most markets.

    - UPREIT UNIT TRANSACTIONS AND STOCK-FOR-ASSET SWAPS. The Company believes
      that opportunities exist for it to grow its asset base and increase
      earnings through UPREIT unit transactions and stock-for-asset swaps with
      major institutional owners of property. For example, a number of major
      pension funds and life insurance companies have publicly announced
      initiatives to exchange portfolios of direct real estate holdings for
      securities of publicly traded companies in order to improve portfolio
      diversification, liquidity and overall investment returns. The Company
      believes that the very high quality of the Properties and its intended
      future acquisitions should make the Company an attractive vehicle for swap
      transactions and afford access to a broader range of acquisition
      opportunities.

INTERNAL GROWTH STRATEGY

    The Company believes that its existing portfolio offers opportunities for
growth through the Company's active and aggressive asset management program,
which emphasizes maintaining a strong market position based on superior asset
quality and tenant service. The Company will continue to implement its internal
growth strategies through the following:

    - RENTAL RATE INCREASES. Based on its own historical activities and
      knowledge of its local marketplaces, the Company believes that occupancy
      levels and net rents in most of its submarkets are increasing

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      but, on average, that net rents must still rise significantly in order to
      justify and finance new construction. The Company believes that these
      market dynamics should enable it to realize rental rate increases without
      facing potentially competitive new construction. Ultimately, the Company
      believes that its high-quality assets will continue to compete very
      effectively even when market rents rise sufficiently to justify new
      construction.

    - MAINTENANCE. The Company places strong emphasis on programs for regular
      maintenance of the Properties as well as periodic refurbishment,
      renovation and redevelopment where such investment provides attractive
      returns and cash flow growth. Higher maintenance levels generally allow
      building systems to operate more efficiently, thereby reducing operating
      expenses to a level which is lower than that of competing properties. In
      addition, many of the Company's capital and maintenance expenditures, such
      as the upgrading of a building's electrical system, are designed to
      produce ongoing operational efficiencies in order to increase cash flow
      and long-term value.

    - PROACTIVE LEASING PROGRAM. The Company believes that retention of existing
      tenants, and the leasing of additional space to those tenants, is
      important to a property's stability and enhances its cash flow and value
      over time. Maximizing tenant retention reduces the cost of lease rollovers
      and rental revenue fluctuations by removing "down" periods between tenant
      occupancies and reducing the "up front" costs (tenant improvements and
      leasing commissions) of signing leases. Therefore, the Company's senior
      management focuses significant attention on negotiating lease terms for
      prospective new tenants and on working with existing tenants to negotiate
      lease renewals that meet the tenant's changing space needs.

FINANCING STRATEGY

    The Company believes that in order to continue to maximize the value of its
stockholders' equity and to execute its growth strategies, it is essential to
implement and periodically review a diversified financing strategy that: (i)
incorporates long-term, secured and unsecured corporate debt; (ii) minimizes
exposure to fluctuations of interest rates; and (iii) maintains maximum
flexibility to manage the Company's short-term cash needs. Furthermore, the
Company believes that its capital structure will be conducive to and allow
flexibility for the aggressive growth that the Company seeks to achieve. The
Company anticipates employing the following strategies to enhance stockholder
value:

    - ACCESS TO MULTIPLE CAPITAL SOURCES. Because of the high quality of its
      assets, the Company believes that it has several competitive advantages in
      its ability to access equity capital from several different sources on
      attractive terms. This financial flexibility should enable the Company to
      choose from among several equity alternatives and to select the capital
      source that best meets the Company's needs at that time. The Company
      expects to continue to access capital from the most cost-efficient
      sources, including public and private equity and debt.

    - PRUDENT LEVERAGE. The Company will use leverage prudently to take
      advantage of what it believes to be the positive spread between the total
      return on investment and the cost of debt financing in the Class A office
      property market. Historically, the Company has employed somewhat higher
      levels of leverage than property companies holding assets of lesser
      quality, since the Company's high-quality assets and tenancy have
      generally produced occupancy rates, rent levels and income streams that
      are higher and more stable than those associated with lower quality
      assets. The Company believes that its use of leverage has been and will
      continue to be consistent with its ownership of very high-quality assets
      in which a large portion of its tenants carry investment-grade long-term
      debt ratings. Approximately 34% of its Full Service Straight-Line Rent (as
      defined herein) is received from tenants which carry investment-grade
      long-term debt ratings.

    - CREDIT FACILITY. The Company has obtained a three-year, $350 million
      unsecured credit facility (the "Revolving Credit Facility") from Bankers
      Trust Company and The Chase Manhattan Bank. The Revolving Credit Facility
      has been and will continue to be used for the acquisition of additional

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      properties as well as for general working capital purposes. Borrowings
      under the Revolving Credit Facility bear interest at a rate between 1.10%
      and 1.40% above the London Interbank Offered Rate ("LIBOR"), depending
      upon the Company's ratio of total debt to asset value at the time of
      borrowing.

    - REDEPLOYMENT OF ASSETS. The Company periodically reviews its portfolio of
      Properties to determine whether any assets are inconsistent with its
      long-term business objectives and should, therefore, be sold and the
      proceeds therefrom applied to the acquisition of more suitable assets. The
      Company currently intends to sell The Frick Building and a parcel of land,
      but no assurance can be given that the Company will be able to locate a
      willing buyer or sell the Properties at an attractive price.

                              RECENT DEVELOPMENTS

    From January 1, 1997 through March 26, 1998, the Company has completed more
than $1.4 billion of real estate investments, consisting of 12 Class A office
properties containing approximately 6.2 million rentable square feet and one
undeveloped parcel of land (collectively the "Acquired Properties"). With the
purchase of the Acquired Properties, the Company increased its investments in
real estate by approximately 192%.

1997 AND 1998 COMPLETED ACQUISITIONS

    Information regarding 1997 and 1998 acquisitions is as of March 26, 1998.

    527 MADISON AVENUE.  On February 14, 1997, Cornerstone acquired 527 Madison
Avenue in Midtown Manhattan, New York for approximately $67 million. Constructed
in 1986, 527 Madison Avenue is a 26-story Class A office building with
approximately 211,000 square feet of office space, 5,000 square feet of first
floor retail space and an underground parking facility for approximately 50
vehicles.

    DIHC PORTFOLIO.  After receiving stockholder approval on October 27, 1997,
the Company acquired (the "DIHC Acquisition") interests in nine Class A office
properties, comprising approximately 4.5 million rentable square feet in
Alexandria, Virginia (3 Properties), Atlanta (2 Properties), Boston (2
Properties), Charlotte and Washington, D.C., as well as an undeveloped parcel of
land in Chicago (collectively the "DIHC Properties") and certain secured and
unsecured loans.

    The DIHC Acquisition was effected by the Company purchasing all of the
outstanding stock of certain direct and indirect subsidiaries of Dutch
Institutional Holding Company, Inc. ("DIHC") that owned interests in the DIHC
Properties, together with certain loans to such subsidiaries held by Stichting
Pensioenfonds Voor de Gezondheid Geestelijke en Maatschappelijke Belangen
("PGGM"). DIHC is a wholly-owned subsidiary of PGGM. As consideration for the
DIHC Acquisition, PGGM and DIHC together received approximately $1.06 billion,
consisting of approximately 34 million shares of Common Stock (approximately 41%
of the outstanding shares of the Company at that time), approximately $260
million in cash and $250 million in promissory notes. Below is a brief property
description of the nine Properties described above:

    191 PEACHTREE STREET. Located in downtown Atlanta, 191 Peachtree Street is a
50-story Class A multi-tenant office building containing 1,221,000 square feet.
Attached to the building is a 16-story parking deck with 1,386 spaces.

    MARKET SQUARE. Located in Washington D.C., Market Square comprises two free
standing Class A office buildings which are mirror images of each other. Each
building contains eight floors of office space, a plaza and a concourse level,
plus four floors of condominium residential units. The condominium residential
units are owned separately. The total area of the Market Square property is
689,000 square feet and a four level below grade parking garage with 777 spaces.
Of this total area, 631,000 square feet is office space and 58,000 square feet
is retail space.

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    500 BOYLSTON STREET. Located in the Back Bay submarket of Boston, 500
Boylston Street is a 25-story Class A office building with approximately 650,000
square feet of office space and approximately 65,000 square feet of first and
second floor retail space. Parking for 1,000 cars is shared with 222 Berkeley
Street and is located three levels below grade.

    222 BERKELEY STREET. Located in the Back Bay submarket of Boston, 222
Berkeley Street is a 22-story Class A office building with approximately 485,000
square feet of office space and approximately 46,000 square feet of first and
second floor retail space. Parking for 1,000 cars is shared with 500 Boylston
Street and is located three levels below grade.

    CHARLOTTE PLAZA. Located in the Uptown district of Charlotte's CBD,
Charlotte Plaza is a 27-story, Class A office building with approximately
613,000 square feet of office space and an eight-level, 863 space parking
garage.

    200 GALLERIA. Part of a four-office building complex containing a total of
over 1.5 million square feet of space, 200 Galleria, which is located in
northwest Atlanta, is a 20-story Class A office building with approximately
433,000 square feet of office space. The building is connected to a seven-level,
2,551-car parking garage which serves both the 200 and 300 Galleria buildings.

    11 CANAL CENTER, 99 CANAL CENTER AND TRANSPOTOMAC PLAZA 5. These three
buildings are located within two adjacent office complexes in the waterfront
office district of Alexandria, Virginia. The four-story building at 11 Canal
Center contains 70,000 square feet and the six-story building at 99 Canal Center
contains 138,000 square feet. The buildings have access to an underground
parking facility that is shared with the other buildings of the Canal Center
Complex in which 187 spaces are allocated to 11 Canal Center and 370 spaces are
allocated to 99 Canal Center. TransPotomac Plaza 5 is a ten-story, triangular
office building with 96,000 net rentable square feet. Underground parking is
allocated between the five-building, three-acre complex with TransPotmac Plaza 5
receiving an allocation of 222 spaces.

    SIXTY STATE STREET.  On December 31, 1997, Cornerstone purchased the second
mortgage on this 38-story, 823,000 square foot Class A office building in the
heart of Boston's CBD for $131.5 million. The building has an underground
parking facility capable of accommodating 215 vehicles. The mortgage is a cash
flow mortgage through which all of the economic benefits (subject to the first
mortgage) will inure to the Company. The $78.4 million first mortgage on the
Property has been recorded as an $89.6 million liability as a result of its
above-market interest rate. The Company controls all major decisions regarding
the Property's management and leasing.

    CORPORATE 500 CENTRE.  On January 28, 1998, the Company purchased Corporate
500 Centre in Deerfield, Illinois. This Property consists of four Class A office
buildings with approximately 679,000 rentable square feet. The consideration
paid for this Property was approximately $135 million in cash and approximately
$15 million in UPREIT units, priced at $18.50 per unit, for a total purchase
price of approximately $150 million.

    The Company has undertaken the DIHC Acquisition and the other recent
acquisitions in order to solidify the Company's status as a leading Class A
office REIT, and to further its objective of growing its earnings and asset base
by acquiring high-profile Class A office properties in major real estate markets
nationwide. Additional benefits of these acquisitions are expected to include:
(i) accretive effects to the Company's earnings; (ii) strong expansion of the
Company's existing presence in Boston, New York and suburban Chicago; (iii)
establishment of initial market presence in Atlanta, Charlotte and Washington,
D.C.; (iv) significant improvement in overall rent roll and a leveling of the
Company's lease expiration schedule; and (v) improvement of operating margins by
almost doubling the size of the Company's asset base while reducing the
projected increases in corporate overhead on a percentage basis.

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OTHER RECENT DEVELOPMENTS

    INITIAL U.S. PUBLIC OFFERING.  On April 21, 1997, the Company completed the
initial public offering of 16,100,000 new shares of Common Stock at a price of
$14.00 per share. The Company's Common Stock is listed on the New York Stock
Exchange. The shares were sold by a group of underwriters led by Merrill Lynch.
The Company received net proceeds of approximately $207.8 million ($225.4
million gross proceeds less an underwriting discount of approximately $14.1
million and expenses of approximately $3.5 million).

    CONVERSION OF PREFERRED STOCK.  On July 25, 1997, all of the outstanding
shares of 8% Cumulative Convertible Preferred Stock and 8% Cumulative
Convertible Preferred Stock, Series A, of the Company (collectively, the "8%
Preferred Stock"), which were held by the New York State Teachers' Retirement
System ("NYSTRS") and Rodamco N.V. (together with its subsidiaries, "Rodamco"),
respectively, were converted into 6,896,550 and 4,586,210 shares of Common
Stock, respectively.

    TERMS OF THE REVOLVING CREDIT FACILITY.  On October 27, 1997, Bankers Trust
Company and The Chase Manhattan Bank provided the Company with the $350 million
Revolving Credit Facility for acquisitions and general working capital purposes
as well as the issuance of letters of credit. The Revolving Credit Facility was
amended and restated on January 20, 1998. The interest rate on the line of
credit depends on the Company's leverage ratio at the time of borrowing and will
be at a spread of 1.10% to 1.40% over LIBOR. The letters of credit will be
priced at the applicable Eurodollar credit spread. The line of credit expires on
October 27, 2000.

    AMENDMENTS OF RESTATED ARTICLES OF INCORPORATION.  On October 27, 1997, the
stockholders of the Company approved the adoption of three amendments to the
Company's Restated Articles of Incorporation (the "Articles of Incorporation").
One amendment (the "REIT Amendment") added new provisions to the Articles of
Incorporation that are designed to cause the Company to become a "domestically
controlled REIT" under the Code. Status as a domestically controlled REIT may be
beneficial to certain stockholders who are nonresident alien individuals,
foreign corporations, foreign partnerships, foreign trust or foreign estates
("Non-U.S. Stockholders") and who hold or have held substantial positions in the
Common Stock. The REIT Amendment provides that shares of the Company's capital
stock may not be transferred by any U.S. Person (as defined) to any person if
such transfer would cause a Non-U.S. Person (as defined) to become the direct or
indirect owner of more than 3% of the value of the outstanding shares of any
class of capital stock of the Company. The other two amendments amended the
Articles of Incorporation to (i) increase the number of authorized shares of
Common Stock from 100,000,000 to 250,000,000 and (ii) include a provision
clarifying the mechanics of settling trades on the New York Stock Exchange.

    TOWER 56.  On January 5, 1998, the Company purchased the participation
rights in the cash flow and residual value of Tower 56 from the former
participants for 307,692 shares of Common Stock. All cash flow and the residual
value of Tower 56 will now inure to the Company.

    FORMATION OF UPREIT.  On January 20, 1998, the Company formed an umbrella
limited partnership or UPREIT. As part of the UPREIT formation, substantially
all of the Company's interests in the Properties are held by or through the
Operating Partnership, a Delaware limited partnership, of which the Company is
the sole general partner. The Company currently owns directly or indirectly
99.17% of the outstanding units of partnership interest ("UPREIT units") in the
Operating Partnership (excluding certain preferred units owned by the Company).
The purpose of forming an UPREIT is to create an acquisition vehicle attractive
to sellers whose sale of properties to the Company in exchange for UPREIT units
may be characterized as a tax-deferred capital contribution rather than a
taxable sale.

    SECONDARY PUBLIC OFFERING.  On February 6, 1998, the Company completed a
secondary public offering of 14,375,000 shares of Common Stock at $18.25 per
share. The shares were placed in the United States through a syndicate of seven
investment banks led by Merrill Lynch & Co. Net proceeds to the Company

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were approximately $247.9 million ($262,343,750 gross proceeds less an
underwriting discount of $13,728,125 and expenses of approximately $750,000).
The net proceeds were used to repay the Company's acquisition line of credit and
for working capital purposes.

                             REGULATORY COMPLIANCE

ENVIRONMENTAL MATTERS

    Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of such removal or remediation could be
substantial. Additionally, the presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
borrow using such real estate as collateral. All of the Properties had
environmental site assessments conducted by independent environmental
consultants and have been inspected for hazardous materials as part of the
Company's acquisition inspections. None of the assessments have revealed any
environmental conditions requiring material expenditures for remediation. No
assurance can be given that these assessments or the Company's inspections have
revealed all environmental liabilities and problems relating to its Properties.

    The Company believes that it is in compliance in all material respects with
all federal, state and local laws regarding hazardous or toxic substances. To
date, compliance with federal, state and local environmental protection
regulations has not had a material effect upon the Company. However, there can
be no assurance that costs of investigating and remediating environmental
matters with respect to properties currently or previously owned by the Company
or properties that the Company may acquire in the future, or other expenditures
or liabilities (including claims by private parties) resulting from hazardous
substances present in, on, under or above such properties or resulting from
circumstances or other actions or claims relating to environmental matters, will
not have a material adverse effect on the Company and its ability to make
distributions to stockholders.

OTHER REGULATIONS

    The Properties are, and properties that the Company may acquire in the
future will be, subject to various other federal, state and local regulatory
requirements such as local building codes and other similar regulations. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Company
believes that the Properties are currently in substantial compliance with all
applicable regulatory requirements. Although no material expenditures are
contemplated at this time in order to comply with any such laws or regulations,
there can be no assurance that these requirements will not be changed or that
new requirements will not be imposed that would require significant
unanticipated expenditures by the Company, which could have an adverse effect on
the Company and its ability to make distributions to stockholders. Similarly,
changes in laws increasing the potential liability for environmental conditions
existing on the Properties may result in significant unanticipated expenditures,
which could adversely affect the Company and its ability to make distributions
to stockholders.

YEAR 2000 COMPLIANCE

    In the ordinary course of business, the Company is in the process of
acquiring new accounting and property management software that will eliminate
year 2000 software concerns at the corporate level. The new software is expected
to be installed by the fourth quarter of 1998. Management is in the process of
completing a survey with all of its property managers to make sure there are no
year 2000 issues at any of the property management firms that manage its
properties. Currently, Cornerstone is not aware of any

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year 2000 issues that would have a material effect on the financial position,
results of operations and liquidity of its business.

                                   TAX STATUS

ADVERSE CONSEQUENCES OF THE FAILURE TO MAINTAIN QUALIFICATION AS A REIT

    The Company believes that it has operated so as to qualify as a REIT under
Section 856(c) of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1983. However, no assurance
can be given that the Company will be able to continue to operate in a manner
enabling it to remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions that have only a
limited number of judicial and administrative interpretations, and the
determination of various factual matters and circumstances not entirely within
the Company's control may have an impact on its ability to maintain its
qualification as a REIT. For example, in order to qualify as a REIT, at least
95% of the Company's gross income in any year must be derived from qualifying
sources, and the Company must make distributions to stockholders aggregating
annually at least 95% of its REIT taxable income (excluding net capital gains).
In addition, no assurance can be given that new legislation, regulations issued
by the United States Treasury Department (the "Treasury Regulations") under the
Code, administrative interpretations or court decisions will not significantly
change the tax laws with respect to the Company's qualification as a REIT or the
federal income tax consequences of such qualification.

    As a condition to maintaining status as a REIT, the Code and the Treasury
Regulations promulgated thereunder contain a requirement (the "Five or Fewer
Requirement") that, during the second half of each taxable year, not more than
50% in value of the REIT's outstanding stock be owned, directly or indirectly,
by five or fewer individuals (defined in the Code to include certain specified
entities). For this purpose, stock that is held by most entities, such as a
corporation, partnership, limited liability company or pension plan, is treated
as held proportionately by their shareholders, partners, members or
beneficiaries, as the case may be, rather than by such entities. In addition,
the Company's Articles of Incorporation contain restrictions on share ownership
that are designed to prevent violation of the Five or Fewer Requirement.
Therefore, the Company believes that it is unlikely that five or fewer
"individuals" would be considered to own more than 50% of the outstanding
shares.

    If the Company fails to maintain its qualification as a REIT, or is found
not to have qualified as a REIT for any prior year, the Company would not be
entitled to deduct dividends paid to its stockholders and would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. This treatment would reduce amounts
available for investment or distribution to stockholders because of the
additional tax liability to the Company for the year or years involved. In
addition, the Company would no longer be required by the Code to make any
distributions. As a result, disqualification of the Company as a REIT could have
a material adverse effect on the Company and its ability to make distributions
to stockholders. To the extent that distributions to stockholders have been made
in anticipation of the Company's qualifying as a REIT, the Company might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax.

EFFECT OF DISTRIBUTION REQUIREMENTS

    To maintain its status as a REIT, the Company is required each year to
distribute to its stockholders at least 95% of its REIT taxable income
(excluding net capital gains). In addition, the Company is subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of 85% of its
ordinary income and 95% of its capital gain net income for the calendar year
plus any amount of such income not distributed in prior years. Although the

                                       8
<PAGE>
Company anticipates that cash flow from operations will be sufficient to enable
it to pay its operating expenses and meet the distribution requirements
discussed above, there can be no assurance that this will be the case, and it
may be necessary for the Company to incur borrowings or otherwise obtain funds
to satisfy the distribution requirements associated with maintaining its
qualification as a REIT. In addition, differences in timing between the receipt
of income and the payment of expenses in arriving at the taxable income of the
Company could require the Company to incur borrowings or otherwise obtain funds
to meet the distribution requirements that are necessary to maintain its
qualification as a REIT. There can be no assurance that the Company will be able
to borrow funds or otherwise obtain funds if and when necessary to satisfy such
requirements.

THE TAXPAYER RELIEF ACT OF 1997

    The Taxpayer Relief Act of 1997 (the "1997 Tax Act") contains significant
changes to (a) the requirements for qualification as a REIT, (b) the taxation of
capital gains of individuals, trusts and estates and (c) the taxation of REITs
and their stockholders. Such changes are effective for the Company's taxable
years beginning on or after January 1, 1998. The 1997 Tax Act contains a number
of new rules and technical provisions that reduce the risk that a REIT will
inadvertently fail to qualify as a REIT. The Company does not believe that the
changes with respect to the 1997 Tax Act will significantly or adversely affect
its ability to continue to operate as a REIT.

                                  COMPETITION

    The leasing of real estate is highly competitive. The Company's Properties
compete for tenants with similar properties located in its markets primarily on
the basis of location, rent charged, services provided and the design and
condition of the improvements. The Company also experiences competition when
attempting to acquire equity interests in desirable real estate, including
competition from domestic and foreign financial institutions, other REIT's, life
insurance companies, pension trusts, trust funds, partnerships and individual
investors.

    See "Item 2. Properties" for market information on each of the markets in
which the Company owns Properties.

                                   EMPLOYEES

    The Company currently has 27 employees.

                                       9
<PAGE>
ITEM 2. PROPERTIES

TABLE OF PROPERTIES

    The following table summarizes certain information about the Properties
owned as of December 31, 1997.
<TABLE>
<CAPTION>
                                                                                                      REMAINING
                                      COMPANY'S         TOTAL                          NUMBER          AVERAGE
  PROPERTY NAME         YEAR           PERCENT        RENTABLE        OCCUPANCY          OF          LEASE TERM
   AND LOCATION      CONSTRUCTED      INTEREST       SQUARE FEET        RATE           LEASES        (IN YEARS)
------------------  -------------  ---------------  -------------  ---------------  -------------  ---------------
<S>                 <C>            <C>              <C>            <C>              <C>            <C>
One Norwest Center         1983             100%       1,188,000             99%             46             8.3
  Denver, Colorado

Norwest Center(1)          1988              50%       1,118,000             98%             32            11.5
  Minneapolis,
  Minnesota

Washington Mutual          1988              50%       1,155,000             97%             95             4.7
  Tower(2)(3)
  Seattle,
  Washington

125 Summer Street          1989             100%         464,000             99%             26             3.0
  Boston,
  Massachussetts

Tower 56(4)                1983             100%         162,000             98%             42             3.1
  New York, New
  York

One Lincoln Centre         1986             100%         297,000             96%             42             2.2
  Oakbrook
  Terrace, IL

The Frick                  1902             100%         341,000             89%             72             3.9
  Building(5)
  Pittsburgh, PA

527 Madison                1986             100%         216,000            100%             18             5.4
  Avenue(6)
  New York, NY

191 Peachtree              1991              80%       1,221,000             95%             37             8.2
  Street(7)(8)
  Atlanta, Georgia

Market                     1990              59%         689,000             95%             46             7.2
  Square(7)(9)
  Washington, D.C.

500 Boylston               1988            91.5%         715,000            100%             12             6.3
  Street(7)(10)
  Boston,
  Massachussetts

222 Berkeley               1991            91.5%         531,000            100%             28             6.3
  Street(7)(10)
  Boston,
  Massachussetts

Charlotte Plaza(7)         1982             100%         613,000             94%             43             6.8
  Charlotte, North
  Carolina

200 Galleria(7)            1985             100%         433,000             91%             56             3.6
  Atlanta, Georgia

11 Canal Center(7)         1986             100%          70,000             84%              6             8.5
  Alexandria,
  Virginia

<CAPTION>
  PROPERTY NAME                LARGEST
   AND LOCATION                 TENANT
------------------  ------------------------------
<S>                 <C>
One Norwest Center        Norwest Bank Denver N.A.
  Denver, Colorado  Newmont Gold Company Teletech,
                                              Inc.
Norwest Center(1)              Norwest Corporation
  Minneapolis,                     Faegre & Benson
  Minnesota                      KPMG Peat Marwick
Washington Mutual                     Perkins Coie
  Tower(2)(3)                    Washington Mutual
  Seattle,                    Karr Tuttle Campbell
  Washington
125 Summer Street                Deloitte & Touche
  Boston,                        BTM Capital Corp.
  Massachussetts                  Burns & Levinson
Tower 56(4)                 Cornerstone Properties
  New York, New               ICC Associates, L.P.
  York                       United Bank of Kuwait
One Lincoln Centre               Superior Bank FSB
  Oakbrook                   Microsoft Corporation
  Terrace, IL                  Arthur Andersen LLP
The Frick                 Meyer, Darragh, Buckler,
  Building(5)                        Bebenek & Eck
  Pittsburgh, PA          Sable, Makaroff & Gudsky
527 Madison                     The Sumitomo Trust
  Avenue(6)                    & Banking Co., Ltd.
  New York, NY              W.P. Stewart Co., Inc.
                        Hill Samuel New York, Inc.
191 Peachtree                        Wachovia Bank
  Street(7)(8)                     King & Spalding
  Atlanta, Georgia              Powell, Goldstein,
                                   Frazer & Murphy
Market                        Fulbright & Jaworski
  Square(7)(9)           Edison Electric Institute
  Washington, D.C.                   Reid & Preist
                                Sherman & Sterling
500 Boylston              Massachussetts Financial
  Street(7)(10)                           Services
  Boston,                     The New England Life
  Massachussetts           Towers Perrin Forster &
                                      Crosby, Inc.
222 Berkeley                      Houghton Mifflin
  Street(7)(10)        Saga International Holidays
  Boston,                       Oracle Corporation
  Massachussetts
Charlotte Plaza(7)                     First Union
  Charlotte, North                      Parker Poe
  Carolina                       Adams & Bernstein
200 Galleria(7)               Liberty Mutual Group
  Atlanta, Georgia
11 Canal Center(7)                    Robbins Gioa
  Alexandria,                            Veda Inc.
  Virginia
</TABLE>

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                                                                      REMAINING
                                      COMPANY'S         TOTAL                          NUMBER          AVERAGE
  PROPERTY NAME         YEAR           PERCENT        RENTABLE        OCCUPANCY          OF          LEASE TERM
   AND LOCATION      CONSTRUCTED      INTEREST       SQUARE FEET        RATE           LEASES        (IN YEARS)
------------------  -------------  ---------------  -------------  ---------------  -------------  ---------------
<S>                 <C>            <C>              <C>            <C>              <C>            <C>
99 Canal Center(7)         1986             100%         138,000             99%             18             3.6
  Alexandria,
  Virginia

TransPotomac Plaza         1983             100%          96,000             99%             11             4.9
  5(7)
  Alexandria,
  Virginia

Sixty State                1979             100%         823,000             98%             42             8.9
  Street(11)
  Boston,
  Massachusetts
                                            ---     -------------           ---             ---             ---
                                            ---     -------------           ---             ---             ---
                                             83%      10,270,000             97%            672             6.9
                                            ---     -------------           ---             ---             ---
                                            ---     -------------           ---             ---             ---

<CAPTION>
  PROPERTY NAME                LARGEST
   AND LOCATION                 TENANT
------------------  ------------------------------
<S>                 <C>
99 Canal Center(7)   Lowe, Price, LeBlanc & Becker
  Alexandria,            Howard, Needles, Tannen &
  Virginia                              Bergendoff
                      National District Attorney's
                                       Association
TransPotomac Plaza               Cities In Schools
  5(7)                              The Onyx Group
  Alexandria,                      Larson & Taylor
  Virginia
Sixty State                            Hale & Dorr
  Street(11)               The Pioneer Group, Inc.
  Boston,                             ITT/Sheraton
  Massachusetts
</TABLE>

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

Table of Properties Footnotes

(1) While the Company's stated interest in the partnership which owns Norwest
    Center is 50%, its economic interest in the Property is significantly larger
    because of priority distributions it receives on its invested capital base.
    For the twelve months ended December 31, 1997, the Company's share of
    earnings and cash distributions from the partnership which owns Norwest
    Center was 79.3%.

(2) While the Company's stated interest in the partnership which owns Washington
    Mutual Tower is 50%, its economic interest in the Property is significantly
    larger because of priority distributions it receives on its invested capital
    base. For the twelve months ended December 31, 1997, the Company received
    100% of the cash distributions from the partnership which owns Washington
    Mutual Tower.

(3) Includes the Galland and Seneca Buildings.

(4) The Company's headquarters are located at Tower 56.

(5) The Property was substantially renovated in 1988.

(6) The Property was acquired by the Company in February 1997.

(7) Property acquired in the DIHC Acquisition.

(8) While the Company's stated interest in the partnership which owns 191
    Peachtree Street is 80%, its economic interest is significantly larger since
    it has acquired the first mortgage note on the Property, in the amount of
    $145 million which earns interest at 9.375%, and will receive a priority
    distribution on its acquired capital base. In addition, in 1996 and 1997,
    the partner in the transaction, CH Associates, Ltd., received an annual
    incentive distribution of $250,000 which, the Company expects, it will
    continue to receive under the partnership agreement through February 28,
    2000, with the Company receiving the remainder of the cash flow of the
    Property.

(9) At December 31, 1997, the Company owned the two loans on Market Square. In
    January 1998, the Company acquired partnership interests with a stated
    interest of approximately 59% in the partnerships which own Market Square
    with the option to purchase an additional 1%. The Company's economic
    interest is significantly larger since it has acquired the first mortgage
    note on the Property in the amount of $181 million which earns interest at
    9.75% and will receive a priority distribution on its acquired capital base.
    During 1996, the Company received 100% of the cash flow from the Property.

(10) Distributions of cash flow and sales and refinancing proceeds are shared in
    proportion to the Company's 91.5% partnership interest and Hines Interest
    Limited Partnership and/or its affiliates' ("Hines") 8.5% partnership
    interest.

(11) The Company acquired the second mortgage on the Property on December 31,
    1997. Since it is currently projected that all the economic benefits
    (subject to the first mortgage) from the Property inure to the Company, it
    will be accounted for as an equity investment.

                                       11
<PAGE>
TENANTS

    The Company's tenants include local, regional, national and international
companies engaged in a wide variety of businesses. The following table sets
forth, as of December 31, 1997, information concerning the ten largest tenants
(ranked by Full Service Straight-Line Rent as of that date) occupying the
Properties. "Full Service Straight-Line Rent" is Straight-Line Rent plus
Recoveries. "Straight-Line Rent" means the average of all Actual Rents required
to be paid through the term of the lease calculated in accordance with GAAP.
"Actual Rent" is actual stated fixed rent received on a net or gross basis.
"Recoveries" are the actual recovery of operating expenses in net lease
buildings or the actual recovery of operating expense escalations in gross lease
buildings. Full Service Straight-Line Rent does not reflect any increases or
decreases in monthly rental rates or any lease expirations that are scheduled to
occur or that may occur after December 31, 1997 or the cost of any leasing
commissions or tenant improvements.

<TABLE>
<CAPTION>
                                                                                FULL SERVICE
                                                                             STRAIGHT-LINE RENT
                                                                       -------------------------------
<S>                                     <C>             <C>            <C>             <C>              <C>        <C>
                                        STRAIGHT-LINE                                      PERCENT          SCHEDULED LEASE
TENANT                                       RENT        RECOVERIES        AMOUNT         OF TOTAL          EXPIRATION DATE
--------------------------------------  --------------  -------------  --------------  ---------------  -----------------------
Norwest Corporation (1)(3)............  $   20,512,000  $  10,717,000  $   31,229,000            11%       Jan-99        14,000
                                                                                                           Aug-01         7,000
                                                                                                           Jul-03       143,000
                                                                                                           Jul-13       402,000
                                                                                                           Aug-18       451,000
                                                                                                                   ------------
                                                                                                                      1,017,000
Massachusetts Financial Services(1)...       9,853,000      4,482,000      14,335,000             5%       Feb-03       359,000
Wachovia Bank(1)......................       8,921,000      3,396,000      12,317,000             4%       Dec-08       382,000
Hale & Dorr(1)........................       7,345,000      3,596,000      10,941,000             4%       Jun-13       273,000
King & Spalding(1)....................       8,031,000      2,605,000      10,636,000             4%       Mar-06       306,000
The New England Life(1)...............       5,102,000      2,688,000       7,790,000             3%       Sep-08       213,000
Powell Goldstein Frazer & Murphy(1)...       5,365,000      1,808,000       7,173,000             2%       Jan-06       199,000
Fullbright & Jaworski(2)..............       4,371,000      1,693,000       6,064,000             2%       Jun-10       123,000
First Union(2)(4).....................       5,566,000        153,372       5,719,372             2%       Mar-99        50,000
                                                                                                           Aug-00        23,000
                                                                                                           Mar-01        23,000
                                                                                                           Aug-01        46,000
                                                                                                           Sep-02        22,000
                                                                                                           Aug-08        46,000
                                                                                                           Mar-09        23,000
                                                                                                           Mar-10        47,000
                                                                                                           Mar-11        48,000
                                                                                                           Apr-14         4,000
                                                                                                                   ------------
                                                                                                                        332,000
Perkins Coie (2)......................       5,129,000        424,000       5,553,000             2%       Dec-98         2,000
                                                                                                           Jul-98         7,000
                                                                                                           Jul-04       199,000
                                                                                                                   ------------
                                                                                                                        208,000
                                        --------------  -------------  --------------
                                        $   80,195,000  $  31,562,372  $  111,757,372            38%                  3,412,000
                                                                                                 --
                                                                                                 --
                                        --------------  -------------  --------------
                                        --------------  -------------  --------------
    Total Portfolio...................  $  226,558,000  $  68,548,000  $  295,106,000
                                        --------------  -------------  --------------
                                        --------------  -------------  --------------
</TABLE>

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

(1) Net Lease.

(2) Gross Lease.

(3) Norwest Corporation includes Norwest Corporation and Norwest Bank Denver
    N.A.

(4) The 332,000 square feet of space includes 115,000 square feet currently
    leased to another tenant, which will be leased by First Union commencing
    September 1, 1998.

                                       12
<PAGE>
NET RENT AND NET EFFECTIVE RENT

    The following tables show the average annual Base Rent and the average
annual Net Effective Rent (each as defined below) per square foot occupied for
each of the Properties for the periods presented during which such Property was
owned by the Company. "Base Rent" as used herein means Actual Rent less
Recoveries. "Net Effective Rent" as used herein means (i) Actual Rent determined
for each year on a straight-line basis through the term of the lease, less (ii)
the amount of operating expenses net of Recoveries and the amortization of
deferred leasing costs (tenant improvements, leasing commissions, takeover
obligations and other tenant inducements).

AVERAGE ANNUAL BASE RENT (PER SQUARE FOOT OCCUPIED)

<TABLE>
<CAPTION>
                                                         TOTAL
                                                         BLDG.
                                                        SQ. FT.      1997       1996       1995       1994       1993       1992
                                                       ----------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                                    <C>         <C>        <C>        <C>        <C>        <C>        <C>
One Norwest Center...................................   1,188,000  $   12.46  $   12.08  $   11.78  $   11.61  $   12.05  $   12.35
Norwest Center.......................................   1,118,000  $   18.29  $   17.94  $   17.82  $   17.25  $   17.56  $   16.02
Washington Mutual Tower..............................   1,155,000  $   15.77  $   15.98  $   16.17  $   15.27  $   15.34  $   15.26
125 Summer Street....................................     464,000  $   21.27  $   23.24  $   22.48
Tower 56.............................................     162,000  $   22.76  $   20.45
One Lincoln Centre...................................     297,000  $   19.60  $   18.56
Frick................................................     341,000  $   10.50  $   11.24
527 Madison..........................................     216,000  $   36.55  $   35.47
191 Peachtree Street.................................   1,221,000  $   21.07
500 Boylston Street..................................     715,000  $   25.89
222 Berkeley Street..................................     531,000  $   16.68
Charlotte Plaza......................................     613,000  $    9.35
200 Galleria.........................................     433,000  $   12.92
11 Canal Center......................................      70,000  $   14.11
99 Canal Center......................................     138,000  $   14.49
TransPotomac Plaza 5.................................      96,000  $   12.55
                                                       ----------  ---------  ---------  ---------  ---------  ---------  ---------
Wtd Avg Occ--Portfolio...............................   8,758,000  $   17.46  $   16.99  $   16.06  $   14.65  $   14.93  $   14.51
                                                       ----------  ---------  ---------  ---------  ---------  ---------  ---------
                                                       ----------  ---------  ---------  ---------  ---------  ---------  ---------
</TABLE>

AVERAGE ANNUAL NET EFFECTIVE RENTS (PER SQUARE FOOT OCCUPIED)

<TABLE>
<CAPTION>
                                                         TOTAL
                                                         BLDG.
                                                        SQ. FT.      1997       1996       1995       1994       1993       1992
                                                       ----------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                                    <C>         <C>        <C>        <C>        <C>        <C>        <C>
One Norwest Center...................................   1,188,000  $   11.66  $   10.80  $   10.56  $   10.25  $   10.59  $   10.92
Norwest Center.......................................   1,118,000  $   17.23  $   17.43  $   17.31  $   17.00  $   17.27  $   17.48
Washington Mutual Tower..............................   1,155,000  $   12.02  $   11.80  $   11.83  $   11.03  $   10.84  $   10.43
125 Summer Street....................................     464,000  $   20.00  $   22.27  $   23.33
Tower 56.............................................     162,000  $   21.56  $   21.17
One Lincoln Centre...................................     297,000  $   19.76  $   19.70
Frick................................................     341,000  $   10.47  $   11.69
527 Madison..........................................     216,000  $   36.89  $   30.99
191 Peachtree Street.................................   1,221,000  $   24.26
500 Boylston Street..................................     715,000  $   26.08
222 Berkeley Street..................................     531,000  $   18.08
Charlotte Plaza......................................     613,000  $    9.76
200 Galleria.........................................     433,000  $   13.52
11 Canal Center......................................      70,000  $   14.72
99 Canal Center......................................     138,000  $   15.00
TransPotomac Plaza 5.................................      96,000  $   14.29
                                                       ----------  ---------  ---------  ---------  ---------  ---------  ---------
Wtd Avg Occ--Portfolio...............................   8,758,000  $   17.28  $   15.43  $   14.37  $   12.69  $   12.83  $   12.88
                                                       ----------  ---------  ---------  ---------  ---------  ---------  ---------
                                                       ----------  ---------  ---------  ---------  ---------  ---------  ---------
</TABLE>

                                       13
<PAGE>
LEASE EXPIRATIONS

    The following table sets forth certain categories of information relating to
lease expirations for all of Properties owned as of December 31, 1997.
<TABLE>
<CAPTION>
PROPERTY                                                          1998       1999       2000       2001        2002        2003
-----------------------------                                   ---------  ---------  ---------  ---------  ----------  ----------
<S>                            <C>                              <C>        <C>        <C>        <C>        <C>         <C>
One Norwest Center(1)........  Square feet expiring(3)          49,000 sf  69,000 sf    144,000  55,000 sf  110,000 sf  146,000 sf
                               Straight-Line rent(4)             $363,000   $639,000         sf   $592,000  $1,042,000  $2,115,000
                               Straight-Line rent per sq. ft.       $7.41      $9.26  $1,212,000    $10.76       $9.47      $14.49
                               Recoveries(5)                     $292,000   $411,000      $8.42   $330,000    $658,000    $890,000
                               Full service St-Line rent(6)      $655,000  $1,050,000  $854,000   $922,000  $1,700,000  $3,005,000
                               Full service St-Line rent per       $13.37     $15.22  $2,066,000    $16.76      $15.45      $20.58
                               sq. ft.                              2.98%      4.78%     $14.35      4.20%       7.75%      13.69%
                               % Full service St-Line rent         $22.00                 9.41%
                               Asking market rent per sq.               7          6                     6          11           2
                               ft.(7)                                                         8
                               No. of tenant leases
                               expiring(8)

Norwest Center(1)............  Square feet expiring             61,000 sf  50,000 sf    104,000   2,000 sf   53,000 sf  179,000 sf
                               Straight-Line rent                $573,000   $775,000         sf    $35,000    $455,000  $2,726,000
                               Straight-Line rent per sq. ft.       $9.39     $15.50  $1,655,000    $17.50       $8.58      $15.23
                               Recoveries                        $866,000   $697,000     $15.91    $32,000    $776,000  $2,733,000
                               Full service St-Line rent        $1,439,000 $1,472,000 $1,579,000   $67,000  $1,231,000  $5,459,000
                               Full service St-Line rent per       $23.59     $29.44  $3,234,000    $33.50      $23.23      $30.50
                               sq. ft.                              3.71%      3.80%     $31.10      0.17%       3.17%      14.08%
                               % Full service St-Line rent         $35.00                 8.34%
                               Asking market rent per sq. ft.          14          4                     1           3           1
                               No. of tenant leases expiring                                  4

Washington Mutual Tower(2)...  Square feet expiring               140,000    191,000  40,000 sf  52,000 sf  106,000 sf  172,000 sf
                               Straight-Line rent                      sf         sf   $730,000  $1,097,000 $2,322,000  $3,592,000
                               Straight-Line rent per sq. ft.   $2,722,000 $3,617,000    $18.25     $21.10      $21.91      $20.88
                               Recoveries                          $19.44     $18.94    $28,000    $36,000     $59,000    $211,000
                               Full service St-Line rent         $192,000   $174,000   $758,000  $1,133,000 $2,381,000  $3,803,000
                               Full service St-Line rent per    $2,914,000 $3,791,000    $18.95     $21.79      $22.46      $22.11
                               sq. ft.                             $20.81     $19.85      3.04%      4.55%       9.56%      15.27%
                               % Full service St-Line rent         11.70%     15.22%
                               Asking market rent per sq. ft.      $31.00                     9         11           7           5
                               No. of tenant leases expiring           33         24

125 Summer Street(2).........  Square feet expiring              9,000 sf    171,000    118,000   9,000 sf  125,000 sf   16,000 sf
                               Straight-Line rent                $219,000         sf         sf   $139,000  $3,310,000    $318,000
                               Straight-Line rent per sq. ft.      $24.33  $5,847,000 $4,001,000    $15.44      $26.48      $19.88
                               Recoveries                         $42,000     $34.19     $33.91   $132,000    $145,000    $154,000
                               Full service St-Line rent         $261,000  $1,243,000  $522,000   $271,000  $3,455,000    $472,000
                               Full service St-Line rent per       $29.00  $7,090,000 $4,523,000    $30.11      $27.64      $29.50
                               sq. ft.                              1.59%     $41.46     $38.33      1.66%      21.11%       2.88%
                               % Full service St-Line rent         $38.00     43.32%     27.64%
                               Asking market rent per sq. ft.           6                                2           4           2
                               No. of tenant leases expiring                       5          6

Tower 56(2)..................  Square feet expiring             15,000 sf  33,000 sf  17,000 sf  42,000 sf   28,000 sf    5,000 sf
                               Straight-Line rent                $568,000  $1,375,000  $682,000  $1,776,000 $1,338,000    $194,000
                               Straight-Line rent per sq. ft.      $37.87     $41.67     $40.12     $42.29      $47.79      $38.80
                               Recoveries                         $13,000    $20,000     $1,000    $16,000     $12,000      $6,000
                               Full service St-Line rent         $581,000  $1,395,000  $683,000  $1,792,000 $1,350,000    $200,000
                               Full service St-Line rent per       $38.73     $42.27     $40.18     $42.67      $48.21      $40.00
                               sq. ft.                              9.00%     21.60%     10.57%     27.74%      20.90%       3.10%
                               % Full service St-Line rent         $54.00
                               Asking market rent per sq. ft.           5          8          7         10           8           2
                               No. of tenant leases expiring

One Lincoln Centre(1)........  Square feet expiring             64,000 sf  41,000 sf  93,000 sf   3,000 sf   79,000 sf    1,000 sf
                               Straight-Line rent               $1,248,000  $660,000  $1,932,000   $54,000  $1,707,000     $16,000
                               Straight-Line rent per sq. ft.      $19.50     $16.10     $20.77     $18.00      $21.61      $16.00
                               Recoveries                        $461,000   $375,000   $721,000    $25,000    $722,000     $11,000
                               Full service St-Line rent        $1,709,000 $1,035,000 $2,653,000   $79,000  $2,429,000     $27,000
                               Full service St-Line rent per       $26.70     $25.24     $28.53     $26.33      $30.75      $27.00
                               sq. ft.                             21.55%     13.05%     33.45%      1.00%      30.62%       0.34%
                               % Full service St-Line rent         $30.00
                               Asking market rent per sq. ft.          14          7         13          1           6           1
                               No. of tenant leases expiring

Frick Building(2)............  Square feet expiring             18,000 sf  39,000 sf  74,000 sf  42,000 sf   35,000 sf   55,000 sf
                               Straight-Line rent                $377,000   $798,000  $1,502,000 $801,000     $641,000  $1,070,000
                               Straight-Line rent per sq. ft.      $20.94     $20.46     $20.30   $19.07        $18.31      $19.45
                               Recoveries                         $26,000    $18,000    $23,000     $--         $1,000     $19,000
                               Full service St-Line rent         $403,000   $816,000  $1,525,000 $801,000     $642,000  $1,089,000
                               Full service St-Line rent per       $22.39     $20.92     $20.61   $19.07        $18.34      $19.80
                               sq. ft.                              6.54%     13.24%     24.75%   13.00%        10.42%      17.67%
                               % Full service St-Line rent         $22.00
                               Asking market rent per sq. ft.          14         16         19      6              10           3
                               No. of tenant leases expiring

<CAPTION>
                                                                                     2008
                                                                                     AND
PROPERTY                         2004       2005         2006          2007         BEYOND        TOTAL
-----------------------------  ---------  ---------  ------------  ------------  ------------  ------------
<S>                            <C>        <C>        <C>           <C>           <C>           <C>
One Norwest Center(1)........    118,000                              76,000 sf    406,000 sf  1,173,000 sf
                                      sf                             $1,127,000    $6,421,000   $14,849,000
                               $1,338,000                                $14.83        $15.82        $12.66
                                  $11.34                               $463,000    $2,495,000    $7,100,000
                                $707,000                             $1,590,000    $8,916,000   $21,949,000
                               $2,045,000                                $20.92        $21.96        $18.71
                                  $17.33                                  7.24%        40.62%       100.00%
                                   9.32%
                                                                              2             2            46
                                       2
Norwest Center(1)............    119,000                                           527,000 sf  1,095,000 sf
                                      sf                                          $13,738,000   $22,035,000
                               $2,078,000                                              $26.07        $20.12
                                  $17.46                                           $8,271,000   $16,742,000
                               $1,788,000                                         $22,009,000   $38,777,000
                               $3,866,000                                              $41.76        $35.41
                                  $32.49                                               56.76%       100.00%
                                   9.97%
                                                                                            2            32
                                       3
Washington Mutual Tower(2)...    270,000  13,000 sf                  138,000 sf                1,122,000 sf
                                      sf   $242,000                  $2,653,000                 $23,446,000
                               $6,471,000    $18.62                      $19.22                      $20.90
                                  $23.97     $5,000                    $272,000                  $1,460,000
                                $483,000   $247,000                  $2,925,000                 $24,906,000
                               $6,954,000    $19.00                      $21.20                      $22.20
                                  $25.76      0.99%                      11.74%                     100.00%
                                  27.92%
                                                  1                           1                          95
                                       4
125 Summer Street(2).........             10,000 sf                                              458,000 sf
                                           $275,000                                             $14,109,000
                                             $27.50                                                  $30.81
                                            $19,000                                              $2,257,000
                                           $294,000                                             $16,366,000
                                             $29.40                                                  $35.73
                                              1.80%                                                 100.00%
                                                  1                                                      26
Tower 56(2)..................  10,000 sf                                                         150,000 sf
                                $451,000                                                         $6,384,000
                                  $45.10                                                             $42.56
                                  $7,000                                                            $75,000
                                $458,000                                                         $6,459,000
                                  $45.80                                                             $43.06
                                   7.09%                                                            100.00%
                                       2                                                                 42
One Lincoln Centre(1)........                                                                    281,000 sf
                                                                                                 $5,617,000
                                                                                                     $19.99
                                                                                                 $2,315,000
                                                                                                 $7,932,000
                                                                                                     $28.23
                                                                                                    100.00%
                                                                                                         42
Frick Building(2)............  11,000 sf                              24,000 sf                  298,000 sf
                               $195,000                                $664,000                  $6,048,000
                                $17.73                                   $27.67                      $20.30
                                  $--                                   $27,000                    $114,000
                               $195,000                                $691,000                  $6,162,000
                                $17.73                                   $28.79                      $20.68
                                 3.16%                                   11.21%                     100.00%
                                   1                                          3                          72
</TABLE>

                                       14
<PAGE>
<TABLE>
<CAPTION>
PROPERTY                                                          1998       1999       2000       2001        2002        2003
-----------------------------                                   ---------  ---------  ---------  ---------  ----------  ----------
<S>                            <C>                              <C>        <C>        <C>        <C>        <C>         <C>
No. 527 Madison(2)...........  Square feet expiring             22,000 sf   2,000 sf  10,000 sf  78,000 sf               22,000 sf
                               Straight-Line rent               $1,146,000  $108,000   $380,000  $4,511,000               $821,000
                               Straight-Line rent per sq. ft.      $52.09     $54.00     $38.00     $57.83                  $37.32
                               Recoveries                        $146,000    $12,000    $11,000   $553,000                 $14,000
                               Full service St-Line rent        $1,292,000  $120,000   $391,000  $5,064,000               $835,000
                               Full service St-Line rent per       $58.73     $60.00     $39.10     $64.92                  $37.95
                               sq. ft.                             10.85%      1.01%      3.28%     42.52%                   7.01%
                               % Full service St-Line rent         $53.00
                               Asking market rent per sq. ft.           4          1          2          1                       2
                               No. of tenant leases expiring

191 Peachtree Street(1)......  Square feet expiring             20,000 sf   2,000 sf  10,000 sf    139,000   45,000 sf    3,000 sf
                               Straight-Line rent                $198,000    $23,000   $127,000         sf    $682,000     $49,000
                               Straight-Line rent per sq. ft.       $9.90     $11.50     $12.70  $2,672,000     $15.16      $16.33
                               Recoveries                        $130,000    $10,000    $87,000     $19.22    $364,000     $13,000
                               Full service St-Line rent         $328,000    $33,000   $214,000  $1,218,000 $1,046,000     $62,000
                               Full service St-Line rent per       $16.40     $16.50     $21.40  $3,890,000     $23.24      $20.67
                               sq. ft.                              0.89%      0.09%      0.58%     $27.99       2.82%       0.17%
                               % Full service St-Line rent         $26.00                           10.51%
                               Asking market rent per sq. ft.           6          1          5                      7           1
                               No. of tenant leases expiring                                             6

Market Square(2).............  Square feet expiring             63,000 sf  13,000 sf  48,000 sf  91,000 sf   10,000 sf   11,000 sf
                               Straight-Line rent               $2,084,000  $379,000  $1,414,000 $3,541,000   $318,000    $445,000
                               Straight-Line rent per sq. ft.      $33.08     $29.15     $29.46     $38.91      $31.80      $40.45
                               Recoveries                         $31,000   $105,000   $339,000   $607,000     $12,000     $99,000
                               Full service St-Line rent        $2,115,000  $484,000  $1,753,000 $4,148,000   $330,000    $544,000
                               Full service St-Line rent per       $33.57     $37.23     $36.52     $45.58      $33.00      $49.45
                               sq. ft.                              7.51%      1.72%      6.22%     14.72%       1.17%       1.93%
                               % Full service St-Line rent         $44.00
                               Asking market rent per sq. ft.           6          2          7          8           4           2
                               No. of tenant leases expiring

500 Boylston(1)..............  Square feet expiring             73,000 sf  16,000 sf                                    400,000 sf
                               Straight-Line rent               $2,438,000  $300,000                                    $10,682,000
                               Straight-Line rent per sq. ft.      $33.40     $18.75                                        $26.71
                               Recoveries                        $896,000    $83,000                                    $4,849,000
                               Full service St-Line rent        $3,334,000  $383,000                                    $15,531,000
                               Full service St-Line rent per       $45.67     $23.94                                        $38.83
                               sq. ft.                             12.22%      1.40%                                        56.92%
                               % Full service St-Line rent         $41.00
                               Asking market rent per sq. ft.           4          3                                             3
                               No. of tenant leases expiring

222 Berkeley Street(1).......  Square feet expiring             25,000 sf  50,000 sf             70,000 sf  114,000 sf
                               Straight-Line rent                $458,000   $839,000             $1,980,000 $2,190,000
                               Straight-Line rent per sq. ft.      $18.32     $16.78                $28.29      $19.21
                               Recoveries                        $279,000   $627,000              $773,000  $1,392,000
                               Full service St-Line rent         $737,000  $1,466,000            $2,753,000 $3,582,000
                               Full service St-Line rent per       $29.48     $29.32                $39.33      $31.42
                               sq. ft.                              4.60%      9.15%                17.18%      22.36%
                               % Full service St-Line rent         $41.00
                               Asking market rent per sq. ft.           5          5                     6           7
                               No. of tenant leases expiring

Charlotte Plaza(2)...........  Square feet expiring             30,000 sf  60,000 sf  26,000 sf  69,000 sf   50,000 sf   17,000 sf
                               Straight-Line rent                $495,000  $1,188,000  $421,000  $1,176,000   $878,000    $310,000
                               Straight-Line rent per sq. ft.      $16.50     $19.80     $16.19     $17.04      $17.56      $18.24
                               Recoveries                         $15,000    $10,000     $6,000    $12,000     $19,000     $15,000
                               Full service St-Line rent         $510,000  $1,198,000  $427,000  $1,188,000   $897,000    $325,000
                               Full service St-Line rent per       $17.00     $19.97     $16.42     $17.22      $17.94      $19.12
                               sq. ft.                              4.86%     11.41%      4.07%     11.31%       8.54%       3.09%
                               % Full service St-Line rent         $22.00
                               Asking market rent per sq. ft.          11          5          2          1          10           2
                               No. of tenant leases expiring

200 Galleria(2)..............  Square feet expiring             41,000 sf  24,000 sf  71,000 sf  61,000 sf  170,000 sf   11,000 sf
                               Straight-Line rent                $801,000   $488,000  $1,485,000 $1,279,000 $3,335,000    $208,000
                               Straight-Line rent per sq. ft.      $19.54     $20.33     $20.92     $20.97      $19.62      $18.91
                               Recoveries                         $33,000    $18,000    $59,000    $17,000    $155,000         $--
                               Full service St-Line rent         $834,000   $506,000  $1,544,000 $1,296,000 $3,490,000    $208,000
                               Full service St-Line rent per       $20.34     $21.08     $21.75     $21.25      $20.53      $18.91
                               sq. ft.                             10.14%      6.15%     18.77%     15.75%      42.42%       2.53%
                               % Full service St-Line rent         $27.00
                               Asking market rent per sq. ft.          12          4         15         12          10           1
                               No. of tenant leases expiring

<CAPTION>
                                                                                     2008
                                                                                     AND
PROPERTY                         2004       2005         2006          2007         BEYOND        TOTAL
-----------------------------  ---------  ---------  ------------  ------------  ------------  ------------
<S>                            <C>        <C>        <C>           <C>           <C>           <C>
No. 527 Madison(2)...........  8,000 sf*   6,000 sf     27,000 sf     33,000 sf                  208,000 sf
                               $1,140,000  $277,000    $1,119,000    $1,613,000                 $11,115,000
                                 $142.50     $46.17        $41.44        $48.88                      $53.44
                                  $6,000     $3,000        $2,000       $47,000                    $794,000
                               $1,146,000  $280,000    $1,121,000    $1,660,000                 $11,909,000
                                 $143.25     $46.67        $41.52        $50.30                      $57.25
                                   9.62%      2.35%         9.41%        13.94%                     100.00%
                                       1          1             4             2                          18
191 Peachtree Street(1)......  34,000 sf  17,000 sf    506,000 sf                  382,000 sf  1,158,000 sf
                                $762,000   $292,000   $13,396,000                  $8,921,000   $27,122,000
                                  $22.41     $17.18        $26.47                      $23.35        $23.42
                                $251,000   $143,000    $4,293,000                  $3,396,000    $9,905,000
                               $1,013,000  $435,000   $17,689,000                 $12,317,000   $37,027,000
                                  $29.79     $25.59        $34.96                      $32.24        $31.97
                                   2.74%      1.17%        47.77%                      33.26%       100.00%
                                       3          5             2                           1            37
Market Square(2).............  27,000 sf    177,000     47,000 sf      9,000 sf    156,000 sf    652,000 sf
                                $977,000         sf    $1,695,000      $363,000    $5,144,000   $22,640,000
                                  $36.19  $6,280,000       $36.06        $40.33        $32.97        $34.72
                                 $85,000     $35.48      $650,000        $6,000    $1,773,000    $5,534,000
                               $1,062,000 $1,827,000   $2,345,000      $369,000    $6,917,000   $28,174,000
                                  $39.33  $8,107,000       $49.89        $41.00        $44.34        $43.21
                                   3.77%     $45.80         8.32%         1.31%        24.55%       100.00%
                                             28.77%
                                       3                        2             3             5            46
                                                  4
500 Boylston(1)..............  10,000 sf                                           213,000 sf    712,000 sf
                                $129,000                                           $5,102,000   $18,651,000
                                  $12.90                                               $23.95        $26.20
                                $121,000                                           $2,688,000    $8,637,000
                                $250,000                                           $7,790,000   $27,288,000
                                  $25.00                                               $36.57        $38.33
                                   0.92%                                               28.55%       100.00%
                                       1                                                    1            12
222 Berkeley Street(1).......                                        252,000 sf     19,000 sf    530,000 sf
                                                                     $3,642,000      $472,000    $9,581,000
                                                                         $14.45        $24.84        $18.08
                                                                     $3,137,000      $233,000    $6,441,000
                                                                     $6,779,000      $705,000   $16,022,000
                                                                         $26.90        $37.11        $30.23
                                                                         42.31%         4.40%       100.00%
                                                                              3             2            28
Charlotte Plaza(2)...........    111,000  11,000 sf      1,000 sf     10,000 sf    189,000 sf    574,000 sf
                                      sf   $231,000       $24,000      $214,000    $3,001,000   $10,205,000
                               $2,267,000    $21.00        $24.00        $21.40        $15.88        $17.78
                                  $20.42        $--           $--           $--      $191,000      $298,000
                                 $30,000   $231,000       $24,000      $214,000    $3,192,000   $10,503,000
                               $2,297,000    $21.00        $24.00        $21.40        $16.89        $18.30
                                  $20.69      2.20%         0.23%         2.04%        30.39%       100.00%
                                  21.87%
                                                  1             1             1             6            43
                                       3
200 Galleria(2)..............   3,000 sf                11,000 sf                                392,000 sf
                                 $76,000                 $262,000                                $7,934,000
                                  $25.33                   $23.82                                    $20.24
                                     $--                  $12,000                                  $294,000
                                 $76,000                 $274,000                                $8,228,000
                                  $25.33                   $24.91                                    $20.99
                                   0.92%                    3.33%                                   100.00%
                                       1                        1                                        56
</TABLE>

                                       15
<PAGE>
<TABLE>
<CAPTION>
PROPERTY                                                  1998        1999        2000        2001         2002          2003
--------------------                                   ----------  ----------  ----------  ----------  ------------  ------------
<S>                   <C>                              <C>         <C>         <C>         <C>         <C>           <C>
11 Canal Center(2)..  Square feet expiring                           3,000 sf    2,000 sf    2,000 sf      5,000 sf
                      Straight-Line rent                              $67,000     $40,000     $37,000      $120,000
                      Straight-Line rent per sq. ft.                   $22.33      $20.00      $18.50        $24.00
                      Recoveries                                          $--      $1,000         $--           $--
                      Full service St-Line rent                       $67,000     $41,000     $37,000      $120,000
                      Full service St-Line rent per                    $22.33      $20.50      $18.50        $24.00
                      sq. ft.                              $27.00       4.71%       2.88%       2.60%         8.43%
                      % Full service St-Line rent
                      Asking market rent per sq. ft.                        1           1           1             1
                      No. of tenant leases expiring

99 Canal Center(2)..  Square feet expiring               6,000 sf    5,000 sf   27,000 sf   61,000 sf     22,000 sf     16,000 sf
                      Straight-Line rent                  $63,000     $78,000    $567,000  $1,569,000      $555,000      $400,000
                      Straight-Line rent per sq. ft.       $10.50      $15.60      $21.00      $25.72        $25.23        $25.00
                      Recoveries                              $--      $6,000     $13,000     $80,000       $18,000       $11,000
                      Full service St-Line rent           $63,000     $84,000    $580,000  $1,649,000      $573,000      $411,000
                      Full service St-Line rent per        $10.50      $16.80      $21.48      $27.03        $26.05        $25.69
                      sq. ft.                               1.88%       2.50%      17.26%      49.08%        17.05%        12.23%
                      % Full service St-Line rent          $27.00
                      Asking market rent per sq. ft.            3           2           2           5             2             4
                      No. of tenant leases expiring

Transpotomac          Square feet expiring              20,000 sf    2,000 sf    2,000 sf   15,000 sf     26,000 sf
  Plaza(2)..........  Straight-Line rent                 $348,000     $43,000     $33,000    $280,000      $567,000
                      Straight-Line rent per sq. ft.       $17.40      $21.50      $16.50      $18.67        $21.81
                      Recoveries                           $1,000         $--         $--         $--        $1,000
                      Full service St-Line rent          $349,000     $43,000     $33,000    $280,000      $568,000
                      Full service St-Line rent per        $17.45      $21.50      $16.50      $18.67        $21.85
                      sq. ft.                              18.47%       2.28%       1.75%      14.81%        30.05%
                      % Full service St-Line rent          $24.00
                      Asking market rent per sq. ft.            3           1           1           1             2
                      No. of tenant leases expiring

Sixty State           Square feet expiring              26,000 sf   34,000 sf    3,000 sf   29,000 sf    153,000 sf     90,000 sf
  Street(2).........  Straight-Line rent                 $593,000    $809,000     $74,000    $872,000    $3,306,000    $2,061,000
                      Straight-Line rent per sq. ft.       $22.81      $23.79      $24.67      $30.07        $21.61        $22.90
                      Recoveries                         $131,000    $106,000      $5,000     $40,000    $1,572,000      $124,000
                      Full service St-Line rent          $724,000    $915,000     $79,000    $912,000    $4,878,000    $2,185,000
                      Full service St-Line rent per        $27.85      $26.91      $26.33      $31.45        $31.88        $24.28
                      sq. ft.                               2.71%       3.42%       0.30%       3.41%        18.25%         8.17%
                      % Full service St-Line rent          $39.00
                      Asking market rent per sq. ft.            5           9           1           3             6             1
                      No. of tenant leases expiring
---------------------------------------------------------------------------------------------------------------------------------

All Properties        Square feet expiring(3)          682,000 sf  805,000 sf  789,000 sf  820,000 sf  1,131,000 sf  1,144,000 sf
  Total.............  Straight-Line rent(4)            $14,694,000 $18,033,000 $16,255,000 $22,411,000  $22,766,000   $25,007,000
                      Straight-Line rent per sq. ft.       $21.55      $22.40      $20.60      $27.33        $20.13        $21.86
                      Recoveries(5)                    $3,554,000  $3,915,000  $4,249,000  $3,871,000    $5,906,000    $9,149,000
                      Full service St-Line rent(6)     18,248,000  $21,948,000 $20,504,000 $26,282,000  $28,672,000   $34,156,000
                      Full service St-Line rent per        $26.76      $27.26      $25.99      $32.05        $25.35        $29.86
                      sq. ft.                               6.18%       7.44%       6.95%       8.91%         9.72%        11.57%
                      % Full service St-Line rent
                      Asking market rent per sq.              152         104         102          81            98            32
                      ft.(7)
                      No. of tenant leases
                      expiring(8)

<CAPTION>
                                                                              2008
                                                                              AND
PROPERTY                 2004        2005         2006          2007         BEYOND        TOTAL
--------------------  ----------  ----------  ------------  ------------  ------------  ------------
<S>                   <C>         <C>         <C>           <C>           <C>           <C>
11 Canal Center(2)..                5,000 sf                   42,000 sf                   59,000 sf
                                    $116,000                  $1,042,000                  $1,422,000
                                      $23.20                      $24.81                      $24.10
                                         $--                         $--                      $1,000
                                    $116,000                  $1,042,000                  $1,423,000
                                      $23.20                      $24.81                      $24.12
                                       8.15%                      73.23%                     100.00%
                                           1                           1                           6
99 Canal Center(2)..                                                                      137,000 sf
                                                                                          $3,232,000
                                                                                              $23.59
                                                                                            $128,000
                                                                                          $3,360,000
                                                                                              $24.53
                                                                                             100.00%
                                                                                                  18
Transpotomac                                                   18,000 sf      9,000 sf     92,000 sf
  Plaza(2)..........                                            $411,000      $206,000    $1,888,000
                                                                  $22.83        $22.89        $20.52
                                                                     $--           $--        $2,000
                                                                $411,000      $206,000    $1,890,000
                                                                  $22.83        $22.89        $20.54
                                                                  21.75%        10.90%       100.00%
                                                                       2             1            11
Sixty State            96,000 sf                 35,000 sf     32,000 sf    308,000 sf    806,000 sf
  Street(2).........  $2,623,000                $1,085,000      $925,000    $7,932,000   $20,280,000
                          $27.32                    $31.00        $28.91        $25.75        $25.16
                        $182,000                   $45,000      $320,000    $3,926,000    $6,451,000
                      $2,805,000                $1,130,000    $1,245,000   $11,858,000   $26,731,000
                          $29.22                    $32.29        $38.91        $38.50        $33.17
                          10.49%                     4.23%         4.66%        44.36%       100.00%
                               8                         2             4             3            42
-----------------------------------------------------------------------------------------------------------------
All Properties        817,000 sf  239,000 sf    627,000 sf    634,000 sf  2,209,000 sf  9,897,000 sf
  Total.............  $18,507,000 $7,713,000   $17,581,000   $12,654,000   $50,937,000  $226,558,000
                          $22.65      $32.27        $28.04        $19.96        $23.06        $22.89
                      $3,660,000  $1,997,000    $5,002,000    $4,272,000   $22,973,000   $68,548,000
                      $22,167,000 $9,710,000   $22,583,000   $16,926,000   $73,910,000  $295,106,000
                          $27.13      $40.63        $36.02        $26.70        $33.46        $29.82
                           7.51%       3.29%         7.65%         5.74%        25.05%       100.00%
                              32          14            12            22            23           672
</TABLE>

                                       16
<PAGE>
------------------------

Lease Expiration Schedule Footnotes

(1) Net Lease building.

(2) Gross Lease building.

(3) The total square footage expiring in any particular year.

(4) Straight-line rent is the average of all lease payments required to be made
    through the term of the lease as required under Generally Accepted
    Accounting Principles.

(5) The actual recovery of operating expenses as of December 31, 1997 in net
    lease buildings and the recovery of operating expense escalations in gross
    lease buildings.

(6) Full Service Straight-Line Rent is Straight-Line Rent plus Recoveries.

(7) Asking market rent is the average initially quoted rent to prospective
    tenants in each building. All market rents shown are on full service basis.

(8) The number of tenant leases expiring in each year.

                                       17
<PAGE>
RETENTION

    The following table sets forth the Company's tenant retention on expiring
leases since January 1, 1993. The analysis is based upon the percentage of
expiring leases in the applicable building with a tenant or subtenant being
retained in the expiring space, or an existing tenant expanding into the
expiring space. A tenant lease is added to the retention schedule at the time a
lease extension is signed with the tenant, or the tenant notifies the Company of
an option being exercised.
<TABLE>
<CAPTION>
                                               1993                               1994
                                 ---------------------------------  ---------------------------------
                                   SQ FT      SQ FT                   SQ FT      SQ FT
                                 RETAINED    EXPIR.       RET %     RETAINED    EXPIR.       RET %
                                 ---------  ---------     -----     ---------  ---------     -----
<S>                              <C>        <C>        <C>          <C>        <C>        <C>
One Norwest....................    126,511    154,615          82%     93,962     94,981          99%
Norwest........................     24,832     37,806          66%     16,293     26,317          62%
WMT............................     90,230    130,010          69%    127,334    153,645          83%
125 Summer.....................
Tower 56.......................
One Lincoln Centre.............
Frick Building.................
527 Madison....................
191 Peachtree Street...........
500 Boylston Street............
222 Berkeley Street............
Charlotte Plaza................
200 Galleria...................
11 Canal Center................
99 Canal Center................
TransPotomac Plaza 5...........
                                                               --                                 --
                                 ---------  ---------               ---------  ---------
Weighted.......................    241,573    322,431          75%    237,589    274,943          86%

<CAPTION>
                                          1995
                               --------------------------
                               SQ
                               FT    SQ FT
                               RETAINED  EXPIR.    RET %
                               --  ---------     -----
<S>                                <C>        <C>
One Norwest....................64,627    71,364         91%
Norwest........................22,762    23,792         96%
WMT............................29,547    44,742         66%
125 Summer.....................
Tower 56.......................
One Lincoln Centre.............
Frick Building.................
527 Madison....................
191 Peachtree Street...........
500 Boylston Street............
222 Berkeley Street............
Charlotte Plaza................
200 Galleria...................
11 Canal Center................
99 Canal Center................
TransPotomac Plaza 5...........
                                                      --
                               --  ---------
Weighted.......................116,936   139,898         84%
</TABLE>

<TABLE>
<CAPTION>
                                                                     1996                                1997
                                                       ---------------------------------  ----------------------------------
                                                         SQ FT      SQ FT                   SQ FT      SQ FT
                                                       RETAINED    EXPIR.       RET %     RETAINED     EXPIR.       RET %
                                                       ---------  ---------     -----     ---------  ----------     -----
<S>                                                    <C>        <C>        <C>          <C>        <C>         <C>
One Norwest..........................................     43,601     72,903          60%    266,021     313,612          85%
Norwest..............................................      4,336      9,777          44%    205,749     234,260          88%
WMT..................................................     86,956    106,250          82%    182,194     207,738          88%
125 Summer...........................................     95,816     96,658          99%     41,252      62,218          66%
Tower 56.............................................     46,003     53,762          86%     37,027      50,679          73%
One Lincoln Centre...................................                                        35,320      42,099          84%
Frick Building.......................................                                        99,570     115,743          86%
527 Madison..........................................                                         5,980      20,587          29%
191 Peachtree Street.................................                                        --          --          --
500 Boylston Street..................................                                        --           3,005           0%
222 Berkeley Street..................................                                        --          --          --
Charlotte Plaza......................................                                         2,974       6,390          47%
200 Galleria.........................................                                        10,672      21,725          49%
11 Canal Center......................................                                        --           8,889           0%
99 Canal Center......................................                                        --          --          --
TransPotomac Plaza 5.................................                                        --          --          --
                                                                                     --
                                                       ---------  ---------               ---------  ----------         ---
Weighted.............................................    276,712    339,350          82%    873,113   1,046,936          83%

                                                                                          Five year total......        82.6%
                                                                                                                        ---
                                                                                                                        ---
</TABLE>

                                       18
<PAGE>
MARKET DATA

    BOSTON

    The Company has four Properties in Downtown Boston: 125 Summer Street, 500
Boylston Street, 222 Berkeley Street and Sixty State Street. The Company,
through a wholly-owned subsidiary, holds the fee interest in 125 Summer Street,
which is managed by Hines pursuant to a management contract that, after December
1998, may be terminated upon 30 days' notice. Hines currently owns 349,650
shares of the Company's Common Stock. Each of 500 Boylston Street and 222
Berkeley Street is owned by a separate partnership in which the Company owns a
91.5% interest and Hines owns an 8.5% interest. Cash flow, excess financing and
sales proceeds are shared on a pro rata basis between the Company and Hines with
respect to each such partnership. The Company consolidates its investment in
both partnerships. In addition, through buy-sell agreements that become
effective in 2007 with respect to each partnership, either the Company or Hines
will have the right to withdraw from the partnership by offering to the other
its entire interest in the partnership, or if such offer is not accepted, the
right to buy the other partner's entire interest in the partnership and gain
full control in the underlying asset. The Company holds the second mortgage on
Sixty State Street, behind a first mortgage in the amount of $78.5 million.

    The Company believes that the economic fundamentals of the Boston area are
strong. The Boston metropolitan area has one of the healthiest economies in the
northeast and is the growth leader among the largest industrial markets in the
region. As of March 31, 1997, Boston, with a population of 5.8 million people,
was the fifth largest MSA in the nation. The median per capita personal income
in 1995 for the greater Boston area was $27,361, which was 18% above the
national level.

    Led by an expanding financial services industry and a revitalized high
technology sector, the economic expansion of Boston has been broad based. Much
of the city's success has come from the strength of its internal resources such
as a highly skilled labor pool, a focus on research and development, local
capital sources and a host of firms that have become dominant in their
respective industries. During the late 1980s and early 1990s, the Boston economy
slowed and the national recession dominated the area. Over the last ten years,
office employment in Boston grew at an average annual rate of approximately
2.0%, compared to approximately 2.7% at the national level. The past few years
have seen continued diversification of the economy and increases in total
employment. For the year ended March 31, 1997, office employment in Boston grew
5.7%, compared to 4.4% nationwide. The services and the finance, insurance and
real estate ("FIRE") sectors dominated local growth, expanding 4.4% and 2.2%,
respectively, compared to 4.3% and 1.8%, respectively, at the national level.
Torto Wheaton Research ("Torto Wheaton") forecasts a 2.1% average annual
increase in office employment for both the Boston MSA and the nation over the
next ten years.

    As of September 30, 1997, the metropolitan Boston office market contained
approximately 105 million square feet of space, over 50% of which was built
after 1980. The Downtown submarket, where all of the Boston Properties are
located, comprised 48.9 million square feet of office space and consists of
seven individual submarkets. Approximately 31 million square feet, or 63% of
Downtown office space, is classified as Class A office space. As of September
30, 1997, the Downtown submarket had an overall occupancy rate of 95.4%, and
with a Class A occupancy rate of 96.9%, had one of the top five Class A
occupancy rates in the nation. During the second quarter of 1997, the newly
renovated 590,000 square foot 28 State Street building returned to the market.
This property was 85% leased within six months of its completion.

    Both 125 Summer Street and Sixty State Street are located in the Financial
District of the Downtown submarket. As of September 30, 1997, the Financial
District consisted of 30 million square feet of office space, approximately 70%
of which was Class A space, and had overall and Class A occupancy rates of 96.1%
and 97.1%, respectively.

    The Company's other two Boston assets, 222 Berkeley Street and 500 Boylston
Street, are located in the Back Bay area of the Downtown submarket. As of
September 30, 1997, the Back Bay area contained

                                       19
<PAGE>
10.9 million square feet of office space, 7.0 million of which was Class A, and
had overall and Class A occupancy rates of 96.5% and 96.6%, respectively.

    According to Torto Wheaton's second quarter 1997 forecast, demand will
continue to outpace supply over the next two years in the Downtown Boston office
market with approximately 614,000 square feet of new office space entering the
market and approximately 966,000 square feet of net absorption expected during
the period.

    WASHINGTON, D.C.

    The Company has four Properties located in the metropolitan Washington, D.C.
area: Market Square, in the East End of Washington, D.C., and 11 Canal Center,
99 Canal Center and TransPotomac Plaza 5 located within two adjacent office
complexes in the waterfront office district of Alexandria, Virginia. The Company
holds the first mortgage on the Market Square Property and has an option to
purchase an 85.7% interest in Market Square Associates, the partnership that,
together with Crow-Pennsylvania Avenue Limited Partnership, owns a 70% interest
in Avenue Associates along with Western Associates Limited Partnership. Avenue
Associates holds the fee title to Market Square. Trammell Crow Real Estate
Services, Inc. manages this Property under a long-term management agreement. The
Company holds title to 11 Canal Center, 99 Canal Center and TransPotomac Plaza 5
through three wholly-owned subsidiaries. These Properties are managed by Faison
and Associates, Inc.

    The Company believes that the economic fundamentals of the Washington, D.C.
area are positive. As of March 31, 1997, Washington, D.C. had a metropolitan
statistical area ("MSA") population of 4.6 million people, making it the seventh
largest in the country. The MSA includes the District of Columbia, Suburban
Maryland and Northern Virginia. The mean per capita personal income in 1994 for
the MSA was $27,762, which was 33.4% above the national level.

    The Washington, D.C. MSA enjoyed very rapid growth and diversification
during the 1980s, with private sector industries such as high tech, health
services, telecommunications and biotechnology leading the way. The MSA recorded
an annual office growth rate of approximately 2.7% over the last ten years. For
the year ending March 31, 1997, office employment in the MSA increased 2.7%,
compared to an increase of 4.4% observed nationwide. Over the next decade, Torto
Wheaton forecasts an average annual MSA office employment growth of 2.2%,
compared to 2.1% for the nation.

    The East End submarket, where Market Square is located, doubled in size over
the last decade to 24 million square feet of office space. The tenant base in
the East End is dominated by services firms, particularly law firms and trade
associations. As of September 30, 1997, East End contained approximately 14.8
million square feet of Class A office space, almost as much Class A office space
as all other District markets combined. The East End area also includes many
government agencies (12% share of the Class A market), several hotels, the old
retail corridor and the city's convention center. The MCI Center, a new sports
arena located in the center of the East End, will host the professional
basketball and hockey teams of Washington, D.C. and is expected to revitalize
the surrounding Gallery Place area.

    As of September 30, 1997, the metropolitan Washington, D.C. market contained
207.4 million square feet of office space, approximately 63% of which had been
built after 1980. The East End submarket, where Market Square is located,
contained approximately 24 million square feet of space, over 60% of which was
Class A office space, and had overall and Class A occupancy rates of 89.1% and
95.2%, respectively. According to Torto Wheaton's second quarter 1997 forecast,
the East End submarket is expected to tighten over the next two years, with
approximately 950,000 square feet of new office supply entering the submarket
and approximately 1.4 million square feet of net absorption projected for the
period.

    Northern Virginia, where 11 and 99 Canal Center and TransPotomac Plaza 5 are
located, is a relatively new market. Approximately 50% of the 83.7 million
square feet of office space has been built since 1980. The real estate industry
in Northern Virginia has made a significant recovery from the collapse of the
market in the late 1980s, and as of September 30, 1997, Northern Virginia had a
95.7% overall occupancy

                                       20
<PAGE>
rate. While the exodus of tenants from Washington, D.C. drove the Suburban
market's early recovery and development, recent growth has been due to the
transformation of Northern Virginia into one of the nation's top high-tech
areas.

    As of September 30, 1997, the Northern Virginia office market contained 83.7
million square feet of space. The Alexandria submarket, where the Company's
Properties are located, contained approximately 4.6 million square feet of
office space, 2.9 million of which was Class A, and had overall and Class A
occupancy rates of 91.7% and 90.0%, respectively. According to Torto Wheaton's
second quarter 1997 forecast, supply is expected to outpace demand in the
Alexandria submarket over the next two years with approximately 354,000 square
feet of new office space entering the market and net absorption of approximately
146,000 square feet expected for the period.

    ATLANTA

    The Company has two Properties, 200 Galleria and 191 Peachtree Street,
located in the Atlanta market. The Company holds the fee interest in 200
Galleria through a wholly-owned subsidiary. This Property is managed by CK
Atlanta Office Management, Inc. The Company holds the first mortgage on 191
Peachtree Street and an 80% partnership interest in One Ninety One Peachtree
Associates, the partnership which owns this Property. The Company's interest in
One Ninety One Peachtree Associates is accounted for on the equity method, as
the Company has substantial control over major decisions, as well as the right
to become managing general partner. In 1996 and 1997, the minority partner
received an annual incentive distribution of $250,000 which, the Company
expects, it will continue to receive under the partnership agreement through
February 28, 2000, with the Company receiving the remaining cash flow. Through a
buy-sell agreement that becomes effective in 2002, either the Company or the
minority partner will have the right to withdraw from the partnership by
offering to the other its entire interest in the partnership, or if such offer
is not accepted, the right to buy the other partner's entire interest in the
partnership and gain full control of the asset.

    The Company believes economic fundamentals in the Atlanta market are
positive. Atlanta is the political capital of Georgia and is considered the
economic capital of the Southeast region. As of March 31, 1997, Atlanta, with a
population of approximately 3.6 million, was the tenth largest metropolitan area
in the nation. The MSA's median per capita personal income of $24,960 in 1995
was 8% above the national level.

    Atlanta's pro-business attitudes and highly-skilled workforce continue to be
recognized on a national and global level. Over 400 of the Fortune 500
industrial and service companies are represented in the city. Major employers
include Delta Airlines, AT&T, Bell South, Lockheed International Systems and
Turner Broadcasting System. Over the last ten years, office employment in
Atlanta has grown at an average annual rate of approximately 4.9%, compared to
approximately 2.7% for the nation. For the year ended March 31, 1997, office
employment grew 6.5% in Atlanta, compared to 4.4% nationally. In the past year,
services and retail trade have been the engines for local growth, increasing at
a rate of 8.2% and 7.7%, respectively, compared to increases of 4.3% and 2.1%
observed nationwide. According to Torto Wheaton, Atlanta's office employment
growth over the next ten years will continue to outpace employment growth
nationwide. Torto Wheaton forecasts a 2.9% average annual increase in Atlanta's
office employment, compared to 2.1% nationwide.

    As of September 30, 1997, the metropolitan Atlanta office market contained
total office space of 95.4 million square feet. The Downtown submarket, where
191 Peachtree Street is located, contained approximately 15.5 million square
feet of office space, of which over 70%, or 11 million square feet, was Class A
space. Meanwhile, the overall and Class A occupancy rates for the Downtown
submarket were 83.1% and 87.3%, respectively.

    According to the Torto Wheaton's second quarter 1997 forecast, the Downtown
market will continue to tighten over the next two years, with demand expected to
outpace supply. Torto Wheaton projects

                                       21
<PAGE>
660,000 square feet of new supply for the Downtown market over the next two
years, with more than one million square feet of net absorption projected for
the period.

    As of September 30, 1997, the Northwest submarket, where 200 Galleria is
located, contained approximately 18.2 million square feet of office space, of
which 56%, or 10.2 million was Class A office space. The overall and Class A
occupancy rates for Northwest Atlanta were 91.4% and 90.7%, respectively.
According to Torto Wheaton's second quarter 1997 forecast, 2.2 million square
feet of new supply will enter the submarket over the next two years, with
approximately 1.4 million square feet of total net absorption forecasted for the
period.

    CHICAGO

    The Company has two Properties in the Suburban Chicago area, as well as a
parcel of unimproved land in Downtown Chicago. The Company holds the fee
interest in One Lincoln Centre through a wholly-owned subsidiary. This Property
is managed by Hines pursuant to a management contract that may be terminated
upon 30 days' notice. The Company has entered into a definitive agreement to
purchase Corporate 500 Centre.

    The Company believes the economic fundamentals of the Suburban Chicago
markets are strong. As of March 31, 1997, the population of the Chicago MSA was
7.8 million, making it the third largest in the country. As of 1995, the median
per capita personal income for the MSA was $27,309, which was 18% above the
national level. The Chicago area has a diversified economic base, which is
supported by a number of prospering industries, including brokerage firms, air
travel, electronics, insurance, retail and printing/publishing. This diversity
has helped reduce vulnerability to economic swings, creating a stable economy.
Overall office employment has grown at an annual rate of nearly 3% over the last
ten years. For the year ending March 31, 1997, office employment in the Chicago
MSA grew by a rate of 3.8%, compared to a 4.4% growth rate observed nationwide.

    As of September 30, 1997, the Chicago MSA contained 188 million square feet
of space, 50% of which was built after 1980. Approximately 57% of the MSA's
office space is located Downtown, with the remainder located in the outlying
suburbs. As of September 30, 1997, Suburban Chicago's 80 million square foot
office market had an occupancy rate of 89.9%, compared to the Downtown rate of
86.1%. The Suburban Class A market, which consisted of 30 million square feet of
space, posted a 93.1% occupancy rate. As of September 30, 1997, the Oak Brook
submarket, where One Lincoln Centre is located, contained 26 million square feet
of office space, 10.2 million of which is Class A office space, and had overall
and Class A occupancy rates of 90.7% and 91.9%, respectively. The Lake County
submarket, where Corporate 500 Centre is located, contained six million square
feet of office space, 2.8 million of which was Class A office space, and had
overall and Class A occupancy rates of 92% and 94.3%, respectively.

    New office development has returned to the Suburban Chicago market, with
Torto Wheaton's second quarter 1997 forecast calling for approximately five
million square feet to be added over the next two years. According to the same
forecast, demand is expected to lag behind supply over the same period with net
absorption just reaching over four million square feet.

    NEW YORK CITY

    The Company has two Properties in New York City: Tower 56 and 527 Madison
Avenue. The Company, through separate wholly-owned subsidiaries, holds the fee
interest in both of these Properties. Both Properties are managed by HRO
International Ltd. ("HRO") pursuant to management contracts that may be
terminated upon 30 days' notice.

    The Company believes that the economic fundamentals of the New York City
area are positive. As of March 31, 1997, the population of the New York MSA was
8.65 million people, making it the second largest MSA in the nation. The mean
per capita personal income for 1994 for the MSA was $27,975, which was 34.4%
above the national level.

                                       22
<PAGE>
    Over the last ten years, the New York MSA sustained significant employment
losses, mainly in the financial services area, due to the nationwide recession.
The average office employment growth during this period decreased approximately
0.5% annually, compared to average annual increases of approximately 2.7%
nationwide. The national economic recovery, coupled with stellar gains on Wall
Street, caused the MSA to post a 3.1% gain in office employment for the year
ending March 31, 1997. Over the next ten years, Torto Wheaton forecasts office
employment to increase by an average of 0.6% annually compared to 2.1%
nationwide. Key factors supporting a positive view of the New York City market
include: (1) a strong local economy resulting from significant growth in
financial services, entertainment and tourism; (2) historically low crime
levels; (3) a highly educated workforce with a mean per capita income 34.3%
higher than the national average; (4) major barriers to entry, including a lack
of well-located building sites and the high cost of building new office space;
and (5) the continued trend in the market to redevelop obsolete office space for
alternative uses.

    Midtown market leasing has been driven by numerous small to mid-size office
tenants in the legal, communications, entertainment and financial advisory
sectors. These firms have provided sufficient growth to partially offset net
losses from corporate restructuring and financial services consolidation.
However, due to a significant number of large tenants signing long-term leases
over the past few years, smaller transactions are expected to continue to
dominate leasing activity through 1999, when tenants who signed 10-year leases
in new buildings built in the late 1980s return to the market.

    As of September 30, 1997, the Manhattan office market contained
approximately 347 million square feet of space. The Midtown submarket, where the
Properties are located, contained approximately 244 million square feet of
space, 183 million, or 75%, of which is Class A space, and had overall and Class
A occupancy rates of 93.1% and 94.1%, respectively. 4 Times Square, a 1.5
million square foot office tower, is currently under construction in the Times
Square area of Midtown Manhattan. The building, expected to be completed in
1999, is heavily pre-leased to two large tenants.

    The Midtown office market is comprised of 12 individual submarkets. Tower 56
is located within Midtown's Park/Lexington market, while 527 Madison is located
within the Madison Avenue submarket. As of September 30, 1997, Class A occupancy
in the Park/Lexington and Madison Avenue submarkets was 95.1% and 94.0%,
respectively.

    CHARLOTTE

    The Company has one Property, Charlotte Plaza, located in Uptown Charlotte.
The Company holds the fee interest in this Property through two wholly-owned
subsidiaries. The Property is managed by Trammell Crow SE, Inc.

    The Company believes the economic fundamentals of the Charlotte area are
positive. Charlotte is the financial services and distribution hub of the
Carolina region and is the largest metropolitan area between Atlanta and
Washington, D.C., with a population of 1.34 million as of March 31, 1997. The
median per capita personal income in 1995 for the MSA was $22,777, which was 2%
below the national average.

    Fifty-three of the Fortune 100 companies are represented within the CBD of
Uptown Charlotte. The majority of these firms are involved in the finance,
insurance and real estate industries. Major employers include Duke Power
Company, IBM Corporation, NationsBank Corporation, First Union Corporation,
Southern Bell Telephone and state and local government agencies. Over the last
ten years, office employment in Charlotte grew at an annual average rate of
approximately 5.4%, compared to approximately 2.7% at the national level. Over
the year ended March 31, 1997, Charlotte's office employment growth continued to
outpace the nation's, increasing 5.9%, compared to 4.4% nationally. During the
same period, the services and government sectors' employment levels increased
6.6% and 5.8%, respectively. Over the next decade, Torto Wheaton anticipates
annual average office employment growth of 3.5% and 2.1% at the local and
national levels, respectively.

    As of September 30, 1997, the Charlotte MSA contained total office space of
21.5 million square feet, approximately 65% of which was built after 1980. The
Uptown submarket, where Charlotte Plaza is

                                       23
<PAGE>
located, contained 9.3 million square feet of office space, 5.9 million of which
was Class A, and had overall and Class A occupancy rates of 95.2% and 96.6%,
respectively.

    According to Karnes Research, Uptown Charlotte is currently experiencing a
multi-tenant office building boom. Transamerica Square, a 490,000 square foot
building, was completed in 1997 and was 100% leased as of September 30, 1997. In
addition, the IJL Financial Center (700,000 square feet) and 525 North Tryon
(415,000 square feet) are currently under construction for 1998 delivery. Three
First Union Center (912,000 square feet), to be developed by Childress Klein and
anchored by First Union, is scheduled to break ground in 1998 and to be
completed in late 1999. While these new projects are heavily pre-leased, these
significant additions will cause the Uptown office market to soften. Over the
next two years, approximately two million square feet of new inventory will be
delivered, with total net absorption of just over one million square feet.

    DENVER

    The Company has one Property, One Norwest Center, located in Downtown
Denver. One Norwest Center is owned by 1700 Lincoln Limited, in which the
Company owns a 90% partnership interest through its wholly-owned subsidiary,
ARICO-Denver, Inc., and a 10% partnership interest through its wholly-owned
subsidiary, 1700 Lincoln Inc. This Property is managed by Hines.

    The Company believes economic fundamentals in the Denver market are
positive. Key factors supporting a positive view of the Denver market include:
(1) an expanding local economy; (2) improving office occupancy rates in Downtown
Denver when certain extraordinary effects are excluded; and (3) the lack of new
construction of office space in the CBD. Historically, the financial district in
Downtown Denver has been a major hub for many financial institutions in the
Rocky Mountain region. The Denver population was 1.89 million as of March 31,
1997, making it the 27th largest MSA in the country. As of 1995, the median per
capita income for the MSA was $25,501, which was 10% above the national level.

    The Denver area has experienced strong growth in office employment fueled by
a mix of technological, communications and financial service firms, as well as
businesses engaged in tourism and miscellaneous business services. Office
employment in the Denver area grew at an average annual rate of approximately
4.0% during the last ten years, compared to approximately 2.7% nationwide. For
the year ended March 31, 1997, office employment in the Denver area grew 4.3%,
as compared to a national average rate of 4.4%. Over the next decade, Torto
Wheaton forecasts annual average office employment growth of 2.7% for the Denver
area compared to 2.1% nationally.

    As of September 30, 1997, the Denver MSA contained 66.3 million square feet
of total office space, approximately 63% of which had been built after 1980.
This increase in inventory was largely due to increased interest in oil and gas
exploration in the Rocky Mountain Region. The Downtown submarket, where One
Norwest Center is located, contained approximately 21.4 million square feet of
office space, 11 million of which was Class A space, and had overall and Class A
occupancy rates of 90.4% and 93.1%, respectively. According to the second
quarter 1997 Torto Wheaton forecast, over one million square feet of new supply
is expected to enter the submarket over the next two years, with approximately
1.4 million square feet of net absorption projected for the period.

    MINNEAPOLIS

    The Company has one Property, Norwest Center, located in the Minneapolis
market. Norwest Center is owned by NWC Limited Partnership ("NWC"), a
partnership in which the Company owns a 50% general partnership interest. Sixth
& Marquette Limited Partnership ("S&M") owns a 50% partnership interest in NWC.
The general partner of S&M is also a Minnesota limited partnership in which
Gerald D. Hines, individually, and entities affiliated with Gerald D. Hines are
directly or indirectly the sole general partners. The Company has the right, at
its sole discretion, to become the managing general partner of NWC. Norwest
Center is managed by Hines.

                                       24
<PAGE>
    The Company believes the economic fundamentals of the Minneapolis office
market are strong. As of March 31, 1997, the population of the Minneapolis MSA
was 2.79 million people, making it the 14th largest MSA in the nation. In 1995,
the median per capita income for the MSA was $26,314, which was 13% above the
national average.

    The economic base of the Minneapolis-St. Paul area is well diversified. The
metropolitan economy includes a broad foundation of income-producing trades
including agribusiness, computer/high technology systems, machinery
manufacturing, graphic arts, government, medical, and educational institutions.
This diversification has helped prevent any major out-migrations during the past
and has led to general stability and low unemployment rates. Office employment
has been strong during the last ten years, in part because of the area's
reputation as a desirable place for corporate relocations. As of September 1996,
a total of 32 Fortune 500 companies were headquartered in the Minneapolis-St.
Paul area. Over the past ten years, office employment in the MSA grew an average
of approximately 3.4% annually, compared to approximately 2.7% at the national
level. For the year ending March 31, 1997, office employment growth slowed at
the local level, increasing 2.0% compared to 4.4% nationally. The Torto Wheaton
second quarter 1997 forecast calls for annual average office employment growth
of 2.1% at both the local and national levels.

    As of September 30, 1997, the Minneapolis MSA contained 51.2 million square
feet of total office space, approximately 55% of which has been built after
1980. The Minneapolis CBD, where Norwest Center is located, contained
approximately 20.6 million square feet of office space, 12.9 million of which
was Class A space, and, with overall and Class A occupancy rates of 93.5% and
96.1%, respectively, had one of the top five Class A occupancy rates in the
nation. There is currently 1.5 million square feet of office space under
construction in two Downtown towers with both buildings expected to be 100%
occupied by single tenants. An additional office tower of approximately 900,000
square feet is planned for a 1998 groundbreaking, with over 50% of that project
already leased to large tenants. Over the next two years, Torto Wheaton
forecasts approximately 1.4 million square feet of net absorption in the
submarket.

    PITTSBURGH

    The Company has one Property, The Frick Building, located in Downtown
Pittsburgh. The Company, through a wholly-owned subsidiary, holds the fee
interest in this Property. This Property is managed by The Galbreath Company
pursuant to a management contract that may be terminated upon 30 days' notice.

    Since the late 1970s, the Pittsburgh MSA has shifted its concentration from
a manufacturing economy to a more diversified economic base. In addition to its
strength in heavy industry, the city is now recognized as a major finance,
business, health care, research and educational center. As a result of
Pittsburgh's transition from a manufacturing-based economy to a diversified one,
its population steadily declined through the 1970s and 1980s. The population
began to stabilize as of 1990, and the current population is approximately 2.5
million.

    Pittsburgh is the seventh largest corporate headquarters location in the
United States. Nine Fortune 500 companies have their headquarters in Pittsburgh,
including USX Corporation, PPG Industries and the H.J. Heinz Company. The
Pittsburgh area is known as one of the largest and most productive centers of
scientific and technological innovation in the nation.

    As of December 31, 1997, the Pittsburgh MSA contained 37.3 million square
feet of office space. The Pittsburgh CBD, where The Frick Building is located,
contained approximately 24.3 million square feet of office space, approximately
14.6 million of which was Class A office space, and had overall and Class A
occupancy rates of 84.5% and 89.4%, respectively.

    SEATTLE

    The Company has one Property, Washington Mutual Tower, located in the
Seattle market. The project site (the "Project Site") comprises Washington
Mutual Tower and Block 6 ("Block 6"), which consists of a six-level underground
parking facility for 810 cars; an adjacent historic brick building (the Brooklyn
Building); three levels of restaurants, shops and service businesses; and, to
protect sight lines from

                                       25
<PAGE>
Washington Mutual Tower, two masonry office buildings located across the
street--the Galland and Seneca Buildings--master leased by Third and University
Limited Partnership ("Third Partnership") through 2005 from Samis Land Company.
Wright Runstad & Company has a subordinated equity interest in Washington Mutual
Tower and manages the Property for Third Partnership.

    The Project Site is owned by Third Partnership. The Company owns, through a
wholly-owned subsidiary, a 50% general partnership interest in Third
Partnership. Third Partnership is the successor in interest as lessee under a
13-year lease, expiring in 2005, of the Galland and Seneca Buildings. In
general, the Company shares revenues equally with its partner, 1212 Second
Avenue Limited Partnership ("1212 Partnership") and also receives certain
preference returns. In addition, the Company also receives cash flow that is not
shared with 1212 Partnership and is currently due a cumulative preference
deficit. The Company holds the right, at its sole discretion, to elect to become
the managing general partner of Third Partnership. 1212 Partnership, originally
the sole general partner, is now the managing general partner with the
obligation to manage and operate Third Partnership's business.

    The Company believes that economic fundamentals in the Seattle market are
strong. As of March 31, 1997, the population of the Seattle MSA was 2.27
million, making it the 21st largest in the country. The MSA's median per capita
personal income in 1995 was $28,329, which was 22% above the national level.
Annual office employment growth in the Seattle area has outpaced the nation over
the last ten years, increasing approximately 4.7% on average, compared to
approximately 2.7% at the national level. For the year ended March 31, 1997,
local office employment grew 7.3%, compared to 4.4% nationally. Seattle's job
base has become increasingly diversified over the last 15 years, thus reducing
its dependence on the Boeing Company as an employer. In addition, the Seattle
CBD has one of the highest Class A office occupancy rates in the nation (97% as
of September 30, 1997). The Torto Wheaton forecast calls for healthy office
employment growth over the next decade, with a 3.3% average annual growth rate
for the MSA compared to 2.1% for the nation.

    The economy in the Seattle and surrounding Puget Sound area is fairly well
diversified. The largest employment sector is the services sector, accounting
for approximately 27% of the total non-agricultural employment in the region.
The next largest employment sector is wholesale and retail trade with
approximately 25% of total non-agricultural employment. Forest products, pulp,
paper, aircraft, ships and seafood products are recognized as the traditional
components of the region's economic base. Several services, such as
transportation, engineering and finance, are also exported and thus considered
base industries. An increasing share of software and durable goods is also
exported, making these industries significant contributors to the economic base.
The area has consistently experienced relatively low unemployment in recent
years, with rates below the national average, but did experience slight
decreases in employment due to layoffs at Boeing during the early 1990s.

    As of September 30, 1997, the Seattle MSA contained a total inventory of
54.0 million square feet of office space, approximately 61% of which was built
after 1980. The Seattle CBD, where Washington Mutual Tower is located, contained
approximately 16 million square feet of the metropolitan inventory and 13
million square feet of Class A office space, and, with overall and Class A
occupancy rates of 95% and 97.1%, respectively, had one of the top five Class A
occupancy rates in the nation. According to the second quarter 1997 Torto
Wheaton forecast, the Seattle CBD office market is expected to tighten over the
next two years, with absorption outpacing supply by a ratio in excess of 2:1.
The Torto Wheaton forecast calls for approximately 620,000 square feet of new
inventory to be added to the CBD over the next two years, with absorption
totaling approximately 1.4 million square feet.

                                       26
<PAGE>
SPECIFIC PROPERTY

    The following Properties had net book values equal to 10% or more of the
Company's total assets or aggregate gross revenues as of December 31, 1997.

ONE NORWEST CENTER

    Completed in 1983, One Norwest Center is a 50-story, granite and glass
office tower containing approximately 1,188,000 square feet of net rentable area
and a 12-level, 1,004-vehicle parking facility. One Norwest Center is located in
downtown Denver -- the major business, financial, government and cultural center
for the Rocky Mountain region. In downtown Denver, the compact central core area
of offices, financial institutions, retail stores, and hotels is bordered by
adjacent districts of public buildings. One Norwest Center is located at 17th
Street and Lincoln Street on the east boundary of the financial district.
Historically, this financial district has been a major hub for many financial
institutions in the Rocky Mountain region.

    One Norwest Center is owned by 1700 Lincoln Limited ("Lincoln") in which the
Company owns a 90 percent general partnership interest through its wholly-owned
subsidiary, ARICO-Denver, Inc., and a 10 percent general partnership interest
through its wholly-owned subsidiary, 1700 Lincoln Inc. The Property is managed
by Hines.

    MARKET INFORMATION

    See Market Data--Denver above.

    HISTORICAL OCCUPANCY RATES

    As of the dates noted, the following percentage of the net rentable area in
One Norwest Center was leased at the average Net Effective Rent per square foot
set forth below:

<TABLE>
<CAPTION>
                                                                                                       AVERAGE NET
                                                                                                        EFFECTIVE
                                                                              PERCENTAGE LEASED      RENT PER SQUARE
AS OF                                                                           AT PERIOD END             FOOT
--------------------------------------------------------------------------  ---------------------  -------------------
<S>                                                                         <C>                    <C>
December 31, 1997.........................................................               99%            $   11.66
December 31, 1996.........................................................               99                 10.80
December 31, 1995.........................................................               98                 10.56
December 31, 1994.........................................................               96                 10.25
December 31, 1993.........................................................               96                 10.59
</TABLE>

    PRINCIPAL TENANTS

    The following table lists the principal tenants of One Norwest Center as of
December 31, 1997:

<TABLE>
<CAPTION>
                                                                                              RENTABLE SQUARE FEET
                                                                           PRINCIPAL         ----------------------
                                                                            BUSINESS                    PERCENT OF
TENANT                                                                      ACTIVITY           TOTAL     TOTAL(1)
-------------------------------------------------------------------  ----------------------  ---------  -----------
<S>                                                                  <C>                     <C>        <C>
Norwest Bank Denver N.A............................................         Banking            565,943         48%
Newmont Gold Company...............................................          Mining            116,467         10%
Teletech Telecommunications, Inc...................................    Telecommunications
                                                                            Services            71,558          6%
                                                                                             ---------         ---
Total..............................................................                            753,968         64%
                                                                                             ---------         ---
                                                                                             ---------         ---
</TABLE>

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

(1) Calculated based on a total of 1,187,852 rentable square feet as of December
    31, 1997.

                                       27
<PAGE>
    LEASE EXPIRATIONS

    See Lease Expiration Schedule above.

NORWEST CENTER

    Norwest Center is a 55-story, granite and glass office tower containing
approximately 1,118,000 square feet of net rentable area and a 340-vehicle
underground parking facility. Norwest Center is located at the center of
downtown Minneapolis, at the intersection of Seventh Street South and Marquette
Avenue. The main business entrance to the building is on Seventh Street South,
opposite the IDS Center, a prominent landmark in the Twin Cities. Pedestrian
access is also available from Sixth Street South and Marquette Avenue; a grand
ceremonial entrance to the building on Sixth Street South incorporates a rotunda
and retail banking function.

    MARKET INFORMATION

    See Market Data--Minneapolis above.

    THE PARTNERSHIP

    Norwest Center is owned by NWC Limited Partnership ("NWC"), a partnership in
which the Company owns a 50 percent general partnership interest through its
wholly-owned subsidiary ARICO-Minneapolis, Inc. Sixth and Marquette Limited
Partnership ("S&M") owns a 49 percent managing general partnership interest and
a 1 percent limited partnership interest in NWC. The managing general partner of
NWC is currently S&M. The limited partners of S&M are Norwest Center, Inc., a
Minnesota corporation and affiliate of Norwest Corporation, and Faegre & Benson,
a Minnesota partnership, as nominee for a Minnesota partnership comprised of
persons who were partners in Faegre & Benson as of August 5, 1986. The general
partner of S&M is itself a Minnesota limited partnership in which Gerald D.
Hines, individually, and entities affiliated with Gerald D. Hines are directly
or indirectly the sole general partners. The Company has the right, at its sole
discretion, to become the managing general partner of NWC. Norwest Center is
managed by Hines.

    Under the partnership agreement governing NWC, the managing general partner
has the right to manage and operate NWC's business. Until certain cash flow
levels have been achieved for two consecutive years (the "NWC Preference
Period"), S&M and the Company each hold a 50 percent interest in NWC. After the
NWC Preference Period ends, the Company will be entitled to hold a 60 percent
interest (subject to increases in the Company's interest that may result from
early termination of the NWC Preference Period), and S&M a 40 percent interest.
The Company does not expect the Preference Period to end in the foreseeable
future.

    During the NWC Preference Period, the Company is entitled to receive an
annual preference return (the "NWC Preference Return") equal to 7 percent of its
capital base, which is $92.3 million as of December 31, 1997. The NWC Preference
Return is cumulative, and if operating revenues (after payment of operating
costs, capital expenditures and debt service) are not sufficient to fund the
distribution of any NWC Preference Return then due, the amount of such
deficiency shall accumulate and shall bear interest at the rate of 7 percent,
compounded annually. Currently, there is no accrued deficiency outstanding on
the NWC Preference Return.

    Subject to the preferential distributions to the Company described above,
all of NWC's operating revenues remaining after making payments required for the
operations of NWC and Norwest Center and the payment of debt service will be
distributed 50 percent to the Company and 50 percent to S&M during the NWC
Preference Period.

                                       28
<PAGE>
    HISTORICAL OCCUPANCY RATES

    As of the dates noted, the following percentage of the net rentable area in
Norwest Center was leased at the average Net Effective Rent per square foot set
forth below:

<TABLE>
<CAPTION>
                                                                                                       AVERAGE NET
                                                                                                        EFFECTIVE
                                                                              PERCENTAGE LEASED      RENT PER SQUARE
AS OF                                                                           AT PERIOD END             FOOT
--------------------------------------------------------------------------  ---------------------  -------------------
<S>                                                                         <C>                    <C>
December 31, 1997.........................................................               98%            $   17.23
December 31, 1996.........................................................              100                 17.43
December 31, 1995.........................................................              100                 17.31
December 31, 1994.........................................................              100                 17.00
December 31, 1993.........................................................              100                 17.27
</TABLE>

    PRINCIPAL TENANTS

    The following table lists the principal tenants of Norwest Center as of
December 31, 1997:

<TABLE>
<CAPTION>
                                                                                              RENTABLE SQUARE FEET
                                                                                PRINCIPAL    ----------------------
                                                                                BUSINESS                PERCENT OF
TENANT                                                                          ACTIVITY       TOTAL     TOTAL(1)
----------------------------------------------------------------------------  -------------  ---------  -----------
<S>                                                                           <C>            <C>        <C>
Norwest Corporation.........................................................     Banking       451,079         40%
Faegre & Benson.............................................................      Legal        195,918         18%
KPMG Peat Marwick...........................................................   Accounting       75,152          7%
                                                                                             ---------         ---
      Total.................................................................                   722,149         65%
                                                                                             ---------         ---
                                                                                             ---------         ---
</TABLE>

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

(1) Calculated based on a total of 1,118,062 rentable square feet as of December
    31, 1997.

    LEASE EXPIRATIONS

    See Lease Expiration Schedule above.

WASHINGTON MUTUAL TOWER

    Washington Mutual Tower is a 55-story, granite and glass office tower
containing approximately 1,155,000 square feet of net rentable area (including
the Galland and Seneca Buildings described below). Washington Mutual Tower is
located in the heart of the downtown Seattle central business district (the
"Seattle CBD"), at 1201 Third Avenue, with unobstructed views of Puget Sound.
The project site (the "Project Site") is comprised of Washington Mutual Tower
and Block 6 ("Block 6") which consists of a 6-level underground parking garage
for 810 cars; an adjacent historic brick building (the Brooklyn Building); three
levels of restaurants, shops and service businesses; and, to protect sight lines
from Washington Mutual Tower, two masonry office buildings located across the
street -- the Galland and Seneca Buildings -- master leased by Third and
University Limited Partnership ("Third Partnership") through 2005 from Samis
Land Company. Wright Runstad & Company has a subordinated equity interest in
Washington Mutual Tower and manages the Property for Cornerstone.

MARKET INFORMATION

    See Market Data--Seattle above.

    THE PARTNERSHIP

    The Project Site is owned by Third Partnership. The Company owns, through
its wholly-owned subsidiary ARICO-Seattle, Inc., a 50 percent general
partnership interest in Third Partnership, 1212

                                       29
<PAGE>
Second Avenue Limited Partnership, a Washington limited partnership ("1212
Partnership"), currently holds a 49 percent managing general partnership
interest and a 1 percent limited partnership interest in Third Partnership.
Third Partnership is the successor in interest as lessee under a 13-year lease,
expiring in 2005, of the Galland and Seneca Buildings.

    The Company holds the right, at its sole discretion, to elect to become the
managing general partner of Third Partnership. 1212 Partnership was originally
the only general partner and is now the managing general partner with the
obligation to manage and operate Third Partnership's business. Perkins Building
Partnership, a Washington general partnership comprised of partners in the
Seattle law firm of Perkins Coie, a Washington general partnership, is the sole
limited partner of 1212 Partnership. 1201 Third Avenue Limited Partnership, a
Washington limited partnership ("1201"), is the sole general partner of 1212
Partnership. Wright Runstad Associates Limited Partnership ("WRALP") is the sole
general partner of 1201, and Wright Runstad & Co. is the sole general partner of
WRALP. The majority of the limited partners of 1201 and WRALP are current or
former employees or other affiliates of Wright Runstad & Co.

    Until certain cash flow levels have been achieved for two consecutive years
(the "Washington Preference Period"), all of Third Partnership's operating
revenues remaining after making payments required for (i) the operations of
Third Partnership and Washington Mutual Tower, (ii) net Block 6 costs, (iii) the
payment of debt service and (iv) the Washington Preference Return (defined
below), will be distributed 50 percent to the Company and 50 percent to 1212
Partnership. The Washington Preference Period is expected to continue for the
foreseeable future. During the Washington Preference Period, the Company is also
entitled to receive an annual preference return (the "Washington Preference
Return") equal to 8 percent of its capital base, which was $100 million as of
December 31, 1997. The Washington Preference Return is cumulative, and if
operating revenues, adjusted for payment of operating costs, capital
expenditures, debt service and for amounts due from 1212 Partnership and a
subsidiary of the Company under the partnership agreement, are insufficient to
fund the distribution of any Washington Preference Return then due, the amount
of such deficiency shall accumulate and shall bear interest at the rate of 8
percent, compounded annually. As of December 31, 1997, the Company is due a
cumulative preference deficit, including accrued interest, of approximately $8.7
million which will be reduced as cash flow becomes available. On a priority
basis to the Washington Preference Return described above, the Company also
receives a 9.53 percent return on an additional equity investment of $47 million
made in September 1995. The Company is entitled to receive this return through
September 30, 2003, at which time the rate of return will adjust based on
conditions in the interest rate markets.

    HISTORICAL OCCUPANCY RATES

    As of the dates noted, the following percentage of the net rentable area in
Washington Mutual Tower was leased at the average Net Effective Rent per square
foot set forth below:

<TABLE>
<CAPTION>
                                                                                   AVERAGE NET
                                                                                    EFFECTIVE
                                                          PERCENTAGE LEASED      RENT PER SQUARE
AS OF                                                       AT PERIOD END             FOOT
------------------------------------------------------  ---------------------  -------------------
<S>                                                     <C>                    <C>
December 31, 1997.....................................               97%            $   12.02
December 31, 1996.....................................               97                 11.80
December 31, 1995.....................................               97                 11.83
December 31, 1994.....................................               97                 11.03
December 31, 1993.....................................               96                 10.84
</TABLE>

                                       30
<PAGE>
    PRINCIPAL TENANTS

    The following table lists the principal tenants of Washington Mutual Tower
and Block 6 as of December 31, 1997:

<TABLE>
<CAPTION>
                                                        RENTABLE SQUARE
                                                             FEET
                                          PRINCIPAL   -------------------
                                          BUSINESS             PERCENT OF
TENANT                                    ACTIVITY     TOTAL    TOTAL(1)
----------------------------------------  ---------   -------  ----------
<S>                                       <C>         <C>      <C>
Perkins Coie............................    Legal     199,982     17%
Washington Mutual.......................   Banking    181,066     16%
Karr Tuttle Campbell....................    Legal      50,574      4%
                                                      -------     ---
      Total.............................              431,622     37%
                                                      -------     ---
                                                      -------     ---
</TABLE>

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

(1) Calculated based on a total of 1,154,560 rentable square feet as of December
    31, 1997.

    LEASE EXPIRATIONS

    See Lease Expiration Schedule above.

191 PEACHTREE STREET

    191 Peachtree Street, located in downtown Atlanta, is a 50-story
multi-tenant office building containing 1,221,000 square feet. The Property is
very high quality and is widely regarded as the best building in Downtown
Atlanta. The project was completed in 1991 and designed by John Burgee and
Philip Johnson. Attached to the building is a 16-story parking deck with 1,386
spaces. 191 Peachtree Street was developed on approximately 2 acres of land, of
which approximately 1.5 acres is owned and approximately one-half acre under the
parking facility is leased for a 99-year term expiring in 2087 with a 99-year
renewal option.

    191 Peachtree Street is located in the heart of Atlanta's CBD, also referred
to as Downtown. Peachtree Street is a major corridor through the CBD from which
development radiates. The Property is located on the east side of Peachtree
Street between Ellis Street and International Boulevard, and extends to
Peachtree Center Avenue. The topography of the site slopes down to the east,
with both the Peachtree Street and Peachtree Center Avenue entrances at street
grade.

    MARKET INFORMATION

    See Market Data--Atlanta above.

    OWNERSHIP STRUCTURE

    THE MORTGAGE.  Cornerstone holds the first mortgage on the Property in the
amount of $145 million. The mortgage earns interest at a rate of 9.375% and
matures on February 28, 2008. The loan will be interest only through March 1,
1998 and, thereafter, will require principal payments based on a 30-year
amortization schedule.

                                       31
<PAGE>
    THE PARTNERSHIP.  Cornerstone has a 80% interest in One Ninety One Peachtree
Associates, the partnership which owns this Property. The Company's interest in
One Ninety One Peachtree Associates is accounted for on the equity method, as
the Company has substantial control over major decisions, as well as the right
to become managing general partner. Through February 28, 2000, the minority
partner in the transaction C-H Associates, LTD (CHA) will receive an Incentive
Distribution (as defined) of $250,000 per annum. This payment will be made out
of net cash flow after the payment of the first mortgage loan described above.
Cornerstone will receive the remaining cash flow up to the amount of an
Undistributed Preferred Return, defined in the partnership agreement for the
Property. Should cash flow be insufficient to repay the Undistributed Preferred
Return, the remainder will earn interest at a rate increasing over the next nine
years from 7.25% to 11.5%; at December 31, 1997, the cumulative undistributed
preferred return was $15,281,555. Through a buy-sell agreement that becomes
effective in 2002, either the Company or the minority partner will have the
right to withdraw from the partnership by offering to the other its entire
interest in the partnership, or if such offer is not accepted, the right to buy
the other partner's entire interest in the partnership and gain full control of
the asset.

    THE GROUND LEASE.  A small portion of the site that is below the parking
structure is subject to a long-term ground lease from the Ritz Carlton (see
above). As part of the ground lease agreement, the Ritz Carlton has its ballroom
located in the basement of 191 Peachtree Street.

    HISTORICAL OCCUPANCY RATES

    As of December 31, 1997 the Property was 95% leased at an average Net
Effective Rent of $24.26 per square foot.

    PRINCIPAL TENANTS

    The following table lists the principal tenants of 191 Peachtree Street as
of December 31, 1997:

<TABLE>
<CAPTION>
                                                                                              RENTABLE SQUARE FEET
                                                                                  PRINCIPAL  ----------------------
                                                                                  BUSINESS              PERCENT OF
TENANT                                                                            ACTIVITY     TOTAL     TOTAL(1)
--------------------------------------------------------------------------------  ---------  ---------  -----------
<S>                                                                               <C>        <C>        <C>
Wachovia Bank...................................................................   Banking     382,000         31%
King & Spalding.................................................................    Legal      306,000         25%
Powell, Goldstein, Frazer & Murphy..............................................    Legal      125,220         10%
                                                                                             ---------         ---
Total...........................................................................               813,220         66%
                                                                                             ---------         ---
                                                                                             ---------         ---
</TABLE>

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

(1) Calculated based on a total of 1,221,000 rentable square feet as of December
    31, 1997.

    LEASE EXPIRATIONS

    See Lease Expiration Schedule above.

500 BOYLSTON STREET

    500 Boylston Street, a 25-story, Class A office building containing a total
rentable area of 715,000 square feet, was designed by the team of John Burgee
Architects and Philip Johnson. The project shares a full city block with 222
Berkeley Street, and together, the two buildings are considered the premier
buildings in the Back Bay submarket of Boston. 500 Boylston is comprised of
642,000 square feet of office area on floors three through twenty-five, 8,000
square feet of storage space, and 65,000 square feet of retail area on floors
one and two. Parking for 1,000 cars is shared with 222 Berkeley Street and is
located on three levels below grade. The 500 Boylston Street site contains
approximately 137,000 square feet of land area or 3.15 acres, with approximately
500 feet of frontage on Boylston Street.

                                       32
<PAGE>
    500 Boylston Street is located in the Back Bay submarket of Boston. The 500
Boylston Street and 222 Berkeley Street complex occupies a city block bounded by
Boylston Street on the north, St. James Avenue on the south, Clarendon Street on
the west and Berkeley Street on the east. Development of the Back Bay has
historically been subject to restrictive zoning ordinances, aimed at preserving
the character of the area and concentrating commercial development along the
"High Spine", of which Boylston Street is the center. Companies like John
Hancock Mutual Life Insurance, Boston Edison, Bain & Co., Liberty Mutual Life
Insurance and The New England are all headquartered in this submarket.

    MARKET INFORMATION

    See Market Data--Boston above.

    THE PARTNERSHIP

    Cornerstone has a 91.5% interest in Five Hundred Boylston West Venture, the
partnership which owns the fee simple title to the Property. The remaining 8.5%
interest is owned by Boylston West 1986 Associates Limited Partnership
("Hines"). Cash flow, excess financing and sales proceeds are shared on a pro
rata basis between the partners with respect to each partnership interest. The
Company consolidates its investment in the partnership which owns 500 Boylston
Street. In addition, through buy-sell agreements that become effective in 2007
with respect to each partner, either the Company or Hines will have the right to
withdraw from the partnership by offering to the other its entire share in the
partnership, or if such offer is not accepted, the right to buy the other
partner's entire interest in the partnership and gain full control in the
underlying asset. The Property is managed by Hines under a long-term management
agreement.

    HISTORICAL OCCUPANCY RATES

    As of December 31, 1997 the Property was 100% leased at an average Net
Effective Rent of $26.08 per square foot.

    PRINCIPAL TENANTS

    The following table lists the principal tenants of 500 Boylston Street as of
December 31, 1997:

<TABLE>
<CAPTION>
                                                                                               RENTABLE SQUARE FEET
                                                                                              ----------------------
                                                                                                         PERCENT OF
TENANT                                                  PRINCIPAL BUSINESS ACTIVITY             TOTAL     TOTAL(1)
---------------------------------------------  ---------------------------------------------  ---------  -----------
<S>                                            <C>                                            <C>        <C>
Massachusetts Financial Services.............               Financial Services                  359,000         50%
New England Financial........................          Insurance/Financial Services             213,000         30%
Towers, Perrin, Forster & Crosby.............           Human Resources Consulting               44,000          6%
                                                                                              ---------         ---
    Total....................................                                                   616,000         86%
                                                                                              ---------         ---
                                                                                              ---------         ---
</TABLE>

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

(1) Calculated based on a total of 715,000 rentable square feet as of December
    31, 1997.

                                       33
<PAGE>
    LEASE EXPIRATIONS

    See Lease Expiration Schedule above.

SIXTY STATE STREET

    Sixty State Street, a 38-story, Class A office building containing a total
rentable area of 823,000 square feet, was designed by Skidmore, Owings & Merrill
Architects. The project is located on the northeast corner of State and Congress
Streets and is considered one of the premier office buildings in Boston's
Financial District. The exterior facade consists of granite and reflective
glass. The building's irregular shape yields 11 sides and thus, substantial
window-office space. Built in 1978 on a 1.35-acre site, the building has three
levels of below grade parking capable of accommodating 215 vehicles. The project
has benefited from substantial renovation projects and meticulous maintenance
and therefore looks and operates like a new building.

    The project is well located and convenient to all forms of public
transportation and scores of cultural attractions. Most notably, the building
overlooks the adjacent Faneuil Hall Market Place and the Government Center
Transit Station. In addition, its location provides convenient commuter access
from Boston's suburbs. A Houlihan's restaurant and a white tablecloth-dining
club called The Bay Tower Club provide additional amenities to the project.

    The ground under Sixty State Street is leased to the leasehold owner,
Marshall Field, through December 28, 2067. The lease payments on the ground
lease are $398,896 per annum throughout the term.

    MARKET INFORMATION

    See Market Data--Boston above.

    OWNERSHIP STRUCTURE

    On December 31, 1997, Cornerstone purchased the second mortgage on Sixty
State Street. The mortgage is a cash flow mortgage through which all the
economic benefits/risks (subject to the first mortgage) will inure to the
Company. The Company controls all major decisions regarding management and
leasing. The total purchase price for the second mortgage was $131.5 million.
The $78.4 million first mortgage on the Property has been recorded by the
Company as an $89.6 million liability as a result of its above-market interest
rate. Cornerstone will account for the transaction as an equity investment in
real estate.

    HISTORICAL OCCUPANCY RATES

    As of December 31, 1997 the Property was 98% leased.

    PRINCIPAL TENANTS

    The following table lists the principal tenants of Sixty State Street as of
December 31, 1997:

<TABLE>
<CAPTION>
                                                                                               RENTABLE SQUARE FEET
                                                                                              ----------------------
                                                                                                         PERCENT OF
TENANT                                                  PRINCIPAL BUSINESS ACTIVITY             TOTAL     TOTAL(1)
---------------------------------------------  ---------------------------------------------  ---------  -----------
<S>                                            <C>                                            <C>        <C>
Hale & Dorr..................................                      Legal                        273,000         33%
The Pioneer Group, Inc.......................               Financial Services                  141,000         17%
ITT/Sheraton.................................                   Hospitality                      90,000         11%
                                                                                              ---------         ---
    Total....................................                                                   504,000         61%
                                                                                              ---------         ---
                                                                                              ---------         ---
</TABLE>

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

(1) Calculated based on a total of 823,000 rentable square feet as of December
    31, 1997.

                                       34
<PAGE>
    LEASE EXPIRATIONS

    See Lease Expiration Schedule above.

ITEM 3. LEGAL PROCEEDINGS.

    In the ordinary course of business, the Company is subject to tenant and
property related claims. It is the opinion of management, after consultation
with outside counsel, that the resolution of these claims will not have a
material effect on the financial position or results of operations of the
Company.

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

    A special meeting of stockholders of the Company was held on October 27,
1997 for the purpose of considering and voting upon the following matters:

    (1) a proposal to approve the Company's purchase (the "DIHC Acquisition") of
       the DIHC Properties and certain secured and unsecured loans from PGGM and
       DIHC in exchange for up to 34,187,500 shares of the Company's Common
       Stock (approximately 41% of the Company's Common Stock at such time),
       $259,548,000 in cash and promissory notes for $250,000,000 pursuant to
       that certain Stock Purchase Agreement, dated as of August 18, 1997,
       between the Company and DIHC and that certain Loan Purchase Agreement,
       dated as of August 18, 1997, between the Company and PGGM (the "DIHC
       Acquisition Proposal");

    (2) a proposal to amend the Articles of Incorporation to include new
       provisions designed to cause the Company to become a "domestically
       controlled REIT" under U.S. tax laws (the "Acquisition Amendment
       Proposal");

    (3) a proposal to amend the Articles of Incorporation to increase the number
       of authorized shares of Common Stock from 100,000,000 to 250,000,000 (the
       "Authorized Shares Amendment Proposal"); and

    (4) a proposal to amend the Articles of Incorporation to include a provision
       clarifying the mechanics of settling trades on the New York Stock
       Exchange (the "NYSE Amendment Proposal" and collectively, the
       "Proposals").

    The holders of record of the Company's Common Stock at the close of business
on September 22, 1997 (the "Record Date") were entitled to vote at the Special
Meeting. On the Record Date, there were 48,856,742 shares of Common Stock
outstanding, each of which was entitled to one vote with respect to each
Proposal. Approval of the DIHC Acquisition Proposal required the affirmative
vote of a majority of the votes cast, provided that the total votes cast
represented over 50% in interest of the outstanding shares of Common Stock on
the Record Date. Approval of the other Proposals required the affirmative vote
of a majority of outstanding shares of Common Stock. All of the Proposals were
approved. The following table sets forth the voting results with respect to each
Proposal:

<TABLE>
<CAPTION>
                                                       NO. OF VOTES  NO. OF VOTES    NO. OF
PROPOSAL                                                 CAST FOR    CAST AGAINST  ABSTENTIONS
-----------------------------------------------------  ------------  ------------  -----------
<S>                                                    <C>           <C>           <C>
DIHC Acquisition.....................................    35,123,908      136,803      143,031
Acquisition Amendment................................    35,240,796       93,315       69,631
Authorized Share Amendment...........................    33,157,214    2,168,132       78,396
NYSE Amendment.......................................    40,792,510       29,584       56,550
</TABLE>

                                       35
<PAGE>
                                    PART II

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

        The shares of Common Stock of the Company are traded on the New York,
    Frankfurt and Dusseldorf Stock Exchanges. Quotations of the Common Stock in
    New York are made in United States Dollars. Quotations in Dusseldorf and
    Frankfurt are made in Deutsche Marks. On April 21, 1997, Cornerstone
    completed its initial U.S. public offering of 16.1 million shares of Common
    Stock at $14 per share. The high and low sales prices on the New York Stock
    Exchange for each quarter of 1997 in which the Company was listed were as
    follows:

SALES PRICE

<TABLE>
<CAPTION>
                                                                               HIGH        LOW
                                                                             ---------  ---------
<S>                                                                          <C>        <C>
  1997
---------------------------------------------------------------------------
 2nd Quarter...............................................................  $   15.38  $   14.25
  3rd Quarter..............................................................  $   19.50  $   15.25
  4th Quarter..............................................................  $   20.00  $   17.69
</TABLE>

    The high and low sales prices (in Deutsche Marks) on the Frankfurt Stock
Exchange for each quarter of 1996 and 1997 were as follows:

SALES PRICE

<TABLE>
<CAPTION>
                                                                         HIGH          LOW
                                                                      -----------  -----------
<S>                                                                   <C>          <C>
  1996
--------------------------------------------------------------------
 1st Quarter........................................................  DM22.70      DM20.10
  2nd Quarter.......................................................  DM20.80      DM20.00
  3rd Quarter.......................................................  DM22.55      DM20.50
  4th Quarter.......................................................  DM24.70      DM22.10

  1997
--------------------------------------------------------------------
 1st Quarter........................................................  DM28.25      DM23.90
  2nd Quarter.......................................................  DM27.50      DM24.80
  3rd Quarter.......................................................  DM33.80      DM26.20
  4th Quarter.......................................................  DM34.50      DM29.00
</TABLE>

    The high and low sales prices (in Deutsche Marks) on the Dusseldorf Stock
Exchange for each quarter of 1996 and 1997 were as follows:

SALES PRICE

<TABLE>
<CAPTION>
                                                                         HIGH          LOW
                                                                      -----------  -----------
<S>                                                                   <C>          <C>
  1996
--------------------------------------------------------------------
 1st Quarter........................................................  DM22.50      DM20.30
  2nd Quarter.......................................................  DM20.80      DM20.10
  3rd Quarter.......................................................  DM22.55      DM20.50
  4th Quarter.......................................................  DM24.30      DM21.10

  1997
--------------------------------------------------------------------
 1st Quarter........................................................  DM28.20      DM23.40
  2nd Quarter.......................................................  DM26.70      DM24.70
  3rd Quarter.......................................................  DM33.60      DM26.40
  4th Quarter.......................................................  DM34.50      DM29.50
</TABLE>

                                       36
<PAGE>
    The closing quotation of the Company's Common Stock on March 26, 1998 was
U.S. $18 5/16 on the New York Stock Exchange, DM32.8 on the Frankfurt Stock
Exchange and DM32.8 on the Dusseldorf Stock Exchange.

    As of March 26, 1998, there were approximately 127 holders of record of the
Common Stock.

    For 1997, Cornerstone paid distributions to its shareholders of $0.60 per
share on January 31, 1997 (to stockholders of record as of December 30, 1996);
$0.30 per share on April 30, 1997 (to stockholders of record as of March 21,
1997); $0.30 per share on July 31, 1997 (to stockholders of record as of June
20, 1997); $0.30 per share on October 31, 1997 (to stockholders of record as of
September 19, 1997); and $0.14 per share on November 26, 1997 (to stockholders
of record as of October 31, 1997).

    The Company intends to continue to pay cash distributions to its
stockholders. It is expected that distributions will be made on a quarterly
basis in 1998 and, in accordance with the Company's qualification as a REIT,
will be equal to at least 95% of the Company's taxable income. The Company
intends that at least 85% of all distributions from income earned during any
taxable year will be made prior to the end of such taxable year. No assurance
can be given as to the amounts of future distributions since they are subject to
the Company's funds from operations, earnings, financial condition, and such
other factors as the Board of Directors deem relevant.

    On January 31, 1997, April 30, 1997 and July 31, 1997, through a dividend
reinvestment plan available to all German shareholders, the Company issued
243,907, 141,733 and 175,796 shares of Common Stock, respectively, to such
shareholders and received proceeds of approximately $3,717,000, $2,228,000 and
$2,640,000, respectively. Such shares were not registered under the Securities
Act of 1933, as amended (the "Securities Act") and were issued and sold to
persons outside the United States.

    On July 25, 1997, the Company issued 6,896,550 and 4,586,210 shares of
Common Stock to NYSTRS and Rodamco, respectively, upon conversion of all the
outstanding shares of the Company's 8% Cumulative Convertible Preferred Stock
and 8% Cumulative Convertible Preferred Stock, Series A which were held by
NYSTRS and Rodamco, respectively. Such shares were not registered under the
Securities Act and were issued to NYSTRS and Rodamco in an exempt transaction
pursuant to Section 3(a)(9) of the Securities Act.

    On October 28, 1997, as part of the consideration paid by the Company in
connection with the DIHC Acquisition, the Company issued 34,185,500 shares of
Common Stock to DIHC and PGGM. See "Recent Developments--DIHC Portfolio." Such
shares were not registered under the Securities Act and were offered and sold to
DIHC and PGGM in a private offering pursuant to Section 4(2) of the Securities
Act. Subsequently, all of these shares were registered under the Securities Act
pursuant to the Company's shelf registration statement (No. 333-47149) which
became effective on March 10, 1998.

                                       37
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.

    The selected financial data has been derived from, and should be read in
conjunction with, the related audited consolidated financial statements.

<TABLE>
<CAPTION>
                                                         1997         1996        1995        1994      1993(1)
                                                     ------------  ----------  ----------  ----------  ----------
<S>                                                  <C>           <C>         <C>         <C>         <C>
                                                               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
Real estate investments before
  accumulated depreciation.........................  $  2,187,525  $  799,662  $  706,988  $  571,831  $  576,764
Total assets.......................................     2,051,481     766,180     586,089     477,996     515,792
Long-term debt.....................................       706,178     400,142     369,600     130,500     141,638
Credit facility debt...............................       187,000      --          --         236,467     235,677
Total liabilities..................................       940,062     442,375     403,927     400,640     407,964
Redeemable preferred stock.........................  $    --       $  162,743  $   --      $   --      $   --

OPERATING DATA:
Revenues...........................................  $    173,911  $  116,908  $   92,387  $   85,574  $   65,827
Expenses...........................................       134,041     106,646      90,427      88,084      70,361
Gain (loss) on interest rate swap..................            99       4,278      (7,672)     --          --
Minority interest..................................         2,368       1,519       3,417       3,899       1,214
Extraordinary loss.................................            54       3,925       4,445         581      --
Net income (loss)..................................  $     37,547  $    9,096  ($  13,574) ($   6,990) ($   5,748)

    Net income
    per common share...............................  $       0.63  $     0.19  ($    0.94) ($    0.53) ($    0.43)
    Dividends declared
    Per common share...............................  $       1.04  $     1.20  $     1.16  $     1.16  $     1.15
Payments to stockholders:

OTHER DATA:
Cash Flow from:
    Operations.....................................  $     65,922  $   34,522  $   20,036  $   28,968  $   20,077
    Investing......................................      (462,837)    (57,259)   (135,527)     (1,762)     13,240
    Financing......................................       306,842     129,800     110,725     (33,141)    (24,137)
Funds From Operations(2)...........................  $     68,308  $   34,719  $   21,424  $   15,562  $   20,525
</TABLE>

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

(1) Effective December 31, 1993, the financial statements of NWC have been
    consolidated with the financial statements of the Company.

(2) Funds From Operations ("FFO") is a calculation which is defined by the
    National Association of Real Estate Investment Trusts ("NAREIT") and is not
    indicative of either net income or cash flow from operations as calculated
    in accordance with GAAP. The Company makes certain additional adjustments to
    FFO which are not contemplated in the NAREIT definition as disclosed in Item
    7 of this Form 10-K.

See Item 7 below for a discussion of the selected financial data.

                                       38
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

    Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Selected Consolidated
Financial and Operating Data set forth above and the Consolidated Financial
Statements and Notes included herein.

    When used in the following discussion, the words "believes", "anticipates",
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions of these forward-looking
statements, which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

RESULTS OF OPERATIONS

    CONSOLIDATION.  Cornerstone's principal source of income is rental revenues
received through its investment in eleven fee simple investments and five
controlled real estate partnerships. The $28.4 million increase in Net Income is
due to the following changes described in the captions below in more detail: an
increase in total Property Income of $24.3 million; and an increase in interest
and other income of $8.7 million; these amounts are partially offset by an
increase in interest expense of $2.2 million; an increase in general and
administrative expenses of $1.2 million; a decrease in gain on interest rate
swaps of and extraordinary losses of $0.4 million; and an increase in minority
interest of $0.8 million.

    PROPERTY RESULTS.  For the years ended December 31, 1997, 1996, and 1995
property results can be summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                            FOR THE YEAR       FOR THE YEAR       FOR THE YEAR
                                                                ENDED              ENDED              ENDED
                                                          DECEMBER 31, 1997  DECEMBER 31, 1996  DECEMBER 31, 1995
                                                          -----------------  -----------------  -----------------
<S>                                                       <C>                <C>                <C>
Office and Parking Rentals..............................     $   159,828        $   111,494         $  88,548
Less:
  Building Operating Expenses...........................          35,962             24,578            19,233
  Real Estate Taxes.....................................          25,560             19,610            12,297
  Depreciation and Amortization.........................          30,978             24,317            22,572
                                                                --------           --------           -------
Total Operating Expenses................................          92,500             68,505            54,102
                                                                --------           --------           -------
Total Property Income...................................     $    67,328        $    42,989         $  34,446
                                                                --------           --------           -------
                                                                --------           --------           -------
</TABLE>

    The increase in Property Income from 1996 to 1997 of $24.3 million was due
to an increase in Office and Parking Rentals at One Norwest Center due to lease
buyouts ($0.7 million) and higher net rentals ($0.6 million); an increase in
Property Income at Norwest Center due to increased real estate tax recoveries
($2.2 million); an increase in Property Income at Washington Mutual Tower due to
higher garage income and lower depreciation ($0.8 million); a full year of
operations for Tower 56 as compared to approximately eight months in 1996 ($0.6
million); a full year of operations for One Lincoln Centre as compared to
approximately two months in 1996 ($3.4 million); a full year of operations for
the Frick Building as compared to approximately two months in 1996 ($1.8
million); and increased Property Income due to the acquisition of 527 Madison
Avenue in February ($4.9 million) and the acquisition of the DIHC Portfolio in
October ($10.7 million). These amounts are partially offset by a decrease in
Property Income for 125 Summer Street due to a large roll down in gross rents,
higher real estate taxes and higher depreciation ($1.4 million).

                                       39
<PAGE>
    The increase in Property Income from 1995 to 1996 of $8.5 million was due to
a full year of operations for 125 Summer Street as compared to two months of
operations in 1995 ($6.7 million); the acquisition of Tower 56 ($1.6 million),
One Lincoln Centre ($0.5 million), and the Frick Building ($0.3 million) during
1996; an increase in the income of Washington Mutual Tower due to the retirement
of certain deferred leasing costs in 1995 ($1.0 million). These amounts are
partially offset by a decrease in the income of Norwest Center due to an
increase in real estate taxes ($1.6 million).

    INTEREST AND OTHER INCOME.  Interest and other income was $14,083,000 in
1997, $5,414,000 in 1996, and $3,839,000 in 1995. These amounts primarily
consist of interest earned from short-term investments, interest earned on
mortgage notes receivable, notes receivable from partners, and income from the
advisory contracts.

    The 1997 increase in interest and other income of $8.7 million from 1996 is
due to the increase in interest earned on notes receivable of approximately $2.5
million due to the purchase of the first mortgage note and "Buffer Loan" on
Market Square, increased advisory fees of $0.3 million, increased other income
of $0.3 million, and larger working capital balances available for short-term
investment causing interest income on short-term investments to increase by $5.6
million.

    The 1996 increase in interest and other income of $1.6 million from 1995 is
due to the interest earned on the Tower 56 mortgage notes receivable of
approximately $1.1 million, increased advisory fees of $0.1 million, increased
management fees of $0.2 million, increased interest and other income of $0.2
million.

    INTEREST EXPENSE.  Interest expense incurred by Cornerstone relating to its
financing activities was $33,977,000, $31,734,000, and $30,722,000, for 1997,
1996, and 1995, respectively.

    The increase in 1997 from 1996 of approximately $2.2 million is primarily
due to an increase of $0.4 million due to a full year of interest expense on the
Tower 56 debt in 1997 as compared to approximately eight months in 1996, the
$250.0 million of purchase money loans associated with the purchase of the DIHC
Portfolio giving rise to $3.2 million of interest expense, increased borrowings
under the Company's line of credit giving rise to $0.9 million of increased
expense, and increased amortization of $0.3 million. These increases are
partially offset by a decrease in interest expense on the Term Loan due to
repayment in March of $1.2 million, a reduction in other interest expense of
$0.5 million, and interest expense savings resulting from the refinancing of the
One Norwest Center debt of $0.9 million.

    The increase in 1996 from 1995 of approximately $1.0 million is primarily
due to the interest expense on the Tower 56 debt of $0.9 million, a full year of
interest expense on the 125 Summer Street debt of $3.3 million, increased
interest expense due to the sale of the Norwest Center note of $0.1 million, and
interest expense on the Hines note of $0.8 million. These increases are
partially offset by a decrease in interest expense due to the refinancing of the
Washington Mutual Tower debt of $1.5 million, decreased interest expense on the
Term Loan due to the interest rate reduction of $0.7 million, interest expense
savings resulting from the refinancing of the One Norwest Center debt of $0.9
million, and a reduction of amortization of deferred financing costs of $1.0
million.

    GENERAL AND ADMINISTRATIVE EXPENSES.  The aggregate amount of Cornerstone's
general and administrative expenses has increased to $7,564,000 in 1997 from
$6,407,000 in 1996 and $5,603,000 in 1995. The increase of $1.2 million in 1997
from 1996 is due to a $0.16 million increase in staff salaries, a $0.16 million
increase in incentive compensation, a $0.1 million increase in profit sharing,
and a $0.14 million increase in the cost of producing the annual report. The
remaining variance of $0.64 million is due to variances in numerous
miscellaneous expense items all of which are less than $0.1 million in size. The
increase in 1996 from 1995 of $0.8 million was due to a full year of
expenditures as a self-administered company.

    NET GAIN (LOSS) ON INTEREST RATE SWAPS.  The Company does not trade in
derivative instruments, but uses interest rate swap agreements to hedge the
interest rate risk on its financings with the intention of obtaining the lowest
effective interest cost on its indebtedness. The net gain of $4,278,000 in 1996
represents an unrealized mark to market gain of $7,403,000 on the forward
interest rate swap partially offset by an extraordinary loss of $3,925,000.
$3,125,000 is due to the termination of a swap relating to the

                                       40
<PAGE>
refinancing of One Norwest Center. The remainder of the realized extraordinary
loss of $800,000 in 1996 is due to certain write-offs of deferred financing
costs and other costs relating to the refinancing of One Norwest Center.
Effective January 16, 1997, the forward swap agreement was terminated for a
total cost of $170,000, giving rise to $99,000 of income in 1997.

    MINORITY INTEREST.  The increase in minority interest from 1996 to 1997 of
$0.8 million is due to an increase of $0.4 million at Norwest Center due to
higher earnings, and $0.4 million on the DIHC Portfolio.

    The decrease in minority interest from 1995 to 1996 of $1.9 million is due
to the purchase of the 10% minority interest in One Norwest Center of $1.6
million and the reduction in the partners' share of earnings from Norwest Center
of $0.3 million.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW

<TABLE>
<CAPTION>
                                                           FOR THE YEAR                           FOR THE YEAR
CASH FLOW PROVIDED BY (USED                                    ENDED        FOR THE YEAR ENDED        ENDED
  IN) (IN THOUSANDS):                                    DECEMBER 31, 1997  DECEMBER 31, 1996   DECEMBER 31, 1995
-------------------------------------------------------  -----------------  ------------------  -----------------
<S>                                                      <C>                <C>                 <C>
Operating activities...................................     $    65,922         $   34,522         $    20,036
Investing activities...................................        (462,837)           (57,259)           (135,527)
Financing activities...................................         306,842            129,800             110,725
</TABLE>

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

    The increase in cash provided by operating activities of $31.4 million is
mainly due to the $28.4 million increase in Net Income. The $28.4 million
increase in Net Income is due to the following changes described in the captions
above in more detail: an increase in total Property Income of $24.3 million; and
an increase in interest and other income of $8.7 million; these amounts are
partially offset by an increase in interest expense of $2.2 million; an increase
in general and administrative expenses of $1.2 million; a decrease in gain on
interest rate swaps of and extraordinary losses of $0.4 million; and an increase
in minority interest of $0.8 million.

    Other factors contributing to the increase were a $7.0 million increase in
depreciation and amortization due to the acquisition of additional properties,
plus a $4.3 million decrease in the unrealized gain on interest rate swaps due
to the unwind of the swap in 1997, a $6.3 million increase in the change in
interest payable, a $0.8 million increase in minority interest, and a $4.6
million increase in the change in accounts payable. These amounts are offset by
a $3.9 million reduction in extraordinary losses due to the refinancing of One
Norwest Center, a $1.6 million reduction in the change in prepaid rent and a
$14.5 million reduction due to the change in tenant receivables.

    The increase in additions to investment properties is due to the net cash
investment in the DIHC Portfolio, 527 Madison Avenue, and Sixty State Street as
compared to the acquisition of One Lincoln Centre being the only cash
acquisition in 1996.

    The increase in cash provided by financing activities of $177.0 million is
due to the following: common equity offering in 1997 providing $225.4 million in
net proceeds; $187.0 million of borrowings under the credit facility in 1997;
the repayment of $97.3 million of debt in 1996 in excess of 1997 due to the
refinancing of the One Norwest Center mortgage; the receipt of $7.1 million more
proceeds under the dividend reinvestment plan in 1997 than 1996; a reduction in
swap termination payments of $6.6 million; and a decrease in restricted cash of
$2.5 million, due to an escrow deposit for the benefit of a mortgage holder
arising from the prepayment of rent by a major tenant in 1996. These amounts are
offset by the $140.0 million preferred offering in 1996; the $32.5 million
repayment of the Deutsche Bank term loan; the $116.0 million of mortgage
proceeds received from One Norwest Center and Tower 56 in 1996; increased
minority distributions of $0.2 million due to the additional partnership
investments; increased issuance costs of $15.6 million; and increased
distributions to stockholders of $44.6 million.

                                       41
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

    The increase in cash provided by operating activities of approximately $14.5
million is primarily due to the $22.7 million increase in Net Income of the
Company. This amount is increased by the $0.9 million increase in depreciation
and amortization expense, the $0.6 million increase in deferred compensation
resulting from the amortization of the stock grants, the $5.0 million increase
in accounts payable, accrued expenses and other liabilities due to higher
accrued real estate taxes, and the $1.7 million reduction in unbilled rental
revenue due to the aging of tenant leases. This amount is decreased by the $12.0
million change in cash flow as a result of the interest rate swap valuation, the
$0.5 million decrease in extraordinary loss from debt refinancing and the
approximately $1.9 million reduction in minority interest due to the purchase of
the 10% minority interest in One Norwest Center and lower earnings at Norwest
Center, the $1.9 million increase in tenant and other receivables resulting from
a reduction of prepaid expenses and the accrual of real estate tax recoveries at
One Lincoln Centre, and a decrease in accrued interest payable of $0.1 million.

    The reduction in cash used in investing activities of approximately $78.3
million is due to the purchase of One Lincoln Centre for $50.1 million, $2.7
million of additional costs relating to the foreclosure on Tower 56, $3.9
million of deferred leasing costs and $0.5 million of additional costs relating
to 125 Summer Street in 1996 as compared to the purchase of 125 Summer Street
for $105.0 million and the purchase of the Tower 56 mortgage notes receivable
for $30.5 million in 1995.

    The increase in cash provided by financing activities of approximately $19.1
million is primarily due to the financing of Tower 56 for $18.0 million.

    COVERAGE RATIOS.  Interest coverage for the year ended December 31, 1997 was
2.11 times as compared to 1.29 times at December 31, 1996. The increase was due
mainly to a reduction of the percentage of liabilities to total assets from 55%
to 46%.

    Fixed charge coverage was 1.62 times for the year ended December 31, 1997,
as compared to 1.11 times for the year ended December 31, 1996. The increase was
due to the reduction of the percentage of liabilities to total assets described
above.

    CAPITAL STOCK TRANSACTIONS.  On June 19, 1995, the Company increased the
number of authorized shares from 40,000,000 shares of common stock, without par
value, to 115,000,000 shares of capital stock, without par value, of which
15,000,000 shares are preferred stock and 100,000,000 shares are common stock.

    On August 4, 1995, the Company received $90,447,500 gross proceeds from the
placement of 6,325,000 new shares of common stock at a price of $14.30 per share
with retail investors in Germany through underwriters led by Deutsche Bank. The
net proceeds were used for the purchase of 125 Summer Street and the Tower 56
mortgage notes.

    Also on August 4, 1995, 3,030,303 preferred shares were issued to Deutsche
Bank for gross proceeds of $50.0 million. The preferred shares are 7 percent
cumulative and convertible into common stock at $16.50 per share any time after
August 4, 2000. The net proceeds from the preferred share issuance were used to
retire existing indebtedness.

    On December 27, 1995, through a dividend reinvestment plan available to all
stockholders, Cornerstone received proceeds of approximately $2,840,000 and
issued an additional 207,302 shares of common stock to stockholders.

    On August 31, 1996, through a dividend reinvestment plan available to all
stockholders, Cornerstone received proceeds of approximately $4,016,000 and
issued an additional 300,589 shares of common stock to stockholders.

    On November 8, 1996, through a merger of subsidiaries, the Company issued
$66.5 million (458,621 shares) of 8% Cumulative Convertible Preferred Stock,
Series A, in exchange for $40.0 million cash and the Frick Building. The
preferred shares were converted into the Company's common stock at a conversion

                                       42
<PAGE>
price of $14.50 per share. The proceeds were used to acquire One Lincoln Centre
in Oakbrook Terrace, Illinois.

    On November 22, 1996, the Company issued $100.0 million (689,655 shares) of
8% Cumulative Convertible Preferred Stock. The preferred shares were convertible
into the Company's common stock at a conversion price of $14.50 per share.
Portions of the proceeds were used to acquire 527 Madison Avenue in New York on
February 14, 1997 and to repay the Deutsche Bank term loan.

    On January 31, 1997, through a dividend reinvestment plan available to all
shareholders, Cornerstone received proceeds of approximately $3,717,000 and
issued an additional 243,907 shares of common stock to stockholders.

    On April 21, 1997, the Company received $225,400,000 gross proceeds from the
public placement of 16,100,000 new shares of common stock at a price of $14.00
per share and listed on the New York Stock Exchange through underwriters led by
Merrill Lynch & Co. The net proceeds were used as partial consideration for the
purchase of the DIHC Portfolio.

    On April 30, 1997, through a dividend reinvestment plan available to its
German stockholders, Cornerstone received proceeds of approximately $2,228,000
and issued an additional 141,733 shares of common stock to stockholders.

    On July 31, 1997, through a dividend reinvestment plan available to its
German stockholders, Cornerstone received proceeds of approximately $2,640,000
and issued an additional 175,796 shares of common stock to stockholders.

    On October 27, 1997, the Company increased the authorized shares from
115,000,000 shares of capital stock, without par value, to 265,000,00 shares of
capital stock, without par value, of which 15,000,000 shares are preferred stock
and 250,000,000 shares are common stock.

    On October 28, 1997, as consideration for the acquisition of the DIHC
Portfolio, Cornerstone issued 34,185,500 shares of common stock to DIHC and PGGM
as compensation for the acquisition of interests in nine Class A office
buildings and an undeveloped parcel of land.

    On October 31, 1997, through a dividend reinvestment plan available to its
German stockholders, Cornerstone received proceeds of approximately $2,518,000
and issued an additional 134,577 shares of common stock to stockholders.

FUNDS FROM OPERATIONS

    The Company calculates Funds from Operations ("FFO") based upon guidance
from the National Association of Real Estate Investment Trusts ("NAREIT"). FFO
is defined as net income, excluding gains or losses from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated joint ventures. Previously, the Company had adjusted FFO by the
unrealized gain (loss) on interest rate swaps since the swaps were used to hedge
future interest rate risk.

    Industry analysts generally consider FFO to be an appropriate measure of
performance of an equity Real Estate Investment Trust ("REIT") such as
Cornerstone. FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and, therefore, should
not be considered a substitute for net income as a measure of performance or for
cash flow from operations as a measure of liquidity calculated in accordance
with generally accepted accounting principles.

    The Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
an understanding of the ability of the Company to incur and service debt and to
make capital expenditures. For cash flows from operating, financing, and
investing activities see the Consolidated Statements of Cash Flows included in
the Consolidated Financial Statements, which are part of this report.

    For comparability purposes, the amounts reported in FFO for 1995 differ from
those previously reported to adjust for the revisions to the FFO calculation
recently adopted by the Board of Governors of NAREIT. Additionally, the Company
no longer reports free and deferred rents as an adjustment to FFO since this is
not part of the industry standard. Therefore, included in FFO for 1997, 1996,
and 1995 are $2,697,000, $993,000, and $2,058,000, respectively, of
Cornerstone's share of free and deferred rents.

                                       43
<PAGE>
    The table below sets forth the adjustments that were made to the net income
(loss) of the Company for the last three years in the calculation of FFO (in
thousands):

<TABLE>
<CAPTION>
                                                                 FUNDS FROM OPERATIONS (A)
                                                              --------------------------------
<S>                                                           <C>        <C>        <C>
                                                                1997       1996        1995
                                                              ---------  ---------  ----------
Net income (loss)...........................................  $  37,547      9,096  ($  13,574)
NAREIT Adjustments:
  Depreciation and amortization.............................     30,978     24,317      22,572
  Unrealized (gain) loss....................................        (99)    (4,278)      7,672
  Extraordinary losses......................................         54      3,925       4,445
  Minority interest adjustments.............................     (1,551)    (2,011)     (1,617)
Other Adjustments:
  Amortization on rent notes................................      1,379      1,242       1,119
  Real estate tax adjustment................................     --          2,428         807
                                                              ---------  ---------  ----------
FUNDS FROM OPERATIONS.......................................     68,308     34,719      21,424
                                                              ---------  ---------  ----------
Preferred Dividends.........................................    (10,160)    (5,153)     (1,449)
                                                              ---------  ---------  ----------
FUNDS FROM OPERATIONS
  AVAILABLE FOR COMMON SHARES...............................  $  58,148  $  29,566  $   19,975
                                                              ---------  ---------  ----------
                                                              ---------  ---------  ----------
</TABLE>

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

(A) Although the Company believes that this table is a full and fair
    presentation of the Company's FFO, similarly captioned items may be defined
    differently by other REITs, in which case direct comparisons may not be
    possible.

    The increase in FFO from 1996 to 1997 of approximately $33.6 million is due
to the $28.4 million increase in Net Income due to the following changes
described in the captions above in more detail: an increase in total Property
Income of $24.3 million; and an increase in interest and other income of $8.7
million; these amounts are partially offset by an increase in interest expense
of $2.2 million; an increase in general and administrative expenses of $1.2
million; a decrease in gain on interest rate swaps and extraordinary losses of
$0.4 million; and an increase in minority interest of $0.8 million.

    The following factors also contributed to the increase: a $6.7 million
increase in depreciation and amortization due to new property acquisitions, plus
a $4.2 million reduction in unrealized gain on interest rate swaps, plus a $0.5
million reduction in minority adjustments and a $0.1 million increase in rent
note amortization. These amounts are partially offset by the $3.9 million
decrease in extraordinary losses from refinancing One Norwest Center and the
$2.4 million real estate tax adjustment relating to Norwest Center in 1996.

    The increase in FFO from 1995 to 1996 of approximately $13.3 million is due
to a full year of operations for 125 Summer Street as compared to two months of
operations in 1995 ($8.7 million); the acquisition of Tower 56 ($2.2 million),
One Lincoln Centre ($0.7 million), and the Frick Building ($0.4 million) during
1996; the increase in interest and other income of $1.6 million, and the
decrease in minority interest of $1.5 million. The increase in interest expense
of $1.0 million and the increase in general and administrative expenses of
approximately $0.8 million offset these amounts.

    The Company will seek to continue increasing FFO and the value of its
property portfolio by acquiring additional properties that the Company believes
will produce favorable returns. As part of its ongoing business, the Company
periodically engages in discussions with public and private real estate entities
regarding possible portfolio or asset acquisitions or business combinations.

MORTGAGE NOTE RECEIVABLE.

    On December 19, 1995, the Company purchased two mortgage notes
collateralized by Tower 56 in New York City with a face value of $54.0 million
and accrued interest of approximately $11.0 million for a purchase price of
$30.15 million. The carrying amount of the mortgage notes receivable at December
31,

                                       44
<PAGE>
1995 includes the purchase price, closing adjustments, and related acquisition
costs. The existing owner, Tower 56 Partners, had agreed to a "pre-packaged"
bankruptcy plan through which it would transfer title of Tower 56 to Cornerstone
during the second quarter of 1996. At the time of the transfer, Cornerstone made
a payment of approximately $2.1 million to two of the partners of Tower 56
Partners. Additionally, HRO International, an affiliate of Tower 56 Partners,
manages the building under a five year management agreement for a fee of 3% of
gross revenues and receives one-third of the cash flow above that which provides
Cornerstone a 9% return on its Capital Base. HRO International will also receive
one-third of the property sale proceeds above that which provides Cornerstone
with a 12% cumulative internal rate of return. On January 5, 1998, Cornerstone
purchased all of HRO International's participation rights described above for a
total of 307,692 common shares. HRO will continue to manage the building for the
same fee under a contract that is cancelable with thirty days' notice.

    On October 27, 1997, Cornerstone purchased a $181.0 million 9.75% first
mortgage note on Market Square for total consideration of $194.0 million giving
rise to an effective interest rate of 8.6%. The loan matures on December 1,
2007. Additionally, the Company receives amortization based on a twenty-five
year schedule.

    On October 27, 1997, Cornerstone purchased a Buffer Loan, with accrued
principal and interest of $46.2 million, payable from the partnership which owns
Market Square. The Buffer Loan accrues interest at a rate of 11% per annum and
is payable from cash flow, refinancing or sales proceeds from Market Square in
excess of the first mortgage.

MORTGAGE INDEBTEDNESS

    On December 31, 1997, the Company purchased the second mortgage on Sixty
State Street in Boston which it consolidates on its balance sheet. The property
has a first mortgage in the amount of approximately $78.4 million, which matures
in January 2005. The loan requires amortization based on a 30 year schedule and
bears interest at a rate of 9.5%. Since the interest rate was above market rates
for similar loans at the time the Company purchased the building the Company has
booked the loan at $89.6 million, giving rise to an effective interest rate of
6.84%.

    On October 27,1997, the Company entered into four mortgage loans with PGGM
and its wholly owned subsidiary DIHC (together "PGGM") as purchase money
financing for the DIHC Portfolio. The mortgages, which are cross-collateralized,
encumber the Dearborn Land, TransPotomac Plaza 5, Charlotte Plaza, 527 Madison
Avenue, One Lincoln Centre, 200 Galleria, and the first mortgage note on Market
Square, total $250.0 million, are interest only, with no prepayment rights.

    The first loan is a $10.0 million note at zero percent interest; the
interest rate on the loan will increase to 7.28% upon the sale of the Dearborn
Land. The loan matures in October 2000.

    The second note is a $55.0 million note at 7.28% interest, which matures in
October 2000. Upon repayment of this note and the $10.0 million note described
above, PGGM will release the liens on the Dearborn Land, TransPotomac Plaza 5,
and Charlotte Plaza.

    The third note is a $65.0 million note at 7.47%, which is due in October
2004. Upon repayment of this note, PGGM will release the liens on 527 Madison
Avenue and One Lincoln Centre.

    The fourth note is a $120.0 million note at 7.54%, which is due in October
2007. Upon repayment of this note, PGGM will release the liens on Market Square
and 200 Galleria.

    On August 2, 1996, the Company refinanced its $98.0 million Interest-Bearing
Notes, collateralized by One Norwest Center, by entering into a $98.0 million
Deed of Trust and Mortgage Notes with Massachusetts Mutual Life Insurance
Company, Connecticut General Life Insurance Company, and American General Life
Insurance Company. The Mortgage Notes bear interest at a rate of 7.50% and
mature on July 1, 2001. Additionally, the Company is required to make payments
of principal based upon a thirty-year amortization schedule. Upon the closing of
the mortgage debt, Cornerstone paid a prepayment penalty of approximately $2.0
million (Extraordinary loss) to the Interest-Bearing Noteholders. Unamortized
Interest-Bearing Notes financing costs of approximately $0.2 million
(Extraordinary loss) were written-off in connection with the refinancing.

                                       45
<PAGE>
    Cornerstone was obligated to pay to Deutsche Bank New York Branch, for an
interest rate swap agreement used to fix the interest rates on the
Interest-Bearing Notes, an amount equal to 0.752% on a notional amount of $107.0
million throughout the term of the Interest-Bearing Notes. This amount was
treated as a yield adjustment on the long-term debt and has been included in
interest expense. On August 2, 1996, this swap was terminated at an approximate
cost of $1.5 million, which was treated as an extraordinary loss.

    As protection against market interest rates rising prior to the maturity of
the Interest Bearing Notes, on September 29, 1993, Cornerstone entered into a
forward interest rate swap agreement with Deutsche Bank AG. The interest rate
swap agreement was revised as part of the refinancing of One Norwest Center. The
forward interest rate swap agreement was for a fixed rate of 7.14% on a notional
amount of $92.8 million for a period of five years beginning July 1, 2001.
Effective January 16, 1997, this forward swap was terminated.

    On April 25, 1996, the Company, through its wholly-owned subsidiary
CStone-New York, Inc., executed a promissory note with Northwestern Mutual Life
Insurance Company and received proceeds of $18.0 million. The Tower 56 loan
bears interest at a rate of 7.674% with a 30-year principal amortization and
matures on April 24, 2003. The loan is collateralized by a first mortgage on
Tower 56 and assignment of all leases and rents. The proceeds of the loan were
used to replenish working capital.

OTHER INDEBTEDNESS.

    On August 8, 1995, the existing $32.5 million term loan was extended through
December 31, 2003 and assigned to Deutsche Bank AG London at an interest rate of
5%. The term loan had a $32.5 million balance at December 31, 1996 and 1995. The
loan was prepaid on March 18, 1997, since, under its terms, it was required to
be prepaid upon Cornerstone's initial public offering in the United States.

    Effective January 1, 1996, in connection with the acquisition of the 10%
minority interest in 1700 Lincoln Limited, the Company entered into a $12.9
million convertible promissory note payable to Hines Colorado Limited ("HCL").
The note payable pays monthly interest only at the lesser of 8.11% or LIBOR plus
50 basis points. The note is convertible at the option of HCL into shares of
common stock at $14.30 per share after January 1, 1997. At maturity of the note
on January 1, 2001, Cornerstone has the right to redeem the note in exchange for
common shares of the Company at the lower of the market price or $14.30 per
share.

    At December 31, 1996, Cornerstone had a $10.0 million revolving line of
credit with Bankers Trust Company. The line was available for general corporate
and acquisition purposes at a rate equivalent to an adjusted Eurodollar rate.
The line was also available for the issuance of standby letters of credit at a
rate of 0.15% and expired on November 7, 1997. At December 31, 1996, none of the
credit line had been drawn upon.

    On October 27, 1997, the Company entered into a three-year, $350.0 million
acquisition line of credit syndicated by Bankers Trust and The Chase Manhattan
Bank. The line bears interest at a rate of LIBOR plus 1.10% to 1.40% depending
on the Company's then current leverage ratio. Borrowings under the facility at
December 31, 1997 were $187.0 million at an average interest rate of 8.12%. The
line is also available for the issuance of standby letters of credit.

STOCKHOLDERS' DISTRIBUTIONS.

    Cornerstone intends to distribute at least 95% of its taxable income to
maintain its qualification as a REIT. The Company anticipates that FFO will
exceed taxable income for the foreseeable future. Cornerstone's distribution
policy is to pay distributions based upon FFO, less prudent reserves. For 1997,
Cornerstone paid distributions to its shareholders of $0.60 per share on January
31, 1997 (to stockholders of record as of December 30, 1996); $0.30 per share on
April 30, 1997 (to stockholders of record as of

                                       46
<PAGE>
March 21, 1997); $0.30 per share on July 31, 1997 (to stockholders of record as
of June 20, 1997); $0.30 per share on October 31, 1997 (to stockholders of
record as of September 19, 1997); and $0.14 per share on November 26, 1997 (to
stockholders of record as of October 31, 1997).

LIQUIDITY.

    At December 31, 1997, the Company had $24,730,000 in cash and cash
equivalents and $1,903,000 in restricted cash. Restricted cash is being held by
the Mortgage Servicer for the One Norwest Center and Washington Mutual Tower
mortgage loans, representing real estate tax and insurance escrows. In addition,
Cornerstone anticipates it will receive distributions from real estate
partnerships and rents under tenant leases on a monthly basis that will be used
to cover normal operating expenses and pay distributions to its stockholders.

    At December 31, 1997 Cornerstone had $187.0 million outstanding of its
$350.0 million line of credit. The line of credit is available for general
corporate purposes and was repaid in full with the Company's secondary equity
offering in February 1998. The line of credit contains certain restrictive
covenants including; (i) a limitation on the Company's dividend to 90% of funds
from operations and 110% of cash available for distribution; (ii) total
liabilities to total property asset value cannot exceed 55%; (iii) adjusted
EBITDA to interest expense may not be less than 2.25 to 1.00; (iv) fixed charge
coverage may not be less than 1.75 to 1.00; and (v) total property asset value
to secured indebtedness may not be less than 2.50 to 1.00.

    Additionally, under the terms of its agreement with PGGM and DIHC,
Cornerstone may not borrow funds if such borrowing would increase the ratio of
the Company's total debt to market capitalization above 45%.

    Based upon its cash reserves and other sources of funds, Cornerstone has
sufficient liquidity to meet its cash requirements for the foreseeable future.

OTHER MATTERS.

    The Company is not aware of any environmental issues at any of its
properties. The Company believes it has sufficient insurance coverage at each of
its properties. The Company's leases with the majority of its tenants require
the tenants to pay most operating expenses and increases in common area
maintenance expenses, which reduces the Company's exposure to increases in costs
and operating expenses resulting from inflation.

    In the ordinary course of business, the Company is in the process of
acquiring new accounting and property management software that will eliminate
year 2000 software concerns at the corporate level. The new software is expected
to be installed by the fourth quarter of 1998. Management is in the process of
completing a survey with all of its property managers to make sure there are no
year 2000 issues at any of the property management firms that manage its
properties. Currently, Cornerstone is not aware of any year 2000 issues that
would have a material effect on the financial position, results of operations,
and liquidity of its business.

    Norwest Corporation and its subsidiary, Norwest Bank Denver N.A., tenants of
the Company, provided approximately 20%, 26%, and 31% of office and parking
rentals for the years ended December 31, 1997, 1996, and 1995, respectively.
Included in deferred tenant receivables is approximately $31,349,000 and
$28,014,000 due from Norwest Corporation at December 31, 1997 and 1996,
respectively.

    Four of the Company's 18 Properties are located in the Downtown Boston
market and account for approximately 29% of the Company's office and parking
rentals as of December 31, 1997. This concentration of assets makes the Company
particularly vulnerable to adverse changes in economic conditions in the Boston
metropolitan area. A significant decline in these economic conditions could have
a material adverse effect on the Company.

                                       47
<PAGE>
    During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130"), No. 131 "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"), and No. 132 "Employers' Disclosures About Pensions
and Other Postretirement Benefits" ("SFAS 132"), which are effective for fiscal
years beginning after December 15, 1997.

    SFAS 130 specifies the presentation and disclosure requirements for
reporting comprehensive income which includes those items which have been
formerly reported as a component of stockholders' equity. SFAS 131 establishes
the disclosure requirements for reporting segment information. SFAS 132 changes
the financial statement disclosure requirements for pensions and other
postretirement benefits.

    Management believes that, when adopted, SFAS 130, 131, and 132 will not have
a significant impact on the Company's financial statements.

SUBSEQUENT EVENTS.

    On January 5, 1998, the Company purchased the participation rights in the
cash flow and residual value of Tower 56 from the former participants for
307,692 shares of Common Stock. All cash flow and the residual value of Tower 56
will now inure to the Company.

    On January 13, 1998, the Company declared a dividend of $0.30 per common
share, payable on February 27, 1998 to all stockholders of record as of January
30, 1998.

    On January 20, 1998, the Company formed an UPREIT. The Company and its
subsidiaries transferred to the operating partnership, or entities wholly-owned
by the operating partnership, substantially all of the Company's Properties. The
Company is the sole general partner of the operating partnership and also holds
limited partnership interests therein. The purpose of forming an UPREIT
structure is to create an acquisition vehicle attractive to sellers whose sale
of properties to the Company in exchange for UPREIT units may be characterized
as a tax-deferrable capital contribution rather than a taxable sale.

    On January 28, 1998, the Company purchased Corporate 500 Centre in
Deerfield, Illinois. Constructed between 1986 and 1990, Corporate 500 Centre
consists of four Class A office buildings, comprising approximately 680,000
rentable square feet. The total purchase price of the Property was approximately
$150.0 million, approximately $15.0 million of which was paid in UPREIT units
priced at $18.50 per unit. The Company financed a portion of the costs to
acquire the Property with $51.0 million drawn under its Revolving Credit
Facility and an $80.0 million mortgage loan from Bankers Trust Company at an
interest rate of LIBOR plus 100 basis points. The mortgage loan will mature on
July 20, 2002. The Company has also entered into an interest rate swap agreement
with Bankers Trust Company that has effectively fixed the interest rate on the
mortgage loan at 6.63%.

    On February 6, 1998, the Company completed a secondary public offering of
14,375,000 shares of Common Stock at $18.25 per share. The shares were placed in
the United States through a syndicate of seven investment banks led by Merrill
Lynch & Co. Net proceeds to the Company were approximately $247.9 million
($262,344,000 gross proceeds less an underwriting discount of $13,728,125 and
expenses of approximately $750,000). The net proceeds were used to repay the
Company's acquisition line of credit and for working capital purposes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    See the Financial Statements included as a part hereof.

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

    None.

                                       48
<PAGE>
                                    PART III

    The information required to be included in Form 10-K in response to the
following items is to be included in the Company's Proxy Statement for its
Annual Meeting to be held on May 20, 1998, to be filed pursuant to Regulation
14A, and pursuant to applicable rules is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                                    PART IV

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

    The following documents are filed as part of this annual report:

<TABLE>
<CAPTION>
                                                                                                     PAGE NUMBER
                                                                                                    --------------
<S>                                                                                                 <C>
(a) Financial Statements and Financial Statement Schedules:
  (i) The Company:................................................................................             F-1
The following financial statements and report of independent accountants are filed herewith at the
 pages indicated:
Report of Independent Accountants.................................................................             F-2
Consolidated Balance Sheets--December 31, 1997 and 1996...........................................             F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995........             F-4
Consolidated Statements of Stockholders' Investment for the years ended December 31, 1997, 1996
 and 1995.........................................................................................             F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995........             F-6
Notes to Consolidated Financial Statements........................................................     F-7 to F-18
Schedule III......................................................................................    F-19 to F-26
Schedule IV.......................................................................................            F-27
</TABLE>

(b) Reports on Form 8-K:

    1.  Form 8-K/A dated January 22, 1997

         Item 7-- Financial Statements and Exhibits. Financial statements
                 reflecting the acquisition of Tower 56 and One Lincoln Centre.

    2.  Form 8-K dated January 29, 1997

         Item 5-- Other Events. Board of Directors approval to acquire 527
                 Madison Avenue for approximately $67 million

         Item 7-- Financial Statements and Exhibits. Agreement of Sale and
                 Purchase of 527 Madison Avenue

                                       49
<PAGE>
    3.  Form 8-K/A dated February 21, 1997

         Item 2-- Acquisition or Disposition of Assets. Clarification on the
                 Frick Building acquisition.

         Item 7-- Financial Statements and Exhibits. Clarification on the pro
                 forma financial statements of One Lincoln Centre and Tower 56.

    4.  Form 8-K/A dated February 24, 1997

         Item 7-- Financial Statements and Exhibits. Financial statements
                 reflecting the acquisition of 527 Madison Avenue.

    5.  Form 8-K/A dated March 10, 1997

         Amendment of the report of Ernst & Young LLP, Independent Auditors,
         contained in the Company's 8-K/A dated February 24, 1997.

    6.  Form 8-K dated July 28, 1997

         Item 5-- Other Events. Conversion of NYSTERS and RODAMCO preferred
                 stock.

         Item 7-- Financial Statements and Exhibits. Press release announcing
                 conversion of NYSTERS and RODAMCO preferred stock.

    7.  Form 8-K dated August 21, 1997

         Item 5-- Other Events. Agreement of Cornerstone Properties Inc. and
                 Dutch Institution Holding Company, Inc. to merge their trophy
                 office properties.

         Item 7-- Financial Statements and Exhibits. Press release announcing
                 agreement of Cornerstone Properties Inc. and Dutch Institution
                 Holding Company, Inc. to merge their trophy office properties
                 as well as supplemental information regarding the merger.

    8.  Form 8-K/A dated September 18, 1997

         Item 7-- Financial Statements and Exhibits. Certain combined financial
                 statements as of June 30, 1997 for One Ninety One Peachtree
                 Tower, Market Square Office Building, Five Hundred Boylston
                 Street Office Building, Two Twenty Two Berkeley Street Office
                 Building, Charlotte Office Tower, 200 Galleria, 99 Canal
                 Center, 11 Canal Center, Transpotomac Plaza, Building Five and
                 the Dearborn Land.

    9.  Form 8-K dated October 30, 1997

         Item 2-- Acquisition or Disposition of Assets. Shareholder approval of
                 Dutch Institutional Holding Company, Inc. Acquisition and
                 Acquisition of Dutch Institutional Holding Company, Inc.
                 Portfolio.

         Item 7-- Financial Statements and Exhibits. Press releases announcing
                 shareholder approval of Dutch Institutional Holding Company,
                 Inc. Acquisition and Acquisition of Dutch Institutional Holding
                 Company, Inc. Portfolio.

    10. Form 8-K dated December 3, 1997

         Item 5-- Other Events. Resignation of Dr. Rolf-E. Breuer as Chairman of
                 the Board and election of John Moody as Chairman of the Board.

         Item 7-- Financial Statements and Exhibits. Press release announcing
                 the resignation of Dr. Rolf-E. Breuer as Chairman of the Board
                 and election of John Moody as Chairman of the Board.

                                       50
<PAGE>
    11. Form 8-K dated December 19, 1997

         Item 7-- Financial Statements and Exhibits. Certain combined financial
                 statements as of September 30, 1997 for One Ninety One
                 Peachtree Tower, Market Square Office Building, Five Hundred
                 Boylston Street Office Building, Two Twenty Two Berkeley Street
                 Office Building, Charlotte Office Tower, 200 Galleria, 99 Canal
                 Center, 11 Canal Center, Transpotomac Plaza, Building Five and
                 the Dearborn Land.

    12. Form 8-K dated January 14, 1998

         Item 2-- Acquisition or Disposition of Assets. Acquisition of Sixty
                 State Street and Corporate 500 Centre.

         Item 7-- Financial Statements and Exhibits. Financial statements
                 reflecting the acquisition of Sixty State Street and Corporate
                 500 Centre. Press release announcing the acquisition of Sixty
                 State Street and Corporate 500 Centre.

    13. Form 8-K dated February 5, 1998

         Item 5-- Other Events. Pricing of public offering of 12.5 million
                 shares of common stock at $18.50 per share.

         Item 7-- Financial Statements and Exhibits. Press release announcing
                 the pricing of a public offering of 12.5 million shares of
                 common stock at $18.50 per share.

    14. Form 8-K dated March 27, 1998

         Item 7-- Financial Statements and Exhibits. Supplemental Information to
                 Fourth Quarter 1997 Earnings Release.

    15. Form 8-K dated March 27, 1998

         Item 5-- Other Events. Cornerstone's intent to acquire interests in two
                 California Properties. Cornerstone's fourth quarter and fiscal
                 year 1997 results.

         Item 7-- Financial Statements and Exhibits. Press releases announcing
                 Cornerstone's intent to acquire interests in two California
                 Properties and Cornerstone's fourth quarter and fiscal year
                 1997 results.

                                       51
<PAGE>
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S>                             <C>  <C>
                                CORNERSTONE PROPERTIES INC.
                                (Registrant)

                                /s/ JOHN S. MOODY
                                ---------------------------------------------
                                John S. Moody
                                CEO, DIRECTOR AND CHAIRMAN OF THE BOARD
</TABLE>

Dated: March 30, 1998

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

                                Chief Executive Officer,
      /s/ JOHN S. MOODY           Director and Chairman of
------------------------------    the Board
        John S. Moody             (Principal Executive
                                  Officer)

                                Chief Administrative
     /s/ THOMAS P. LOFTUS         Officer, Secretary and
------------------------------    Controller
       Thomas P. Loftus           (Principal Accounting
                                  Officer)

                                Senior Vice President and
     /s/ KEVIN P. MAHONEY         Chief Financial Officer
------------------------------    (Principal Financial
       Kevin P. Mahoney           Officer)

              */S/ CECIL D.
            CONLEE
------------------------------  Director
       Cecil D. Conlee

             */S/ GEORGE A.
            DAVIS
------------------------------  Director
       George A. Davis

                */S/ BLAKE
            EAGLE
------------------------------  Director
         Blake Eagle

        */S/ DR. KARL-LUDWIG
           HERMANN
------------------------------  Director
   Dr. Karl-Ludwig Hermann

              */S/ HANS C.
           MAUTNER
------------------------------  Director
       Hans C. Mautner

             */S/ DR. LUTZ
          MELLINGER
------------------------------  Director
      Dr. Lutz Mellinger

              */S/ GERALD
          RAUENHORST
------------------------------  Director
      Gerald Rauenhorst

                                       59
<PAGE>
<TABLE>
<C>                             <S>
           */S/ MICHAEL J.G.
            TOPHAM
------------------------------  Director
     Michael J.G. Topham

            */S/ DICK VAN DEN
             BOS
------------------------------  Director
       Dick van den Bos

            */S/ JAN VAN DER
            VLIST
------------------------------  Director
      Jan van der Vlist
</TABLE>

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

*   By John S. Moody, as Attorney-in-Fact for the persons indicated

Dated: March 30, 1998

                                       60
<PAGE>
                          CORNERSTONE PROPERTIES INC.

                                AND SUBSIDIARIES

                       CONSOLIDATED FINANCIAL STATEMENTS

                        AS OF DECEMBER 31, 1997 AND 1996

                            AND FOR THE YEARS ENDED

                        DECEMBER 31, 1997, 1996 AND 1995

                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Cornerstone Properties Inc.

    We have audited the consolidated financial statements and financial
statement schedules of Cornerstone Properties Inc. and Subsidiaries (the
"Company") as of December 31, 1997 and 1996, and for each of the three years in
the period ended December 31, 1997, listed in item 14(a)(i) of this Form 10-K.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cornerstone
Properties Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.

New York, New York                                      Coopers & Lybrand L.L.P.

February 24, 1998

                                      F-2
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                         1997         1996
                                                                                     ------------  ----------
<S>                                                                                  <C>           <C>
                                                                                        (DOLLAR AMOUNTS IN
                                                                                            THOUSANDS)
ASSETS
Investments, at cost: (Notes 1, 2 and 4)
  Land.............................................................................  $    260,542  $   68,395
  Buildings, leasehold interests and improvements..................................     1,559,085     612,567
  Mortgage notes receivable, inclusive of $13,065,000 unamortized premium..........       240,253      --
  Deferred lease costs.............................................................       127,645     118,700
                                                                                     ------------  ----------
                                                                                        2,187,525     799,662
  Less: Accumulated depreciation and amortization..................................       229,652     198,686
                                                                                     ------------  ----------

    Total investments..............................................................     1,957,873     600,976

Cash and cash equivalents (Note 1).................................................        24,730     114,803
Restricted cash (Note 3)...........................................................         1,903       4,426
Other deferred costs, net of accumulated amortization of $1,998,000 and
  $1,140,000.......................................................................         5,728       3,562
Deferred tenant receivables (Notes 1 and 11).......................................        38,531      34,747
Tenant and other receivables, net (Note 1).........................................         7,584       2,405
Notes receivable...................................................................         1,652       2,911
Other assets.......................................................................        13,480       2,350
                                                                                     ------------  ----------
TOTAL ASSETS.......................................................................  $  2,051,481  $  766,180
                                                                                     ------------  ----------
                                                                                     ------------  ----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Long-term debt, inclusive of $11,209,000 unamortized premium (Note 4)..............  $    706,178  $  400,142
Credit facility (Note 5)...........................................................       187,000      --
Accrued interest payable...........................................................         4,134       1,082
Accrued real estate taxes payable..................................................        13,401      13,222
Common Stockholders' distribution payable..........................................       --           12,366
Accounts payable and accrued expenses..............................................        18,363       6,468
Unearned revenue and other liabilities.............................................        10,986       9,095
                                                                                     ------------  ----------
TOTAL LIABILITIES..................................................................       940,062     442,375
                                                                                     ------------  ----------
Minority Interest (Note 1).........................................................        15,420     (17,478)
                                                                                     ------------  ----------
Commitments and Contingencies (Notes 2, 4, 5, 7 and 13)
Redeemable Preferred Stock; (1997-344,828; 1996-1,493,104) shares authorized;
  (1997-0; 1996-1,148,276) shares issued and outstanding; $166,500,000 redemption
  value (Note 6)...................................................................       --          162,743
                                                                                     ------------  ----------
Stockholders' Investment (Note 7)
  7% Cumulative Convertible Preferred Stock, $16.50 stated value; 15,000,000 shares
    authorized; 3,030,303 shares issued and outstanding............................        50,000      50,000
  Common Stock, no par value; 250,000,000 shares authorized; (1997-83,191,819;
    1996-20,609,754) shares issued and outstanding
Paid-in capital....................................................................     1,048,187     160,577
Accumulated deficit................................................................       --          (30,789)
Deferred compensation..............................................................        (2,188)     (1,248)
                                                                                     ------------  ----------
TOTAL STOCKHOLDERS' INVESTMENT.....................................................     1,095,999     178,540
                                                                                     ------------  ----------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT.....................................  $  2,051,481  $  766,180
                                                                                     ------------  ----------
                                                                                     ------------  ----------
</TABLE>

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

                                      F-3
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                   1997        1996        1995
                                                                                ----------  ----------  ----------
<S>                                                                             <C>         <C>         <C>
REVENUES
  Office and parking rentals..................................................  $  159,828  $  111,494  $   88,548
  Interest and other income...................................................      14,083       5,414       3,839
                                                                                ----------  ----------  ----------
      TOTAL REVENUES..........................................................     173,911     116,908      92,387
                                                                                ----------  ----------  ----------
EXPENSES
  Building operating expenses.................................................      35,962      24,578      19,233
  Real estate taxes...........................................................      25,560      19,610      12,297
  Interest expense............................................................      33,977      31,734      30,722
  Depreciation and amortization...............................................      30,978      24,317      22,572
  General and administrative..................................................       7,564       6,407       5,603
                                                                                ----------  ----------  ----------
      TOTAL EXPENSES..........................................................     134,041     106,646      90,427
                                                                                ----------  ----------  ----------
                                                                                    39,870      10,262       1,960
                                                                                ----------  ----------  ----------
OTHER INCOME (EXPENSES)
  Net gain (loss) on interest rate swaps (Note 8).............................          99       4,278      (7,672)
  Minority Interest...........................................................      (2,368)     (1,519)     (3,417)
                                                                                ----------  ----------  ----------
Income (loss) before extraordinary item.......................................      37,601      13,021      (9,129)
Extraordinary loss............................................................         (54)     (3,925)     (4,445)
                                                                                ----------  ----------  ----------
NET INCOME (LOSS).............................................................  $   37,547  $    9,096  $  (13,574)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------

INCOME APPLICABLE TO PREFERRED STOCK..........................................  $  (10,160) $   (5,153) $   (1,449)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK..................................  $   27,387  $    3,943  $  (15,023)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM PER COMMON SHARE......................  $     0.63  $     0.39  $    (0.67)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------

EXTRAORDINARY LOSS PER COMMON SHARE...........................................  $   --      $    (0.20) $    (0.27)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------

BASIC NET INCOME (LOSS) PER COMMON SHARE (NOTES 1 AND 9)......................  $     0.63  $     0.19  $    (0.94)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------

DILUTED NET INCOME (LOSS) PER COMMON SHARE (NOTES 1 AND 9)....................  $     0.63  $     0.19  $    (0.94)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
</TABLE>

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

                                      F-4
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                           COMMON STOCK          PREFERRED STOCK
                                      ----------------------  ----------------------
<S>                                   <C>          <C>        <C>          <C>        <C>           <C>            <C>
                                      OUTSTANDING   PAID-IN   OUTSTANDING   PAID-IN   ACCUMULATED     DEFERRED
                                        SHARES      CAPITAL     SHARES      CAPITAL     DEFICIT     COMPENSATION     TOTAL
                                      -----------  ---------  -----------  ---------  ------------  -------------  ---------
Balance, January 1, 1995............  13,240,500   $ 110,237      --       $  --       $  (26,311)    $  --        $  83,926
Common Stock Proceeds, net of $6,083
  in stock issuance costs...........   6,325,000      84,365      --          --           --            --           84,365
Preferred Stock Proceeds............      --          --       3,030,303      50,000       --            --           50,000
Restricted Stock Grants.............     186,713       2,670      --          --           --            (2,670)      --
Restricted Stock Grant Vesting......      --          --          --          --           --               434          434
Net Loss............................      --          --          --          --          (13,574)       --          (13,574)
Dividend Reinvestment,..............
  net of $150 in stock issuance
    costs...........................     207,302       2,690      --          --           --            --            2,690
Common Stock Distributions
  ($1.16/shr).......................      --         (18,485)     --          --           --            --          (18,485)
                                      -----------  ---------  -----------  ---------  ------------  -------------  ---------
BALANCE, DECEMBER 31, 1995..........  19,959,515   $ 181,477   3,030,303   $  50,000   $  (39,885)    $  (2,236)   $ 189,356
Common Stock issued for 10%
  Partnership purchase..............     349,650       5,000      --          --           --            --            5,000
Restricted Stock Grant Vesting......      --          --          --          --           --               988          988
Net Income..........................      --          --          --          --            9,096        --            9,096
Dividend Reinvestment, net of $212
  in stock issuance costs...........     300,589       3,804      --          --           --            --            3,804
Preferred Stock Distributions.......      --          (5,153)     --          --           --            --           (5,153)
Common Stock Distributions
  ($1.20/shr).......................      --         (24,551)     --          --           --            --          (24,551)
                                      -----------  ---------  -----------  ---------  ------------  -------------  ---------
BALANCE, DECEMBER 31, 1996..........  20,609,754   $ 160,577   3,030,303   $  50,000   $  (30,789)    $  (1,248)   $ 178,540
Common Stock Proceeds, net of
  $17,204 in stock issuance costs...  16,100,000     208,196      --          --           --            --          208,196
Preferred Stock Conversion..........  11,482,760     162,515      --          --           --            --          162,515
Dividend Reinvestment, net of $295
  in stock issuance costs...........     696,013      10,808      --          --           --            --           10,808
PGGM and DIHC Stock (Note 2)........  34,185,500     547,000      --          --           --            --          547,000
Restricted Stock Grants.............     107,292       1,761      --          --           --            (1,868)        (107)
Restricted Stock Grant Vesting......      --          --          --          --           --               928          928
Net Income..........................      --          --          --          --           37,547        --           37,547
Option Exercise.....................      10,500         150      --          --           --            --              150
Preferred Stock Distributions.......      --         (10,160)     --          --           --            --          (10,160)
Common Stock Distributions
  ($1.04/shr).......................      --         (32,660)     --          --           (6,758)       --          (39,418)
                                      -----------  ---------  -----------  ---------  ------------  -------------  ---------
BALANCE, DECEMBER 31, 1997..........  83,191,819   $1,048,187  3,030,303   $  50,000   $   --         $  (2,188)   $1,095,999
                                      -----------  ---------  -----------  ---------  ------------  -------------  ---------
                                      -----------  ---------  -----------  ---------  ------------  -------------  ---------
</TABLE>

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

                                      F-5
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

                         (DOLLAR AMOUNTS IN THOUSANDS)
                                   (NOTE 16)

<TABLE>
<CAPTION>
                                                                                   1997        1996        1995
                                                                                ----------  ----------  ----------
<S>                                                                             <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)...........................................................  $   37,547  $    9,096  $  (13,574)
  Adjustments to reconcile net income (loss) to net cash provided by operating
    activities:
    Depreciation and amortization.............................................      31,826      24,801      23,877
    Deferred compensation amortization........................................         928         988         434
    Unrealized (gain) loss on interest rate swaps.............................      --          (4,278)      7,672
    Net gain on interest rate swaps...........................................         (99)     --          --
    Extraordinary loss........................................................          54       3,925       4,446
    Unbilled rental revenue...................................................      (3,015)     (1,408)     (3,088)
    Increase (decrease) in accrued interest payable...........................       3,052      (3,245)     (3,142)
    Minority interest share of income.........................................       2,368       1,519       3,417
    Increase in tenant and other receivables and other assets.................     (16,920)     (2,461)       (564)
    Increase in accounts payable, accrued expenses and other liabilities......      10,181       5,585         558
                                                                                ----------  ----------  ----------
    Total adjustments.........................................................      28,375      25,426      33,610
                                                                                ----------  ----------  ----------
    Net cash provided by operating activities.................................      65,922      34,522      20,036
                                                                                ----------  ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to investment property............................................    (464,096)    (58,501)   (137,403)
  Repayment of notes receivable...............................................       1,259       1,242       2,068
  Loan to a property manager..................................................      --          --            (192)
                                                                                ----------  ----------  ----------
    Net cash used in investing activities.....................................    (462,837)    (57,259)   (135,527)
                                                                                ----------  ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock offering.........................................     225,400      --          90,448
  Proceeds from preferred stock offering......................................      --         140,000      50,000
  Borrowings under mortgage loans.............................................      --         116,000     239,100
  Borrowings (repayments) under credit facility...............................     187,000      --        (236,467)
  Repayment of term loan......................................................     (32,500)     --          --
  Repayments under mortgage loans.............................................      (1,094)    (98,384)     --
  Proceeds from dividend reinvestment plan....................................      11,104       4,016       2,840
  Net payments for swap terminations and prepayment costs.....................        (216)     (6,804)     (2,453)
  Decrease (increase) in restricted cash......................................       2,524         (33)        339
  Stock and debt issuance costs...............................................     (20,715)     (5,154)     (6,788)
  Distributions to minority partners..........................................      (2,717)     (2,503)     (3,970)
  Distributions to preferred stockholders.....................................     (10,160)     (5,153)     --
  Distributions to common stockholders........................................     (51,784)    (12,185)    (22,324)
                                                                                ----------  ----------  ----------
    Net cash provided by financing activities.................................     306,842     129,800     110,725
                                                                                ----------  ----------  ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..............................     (90,073)    107,063      (4,766)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................................     114,803       7,740      12,506
                                                                                ----------  ----------  ----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................  $   24,730  $  114,803  $    7,740
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
</TABLE>

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

                                      F-6
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995

1. NATURE OF COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE COMPANY'S BUSINESS

    Cornerstone Properties Inc. ("Cornerstone" or the "Company") is a
self-advised equity real estate investment trust ("REIT") which owns, through
subsidiaries, interests in 18 Class A office properties ("Properties")
encompassing approximately 10.3 million rentable square feet. The Company was
formed in May 1981 as ARICO America Realestate Investment Company, a Nevada
corporation, to invest in major commercial real estate projects in North
America.

PRINCIPLES OF CONSOLIDATION

    The accompanying financial statements include the accounts of Cornerstone,
its wholly-owned qualified REIT subsidiaries and controlled partnerships. NWC
Limited Partnership ("NWC"), Third and University Limited Partnership ("Third
Partnership"), Two Twenty Two Berkeley Venture ("222 Berkeley"), Five Hundred
Boylston West Venture ("500 Boylston") and One Ninety One Peachtree Associates
("191 Peachtree") have been consolidated since Cornerstone has a majority
interest in the economic benefits and is or has the right to become managing
general partner at its sole discretion. All significant intercompany balances
and transactions have been eliminated in consolidation.

INVESTMENT PROPERTY

    The costs of the buildings, garages, leasehold interests and improvements
are being depreciated on the straight-line method over their estimated useful
lives, ranging from 20 years for electrical and mechanical installations to 40
years for structural components. Tenant improvements are being amortized over
the terms of the related leases.

    Cornerstone and the controlled partnerships hold the Properties for
long-term investment and such investments are carried at cost less accumulated
depreciation. Whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable (such as a significant adverse
action by a regulator or a significant physical change in the property), the
Company's policy is to assess any impairment in value by making a comparison of
the current and projected cash flows of each property over its remaining useful
life (undiscounted and without interest charges) to the carrying amount of each
property. Such carrying amount would be adjusted, if necessary, to estimated
fair value to reflect the impairment in value of the property. No significant
adjustments have been made in the accompanying financial statements.

DEFERRED LEASE COSTS

    As an inducement to execute a lease, incentives are sometimes offered which
may include cash and/or other allowances. These incentives and other lease
costs, such as commissions, which are directly related to specific leases, are
deferred and amortized over the terms of the related leases. Marketing costs
(which include sales facility costs, model office costs, building models, etc.)
and leasing costs not related to specific leases, which were incurred during the
buildings' development stage, were deferred and are being amortized over their
expected benefit period of 10 years.

                                      F-7
<PAGE>
OTHER DEFERRED COSTS

    Costs incurred in the underwriting and issuance of long-term debt, revolving
lines of credit and investigating investments in real estate partnerships have
been deferred. The costs incurred in connection with the long-term debt are
being amortized over the term of the debt. Deferred organization and start-up
costs related to investments in real estate partnerships are being amortized
over a period of 60 months. As part of the October 27, 1997 acquisition (see
Note 2), the Company purchased several management contracts to which Dutch
Institutional Holding Company, Inc. ("DIHC") was a party. The price paid for
these contracts is being amortized over four years.

PREMIUM ON MORTGAGE NOTES

    The premium on mortgage notes is amortized using the effective interest
method over the life of the related mortgage note.

REVENUE RECOGNITION

    Rental revenue is recognized ratably as earned over the terms of the leases.
Deferred tenant receivables result from rental revenues which have been earned
but will be received in future periods as a result of rent concessions provided
to tenants and scheduled future rent increases. Expense reimbursement and
escalation income for the years ended December 31, 1997, 1996 and 1995 was
approximately $36,990,000, $28,230,000 and $20,716,000, respectively.

    An allowance for doubtful accounts of approximately $268,000 and $105,000
has been recorded at December 31, 1997 and 1996, respectively, relating to
tenant and other receivables. Bad debt expense totaled approximately $221,000
and $40,000 during 1997 and 1996, respectively.

INTEREST RATE SWAP AGREEMENTS

    The Company accounts for its interest rate swap agreements as hedges if the
swap is designated as a hedge and effectively reduces the exposure to the
Company of market interest rate changes. Changes in the market value of these
interest rate swap agreements are deferred and recognized in income at the
expiration or termination of the underlying debt. Forward interest rate swap
agreements that do not meet hedge criteria are accounted for using
mark-to-market accounting, recognizing any unrealized gain or loss on the
instrument in the period in which it is outstanding. When swaps are extinguished
at the same time as the underlying debt instrument, the cost to extinguish the
swap is treated as extraordinary gain or loss. When a swap remains in place
after the underlying instrument matures, it is accounted for on a mark-to-market
basis. The swap termination is accounted for as ordinary gain or loss when it is
extinguished with no underlying debt instrument in place.

FEDERAL INCOME TAXES

    No provision for United States Federal income taxes has been made in the
accompanying financial statements. Cornerstone has elected to be taxed as a REIT
under Sections 856-860 of the United States Internal Revenue Code. Under these
sections of the Internal Revenue Code, Cornerstone is permitted to deduct
dividends paid to stockholders in computing its taxable income. All taxable
earnings and profits of Cornerstone since inception have been distributed to the
stockholders.

RECLASSIFICATIONS

    Certain prior year amounts have been reclassified to conform to the 1997
financial statement presentation.

                                      F-8
<PAGE>
INCOME (LOSS) PER COMMON SHARE

    During the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
128"). SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share.

CASH AND CASH EQUIVALENTS

    For purposes of reporting cash flows, cash and cash equivalents include
investments with original maturities of three months or less from the date of
purchase. At December 31, 1997 and 1996, Cornerstone had on deposit with major
financial institutions substantially all of its cash and cash equivalents.
Cornerstone believes it mitigates its risk by investing in or through major
financial institutions. Recoverability of investments is dependent upon the
performance of the issuer.

MINORITY INTEREST

    Minority Interest represents the Company's partner's capital account
balances in NWC, Third Partnership, 222 Berkeley, 500 Boylston and 191
Peachtree. Debit balances in certain of these capital accounts originated
through special cash distributions in excess of the partner's share of income in
accordance with certain provisions of the respective partnership agreements.
Realizability of the debit balances is continually monitored by analyzing pro
forma sales proceeds calculations, whose terms are specified in the respective
partnership agreements.

RECENTLY ISSUED ACCOUNTING STANDARDS

    During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130"), No. 131 "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131") and No. 132 "Employers' Disclosures About Pensions and
Other Postretirement Benefits" ("SFAS 132"), which are effective for fiscal
years beginning after December 15, 1997.

    SFAS 130 specifies the presentation and disclosure requirements for
reporting comprehensive income which includes those items which have been
formerly reported as a component of stockholders' equity. SFAS 131 establishes
the disclosure requirements for reporting segment information. SFAS 132 changes
the financial statement disclosure requirements for pensions and other
postretirement benefits.

    Management believes that, when adopted, SFAS 130, 131 and 132 will not have
a significant impact on the Company's financial statements.

ESTIMATES AND RISKS

    The preparation of financial statements in conformity with generally
accepted accounting principles 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 reported amounts of revenues and expenses during the
reporting period. The most significant estimates and assumptions are related to
the recoverability and depreciable lives of investment property and the
recoverability of deferred tenant receivables. Actual results could differ from
those estimates.

    In the ordinary course of business, the Company is in the process of
acquiring new accounting and property management software that will eliminate
year 2000 software concerns at the corporate level. The new software is expected
to be installed by the fourth quarter of 1998. Management is in the process of
completing a survey with all of its property managers to make sure there are no
year 2000 issues at any of the property management firms that manage its
properties. Currently, Cornerstone is not aware of any year 2000 issues that
would have a material effect on the financial position or results of operations
of the Company.

                                      F-9
<PAGE>
2. PROPERTIES

    The following table summarizes Cornerstone's interest in real estate
investments at December 31, 1997:

<TABLE>
<CAPTION>
                                                                COMPLETED/   NET RENTABLE                   OWNERSHIP
PROPERTY                                   LOCATION              ACQUIRED    SQUARE FEET     % LEASED       INTEREST       NOTES
------------------------------  ------------------------------  -----------  ------------  -------------  -------------  ---------
<S>                             <C>                             <C>          <C>           <C>            <C>            <C>
One Norwest Center............  Denver, Colorado                      1983     1,188,000            99%           100%
Norwest Center................  Minneapolis, Minnesota                1988     1,118,000            98%            50%           A
Washington Mutual Tower.......  Seattle, Washington                   1988     1,155,000            97%            50%           B
125 Summer Street.............  Boston, Massachusetts            1989/1995       464,000            99%           100%
Tower 56......................  New York, New York               1983/1996       162,000            98%           100%
One Lincoln Centre............  Oakbrook Terrace, Illinois       1986/1996       297,000            96%           100%
The Frick Building............  Pittsburgh, Pennsylvania         1902/1996       341,000            89%           100%
527 Madison Avenue............  New York, New York               1986/1997       216,000           100%           100%           C
191 Peachtree Street..........  Atlanta, Georgia                 1991/1997     1,221,000            95%            80%       D,E,F
Market Square.................  Washington, D.C.                 1990/1997       689,000            95%            59%         D,G
500 Boylston Street...........  Boston, Massachussetts           1988/1997       715,000           100%          91.5%         D,H
222 Berkeley Street...........  Boston, Massachusetts            1991/1997       531,000           100%          91.5%         D,H
Charlotte Plaza...............  Charlotte, North Carolina        1982/1997       613,000            94%           100%           D
200 Galleria..................  Atlanta, Georgia                 1985/1997       433,000            91%           100%           D
11 Canal Center...............  Alexandria, Virginia             1986/1997        70,000            84%           100%           D
99 Canal Center...............  Alexandria, Virginia             1986/1997       138,000            99%           100%           D
TransPotomac Plaza 5..........  Alexandria, Virginia             1983/1997        96,000            99%           100%           D
Sixty State Street............  Boston, Massachusetts            1979/1997       823,000            98%           100%         I,J
</TABLE>

(A) While the Company's stated interest in the partnership which owns Norwest
    Center is 50%, its economic interest in the Property is significantly larger
    due to priority distributions it receives on its invested capital base. For
    the twelve months ended December 31, 1997, the Company's share of earnings
    and cash distributions from the partnership which owns Norwest Center was
    79.3%.

(B) While the Company's stated interest in the partnership which owns Washington
    Mutual Tower is 50%, its economic interest in the Property is significantly
    larger due to priority distributions it receives on its invested capital
    base. For the twelve months ended December 31, 1997, the Company received
    100% of the cash distributions from the partnership which owns Washington
    Mutual Tower.

(C) On February 14, 1997, Cornerstone, through its wholly-owned subsidiary,
    CStone-527 Madison, Inc., purchased 527 Madison Avenue in Midtown Manhattan,
    New York for approximately $67 million. The acquisition was financed with
    the proceeds from the Company's offering of Preferred Stock, completed in
    November 1996.

(D) On October 27, 1997, the Company acquired interests in nine Class A office
    properties comprising approximately 4.5 million rentable square feet in
    Alexandria, Virginia (3 properties), Atlanta (2 properties), Boston (2
    properties), Charlotte and Washington, D.C., as well as an undeveloped
    parcel of land in Chicago (collectively, the "DIHC Properties"). The Company
    acquired the DIHC Properties for a purchase price of approximately $1.06
    billion, consisting of approximately 34 million shares of Common Stock,
    approximately $260 million in cash and $250 million in promissory notes. The
    cash portion of the acquisition was financed with proceeds from the
    Company's IPO and $54 million from its Revolving Credit Facility. Financial
    results from October 27, 1997 through December 31, 1997 for the DIHC
    Properties are included in the accompanying consolidated financial
    statements.

(E) While the Company's stated interest in the partnership which owns 191
    Peachtree Street is 80%, its economic interest is significantly larger since
    it has acquired the first mortgage note on the property in the amount of
    $145 million which earns interest at 9.375% and will receive a priority
    distribution on its acquired capital base. In addition, in 1996 and 1997,
    the partner in the transaction, CH Associates, Ltd., received an annual
    incentive distribution of $250,000, which, the Company expects, it will
    continue to receive under the partnership agreement through February 28,
    2000, with the Company receiving the remainder of the cash flow of the
    property.

(F) The partnership which owns 191 Peachtree Street has a ground lease agreement
    for a portion of the land upon which the project has been constructed. The
    agreement requires annual payments of $5,000

                                      F-10
<PAGE>
    through January 31, 1998, $45,000 through January 31, 2002 and $75,000
    through January 31, 2008. Thereafter, the annual rent increases $2,500 per
    year until the expiration date of January 31, 2087. The partnership records
    ground rental expense relating to this agreement on a straight-line basis.
    The ground lease is renewable for an additional 99 years.

(G) At December 31, 1997, the Company owned the two loans on Market Square. In
    January 1998, the Company acquired partnership interests with a stated
    interest of approximately 59% in the partnerships which own Market Square
    with the option to purchase an additional 1%. The Company's economic
    interest is significantly larger since it has acquired the first mortgage
    note on the property in the amount of $181 million which earns interest at
    9.75% and will receive a priority distribution on its acquired capital base.
    In addition, the Company acquired a "buffer loan", with accrued principal
    and interest of $46.2 million, which accrues interest at a rate of 11% per
    annum and is payable from cash flow, refinancing or sales proceeds from
    Market Square in excess of the first mortgage. During 1996, the Company
    received 100% of the cash flow from the property.

(H) Distributions of cash flow and sales and refinancing proceeds are shared in
    proportion to the Company's 91.5% partnership interest and Hines Interest
    Limited Partnership and/or its affiliates' ("Hines") 8.5% partnership
    interest.

(I) On December 31, 1997, Cornerstone purchased the second mortgage on Sixty
    State Street located in the heart of Boston's Central Business District. The
    mortgage is a cash flow mortgage through which all the economic
    benefits/risks (subject to the first mortgage) will inure to the Company.
    The Company will control all major decisions regarding management and
    leasing. The total purchase price for the second mortgage was $131.5
    million. The $78.4 million first mortgage on the property has been recorded
    by the Company as an $89.6 million liability as a result of its above-market
    interest rate. Cornerstone will account for the transaction as an equity
    investment in real estate.

(J) The second mortgage, which the Company holds, relates only to the
    improvements on Sixty State Street in Boston. The ground under Sixty State
    Street is leased to the leasehold owner, Marshall Field, through December
    28, 2067. The lease payments on the ground lease are $398,896 per annum
    throughout the term.

    The future minimum lease payments to be received by the Company under
noncancellable operating leases as of December 31, 1997 are as follows (Dollar
amounts in thousands):

<TABLE>
<CAPTION>
<S>                                                               <C>
1998............................................................  $ 178,979
1999............................................................    172,376
2000............................................................    162,125
2001............................................................    150,950
2002............................................................    133,018
Thereafter......................................................    642,082
                                                                  ---------
Total...........................................................  $1,439,530
                                                                  ---------
                                                                  ---------
</TABLE>

3. RESTRICTED CASH

    Restricted cash is being held by escrow agents for real estate taxes and
insurance on certain mortgage loans.

                                      F-11
<PAGE>
4. LONG-TERM DEBT

    The following table sets forth certain information regarding the
consolidated debt obligations of the Company as of December 31, 1997, including
mortgage obligations relating to the Properties. All of this debt, with the
exception of the Convertible Promissory Note due 2001, is nonrecourse to the
Company. However, notwithstanding the nonrecourse indebtedness, the lender may
have the right to recover deficiencies from the Company in certain
circumstances, including fraud, misappropriation of funds and environmental
liabilities.

<TABLE>
<CAPTION>
                                                      INTEREST    MATURITY     PREPAYMENT
PROPERTY                             AMORTIZATION       RATE        DATE       PROVISIONS     12/31/97     12/31/96
----------------------------------  --------------  ------------  ---------  --------------  -----------  -----------
<S>                                 <C>             <C>           <C>        <C>             <C>          <C>
Convertible Promissory Note due     Interest only
  2001(A).........................                  8.11%max(B)   Jan-2001   Not prepayable  $12,926,000  $12,926,000
One Norwest Center................  30 year         7.50          Aug-2001   (C)              96,780,000   97,706,000
Norwest Center....................  Interest only   8.74          Dec-2005   Not prepayable  110,000,000  110,000,000
Washington Mutual Tower...........  Interest only   7.53          Nov-2005   (D)              79,100,000   79,100,000
                                    Interest
125 Summer Street.................  only(E)         7.20          Jan-2003   (F)              50,000,000   50,000,000
Tower 56..........................  30 year         7.67          May-2003   (G)              17,742,000   17,910,000
Dearborn Land(H)..................  Interest only   0.00(I)       Oct-2000   Not prepayable   10,000,000      --
TransPotomac Plaza 5 and Charlotte  Interest only
  Plaza(H)........................                  7.28          Oct-2000   Not prepayable   55,000,000      --
527 Madison Avenue and One Lincoln  Interest only
  Centre(H).......................                  7.47          Oct-2004   Not prepayable   65,000,000      --
Market Square(J) and 200            Interest only
  Galleria(H).....................                  7.54          Oct-2007   Not prepayable  120,000,000      --
Sixty State Street(K).............  30 year         6.84          Jan-2005   (L)              89,630,000      --
Corporate(M)......................  Interest only   5.00                                         --        32,500,000
                                                                                             -----------  -----------
                                                                                             $706,178,000 $400,142,000
                                                                                             -----------  -----------
</TABLE>

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

(A) The lender, Hines, has the right to convert the note into common stock at a
    conversion price of $14.30 per share. At maturity, the Company is entitled
    to repay the principal of the note with common stock priced at the lesser of
    $14.30 per share or the then existing share price.

(B) Lesser of 30-day LIBOR plus 0.5% or 8.11%.

(C) No prepayment until July 24, 1998. From July 24, 1998 through July 23, 2000,
    prepayment fee is greater of 1% of outstanding principal balance or Treasury
    Yield Maintenance (as defined). Beginning July 24, 2000, prepayment fee is
    Treasury Yield Maintenance. The loan may be repaid at par during last 90
    days of loan.

(D) No prepayment rights through September 30, 1998, prepayable thereafter, with
    a prepayment fee of the greater of: (1) 1.0% of the outstanding principal
    balance or (2) Treasury Yield Maintenance (as defined). Prepayment without
    fee for the six months prior to the maturity date.

(E) Interest only payments through January 1, 2001, with a 25-year amortization
    schedule thereafter.

(F) Beginning July 1, 1999, prepayment fee is greater of Treasury Yield
    Maintenance or 1% of outstanding principal balance. Prepayment without fee
    on or after three months prior to maturity date.

(G) Open to prepayment after December 31, 1999 with a prepayment fee of greater
    of 1.0% of principal balance or Treasury Yield Maintenance (as defined).
    Prepayment without fee during the three months prior to the maturity date.

(H) The four notes arising from the acquisition of DIHC are cross-collateralized
    having the effect of forming a "collateral pool" for the underlying notes.

(I) The interest rate on the loan will increase to 7.28% upon the sale of the
    Dearborn Land.

(J) The collateral for this loan is a pledge of the $181 million first mortgage
    loan on Market Square which the Company purchased from Stichting
    Pensioenfonds Voor de Gezondheid Geestelijke en Maatschappelijke Belangen
    ("PGGM").

(K) While the face amount of the loan is $78,420,000, since the interest rate is
    9.5%, the Company has recorded the debt at $89,630,000, which is the market
    value of the loan at the time of the closing based upon a market interest
    rate for similar quality loans of 6.84%.

(L) Beginning February 1, 2000, the prepayment fee is equal to the greater of 2%
    or Treasury Yield Maintenance (as defined). The 2% maximum is reduced by
    0.25% per annum thereafter until it reaches 1%. The loan is prepayable
    during the last 90 days.

(M) On March 19, 1997, as required under the terms of the agreement, this term
    loan was repaid with proceeds from the Company's IPO.

                                      F-12
<PAGE>
    The combined aggregate amount of maturities for all long-term borrowings for
1998 through 2002 are $0, $0, $65,000,000, $105,651,000 and $0, respectively.

    Since most of the long term debt is property related, there are restrictive
covenants that limit the total amount of indebtedness that can be placed on
individual properties.

5. CREDIT FACILITY

    The Company has a $350 million Revolving Credit Facility with Bankers Trust
Company and The Chase Manhattan Bank for acquisitions and general working
capital purposes as well as the issuance of letters of credit. The interest rate
on the line of credit depends on the Company's leverage ratio at the time of
borrowing and will be at a spread of 1.10% to 1.40% over LIBOR or the Prime Rate
at the borrowers option. The letters of credit will be priced at the applicable
Eurodollar credit spread. The line of credit expires on October 27, 2000. As of
December 31, 1997, $187 million of the credit line was outstanding at a rate of
approximately 8.12%. The line of credit contains certain restrictive covenants
including; (i) a limitation on the Company's dividend to 90% of funds from
operations and 110% of cash available for distribution; (ii) total liabilities
to total property asset value cannot exceed 55%; (iii) adjusted EBITDA to
interest expense may not be less than 2.25 to 1.00; (iv) fixed charge coverage
may not be less than 1.75 to 1.00; and (v) total property asset value to secured
indebtedness may not be less than 2.50 to 1.00.

6. REDEEMABLE PREFERRED STOCK

    On July 25, 1997, the Redeemable Preferred shares were converted into
11,482,760 shares of common stock. The contractual conversion was based upon
exceeding a $16.00 average common share price for a period of twenty days.

7. STOCKHOLDERS' INVESTMENT

    The 7% Cumulative Convertible Preferred Stock is convertible into common
stock at $16.50 per share at any time after August 4, 2000.

    On April 22, 1997, Cornerstone completed its initial U.S. public offering
("IPO") of 16.1 million shares of common stock at a price of $14 per share for
gross proceeds of $225.4 million.

    The following tables summarize the stock options and restricted stock grants
for certain officers of the Company as of December 31, 1997:

<TABLE>
<CAPTION>
STOCK OPTIONS
<S>                     <C>            <C>            <C>                     <C>          <C>
                           OPTIONS
                           GRANTED       EXERCISE
                           (NO. OF         PRICE                                OPTIONS      OPTIONS
    DATE OF GRANT          SHARES)      (PER SHARE)          VESTING          EXERCISABLE   EXERCISED
----------------------  -------------  -------------  ----------------------  -----------  -----------
June, 1995............      787,500      $   14.30    20%/yr, 10yr term          304,500       10,500
March, 1997...........      880,000      $   14.50    20%/yr, 10yr term                0            0
November, 1997........       70,000      $   18.44    20%/yr, 10yr term                0            0
</TABLE>

                                      F-13
<PAGE>

<TABLE>
<CAPTION>
RESTRICTED STOCK GRANTS
<S>              <C>            <C>              <C>
                    SHARES
                    GRANTED     VALUE AT GRANT
                    (NO. OF        DATE (PER
 DATE OF GRANT      SHARES)         SHARE)                         VESTING (A)
---------------  -------------  ---------------  ------------------------------------------------

August, 1995         167,622       $   14.30     The grant will fully vest with respect to
                                                 13.333% on June 30, 1996, 1997, 1998, 1999 and
                                                 with respect to 46.668% on June 30, 2000.

March, 1997          100,000       $   16.40     The grant will fully vest with respect to
                                                 13.333% on June 30, 1998, 1999, 2000, 2001 and
                                                 with respect to 46.668% on June 30, 2002.

November, 1997        12,500       $   18.44     The grant will fully vest with respect to
                                                 13.333% on June 30, 1998, 1999, 2000, 2001 and
                                                 with respect to 46.668% on June 30, 2002.
</TABLE>

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

(A) Deferred compensation of approximately $4,265,000 is being amortized
    according to the respective amortization schedule for each vesting period
    noted above, with the unamortized balance shown as a deduction from
    stockholders' investment. Regular dividends are paid on restricted stock.

    The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Accordingly, no compensation cost has been
recognized for the options described above since the exercise price equaled the
fair value at the grant date. Had compensation cost for these options been
determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net income and net income per common
share would have been reduced to the following pro forma amounts (Dollar amounts
in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                                                     NET INCOME PER
                                                                                       NET INCOME     COMMON SHARE
                                                                                       -----------  -----------------
<S>                                                                                    <C>          <C>

Year ended December 31, 1997.........................................................   $  36,887       $    0.61

Year ended December 31, 1996.........................................................   $   8,673       $    0.17
</TABLE>

    The Company has computed the value of all stock options using the
Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                                                                                 1997       1996
                                                                                               ---------  ---------

<S>                                                                                            <C>        <C>
ASSUMPTIONS
---------------------------------------------------------------------------------------------

Risk-free interest rate......................................................................  6.56%      6.31%

Assumed dividend yield.......................................................................  7.50%      7.50%

Expected term................................................................................  6 years    6 years

Assumed volatility...........................................................................  10.0%      10.0%
</TABLE>

8. NET GAIN ON INTEREST RATE SWAPS

    The Company had an outstanding swap agreement that was terminated on January
16, 1997 for a total cost of $170,000 resulting in a realized gain of $99,000.

                                      F-14
<PAGE>
9. NET INCOME (LOSS) PER COMMON SHARE

    Net income (loss) per common share for 1995 and 1996 was restated to reflect
the adoption of SFAS 128. The table sets forth the calculation of income (loss)
per common share for 1997, 1996 and 1995 (Dollar amounts in thousands, except
per share amounts):

<TABLE>
<CAPTION>
                                                                1997                   1996                   1995
                                                       ----------------------  --------------------  ----------------------

<S>                                                    <C>         <C>         <C>        <C>        <C>         <C>
                                                         BASIC      DILUTED      BASIC     DILUTED     BASIC      DILUTED
                                                       ----------  ----------  ---------  ---------  ----------  ----------

Proceeds upon exercise of options....................  $   --      $   25,162  $  --      $  12,334  $   --      $   12,334

Market price of shares average for the respective
  year...............................................  $   --      $    17.13  $  --      $   14.36  $   --      $    15.26

Treasury shares that could be repurchased
  (options)..........................................      --           1,469     --            859      --             808

Option shares outstanding............................      --           1,727     --            863      --             863

Weighted common stock equivalent shares (Excess
  shares under option over Treasury shares that could
  be repurchased)....................................      --             236     --              4      --              54

Weighted average common shares outstanding...........      43,572      43,572     20,411     20,411      15,910      15,910
                                                       ----------  ----------  ---------  ---------  ----------  ----------

Adjusted weighted average common shares
  outstanding........................................      43,572      43,808     20,411     20,415      15,910      15,964

Net income (loss) for the period.....................  $   37,547  $   37,547  $   9,096  $   9,096  $  (13,574) $  (13,574)

Income applicable to preferred stock.................  $  (10,160) $  (10,160) $  (5,153) $  (5,153) $   (1,449) $   (1,449)
                                                       ----------  ----------  ---------  ---------  ----------  ----------

Net income (loss) available to common shares.........  $   27,387  $   27,387  $   3,943  $   3,943  $  (15,023) $  (15,023)

Income (loss) per common share.......................  $     0.63  $     0.63  $    0.19  $    0.19  $    (0.94) $    (0.94)
</TABLE>

10. RETIREMENT PLANS

    Effective July 1, 1995, the eligible employees of the Company participate in
a noncontributory age-weighted profit sharing plan. The Company's contribution
to such plan was approximately $190,200 and $91,200 for the years ended December
31, 1997 and 1996, respectively.

    Effective July 1, 1995, the eligible employees of the Company also
participate in a contributory savings plan 401(k). Under the plan, the Company
matches contributions made by eligible employees based on a percentage of the
employee's salary. The Company will match 100% of contributions up to 5% of such
employee's salary with an annual maximum matching contribution of $4,000 per
employee. The Company's matching contribution was approximately $52,600 and
$46,000 for the years ended December 31, 1997 and 1996, respectively.

                                      F-15
<PAGE>
11. CONCENTRATION

    Norwest Corporation and its subsidiary, Norwest Bank Denver N.A., tenants of
the Company, provided approximately 20%, 26% and 31% of office and parking
rentals for the years ended December 31, 1997, 1996 and 1995, respectively.
Included in deferred tenant receivables is approximately $31,349,000 and
$28,014,000 due from Norwest Corporation at December 31, 1997 and 1996,
respectively.

    Four of the Company's 18 Properties are located in the Downtown Boston
market and account for approximately 29% of the Company's office and parking
revenues as of December 31, 1997. This concentration of assets makes the Company
particularly vulnerable to adverse changes in economic conditions in the Boston
metropolitan area. A significant decline in these economic conditions could have
a material adverse effect on the Company.

12. RELATED PARTY TRANSACTIONS

    The Company has entered into $250 million of mortgage debt with two of its
major stockholders, DIHC and PGGM, as further described in Note 4.

13. COMMITMENTS AND CONTINGENCIES

    In the ordinary course of business, the Company is subject to tenant and
property related claims. It is the opinion of management, after consultation
with outside counsel, that the resolution of these claims will not have a
material effect on the financial position or results of operations of the
Company.

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

    Cornerstone is required to disclose the fair value of financial instruments
for which it is practicable to estimate that value. Except for the items noted
below, the fair value of the Company's financial instruments approximates their
carrying values at December 31, 1997:

NOTES RECEIVABLE

    The fair value of the note receivable at December 31, 1997 is approximately
$1,564,000 based on the present value of expected future note payments using a
market discount rate of 6.57%.

LONG-TERM DEBT

    The Company determines the fair value based on the discounted future cash
flows at a discount rate that approximates the Company's effective current
borrowing rate:

<TABLE>
<CAPTION>
                                                                             12/31/97        12/31/97
                                                                            FAIR VALUE    CARRYING VALUE
                                                                           -------------  --------------
<S>                                                                        <C>            <C>
One Norwest Center.......................................................  $  99,504,000   $ 96,780,000
Norwest Center...........................................................    123,701,000    110,000,000
Washington Mutual Tower..................................................     82,423,000     79,100,000
125 Summer Street........................................................     50,842,000     50,000,000
Tower 56.................................................................     18,507,000     17,742,000
TransPotomac Plaza 5 and Charlotte Plaza.................................     56,671,000     55,000,000
527 Madison Avenue and One Lincoln Centre................................     68,070,000     65,000,000
Market Square and 200 Galleria...........................................    127,915,000    120,000,000
</TABLE>

                                      F-16
<PAGE>
15. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

    The following selected pro forma operating data is presented as if the
offerings, sales and conversions of the various securities sold by the Company
(and the application of the proceeds thereof) and the various acquisitions of
the Company that occurred after January 1 of the respective fiscal year had
occurred at January 1 of the respective fiscal year. The pro forma financial
information is presented for informational purposes only and may not be
indicative of results that would have actually occurred had the aforementioned
transactions been consummated at the date indicated. Also, they may not be
indicative of the results that may be achieved in the future.

<TABLE>
<CAPTION>
DECEMBER 31,                                                                  1997            1996
-----------------------------------------------------------------------  --------------  --------------
<S>                                                                      <C>             <C>
Pro forma total revenues...............................................  $  322,276,000  $  315,940,000
Pro forma net income before extraordinary items........................      85,158,000      81,687,000
Pro forma net income...................................................      85,104,000      77,762,000
Pro forma basic and diluted net income per common share................            0.83            0.78
</TABLE>

16. SUPPLEMENTAL CASH FLOW INFORMATION

    Cash paid for interest was approximately $30,204,000, $34,590,000 and
$32,609,000 for the years ended December 31, 1997, 1996 and 1995, respectively.

NON-CASH INVESTING AND FINANCING ACTIVITIES

    On October 27, 1997, the Company acquired the DIHC Properties for a purchase
price of approximately $1.06 billion, consisting of approximately 34 million
shares of Common Stock at $16.00 per share, approximately $260 million in cash
and $250 million in promissory notes. The Company also recorded a minority
interest of $33 million in connection with this acquisition.

17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

    (Dollar amounts in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                                         QUARTER ENDED
                                                       --------------------------------------------------
<S>                                                    <C>           <C>           <C>        <C>
1997                                                   DECEMBER 31   SEPTEMBER 30   JUNE 30    MARCH 31
                                                       ------------  ------------  ---------  -----------
Revenues.............................................   $   62,242    $   38,414   $  38,268   $  34,987
Income before extraordinary item.....................       15,881         8,076       8,008       5,636
Extraordinary loss...................................       --            --             (28)        (26)
Net income...........................................       15,881         8,076       7,980       5,610
Per share data:
  Income before extraordinary item...................         0.26          0.18        0.12        0.07
  Basic net income per common share..................         0.26          0.18        0.12        0.07
  Diluted net income per common share................         0.26          0.18        0.12        0.07

1996
Revenues.............................................   $   32,145    $   29,001   $  28,338   $  27,424
Income before extraordinary item.....................        2,185         1,979       1,876       6,981
Extraordinary loss...................................         (139)       (3,786)     --          --
Net income (loss)....................................        2,046        (1,807)      1,876       6,981
Per share data:
  Income before extraordinary item...................        (0.01)         0.05        0.05        0.30
  Extraordinary loss.................................        (0.02)        (0.18)     --          --
  Basic net income per common share..................        (0.03)        (0.13)       0.05        0.30
  Diluted net income per common share................        (0.03)        (0.13)       0.05        0.30
</TABLE>

                                      F-17
<PAGE>
18. SUBSEQUENT EVENTS

    On January 5, 1998, the Company purchased the participation rights in the
cash flow and residual value of Tower 56 from the former participants for
307,692 shares of Common Stock. All cash flow and the residual value of Tower 56
will now inure to the Company.

    On January 13, 1998, the Company declared a dividend of $0.30 per common
share, payable on February 27, 1998 to all stockholders of record as of January
30, 1998.

    On January 20, 1998, the Company converted to an umbrella partnership real
estate investment trust ("UPREIT"). The Company and its subsidiaries transferred
to the operating partnership, or entities wholly-owned by the operating
partnership, substantially all of the Company's Properties. The Company is the
sole general partner of the operating partnership and also holds limited
partnership interests therein. The purpose of forming an UPREIT structure is to
create an acquisition vehicle attractive to sellers whose sale of properties to
the Company in exchange for UPREIT units may be characterized as a
tax-deferrable capital contribution rather than a taxable sale.

    On January 28, 1998, the Company purchased Corporate 500 Centre in
Deerfield, Illinois. Constructed between 1986 and 1990, Corporate 500 Centre
consists of four Class A office buildings, comprising approximately 680,000
rentable square feet. The total purchase price of the Property was approximately
$150 million, approximately $15 million of which was paid in UPREIT units priced
at $18.50 per unit. The Company financed a portion of the costs to acquire the
Property with $51 million drawn under its Revolving Credit Facility and an $80
million mortgage loan from Bankers Trust Company at an interest rate of LIBOR
plus 100 basis points. The mortgage loan will mature on July 20, 2002. The
Company has also entered into an interest rate swap agreement with Bankers Trust
Company that has effectively fixed the interest rate on the mortgage loan at
6.63%.

    On February 6, 1998, the Company completed a secondary public offering of
14,375,000 shares of Common Stock at $18.25 per share. The shares were placed in
the United States through a syndicate of seven investment banks led by Merrill
Lynch & Co. Net proceeds to the Company were approximately $247.9 million
($262,344,000 gross proceeds less an underwriting discount of $13,728,125 and
expenses of approximately $750,000). The net proceeds were used to repay the
Company's acquisition line of credit and for working capital purposes.

                                      F-18
<PAGE>
                          CORNERSTONE PROPERTIES INC.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                  SCHEDULE III
                               DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                                               COLUMN D
                                                                            --------------            COLUMN E
                                                       COLUMN C                             -----------------------------
                                             -----------------------------       COST
                                                                             CAPITALIZED    GROSS AMOUNT AT WHICH CARRIED
                                                INITIAL COST TO COMPANY     SUBSEQUENT TO        AT CLOSE OF PERIOD
          COLUMN A              COLUMN B     -----------------------------   ACQUISITION    -----------------------------
----------------------------  -------------                  BUILDINGS &    --------------                  BUILDINGS &
        DESCRIPTION           ENCUMBRANCES       LAND       IMPROVEMENTS     IMPROVEMENTS       LAND       IMPROVEMENTS
----------------------------  -------------  ------------  ---------------  --------------  ------------  ---------------
<S>          <C>              <C>            <C>           <C>              <C>             <C>           <C>
Land         One Norwest                     $  2,900,000                    $    310,494   $  3,210,494
             Center
Buildings &  One Norwest       $96,780,000                      12,903,000    124,686,288                     137,589,288
Imp.         Center
Def. Lease   One Norwest                                         2,583,000     19,577,093                      22,160,093
Costs        Center
                                             ------------  ---------------  --------------  ------------  ---------------
                                                2,900,000       15,486,000    144,573,875      3,210,494      159,749,381
                                             ------------  ---------------  --------------  ------------  ---------------
Land         Norwest Center                    18,000,000                                     18,000,000
Buildings &  Norwest Center    110,000,000                      32,620,255    108,406,611                     141,026,866
Imp.
Def. Lease   Norwest Center                                        992,691     45,812,922                      46,805,613
Costs
                                             ------------  ---------------  --------------  ------------  ---------------
                                               18,000,000       33,612,946    154,219,533     18,000,000      187,832,479
                                             ------------  ---------------  --------------  ------------  ---------------
Land         Washington                        21,166,947                           6,108     21,173,055
             Mutual Tower
Buildings &  Washington         79,100,000                      38,851,336    106,489,349                     145,340,685
Imp.         Mutual Tower
Def. Lease   Washington                                          4,301,522     44,953,536                      49,255,058
Costs        Mutual Tower
                                             ------------  ---------------  --------------  ------------  ---------------
                                               21,166,947       43,152,858    151,448,993     21,173,055      194,595,743
                                             ------------  ---------------  --------------  ------------  ---------------

<CAPTION>

                                                                            COLUMN I
                                                                         --------------
                                                                         LIFE ON WHICH
                                                                          DEPRECIATION
                                COLUMN F       COLUMN G       COLUMN H         IN
          C                   ------------  ---------------  ----------  LATEST INCOME
-----------                   ACCUMULATED       DATE OF         DATE     STATEMENTS IS
        DES       TOTAL       DEPRECIATION   CONSTRUCTION     ACQUIRED      COMPUTED
-----------  ---------------  ------------  ---------------  ----------  --------------
<S>          <C>              <C>           <C>              <C>         <C>
Land         $     3,210,494                                    1988

Buildings &  $   137,589,288    51,800,144          1981     1981-1995    20-35 Years
Imp.
Def. Lease   $    22,160,093    18,524,045                   1981-1995    05-10 Years
Costs
             ---------------  ------------
                 162,959,875    70,324,189
             ---------------  ------------
Land         $    18,000,000                                    1986
Buildings &  $   141,026,866    41,353,569          1986     1986-1995    20-35 Years
Imp.
Def. Lease   $    46,805,613    31,079,183                   1986-1995    10-20 Years
Costs
             ---------------  ------------
                 205,832,479    72,432,752
             ---------------  ------------
Land         $    21,173,055                                 1986-1987

Buildings &  $   145,340,685    37,414,949          1986     1986-1995    08-40 Years
Imp.
Def. Lease   $    49,255,058    36,070,337                   1986-1995    01-18 Years
Costs
             ---------------  ------------
                 215,768,798    73,485,286
             ---------------  ------------
</TABLE>

                                      F-19
<PAGE>
<TABLE>
<S>          <C>              <C>            <C>           <C>              <C>             <C>           <C>
CORNERSTONE
PROPERTIES
INC.
REAL ESTATE
AND
ACCUMULATED
DEPRECIATION
SCHEDULE
III
(CONTINUED)
DECEMBER
31, 1997

<CAPTION>
                                                                               COLUMN D
                                                                            --------------            COLUMN E
                                                       COLUMN C                             -----------------------------
                                             -----------------------------       COST
                                                                             CAPITALIZED    GROSS AMOUNT AT WHICH CARRIED
                                                INITIAL COST TO COMPANY     SUBSEQUENT TO        AT CLOSE OF PERIOD
          COLUMN A              COLUMN B     -----------------------------   ACQUISITION    -----------------------------
----------------------------  -------------                  BUILDINGS &    --------------                  BUILDINGS &
        DESCRIPTION           ENCUMBRANCES       LAND       IMPROVEMENTS     IMPROVEMENTS       LAND       IMPROVEMENTS
----------------------------  -------------  ------------  ---------------  --------------  ------------  ---------------
<S>          <C>              <C>            <C>           <C>              <C>             <C>           <C>
Land         125 Summer                       15,750,000                                     15,750,000
             Street
Buildings &  125 Summer        50,000,000                      89,250,000      1,029,087                      90,279,087
Imp.         Street
Def. Lease   125 Summer                                                        2,528,067                       3,842,555
Costs        Street
                                            ------------  ---------------  --------------  ------------  ---------------
                                              15,750,000       89,250,000      3,557,154     15,750,000       94,121,642
                                            ------------  ---------------  --------------  ------------  ---------------
Land         Tower 56                          5,528,324                                      5,528,324
Buildings &  Tower 56          17,742,000                      25,202,676      2,364,938                      27,567,614
Imp.
Def. Lease   Tower 56                                                            426,598                       1,092,278
Costs
                                            ------------  ---------------  --------------  ------------  ---------------
                                               5,528,324       25,202,676      2,791,536      5,528,324       28,659,892
                                            ------------  ---------------  --------------  ------------  ---------------
Land         One Lincoln                       2,192,079                                      2,192,079
             Centre
Buildings &  One Lincoln       65,000,000(  (b)                47,757,921        789,322                      48,547,243
Imp.         Centre
Def. Lease   One Lincoln                                                         426,598                         565,521
Costs        Centre
                                            ------------  ---------------  --------------  ------------  ---------------
                                               2,192,079       47,757,921      1,215,920      2,192,079       49,112,764
                                            ------------  ---------------  --------------  ------------  ---------------

<CAPTION>
CORNERSTONE
PROPERTIES
INC.
REAL ESTATE
AND
ACCUMULATED
DEPRECIATIO
SCHEDULE
III
(CONTINUED)
DECEMBER
31, 1997

                                                                            COLUMN I
                                                                         --------------
                                                                         LIFE ON WHICH
                                                                          DEPRECIATION
                                COLUMN F       COLUMN G       COLUMN H         IN
          C                   ------------  ---------------  ----------  LATEST INCOME
-----------                   ACCUMULATED       DATE OF         DATE     STATEMENTS IS
        DES       TOTAL       DEPRECIATION   CONSTRUCTION     ACQUIRED      COMPUTED
-----------  ---------------  ------------  ---------------  ----------  --------------
<S>          <C>              <C>           <C>              <C>         <C>
Land         $    15,750,000                        1989        1995

Buildings &  $    90,279,087     4,869,918                   1995-1996         40
Imp.
Def. Lease   $     3,842,555       983,194                      1996       5-6 Years
Costs
             ---------------  ------------
                 109,871,642     5,853,112
             ---------------  ------------
Land         $     5,528,324                        1983        1996
Buildings &  $    27,567,614       992,758                      1996        40 Years
Imp.
Def. Lease   $     1,092,278       194,420                      1996       1-6 Years
Costs
             ---------------  ------------
                  34,188,216     1,187,178
             ---------------  ------------
Land         $     2,192,079                        1986        1996

Buildings &  $    48,547,243     1,363,862                      1996        40 Years
Imp.
Def. Lease   $       565,521        70,671                      1996       1-6 Years
Costs
             ---------------  ------------
                  51,304,843     1,434,533
             ---------------  ------------
</TABLE>

                                      F-20
<PAGE>
                          CORNERSTONE PROPERTIES INC.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                            SCHEDULE III (CONTINUED)
                               DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                                               COLUMN D
                                                                            --------------            COLUMN E
                                                       COLUMN C                             -----------------------------
                                             -----------------------------       COST
                                                                             CAPITALIZED    GROSS AMOUNT AT WHICH CARRIED
                                                INITIAL COST TO COMPANY     SUBSEQUENT TO        AT CLOSE OF PERIOD
          COLUMN A              COLUMN B     -----------------------------   ACQUISITION    -----------------------------
----------------------------  -------------                  BUILDINGS &    --------------                  BUILDINGS &
        DESCRIPTION           ENCUMBRANCES       LAND       IMPROVEMENTS     IMPROVEMENTS       LAND       IMPROVEMENTS
----------------------------  -------------  ------------  ---------------  --------------  ------------  ---------------
<S>          <C>              <C>            <C>           <C>              <C>             <C>           <C>
Land         The Frick                          2,541,350                                      2,541,350
             Building
Buildings &  The Frick                                          23,958,650        395,292                      24,353,942
Imp.         Building
Def. Lease   The Frick                                                          1,630,772                       1,630,772
Costs        Building
                                             ------------  ---------------  --------------  ------------  ---------------
                                                2,541,350       23,958,650      2,026,064      2,541,350       25,984,714
                                             ------------  ---------------  --------------  ------------  ---------------
Land         527 Madison                       21,440,000                         --          21,440,000
             Avenue
Buildings &  527 Madison                  (  (b)                46,642,888         89,562                      46,732,450
Imp.         Avenue
Def. Lease   527 Madison                                                          746,070                         746,070
Costs        Avenue
                                             ------------  ---------------  --------------  ------------  ---------------
                                               21,440,000       46,642,888        835,632     21,440,000       47,478,520
                                             ------------  ---------------  --------------  ------------  ---------------
Land         191 Peachtree                     40,109,700                         --          40,109,700
             Street
Buildings &  191 Peachtree                                     228,961,583        --                          228,961,583
Imp.         Street
Def. Lease   191 Peachtree                                                         96,023                          96,023
Costs        Street
                                             ------------  ---------------  --------------  ------------  ---------------
                                               40,109,700      228,961,583         96,023     40,109,700      229,057,606
                                             ------------  ---------------  --------------  ------------  ---------------

<CAPTION>

                                                                            COLUMN I
                                                                         --------------
                                                                         LIFE ON WHICH
                                                                          DEPRECIATION
                                COLUMN F       COLUMN G       COLUMN H         IN
          C                   ------------  ---------------  ----------  LATEST INCOME
-----------                   ACCUMULATED       DATE OF         DATE     STATEMENTS IS
        DES       TOTAL       DEPRECIATION   CONSTRUCTION     ACQUIRED      COMPUTED
-----------  ---------------  ------------  ---------------  ----------  --------------
<S>          <C>              <C>           <C>              <C>         <C>
Land         $     2,541,350                        1902        1996

Buildings &  $    24,353,942       721,559                      1996        40 Years
Imp.
Def. Lease   $     1,630,772       170,928                      1996      01-10 Years
Costs
             ---------------  ------------
                  28,526,064       892,487
             ---------------  ------------
Land         $    21,440,000                        1986        1997

Buildings &  $    46,732,450     1,036,420                      1997        40 Years
Imp.
Def. Lease   $       746,070         7,336                      1997      01-10 Years
Costs
             ---------------  ------------
                  68,918,520     1,043,756
             ---------------  ------------
Land         $    40,109,700                        1991        1997

Buildings &  $   228,961,583     1,031,524                      1997        40 Years
Imp.
Def. Lease   $        96,023           212                      1997      01-10 Years
Costs
             ---------------  ------------
                 269,167,306     1,031,736
             ---------------  ------------
</TABLE>

                                      F-21
<PAGE>
                          CORNERSTONE PROPERTIES INC.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                            SCHEDULE III (CONTINUED)
                               DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                                               COLUMN D
                                                                            --------------            COLUMN E
                                                       COLUMN C                             -----------------------------
                                             -----------------------------       COST
                                                                             CAPITALIZED    GROSS AMOUNT AT WHICH CARRIED
                                                INITIAL COST TO COMPANY     SUBSEQUENT TO        AT CLOSE OF PERIOD
          COLUMN A              COLUMN B     -----------------------------   ACQUISITION    -----------------------------
----------------------------  -------------                  BUILDINGS &    --------------                  BUILDINGS &
        DESCRIPTION           ENCUMBRANCES       LAND       IMPROVEMENTS     IMPROVEMENTS       LAND       IMPROVEMENTS
----------------------------  -------------  ------------  ---------------  --------------  ------------  ---------------
<S>          <C>              <C>            <C>           <C>              <C>             <C>           <C>
Land         500 Boylston                      45,132,200                         --          45,132,200
             Street
Buildings &  500 Boylston                                      181,573,820        --                          181,573,820
Imp.         Street
Def. Lease   500 Boylston                                                          34,558                          34,558
Costs        Street
                                             ------------  ---------------  --------------  ------------  ---------------
                                               45,132,200      181,573,820         34,558     45,132,200      181,608,378
                                             ------------  ---------------  --------------  ------------  ---------------
Land         222 Berkeley                      29,262,200                         --          29,262,200
             Street
Buildings &  222 Berkeley                                      118,179,817        --                          118,179,817
Imp.         Street
Def. Lease   222 Berkeley                                                           1,650                           1,650
Costs        Street
                                             ------------  ---------------  --------------  ------------  ---------------
                                               29,262,200      118,179,817          1,650     29,262,200      118,181,467
                                             ------------  ---------------  --------------  ------------  ---------------
Land         Charlotte Plaza                   15,473,600                         --          15,473,600
Buildings &  Charlotte Plaza    55,000,000(  (c)                62,494,692         15,039                      62,509,731
Imp.
Def. Lease   Charlotte Plaza                                                      966,732                         966,732
Costs
                                             ------------  ---------------  --------------  ------------  ---------------
                                               15,473,600       62,494,692        981,771     15,473,600       63,476,463
                                             ------------  ---------------  --------------  ------------  ---------------

<CAPTION>

                                                                            COLUMN I
                                                                         --------------
                                                                         LIFE ON WHICH
                                                                          DEPRECIATION
                                COLUMN F       COLUMN G       COLUMN H         IN
          C                   ------------  ---------------  ----------  LATEST INCOME
-----------                   ACCUMULATED       DATE OF         DATE     STATEMENTS IS
        DES       TOTAL       DEPRECIATION   CONSTRUCTION     ACQUIRED      COMPUTED
-----------  ---------------  ------------  ---------------  ----------  --------------
<S>          <C>              <C>           <C>              <C>         <C>
Land         $    45,132,200                        1988        1997

Buildings &  $   181,573,820       815,717                      1997        40 Years
Imp.
Def. Lease   $        34,558       --                           1997      01-10 Years
Costs
             ---------------  ------------
                 226,740,578       815,717
             ---------------  ------------
Land         $    29,262,200                        1991        1997

Buildings &  $   118,179,817       530,717                      1997        40 Years
Imp.
Def. Lease   $         1,650       --                           1997      01-10 Years
Costs
             ---------------  ------------
                 147,443,667       530,717
             ---------------  ------------
Land         $    15,473,600                        1982        1997
Buildings &  $    62,509,731       260,352                      1997        40 Years
Imp.
Def. Lease   $       966,732         7,031                      1997      01-10 Years
Costs
             ---------------  ------------
                  78,950,063       267,383
             ---------------  ------------
</TABLE>

                                      F-22
<PAGE>
                          CORNERSTONE PROPERTIES INC.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                            SCHEDULE III (CONTINUED)
                               DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                                               COLUMN D
                                                                            --------------            COLUMN E
                                                       COLUMN C                             -----------------------------
                                             -----------------------------       COST
                                                                             CAPITALIZED    GROSS AMOUNT AT WHICH CARRIED
                                                INITIAL COST TO COMPANY     SUBSEQUENT TO        AT CLOSE OF PERIOD
          COLUMN A              COLUMN B     -----------------------------   ACQUISITION    -----------------------------
----------------------------  -------------                  BUILDINGS &    --------------                  BUILDINGS &
        DESCRIPTION           ENCUMBRANCES       LAND       IMPROVEMENTS     IMPROVEMENTS       LAND       IMPROVEMENTS
----------------------------  -------------  ------------  ---------------  --------------  ------------  ---------------
<S>          <C>              <C>            <C>           <C>              <C>             <C>           <C>
Land         200 Galleria                      11,994,400                         731,536     12,725,936
Buildings &  200 Galleria      120,000,000(  (d)                48,442,938        --                           48,442,938
Imp.
Def. Lease   200 Galleria                                                         437,631                         437,631
Costs
                                             ------------  ---------------  --------------  ------------  ---------------
                                               11,994,400       48,442,938      1,169,167     12,725,936       48,880,569
                                             ------------  ---------------  --------------  ------------  ---------------
Land         11 Canal Center                    2,326,000                         --           2,326,000
Buildings &  11 Canal Center                                     9,394,394         60,000                       9,454,394
Imp.
Def. Lease   11 Canal Center                                                        2,019                           2,019
Costs
                                             ------------  ---------------  --------------  ------------  ---------------
                                                2,326,000        9,394,394         62,019      2,326,000        9,456,413
                                             ------------  ---------------  --------------  ------------  ---------------
Land         99 Canal Center                    4,551,000                         --           4,551,000
Buildings &  99 Canal Center                                    18,380,332        --                           18,380,332
Imp.
Def. Lease   99 Canal Center                                                        3,953                           3,953
Costs
                                             ------------  ---------------  --------------  ------------  ---------------
                                                4,551,000       18,380,332          3,953      4,551,000       18,384,285
                                             ------------  ---------------  --------------  ------------  ---------------

<CAPTION>

                                                                            COLUMN I
                                                                         --------------
                                                                         LIFE ON WHICH
                                                                          DEPRECIATION
                                COLUMN F       COLUMN G       COLUMN H         IN
          C                   ------------  ---------------  ----------  LATEST INCOME
-----------                   ACCUMULATED       DATE OF         DATE     STATEMENTS IS
        DES       TOTAL       DEPRECIATION   CONSTRUCTION     ACQUIRED      COMPUTED
-----------  ---------------  ------------  ---------------  ----------  --------------
<S>          <C>              <C>           <C>              <C>         <C>
Land         $    12,725,936                        1985        1997
Buildings &  $    48,442,938       201,424                      1997        40 Years
Imp.
Def. Lease   $       437,631       --                           1997      01-10 Years
Costs
             ---------------  ------------
                  61,606,505       201,424
             ---------------  ------------
Land         $     2,326,000                        1986        1997
Buildings &  $     9,454,394        39,187                      1997        40 Years
Imp.
Def. Lease   $         2,019            17                      1997      01-10 Years
Costs
             ---------------  ------------
                  11,782,413        39,204
             ---------------  ------------
Land         $     4,551,000                        1986        1997
Buildings &  $    18,380,332        76,425                      1997        40 Years
Imp.
Def. Lease   $         3,953            33                      1997      01-10 Years
Costs
             ---------------  ------------
                  22,935,285        76,458
             ---------------  ------------
</TABLE>

                                      F-23
<PAGE>
                          CORNERSTONE PROPERTIES INC.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                            SCHEDULE III (CONTINUED)
                               DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                                            COLUMN D
                                                                         --------------             COLUMN E
                                                    COLUMN C                             ------------------------------
                                         ------------------------------       COST
                                                                          CAPITALIZED    GROSS AMOUNT AT WHICH CARRIED
                                            INITIAL COST TO COMPANY      SUBSEQUENT TO         AT CLOSE OF PERIOD
        COLUMN A            COLUMN B     ------------------------------   ACQUISITION    ------------------------------
------------------------  -------------                   BUILDINGS &    --------------                   BUILDINGS &
      DESCRIPTION         ENCUMBRANCES       LAND        IMPROVEMENTS     IMPROVEMENTS       LAND        IMPROVEMENTS
------------------------  -------------  -------------  ---------------  --------------  -------------  ---------------
<S>          <C>          <C>            <C>            <C>              <C>             <C>            <C>
Land         TransPotomac                    2,123,800                         --            2,123,800
             Plaza 5
Buildings &  TransPotomac             (  (c)                  8,577,318        --                             8,577,318
Imp.         Plaza 5
Def. Lease   TransPotomac                                                        4,265                            4,265
Costs        Plaza 5
                                         -------------  ---------------  --------------  -------------  ---------------
                                             2,123,800        8,577,318          4,265       2,123,800        8,581,583
                                         -------------  ---------------  --------------  -------------  ---------------
Land         Dearborn       10,000,000(a)    19,000,000                          2,500      19,002,500
             Land
                                         -------------  ---------------  --------------  -------------  ---------------
                                            19,000,000        --                 2,500      19,002,500        --
                                         -------------  ---------------  --------------  -------------  ---------------
Land         Sixty State                                                       --             --
             Street
Buildings &  Sixty State    89,630,000                      221,568,004        --                           221,568,004
Imp.         Street
Def. Lease   Sixty State                                                       --
Costs        Street
                                         -------------  ---------------  --------------  -------------  ---------------
                                           221,568,004        --               --          221,568,004      221,568,004
                          -------------  -------------  ---------------  --------------  -------------  ---------------
Grand Total.............   $693,252,000  $ 259,491,600  $ 1,222,636,837   $463,024,613   $ 260,542,238  $ 1,686,729,903
                          -------------  -------------  ---------------  --------------  -------------  ---------------

<CAPTION>

                                                                             COLUMN I
                                                                          --------------
                                                                          LIFE ON WHICH
                                                                           DEPRECIATION
                                COLUMN F        COLUMN G       COLUMN H         IN
        COL                   -------------  ---------------  ----------  LATEST INCOME
-----------                    ACCUMULATED       DATE OF         DATE     STATEMENTS IS
      DESCR       TOTAL       DEPRECIATION    CONSTRUCTION     ACQUIRED      COMPUTED
-----------  ---------------  -------------  ---------------  ----------  --------------
<S>          <C>              <C>            <C>              <C>         <C>
Land         $     2,123,800                         1983        1997

Buildings &  $     8,577,318         35,665                      1997        40 Years
Imp.
Def. Lease   $         4,265             36                      1997      01-10 Years
Costs
             ---------------  -------------
                  10,705,383         35,701
             ---------------  -------------
Land         $    19,002,500                                     1997

             ---------------  -------------
                  19,002,500       --
             ---------------  -------------
Land         $     --                                1979        1997

Buildings &  $   221,568,004                                     1997        40 Years
Imp.
Def. Lease   $     --                                            1997           --
Costs
             ---------------  -------------
                   --
             ---------------  -------------
Grand Total  $ 1,947,272,141  $ 229,651,633
             ---------------  -------------
</TABLE>

                                      F-24
<PAGE>
------------------------

(a) The four notes arising from the acquisition of DIHC are cross-collateralized
    having the effect of forming a "collateral pool" for the underlying notes.

(b) Upon repayment of the principle balance, the lien relating to this property
    will be released.

(c) Upon repayment of the principle balance, the lien relating to this property
    will be released.

(d) Upon repayment of the principle balance, the lien relating to this property
    will be released.

                                      F-25
<PAGE>
                          CORNERSTONE PROPERTIES INC.

                    REAL ESTATE AND ACCUMULATED DEPRECIATION

                            SCHEDULE III (CONTINUED)

                               DECEMBER 31, 1997

RECONCILIATION OF "REAL ESTATE AND ACCUMULATED DEPRECIATION"

<TABLE>
<CAPTION>
                                                                      1997             1996            1995
                                                                ----------------  --------------  --------------
<S>                                                             <C>               <C>             <C>
INVESTMENT IN REAL ESTATE
Balance at beginning of period................................  $    799,661,640  $  676,257,618  $  571,831,104

Additions resulting from consolidation of real estate
  partnerships:
  Land........................................................         --               --              --
  Buildings and improvements..................................         --               --              --
                                                                ----------------  --------------  --------------
                                                                       --               --              --
Additions during the period:
  Land........................................................       192,146,936      10,572,247      15,750,000
  Deferred lease costs........................................         9,432,143       5,262,535         409,693
  Buildings and improvements..................................       946,518,418     108,878,526      90,469,121

Deductions during the period:
  Retirements and writeoffs...................................           486,996       1,309,286       2,202,300
                                                                ----------------  --------------  --------------
Balance at end of period......................................  $  1,947,272,141  $  799,661,640  $  676,257,618
                                                                ----------------  --------------  --------------
                                                                ----------------  --------------  --------------
ACCUMULATED DEPRECIATION
Balance at beginning of period................................       198,685,707     175,167,480     154,227,950

Additions resulting from consolidation of real estate
  partnerships:                                                        --               --              --

Additions charged to operating expenses.......................        31,452,922      24,827,513      23,141,830

Deductions due to retirements and writeoffs...................           486,996       1,309,286       2,202,300
                                                                ----------------  --------------  --------------
Balance at end of period......................................  $    229,651,633  $  198,685,707  $  175,167,480
                                                                ----------------  --------------  --------------
                                                                ----------------  --------------  --------------
</TABLE>

                                      F-26
<PAGE>
                          CORNERSTONE PROPERTIES INC.

                         MORTGAGE LOANS ON REAL ESTATE

                                  SCHEDULE IV

                               DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                                                                                  COLUMN H
                                                                                                              ----------------
                                  COLUMN C                                                                    PRINCIPAL AMOUNT
                                 -----------      COLUMN D                      COLUMN F        COLUMN G      OF LOANS SUBJECT
COLUMN A            COLUMN B        FINAL     -----------------   COLUMN E    ------------  ----------------   TO DELINQUENT
----------------  -------------   MATURITY    PERIODIC PAYMENT   -----------  FACE AMOUNT   CARRYING AMOUNT     PRINCIPAL OR
DESCRIPTION       INTEREST RATE     DATE            TERMS        PRIOR LIENS  OF MORTGAGES    OF MORTGAGES        INTEREST
----------------  -------------  -----------  -----------------  -----------  ------------  ----------------  ----------------
<S>               <C>            <C>          <C>                <C>          <C>           <C>               <C>
Market Square
  Mortgage(A)...      9.75   %     12/1/07    $ 1,619,435/month               1$80,422,449    $193,487,454
                                              $     149,424,467
                                                        Balloon
Market Square
  Buffer Loan
  (A)...........       n/a           n/a             n/a                       $46,285,606    $ 46,285,606
Other...........       n/a           n/a             n/a                                      $    479,726

RECOCILIATION OF MORTGAGE LOANS ON REAL ESTATE.
Balance at
  beginning
  of period.....                              $      --
  Additions
    during
    period:.....                                 240,252,786
  Deductions
    during
    period:.....                                     --
                                              -----------------
Balance at close
  of period.....                              $  240,252,786
                                              -----------------
                                              -----------------

<CAPTION>
COLUMN A
----------------
DESCRIPTION
----------------
<S>               <C>
Market Square
  Mortgage(A)...
Market Square
  Buffer Loan
  (A)...........
Other...........
RECOCILIATION OF
Balance at
  beginning
  of period.....
  Additions
    during
    period:.....
  Deductions
    during
    period:.....
Balance at close
  of period.....
</TABLE>

(A) During January 1998 the Company acquired partnership interests in the
    partnership which owns Market Square. Upon consolidation of this property,
    these notes will be eliminated.

                                      F-27
<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>

2.3        Agreement and Plan of Merger, dated as of November 7, 1996, among Cornerstone Properties, Inc.,
           CStone-Pittsburgh Trust, Frick Building, Inc., and Hexalon Real Estate, Inc., incorporated by reference
           to Exhibit 2.1 of the Company's Report on Form 8-K dated December 12, 1996.

3.1(a)     Restated Articles of Incorporation of Cornerstone Properties, Inc., as of March 12, 1996, incorporated
           by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 31,
           1996.

3.1(b)     Certificate of Amendment of Restated Articles of Incorporation of the Company, dated October 27, 1997,
           incorporated by reference to Exhibit 4.2(b) of the Company's Registration Statement on Form S-3 filed
           March 2, 1998 (Registration Statement No. 333-47149).

3.5        Bylaws of Cornerstone Properties Inc., as amended as of December 8, 1995, incorporated by reference to
           Exhibit 3.5 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995.

4.1        Specimen Common Stock Certificate, incorporated by reference to Exhibit 4.1 of the Company's
           Registration Statement on Form S-3 filed March 2, 1998 (Registration Statement No. 333-47149).

4.2        Certificate of Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative Rights
           of 7% Cumulative Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 10.57
           of the Company's Annual Report on Form 10-K for the year ended December 31, 1995.

4.3        Certificate of Designations of the Voting Powers, Designation, Preferences and Relative Participating,
           Optional or Other Special Rights and Qualifications, Limitations and Restrictions of 8% Cumulative
           Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.1 of the Company's
           Report on Form 8-K as of December 12, 1996.

4.4        Certificate of the Designations, Voting Powers, Preferences and Relative, Participating, Optional and
           Other Special Rights and Qualifications, Limitations and Restrictions of 8% Cumulative Convertible
           Preferred Stock, Series A, of Cornerstone Properties Inc., incorporated by reference to Exhibit 4.2 of
           the Company's Report on Form 8-K as of December 12, 1996.

10.35      Agreement of Sale and Purchase between 527 Madison Holdings as Seller and Cornerstone Properties, Inc.
           as Purchaser pertaining to 527 Madison Avenue, New York, incorporated by reference to Exhibit 2.1 of
           the Company's Report on Form 8-K dated January 29, 1997.

10.36      Preferred Stock Purchase Agreement, dated as of November 22, 1996, between Cornerstone Properties,
           Inc., and the New York State Teachers' Retirement System, incorporated by reference to Exhibit 2.2 of
           the Company's Report on Form 8-K dated December 12, 1996.

10.37      Third Amended and Restated Articles of Limited Partnership of 1700 Lincoln Limited effective as of
           April 20, 1989, incorporated by reference to Exhibit 10.37 of the Company's Annual Report on Form 10-K
           for the year ended December 31, 1993.

10.38      First Amendment to Third Amended and Restated Articles of Limited Partnership of 1700 Lincoln Limited
           dated as of September 28, 1993, incorporated by reference to Exhibit 10.38 of the Company's Annual
           Report on Form 10-K for the year ended December 31, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
10.39      Second Amendment to Third Amended and Restated Articles of Limited Partnership of 1700 Lincoln Limited,
           incorporated by reference to Exhibit 10.39 of the Company's Annual Report on Form 10-K for the year
           ended December 31, 1996.

10.40      Amended and Restated Articles of Limited Partnership of NWC Limited Partnership effective as of
           September 29, 1993, incorporated by reference to Exhibit 10.40 of the Company's Annual Report on Form
           10-K for the year ended December 31, 1993.

10.41      Third Amended and Restated Promissory Note between NWC Limited Partnership and NWC Funding Corporation
           dated as of September 29, 1993, incorporated by reference to Exhibit 10.41 of the Company's Annual
           Report on Form 10-K for the year ended December 31, 1993.

10.47      Deed-In-Lieu Agreement dated as of December 29, 1993 between Block Six Limited Partnership and Third
           and University Limited Partnership, incorporated by reference to Exhibit 10.47 of the Company's Annual
           Report on Form 10-K for the year ended December 31, 1993.

10.50      Deed of Trust Note, dated September 27, 1995, made by Third and University Limited Partnership to
           Teachers Insurance and Annuity Association of America, incorporated by reference to Exhibit 10.50 of
           the Company's Annual Report on Form 10-K for the year ended December 31, 1995.

10.51      Third Amended and Restated Articles of Limited Partnership of Third and University Limited Partnership,
           dated as of September 27, 1995, incorporated by reference to Exhibit 10.51 of the Company's Annual
           Report on Form 10-K for the year ended December 31, 1995.

10.52      Assignment of Recorded Documents, dated as of April 7, 1995, by NWC Funding Corporation to Norwest
           Corporation, incorporated by reference to Exhibit 10.52 of the Company's Annual Report on Form 10-K for
           the year ended December 31, 1995.

10.53      Assignment of Documents, dated as of April 7, 1995, by NWC Funding Corporation to Norwest Corporation,
           incorporated by reference to Exhibit 10.53 of the Company's Annual Report on Form 10-K for the year
           ended December 31, 1995.

10.55      Mortgage and Security Agreement, dated as of December 20, 1995, between CStone-Boston and The
           Northwestern Mutual Life Insurance Company, incorporated by reference to Exhibit 10.55 of the Company's
           Annual Report on Form 10-K for the year ended December 31, 1995.

10.56      Loan Sale Agreement, dated as of November 21, 1995, between The Sakura Bank, LTD. and Cornerstone
           Properties, Inc., incorporated by reference to Exhibit 10.56 of the Company's Annual Report on Form
           10-K for the year ended December 31, 1995.

10.59      Credit Agreement, dated as of August 8, 1995, between ARICO America Realestate Investment Company and
           Deutsche Bank AG London, incorporated by reference to Exhibit 10.59 of the Company's Annual Report on
           Form 10-K for the year ended December 31, 1995.

10.60      Amended and Restated Mortgage and Security Agreement and Amended and Restated Note, dated as of April
           25, 1996, between CStone-New York, Inc. and The Northwestern Mutual Life Insurance Company,
           incorporated by reference to Exhibit 10.60 of the Company's Annual Report on Form 10-K for the year
           ended December 31, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
10.61      Deed of Trust and Security Agreement, and Promissory Notes, dated July 23, 1996, made by 1700 Lincoln
           Limited with Massachusetts Mutual Life Insurance Company, Connecticut General Life Insurance Company
           and American General Life Insurance Company, incorporated by reference to Exhibit 10.61 of the
           Company's Annual Report on Form 10-K for the year ended December 31, 1996.

10.62      Letter Agreement dated December 5, 1996, with Deutsche Bank AG regarding the $32.5 million Term Loan,
           incorporated by reference to Exhibit 10.62 of the Company's Annual Report on Form 10-K for the year
           ended December 31, 1996.

10.63      Convertible Promissory Note dated January 1, 1996 made by Cornerstone Properties, Inc., with Hines
           Colorado Limited in the amount of $12,925,976.48, incorporated by reference to Exhibit 10.63 of the
           Company's Annual Report on Form 10-K for the year ended December 31, 1996.

10.64      Stock Purchase Agreement between DIHC, as seller, and Cornerstone Properties Inc., as purchaser, dated
           as of August 18, 1997, incorporated by reference to Annex I to the Company's Proxy Statement on
           Schedule 14A, filed September 23, 1997.

10.65      Loan Purchase Agreement between PGGM, as seller, and Cornerstone Properties Inc., as purchaser, dated
           August 18, 1997, incorporated by reference to Annex II to the Company's Proxy Statement on Schedule
           14A, filed September 23, 1997.

10.66*     Assignment of Collateral (DIHC Atlanta, Inc.) dated as of October 27, 1997, executed by PGGM in favor
           of Cornerstone, with Allonge.

10.67*     Promissory Note dated March 1, 1993, executed by DIHC Atlanta, Inc. ("Atlanta") in favor of DIHC
           Finance Corporation ("DIFCO") in the original principal amount of $25,000,000, as assigned to PGGM
           pursuant to that certain Assignment of Notes and Security Agreements dated as of August 13, 1997,
           executed by and between DIFCO and PGGM.

10.68*     Assignment of Collateral (DIHC Peachtree, Inc.) dated as of October 27, 1997, executed by PGGM in favor
           of Cornerstone, with Allonge.

10.69*     Promissory Note dated March 1, 1993, executed by DIHC Peachtree, Inc. ("Peachtree") in favor of DIHC
           Finance Corporation (" DIFCO") in the original principal amount of $25,000,000, as assigned to PGGM
           pursuant to that certain Assignment of Notes and Security Agreements dated as of August 13, 1997,
           executed by and between DIFCO and PGGM.

10.70*     Assignment of Collateral (One Ninety One Peachtree Associates) dated as of October 27, 1997, executed
           by PGGM in favor of 191 Finance Associates, L.P., with Allonge.

10.71*     "A" Note dated as of February 1, 1988, executed by One Ninety One Peachtree Associates ("191") in favor
           of DIHC Finance Corporation ("DIFCO") in the original principal amount of $145,000,000.00, as assigned
           by DIFCO to PGGM pursuant to that certain Assignment of Loan Documents dated as of March 1, 1993,
           recorded in Deed Book 18244 at page 187, aforesaid records.

10.72*     Assignment of Collateral (DIHC Properties I, Inc.) dated as of October 27, 1997, executed by PGGM in
           favor of Cornerstone, with Allonge.

10.73*     Amended and Restated Promissory Note dated as of November 1, 1994, executed by DIHC Properties I, Inc.
           ("DIHC I") in favor of PGGM in the principal amount of $33,310,304.78.

10.74*     Assignment of Collateral (TransCanal Properties, Inc.) dated as of October 27, 1997, executed by PGGM
           in favor of Cornerstone, with Allonge.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
10.75*     Amended and Restated Promissory Note dated as of December 31, 1994, executed by TransCanal Properties,
           Inc. ("TCP") in favor of PGGM in the principal amount of $7,061,864.65.

10.76*     Assignment of Collateral (Canal Center Properties, Inc.) dated as of October 27, 1997, executed by PGGM
           in favor of Cornerstone, with Allonge.

10.77*     Second Amended and Restated Promissory Note dated as of December 31, 1994, executed by Canal Center
           Properties, Inc. ("CCP") in favor of PGGM in the principal amount of $17,963,440.81.

10.78*     Assignment of Collateral (Bryce Mountain, Inc) dated as of October 27, 1997, executed by PGGM in favor
           of Cornerstone, with Allonge.

10.79*     Modified and Restated Note dated as of February 13, 1986, executed by Bryce Mountain, Inc. ("Bryce") in
           favor of PGGM in the principal amount of $42,000,000; as modified by that certain Second Modified and
           Restated Note dated as of December 1, 1987, as modified by that certain Third Amended and Restated
           Promissory Note dated as of December 31, 1994, in the principal amount of $9,001,126.41.

10.80*     Assignment of Collateral (DIHC Boylston Corporation) dated as of October 27, 1997, executed by PGGM in
           favor of Cornerstone, with Allonge.

10.81*     Amended and Restated Promissory Note dated as of July 1, 1994, executed by DIHC Boylston Corporation
           ("Boylston") in favor of PGGM in the principal amount of $18,461,283.03.

10.82*     Assignment of Collateral (DIHC Boylston Back Bay Corporation) dated as of October 27, 1997, executed by
           PGGM in favor of Cornerstone, with Allonge.

10.83*     Promissory Note dated as of August 15, 1997, executed by DIHC Boylston Back Bay Corporation in favor of
           DIHC Finance Corporation ("DIFCO") in the original principal amount of $27,327,000.

10.84*     Assignment of Collateral (Five Hundred Boylston West Venture), dated as of October 27, 1997, executed
           by PGGM for the benefit of DIHC Boylston Associates, with Allonge.

10.85*     Amended and Restated "A" Note dated as of February 10, 1989, executed by Five Hundred Boylston West
           Venture ("500") in favor of DIHC Finance Corporation ("DIFCO") in the original principal amount of
           $153,650,000; as assigned from DIFCO to PGGM pursuant to that certain Assignment of "A" Note and First
           Mortgage and Security Agreement dated as of February 10, 1989, recorded in the Suffolk County Registry
           of Deeds Office, Boston, MA, in Book 15439 at page 37, and filed with the Suffolk Registry District of
           the Land Court as Document Number 449660.

10.86*     Assignment of Collateral (DIHC Berkeley Corporation) dated as of October 27, 1997, executed by PGGM in
           favor of Cornerstone, with Allonge.

10.87*     Promissory Note dated as of December 31, 1994, executed by DIHC Berkeley Corporation ("Berkeley") in
           favor of PGGM in the original principal amount of $44,000,000.

10.88*     Assignment of Collateral (DIHC Berkeley Back Bay Corporation) dated as of October 27, 1997, executed by
           PGGM in favor of Cornerstone, with Allonge.

10.89*     Promissory Note dated as of August 15, 1997, executed by DIHC Berkeley Back Bay Corporation in favor of
           DIHC Finance Corporation ("DIFCO") in the original principal amount of $45,080,000.

10.90*     Assignment of Collateral (Charlotte Office Tower Associates "A") dated as of October 27, 1997, executed
           by PGGM in favor of Cornerstone, with Allonge.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
10.91*     Modified and Restated "A" Note dated as of December 21, 1982, executed by Charlotte Office Tower
           Associates ("Charlotte") in favor of PGGM in the principal amount of $33,000,000, recorded in Deed Book
           4609 at page 841, in the Mecklenburg County, North Carolina Register of Deeds.

10.92*     Assignment of Collateral (Charlotte Office Tower Associates "B") dated as of October 27, 1997, executed
           by PGGM in favor of Cornerstone, with Allonge.

10.93*     Modified and Restated "B" Note dated as of December 21, 1982, executed by Charlotte Office Tower
           Associates ("Charlotte") in favor of PGGM in the principal amount of $8,196,549.27, recorded in Deed
           Book 4609 at page 876, in the Mecklenburg County, North Carolina Register of Deeds.

10.94*     Assignment of Collateral (Avenue Associates Limited Partnership) dated as of October 27, 1997, executed
           by PGGM in favor of Cornerstone, with Allonge.

10.95*     Promissory Note dated as of July 15, 1987, executed by Avenue Associates Limited Partnership ("AALP")
           in favor of DIHC Finance Corporation ("DIFCO") in the original principal amount of $188,491,750.

10.96*     Note and Collateral Agency Agreement, dated as of October 27, 1997, executed by and among Cornerstone,
           certain of its Subsidiaries, the Lenders, and PGGM, as Administrative Agent.

10.97*     Assignment of Promissory Note, dated as of October 27, 1997, executed by DIHC Finance Corporation in
           favor of Cornerstone.

10.98*     Promissory Note and Loan Agreement dated as of August 15, 1997, in the original principal amount of up
           to $41,900,000 with an initial outstanding principal amount of $38,900,000, made by Market Square
           Development Investors in favor of DIHC Finance Corporation.

10.99*     Promissory Note and Loan Agreement, dated as of January 30, 1998, from Market Square Development
           Investors in favor of Cornerstone Market Square LLC, in the original principal amount of $2,908,230.

10.100*    Second Amendment to One Ninety One Peachtree Associates Joint Venture Agreement, dated as of October
           27, 1997, executed by C-H Associates, Ltd. and DIHC Peachtree Associates.

10.101*    Five Hundred Boylston West Venture Amended and Restated Joint Venture Agreement, dated as of October
           27, 1997, executed by Boylston West 1986 Associates Limited Partnership and DIHC Boylston Associates.

10.102*    Two Twenty Two Berkeley Venture Amended and Restated Joint Venture Agreement, dated as of October 27,
           1997, executed by Hines 222 Berkeley Limited Partnership and DIHC Berkeley Associates.

10.103*    Second Amended and Restated Joint Venture Agreement of Market Square Development Investors, dated as of
           January 30, 1998, between Cornerstone Market Square LLC and DIHC Market Square, Inc.

10.104*    Amended and Restated Management and Leasing Agreement, dated as of October 27, 1997, executed by Five
           Hundred Boylston West Venture and Hines Interests Limited Partnership.

10.105*    Amended and Restated Management and Leasing Agreement, dated as of October 27, 1997, executed by Two
           Twenty Two Berkeley Venture and Hines Interests Limited Partnership.

10.106*    Real Estate Management and Leasing Agreement, dated as of March 1, 1997, by and among Charlotte Office
           Tower Associates and Trammell Crow SE, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
10.107*    Real Estate Management and Leasing Agreement, dated as of January 1, 1996, by and among TransCanal
           Properties, Inc. and Faison & Associates, Inc.

10.108*    Real Estate Management and Leasing Agreement, dated as of January 1, 1996, by and among Canal Center
           Properties, Inc. and Faison & Associates, Inc.

10.109*    Management Agreement evidenced by letter from DIHC Management Corporation to Concord Realty Advisors,
           Inc., dated as of July 15, 1997.

10.110*    Real Estate Management and Leasing Agreement, dated as of July 2, 1995, by and among DIHC Properties I,
           Inc. and CK Atlanta Office Management, Inc.

10.111*    Residential Management Agreement, dated as of July 15, 1987, by and among Avenue Associates Limited
           Partnership and Crow-Washington Office Management Company, Inc.

10.112*    Commercial Management Agreement, dated as of July 15, 1987, by and among Avenue Associates Limited
           Partnership and Crow-Washington Office Management Company, Inc.

10.113*    Management Agreement, dated as of February 1, 1988, by and among One Ninety One Peachtree Associates
           and C-H Management Associates.

10.114*    Leasing Agreement, dated as of February 1, 1988, by and among One Ninety One Peachtree Associates and
           C-H Leasing Associates.

10.115*    Operating Agreement of Cornerstone Market Square LLC, dated as of January 20, 1998.

10.116*    Real Estate Management and Leasing Agreement, dated as of January 1, 1996, by and among Bryce Mountain,
           Inc. and Faison & Associates, Inc.

10.117*    Redemption and Acquisition Agreement, dated as of October 27, 1997, executed by Market Square
           Development Investors, Dutch Institutional Holding Company, Inc., DIHC Market Square, Inc. and
           Cornerstone.

10.118*    Agreement of Limited Partnership of Cornerstone Properties Limited Partnership dated as of December 23,
           1997.

10.119*    Amended and Restated Revolving Credit and Guaranty Agreement dated as of January 20, 1998 among
           Cornerstone Properties Inc. and Cornerstone Properties Limited Partnership (the "Borrowers"), the
           subsidiaries of the Borrowers (the "Guarantors"), the Lenders, Bankers Trust Company and The Chase
           Manhattan Bank.

10.120*    Contribution Agreement dated as of December 11, 1997, by and among Corporate 500-Phase I, Corporate
           500-Phase II and Cornerstone Properties Inc.

10.121*    Agreement of Sale and Purchase dated as of January 22, 1997, between 527 Madison Holdings and
           Cornerstone Properties Inc. pertaining to 527 Madison Avenue, New York, New York.

10.122*    Pledge of Cash Collateral Agreement dated as of February 13, 1997, by CStone-527 Madison, Inc. in favor
           of Bankers Trust Company.

10.123*    Note Modification Agreement dated as of February 13, 1997, by and between Bankers Trust Company and 527
           Madison Holdings.

10.124*    Loan Purchase Agreement as of December 31, 1997, by and between Trust Company of the West, as Trustee
           of TCW Realty Fund VA and TCW Realty Fund VB and Cornerstone Properties, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                                   DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
10.125*    Loan Agreement, Mortgage and Note Modification Agreement dated as of December 31, 1997, by and between
           60 State Street Development Company Limited Partnership, John A. Pirovano, William A. Halsey and John
           Moody, as the Trustees of 60 State Street Trust, and Cornerstone Properties Inc.

12.1*      Statement of Computation of Earnings to Fixed Charges.

20.1       Stockholders' Agreement, dated as of November 22, 1996, by and among Cornerstone Properties, Inc., and
           the New York State Teachers' Retirement System together with any other purchasers of 8% Preferred
           Stock, incorporated by reference to Exhibit 20.1 of the Company's Report on Form 8-K as of December 12,
           1996, incorporated by reference to Exhibit 20.1 of the Company's Annual Report on Form 10-K for the
           year ended December 31, 1996.

20.2       Stockholders' Agreement, dated as of November 7, 1996, by and between Cornerstone Properties, Inc., and
           Hexalon Real Estate, Inc., and together with any other purchasers of 8% Preferred Stock, Series A,
           incorporated by reference to Exhibit 20.2 of the Company's Report on Form 8-K as of December 12, 1996,
           incorporated by reference to Exhibit 20.2 of the Company's Annual Report on Form 10-K for the year
           ended December 31, 1996.

20.3       Registration Rights and Voting Agreement among PGGM, DIHC and Cornerstone Properties Inc., incorporated
           by reference to Annex III to the Company's Proxy Statement on Schedule 14A, filed September 23, 1997.

21*        List of Subsidiaries.

23*        Consent of Coopers & Lybrand L.L.P.

24.1*      Powers of Attorney.

27*        For EDGAR filing purposes only, this report contains Exhibit 27, Financial Data Schedule.
</TABLE>

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

*   Filed herewith.