FORM 10-Q

                        SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 20549

(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934 For quarterly period ended March 31, 1997

[ ] 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                         (I.R.S. Employer
        of incorporation or organization)                    Identification No.)

                               126 East 56th Street
                             New York, New York 10022
                     (Address of principal executive offices)

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

      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 [ ]


Number of shares of Common Stock outstanding as of May 12, 1997: 37,198,186

Total pages = 14
Exhibit Index located on page 13



<PAGE>
<TABLE>


                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                         (Dollar amounts in thousands)
                                   (Unaudited)
<CAPTION>

                                                                                         March 31,       December 31,
                                                                                           1997              1996
                                                                                         ---------       ------------

ASSETS
<S>                                                                                    <C>              <C>
Investments, at cost:
     Land                                                                              $   89,835       $   68,395
     Buildings and improvements                                                           659,176          612,567
     Deferred lease costs                                                                 121,489          118,700
                                                                                        ---------        ---------
                                                                                          870,500          799,662
     Less: Accumulated depreciation and amortization                                      205,478          198,686
                                                                                        ---------        ---------
          Total investments                                                               665,022          600,976

Cash and cash equivalents                                                                   8,410          114,803
Restricted cash                                                                             7,275            4,426
Other deferred costs, net of accumulated amortization of $1,266 and $1,140                  4,175            3,562
Deferred tenant receivables                                                                35,297           34,747
Tenant and other receivables                                                                4,748            2,405
Notes receivable                                                                            2,691            2,911
Other assets                                                                                4,728            2,350
                                                                                        ---------        ---------
Total Assets                                                                            $ 732,346       $  766,180
                                                                                        =========        =========

LIABILITIES AND STOCKHOLDERS' INVESTMENT

Long-term debt (Note 3)                                                                $  367,371       $  400,142
Accrued interest payable                                                                    1,592            1,082
Accrued real estate taxes payable                                                          16,180           13,222
Common Stockholders' distribution payable                                                   6,287           12,366
Accounts payable and accrued expenses                                                       6,884            6,468
Unearned revenue and other liabilities                                                     10,497            9,095
                                                                                        ---------        ---------
Total Liabilities                                                                         408,811          442,375
                                                                                        ---------        ---------

Minority Interest (Note 1)                                                                (17,420)         (17,478)
                                                                                         ---------        ---------

Redeemable Preferred Stock, $166,500,000 
     redemption value (Note 5)                                                            162,517          162,743
                                                                                        ---------        ---------
Stockholders' Investment (Note 6)
7% Cumulative Convertible Preferred Stock, $16.50 stated value                             50,000           50,000
     15,000,000 shares authorized; 3,030,303 shares issued and outstanding
Common stock, no par value; 100,000,000 authorized shares;
    shares issued and outstanding (1997-20,956,453; 1996-20,609,754)
Paid-in capital                                                                           156,356          160,577
Accumulated deficit                                                                       (25,179)         (30,789)
Deferred compensation                                                                      (2,739)          (1,248)
                                                                                         ---------        ---------
Total Stockholders' Investment                                                             178,438          178,540
                                                                                         ---------        ---------
Total Liabilities and Stockholders' Investment                                          $  732,346       $  766,180
                                                                                         =========        =========
<FN>
              The accompanying notes are an integral part of these
                       consolidated financial statements
</FN>
</TABLE>

<PAGE>
<TABLE>

Item 1. Financial Statements (continued)

                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
            (Dollar amounts in thousands, except per share amounts)
                                   (Unaudited)

<CAPTION>


                                                       Three Months        Three Months
                                                           Ended              Ended
                                                          March 31,          March 31,
                                                            1997               1996
                                                         ----------          ----------
<S>                                                     <C>                 <C>
Revenues
       Office and parking rentals                         $ 33,478            $ 25,919
       Interest and other income                             1,509               1,505
                                                         ----------          ----------
           Total Revenues                                   34,987              27,424
                                                         ----------          ----------

Expenses
       Building operating expenses                           7,375               5,667
       Real estate taxes                                     5,663               3,891
       Interest expense                                      7,543               7,815
       Depreciation and amortization                         6,780               5,991
       General and administrative                            1,613               1,409
                                                         ----------          ----------
           Total Expenses                                   28,974              24,773
                                                         ----------          ----------
                                                             6,013               2,651
                                                         ----------          ----------
Other income (expenses)
      Net gain on interest rate swaps (Note 1)                  99               4,794
      Minority Interest                                       (476)               (464)
                                                         ----------          ----------
Income before extraordinary item                             5,636               6,981

Extraordinary loss                                             (26)                  -
                                                         ----------          ----------

Net income                                                 $ 5,610             $ 6,981
                                                         ==========           ==========

Net income applicable to common stock                      $ 1,405             $ 6,106
                                                         ==========           ==========

Income before extraordinary item per share (Note 1)        $  0.07             $  0.30
                                                         ==========           ==========

Net income per share (Note 1)                              $  0.07             $  0.30

                                                         ==========           ==========

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

</FN>
</TABLE>

<PAGE>
<TABLE>

     Item 1. Financial Statements (continued)

                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
                          (Dollar amounts in thousands)
                                   (Unaudited)

<CAPTION>

                                                                              Three Months   Three Months
                                                                                 Ended          Ended
                                                                                March 31,      March 31,
                                                                                  1997           1996
                                                                                --------       --------
<S>                                                                            <C>           <C>
Cash flows from operating activities:
     Net income                                                                 $ 5,610        $ 6,981
     Adjustments to reconcile net income to net cash
        provided by operating activities:
           Depreciation and amortization                                          6,780          5,991
           Deferred compensation amortization                                       147            212
           Net gain on interest rate swaps                                          (99)        (4,794)
           Extraordinary loss                                                        26              -
           Unbilled rental revenue                                                 (389)          (557)
           Increase (decrease) in accrued interest payable                          510         (1,765)
           Minority interest share of income                                        476            464
           Increase in tenant and other receivables and other assets             (4,672)        (2,114)
           Increase in accounts payable, accrued expenses and other liabilities   4,101
                                                                                --------       --------

           Total adjustments                                                      6,880            649
                                                                                --------       --------

           Net cash provided by operating activities                             12,490          7,630
                                                                                --------       --------

Cash flows from investing activities:
     Additions to investment property                                           (69,923)          (588)
     Repayment of notes receivable                                                  220            198
                                                                                --------       --------

           Net cash used in investing activities                                (69,703)          (390)
                                                                                --------       --------

Cash flows from financing activities:
     Repayment of term loan                                                     (32,500)             -
     Repayments under mortgage loans                                               (271)             -
     Proceeds from dividend reinvestment plan                                     3,717              -
     Net payments for swap terminations and prepayment costs                       (188)             -
     (Increase) decrease in restricted cash                                      (2,849)         1,488
     Stock/debt issue costs                                                        (975)          (188)
     Distribution to minority partners                                             (418)          (374)
     Distribution to preferred stockholders                                      (3,330)             -
     Distribution to common stockholders                                        (12,366)             -
                                                                                --------       --------

           Net cash (used in) provided by financing activities                  (49,180)           926
                                                                                --------       --------

(Decrease) increase in cash and cash equivalents                               (106,393)         8,166
Cash and cash equivalents, beginning of period                                  114,803          7,740
                                                                                --------       --------
Cash and cash equivalents, end of period                                        $ 8,410        $ 15,906
                                                                                ========       ========

<FN>
              The acconpanying notes are an integral part of these
                       consolidated financial statements

</FN>
</TABLE>


<PAGE>


Item 1. Financial Statements (continued)

                   CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MARCH 31, 1997


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  which  owns,  through
   subsidiaries,  interests  in eight Class A office  properties  ("Properties")
   encompassing  approximately 4.9 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.

   General
   The consolidated  financial  statements included herein have been prepared by
   the Company,  without  audit,  pursuant to the rules and  regulations  of the
   Securities  and  Exchange   Commission.   Certain  information  and  footnote
   disclosures  normally included in consolidated  financial statements prepared
   in accordance with generally accepted accounting principles have been omitted
   pursuant to such rules and  regulations,  although the Company  believes that
   the  disclosures   are  adequate  to  make  the  information   presented  not
   misleading.  In the opinion of  management of the Company,  all  adjustments,
   consisting only of normal recurring  accruals,  necessary to summarize fairly
   the  unaudited  results of operations  for the three month periods  presented
   have been included. Results for the three months ended March 31, 1997 are not
   necessarily indicative of results which may be expected for any other interim
   period  or for the year as a whole.  It is  suggested  that  these  financial
   statements be read in conjunction with the audited  financial  statements and
   notes thereto included in the Company's latest annual report.

   Principles of Consolidation
   The accompanying  financial  statements  include the accounts of Cornerstone,
   its wholly-owned qualified REIT subsidiaries and controlled partnerships. All
   significant  intercompany  balances and transactions  have been eliminated in
   consolidation.

   Interest rate swap agreements
   The Company  accounts  for its  interest  rate swap  agreements  as hedges in
   accordance with SFAS No. 80 "Accounting for Futures Contracts" 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.  Currently,  the
   Company is party to no interest rate swap agreements.

   Income per share
   Income per share is computed  based on the weighted  average number of common
   shares  outstanding  of 20,789,491 for 1997 and 20,309,165 for 1996. For 1997
   and 1996,  dividends applicable to preferred stock of $4,205,000 and $875,000
   respectively,  have been deducted from the net income in computing income per
   share.

   Estimates
   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.
<TABLE>

   2. PROPERTIES
   The  following  schedule  summarizes  Cornerstone's  interest  in real estate
   investments at March 31, 1997:
<CAPTION>

                                                                      Net
                                                      Completed/      Rentable                   Ownership
Property                   Location                   Acquired        square feet    %Leased     Interest       Notes
--------------------------------------------------------------------------------------------------------------------- 
<C>                        <C>                         <C>
One Norwest Center         Denver, CO                       1983      1,188,000         99%      100%
Norwest Center             Minneapolis, MN                  1988      1,118,000        100%       50%
Washington Mutual Tower    Seattle, WA                      1988      1,155,000         98%       50%
125 Summer Street          Boston, MA                  1989/1995        464,000         95%      100%
Tower 56                   New York, NY                1983/1996        162,000         97%      100%
One Lincoln Centre         Oakbrook Terrace, IL        1986/1996        297,000         92%      100%
The Frick Building         Pittsburgh, PA              1902/1996        341,000         87%      100%
527 Madison Avenue         New York, NY                1986/1997        216,000         96%      100%              A
<FN>

   (A)Effective  February  14,  1997,  Cornerstone,   through  its  wholly-owned
      qualified REIT subsidiary, CStone-527 Madison, Inc., purchased 527 Madison
      Avenue in Midtown Manhattan,  New York for approximately $67 million.  527
      Madison Avenue is a twenty-six story, 96% leased,  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.  The acquisition was financed with the proceeds
      from the  Company's  offering of  Preferred  Stock,  completed in November
      1996. Louis Dreyfus Property Group manages the building under a management
      agreement that expires December 31, 1998.

</FN>
</TABLE>


<TABLE>

3. LONG-TERM DEBT
<CAPTION>

           Principal Balance
     3/31/97              12/31/96     Collateral               Interest Rate      Maturity    Amortization        Notes
------------------------------------------------------------------------------------------------------------------------
<C>                   <C>              <C>                       <C>                <C>         <C>                <C>
$   12,926,000        $  12,926,000    Rent Notes                Lesser of 8.11%    01/01/01    None                   A
                                                                 or LIBOR + 50bp
    97,481,000           97,706,000    One Norwest Center        7.50%              08/01/01    30 years
   110,000,000          110,000,000    Norwest Center            8.74%              12/31/05    None
    79,100,000           79,100,000    Washington Mutual Tower   7.53%              11/01/05    None
    50,000,000           50,000,000    125 Summer Street         7.20%              01/01/03    25 years beginning
                                                                                                02/01/01
    17,864,000           17,910,000    Tower 56                  7.67%              04/24/03    30 years
             -           32,500,000    None                      5.0%                                                  B
------------------------------------
 $ 367,371,000        $ 400,142,000
<FN>

   (A)At maturity of the debt,  Cornerstone  has the right to redeem the note in exchange 
      for common  shares of the Company at the lower of market price or $14.30 per share.
   (B)On March 19, 1997, the  $32,500,000  term loan was repaid to Deutsche Bank AG.
</FN>
</TABLE>


4. LINE OF CREDIT
   Bankers Trust Company has provided  Cornerstone with a $10,000,000  revolving
   credit line which is available for general corporate and acquisition purposes
   at a rate equivalent to an Adjusted Eurodollar Rate (as defined),  as well as
   for the issuance of standby  letters of credit at a rate of 0.15 percent.  At
   March 31,  1997,  none of the credit line had been drawn.  The line of credit
   expires on November 7, 1997.

   The Company has received a  commitment  from  Bankers  Trust  Company and The
   Chase   Manhattan  Bank  for  a  $200  million  line  of  credit  for  future
   acquisitions.  The interest rate on the line of credit will be at a spread of
   1.25% to 1.625% over the Adjusted  Eurodollar Rate (as defined)  depending on
   the Company's leverage ratio.


<PAGE>

<TABLE>


5. REDEEMABLE PREFERRED STOCK
<CAPTION>

                                   Redemption/         Shares         Shares      Carrying Value      Common Stock
  Title                            Stated Value      Authorized    Outstanding    Net of issue Cost   Conversion Price
  ---------------------------------------------------------------------------------------------------------------------
  <C>                              <C>               <C>           <C>            <C>                 <C>
  8% Cum. Convertible              $145.00/Share       1,034,483      689,655     $97,610,000            $14.50
  8% Cum. Convertible, Series A    $145.00/Share         458,621      458,621     $64,907,000            $14.50
  
                                                                                --------------
                                                                                 $162,517,000

<FN>

   Each holder of the 8% Cumulative  Convertible and 8% Cumulative  Convertible,
   Series A,  Preferred  Stock,  has the right to require the  redemption of its
   stock by the Company at the stated value upon the  occurrence of a "Change in
   Control"(as defined).
</FN>
</TABLE>

6. 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.

   The following  tables  summarize the  long-term  incentive  plans for certain
   officers of the Company as of March 31, 1997

Date of     Options Granted   Exercise Price               Options     Options
Grant       (No. of Shares)   (per share)      Vesting   Exercisable  Exercised
-------------------------------------------------------------------------------
June, 1995    787,500           $14.30         20%/yr,      157,500         0
                                               10yr term
March, 1997   880,000           $14.50         20%/yr,            0         0
                                               10yr term


   Restricted Stock Grants
               
               Shares        Value at
Date of        Granted (No.  Date
Granted        of shares)    (per 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.

(A)Deferred   compensation  of  approximately   $4,037,000  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.


   Stockholders' Distributions
   Dividends of $0.30 per share were  declared for the first quarter of 1997, to
   be paid on April 30, 1997, to Common  Stockholders  of record as of March 21,
   1997.

7.  NEW PRONOUNCEMENTS
    Statement of Financial Accounting Standards No. 128 "Earnings Per Share" 
    ("SFAS 128") and No. 129 "Disclosure of Information About Capital Structure"
    ("SFAS 129") are to be adopted by the Company for the year ended
    December 31, 1997.

   SFAS 128 specifies the computation,  presentation and disclosure requirements
   for  earnings  per  share.  SFAS 129  establishes  standards  for  disclosing
   information  about an entity's capital  structure,  such as information about
   securities  and  liquidation  preference  of preferred  stock and  redeemable
   stock.

   The  Company  believes the impact of adopting  SFAS  128 and SFAS 129 to be
   insignificant.


<PAGE>



8. SUBSEQUENT EVENTS
   On April 16, 1997,  Cornerstone  Properties  Inc.  announced its initial U.S.
   public  offering of 14 million  shares of common  stock at a price of $14 per
   share for gross proceeds of $196 million.  Cornerstone's  stock began trading
   on the New York Stock Exchange under the symbol CPP.

   The  offering was  underwritten  by Merrill  Lynch & Co. and includes  Lazard
   Freres & Co. LLC, Lehman  Brothers,  Morgan Stanley & Co. Inc., Smith Barney
   Inc., and BT Securities  Corporation as co-managers.  The  underwriters  have
   exercised  their option to purchase 2.1 million  additional  shares of common
   stock  solely to cover  over-allotments.  The Company  intends to use the net
   proceeds of this offering for  potential  acquisitions,  working  capital and
   other general corporate purposes.

Item 2

     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
             OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997


RESULTS OF OPERATIONS

Consolidation
Cornerstone's principal source of income is rental revenues received through its
investment in six fee simple  investments and two real estate  partnerships held
by nine  wholly-owned  subsidiaries:  1700 Lincoln  Limited  owned 90 percent by
ARICO-Denver,  Inc. and 10 percent by 1700 Lincoln Inc., NWC Limited Partnership
owned by ARICO-Minneapolis, Inc., Third and University Limited Partnership owned
by ARICO-Seattle,  Inc., 125 Summer Street owned by CStone-Boston Inc., Tower 56
owned by  CStone-New  York Inc.,  One Lincoln  Centre owned by  CStone-Oakbrook,
Inc.,  527  Madison  Avenue  owned by  CStone-527  Madison,  Inc.  and the Frick
Building owned by CStone-Pittsburgh Trust, respectively. NWC Limited Partnership
and Third and  University  Limited  Partnership  have  been  consolidated  since
Cornerstone has a majority  interest in the economic  benefits and has the right
to become managing general partner at its sole discretion.

Property Results
For  the  quarter  ended  March  31, 1997 and 1996  property results can  be
summarized as follows (000's):

                                     For the quarter        For the quarter
                                         ended                   ended
                                      March 31, 1997         March 31, 1996
-------------------------------------------------------------------------------
Office and Parking Rentals              $33,478                $25,919
Less:
  Building Operating Expenses             7,375                  5,667
  Real Estate Taxes                       5,663                  3,891
  Depreciation and Amortization           6,664                  5,829
                                        -------                --------
Total Operating Expenses                 19,702                 15,387
                                        -------                --------
Total Property Income                   $13,776                $10,532
                                        =======                ========

The  increase in property  income from 1996 to 1997 of $3.25  million was due to
the acquisition of Tower 56 ($0.7  million),  One Lincoln Centre ($0.9 million),
527 Madison Avenue ($0.9  million) and the Frick Building ($0.6 million)  during
1996;  the other  properties  contributed  approximately  $150,000 of additional
earnings.

Interest and Other Income
Interest and other income was $1,509,000 in 1997 and  $1,505,000 in 1996.  These
amounts  primarily  consist of  interest  earned  from  short-term  investments,
interest  earned  on the  Tower 56  mortgage  notes  receivable  in 1996,  notes
receivable  from  partners,  and income from the advisory  contracts in 1997 and
1996.  Included  in  interest  and  other  income  is  interest  earned on notes
receivable  from Hines  Colorado  Limited (HCL) in the amounts of  approximately
$74,000 and $107,000 for 1997 and 1996, respectively.

Interest Expense
Interest  expense incurred by Cornerstone  relating to its financing  activities
was $7,543,000 and $7,815,000 for 1997 and 1996, respectively.  The decrease was
mainly due to the  refinancing  of the One  Norwest  Center  debt  resulting  in
savings of  $546,000,  which is offset by the  $338,000 of  interest  expense on
Tower 56 which was  financed in the second  quarter of 1996.  Additionally,  the
Company had approximately $23,000 of savings resulting from the repayment of the
$32.5 million term loan.

Interest Rate Swaps
During the period  analyzed the Company had the  following  interest  rate swaps
outstanding:

The $107 million  interest rate swap  agreement with a maturity date of July 30,
1998,  was  accounted  for as a hedge since it was  comprised of two  offsetting
swaps,  resulting in a fixed  payment  from  Cornerstone  to its  counterparties
through the term of the swaps.  Upon the  refinancing  of the One Norwest Center
debt in August 1996,  the swap was terminated and the cost to terminate the swap
was recorded as an extraordinary loss.

For the three  month  period  March 31,  1996,  interest  expense of the Company
included  approximately  $201,000,  of  expense  related to  interest  rate swap
agreements. Since the $98 million swap was a forward swap and accounted for on a
mark to market basis, it had no effect on the reported  interest  expense of the
Company.  This swap was terminated during the first quarter of 1997 at a gain of
$99,000 compared to the mark to market gain in the first quarter of 1996 of $4.8
million. The Company currently is party to no interest rate swap agreements.

General and Administrative Expenses
The aggregate amount of Cornerstone's  general and administrative  expenses have
increased to  $1,613,000 in 1997 from  $1,409,000 in 1996.  The increase in 1997
from 1996 of $204,000  was due to the write off of certain  expenses  related to
the State Street Bank Building of $100,000, and increased salaries and benefits,
due to the hiring of additional  staff and the timing of incentive  compensation
payments.


LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

                             For the three months    For the three months
Cash flow provided by        ended March 31, 1997    ended March 31, 1996
(used in):
----------------------------------------------------------------------------
Operating activities               $12,490                  $7,630
Investing activities               (69,703)                  (390)
Financing activities               (49,180)                    926
Earnings  to fixed  charges          1.12                     1.70
ratio


Cash provided by operating  activities increased from $7.6 million for the three
months  ended March 31, 1996 to $12.5  million for the three  months ended March
31, 1997.  This  increase was mainly due to the increase in net rental  revenues
(before depreciation and amortization) from the properties of $4.1 million, plus
approximately  $700,000  of short  term  adjustments  in  accounts  payable  and
receivables.

Cash used in  investing  activities  increased  to $69.7  million  for the three
months  ended March 31, 1997 from  $390,000 for the three months ended March 31,
1996 due to  acquisition  of 527 Madison  Avenue during 1997 for a total cost of
$67 million.

Cash used in  financing  activities  increased  to $49.1  million  for the three
months ended March 31, 1997 from cash provided of $926,000 as of March 31, 1996.
The   increase  was  mainly  due  to  the  common  and   preferred   stockholder
distributions and the repayment of the $32.5 million term loan.

Earnings to fixed  charges  decreased  to 1.12 times at March 31, 1997 from 1.70
times at March 31, 1996 due to the recognition of a large unrealized gain on the
forward swap during the first quarter of 1996.

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.  The Company has adjusted FFO by the net gain on
interest rate swap previously discussed due to the non-cash nature of this item.
Since the Company is no longer a party to any interest rate swap agreements, the
adjustment  in the first quarter of 1997 will be the final  adjustment  for this
item.

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.

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
the three months ended March 31, 1997 and 1996,  is  approximately  $280,000 and
$305,000,  respectively,  of free  and  deferred  rents  (after  adjustment  for
minority interest).



<PAGE>


The table below sets forth the adjustments  which were made to the net income of
the Company in the  calculation of FFO for the three months ended March 31, 1997
and 1996, respectively (in thousands):

                                              Funds From Operations (A)
                                              ---------------------
                                                  Three Months     Three Months
                                                     Ended            Ended
                                                  March 31,        March 31,
                                                     1997             1996
                                                     ----             ----
              Net income                            $ 5,610          $ 6,981

              NAREIT Adjustments:
                 Depreciation and amortization (B)    6,664            5,829
                 Realized/Unrealized gain               (99)          (7,919)
                 Minority adjustments                  (370)            (369)
                 Extraordinary Losses/Swap Losses        26            3,125

              Other Adjustments:
                 Amortization on rent notes              220             198
                 Real estate tax adjustment                -              62
                                                      -------         ------
               Funds From Operations                  12,051           7,907
                                                      -------         ------

              Accrued Preferred Dividend              (4,205)           (875)
                                                      -------         -------

              Funds From Operations
              Available For Common Shares            $ 7,846          $ 7,032
                                                     =======          =======

              (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.

              (B) The depreciation and amortization  adjustment does not include
              amortization  of  deferred  financing  costs and  depreciation  of
              non-real estate assets in accordance with guidance from NAREIT.

The  increase  in FFO  available  for common  shares is due to the $4.1  million
increase in net real estate  revenues  (before  depreciation  and  amortization)
discussed  above  which is offset by the $3.3  million  of  increased  Preferred
Dividends due to the issuance of additional preferred stock.

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.

Capital Stock Transactions
On April 22, 1997,  the Company  completed its initial  public  offering of 16.1
million  shares at a price of $14.00 per share.  The proceeds  from the offering
will be used to acquire  new  assets and for  general  corporate  purposes.  The
Company is listed on the New York Stock Exchange under the symbol CPP.

Long Term Debt
The Company was  required  under the terms of its $32.5  million  term loan with
Deutsche  Bank AG to repay the loan upon the  completion  of its Initial  Public
Offering (IPO) in the United States.  In  anticipation of the IPO and listing on
the New York Stock Exchange, the Company repaid this loan on March 19, 1997. The
Company has no long-term  debt maturing  until 2001 when the debt on One Norwest
Center and the note from Hines matures.


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 increase in common area  maintenance
expenses,  which  reduces  the  Company's  exposure  to  increases  in costs and
operating expenses resulting from inflation.

Stockholders' Distributions
Cornerstone  intends to distribute at least 95 percent of its taxable  income to
maintain  its  qualification  as a  Real  Estate  Investment  Trust.  Currently,
Cornerstone has no taxable income and  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.  The Company  declared a
dividend of $0.30 per common share,  payable to all stockholders of record as of
March 21, 1997 on April 30, 1997.

At the  present  time the  Company is current  in the  payment of all  preferred
stockholder dividends.

Liquidity
At March 31, 1997, the Company had $8,410,000 in cash and cash  equivalents  and
$7,275,000 in restricted  cash.  Restricted  cash is being held by escrow agents
for the One Norwest Center and Washington  Mutual Tower loans.  Cornerstone also
had available  $10 million under its working  capital line of credit for general
corporate  purposes.  In  addition,  Cornerstone  anticipates  it  will  receive
distributions  from its real estate  partnerships and rental income from its fee
owned properties on a monthly basis which will be used to cover normal operating
expenses and pay distributions to its stockholders. Based upon its cash reserves
and other sources of funds,  Cornerstone  has  sufficient  liquidity to meet its
cash requirements for the foreseeable future.


<PAGE>




                           PART II - OTHER INFORMATION

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits:
         1) Exhibit 11.1: Statement of Computation of Earnings Per Share

         2) For EDGAR filing  purposes only,  this report  contains  Exhibit 27,
            Financial Data Schedule.

(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 for approximately $67 million 
            Item 7 - Financial  Statements and Exhibits: Agreement of Sale and 
            Purchase of 527 Madison

         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



<PAGE>



                                    SIGNATURES


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


                                          CORNERSTONE PROPERTIES INC.
                                          (Registrant)


                                          By: /s/ John S. Moody.
                                             John S. Moody, President and CEO

                                          Date:  May 12, 1997


                                          By: /s/ Thomas P. Loftus.
                                             Thomas P. Loftus, Vice President
                                             and Controller
                                             (Principal Financial Officer)

                                          Date:  May 12, 1997