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                                                                  Exhibit 10(ag)

                              EMPLOYMENT AGREEMENT

            THIS EMPLOYMENT AGREEMENT, dated as of December 12, 1997, by and
between American Real Estate Investment Corporation, a Maryland corporation (the
"Company") and Jeffrey Kelter ("Executive"), recites and provides as
follows:

                              W I T N E S S E T H:

            WHEREAS, the Company is a self-administered Maryland corporation,
which owns, acquires, develops and leases office and industrial properties;

            WHEREAS, the Company desires to employ Executive to devote a
significant portion of his time (as hereinafter defined) to the business of the
Company, including, without limitation, the operation and management of the
Company and the Properties, and to serve as the President of the Company; and

            WHEREAS, Executive desires to be so employed on the terms and
subject to the conditions hereinafter stated.

            NOW, THEREFORE, IN CONSIDERATION of the mutual covenants, promises
and obligations of the parties provided for in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

            A. DEFINITIONS.

            For purposes of this Agreement, the following terms shall have the
following meanings (applicable to both the singular and plural forms of the
terms defined):

            1. "Acquisition of Office or Industrial Property" means engaging in
the activity of soliciting, seeking to acquire, obtaining an option or first
right of refusal to acquire, or acquiring, any interest in an Office or
Industrial Property or in real property planned for development as an Office or
Industrial Property.

            2. "Affiliate" means (i) any person directly or indirectly
controlling, controlled by, or under common control with such other person, (ii)
any executive officer, director, trustee or general partner of such other
person, and (iii) any legal entity for which such person acts as an executive
officer, director, trustee or general partner. The term "person" means and
includes any natural person, corporation, partnership, association, limited
liability company or any other legal entity.

            3. "Closing Date" means December 12, 1997.
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            4. "Competitive Activity" means engaging in directly, through an
Affiliate, or being employed by any entity undertaking, or otherwise undertaking
to do any of the following: (i) Acquisition of Office or Industrial Property,
(ii) Office or Industrial Property Ownership or Leasing, (iii) Office or
Industrial Property Construction, (iv) Office or Industrial Property
Entitlements, (v) Speculation, or (vi) Office or Industrial Property Management
and Operation.

            5. "Employment Term" means the Initial Term, as herein defined, and
the successive annual renewals of this Agreement until terminated. The initial
term of Executive's employment hereunder (the "Initial Term") shall be for a
period of three years, commencing on the Closing Date and continuing until the
third anniversary of the Closing Date, unless terminated earlier as provided
herein. After the third anniversary of the Closing Date, the term shall be
automatically renewed for successive one year periods unless otherwise
terminated as provided herein.

            6. "Good Reason" shall mean the occurrence, without Executive's
express written consent, of any one or more of the following events:

                  (a) the removal or suspension from office without cause of
      Executive or failure without cause to elect or appoint Executive as
      President of the Company throughout the Employment Term;

                  (b) any substantial alteration, including any material
      diminution, in the nature or status of Executive's responsibilities as
      President, which substantial alteration is not remedied or cured forthwith
      following Executive's notification to the Company;

                  (c) the assignment of any duties which are in any significant
      respect inconsistent with Executive's status as President of the Company,
      which inconsistent assignment is not remedied or cured forthwith following
      Executive's notification to the Company; and

                  (d) the failure of Executive for any reason other than cause
      to be a member of the Board of Directors of the Company.

            7. "Independent Director" shall mean a member of the Board of
Directors of the Company who is defined as an "Independent Director" in the
Amended and Restated Articles of Incorporation of the Company, as filed with the
Securities and Exchange Commission, as amended.

            8. "Involuntary Termination" means the breach by the Company of any
material provision of this Agreement and such breach continues for a period of
14 days after the Independent Directors on the Company's Board of Directors
receive written notice of such breach.


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            9. "Noncompetition Period" means the period beginning the later of
the date of the termination of the Employment Term, for whatever reason, and the
date on which Executive ceases to be a member of the Board of Directors of the
Company and ending one year from the date of termination.

            10. "Office or Industrial Property" means any Property that is used
in whole or in part for office or industrial space or office or industrial
related purposes, whether in fee or leasehold, together with all improvements
and fixtures now or hereafter located thereon, all rights, privileges and
easements appurtenant thereto, and all tangible and intangible personal property
used in connection therewith.

            11. "Office or Industrial Property Construction" means the
construction, renovation or repair of improvements on an Office or Industrial
Property by Executive or an Affiliate of Executive.

            12. "Office or Industrial Property Entitlements" means engaging in
the process by which a person with an interest in an Office or Industrial
Property obtains necessary or desirable governmental approvals, licenses,
permits, entitlements or agreements for the commencement of Office or Industrial
Property Construction.

            13. "Office or Industrial Property Management and Operation" means
engaging in directly or through an Affiliate, or being employed by any entity
undertaking, or otherwise undertaking the day-to-day management and operation of
an Office or Industrial Property, whether pursuant to a master lease, management
agreement or any other arrangement.

            14. "Property" means any real property or any interest therein.

            15. "Speculation" means engaging in the activity of soliciting,
seeking to acquire, obtaining an option or a first right of refusal to acquire,
or acquiring, any interest in a Office or Industrial Property with the intention
at any time of acquiring (or obtaining an option or a first right of refusal to
acquire) or holding an Office or Industrial Property for subsequent sale or
other transfer to any person for purposes of Competitive Activity.

            16. "Termination Without Cause" means the termination of Executive's
employment (i) by the Company for any reason other than Termination With Cause,
(ii) by the Executive for Good Reason, or (iii) by Executive's Voluntary
Termination.

            17. "Termination With Cause" means the termination of Executive's
employment by act of the Board of Directors for any of the following reasons:

                  (a) any material breach of this Agreement, consisting of any
      repeated gross or willful refusal, failure or neglect by Executive in
      connection with the performance of his duties and fulfillment of his
      obligations under this Agreement;


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                  (b) conduct by Executive that would result in material injury
      to the reputation of the Company if he were retained in his position with
      the Company, including conviction of a felony under the laws of the United
      States or any State thereof, or of an equivalent crime under the laws of
      any other jurisdiction, bankruptcy, insolvency or general assignment for
      the benefit of his creditors;

                  (c) any failure to comply substantially with any written
      rules, regulations, policies or procedures of the Company, if such
      non-compliance could be expected to have a material and adverse effect on
      the Company's business and which has not been cured after reasonable
      notice; or

                  (d) any willful failure to comply with the Company's internal
      policies regarding insider trading or insider dealing which has not been
      cured after reasonable notice.

            18. "Voluntary Termination" means Executive's voluntary termination
of his employment hereunder (which does not include termination for Good
Reason), which may be effected by Executive's giving the Company's Board of
Directors 60 days' written notice of Executive's desire to terminate his
employment.

            B. THE EMPLOYMENT RELATIONSHIP.

            1. Employment. The Company shall employ Executive, and Executive
agrees to be so employed, in the capacity of President of the Company to serve
for the Employment Term, subject to earlier termination as herein provided.

            2. Services. Executive shall devote a significant portion of his
time, attention and effort to the Company's affairs. Specifically, Executive
shall have senior management authority and responsibility with respect to the
day-to-day operations and long-term management of the Company and its Office and
Industrial Properties, as well as implementation of the growth strategy of the
Company, consistent with directions from the Company's Board of Directors.
Executive shall have full authority and responsibility, subject to the general
direction, approval and control of the Company's Board of Directors for
formulating policies and administering the Company and its Properties. He shall
have the authority to hire and fire non-executive Company personnel, to retain
consultants when he deems necessary to implement the Company's policies, to
execute contracts on behalf of the Company in the ordinary course of business
and to negotiate for and cause the Company to acquire new Properties at the
direction of the Board of Directors of the Company. As used herein, "a
significant portion of his time, attention and effort" shall mean substantially
all of Executive's working time devoted to business activities.

            3. Compensation. (a) The Company initially shall pay Executive for
his services an annual base salary of $200,000, subject to any increases in base
compensation as approved by the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee").


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            (b) Executive shall be entitled to full and complete participation
in the Company's Salary Reduction and Other Elective Simplified Employee
Pension-Individual Retirement Account Contribution Agreement as documented on
Form 5305A-SEP.

            (c) In addition, the Company may from time to time pay Executive
such compensation or benefits as the Compensation Committee of the Board of
Directors may, in its discretion, award to Executive under any compensation,
bonus, stock purchase, stock option, profits sharing or other employee benefit
plan that may hereafter be adopted (any such compensation is referred to as
"Incentive Compensation"). Executive's Incentive Compensation will be consistent
with executive Incentive Compensation paid to executives in comparable positions
at other real estate investment trusts in the Company's peer group. In the event
of a Termination Without Cause, to the extent that Executive has options which
have not vested at such time and which would have vested at the next option
vesting date but for such termination ("Current Unvested Options"), then an
amount of Current Unvested Options will vest upon such termination equal to the
following: the total Current Unvested Options multiplied by a fraction of which
the numerator equals the number of days elapsed from the previous option vesting
date up to and including the date of termination and the denominator equals the
total number of days between option vesting dates.

            4. Benefits. The Company agrees to provide Executive with the
following benefits during the Term of this Agreement:

                  (a) Vacation. Executive shall be entitled each year to a paid
      vacation in accordance with the practices of the Company as constituted by
      the Board of Directors of the Company.

                  (b) Employee Benefits. Executive shall be entitled to all
      rights, benefits and privileges to which other management level employees
      of the Company are entitled, including, but not limited to, any
      retirement, pension, profitsharing, insurance, hospital or other plans
      which may now be in effect or which may hereafter be adopted by the
      Company.

            5. Expenses. The Company recognizes that Executive will have to
incur certain out-of-pocket expenses, including, but not limited to, travel
expenses, related to his services and the Company's business, and the Company
agrees to reimburse Executive for all reasonable expenses necessarily incurred
by him in the performance of his duties upon presentation of a voucher or
documentation indicating the amount and business purposes of any such expenses.

            6. Termination in Case of Death or Disability. In case of
Executive's death or permanent disability (defined as complete physical or
mental inability, confirmed by a licensed physician, to perform substantially
all of the services described herein that continues for a period of 180
consecutive days), the Company may elect to terminate Executive pursuant to the
terms of


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Section B, Paragraph 8 hereof.

            7. Termination With Cause; Voluntary Termination. The Company may
terminate this Agreement upon a determination that an event has occurred within
the definition of Termination With Cause; provided, however, in the case of a
Termination With Cause based upon clauses (a) or (b) of such definition, the
Company shall provide Executive written notice of such grounds for termination,
and Executive shall have a period of 14 days to cure such cause to the
reasonable satisfaction of the Company's Board of Directors. If Executive shall
suffer Termination With Cause or shall cease being an employee of the Company on
account of a Voluntary Termination, then Executive shall not be entitled to any
compensation after the effective date of such Voluntary Termination or
Termination With Cause (except compensation accrued but unpaid on the date of
such event). Any continued rights and benefits Executive may have under employee
benefit plans and programs of the Company upon such a termination, if any, shall
be determined in accordance with the terms of such plans and programs; provided,
however, that Executive, including his immediate family, shall be able to
continue to participate in the Company's medical/health insurance or coverage
program with the same level of benefits as he was entitled to receive
immediately prior to the time of termination, for up to 18 months following
termination, but Executive shall bear all costs of such medical/health insurance
or coverage.

            8. Death or Disability; Termination Without Cause; or Involuntary
Termination. If Executive shall suffer a death, disability, Involuntary
Termination or a Termination Without Cause, then the Company shall pay Executive
cash compensation in a lump sum equal to (x) Executive's base salary (based on
Executive's base salary at the time of such death, disability or termination)
plus the prior year's bonus, times (y) the longer of one year or the remainder
of the Employment Term; and the Company shall continue to provide, for the
longer of one year or the remainder of the Employment Term, Executive (or his
family in the case of his death) with the level of health/medical insurance or
coverage provided to Executive at the time of such death, disability or
termination. Any continued rights and benefits that Executive, or Executive's
estate or other legal representatives, may have under employee benefit plans and
programs of the Company upon such death, disability or termination shall be
determined in accordance with the terms and provisions of such plans and
programs.

            9. Indemnification. The Company agrees that for the Employment Term,
provisions of the Company's bylaws regarding indemnification and advancement of
expenses of officers and directors shall not be amended to adversely effect
Executive nor shall the Company's articles of incorporation be amended to
adversely effect Executive's rights with respect to limitation of liability,
indemnification or advancement of expenses.

            C. AGREEMENT NOT TO COMPETE

            Except as explicitly provided herein, Executive agrees, for the
entire Employment Term and Noncompetition Period, to the following covenants,
effective within the United States:


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            1. Competitive Activity Restriction. Executive, personally or
through any Affiliate of Executive, shall not conduct any Competitive Activity
other than through the Company, unless a majority of the Company's Board of
Directors, which majority must include a majority of the Independent Directors,
have determined that such Competitive Activity will not have a material adverse
effect on the business or operations of the Company. Notwithstanding any other
provision of this Agreement, Executive agrees that, during the time he is
employed by the Company, Executive shall present to the Company all
opportunities that arise to engage in Competitive Activities.

            2. No Beneficial Ownership. Executive shall not beneficially own
directly or indirectly any beneficial interest in any entity engaged in any
Competitive Activity other than the Company, except for any interest in a
company traded on a nationally recognized public securities exchange (including
The Nasdaq National Market), provided such interest does not exceed 5% of the
outstanding capital stock of such company.

            3. Loans. Executive shall not directly or indirectly make any loan
to, or hold any note evidencing a loan from, any entity engaged in any
Competitive Activity.

            4. Competitive Entity. Executive shall not be a director or trustee,
officer, or employee of, or consultant to (whether for compensation or not) any
entity engaged in any Competitive Activity.

            5. Notification to Independent Directors. If Executive or any
Affiliate of Executive desires to engage in any Competitive Activity, Executive
shall describe fully the proposed activity in a written notice (the "Disclosure
Notice") to the Company and the Independent Directors. A Disclosure Notice shall
only pertain to a specific proposed project and the referenced proposed project
shall be described therein with specificity as to timing, location, scope and
the extent of Executive's involvement, financially and in terms of his time
commitment. A Disclosure Notice may not request approval for any conceptual or
non-project specific activity or for any activity that is prohibited by this
Agreement.

            6. No Solicitation. Notwithstanding any other provision of this
Agreement, for a period of one year after the Noncompetition Period, Executive
shall not directly or indirectly (i) solicit any existing client of the Company
or any potential client of the Company whom the Company was actively soliciting
during the time of Executive's directorship, (ii) hire, solicit or otherwise
encourage any employee or independent contractor of the Company to leave the
employment of, or terminate any contractual relationship with, the Company or
(iii) otherwise interfere with, disrupt or attempt to disrupt the relationships,
contractual or otherwise, between the Company and its employees or independent
contractors or solicit or encourage any employee or independent contractor of
the Company to engage in any Competitive Activity.

            7. Competitive Activity with JP Morgan. Executive will not engage in
any Competitive Activity with, for, through or on behalf of JP Morgan Investment
Management or any affiliate thereof for a period of five years from the later of
the date of the termination of the


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Employment Term, for whatever reason, and the date on which Executive ceases to
be a member of the Board of Directors of the Company.

            D. MISCELLANEOUS PROVISIONS.

            1. Notices. All notices or deliveries authorized or required
pursuant to this Agreement shall be deemed to have been given when in writing
and when (i) deposited in the U.S. mail, certified, return receipt requested,
postage prepaid, or (ii) otherwise delivered by hand or by overnight delivery,
against written receipt, by a common carrier or commercial courier or delivery
service addressed to the parties at the following addresses or to such other
addresses as either may designate in writing to the other party:

            To the Company:         American Real Estate Investment Corporation
                                    Plymouth Meeting Executive Campus
                                    620 W. Germantown Pike, Suite 200
                                    Plymouth Meeting, PA  19462
                                    Telephone:  (601) 834-7950
                                    Facsimile:  (610) 834-9560

            To Executive:           Jeffrey Kelter
                                    40 Duck Pond Road
                                    Glen Cove, NY 11542
                                    Telephone:  (516) 671-9365

            2. Entire Agreement. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and shall not be modified in any manner except by written instrument
signed by or on behalf of the parties hereto. This Agreement shall be binding
upon and inure to the benefit of the heirs, successors and assigns of the
parties hereto.

            3. Applicable Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York.

            4. Assignment. Executive acknowledges that his services are unique
and personal. Executive may not assign his rights or delegate his duties or
obligations under this Agreement except (a) his rights to compensation and
benefits hereunder may be transferred by will or operation of law and (b) his
rights under employee benefit plans or programs described in Section B,
Paragraph 4(b) may be assigned or transferred in accordance with the terms of
such plans or programs, or regular practices thereunder. Executive's rights and
obligations under this Agreement shall inure to the benefit of and shall be
binding upon Executive's heirs and personal representatives.

            5. Titles and Headings. Titles and headings to sections and
paragraphs in this Agreement are inserted for the convenience of reference only
and are not intended to be a part of


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or to affect the meaning or interpretation of this Agreement.

            6. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.

            7. Amendments. No amendment, modification or supplement to this
Agreement shall be binding on any of the parties hereto unless it is in writing
and signed by the parties in interest at the time of the modification, and
further provided any such modification is approved by a majority of the
Independent Directors.

            8. No Third-Party Beneficiaries. This Agreement is solely for the
benefit of the parties to this Agreement and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claims or action or
other right in excess of those existing without reference to this Agreement.

            9. Maximum Legal Enforceability; Time of Essence. Any provision of
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party to this Agreement,
each party hereto acknowledges that damages would not be an adequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable. Time shall be of the
essence as to each and every provision of this Agreement.

            10. Specific Performance. Executive acknowledges that the
obligations undertaken by him pursuant to this Agreement are unique and that the
Company will not have an adequate remedy at law if he shall fail to perform any
of his obligations hereunder, and Executive therefore confirms that the
Company's right to specific performance of the terms of this Agreement is
essential to protect the rights, interest and goodwill of the Company.
Accordingly, in addition to any other remedies that the Company may have at law
or in equity, the Company shall have the right to have all obligations,
covenants, agreements and other provisions of this Agreement specifically
performed by Executive, and the Company shall have the right to obtain
preliminary and permanent injunctive relief to secure specific performance and
to prevent a breach or contemplated breach of this Agreement by Executive.
Executive acknowledges that the Company will have the right to have the
provisions of this Agreement enforced in any court of competent jurisdiction, it
being agreed that any breach or threatened breach of this Agreement would cause
irreparable injury to the Company and its business and that money damages would
not provide an adequate remedy to the Company.

            11. Operations of Affiliated Parties. Executive agrees that he will
refrain from authorizing any Affiliate to perform any activities that would be
prohibited by the terms of this


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Agreement if they were performed by him. Notwithstanding anything to the
contrary contained in this Agreement, Executive shall not be required by the
terms of this Agreement to violate any fiduciary duty existing on the date
hereof that he owes to a third party.

            12. Further Assurances. The parties to this Agreement will execute
and deliver or cause the execution and delivery of such further instruments and
documents and will take such other actions as any other party to the Agreement
may reasonably request in order to effectuate the purpose of this Agreement and
to carry out the terms hereof.

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first written above.


                                    JEFFREY KELTER


                                    /s/ Jeffrey E. Kelter
                                    --------------------------------------------
                                    December 12, 1997


                                    AMERICAN REAL ESTATE INVESTMENT
                                    CORPORATION


                                    By:
                                       -----------------------------------------
                                       Name:
                                       Title:


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