<PAGE>
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-K

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

            [ ] 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: 1-10643

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

                         HALLWOOD REALTY PARTNERS, L.P.
             (Exact name of registrant as specified in its charter)

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

    DELAWARE                                             75-2313955
    (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                       Identification Number)

    3710 RAWLINS
    SUITE 1500
    DALLAS, TEXAS                                        75219-4298
    (Address of principal executive offices)             (Zip Code)

       Registrant's telephone number, including area code: (214) 528-5588

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                     Name of each exchange on
Title of each class                                  which registered
------------------------------------------------     ------------------------
UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS     AMERICAN STOCK EXCHANGE


        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
                                                                    ----

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

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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act):  Yes  X   No
                                        ---     ---

The aggregate market value of units held by nonaffiliates of the registrant as
of June 28, 2002 was $86,860,000.

            CLASS: UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS.
                 OUTSTANDING AT MARCH 14, 2003: 1,593,948 UNITS.

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


                                  Page 1 of 45
<PAGE>
                         HALLWOOD REALTY PARTNERS, L.P.

                                    FORM 10-K

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                       Page
                                                                                                       ----
<S>                      <C>                                                                           <C>
       PART 1

       Item 1            Business                                                                       3

       Item 2            Properties                                                                     6

       Item 3            Legal Proceedings                                                              7

       Item 4            Submission of Matters to a Vote of Security Holders                            8

       PART II

       Item 5            Market for Registrant's Units and Related Security Holder Matters              8

       Item 6            Selected Financial Data                                                        9

       Item 7            Management's Discussion and Analysis of Financial Condition
                         and Results of Operations                                                      10

       Item 7a           Quantitative and Qualitative Disclosures about Market Risk                     17

       Item 8            Financial Statements and Supplemental Information                              18

       Item 9            Changes in and Disagreements with Accountants on Accounting
                         and Financial Disclosures                                                      39

       PART III

       Item 10           Directors and Executive Officers of the Registrant                             40

       Item 11           Executive Compensation                                                         41

       Item 12           Security Ownership of Certain Beneficial Owners and Management                 43

       Item 13           Certain Relationships and Related Transactions                                 44

       Item 14           Controls and Procedures                                                        44

       PART IV

       Item 15           Exhibits, Financial Statement Schedule and Reports on Form 8-K                 44
</Table>


                                  Page 2 of 45
<PAGE>


                                     PART I

ITEM 1.   BUSINESS


DESCRIPTION OF THE BUSINESS

Hallwood Realty Partners, L.P. ("HRP"), a publicly traded Delaware limited
partnership, operates in the commercial real estate industry. HRP's activities
include the acquisition, ownership and operation of its commercial real estate
assets. Units representing limited partnership interests are traded on the
American Stock Exchange under the symbol "HRY".

As of December 31, 2002, HRP owned 14 real estate properties (the "Properties")
located in six states containing 5,199,000 net rentable square feet (for
additional information, see Item 2 - Properties). HRP seeks to maximize the
value of its real estate by making capital and tenant improvements, by executing
marketing programs to attract and retain tenants, and by controlling or
reducing, where possible, operating expenses.

Hallwood Realty, LLC ("Realty" or the "General Partner"), a Delaware limited
liability company and indirectly wholly-owned subsidiary of The Hallwood Group
Incorporated ("Hallwood"), is HRP's general partner and is responsible for asset
management of HRP and its Properties, including decision-making responsibility
for financing, refinancing, acquiring and disposing of properties. In addition,
Realty provides general operating and administrative services to HRP. Hallwood
Commercial Real Estate, LLC ("HCRE"), another indirectly wholly-owned subsidiary
of Hallwood, provides property management, leasing and construction supervision
services to the Properties.

RISKS, COMPETITION AND OTHER FACTORS

DETERIORATION IN ECONOMIC CONDITIONS AND THE REAL ESTATE MARKETS COULD HARM
HRP'S BUSINESS.

The commercial real estate industry is sensitive to a number of factors relating
to global, national, regional and local general and economic conditions,
including war, threat of war, inflation, interest rates, taxation policies,
availability of credit, employment levels, and wage and salary levels. A
negative trend in any of these conditions could adversely affect HRP's business.
If a substantial number of tenants default on their leases, choose not to renew,
or if rental rates decrease, HRP's financial position could be adversely
affected. Such effects could include a decline in acquisition, disposition and
leasing activity; a decline in the supply of capital invested in commercial real
estate; or a decline in the value of real estate.

HRP's cash flow would be adversely affected by decreases in the performance of
the properties it owns. Property performance typically depends upon the ability
to attract and retain creditworthy tenants; the ability to manage operating
expenses; the magnitude of defaults by tenants under their respective leases;
governmental regulations; the nature and extent of competitive properties;
financial and economic conditions generally and in the specific areas where
properties are located; and the real estate market generally. Expenses may
increase due to unexpected or higher repairs and maintenance costs, inflation,
services and costs required to retain tenants or to sign new tenants,
unsuccessful appeals of rising real estate taxes, changes in interest rates,
higher insurance costs, the outcome of existing or future litigation, as well as
other factors, many of which are beyond the control of HRP.

HRP MAY BE SENSITIVE TO CHANGES IN INTEREST RATES.

Because only one of its mortgage loans has a floating interest rate, HRP's
exposure to changes in market interest rates is limited to the difference
between the market rate in effect at the time a loan matures compared to its
existing loan rate. As of December 31, 2002, HRP had mortgage loans totaling
$172,552,000 with fixed interest rates from 6.97% to 8.7% (with an effective
average interest rate of 8.21%). These loans mature between 2005 and 2020. At
the time of loan maturity, a higher market interest rate compared to the
existing rate will have a negative impact on the amount of mortgage proceeds
secured from a refinancing, as well as a decrease in cash flow from future
operations due to the higher interest rate.

A $25,000,000 mortgage loan secured by Allfirst Building bears interest at LIBOR
plus 130 basis points, and therefore HRP's actual cash interest costs are
affected by changes in market interest rates. The interest rate for this loan
was 2.68% as of December 31, 2002. Assuming a 100 basis point, or 1%, change in
LIBOR, interest paid by HRP would increase or decrease by $250,000 on an annual
basis.

                                  Page 3 of 45
<PAGE>


RISKS, COMPETITION AND OTHER FACTORS (CONTINUED)


INSURANCE RISKS HAVE INCREASED AS A RESULT OF RECENT EVENTS.

Due in large part to the terrorist activities of September 11, 2001, insurance
companies have re-examined many aspects of their business and have taken certain
actions in the wake of these terrorist activities, including increasing
premiums, mandating higher self-insured retentions and deductibles, reducing
limits, restricting coverages, imposing exclusions (such as sabotage and
terrorism), and refusing to underwrite certain risks and classes of business.
Significantly increased premiums, mandated exclusions, or changes in limits,
coverages, terms and conditions could adversely affect HRP's ability to obtain
appropriate insurance coverages. However, at this time the only impact on HRP
has been an increase in premiums. HRP has $250,000,000 of terrorism insurance
coverage.

HRP MAY INCUR ENVIRONMENTAL LIABILITY IN ITS ROLE AS A PROPERTY OWNER.

Various national, state and local laws and regulations impose liability on real
property owners, such as HRP, for the cost of investigating, cleaning up or
removing contamination caused by hazardous or toxic substances. The liability
may be imposed even if the original actions were legal and HRP did not know of,
or was not responsible for, the presence of such hazardous or toxic substances.
HRP may also be solely responsible for the entire payment of the liability if it
is subject to joint and several liability with other responsible parties who are
unable to pay. HRP may be subject to additional liability if it fails to
disclose environmental issues to a buyer or lessee of property or if a third
party is damaged or injured as a result of environmental contamination emanating
from the site. HRP cannot be sure that any of such liabilities to which it may
become subject will not have a material adverse effect upon its business,
results of operations or financial condition.

Parklane Towers, as well as certain other properties to a lesser extent, are
known to contain asbestos. Removal of asbestos at HRP's properties is not
required because it is cementitious, it is not friable and because the
procedures in HRP's site environmental program Operations and Maintenance Manual
are performed as required.

HRP MAY HAVE DIFFICULTY DISPOSING OF ASSETS WHEN IT HAS TO DO SO.

HRP's basic investment strategy is to hold real estate assets until what it
believes to be an optimal time to sell them. Normally, this will be during
relatively strong real estate markets. However, factors beyond HRP's control
could make it necessary for HRP to dispose of real estate properties during weak
markets. Further, markets for real estate assets are not usually highly liquid,
which can make it particularly difficult to realize acceptable prices when
disposing assets during weak markets.

IF HRP DOES NOT GENERATE SUFFICIENT CASH FLOWS FROM OPERATIONS, IT MAY NEED
ADDITIONAL CAPITAL.

To date, HRP has financed its operations with cash from profitably operating its
established properties. If HRP does not generate enough cash from operations to
finance its business in the future, it will need to raise additional funds
through public or private financing or asset sales. If HRP borrows money, it may
be required to agree to restrictions limiting its operating flexibility. If HRP
requires additional funds and is not able to obtain such funds, it would have a
material adverse effect on its operations.

SOME OF HRP'S LOANS CONTAIN COVENANTS AND RESTRICTIONS, WHICH AFFECT
FLEXIBILITY.

HRP has two mortgage loans that require compliance with a loan covenant, which
if not met will trigger a default. The loans require the properties securing
each loan to maintain a liquidity ratio, specifically a debt service coverage
ratio. A debt service coverage ratio is the relationship of adjusted net
operating income (as defined in each loan agreement) for the previous 12 months
to the loan's annual debt service. The ratio, for a loan requiring a minimum
1.15 ratio, was 2.25, 2.35, and 2.19 for 2002, 2001, and 2000, respectively. The
ratio, for a loan requiring a minimum 1.10 ratio, was 2.39, 1.94, and 2.45 for
the same periods. Accordingly, HRP was in compliance with these loan covenants
for the three years ended December 31, 2002. As of December 31, 2002, the
outstanding balance of the loans is $111,553,000.

Additionally, these two mortgage loans contain restrictions that limit certain
actions. With respect to the properties encumbered by these loans, HRP cannot
incur additional debt. Also, HRP's ability to sell a property, or a portion
thereof, is limited because of the requirement to substitute collateral with
substantial penalty. These loans also, under certain circumstances, may restrict
the ability of HRP to merge, to consolidate or to liquidate.

                                  Page 4 of 45
<PAGE>


RISKS, COMPETITION AND OTHER FACTORS (CONTINUED)


HRP IS SUBJECT TO LITIGATION.

HRP is currently a party to certain litigation in Delaware state court, as
described more fully in Item 3 - Legal Proceedings. The trial court in that
matter ruled that the defendants other than HRP pay a judgment in the amount of
$3,417,423, plus pre-judgment interest from August 1995 to HRP. The plaintiff
and certain defendants have appealed that ruling. In October 2001, HRP received
the $3,417,423 judgment together with $2,987,576 of pre-judgment and
post-judgment interest, subject to an arrangement that it be returned in full or
part if the judgment is modified or reversed on appeal. If the appellate court
reverses the judgment, any subsequent ruling by the trial court on remand may be
more or less favorable to HRP.

HRP IS SUBJECT TO COMPETITION.

The Properties are subject to substantial competition from similar properties in
the vicinity in which they are located. In addition, there are numerous other
potential investors seeking to purchase improved real property and many property
holders seeking to dispose of real estate with which HRP will compete, including
companies substantially larger than HRP and with substantially greater
resources.

OTHER.

Realty and HCRE, on behalf of HRP, monitor compliance with the Americans with
Disabilities Act and are currently not aware of any material non-compliance
issues.

HRP does not directly employ any individuals. Currently, approximately 90
employees of Realty and/or HCRE render services on behalf of HRP and its
Properties.

The business of HRP involves only one industry segment. Accordingly, all
information required by Item 101(b) of Regulation S-K is included in the
Consolidated Financial Statements included in Item 8. HRP has no foreign
operations and its business is not seasonal.

OCCUPANCY AND MAJOR TENANT INFORMATION

For information regarding occupancy, percentages of square feet scheduled to
expire by calendar year, and major tenants, see "Liquidity and Capital
Resources" in Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.


                                  Page 5 of 45
<PAGE>
ITEM 2.   PROPERTIES


As of December 31, 2002, HRP owned 14 properties located in six states with
5,199,000 net rentable square feet.

<Table>
<Caption>
                                                                                            NET
                                                                                         RENTABLE      ACRES       PERCENTAGE
                                                                         YEAR(S)          SQUARE        OF        LEASED AS OF
NAME AND LOCATION                               DESCRIPTION           CONSTRUCTED          FEET        LAND        12/31/2002
-------------------------------        --------------------------    ------------        ---------     -----      ------------

<S>                                    <C>                            <C>                <C>           <C>         <C>
AIRPORT PLAZA                                  three story                1982             48,637         2          100%
San Diego, California                        office building

ALLFIRST BUILDING                               22 story                  1972            343,080       0.6           98%
Baltimore, Maryland                          office building

BELLEVUE CORPORATE PLAZA                        ten story                 1980            242,861       3.6           74%
Bellevue, Washington                         office building

BRADSHAW BUSINESS PARKS                      21 single story          1974 to 1980        452,838        31           95%
Sacramento and Rancho Cordova,         office/warehouse buildings
California                                    at four sites

CORPORATE SQUARE                          10 one to seven story       1967 to 1973,       593,061        34           94%
Atlanta, Georgia                            office buildings              2000

EXECUTIVE PARK                             26 one to six story        1965 to 1972,     1,019,615        70           88%
Atlanta, Georgia                            office buildings              2002

FAIRLANE COMMERCE PARK                  11 single story buildings     1973 to 1990        416,056        35          100%
Dearborn, Michigan                      in office/industrial park

FOUNTAIN VIEW BUSINESS CENTER                 3 three story               1980             89,432       4.3           96%
San Diego, California                       office buildings

GULLEY ROAD INDUSTRIAL PARK             5 single story buildings      1990 to 1993        154,360        11           83%
Dearborn, Michigan                        in an industrial park

MONTROSE OFFICE CENTER                          ten story                 1980            147,337         3           99%
Rockville, Maryland                          office building

PARKLANE TOWERS                            twin fifteen story             1973            486,607      31.8           94%
Dearborn, Michigan                          office buildings

RAINTREE INDUSTRIAL PARK                14 single story buildings     1971 to 1979        795,198        49           84%
Solon, Ohio                            in office/industrial complex

RIVERBANK PLAZA                               2 three story               1978            40,222        1.6          100%
San Diego, California                       office buildings

SEATTLE BUSINESS PARKS                       17 single story          1972 to 1978,       369,248        23           87%
Kent and Tukwila, Washington                buildings in two              1993
                                         office/industrial parks
</Table>

Allfirst Bank, the principal tenant of Allfirst Building, has options to
purchase the building from HRP for $28,000,000 in either 2004 or 2006. For
information regarding this project as well as encumbrances to which any
properties are subject and the status of related mortgage loans, see "Liquidity
and Capital Resources" in Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations, as well as Note 6 to the
Consolidated Financial Statements and Schedule III in Item 8 - Financial
Statements and Supplemental Information.

OFFICE SPACE -

HRP leases and shares offices with Hallwood in Dallas, Texas under a lease which
expires November 30, 2008. HRP has a one-time option to terminate the lease
effective November 30, 2005. The annual minimum cash rental payments are
$315,000, of which HRP's portion is approximately $210,000 annually.


                                  Page 6 of 45
<PAGE>


ITEM 3.   LEGAL PROCEEDINGS

On June 20, 1997, an action was filed against HRP, the General Partner, its
directors, and Hallwood by Gotham Partners, L.P. in the Court of Chancery of the
State of Delaware, styled Gotham Partners, L.P. v. Hallwood Realty Partners,
L.P., et al. (C.A. No. 15754). This action alleges claims of breach of fiduciary
duties, breach of HRP's partnership agreement, and fraud in connection with
certain transactions involving HRP's units in the mid 1990's. Hallwood is
alleged to have aided and abetted the alleged breaches. On June 21, 2000, after
completing fact discovery, all parties moved for summary judgment on several
issues. In September and October 2000, the Delaware court issued three separate
written opinions resolving the summary judgment motions. In the opinions, the
court ruled that trial would be required as to all issues, except that (i)
Gotham was found to have standing to pursue its derivative claims; (ii)
defendants were entitled to judgment dismissing the fraud claim; (iii) the
General Partner was entitled to judgment dismissing the breach of fiduciary duty
claims brought against it; and (iv) the General Partner's outside directors were
entitled to judgment dismissing all claims brought against them.

A five-day trial was held in January 2001. On July 18, 2001, the Delaware Court
of Chancery rendered its opinion. In its decision, the court determined that an
option plan and a sale of units to Hallwood in connection with a reverse split
of units implemented by HRP in 1995 were in compliance with HRP's partnership
agreement. The court also found that the sale of units to Hallwood in connection
with a 1995 odd-lot offer by HRP did not comply with certain procedures required
by the HRP partnership agreement. The court ruled that the defendants other than
HRP pay a judgment to HRP in the amount of $3,417,423, plus pre-judgment
interest from August 1995. The judgment amount represents what the court
determined was an underpayment by Hallwood. In August 2001, plaintiff and
certain defendants appealed the Court of Chancery's judgment to the Delaware
Supreme Court. In October 2001, HRP received the $3,417,423 judgment together
with $2,987,576 of interest, subject to an arrangement that it be returned in
full or part if the judgment is modified or reversed on appeal. Oral arguments
were heard on February 12, 2002, and a rehearing en banc was held on March 26,
2002. On August 29, 2002, the Supreme Court affirmed the judgment of the trial
court that the remaining defendants other than HRP are jointly and severally
liable to HRP. The Supreme Court reversed the trial court's determination of
damages, and remanded the case to the trial court to fashion appropriate relief.
A hearing on the remand proceedings was held before the Court of Chancery on
October 25, 2002. A further hearing on the remand is scheduled to take place in
May or June 2003, with a decision by the Court of Chancery to follow. Since the
appellate court reversed the judgment, any subsequent ruling by the trial court
on remand may be more or less favorable to HRP. As a result of the uncertainty
of the litigation's outcome, HRP recorded the judgment and interest as "Deferred
Litigation Proceeds" on its balance sheet.

On February 15, 2000, HRP filed a lawsuit in the United States District Court
for the Southern District of New York styled Hallwood Realty Partners, L.P. v.
Gotham Partners L.P., et al. (Civ. No. 00 CV 1115) alleging violations of the
Securities Exchange Act of 1934 by certain purchasers of its units, including
Gotham Partners, L.P., Gotham Partners III, L.P., Private Management Group,
Inc., Interstate Properties, Steven Roth and EFO Realty, Inc., by virtue of
those purchasers' misrepresentations and/or omissions in connection with filings
required under the Securities Exchange Act of 1934. The complaint further
alleged that defendants, by acquiring more than 15% of the outstanding HRP
units, have triggered certain rights under its Unit Purchase Rights Agreement,
for which HRP was seeking declaratory relief. HRP sought various forms of
relief, including declaratory judgments, divestiture, corrective disclosures, a
"cooling-off" period and damages, including costs and disbursements. On November
16, 2000, the court granted HRP's motion to add as defendants Gotham Holdings
II, L.L.C., Hallwood Investors, L.P., Liberty Realty Partners, L.P. and
EFO/Liberty, Inc. and to remove EFO Realty, Inc. as a defendant. Discovery was
completed in December 2000 and trial was held in February 2001. On February 23,
2001, the court rendered a decision in favor of the defendants and on February
28, 2001, the court ordered the complaint dismissed. HRP filed a Notice of
Appeal on March 29, 2001. Oral argument was heard on March 4, 2002. On April 11,
2002, the U.S. Court of Appeals for the Second Circuit upheld the lower court's
ruling in favor of defendants. On April 25, 2002, HRP filed with the court a
Petition for Rehearing and Rehearing En Banc with respect to the April 11, 2002
decision. On June 3, 2002, the Second Circuit denied that petition. HRP has not
sought further appellate review and the determination in favor of defendants is
now final.

HRP is from time to time involved in various other legal proceedings and claims
which arise in the ordinary course of business. These matters are generally
covered by insurance. Management believes that the resolution of these matters
will not have a material adverse effect on HRP's financial position, cash flow
or operations.


                                  Page 7 of 45
<PAGE>
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the security holders of HRP during the
fourth quarter of 2002.


                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S UNITS AND RELATED SECURITY HOLDER MATTERS

HRP's units are traded on the American Stock Exchange under the symbol "HRY". As
of March 14, 2003, there were approximately 24,000 unitholders owning the
1,593,948 units outstanding. Each quarter Realty reviews HRP's capacity to make
cash distributions to its partners. HRP has not paid any cash distributions
since February, 1992.

The following table shows the high and low closing prices for the periods
indicated, as reported by the American Stock Exchange:


<Table>
<Caption>

                        CLOSING PRICES
                    --------------------
                       HIGH       LOW
                    ---------  ---------
<S>                 <C>        <C>
2001 -

    1st Quarter     $   71.75  $   47.50

    2nd Quarter         67.50      56.00

    3rd Quarter         60.00      52.00

    4th Quarter         71.02      52.75


2002 -

    1st Quarter     $   72.25  $   69.00

    2nd Quarter         70.25      68.50

    3rd Quarter         94.50      58.00

    4th Quarter         87.95      80.50

</Table>


                                  Page 8 of 45

<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA

The following table sets forth selected financial data regarding HRP's results
of operations and financial position as of the dates indicated. This information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in Item 7 and the
Consolidated Financial Statements and notes thereto contained in Item 8.

<Table>
<Caption>

                                                                              YEAR ENDED DECEMBER 31,
                                                    ----------------------------------------------------------------------------
                                                        2002            2001            2000            1999             1998
                                                    -----------     -----------     -----------      -----------     -----------
                                                                      (in thousands except per unit amounts)

<S>                                                 <C>             <C>             <C>              <C>             <C>
STATEMENTS OF OPERATIONS:

Total revenues(a)                                   $    73,739     $    74,691     $    69,901      $    61,470     $    58,056

Income (loss) before interest income, gain from
property sales, and cumulative effect of
SFAS No. 133 adoption                                     6,294           3,293          (1,267)           3,154          10,723

Income (loss) before cumulative effect
of SFAS No. 133 adoption                                  6,931           8,520            (299)           4,062          11,593

Net income (loss)                                         6,931           8,328            (299)           4,062          11,593


Income (loss) per unit and equivalent unit :

  Basic -

      Income (loss) before cumulative effect
      of SFAS No. 133 adoption                             4.32            5.31           (0.18)            2.40            6.86

      Net income (loss)                                    4.32            5.19           (0.18)            2.40            6.86

  Assuming dilution -

      Income (loss) before cumulative effect
      of SFAS No. 133 adoption                             4.16            5.13           (0.18)            2.31            6.59

      Net income (loss)                                    4.16            5.01           (0.18)            2.31            6.59


BALANCE SHEETS:

Real estate, net(b)                                 $   209,838     $   213,574     $   206,392      $   192,814     $   175,779

Total assets                                            274,420         269,875         254,504          230,386         214,023

Mortgages payable                                       197,552         201,224         200,096          171,312         162,078

Partners' capital(c)                                     60,675          54,022          44,490           48,696          44,634

</Table>


NOTES TO SELECTED FINANCIAL DATA:

(a)     Reclassifications, including a gross-up for parking, construction and
        tenant service expenses that were previously netted against revenues,
        have been made in the prior year amounts to conform to the
        classifications used in the current year. The reclassifications occurred
        due to the adoption of EITF No. 01-14, "Income Statement
        Characterization of Reimbursements Received for Out-of-Pocket Expenses
        Incurred". The reclassifications had no effect on previously reported
        net income or loss.

(b)     Acquisition and development activity from 1999 to 2001 increased HRP's
        real estate assets. These increases were partially offset by
        depreciation and amortization. Prior to 1999, real estate assets
        declined in each of the years, primarily due to depreciation and
        amortization exceeding the additions of tenant and property
        improvements.

(c)     Partners' capital includes Accumulated Other Comprehensive Income of
        $926,000 and $1,204,000 as of December 31, 2002 and 2001, respectively.
        Partners' capital balance is allocated 99% to the limited partners and
        1% to the General Partner.


                                  Page 9 of 45
<PAGE>


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

This discussion should be read in conjunction with Item 6 - Selected Financial
Data and Item 8 - Financial Statements and Supplemental Information.

RESULTS OF OPERATIONS

2002 COMPARED TO 2001 -

REVENUE FROM PROPERTY OPERATIONS in 2002 increased $399,000, or 0.6%, compared
to 2001. The following table illustrates the components of the change, in
thousands:

<Table>
<S>                       <C>
Rental income, net        $ 830
Other property income      (431)
                          -----
 Net increase             $ 399
                          =====
</Table>


Net rental income increased primarily due to an overall 5% increase in rental
rates offset by a decrease in average occupancy between periods from 90.9% to
87.3%. Average occupancy for 2002 was 89.0% excluding the new, but unoccupied,
building at Executive Park, which was completed in April 2002 - see Note 5 to
the Consolidated Financial Statements for more information. Other property
income decreased due to a reduction in tenant expense recoveries.

REVENUE FROM PARKING, CONSTRUCTION AND TENANT SERVICES for 2002 decreased
$1,351,000, or 16.7%, primarily as a result of a few major construction service
projects completed in 2001. By their nature, the demand for and size of
construction service projects can vary significantly from time to time.

PROPERTY OPERATING EXPENSES for 2002 increased $271,000, or 1.0%, compared to
2001. The change in expense includes non-specific, or general, increases in real
estate taxes, property and liability insurance premiums, and property level
salaries, partially offset by a general decrease in utilities and landscaping
costs.

PARKING, CONSTRUCTION AND TENANT SERVICES EXPENSE for 2002 decreased $787,000,
or 14.8%, primarily as a result of a few major construction service projects
completed in 2001. By their nature, the demand for and size of construction
service projects can vary significantly from time to time.

INTEREST EXPENSE for 2002 decreased $980,000, or 6.1%, compared to 2001, as a
result of a decrease in mortgage loan interest of $611,000 (primarily due to a
lower interest rate for HRP's only variable rate mortgage secured by Allfirst
Building), a decrease in capitalized interest of $230,000, and a decrease in
loan cost amortization and other interest costs of $40,000. (For more
information about the variable rate mortgage, see Item 7a - Quantitative and
Qualitative Disclosures About Market Risk.) Additionally, 2001 included $559,000
of prepayment penalties and other costs related to the early payoff of loans;
these costs were reclassified in the fourth quarter of 2002 from an
extraordinary item to current operations within interest expense as a result of
the adoption of Statement of Financial Accounting Standards ("SFAS") No. 145.

DEPRECIATION AND AMORTIZATION EXPENSE for 2002 increased $335,000, or 2.3%,
primarily due to depreciation for the newly completed building at Executive
Park.

GENERAL AND ADMINISTRATIVE EXPENSES for 2002 increased $239,000, or 5.5%,
compared to 2001, due to increases in certain professional fees, state franchise
taxes, director and officer liability insurance, and overhead costs.

LITIGATION COSTS were $777,000 and $3,808,000 for 2002 and 2001, respectively,
and are related to the lawsuits described in Item 3 - Legal Proceedings and Note
10 to the Consolidated Financial Statements.

INTEREST INCOME decreased by $406,000, or 38.9%, as a result of decreased
earnings on overnight cash investments due to significantly lower interest rates
available between years.

                                  Page 10 of 45
<PAGE>


RESULTS OF OPERATIONS   (CONTINUED)

2001 COMPARED TO 2000 -

REVENUE FROM PROPERTY OPERATIONS in 2001 increased $2,929,000, or 4.6%, compared
to 2000. The following table illustrates the components of the change, in
thousands:

<Table>
<S>                       <C>
Rental income, net        $   2,208
Other property income           721
                          ---------
 Net increase             $   2,929
                          =========
</Table>

Net rental income increased due to revenues generated from the addition and
completion of one development property at Corporate Square in mid-2000
($1,971,000), overall higher rental rates at most of HRP's real estate
properties, and an increase in average occupancy between years from 89.4% to
90.9%. As of December 31, 2001, HRP had leases executed and in place for
approximately 91% of the portfolio's net rentable square feet (excluding a
125,000 square foot development property at Executive Park). Other property
income increased primarily due to increases in tenant expense recoveries.

REVENUE FROM PARKING, CONSTRUCTION AND TENANT SERVICES for 2001 increased
$1,861,000, or 29.8%, primarily as a result of a few major construction service
projects completed in 2001. By their nature, the demand for and size of
construction service projects can vary significantly from time to time.

PROPERTY OPERATING EXPENSES for 2001 increased $641,000, or 2.4%, compared to
2000. The increase is comprised primarily of the following components:

         o        Operating costs with respect to the addition of the one
                  development property at Corporate Square completed in mid-2000
                  were $629,000 greater than in 2001.

         o        Professional fees decreased $705,000 primarily due to costs
                  incurred in 2000 for research and analysis of potential
                  property development projects.

         o        Combined, all other operating costs increased $717,000, or
                  about 2.7%, of which none are individually significant.

PARKING, CONSTRUCTION AND TENANT SERVICES EXPENSE for 2001 increased $1,757,000,
or 49.1%, primarily as a result of a few major construction service projects
completed in 2001. By their nature, the demand for and size of construction
service projects can vary significantly from time to time.

INTEREST EXPENSE for 2001 increased $313,000, or 2.0%, compared to 2000 as a
result of an increase in mortgage loan interest of $845,000 (due to a higher
average mortgage loan balance), partially offset by the capitalization of
$486,000 of interest for construction of the development project at Executive
Park (as described in Note 5 to the Consolidated Financial Statements), and a
decrease in loan cost amortization and other interest costs of $46,000.

DEPRECIATION AND AMORTIZATION EXPENSE was consistent between years and increased
$64,000, or 0.4%.

GENERAL AND ADMINISTRATIVE EXPENSES for 2001 decreased $690,000, or 13.7%,
compared to 2000 primarily due to $601,000 of non-qualified unit option
compensation in 2000.

LITIGATION COSTS were $3,808,000 and $5,663,000 for 2001 and 2000, respectively,
and are related to the lawsuits described in Item 3 - Legal Proceedings and Note
10 to the Consolidated Financial Statements.

GAIN FROM PROPERTY SALES of $4,184,000 in 2001 is comprised of the January sale
of one building at Seattle Business Parks for a gross selling price of
$3,287,000, resulting in a gain of $2,109,000; the January sale of one building
at Fairlane Commerce Park for a gross selling price of $575,000, resulting in a
gain of $153,000; and the March sale of Joy Road Distribution Center for a gross
selling price of $5,326,000, resulting in a gain of $1,922,000.

INTEREST INCOME increased by $75,000, or 7.7%, as a result of increased earnings
on overnight cash investments due to a higher average cash balance available for
investment, partially offset by lower interest rates.


                                  Page 11 of 45

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

GENERAL INFORMATION -

HRP operates in the commercial real estate industry. HRP's activities include
the acquisition, ownership and operation of its commercial real estate assets.
While it is the General Partner's intention to operate HRP's existing real
estate investments and to acquire and operate additional real estate
investments, Realty also continually evaluates each of HRP's real estate
investments in light of current economic trends, operations, and other factors
to determine if any should be considered for disposition.

As of December 31, 2002, HRP owned 14 real estate assets (the "Properties")
located in six states containing 5,199,000 net rentable square feet. HRP seeks
to maximize the value of its real estate by making capital and tenant
improvements, by executing marketing programs to attract and retain tenants, and
by controlling or reducing, where possible, operating expenses.

HRP fully consolidates into its financial statements majority owned entities.
For each of the three years in the period ended December 31, 2002, all entities
and Properties were fully owned. All significant intercompany balances and
transactions have been eliminated in consolidation.

HRP has, in three situations, created a Special Purpose Entity ("SPE"). These
SPEs were formed at the request of lenders for the express purpose of
strengthening the collateral for the loans by isolating (for Federal bankruptcy
law purposes) the assets and liabilities of the SPEs. In all cases and since
their various formation dates, the assets, liabilities and results of operations
of these wholly-owned entities have been fully consolidated into the financial
statements of HRP.

CASH SOURCES, CASH USES AND COMMITMENTS -

HRP's cash position increased $7,450,000 during 2002 to $32,363,000 as of
December 31, 2002. The source of cash during the year was $19,726,000 of cash
provided by operating activities,. The uses of cash were $6,617,000 for property
and tenant improvements, $1,977,000 for property development costs, $3,672,000
for scheduled mortgage principal payments, and $10,000 for loan fees.

For the foreseeable future, HRP anticipates that mortgage principal payments,
tenant and capital improvements, lease commissions and litigation costs will be
funded by net cash from operations. We believe that there will be sufficient
cash from operations to meet these needs because HRP has leases in place as of
December 31, 2002 to provide $54,963,000 of minimum rental payments during 2003
(see "Liquidity and Capital Resources - Lease Agreements and Major Tenant
Information"). For 2002, HRP had leases in place to provide $55,261,000 of
minimum rental payments (based on leases in place as of December 31, 2001),
however the actual rental payments recorded for 2002 were $61,481,000. Actual
rental payment results for 2002 were greater than the minimum rental payment
amount primarily due to our ability to attract and retain tenants. Our ability
to fund operations in the future will depend upon continued success in
maintaining current occupancy levels, retaining current tenants, and attracting
new tenants, as well as sustaining or increasing rental rates.

The primary sources of capital to fund any future acquisitions or developments
will be proceeds from the sale, financing or refinancing of one or more of our
properties. HRP has estimated and budgeted tenant and capital improvements of
$15,631,000 and lease commissions of $2,851,000 for 2003. Each quarter Realty
reviews HRP's capacity to make cash distributions. HRP has not made any cash
distributions since February, 1992.

CRITICAL ACCOUNTING POLICIES -

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and judgments that affect the reported amounts of certain assets,
liabilities, revenues, expenses, and related disclosures. Actual results may
differ from these estimates under different assumptions or conditions. In
December 2001, the SEC requested that registrants identify "critical accounting
policies" in Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. The SEC indicated that a "critical
accounting policy" is one that is both important to the portrayal of an entity's
financial condition and results and requires management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. HRP believes that the
following of its accounting policies fit this description:


                                  Page 12 of 45
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES   (CONTINUED)

Impairment of Long-Lived Assets - HRP reviews for impairment losses on its real
estate assets when events and circumstances indicate that the assets might be
impaired. If such indication is noted, an undiscounted cash flow analysis is
performed, and in the event undiscounted cash flow estimated to be generated by
an asset over the remaining depreciable life of that asset is less than its
carrying value, then the asset would be written down to its fair value. Cash
flow estimates are based on historical results adjusted to our best estimate of
future market and operating conditions. Significant assumptions used in this
process include an evaluation of leases in place, future rental and occupancy
rates, and the level of expected operating expenses. For the three years ended
December 31, 2002, HRP has not recorded a write-down or impairment of the
carrying value of any real estate property based on these calculations.

Assets Held for Sale - Should HRP decide to sell a property and actively
commence the disposal process, all of the assets, liabilities, income, and
expenses associated with such property will be segregated in the financial
statements. At such time, an evaluation for potential impairment will be made
using an estimate of the selling price less selling costs.

Revenue Recognition - SFAS No. 13 "Accounting for Leases" requires management to
estimate the economic life of lease payments. However, this does not require
subjective input by management, as rental income is recognized on a
straight-line basis over the lease term, as defined in each respective lease.
Adjustments to convert cash rental income (which may include free rent, reduced
rent, or periodic rental rate increases over the term of the lease) to
straight-line rental income increased revenues by $99,000, $256,000, and
$569,000 in 2002, 2001, and 2000, respectively.

Other accounting policies are described in Note 2 to the Consolidated Financials
Statements in Item 8. The policies listed are not intended to be a comprehensive
list of all of our accounting policies. In most cases, the accounting treatment
of a particular transaction is specifically dictated by accounting principles
generally accepted in the United States of America, with no need for
management's judgment in the application. There are also areas in which
management's judgment in selecting any available alternative would not produce a
materially different result than those recorded and reported.

RECENT ACCOUNTING PRONOUNCEMENTS -

SFAS No. 142 "Goodwill and Other Intangible Assets" was issued in June 2001 and
was adopted January 1, 2002. Among other things, SFAS No. 142 requires that in
conjunction with an acquisition of a property in the future all intangible
assets associated with such property will be separately evaluated and recorded.

SFAS No. 143 "Accounting for Asset Retirement Obligations" was adopted January
1, 2003. It establishes an accounting standard for recognition and measurement
of a liability for an asset retirement obligation and the associated asset
retirement cost. HRP has no such obligations as of December 31, 2002.

SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
was adopted January 1, 2002 and requires current, as well as historical, results
of operations for disposed properties and those properties held for sale that
occur subsequent to January 1, 2002 to be reclassified and presented separately
as discontinued operations.

SFAS No. 145 "Rescission of FASB Statements 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" was issued in April 2002 and was
adopted in the fourth quarter of 2002. Among other things, SFAS No. 145 limits
debt extinguishments that can be classified as extraordinary items. As a result,
HRP has reclassified previously recorded gains and losses from early
extinguishment of debt from an extraordinary item to current operations within
interest expense. Accordingly, the reclassifications had no effect on previously
reported net income or loss.

SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities"
was issued in June 2002 and will be effective for exit or disposal activities
subsequent to December 31, 2002. HRP anticipates no material impact on its
financial statements from the adoption of this accounting standard.

SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and
Disclosure, an amendment of FASB Statement No. 123" was issued in December 2002
and provides new transition methods if an entity adopts the fair value based
method of valuing stock-based compensation suggested in SFAS No. 123, as well as
requiring additional disclosures in interim and annual financial statements. At
this time, HRP expects that the impact will be limited to additional disclosure
requirements.

                                  Page 13 of 45
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES   (CONTINUED)

In November 2002, the Financial Accounting Standards Board issued Interpretation
No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45
requires that the guarantor recognize, at the inception of certain guarantees, a
liability for the fair value of the obligation undertaken in issuing such
guarantee. FIN 45 also requires additional disclosure about the guarantor's
obligations under certain guarantees that it has issued. As of December 31, 2002
HRP had no such guarantees.

LEASE AGREEMENTS AND MAJOR TENANT INFORMATION -

Lease provisions generally require HRP's tenants to pay fixed rental amounts,
plus their proportionate share of certain building operating costs and real
property taxes. Revenue from expense recoveries, included in property
operations, was $3,755,000, $4,197,000, and $3,315,000 in 2002, 2001, and 2000,
respectively. In addition, certain leases include provisions for annual rental
adjustments. Some leases contain provisions to allow a tenant to terminate their
lease prior to its normal expiration. At December 31, 2002, the Properties, in
the aggregate, were 91% leased. The following table sets forth the minimum cash
rental payments to be received from leases in place as of December 31, 2002 (in
thousands):

<Table>
<Caption>
                         Payments            Payments
                      from Leases         from Leases
                    without Early          with Early
                      Termination         Termination
                           Rights              Rights               Total
                  ---------------     ---------------     ---------------

<S>               <C>                 <C>                 <C>
2003              $        54,963     $           651     $        55,614
2004                       48,306                 413              48,719
2005                       40,003                 238              40,241
2006                       27,928               1,837              29,765
2007                       20,348               3,485              23,833
Thereafter                 75,796              35,962             111,758
                  ---------------     ---------------     ---------------
  Total           $       267,344     $        42,586     $       309,930
                  ===============     ===============     ===============
</Table>

Based on leases in place as of December 31, 2002, set forth below are the
percentages of leased square footage scheduled for lease expirations for each
calendar year, assuming that none of the tenants exercise early termination or
renewal options:

<Table>

<S>            <C>
2003           23%
2004           14%
2005           14%
2006           15%
2007            7%
Thereafter     27%
</Table>

During 2002 and 2001, two tenants leasing space contributed 10% or more of HRP's
revenues. Ford Motor Company and affiliates ("Ford") leases space in Parklane
Towers and Fairlane Commerce Park. Ford accounted for 11% and 12% of revenues in
2002 and 2001, respectively. The General Services Administration ("GSA") leases
space in Corporate Square and Executive Park. GSA accounted for 17% and 14% of
revenues in 2002 and 2001, respectively.

As of December 31, 2002, Ford leased 199,000 square feet of office space under
seven leases at Parklane Towers and 224,000 square feet of office, technical
laboratory and industrial space under seven leases at Fairlane Commerce Park.
These leases expire between 2003 and 2005 and most contain options providing for
one to ten year renewals. As of December 31, 2002, GSA leased 450,000 square
feet of office space at Executive Park (including 128,000 square feet associated
with a lease that begins in 2003 - see "Liquidity and Capital Resources -
Property Development at Executive Park") under seven leases which expire between
2003 and 2015. Also, as of December 31, 2002, GSA leased 310,000 square feet of
office space at Corporate Square under three leases which expire in 2004, 2013
(with a right to early terminate in 2008) and 2020. The remaining tenants are
not concentrated in any one industry, nor is HRP otherwise dependent on any
group of related tenants for 10% or more of its revenues.


                                  Page 14 of 45
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES   (CONTINUED)

LITIGATION & JUDGMENT -

In July 2001, the Delaware Court of Chancery rendered its opinion for the action
styled Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., et al. (C.A. No.
15754). The court ruled that the defendants other than HRP pay a judgment to HRP
in the amount of $3,417,423, plus pre-judgment interest from August 1995. The
judgment amount represents what the court determined was an underpayment by
Hallwood. In August 2001, plaintiff and certain defendants appealed the Court of
Chancery's judgment to the Delaware Supreme Court. In October 2001, HRP received
the $3,417,423 judgment together with $2,987,576 of interest, subject to an
arrangement that it be returned in full or part if the judgment is modified or
reversed on appeal. Oral arguments were heard in February 2002 and a rehearing
en banc was held in March 2002. In August 2002, the Supreme Court affirmed the
judgment of the trial court that the remaining defendants other than HRP are
jointly and severally liable to HRP. The Supreme Court reversed the trial
court's determination of damages, and remanded the case to the trial court to
fashion appropriate relief. A hearing on the remand proceedings was held before
the Court of Chancery in October 2002. A further hearing on the remand is
scheduled to take place in May or June 2003, with a decision by the Court of
Chancery to follow. (For more information about this litigation, see Item 3 -
Legal Proceedings.) Since the appellate court reversed the judgment, any
subsequent ruling by the trial court on remand may be more or less favorable to
HRP. As a result of the uncertainty of the litigation's outcome, HRP recorded
the judgment and interest as "Deferred Litigation Proceeds" on its balance
sheet.

MORTGAGE LOANS -

Substantially all of the buildings in HRP's real estate properties were
encumbered and pledged as collateral by 11 non-recourse mortgage loans
aggregating $197,552,000 as of December 31, 2002. These mortgage loans have
interest rates varying from 2.68% to 8.70% (with an effective average interest
rate of 7.51%) and mature between 2005 and 2020. Other than Allfirst Building's
mortgage ($25,000,000), all mortgages have fixed interest rates. Most of the
mortgage loans require monthly principal payments with balloon payments due at
maturity. The following table shows for the years presented the principal and
balloon payments that are required (in thousands):

<Table>
<Caption>
                                                            Total
                                                           Mortgage
                     Principal          Balloon              Loan
                     Payments           Payments           Payments
                  --------------     --------------     --------------

<S>               <C>                <C>                <C>
2003              $        3,998     $           --     $        3,998
2004                       4,310                 --              4,310
2005                       4,167             74,515             78,682
2006                       2,852             25,000             27,852
2007                       3,079                 --              3,079
Thereafter                22,894             56,737             79,631
                  --------------     --------------     --------------
Total             $       41,300     $      156,252     $      197,552
                  ==============     ==============     ==============
</Table>


Since August 2000, HRP has had available a $2,000,000 revolving line of credit,
which matures on July 29, 2003. The line of credit has a variable interest rate
of either prime plus 0.50% or LIBOR plus 3.0% and requires monthly interest
payments, but no principal amortization. HRP has not borrowed against this
facility.

HRP has two mortgage loans that require compliance with a loan covenant, which
if not met will trigger a default. The loans require the properties securing
each loan to maintain a liquidity ratio, specifically a debt service coverage
ratio. A debt service coverage ratio is the relationship of adjusted net
operating income (as defined in each loan agreement) for the previous 12 months
to the loan's annual debt service. The ratio, for a loan requiring a minimum
1.15 ratio, was 2.25, 2.35, and 2.19 for 2002, 2001, and 2000, respectively. The
ratio, for a loan requiring a minimum 1.10 ratio, was 2.39, 1.94, and 2.45 for
the same periods. Accordingly, HRP was in compliance with these loan covenants
for the three years ended December 31, 2002. As of December 31, 2002, the
outstanding balance of the loans is $111,553,000.

Additionally, these two mortgage loans contain restrictions that limit certain
actions. With respect to the properties encumbered by these loans, HRP cannot
incur additional debt. Also, HRP's ability to sell a property, or a portion
thereof, is limited because of the requirement to substitute collateral with
substantial penalty. These loans also, under certain circumstances, may restrict
the ability of HRP to merge, to consolidate or to liquidate.


                                  Page 15 of 45
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES   (CONTINUED)

TRANSACTIONS WITH RELATED PARTIES -

Realty receives certain fees in connection with the ongoing management of HRP,
including an asset management fee, acquisition fees and disposition fees.
Specifically, Realty is entitled to receive an asset management fee equal to 1%
of the net aggregate base rents of the Properties, acquisition fees equal to 1%
of the purchase price of newly acquired properties, and disposition fees with
respect to real estate investments, other than the properties owned at the time
of HRP's formation in 1990, equal to 10% of the amount, by which the sales price
of a property exceeds the purchase price of such property.

HCRE receives compensation in connection with the management of the Properties,
which includes a property management fee, lease commissions and construction
supervision fees. The management contracts expire June 30, 2004 and provide for
basic compensation from a property management fee in an amount equal to 2.85% of
cash receipts collected from the Properties' tenants, lease commissions equal to
the current commission market rate as applied to the net aggregate rent (none
exceeding 6% of the net aggregate rent), and construction supervision fees for
administering all construction projects equal to 5% of the total contracted
costs of each capital expenditure or tenant improvement project.

Realty and HCRE are compensated for services provided to HRP and its Properties
as described above and are reimbursed, at cost, for certain costs and expenses.
In particular, since HRP does not directly employ any individuals, the
compensation and other costs related to approximately 90 employees rendering
services on behalf of HRP and its properties are reimbursed to Realty and HCRE
by HRP. The following table sets forth such compensation and reimbursements paid
by HRP (in thousands):

<Table>
<Caption>
                                       Entity
                                       Paid or
                                      Reimbursed          2002            2001             2000
                                      -----------      -----------     -----------     -----------

<S>                                   <C>              <C>             <C>             <C>
Asset management fee                     Realty        $       618     $       609     $       581
Acquisition fee                          Realty                 --              --              74
Disposition fee                          Realty                 --             120              --
Reimbursement of costs(a)                Realty              3,477           3,161           2,720
Property management fee                   HCRE               2,022           2,005           1,914
Lease commissions(b)                      HCRE               2,151           2,158           2,605
Construction fees                         HCRE                 582           1,204             917
Reimbursement of costs(c)                 HCRE               3,916           3,826           3,521
</Table>

          (a)     These expenses are recorded as general and administrative
                  expenses and represent reimbursement, at cost, to Realty for
                  administrative level employee and director compensation,
                  officer and director liability insurance, and allocated
                  overhead costs. HRP pays its account balance with Realty on a
                  monthly basis.

          (b)     As of December 31, 2002, $567,000 of the 2002 lease
                  commissions are accrued and are scheduled to be paid in 2003.

          (c)     These costs are recorded as property operating expenses and
                  represent reimbursement to HCRE for property-level employee
                  compensation and related expenses.

In January 2001, HRP acquired a construction development consulting contract
from Hallwood regarding a project in Tulsa, Oklahoma with an unrelated third
party. In connection therewith, HRP reimbursed Hallwood for its actual costs
incurred related to the project of $281,000.

INFLATION -

Inflation did not have a significant impact on HRP during the three years ended
December 31, 2002 and is not anticipated to have a material impact in 2003.

RISKS, COMPETITION AND OTHER FACTORS -

For information about risks, see "Risks, Competition and Other Factors" in Item
1 - Business.


                                  Page 16 of 45
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES   (CONTINUED)

PROPERTY DEVELOPMENT AT EXECUTIVE PARK -

In early 2001, HRP demolished a one-story office building at its Executive Park
property, which contained 18,000 net rentable square feet. In order to do so,
HRP obtained a release of the building from Executive Park's mortgage lien by
substituting for such collateral $608,000 of United States Treasury Bonds, which
have various maturity dates through December 2007. In February 2001, HRP began
constructing a five-story office building containing 128,000 net rentable square
feet. The building and its parking garage, excluding tenant finish-out, was
completed in April 2002. HRP incurred and capitalized $15,370,000 of
construction and development costs, which included all of the costs for the
building and its parking garage (excluding the existing land costs). A
seven-year lease for the entire building, with an option for five additional
years, with the General Services Administration was executed in September 2002
and will commence upon the completion of tenant improvements, estimated to be
sometime between May and August 2003. The lease commissions incurred were
$777,000, while the tenant improvements are estimated to be $4,500,000. All
development and leasing costs have been or will be paid from cash funds on hand;
however, it is anticipated that loan financing of $15,000,000 to $16,000,000
will be obtained in the second half of 2003.

FORWARD-LOOKING STATEMENTS -

In the interest of providing investors with certain information regarding HRP's
future plans and operations, certain statements set forth in this Form 10-K
relate to management's future plans, objectives and expectations. Such
statements are forward-looking statements. Although any forward-looking
statements contained in this Form 10-K or otherwise expressed by or on behalf of
HRP are, to the knowledge and in the judgment of the officers and directors of
the General Partner, expected to prove true and come to pass, management is not
able to predict the future with absolute certainty. Although HRP believes that
the assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements will prove to be accurate.

Forward-looking statements involve known and unknown risks and uncertainties,
which may cause HRP's actual performance and financial results in future periods
to differ materially from any projection, estimate or forecasted result. These
risks and uncertainties include the risks identified under "Risks, Competition
and Other Factors" in Item 1 - Business.

ITEM 7a.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

On July 27, 2000, HRP sold its interest rate swap agreement for $1,597,000. HRP
had entered into the interest rate swap agreement in 1998 to reduce its exposure
to changes in interest rates for the loan secured by Allfirst Building. This
interest rate swap agreement effectively fixed the loan's cash interest rate at
6.78%, as opposed to the mortgage loan interest rate of LIBOR plus 1.30% (or
7.94% at the time of the swap agreement sale). The proceeds from the sale were
designated for general working capital purposes. For financial reporting
purposes, the proceeds are being amortized over the life of the loan as a
reduction to interest expense. During 2001, as the result of the adoption of
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", HRP
reclassified the remaining unamortized gain from liabilities to accumulated
other comprehensive income. The proceeds will continue to be amortized over the
life of Allfirst Building's mortgage payable as a reduction to interest expense.
As of December 31, 2002 and 2001, the unamortized balance, included on the
balance sheet as "Accumulated other comprehensive income", was $926,000 and
$1,204,000, respectively.

Also on July 27, 2000 and in connection with the sale of the swap agreement, HRP
purchased an interest rate cap for Allfirst Building's mortgage loan for
$288,000, which limits HRP's exposure to changing interest rates to a maximum of
10%. This interest rate cap, which has a notional amount of $25,000,000, has
terms consistent with Allfirst Building's mortgage loan. Allfirst Building's
cash interest rate was 2.68% and 3.44% as of December 31, 2002 and 2001,
respectively. The interest rate cap is a derivative and designated as a cash
flow hedge. Hedge effectiveness is measured based on using the intrinsic value
of the interest rate cap. All changes in the fair value of the time value of the
cap are recorded directly to earnings. With the January 1, 2001 adoption of SFAS
No. 133, HRP recorded the cumulative effect of the adoption as a reduction to
income of $192,000, or the amount of the difference between the carrying value
as of January 1, 2001 of $267,000 and the then estimated fair value of $75,000,
all of which represented change in time value. Thereafter, on a quarterly basis,
HRP has recorded changes in the estimated fair value of the cap in interest
expense. As of December 31, 2002 and 2001, the estimated fair value of the
interest rate cap was $55,000 and $68,000, respectively.

Other than Allfirst Building's mortgage ($25,000,000), all mortgages have fixed
interest rates. Accordingly, changes in LIBOR or the prime rate do not
significantly impact the amount of interest paid by HRP. Assuming a 100 basis
point, or 1%, change in LIBOR, interest paid by HRP would increase or decrease
by $250,000 on an annual basis.


                                  Page 17 of 45
<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION



                                  ITEM 8 INDEX


<Table>
<Caption>

       FINANCIAL STATEMENTS:                                                                     Page
                                                                                                 ----

<S>                                                                                              <C>
              Independent Auditors' Report                                                         19

              Consolidated Balance Sheets as of December 31, 2002 and 2001                         20

              Consolidated Statements of Operations for the years
              ended December 31, 2002, 2001 and 2000                                               21

              Consolidated Statements of Comprehensive Income for the years
              ended December 31, 2002, 2001 and 2000                                               22

              Consolidated Statements of Partners' Capital for the years
              ended December 31, 2002, 2001 and 2000                                               23

              Consolidated Statements of Cash Flows for the years
              ended December 31, 2002, 2001 and 2000                                               24

              Notes to Consolidated Financial Statements                                           25

       FINANCIAL STATEMENT SCHEDULE:

              Schedule III - Real Estate and Accumulated Depreciation                              38

              All other schedules have been omitted because they are not
              applicable, not required, or the required information is disclosed
              in the Consolidated Financial Statements or notes thereto.
</Table>


                                  Page 18 of 45

<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Partners of Hallwood Realty Partners, L.P.


We have audited the accompanying consolidated balance sheets of Hallwood Realty
Partners, L.P. and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, comprehensive income, partners'
capital, and cash flows for each of the three years in the period ended December
31, 2002. Our audit for the year ended December 31, 2002 also included the
financial statement schedule listed in the Index at Item 8. These financial
statements and financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based upon our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Hallwood Realty Partners, L.P. and
subsidiaries as of December 31, 2002 and 2001 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.



DELOITTE & TOUCHE LLP

Dallas, Texas
March 6, 2003



                                  Page 19 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                           CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS EXCEPT UNIT AMOUNTS)



<Table>
<Caption>
                                                                   DECEMBER 31,
                                                        ----------------------------------
                                                             2002                2001
                                                        --------------      --------------
<S>                                                     <C>                 <C>
ASSETS

Real estate:
     Land                                               $       59,015      $       59,015
     Buildings and improvements                                310,154             290,674
     Tenant improvements                                        23,504              22,301
     Construction in progress                                      836              18,303
                                                        --------------      --------------
                                                               393,509             390,293
     Accumulated depreciation and amortization                (183,671)           (176,719)
                                                        --------------      --------------
   Real estate, net                                            209,838             213,574

Cash and cash equivalents                                       32,363              24,913
Accounts receivable                                              2,315               2,315
Escrow deposits held by lenders                                  8,918               8,359
Effective rent receivable                                        4,729               4,630
Lease commissions, net                                          11,390              10,868
Loan costs, net                                                  2,677               3,258
Prepaid expenses and other assets                                2,190               1,958
                                                        --------------      --------------

   Total assets                                         $      274,420      $      269,875
                                                        ==============      ==============

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
     Mortgages payable                                  $      197,552      $      201,224
     Accounts payable and accrued expenses                       5,743               5,147
     Prepaid rent, security deposits and other                   3,533               3,061
     Payable to affiliates                                         512                  16
     Deferred litigation proceeds                                6,405               6,405
                                                        --------------      --------------
   Total liabilities                                           213,745             215,853
                                                        --------------      --------------
Commitments and contingencies

Partners' capital:
     Limited partners - 1,589,948 units outstanding             59,152              52,290
     General partner                                               597                 528
     Accumulated other comprehensive income                        926               1,204
                                                        --------------      --------------
   Total partners' capital                                      60,675              54,022
                                                        --------------      --------------

   Total liabilities and partners' capital              $      274,420      $      269,875
                                                        ==============      ==============
</Table>


                 See notes to consolidated financial statements.



                                  Page 20 of 45
<PAGE>


                         HALLWOOD REALTY PARTNERS, L.P.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS EXCEPT PER UNIT AMOUNTS)

<Table>
<Caption>
                                                                              FOR THE YEARS ENDED DECEMBER 31,
                                                                    -----------------------------------------------------
                                                                         2002              2001                 2000
                                                                    --------------     --------------      --------------
<S>                                                                 <C>                <C>                 <C>
REVENUES:

   Property operations                                              $       66,992     $       66,593      $       63,664
   Parking, construction and tenant services                                 6,747              8,098               6,237
                                                                    --------------     --------------      --------------
      Total revenues                                                        73,739             74,691              69,901
                                                                    --------------     --------------      --------------

EXPENSES:
   Property operations                                                      27,464             27,193              26,552
   Parking, construction and tenant services                                 4,547              5,334               3,577
   Interest                                                                 15,165             16,145              15,832
   Depreciation and amortization                                            14,897             14,562              14,498
   General and administrative                                                4,595              4,356               5,046
   Litigation costs                                                            777              3,808               5,663
                                                                    --------------     --------------      --------------
      Total expenses                                                        67,445             71,398              71,168
                                                                    --------------     --------------      --------------

INCOME (LOSS) BEFORE INTEREST INCOME, GAIN FROM PROPERTY SALES,
AND CUMULATIVE EFFECT                                                        6,294              3,293              (1,267)
Interest income                                                                637              1,043                 968
Gain from property sales                                                        --              4,184                  --
                                                                    --------------     --------------      --------------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT                                       6,931              8,520                (299)
Cumulative effect of SFAS No. 133 adoption -
valuation of interest rate cap                                                  --               (192)                 --
                                                                    --------------     --------------      --------------
NET INCOME (LOSS)                                                   $        6,931     $        8,328      $         (299)
                                                                    ==============     ==============      ==============
ALLOCATION OF NET INCOME (LOSS):
   Limited partners                                                 $        6,862     $        8,245      $         (296)
   General partner                                                              69                 83                  (3)
                                                                    --------------     --------------      --------------
      Total                                                         $        6,931     $        8,328      $         (299)
                                                                    ==============     ==============      ==============

NET INCOME (LOSS) PER UNIT AND POTENTIAL UNIT:
   Earnings per unit - basic
      Income (loss) before cumulative effect                        $         4.32     $         5.31      $        (0.18)
      Cumulative effect of SFAS No. 133 adoption                                --              (0.12)                 --
                                                                    --------------     --------------      --------------
            Net income (loss)                                       $         4.32     $         5.19      $        (0.18)
                                                                    ==============     ==============      ==============
    Earnings per unit - assuming dilution
       Income (loss) before cumulative effect                       $         4.16     $         5.13      $        (0.18)
       Cumulative effect of SFAS No. 133 adoption                               --              (0.12)                 --
                                                                    --------------     --------------      --------------
          Net income (loss)                                         $         4.16     $         5.01      $        (0.18)
                                                                    ==============     ==============      ==============

WEIGHTED AVERAGE UNITS USED IN COMPUTING NET INCOME (LOSS) PER
UNIT AND POTENTIAL UNIT:

   Basic                                                                     1,590              1,590               1,620
                                                                    ==============     ==============      ==============

   Assuming dilution                                                         1,648              1,645               1,674
                                                                    ==============     ==============      ==============
</Table>


                 See notes to consolidated financial statements.


                                  Page 21 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)


<Table>
<Caption>
                                                              FOR THE YEARS ENDED
                                                                  DECEMBER 31,
                                             ------------------------------------------------------
                                                  2002                2001                2000
                                             --------------      --------------      --------------

<S>                                          <C>                 <C>                 <C>
NET INCOME (LOSS)                            $        6,931      $        8,328      $         (299)

Reclassification of cumulative effect of
SFAS No. 133 adoption - deferred gain
from sale of interest rate swap                          --               1,481                  --

Amortization of deferred gain
from sale of interest rate swap                        (278)               (277)                 --
                                             --------------      --------------      --------------

COMPREHENSIVE INCOME                         $        6,653      $        9,532      $         (299)
                                             ==============      ==============      ==============
</Table>



                 See notes to consolidated financial statements.

                                  Page 22 of 45

<PAGE>


                         HALLWOOD REALTY PARTNERS, L.P.
                   CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
                       (IN THOUSANDS EXCEPT UNIT AMOUNTS)


<Table>
<Caption>
                                                                              Accumulated                          Limited
                                                                                 Other                           Partnership
                                               General         Limited        Comprehensive                        Units
                                               Partner         Partners          Income           Total          Outstanding
                                             -----------      -----------     -------------     -----------      -----------

<S>                                          <C>              <C>             <C>               <C>                <C>
PARTNERS' CAPITAL, JANUARY 1, 2000           $       487      $    48,209      $        --      $    48,696        1,672,556

Exercise and issuance of unit options                  8              806               --              814           17,200

Purchase of units                                    (47)          (4,674)              --           (4,721)         (99,808)

Net loss                                              (3)            (296)              --             (299)              --
                                             -----------      -----------      -----------      -----------      -----------

PARTNERS' CAPITAL, DECEMBER 31, 2000                 445           44,045               --           44,490        1,589,948

Reclassification of cumulative effect of
SFAS No. 133 adoption - deferred gain
from sale of interest rate swap                       --               --            1,481            1,481               --

Amortization of deferred gain from
sale of interest rate swap                            --               --             (277)            (277)              --

Net income                                            83            8,245               --            8,328               --
                                             -----------      -----------      -----------      -----------      -----------

PARTNERS' CAPITAL, DECEMBER 31, 2001                 528           52,290            1,204            54,022       1,589,948

Amortization of deferred gain from
sale of interest rate swap                            --               --             (278)            (278)              --

Net income                                            69            6,862               --            6,931               --
                                             -----------      -----------      -----------      -----------      -----------

PARTNERS' CAPITAL, DECEMBER 31, 2002         $       597      $    59,152      $       926      $    60,675        1,589,948
                                             ===========      ===========      ===========      ===========      ===========
</Table>




                 See notes to consolidated financial statements.


                                  Page 23 of 45
<PAGE>
                         HALLWOOD REALTY PARTNERS, L.P.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                          FOR THE YEARS ENDED DECEMBER 31,
                                                                 ---------------------------------------------------
                                                                      2002              2001               2000
                                                                 -------------      -------------      -------------
<S>                                                              <C>                <C>                <C>
OPERATING ACTIVITIES:
   Net income (loss)                                             $       6,931      $       8,328      $        (299)
   Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
      Depreciation and amortization                                     14,897             14,562             14,498
      Gain from property sales                                              --             (4,184)                --
      Cumulative effect of SFAS No. 133 adoption -
         valuation of interest rate cap                                     --                192                 --
      Non-qualified unit option compensation                                --                 --                601
      Effective rent adjustments                                           (99)              (256)              (569)
   Changes in assets and liabilities:
      Account receivable                                                    --                896               (924)
      Lease commission payments                                         (2,951)            (2,752)            (5,043)
      Prepaid expenses, escrow deposits and other assets                  (200)              (174)               956
      Accounts payable and other liabilities                             1,148               (740)             3,660
                                                                 -------------      -------------      -------------
         Net cash provided by operating activities                      19,726             15,872             12,880
                                                                 -------------      -------------      -------------

INVESTING ACTIVITIES:
   Property and tenant improvements                                     (6,617)            (9,417)           (10,933)
   Property development cost                                            (1,977)           (13,406)            (8,811)
   Property acquisitions                                                    --                 --             (7,791)
   Cash proceeds from property sales, net of selling costs                  --              8,435                 --
                                                                 -------------      -------------      -------------
         Net cash used in investing activities                          (8,594)           (14,388)           (27,535)
                                                                 -------------      -------------      -------------

FINANCING ACTIVITIES:
   Mortgage principal proceeds                                              --             10,000             50,623
   Mortgage principal refinanced                                            --             (2,760)           (18,346)
   Loan fees                                                               (10)              (138)            (1,210)
   Mortgage principal early payoff                                          --             (2,125)                --
   Mortgage prepayment penalties                                            --               (423)              (286)
   Mortgage principal scheduled payments                                (3,672)            (3,987)            (3,493)
   Exercise and issuance of unit options                                    --                 --                213
   Purchase of units                                                        --                 --             (4,721)
   Deferred litigation proceeds                                             --              6,405                 --
                                                                 -------------      -------------      -------------
         Net cash provided by (used in) financing activities            (3,682)             6,972             22,780
                                                                 -------------      -------------      -------------

INCREASE IN CASH AND CASH EQUIVALENTS                                    7,450              8,456              8,125
BEGINNING CASH AND CASH EQUIVALENTS                                     24,913             16,457              8,332
                                                                 -------------      -------------      -------------
ENDING CASH AND CASH EQUIVALENTS                                 $      32,363      $      24,913      $      16,457
                                                                 =============      =============      =============

</Table>


                 See notes to consolidated financial statements.



                                  Page 24 of 45

<PAGE>


                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002


1         ORGANIZATION

          Hallwood Realty Partners, L.P. ("HRP"), a publicly traded Delaware
          limited partnership, operates in the commercial real estate industry.
          HRP's activities include the acquisition, ownership and operation of
          its commercial real estate assets. Units representing limited
          partnership interests are traded on the American Stock Exchange under
          the symbol "HRY". As of December 31, 2002 there were 1,589,948 units
          outstanding.

          As of December 31, 2002, HRP owned 14 real estate assets (the
          "Properties") located in six states containing 5,199,000 net rentable
          square feet. HRP seeks to maximize the value of its real estate by
          making capital and tenant improvements, by executing marketing
          programs to attract and retain tenants, and by controlling or
          reducing, where possible, operating expenses.

          Hallwood Realty, LLC ("Realty" or the "General Partner"), a Delaware
          limited liability company and indirectly wholly-owned subsidiary of
          The Hallwood Group Incorporated ("Hallwood"), is HRP's general partner
          and is responsible for asset management of HRP and its Properties,
          including decision-making responsibility for financing, refinancing,
          acquiring and disposing of properties. In addition, Realty provides
          general operating and administrative services to HRP. Hallwood
          Commercial Real Estate, LLC ("HCRE"), another indirectly wholly-owned
          subsidiary of Hallwood, provides property management, leasing and
          construction supervision services to the Properties.

2         ACCOUNTING POLICIES

          CONSOLIDATION

          HRP fully consolidates into its financial statements majority owned
          entities. For each of the three years in the period ended December 31,
          2002, all entities and Properties were fully owned. All significant
          intercompany balances and transactions have been eliminated in
          consolidation.

          HRP has, in three situations, created a Special Purpose Entity
          ("SPE"). These SPEs were formed at the request of lenders for the
          express purpose of strengthening the collateral for the loans by
          isolating (for Federal bankruptcy law purposes) the assets and
          liabilities of the SPEs. In all cases and since their various
          formation dates, the assets, liabilities and results of operations of
          these wholly-owned entities have been fully consolidated into the
          financial statements of HRP.

          CASH AND CASH EQUIVALENTS

          HRP considers highly liquid investments with original maturities of
          three months or less at the time of purchase to be cash equivalents.

          PROPERTY

          Property is stated at cost. Renovations and improvements are
          capitalized; maintenance and repairs are expensed. When an asset is
          sold or otherwise disposed of, the related cost and accumulated
          depreciation are removed from the accounts and any gain or any
          previously unanticipated loss is recognized in the year of sale or
          disposition. HRP reviews for impairment losses on its real estate
          assets when events and circumstances indicate that the assets might be
          impaired. If such indication is noted, an undiscounted cash flow
          analysis is performed, and in the event undiscounted cash flow
          estimated to be generated by an asset over the remaining depreciable
          life of that asset is less than its carrying value, then the asset
          would be written down to its fair value. Cash flow estimates are based
          on historical results adjusted to our best estimate of future market
          and operating conditions. Significant assumptions used in this process
          include an evaluation of leases in place, future rental and occupancy
          rates, and the level of expected operating expenses. For the three
          years ended December 31, 2002, HRP has not recorded a write-down or
          impairment of the carrying value of any real estate property based on
          these calculations.


                                  Page 25 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002

2         ACCOUNTING POLICIES - (CONTINUED)

          Should HRP decide to sell a property and actively commence the
          disposal process, all of the assets, liabilities, income, and expenses
          associated with such property will be segregated in the financial
          statements. At such time, an evaluation for potential impairment will
          be made using an estimate of the selling price less selling costs.

          Depreciation of buildings is computed using the straight-line method
          over estimated useful lives ranging from 15 to 43 years. Equipment and
          other improvements are depreciated on the straight-line method over
          estimated useful lives ranging from 3 to 23 years. Tenant improvements
          are capitalized and amortized over the terms of the respective leases
          or useful life, if shorter.

          HRP capitalizes all costs related to the development and construction
          of its projects, including interest of $256,000, $486,000, and
          $493,000 in 2002, 2001, and 2000, respectively. The development period
          of a project is considered to have begun when activities related to
          the construction of the project or a portion thereof has commenced.
          All costs for construction are capitalized and allocated to each
          building. Capitalization of such costs is discontinued when the
          building is available for occupancy.

          HRP would accrue for losses associated with environmental remediation
          obligations if such losses were probable and reasonably estimable.
          Accruals for estimated losses from environmental remediation
          obligations would generally be recognized no later than completion of
          a remedial feasibility study. Such accruals would be adjusted as
          further information developed or circumstances changed. Costs of
          future expenditures for environmental remediation obligations would
          not be discounted to their present value. Recoveries of environmental
          remediation costs from other parties are recorded as assets when their
          receipt is deemed probable. HRP's management is not aware of any
          environmental remediation obligations which would materially affect
          the operations, financial position or cash flows of HRP and therefore
          has made no loss accruals.

          OTHER ASSETS

          Lease concessions and commissions are amortized over the terms of the
          respective leases. Leases at the Properties expire from 2003 to 2020.
          Loan costs are amortized over the terms of the respective loans. The
          loans mature between 2005 and 2020. Amortization of lease commissions,
          included in depreciation and amortization expense, was $2,817,000,
          $2,889,000, and $3,180,000 in 2002, 2001, and 2000, respectively.
          Amortization of loan costs, included in interest expense, was
          $591,000, $624,000, and $855,000 in 2002, 2001, and 2000,
          respectively. The caption "Prepaid expenses and other assets" on the
          Consolidated Balance Sheets includes prepaid real estate taxes,
          prepaid insurance and other miscellaneous deposits and prepaid
          expenses.

          REVENUE RECOGNITION

          Rental income is recognized as earned on a straight-line basis over
          the terms of the respective leases. Amortization of effective rent
          income adjustments, included in property operations revenues, was
          $99,000, $256,000, and $569,000 in 2002, 2001, and 2000, respectively.
          Lease provisions generally require tenants to pay their proportionate
          share of certain building operating costs and real property taxes.
          Revenue from these expense recoveries, included in property
          operations, are recorded as earned and was $3,755,000, $4,197,000, and
          $3,315,000 in 2002, 2001, and 2000, respectively.

          Revenues and expenses from short-term construction and tenant service
          projects are recorded at the time of project completion. Revenues and
          expenses from long-term construction projects are accounted for using
          the percentage-of-completion method. Reclassifications, including a
          gross-up for parking, construction and tenant service expenses that
          were previously netted against revenues, have been made in the prior
          year amounts to conform to the classifications used in the current
          year. The reclassifications occurred due to the adoption of EITF No.
          01-14, "Income Statement Characterization of Reimbursements Received
          for Out-of-Pocket Expenses Incurred". The reclassifications had no
          effect on previously reported net income or loss.


                                  Page 26 of 45

<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002


2         ACCOUNTING POLICIES - (CONTINUED)

          INTEREST RATE AGREEMENTS

          HRP has used an interest rate swap as a hedge against interest
          exposure of variable rate debt. HRP's only interest rate swap was sold
          in July 2000. Differences between amounts paid or received in this
          interest rate agreement, which was designated as a hedge, were
          included in interest expense as the payments were made or received.
          HRP was exposed to credit-related gains or losses in the event of
          non-performance by counterparties, however none of the counterparties
          failed to meet their obligations during the term of the agreement. In
          July 2000, in connection with the sale of the interest rate swap, HRP
          purchased an interest rate cap derivative that limits its interest
          rate exposure on its mortgage for Allfirst Building (see Notes 6 and 9
          for more information).

          INCOME TAXES

          Currently, HRP is a non-taxable entity. Federal and state income
          taxes, if any, are the responsibility of the individual partners.
          Accordingly, the Consolidated Financial Statements do not include a
          provision for income taxes. However, certain business and franchise
          taxes are the responsibility of HRP and subsidiary entities. These
          business and franchise taxes, included in general and administrative
          expenses, were $280,000, $178,000, and $182,000 in 2002, 2001, and
          2000, respectively. HRP's tax returns are subject to examination by
          federal and state taxing authorities. If HRP's amounts are ultimately
          changed by the taxing authorities, the tax liability of the partners
          could be changed accordingly. Additionally, no assurance can be given
          that the federal or state governments will not pass legislation that
          will characterize HRP as an association taxable as a corporation for
          federal income tax purposes. Such classification may have an adverse
          effect on HRP.

          EQUITY-BASED COMPENSATION

          Statement of Financial Accounting Standards ("SFAS") No. 123,
          "Accounting for Stock-Based Compensation" establishes a method of
          accounting whereby recognized option pricing models are used to
          estimate the fair value of equity-based compensation, including
          options. HRP has elected, as provided by SFAS No. 123, not to
          recognize employee equity-based compensation expense as calculated
          under SFAS No. 123, but has recognized such expense in accordance with
          the provisions of Accounting Principles Board Opinion No. 25,
          "Accounting for Stock Issued to Employees". As the only options of HRP
          fully vested in 1997, there is no difference between the historical
          operations and pro forma operations for each of the three years ended
          December 31, 2002 had the expense provisions of SFAS No. 123 been
          adopted.

          COMPUTATION OF NET INCOME (LOSS) PER UNIT

          Basic earnings per unit is computed by dividing results attributable
          to the limited partners' interests by the weighted average number of
          units outstanding. Earnings per unit assuming dilution is computed by
          dividing results attributable to the limited partners' interests by
          the weighted average number of units and potential units outstanding.
          Options to acquire units were issued during 1995 and are considered to
          be potential units. The number of potential units is computed using
          the treasury stock method which assumes that the increase in the
          number of units is reduced by the number of units which could have
          been repurchased by HRP with the proceeds from the exercise of these
          options. The following table illustrates the amounts used to calculate
          the weighted average number of units outstanding:

<Table>
<Caption>
                                                                2002            2001             2000
                                                            -----------      -----------      -----------

<S>                                                         <C>              <C>              <C>
Weighted average units outstanding - basic                        1,590            1,590            1,620
Potential weighted average units issued from options                 69               69               75
Potential repurchase of units from unit option proceeds             (11)             (14)             (21)
                                                            -----------      -----------      -----------
Potential weighted average units outstanding - assuming           1,648            1,645            1,674
                                                            ===========      ===========      ===========
</Table>

          COMPREHENSIVE INCOME

          Comprehensive income items are revenues, expenses, gains and losses
          that under accounting principles generally accepted accounting
          principles are excluded from current period results and reflected as a
          component of equity. HRP recorded comprehensive income related to its
          unrealized gain from the sale of an interest rate swap.


                                  Page 27 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002


2         ACCOUNTING POLICIES - (CONTINUED)

          SEGMENT REPORTING

          Operating segments are defined as components of an entity for which
          separate financial information is available that is evaluated by the
          chief operating decision-maker in deciding how to allocate resources
          and in assessing performance. Management believes that HRP operates in
          only one business segment, real estate.

          RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER

          SFAS No. 142 "Goodwill and Other Intangible Assets" was issued in June
          2001 and was adopted January 1, 2002. Among other things, SFAS No. 142
          requires that in conjunction with an acquisition of a property in the
          future all intangible assets associated with such property will be
          separately evaluated and recorded.

          SFAS No. 143 "Accounting for Asset Retirement Obligations" was adopted
          January 1, 2003. It establishes an accounting standard for recognition
          and measurement of a liability for an asset retirement obligation and
          the associated asset retirement cost. HRP has no such obligations as
          of December 31, 2002.

          SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
          Assets" was adopted January 1, 2002 and requires current, as well as
          historical, results of operations for disposed properties and those
          properties held for sale that occur subsequent to January 1, 2002 to
          be reclassified and presented separately as discontinued operations.

          SFAS No. 145 "Rescission of FASB Statements 4, 44 and 64, Amendment of
          FASB Statement No. 13, and Technical Corrections" was issued in April
          2002 and was adopted in the fourth quarter of 2002. Among other
          things, SFAS No. 145 limits debt extinguishments that can be
          classified as extraordinary items. As a result, HRP has reclassified
          previously recorded gains and losses from early extinguishment of debt
          from an extraordinary item to current operations within interest
          expense. Accordingly, the reclassifications had no effect on
          previously reported net income or loss.

          SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal
          Activities" was issued in June 2002 and will be effective for exit or
          disposal activities subsequent to December 31, 2002. HRP anticipates
          no material impact on its financial statements from the adoption of
          this accounting standard.

          SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and
          Disclosure, an amendment of FASB Statement No. 123" was issued in
          December 2002 and provides new transition methods if an entity adopts
          the fair value based method of valuing stock-based compensation
          suggested in SFAS No. 123, as well as requiring additional disclosures
          in interim and annual financial statements. At this time, HRP expects
          that the impact will be limited to additional disclosure requirements.

          In November 2002, the Financial Accounting Standards Board issued
          Interpretation No. 45 "Guarantor's Accounting and Disclosure
          Requirements for Guarantees, Including Indirect Guarantees of
          Indebtedness of Others" ("FIN 45"). FIN 45 requires that the guarantor
          recognize, at the inception of certain guarantees, a liability for the
          fair value of the obligation undertaken in issuing such guarantee. FIN
          45 also requires additional disclosure about the guarantor's
          obligations under certain guarantees that it has issued. As of
          December 31, 2002 HRP had no such guarantees.

          The preparation of financial statements in conformity with accounting
          principles generally accepted in the United States of America requires
          management to make estimates and assumptions that affect the reported
          amounts of certain assets, liabilities, revenues, expenses, and
          related disclosures, as of and for the reporting periods. Actual
          results may differ from these estimates under different assumptions or
          conditions.

          The policies listed are not intended to be a comprehensive list of all
          of our accounting policies. In many cases, the accounting treatment of
          a particular transaction is specifically dictated by accounting
          principles generally accepted in the United States of America, with no
          need for management's judgment in the application. There are also
          areas in which management's judgment in selecting any available
          alternative would not produce a materially different results.


                                  Page 28 of 45
<PAGE>
                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002


3         STATEMENTS OF CASH FLOWS

          Cash interest payments were $14,602,000 (net of capitalized interest
          of $256,000), $14,947,000 (net of capitalized interest of $486,000),
          and $13,831,000 (net of capitalized interest of $523,000) in 2002,
          2001, and 2000, respectively.

          Supplemental disclosure of noncash investing and financing activities
          are as follows -

                As of December 31, 2001, HRP had a construction payable for
                property development at Executive Park of $250,000.


4         TRANSACTIONS WITH RELATED PARTIES

          Realty receives certain fees in connection with the ongoing management
          of HRP, including an asset management fee, acquisition fees and
          disposition fees. Specifically, Realty is entitled to receive an asset
          management fee equal to 1% of the net aggregate base rents of the
          Properties, acquisition fees equal to 1% of the purchase price of
          newly acquired properties, and disposition fees with respect to real
          estate investments, other than the properties owned at the time of
          HRP's formation in 1990, equal to 10% of the amount, by which the
          sales price of a property exceeds the purchase price of such property.

          HCRE receives compensation in connection with the management of the
          Properties, which includes a property management fee, lease
          commissions and construction supervision fees. The management
          contracts expire June 30, 2004 and provide for basic compensation from
          a property management fee in an amount equal to 2.85% of cash receipts
          collected from the Properties' tenants, lease commissions equal to the
          current commission market rate as applied to the net aggregate rent
          (none exceeding 6% of the net aggregate rent), and construction
          supervision fees for administering all construction projects equal to
          5% of the total contracted costs of each capital expenditure or tenant
          improvement project.

          Realty and HCRE are compensated for services provided to HRP and its
          Properties as described above and are reimbursed, at cost, for certain
          costs and expenses. In particular, since HRP does not directly employ
          any individuals, the compensation and other costs related to
          approximately 90 employees rendering services on behalf of HRP and its
          properties are reimbursed to Realty and HCRE by HRP. The following
          table sets forth such compensation and reimbursements paid by HRP (in
          thousands):

<Table>
<Caption>
                                         ENTITY
                                         PAID OR
                                        REIMBURSED           2002            2001            2000
                                        ----------        -----------     -----------     -----------

<S>                                     <C>               <C>             <C>             <C>
Asset management fee                      Realty          $       618     $       609     $       581
Acquisition fee                           Realty                   --              --              74
Disposition fee                           Realty                   --             120              --
Reimbursement of costs(a)                 Realty                3,477           3,161           2,720
Property management fee                    HCRE                 2,022           2,005           1,914
Lease commissions(b)                       HCRE                 2,151           2,158           2,605
Construction fees                          HCRE                   582           1,204             917
Reimbursement of costs(c)                  HCRE                 3,916           3,826           3,521
</Table>

(a)       These expenses are recorded as general and administrative expenses and
          represent reimbursement, at cost, to Realty for administrative level
          employee and director compensation, officer and director liability
          insurance, and allocated overhead costs. HRP pays its account balance
          with Realty on a monthly basis.

(b)       As of December 31, 2002, $567,000 of the 2002 lease commissions are
          accrued and are scheduled to be paid in 2003.

(c)       These costs are recorded as property operating expenses and represent
          reimbursement to HCRE for property-level employee compensation and
          related expenses.

          In January 2001, HRP acquired a construction development consulting
          contract from Hallwood regarding a project in Tulsa, Oklahoma with an
          unrelated third party. In connection therewith, HRP reimbursed
          Hallwood for its actual costs incurred related to the project of
          $281,000.

                                  Page 29 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002


5         PROPERTY TRANSACTIONS

          PROPERTY DEVELOPMENT AT EXECUTIVE PARK

          In early 2001, HRP demolished a one-story office building at its
          Executive Park property in Atlanta, Georgia, which contained 18,000
          net rentable square feet. In order to do so, HRP obtained a release of
          the building from Executive Park's mortgage lien by substituting for
          such collateral $608,000 of United States Treasury Bonds, which have
          various maturity dates through December 2007. In February 2001, HRP
          began constructing a five-story office building containing 128,000 net
          rentable square feet. The building and its parking garage, excluding
          tenant finish-out, was completed in April 2002. HRP incurred and
          capitalized $15,370,000 of construction and development costs, which
          included all of the costs for the building and its parking garage
          (excluding the existing land costs). A seven-year lease for the entire
          building, with an option for five additional years, with the General
          Services Administration was executed in September 2002 and will
          commence upon the completion of tenant improvements, estimated to be
          sometime between May and August 2003. The lease commissions incurred
          were $777,000, while the tenant improvements are estimated to be
          $4,500,000. All development and leasing costs have been or will be
          paid from cash funds on hand; however, it is anticipated that loan
          financing of $15,000,000 to $16,000,000 will be obtained in the second
          half of 2003.

          PROPERTY DEVELOPMENT AT CORPORATE SQUARE

          During the second quarter of 2000, HRP completed new construction of a
          6-story office building containing approximately 151,000 net rentable
          square feet that was commenced in the second quarter of 1999. It was
          constructed on undeveloped land within the Corporate Square complex in
          Atlanta, Georgia. A 20-year lease with the General Services
          Administration for the entire building was executed in 1999 and the
          tenant began paying rent August 2000.

          The building construction, tenant improvements, lease commissions and
          loan costs totaled $18,779,000 (excluding the original land cost). In
          1999, HRP incurred, in connection with the leasing of the entire
          project, $2,982,000 of lease commissions.

          An interim-construction loan was secured in August 1999 that funded
          $12,621,000 of the costs ($6,998,000 in 1999 and $5,623,000 in 2000).
          On August 31, 2000, HRP secured permanent financing of $21,500,000.
          The loan's monthly payment is based on a twenty-year amortization
          period and matures August 15, 2020 and has a fixed interest rate of
          7.97%. The loan proceeds repaid the interim-construction loan and
          replenished working capital for the completed project.

          ACQUISITION

          On January 26, 2000, HRP acquired three 3-story office buildings in
          San Diego, California (Fountain View Business Center) containing
          approximately 89,000 net rentable square feet on 4.3 acres of land.
          The acquisition cost was $7,791,000.

          DISPOSITIONS

          In March 2001, HRP sold Joy Road Distribution Center that contained
          442,000 net rentable square feet on 21 acres for a gross selling price
          of $5,326,000. The carrying value of the assets was $2,994,000. The
          sale resulted in $4,916,000 of net proceeds to HRP and a net gain of
          $1,922,000. The net sale proceeds were used to pay the outstanding
          mortgage principal balance of $2,125,000, to pay a prepayment penalty
          of $14,000 to the lender, and to add $2,777,000 to general working
          capital. The prepayment penalty along with the writeoff of $31,000 of
          unamortized loan costs associated with the retired loan were expensed
          and are included in the Consolidated Statements of Operations as
          interest expense.

          In January 2001, HRP sold one of the warehouse buildings at Seattle
          Business Parks that contained 63,000 net rentable square feet on 3.9
          acres for a gross selling price of $3,287,000. The carrying value of
          the assets was $885,000. The sale resulted in $2,994,000 of net
          proceeds, which were added to HRP's working capital, and a net gain of
          $2,109,000.

          Also in January 2001, HRP sold one building at Fairlane Commerce Park
          that contained less than 2,000 net rentable square feet on 0.5 acres
          for a gross selling price of $575,000. The carrying value of the
          assets was $372,000. The sale resulted in $525,000 of net proceeds,
          which were added to HRP's working capital, and a net gain of $153,000.


                                  Page 30 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002



6         MORTGAGES PAYABLE

          Substantially all of the buildings in HRP's real estate properties
          were encumbered and pledged as collateral by 11 non-recourse mortgage
          loans aggregating $197,552,000 as of December 31, 2002 and
          $201,224,000 as of December 31, 2001. These mortgage loans have
          interest rates varying from 2.68% to 8.70% (with an effective average
          interest rate of 7.51% as of December 31, 2002) and mature between
          2005 and 2020. Other than Allfirst Building's mortgage ($25,000,000),
          all mortgages have fixed interest rates. Most of the mortgage loans
          require monthly principal payments with balloon payments due at
          maturity. The following table sets forth, by real estate property,
          mortgages payable balances as of December 31, 2002 and 2001 (in
          thousands), maturity dates, and interest rates:

<Table>
<Caption>

                                                      Mortgages          Mortgages                              Interest
                                                  Payable as of      Payable as of          Maturity            Rate as of
                                                     12-31-2002         12-31-2001             Date             12-31-2002
                                                 --------------     --------------          ----------          ----------

<S>                                              <C>                <C>                     <C>                 <C>
               Airport Plaza                     $          721     $          735          10-11-2005             8.70%
               Allfirst Building                         25,000             25,000          4-30-2006              2.68%(a)
               Bellevue Corporate Plaza                  14,414             14,701          10-11-2005             8.70%
               Bradshaw Business Parks                   11,980             12,261          12-31-2020             8.10%(b)
               Corporate Square                           7,838              7,993          10-11-2005             8.70%
               Corporate Square                           9,782              9,944          8-11-2011              7.70%
               Corporate Square                          20,468             20,970          8-15-2020              7.97%
               Executive Park                            31,915             32,427          4-11-2008              7.32%
               Fairlane Commerce Park                    19,099             19,479          10-11-2005             8.70%
               Fountain View Business Center              5,151              5,284          2-10-2010              8.17%
               Gulley Road Industrial Park                4,144              4,487          5-11-2011             7.375%
               Montrose Office Center                     5,856              5,972          10-11-2005             8.70%
               Parklane Towers                           21,621             22,051          10-11-2005             8.70%
               Raintree Industrial Park                  10,090             10,291          10-11-2005             8.70%
               Riverbank Plaza                            2,364              2,422          2-10-2010              8.29%
               Seattle Business Parks                     7,109              7,207           6-7-2008              6.97%
                                                 --------------     --------------
                  Total                          $      197,552     $      201,224
                                                 ==============     ==============


         (a)  Variable interest rate.  LIBOR plus 1.30%.  Rate was 3.44% as of December 31, 2001.

         (b)  Call options exercisable by lender on 2-1-2011 and 2-1-2016.

</Table>

          The following table shows for the years presented the principal and
          balloon payments that are required (in thousands):

<Table>
<Caption>
                                                                        Total
                                                                       Mortgage
                            Principal             Balloon                Loan
                             Payments             Payments             Payments
                         ----------------     ----------------     ----------------

<S>                      <C>                  <C>                  <C>
2003                     $          3,998     $             --     $          3,998
2004                                4,310                   --                4,310
2005                                4,167               74,515               78,682
2006                                2,852               25,000               27,852
2007                                3,079                   --                3,079
Thereafter                         22,894               56,737               79,631
                         ----------------     ----------------     ----------------

Total                    $         41,300     $        156,252     $        197,552
                         ================     ================     ================
</Table>


                                  Page 31 of 45

<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002



6       MORTGAGES PAYABLE - (CONTINUED)

        The following discussions pertain to financing and refinancing
        activities during the three years ended December 31, 2002.

        ALLFIRST BUILDING

        On July 27, 2000, HRP sold its interest rate swap agreement for
        $1,597,000. HRP had entered into the interest rate swap agreement in
        1998 to reduce its exposure to changes in interest rates for the loan
        secured by Allfirst Building. This interest rate swap agreement
        effectively fixed the loan's cash interest rate at 6.78%, as opposed to
        the mortgage loan interest rate of LIBOR plus 1.30% (or 7.94% at the
        time of the swap agreement sale). The proceeds from the sale were
        designated for general working capital purposes. For financial reporting
        purposes, the proceeds are being amortized over the life of the loan as
        a reduction to interest expense. During 2001, as the result of the
        adoption of SFAS No. 133 "Accounting for Derivative Instruments and
        Hedging Activities", HRP reclassified the remaining unamortized gain
        from liabilities to accumulated other comprehensive income. The proceeds
        will continue to be amortized over the life of Allfirst Building's
        mortgage payable as a reduction to interest expense. As of December 31,
        2002 and 2001, the unamortized balance, included on the balance sheet as
        "Accumulated other comprehensive income", was $926,000 and $1,204,000,
        respectively.

        Also on July 27, 2000 and in connection with the sale of the swap
        agreement, HRP purchased an interest rate cap for Allfirst Building's
        mortgage loan for $288,000, which limits HRP's exposure to changing
        interest rates to a maximum of 10%. This interest rate cap, which has a
        notional amount of $25,000,000, has terms consistent with Allfirst
        Building's mortgage loan. Allfirst Building's cash interest rate was
        2.68% and 3.44% as of December 31, 2002 and 2001, respectively. The
        interest rate cap is a derivative and designated as a cash flow hedge.
        Hedge effectiveness is measured based on using the intrinsic value of
        the interest rate cap. All changes in the fair value of the time value
        of the cap are recorded directly to earnings. With the January 1, 2001
        adoption of SFAS No. 133, HRP recorded the cumulative effect of the
        adoption as a reduction to income of $192,000, or the amount of the
        difference between the carrying value as of January 1, 2001 of $267,000
        and the then estimated fair value of $75,000, all of which represented
        change in time value. Thereafter, on a quarterly basis, HRP has recorded
        changes in the estimated fair value of the cap in interest expense. As
        of December 31, 2002 and 2001, the estimated fair value of the interest
        rate cap was $55,000 and $68,000, respectively.

        BRADSHAW BUSINESS PARKS

        In December 2000, HRP refinanced Bradshaw Business Park's existing loan
        with a new lender. The interest rate was reduced to 8.1% from 8.5% and
        the maturity date was extended by 17 years, subject to two call options
        exercisable by the lender on February 1, 2011 and February 1, 2016. The
        monthly principal payments amortize the loan over 20 years. The loan
        proceeds of $12,500,000 were used (i) to pay the outstanding principal
        balance of $5,724,000 with the former lender, (ii) to pay transaction
        costs of $267,000, (iii) to pay a prepayment penalty of $286,000, (iv)
        to fund $288,000 of loan reserves, and (v) to add $5,935,000 to general
        working capital. The prepayment penalty along with the writeoff of
        $103,000 of unamortized loan costs associated with the retired loan were
        expensed and are included in the Consolidated Statements of Operations
        as interest expense.

        CORPORATE SQUARE

        On August 7, 2001, HRP refinanced a mortgage loan secured by a portion
        of Corporate Square with a new lender. The interest rate was reduced to
        7.7% from 8.625% and the maturity date was extended six years to August
        2011. The monthly principal payments amortize the loan over 22.5 years.
        The loan proceeds of $10,000,000 were used to pay the outstanding
        mortgage principal balance of $2,760,000 with the former lender, to pay
        a prepayment penalty of $409,000, to pay transaction costs of $142,000,
        and for general working capital. The prepayment penalty along with the
        writeoff of $105,000 of unamortized loan costs associated with the
        retired loan were expensed and are included in the Consolidated
        Statements of Operations as an interest expense.

        FOUNTAIN VIEW

        In January 2000, HRP obtained financing of $5,500,000 in connection with
        the acquisition of Fountain View Business Center (three 3-story office
        buildings in San Diego, California). The loan has a monthly payment
        based on a twenty-year amortization, matures in ten years and has a
        fixed interest rate of 8.17%.


                                  Page 32 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002



6       MORTGAGES PAYABLE - (CONTINUED)

        JOY ROAD DISTRIBUTION CENTER

        In August 2000, HRP received $3,000,000 of loan proceeds from a
        promissory term note secured by Joy Road Distribution Center in Detroit,
        Michigan. The loan proceeds were for general working capital purposes.
        The loan was scheduled to mature July 31, 2002, however it was paid off
        in March 2001 when Joy Road Distribution Center was sold. The loan had a
        variable interest rate of LIBOR plus 3.0%.

        LINE OF CREDIT

        Since August 2000, HRP has had available a $2,000,000 revolving line of
        credit, which matures on July 29, 2003. The line of credit has a
        variable interest rate of either prime plus 0.50% or LIBOR plus 3.0% and
        requires monthly interest payments, but no principal amortization. HRP
        has not borrowed against this facility.

        RIVERBANK PLAZA

        In May 2000, HRP closed on a new mortgage generating $2,500,000 of loan
        proceeds, which is secured by Riverbank Plaza (acquired in August 1999
        in a cash transaction). The loan's monthly payment is based on a
        twenty-year amortization, matures in ten years and has a fixed interest
        rate of 8.29%. The loan proceeds were for general working capital
        purposes.

7       LEASE AGREEMENTS AND MAJOR TENANT INFORMATION

        HRP leases and shares offices with Hallwood in Dallas, Texas under a
        lease which expires November 30, 2008. HRP has a one-time option to
        terminate the lease effective November 30, 2005. The annual minimum cash
        rental payments are $315,000, of which HRP's portion is approximately
        $210,000 annually.

        Lease provisions generally require HRP's tenants to pay fixed rental
        amounts, plus their proportionate share of certain building operating
        costs and real property taxes. Revenue from expense recoveries, included
        in property operations, was $3,755,000, $4,197,000, and $3,315,000 in
        2002, 2001, and 2000, respectively. In addition, certain leases include
        provisions for annual rental adjustments. Some leases contain provisions
        to allow a tenant to terminate their lease prior to its normal
        expiration. At December 31, 2002, the Properties, in the aggregate, were
        91% leased. The following table sets forth the minimum cash rental
        payments to be received from leases in place as of December 31, 2002 (in
        thousands):

<Table>
<Caption>
                                   Payments             Payments
                                from Leases          from Leases
                              without Early           with Early
                                Termination          Termination
                                     Rights               Rights                Total
                           ----------------     ----------------     ----------------

<S>                        <C>                  <C>                  <C>
2003                       $         54,963     $            651     $         55,614
2004                                 48,306                  413               48,719
2005                                 40,003                  238               40,241
2006                                 27,928                1,837               29,765
2007                                 20,348                3,485               23,833
Thereafter                           75,796               35,962              111,758
                           ----------------     ----------------     ----------------
Total                      $        267,344     $         42,586     $        309,930
                           ================     ================     ================
</Table>


        During 2002 and 2001, two tenants leasing space contributed 10% or more
        of HRP's revenues. Ford Motor Company and affiliates ("Ford") leases
        space in Parklane Towers and Fairlane Commerce Park. Ford accounted for
        11% and 12% of revenues in 2002 and 2001, respectively. The General
        Services Administration ("GSA") leases space in Corporate Square and
        Executive Park. GSA accounted for 17% and 14% of revenues in 2002 and
        2001, respectively.


                                  Page 33 of 45
<PAGE>


                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002


7       LEASE AGREEMENTS AND MAJOR TENANT INFORMATION - (CONTINUED)

        As of December 31, 2002, Ford leased 199,000 square feet of office space
        under seven leases at Parklane Towers and 224,000 square feet of office,
        technical laboratory and industrial space under seven leases at Fairlane
        Commerce Park. These leases expire between 2003 and 2005 and most
        contain options providing for one to ten year renewals. As of December
        31, 2002, GSA leased 450,000 square feet of office space at Executive
        Park (including 128,000 square feet associated with a lease that begins
        in 2003 - see Note 5) under seven leases which expire between 2003 and
        2015. Also, as of December 31, 2002, GSA leased 310,000 square feet of
        office space at Corporate Square under three leases which expire in
        2004, 2013 (with a right to early terminate in 2008) and 2020. The
        remaining tenants are not concentrated in any one industry, nor is HRP
        otherwise dependent on any group of related tenants for 10% or more of
        its revenues.

8       PARTNERS' CAPITAL

        In 1995, HRP issued options totaling 86,000 units to certain executives
        of Realty and HCRE with an exercise price of $11.875 per unit. The
        options were vested over a three year period ending in 1997 and they
        expire on February 27, 2005. As of December 31, 2002, 17,200 options had
        been exercised (all during 2000), none have been canceled and 68,800
        options remained exercisable. In February 2003, options for 4,000 units
        were exercised by the estate of a deceased HCRE executive. No options
        have been granted since 1995.

        As part of the resignation of Brian Troup as an officer and director of
        Hallwood and HRP's general partner on December 21, 1999, Hallwood
        transferred 82,608 units of HRP that it owned to a trust controlled by
        Mr. Troup. On May 12, 2000, Mr. Troup exercised his unit options to
        purchase 17,200 HRP units at the option plan's exercise price of $11.875
        per unit, which generated $601,000 of non-cash compensation. Also on May
        12, 2000, HRP purchased and retired all of Mr. Troup's above-mentioned
        99,808 units at $46.825 per unit (the average of the closing market
        prices of the units for the twenty trading days prior to the purchase).

9       ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

        Estimated fair value amounts of certain financial instruments have been
        determined using available market information based upon negotiations
        held by Realty with potential lenders or other appropriate valuation
        methodologies that require considerable judgment in interpreting market
        data and developing estimates. Accordingly, the estimates presented
        herein are not necessarily indicative of the amounts that HRP could
        realize in a current market exchange. The use of different market
        assumptions and/or estimation methodologies may have a material effect
        on the estimated fair value amounts.

        The fair value of financial instruments that are short-term or re-price
        frequently and have a history of negligible credit losses is considered
        to approximate their carrying value. These include cash and cash
        equivalents, short term receivables, accounts payable and other
        liabilities. Real estate and other assets are not considered financial
        instruments.

        Management has reviewed the fair values of its mortgages payable in
        connection with interest rates currently available to HRP for borrowing
        with similar characteristics and maturities (approximately 7.5% as of
        December 31, 2002 and 2001). Based on those interest rates, management
        has determined that the estimated fair values of HRP's mortgages payable
        as of December 31, 2002 and 2001 would equal approximately $199,383,000
        and $204,158,000, respectively, as compared to the carrying values of
        $197,552,000 and $201,224,000, respectively.

        The estimated fair value of HRP's interest rate cap as of December 31,
        2002 and 2001 was $55,000 and $68,000, respectively, based on quotes
        obtained from the issuer of the cap agreement (see Note 6 for more
        information). The carrying value of HRP's interest rate cap as of
        December 31, 2002 and 2001 was $55,000 and $68,000, respectively.

        The fair value information presented herein is based on pertinent
        information available to management as of December 31, 2002. Although
        management is not aware of any factors that would significantly affect
        the estimated fair value amounts, such amounts have not been
        comprehensively revalued for purposes of these financial statements
        since that date and, therefore current estimates of fair value may
        differ significantly from the amounts presented herein.


                                  Page 34 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002



10      COMMITMENTS AND CONTINGENCIES

        LITIGATION

        On June 20, 1997, an action was filed against HRP, the General Partner,
        its directors, and Hallwood by Gotham Partners, L.P. in the Court of
        Chancery of the State of Delaware, styled Gotham Partners, L.P. v.
        Hallwood Realty Partners, L.P., et al. (C.A. No. 15754). This action
        alleges claims of breach of fiduciary duties, breach of HRP's
        partnership agreement, and fraud in connection with certain transactions
        involving HRP's units in the mid 1990's. Hallwood is alleged to have
        aided and abetted the alleged breaches. On June 21, 2000, after
        completing fact discovery, all parties moved for summary judgment on
        several issues. In September and October 2000, the Delaware court issued
        three separate written opinions resolving the summary judgment motions.
        In the opinions, the court ruled that trial would be required as to all
        issues, except that (i) Gotham was found to have standing to pursue its
        derivative claims; (ii) defendants were entitled to judgment dismissing
        the fraud claim; (iii) the General Partner was entitled to judgment
        dismissing the breach of fiduciary duty claims brought against it; and
        (iv) the General Partner's outside directors were entitled to judgment
        dismissing all claims brought against them.

        A five-day trial was held in January 2001. On July 18, 2001, the
        Delaware Court of Chancery rendered its opinion. In its decision, the
        court determined that an option plan and a sale of units to Hallwood in
        connection with a reverse split of units implemented by HRP in 1995 were
        in compliance with HRP's partnership agreement. The court also found
        that the sale of units to Hallwood in connection with a 1995 odd-lot
        offer by HRP did not comply with certain procedures required by the HRP
        partnership agreement. The court ruled that the defendants other than
        HRP pay a judgment to HRP in the amount of $3,417,423, plus pre-judgment
        interest from August 1995. The judgment amount represents what the court
        determined was an underpayment by Hallwood. In August 2001, plaintiff
        and certain defendants appealed the Court of Chancery's judgment to the
        Delaware Supreme Court. In October 2001, HRP received the $3,417,423
        judgment together with $2,987,576 of interest, subject to an arrangement
        that it be returned in full or part if the judgment is modified or
        reversed on appeal. Oral arguments were heard on February 12, 2002, and
        a rehearing en banc was held on March 26, 2002. On August 29, 2002, the
        Supreme Court affirmed the judgment of the trial court that the
        remaining defendants other than HRP are jointly and severally liable to
        HRP. The Supreme Court reversed the trial court's determination of
        damages, and remanded the case to the trial court to fashion appropriate
        relief. A hearing on the remand proceedings was held before the Court of
        Chancery on October 25, 2002. A further hearing on the remand is
        scheduled to take place in May or June 2003, with a decision by the
        Court of Chancery to follow. Since the appellate court reversed the
        judgment, any subsequent ruling by the trial court on remand may be more
        or less favorable to HRP. As a result of the uncertainty of the
        litigation's outcome, HRP recorded the judgment and interest as
        "Deferred Litigation Proceeds" on its balance sheet.

        On February 15, 2000, HRP filed a lawsuit in the United States District
        Court for the Southern District of New York styled Hallwood Realty
        Partners, L.P. v. Gotham Partners L.P., et al. (Civ. No. 00 CV 1115)
        alleging violations of the Securities Exchange Act of 1934 by certain
        purchasers of its units, including Gotham Partners, L.P., Gotham
        Partners III, L.P., Private Management Group, Inc., Interstate
        Properties, Steven Roth and EFO Realty, Inc., by virtue of those
        purchasers' misrepresentations and/or omissions in connection with
        filings required under the Securities Exchange Act of 1934. The
        complaint further alleged that defendants, by acquiring more than 15% of
        the outstanding HRP units, have triggered certain rights under its Unit
        Purchase Rights Agreement, for which HRP was seeking declaratory relief.
        HRP sought various forms of relief, including declaratory judgments,
        divestiture, corrective disclosures, a "cooling-off" period and damages,
        including costs and disbursements. On November 16, 2000, the court
        granted HRP's motion to add as defendants Gotham Holdings II, L.L.C.,
        Hallwood Investors, L.P., Liberty Realty Partners, L.P. and EFO/Liberty,
        Inc. and to remove EFO Realty, Inc. as a defendant. Discovery was
        completed in December 2000 and trial was held in February 2001. On
        February 23, 2001, the court rendered a decision in favor of the
        defendants and on February 28, 2001, the court ordered the complaint
        dismissed. HRP filed a Notice of Appeal on March 29, 2001. Oral argument
        was heard on March 4, 2002. On April 11, 2002, the U.S. Court of Appeals
        for the Second Circuit upheld the lower court's ruling in favor of
        defendants. On April 25, 2002, HRP filed with the court a Petition for
        Rehearing and Rehearing En Banc with respect to the April 11, 2002
        decision. On June 3, 2002, the Second Circuit denied that petition. HRP
        has not sought further appellate review and the determination in favor
        of defendants is now final.

        HRP is from time to time involved in various other legal proceedings and
        claims which arise in the ordinary course of business. These matters are
        generally covered by insurance. Management believes that the resolution
        of these matters will not have a material adverse effect on HRP's
        financial position, cash flow or operations.


                                  Page 35 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002



10      COMMITMENTS AND CONTINGENCIES - (CONTINUED)

        ASBESTOS

        The environmental laws of the federal government and of certain state
        and local governments impose liability on current property owners for
        the cleanup of hazardous and toxic substances discharged on such
        property. This liability may be imposed without regard to the timing,
        cause or person responsible for the release of such substances onto the
        property. HRP could be subject to additional liability in the event that
        it owns properties having such environmental problems. Parklane Towers,
        as well as certain other properties to a lesser extent, are known to
        contain asbestos. Removal of asbestos at HRP's properties is not
        required because it is cementitious, it is not friable and because the
        procedures in HRP's site environmental program Operations and
        Maintenance Manual are performed as required.

        RIGHTS PLAN

        HRP has a Unit Purchase Rights Agreement ("Rights Plan") that provides
        for a distribution of one right for each unit of HRP to holders of
        record at the close of business as of December 10, 1990. The rights will
        not trade separately from the units until, and will become exercisable
        only in the event, with certain exceptions, an acquiring party
        accumulates 15 percent or more of HRP's units, or if a party commences
        or announces an intent to commence a tender offer or exchange offer to
        acquire 30 percent or more of such units. Each right will entitle the
        holder to buy one additional unit at a price of $250. In addition, upon
        the occurrence of certain events, holders of the rights will be
        entitled to purchase either HRP units or shares in an "acquiring
        entity" at half of market value. HRP will generally be entitled to
        redeem the rights at $.01 per right at any time on or prior to the
        tenth day following the acquisition of a 15 percent or greater interest
        in its units. Unless and until a triggering event under the Rights Plan
        occurs, there is one right for each outstanding unit, the rights do not
        trade separately from the units, and the rights are not currently
        exercisable.

        OTHER

        HRP has estimated and budgeted tenant and capital improvements of
        $15,631,000 and lease commissions of $2,851,000 for 2003.


                                  Page 36 of 45
<PAGE>
                         HALLWOOD REALTY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       Three Years Ended December 31, 2002


11      SELECTED QUARTERLY FINANCIAL DATA  (UNAUDITED)

        Set forth below is selected quarterly financial data for the years ended
        December 31, 2002 and 2001 (in thousands except per unit amounts) :

<Table>
<Caption>
                                                                                Quarter Ending
                                                    ------------------------------------------------------------------------
                                                       March 31            June 30          September 30       December 31
                                                    --------------      --------------     --------------     --------------
<S>                                                 <C>                 <C>                <C>                <C>
                2002

Total revenues(a)                                   $       18,067      $       19,153     $       17,781     $       18,738


Property operations revenues less property
operations expenses, general and administrative
expenses and litigation costs(a)(b)                          8,979               8,935              8,599              7,643

Net income(b)                                                2,474               1,942              1,843                672

Earnings per unit - basic
     Net income(b)                                            1.54                1.21               1.15               0.42
Earnings per unit - assuming dilution
     Net income(b)                                            1.49                1.17               1.11               0.40

                2001

Total revenues(a)                                   $       18,876      $       18,979     $       18,742     $       18,094

Property operations revenues less property
operations expenses, general and administrative
expenses and litigation costs(a)(b)                          5,943               8,994              8,662              7,637

Income before cumulative effect of
SFAS No. 133 adoption(b)                                     3,411               2,371              1,840                898
Net income(b)                                                3,219               2,371              1,840                898

Earnings per unit - basic
     Income before cumulative effect of
     SFAS No. 133 adoption                                    2.12                1.48               1.15               0.56
     Cumulative effect of SFAS No. 133 adoption              (0.12)                 --                 --                 --
     Net income(b)                                            2.00                1.48               1.15               0.56

Earnings per unit - assuming dilution
     Income before cumulative effect of
     SFAS No. 133 adoption                                    2.05                1.43               1.11               0.54
     Cumulative effect of SFAS No. 133 adoption              (0.11)                 --                 --                 --
     Net income(b)                                            1.94                1.43               1.11               0.54

</Table>



        (a)  Reclassifications, including a gross-up for parking, construction
             and tenant service expenses that were previously netted against
             revenues, have been made in the prior year amounts to conform to
             the classifications used in the current year. The reclassifications
             occurred due to the adoption of EITF No. 01-14, "Income Statement
             Characterization of Reimbursements Received for Out-of-Pocket
             Expenses Incurred". The reclassifications had no effect on
             previously reported net income or loss.

        (b)  Litigation costs were $217, $148, $106 and $306 in the first,
             second, third, and fourth quarters of 2002, respectively.
             Litigation costs were $2,690, $639, $206 and $273 in the first,
             second, third, and fourth quarters of 2001, respectively. (See Note
             10 to the Consolidated Financial Statements for more information.)


                                  Page 37 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>

                                                                                                          Costs
                                                                                                       Capitalized
                                                                                                      Subsequent To
                                                                      Initial Cost                     Acquisition
                                                        ---------------------------------------     -----------------
                                                                                  Buildings            Buildings
                                                                                     And                  And
Description(A)                      Encumbrances              Land               Improvements         Improvements
------------------------------    -----------------     -----------------     -----------------     -----------------

<S>                               <C>                   <C>                   <C>                   <C>
Airport Plaza                     $             721     $             300     $           4,013     $             655
Allfirst Building                            25,000                 2,100                43,772                 3,225
Bellevue Corporate Plaza                     14,414                 7,428                17,617                 2,298
Bradshaw Business Parks                      11,980                 5,018                15,563                 5,709
Corporate Square                             38,088                 6,142                14,112                24,620
Executive Park                               31,915                15,243                34,982                29,790
Fairlane Commerce Park                       19,099                 4,883                17,894                 6,684
Fountain View Business Center                 5,151                 1,858                 5,933                   677
Gulley Road Industrial Park                   4,144                 1,227                 7,022                   316
Montrose Office Center                        5,856                 5,096                15,754                 3,518
Parklane Towers                              21,621                 3,420                37,592                 7,410
Raintree Industrial Park                     10,090                 1,191                18,208                 1,701
Riverbank Plaza                               2,364                   710                 1,644                 1,823
Seattle Business Parks                        7,109                 4,399                 7,608                 4,170
Corporate office - FF&E                          --                    --                    --                   184
                                  -----------------     -----------------     -----------------     -----------------

TOTAL                             $         197,552     $          59,015     $         241,714     $          92,780
                                  =================     =================     =================     =================

<caption>


                                                 Gross Amount At Which
                                               Carried At Close Of Period
                                ----------------------------------------------------------    -----------------
                                                       Buildings                                Accumulated
                                                          And                                   Depreciation         Date(s)
Description(A)                        Land             Improvements         Total (B)              (B)(C)            Acquired
------------------------------  ----------------    -----------------    -----------------    -----------------  -----------------

<S>                             <C>                 <C>                  <C>                  <C>                 <C>  <C>
Airport Plaza                   $            300    $           4,668    $           4,968    $           4,239   4/30/87
Allfirst Building                          2,100               46,997               49,097               31,051   6/29/84
Bellevue Corporate Plaza                   7,428               19,915               27,343                7,057   6/30/88
Bradshaw Business Parks                    5,018               21,272               26,290               13,183   9/24/85
Corporate Square                           6,142               38,732               44,874               17,909   8/2/85 & 10/1/92
Executive Park                            15,243               64,772               80,015               32,936   12/19/85
Fairlane Commerce Park                     4,883               24,578               29,461               13,342   12/30/86 & 7/1/87
Fountain View Business Center              1,858                6,610                8,468                  888   1/26/00
Gulley Road Industrial Park                1,227                7,338                8,565                1,159   10/29/99
Montrose Office Center                     5,096               19,272               24,368                9,551   1/8/88
Parklane Towers                            3,420               45,002               48,422               31,683   12/16/84
Raintree Industrial Park                   1,191               19,909               21,100               11,757   7/17/86
Riverbank Plaza                              710                3,467                4,177                1,125   8/19/99
Seattle Business Parks                     4,399               11,778               16,177                7,690   4/24/86
Corporate office - FF&E                       --                  184                  184                  101   various
                                ----------------    -----------------    -----------------    -----------------

TOTAL                           $         59,015    $         334,494    $         393,509    $         183,671
                                ================    =================    =================    =================

</Table>


                  See notes to Schedule III on following page.


                                  Page 38 of 45
<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.
                              NOTES TO SCHEDULE III
                                DECEMBER 31, 2002
                                 (IN THOUSANDS)


(A)      PROPERTY LOCATIONS ARE AS FOLLOWS:

<Table>
<S>                                           <C>
         Airport Plaza                         San Diego, California
         Allfirst Building                     Baltimore, Maryland
         Bellevue Corporate Plaza              Bellevue, Washington
         Bradshaw Business Parks               Sacramento and Rancho Cordova, California
         Corporate Square                      Atlanta, Georgia
         Executive Park                        Atlanta, Georgia
         Fairlane Commerce Park                Dearborn, Michigan
         Fountain View Business Center         San Diego, California
         Gulley Road Industrial Park           Dearborn, Michigan
         Montrose Office Center                Rockville, Maryland
         Parklane Towers                       Dearborn, Michigan
         Raintree Industrial Park              Solon, Ohio
         Riverbank Plaza                       San Diego, California
         Seattle Business Parks                Kent and Tukwila, Washington
</Table>




(B)      RECONCILIATION OF CARRYING COSTS (in thousands):

<Table>
<Caption>
                                                                          Accumulated
                                                       Cost              Depreciation
                                                  ---------------      ---------------

<S>                                               <C>                  <C>
Balance, January 1, 2000$                                 358,315      $       165,501

    Additions                                              24,896               11,318
    Retirements                                            (5,949)              (5,949)
                                                  ---------------      ---------------

Balance, December 31, 2000                                377,262              170,870

    Additions                                              23,073               11,674
    Retirements and dispositions                          (10,042)              (5,825)
                                                  ---------------      ---------------

Balance, December 31, 2001                                390,293              176,719

    Additions                                               8,344               12,080
    Retirements                                            (5,128)              (5,128)
                                                  ---------------      ---------------

Balance, December 31, 2002                        $       393,509      $       183,671
                                                  ===============      ===============
</Table>

(C)       COMPUTATION OF DEPRECIATION:

          Depreciation of buildings is computed using the straight-line method
          over estimated useful lives ranging from 15 to 43 years. Equipment and
          other improvements are depreciated on the straight-line method over
          estimated useful lives ranging from 3 to 23 years. Tenant improvements
          are capitalized and amortized over the term of the respective leases
          or useful life, if shorter.



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

                 None.


                                  Page 39 of 45
<PAGE>
                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

HRP has no officers or directors. Realty, as general partner, performs functions
generally performed by officers and directors. Realty was formed in Delaware as
a corporation in January 1990 and became a limited liability company in December
1998.

BUSINESS EXPERIENCE OF DIRECTORS AND OFFICERS OF REALTY -

ANTHONY J. GUMBINER, 58, CHAIRMAN OF THE BOARD AND DIRECTOR OF REALTY
          Mr. Gumbiner has served as director and Chairman of the Board of
          Realty since January 1990. He has served as a director and Chairman of
          the Board since 1981 and Chief Executive Officer since 1984 of
          Hallwood. He has also served as Hallwood's President and Chief
          Operating Officer since December 21, 1999. Formerly, he served as
          Chairman of the Board and Chief Executive Officer of Hallwood Energy
          Corporation and its predecessors ("HEC") from 1987 until HEC was sold
          in 2001. Mr. Gumbiner is also a solicitor of the Supreme Court of
          Judicature of England.

WILLIAM L. GUZZETTI, 59, PRESIDENT AND DIRECTOR OF REALTY
          Mr. Guzzetti has been President, Chief Operating Officer and a
          director of Realty since January 1990. He has served as Executive-Vice
          President of Hallwood since October 1989 and in that capacity may
          devote a portion of his time to the activities of Hallwood, including
          the management of real estate investments, acquisitions and
          restructurings of entities controlled by Hallwood. He also served as
          President, Chief Operating Officer and a director of HEC from 1985
          until HEC was sold in 2001 and in that capacity devoted a portion of
          his time to the activities of HEC. He is a member of The Florida Bar
          and the State Bar of Texas.

JOHN G. TUTHILL, 59, EXECUTIVE VICE PRESIDENT AND SECRETARY
          Mr. Tuthill has been an Executive Vice President and Secretary of
          Realty since January 1990. He joined Hallwood in October 1989 to head
          all property management functions, having previously served as
          President of Southmark Commercial Management since November 1986,
          where he was responsible for a diversified real estate portfolio of
          over 18,000,000 square feet.

UDO H. WALTHER, 55, SENIOR VICE PRESIDENT
          Mr. Walther has been a Senior Vice President of Realty since November
          1998. Mr. Walther was a member of the Board of Directors of Realty
          from June 1994 to November 1998. Mr. Walther had been President and
          Chief Executive Officer of Walther Group, Inc., a full service design
          and construction consultancy, and President of Precept Builders, Inc.
          from 1991 to 1998. Previously, Mr. Walther was a Partner at Trammell
          Crow Company, Project Manager with HCB Contractors and Marketing Vice
          President for Researched Investments, Ltd.

JEFFREY D. GENT, 55, VICE PRESIDENT - FINANCE
          Mr. Gent joined Hallwood in March 1990 as the Vice President-Finance.
          He previously served as Vice President-Finance of Southmark Commercial
          Management since September 1984, where he was responsible for the
          financial functions of a diversified real estate portfolio of over
          18,000,000 square feet.

ALAN G. CRISP, 61, DIRECTOR OF REALTY
          Mr. Crisp was Chairman and Chief Executive Officer of Atlantic
          Metropolitan Holdings (U.K.) plc from 1979 until 1988, when he joined
          Interallianz Bank Zurich AG. From 1988 to 1993, he was General Manager
          of the London Office of the Bank. Since 1994, Mr. Crisp has been a
          consultant for various international and British companies. He is a
          Fellow of the Royal Institution of Chartered Surveyors and holds a
          B.A. (Hons) Degree and is a Master of Literature from Oxford
          University.

WILLIAM F. FORSYTH, 53, DIRECTOR OF REALTY
          Mr. Forsyth has been Chairman of Kildalton & Co., an investment
          management consultancy based in Edinburgh, Scotland since 1992. He
          graduated in law at Edinburgh University in 1971, and is a member of
          the Society of Investment Analysts in the United Kingdom.

EDWARD T. STORY, 59, DIRECTOR OF REALTY
          Mr. Story has been President and Chief Executive Officer of SOCO
          International, plc, an oil and gas company, since September, 1991.
          Prior to September 1991, he was Founder and Chairman of Thaitex
          Petroleum Company, Co-founder and Chief Financial Officer of Conquest
          Exploration Company, the Chief Financial Officer for Superior Oil
          Company, and Exploration and Production Controller with Exxon
          Corporation.


                                  Page 40 of 45
<PAGE>
ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (continued)

Section 16(a) of the Securities and Exchange Act of 1934 requires the officers
and directors of Hallwood Realty, LLC and persons who own more than ten percent
of HRP's units to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten percent owners are required by the SEC regulations to furnish HRP with
copies of all Section 16(a) forms they file. Based solely on a review of the
copies of such forms furnished to HRP, or written representations from certain
reporting persons that no forms were required of those persons, HRP believes
that during the period January 1, 2002 to December 31, 2002, all officers and
directors of Hallwood Realty, LLC and ten percent owners complied with
applicable filing requirements.


ITEM 11.      EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION AND COMPENSATION OF
DIRECTORS

Realty does not have a compensation committee and compensation decisions are
made by the Board of Directors of Realty. During 2002, Messrs. Gumbiner and
Guzzetti served on the Board of Directors of Realty. Mr. Gumbiner is also Chief
Executive Officer of Hallwood and Realty, and a member of the Board of Directors
of Hallwood, which serves as the compensation committee for Hallwood. Mr.
Guzzetti is also President and Chief Operating Officer of Realty, and Executive
Vice President of Hallwood. Messrs. Forsyth, Crisp, and Story were each paid
$25,000 in 2002, 2001, and 2000, respectively, for director fees.

Realty receives certain fees in connection with the ongoing management of HRP,
including an asset management fee, acquisition fees and disposition fees.
Specifically, Realty is entitled to receive an asset management fee equal to 1%
of the net aggregate base rents of the Properties, acquisition fees equal to 1%
of the purchase price of newly acquired properties, and disposition fees with
respect to real estate investments, other than the properties owned at the time
of HRP's formation in 1990, equal to 10% of the amount, by which the sales price
of a property exceeds the purchase price of such property.

HCRE receives compensation in connection with the management of the Properties,
which includes a property management fee, lease commissions and construction
supervision fees. The management contracts expire June 30, 2004 and provide for
basic compensation from a property management fee in an amount equal to 2.85% of
cash receipts collected from the Properties' tenants, lease commissions equal to
the current commission market rate as applied to the net aggregate rent (none
exceeding 6% of the net aggregate rent), and construction supervision fees for
administering all construction projects equal to 5% of the total contracted
costs of each capital expenditure or tenant improvement project.

Realty and HCRE are compensated for services provided to HRP and its Properties
as described above and are reimbursed, at cost, for certain costs and expenses.
In particular, since HRP does not directly employ any individuals, the
compensation and other costs related to approximately 90 employees rendering
services on behalf of HRP and its properties are reimbursed to Realty and HCRE
by HRP. The following table sets forth such compensation and reimbursements paid
by HRP (in thousands):

<Table>
<Caption>
                                        Entity
                                        Paid or
                                       Reimbursed              2002             2001             2000
                                       ----------      ------------     ------------     ------------
<S>                                    <C>             <C>              <C>              <C>
Asset management fee                     Realty        $        618     $        609     $        581
Acquisition fee                          Realty                  --               --               74
Disposition fee                          Realty                  --              120               --
Reimbursement of costs(a)                Realty               3,477            3,161            2,720
Property management fee                   HCRE                2,022            2,005            1,914
Lease commissions(b)                      HCRE                2,151            2,158            2,605
Construction fees                         HCRE                  582            1,204              917
Reimbursement of costs(c)                 HCRE                3,916            3,826            3,521
</Table>

(a)       These expenses are recorded as general and administrative expenses and
          represent reimbursement, at cost, to Realty for administrative level
          employee and director compensation, officer and director liability
          insurance, and allocated overhead costs. HRP pays its account balance
          with Realty on a monthly basis.

(b)       As of December 31, 2002, $567,000 of the 2002 lease commissions are
          accrued and are scheduled to be paid in 2003.

(c)       These costs are recorded as property operating expenses and represent
          reimbursement to HCRE for property-level employee compensation and
          related expenses.


                                  Page 41 of 45
<PAGE>
ITEM 11.       EXECUTIVE COMPENSATION - (CONTINUED)

CASH COMPENSATION OF EXECUTIVE OFFICERS

HRP has no executive officers, however, employees of Realty (general partner of
HRP) perform all functions ordinarily performed by executive officers. The
following table sets forth the compensation paid for services performed for HRP
to the Chief Executive Officer and the four other executive officers. Bonuses
are with respect to years presented and are usually paid in the following year.

                             SUMMARY COMPENSATION TABLE
<Table>
<Caption>
                                                                Annual Compensation
                                         --------------------------------------------------------------------
                                                                                               Other Annual
Name and Principal Position              Year        Salary(a)               Bonus            Compensation(b)
---------------------------              ----     ---------------       -----------------     ---------------
<S>                                      <C>      <C>                   <C>                   <C>
Anthony J. Gumbiner                       2002     $           --        $        150,000      $           --
Chairman of the Board and                 2001                 --                 150,000                  --
Chief Executive Officer                   2000                 --                 150,000                  --

William L. Guzzetti                       2002            200,000                  32,333                  --
President and Chief                       2001            200,000                  32,333                  --
Operating Officer                         2000            200,000                  32,333                  --

John G. Tuthill                           2002            150,360                  68,265               7,643
Executive Vice President                  2001            150,360                  68,265               7,895
and Secretary                             2000            150,360                  68,265               7,923

Udo H. Walther                            2002            150,000                  68,250               7,643
Senior Vice President                     2001            150,000                  68,250               7,895
                                          2000            150,000                  68,250                  --
Jeffrey D. Gent                           2002            129,203                  20,075               6,308
Vice President - Finance                  2001            120,750                  19,547               6,245
                                          2000            115,000                  19,471               6,206
</Table>

----------

(a)    Represents executive officers' gross salary before contributions to the
       qualified 401(k) Tax Favored Savings Plan.

(b)    Represents employer matching contributions to the 401(k) Tax Favored
       Savings Plan or payments in lieu thereof made under a special bonus
       arrangement.

In 1995, HRP issued options totaling 86,000 units to certain executives of
Realty and HCRE with an exercise price of $11.875 per unit. The options were
vested over a three year period ending in 1997 and they expire on February 27,
2005. As of December 31, 2002, 17,200 options had been exercised (all during
2000), none have been canceled and 68,800 options remained exercisable. In
February 2003, options for 4,000 units were exercised by the estate of a
deceased HCRE executive. The following table discloses for each of the executive
officers of Realty the number of these options held by each of the executive
officers and the potential realizable values for their options at December 31,
2002. None of the executive officers exercised any options during the year ended
December 31, 2002 and HRP has not granted SARs.

                      AGGREGATED OPTION/SAR EXERCISES IN 2002
                     AND OPTION/SAR VALUES AT DECEMBER 31, 2002
<Table>
<Caption>
                                                                                           Value of Unexercised
                                                      Number of Unexercised                    In-the-Money
                                                            Options at                          Options at
                                     Units              December 31, 2002                    December 31, 2002
                                   Acquired       ------------------------------        ---------------------------
     Name                         on Exercise     Exercisable      Unexercisable        Exercisable   Unexercisable
     ----                         -----------     -----------      -------------        -----------   -------------
<S>                               <C>             <C>              <C>                  <C>           <C>
     Anthony J. Gumbiner               0                  25,800         0              $ 1,814,385         $ 0
     William L. Guzzetti               0                  15,000         0                1,054,875           0
     John G. Tuthill                   0                  13,000         0                  914,225           0
     Jeffrey D. Gent                   0                   7,000         0                  492,275           0
</Table>



                                  Page 42 of 45
<PAGE>


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of March 14, 2003 concerning the
number of HRP units owned beneficially by (l) the persons who, to the knowledge
of the management, beneficially owned more than 5% of the units outstanding on
such date, (2) each director and (3) the present directors and executive
officers of Realty as a group:

<Table>
<Caption>
                                                           Amount               Percent
Name and Address of                                     Beneficially              of
Beneficial  Owner                                         Owned(a)               Class
------------------------------------                  ----------------        -----------

<S>                                                   <C>                     <C>
HWG, LLC                                                 330,432                  20.7%
c/o The Hallwood Group Incorporated
3710 Rawlins, Suite 1500
Dallas, Texas 75219

High River Limited Partnership                           235,000                  14.7%
c/o Icahn Associates Corp.
767 Fifth Avenue, 47th Floor
New York, NY                                                                     10153

Interstate Properties                                    160,200                  10.1%
Park 80 West, Plaza II
Saddle Brook, NJ 07662

Alan G. Crisp(b)                                              --                    --

William F. Forsyth(b)                                         --                    --

Anthony J. Gumbiner(b)                                    25,800(c)                1.6%(c)

William L. Guzzetti(b)                                    15,100(d)                0.9%(d)

Edward T. Story(b)                                            --                    --

All directors and executive officers
as a group (8 persons)                                    60,900(e)                3.7%(e)
</Table>

----------

(a)       Unless otherwise indicated, each of the persons named has sole voting
          and investment.

(b)       Represented by the following address: c/o Hallwood Realty, LLC, 3710
          Rawlins, Suite 1500, Dallas, Texas, 75219.

(c)       Comprised of currently exercisable options to purchase 25,800 units.

(d)       Includes currently exercisable options to purchase 15,000 units.

(e)       Includes currently exercisable options to purchase 60,800 units.


EQUITY COMPENSATION PLAN INFORMATION

In 1995, HRP issued options totaling 86,000 units to certain executives of
Realty and HCRE with an exercise price of $11.875 per unit. The options were
vested over a three year period ending in 1997 and they expire on February 27,
2005. As of December 31, 2002, 17,200 options had been exercised (all during
2000), none have been canceled and 68,800 options remained exercisable. In
February 2003, options for 4,000 units were exercised by the estate of a
deceased HCRE executive.

As part of the resignation of Brian Troup as an officer and director of Hallwood
and HRP's general partner on December 21, 1999, Hallwood transferred 82,608
units of HRP that it owned to a trust controlled by Mr. Troup. On May 12, 2000,
Mr. Troup exercised his unit options to purchase 17,200 HRP units at the option
plan's exercise price of $11.875 per unit, which generated $601,000 of non-cash
compensation. Also on May 12, 2000, HRP purchased and retired all of Mr. Troup's
above-mentioned 99,808 units at $46.825 per unit (the average of the closing
market prices of the units for the twenty trading days prior to the purchase).


                                  Page 43 of 45
<PAGE>



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
          (CONTINUED)


The following table provides information as of December 31, 2002 about HRP's
units that may be issued upon the exercise of options granted pursuant to HRP's
1995 Unit Option Plan, as amended to date.

<Table>
<Caption>
                                           A                          B                                 C
                                Number of units to be        Weighted-average        Number of units remaining available for
                                issued upon exercise of      exercise price of       future issuance under equity compensation
Plan category                   outstanding options          outstanding options     plans (excluding units reflected in column A)
-------------                   ------------------------     -------------------     ---------------------------------------------

<S>                             <C>                          <C>                     <C>
Equity compensation plans
approved by unitholders         None                         n/a                     None

Equity compensation plans
not approved by unitholders     68,800(1)                    $11.875                 None

</Table>

(1)       HRP is a partnership and, as such, does not hold meetings of its
          unitholders.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See Note 4 to the Consolidated Financial Statements included in Item 8 for
information covered by this item.

ITEM 14.  CONTROLS AND PROCEDURES

(a)       Evaluation of disclosure controls and procedures. It is the conclusion
          of the registrant's principal executive officer and principal
          financial officer that the registrant's disclosure controls (as
          defined in Exchange Act rules 13a-14 and 15d-14), based on their
          evaluation of these controls and procedures as of a date within 90
          days of the filing of this annual report on Form 10-K, are effective.

(b)       Changes in internal controls. There were no significant changes in the
          registrant's internal controls or in other factors that could
          significantly affect these controls subsequent to the date of their
          evaluation.


                                     PART IV

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

          (1)       Financial Statements.

                    See Index contained in Item 8.

          (2)       Reports on Form 8-K.

                    HRP filed a report on Form 8-K, dated November 13, 2002, to
                    report that its Form 10-Q for the period ended September 30,
                    2002 was accompanied by a written statement of each of the
                    Principal Executive Officer and the Principal Financial
                    Officer. This statement was furnished in Item 9 of said Form
                    8-K pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                    to Section 906 of the Sarbanes-Oxley Act of 2002.

          (3)       Exhibits.

                    The response to this portion of Item 14 is incorporated by
                    reference as detailed in the Exhibit Index.

          (4)       Financial Statement Schedules.

                    See Index contained in Item 8.


                                  Page 44 of 45
<PAGE>


                                   SIGNATURES


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.


                                HALLWOOD REALTY PARTNERS, L.P.
                                BY:   HALLWOOD REALTY, LLC
                                      GENERAL PARTNER


DATE: March 18, 2003            BY:   /s/ WILLIAM L.  GUZZETTI
      --------------                  -------------------------------------
                                      William L. Guzzetti
                                      President and Chief Operating Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K for the year ended December 31, 2002, has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the date indicated.

<Table>
<Caption>
       Signature                              Capacity                             Date
------------------------          -----------------------------------          --------------
<S>                               <C>                                          <C>

/s/ ANTHONY J.  GUMBINER          Chairman of the Board and Director,          March 18, 2003
------------------------          Hallwood Realty, LLC                         --------------
Anthony J. Gumbiner               (Chief Executive Officer)



/s/ WILLIAM L.  GUZZETTI          President and Director,                      March 18, 2003
------------------------          Hallwood Realty, LLC                         --------------
William L. Guzzetti               (Chief Operating Officer)



/s/ JEFFREY D.  GENT              Vice President-Finance,                      March 18, 2003
------------------------          Hallwood Realty, LLC                         --------------
Jeffrey D. Gent                   (Chief Accounting Officer)



/s/ ALAN G. CRISP                 Director,                                    March 18, 2003
------------------------          Hallwood Realty, LLC                         --------------
Alan G. Crisp


/s/ WILLIAM F.  FORSYTH           Director,                                    March 18, 2003
------------------------          Hallwood Realty, LLC                         --------------
William F. Forsyth


/s/ EDWARD T. STORY               Director,                                    March 18, 2003
------------------------          Hallwood Realty, LLC                         --------------
Edward T. Story

</Table>


                                  Page 45 of 45


<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.

                  CERTIFICATION FOR ANNUAL REPORTS ON FORM 10-K


I, Anthony J. Gumbiner, certify that:

1.        I have reviewed this annual report on Form 10-K of Hallwood Realty
          Partners, L.P.;

2.        Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

3.        Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

4.        The registrant's other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and we have:

          (a)       designed such disclosure controls and procedures to ensure
                    that material information relating to the registrant,
                    including its consolidated subsidiaries, is made known to us
                    by others within those entities, particularly during the
                    period in which this annual report is being prepared;

          (b)       evaluated the effectiveness of the registrant's disclosure
                    controls and procedures as of a date within 90 days prior to
                    the filing date of this annual report (the "Evaluation
                    Date"); and

          (c)       presented in this annual report our conclusions about the
                    effectiveness of the disclosure controls and procedures
                    based on our evaluation as of the Evaluation Date;

5.        The registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent function):

          (a)       all significant deficiencies in the design or operation of
                    internal controls which could adversely affect the
                    registrant's ability to record, process, summarize and
                    report financial data and have identified for the
                    registrant's auditors any material weaknesses in internal
                    controls; and

          (b)       any fraud, whether or not material, that involves management
                    or other employees who have a significant role in the
                    registrant's internal controls; and

6.        The registrant's other certifying officer and I have indicated in this
          annual report whether or not there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.


Date: March 18, 2003                                  /s/ Anthony J. Gumbiner
      --------------                                  -----------------------
                                                      Anthony J. Gumbiner
                                                      Chief Executive Officer


<PAGE>

                         HALLWOOD REALTY PARTNERS, L.P.

                  CERTIFICATION FOR ANNUAL REPORTS ON FORM 10-K


I, Jeffrey D. Gent, certify that:

1.        I have reviewed this annual report on Form 10-K of Hallwood Realty
          Partners, L.P.;

2.        Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

3.        Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

4.        The registrant's other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and we have:

          (a)       designed such disclosure controls and procedures to ensure
                    that material information relating to the registrant,
                    including its consolidated subsidiaries, is made known to us
                    by others within those entities, particularly during the
                    period in which this annual report is being prepared;

          (b)       evaluated the effectiveness of the registrant's disclosure
                    controls and procedures as of a date within 90 days prior to
                    the filing date of this annual report (the "Evaluation
                    Date"); and

          (c)       presented in this annual report our conclusions about the
                    effectiveness of the disclosure controls and procedures
                    based on our evaluation as of the Evaluation Date;

5.        The registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent function):

         (a)        all significant deficiencies in the design or operation of
                    internal controls which could adversely affect the
                    registrant's ability to record, process, summarize and
                    report financial data and have identified for the
                    registrant's auditors any material weaknesses in internal
                    controls; and

         (b)        any fraud, whether or not material, that involves management
                    or other employees who have a significant role in the
                    registrant's internal controls; and

6.        The registrant's other certifying officer and I have indicated in this
          annual report whether or not there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.


Date: March 18, 2003              /s/ Jeffrey D. Gent
      --------------              --------------------------------------------
                                  Jeffrey D. Gent
                                  Vice President - Finance
                                  (Principal Financial and Accounting Officer)

<PAGE>
                         HALLWOOD REALTY PARTNERS, L.P.
                                  EXHIBIT INDEX

<Table>
<Caption>
Exhibit
Number            Exhibit
-------           -------
<S>               <C>
 3.1              Certificate of Limited Partnership of Hallwood Realty Partners, L.P., dated January 10, 1990. (Filed as an Exhibit
                  to Registration Statement No. 33-35621 on Form S-4 of the Partnership, filed with the Commission on June 28, 1990,
                  as amended, on June 29, 1990 and incorporated herein by reference.)

 3.2              Amended and Restated Agreement of Limited Partnership of Hallwood Realty Partners, L.P., dated June 7, 1990.
                  (Filed as an Exhibit to Registration Statement No. 33-35621 on Form S-4 of the Partnership, filed with the
                  Commission on June 28, 1990, as amended, on June 29, 1990 and incorporated herein by reference.)

 4.1              Unit Purchase Rights Agreement, dated as of November 30, 1990, between the Partnership and The First National Bank
                  of Boston, as Rights Agent (Filed as part of Exhibit 1 to Current Report of Form 8-K, dated November 30, 1990, and
                  which is incorporated herein by reference - File No. 1-10643). (Incorporated by reference from exhibit 4.1 filed
                  with Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)

4.2               Amendment No. 1 to Unit Purchase Rights Agreement dated February 14, 2000 (Incorporated by reference from exhibit
                  4.2 filed with Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)

10.1*             1995 Unit Option Plan for Hallwood Realty Partners, L.P. (Incorporated by reference as the exhibit indicated and
                  filed with Annual Report on Form 10-K for the fiscal year ended December 31, 1994.)

10.2*             1995 Unit Option Plan Loan Program for Hallwood Realty Partners, L.P. (Incorporated by reference as the exhibit
                  indicated and filed with Annual Report on Form 10-K for the fiscal year ended December 31, 1994.)

10.3              Loan Agreement between Hallwood 95, L.P. and Nomura Asset Capital Corporation. (Incorporated by reference from
                  exhibit 2.1 filed with Current Report on Form 8-K dated September 29, 1995.)

10.4              Amended and Restated Agreement of Limited Partnership of Hallwood 95, L.P. (Incorporated by reference from exhibit
                  10.17 filed with Annual Report on Form 10-K for the fiscal year ended December 31, 1995.)

10.5              Management Agreement between Hallwood Real Estate Investors Fund XV and Hallwood Commercial Real Estate, LLC dated
                  July 1, 1999. (Agreement is representative of each individual management agreement for real estate properties
                  owned by Hallwood Realty Partners, L.P. Differences in the individual agreements include, but not limited to,
                  owners' name, property name, and legal description. Exhibit D to this item is a schedule reflecting the economic
                  differences in leasing fee compensation.) (Incorporated by reference from exhibit 10.5 filed with Annual Report on
                  Form 10-K for the fiscal year ended December 31, 1999.)
</Table>


*         Constitutes a management compensation plan.