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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

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

For Quarter Ended September 30, 1998               Commission File Number 1-6249
                  ------------------                                      ------

             First Union Real Estate Equity and Mortgage Investments
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             (Exact name of registrant as specified in its charter)

            Ohio                                                 34-6513657
-------------------------------                               ----------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

     Suite 1900, 55 Public Square
          Cleveland, Ohio                                        44113-1937
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(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code:              (216) 781-4030
                                                              -----------------

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Former name, former address and former fiscal year, if changed since last 
report.

         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 the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

 31,416,326  Shares of Beneficial Interest outstanding as of September 30, 1998
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================================================================================


               Total number of pages contained in this report:  13
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PART I - FINANCIAL INFORMATION
------------------------------

Item 1.  Financial Statements.
-------  ---------------------

         The combined financial statements included herein have been prepared by
the registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the registrant believes that the disclosures
contained herein are adequate to make the information presented not misleading.
It is suggested that these combined financial statements be read in conjunction
with the combined financial statements and the notes thereto included in the
registrant's latest annual report on Form 10-K.

         The "Combined Balance Sheets" as of September 30, 1998 (unaudited) and
December 31, 1997 (audited) and "Combined Statements of Income and Combined
Statements of Changes in Cash" for the periods ended September 30, 1998
(unaudited) and 1997 (unaudited), of the registrant, and "Notes to Combined
Financial Statements," are included herein. These financial statements reflect,
in the opinion of the registrant, all adjustments (consisting of normal
recurring accruals) necessary to present fairly the combined financial position
and results of operations for the respective periods in conformity with
generally accepted accounting principles consistently applied.

Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations.
              ----------------------

Financial Condition
-------------------

         In January 1998, the registrant acquired two parking garages for $44.8
million in cash, the assumption of $.7 million in mortgage debt and the issuance
of a $.9 million mortgage note payable. The parking garages are located in
Chicago, IL, and Columbus, OH. Additionally, in February 1998, the registrant
acquired a parking garage in Richmond, VA for $9.1 million in cash and a
development site in Cleveland, OH for $3.3 million in cash. The development site
is leased on a short-term basis to the former owner until construction of a
parking garage commences. In March 1998, the registrant acquired a surface
parking lot adjacent to the Ballpark at Arlington in Arlington, TX for $3
million in cash. In July 1998, the registrant acquired a parking garage in
Nashville, TN for $2.1 million in cash and the assumption of a $4.5 million
mortgage. The cash required for these acquisitions was funded with proceeds from
the registrant's bank credit facilities.

         The registrant in January 1998 received $6.2 million in cash as full
repayment of a mortgage investment secured by a property in Middletown, WV. In
May 1998, the registrant received $18.8 million in cash as full repayment of a
mortgage investment secured by an office building in Cleveland, OH. The proceeds
were used to repay bank loans under the registrant's bank credit facilities.

         In February 1998, 951,000 preferred shares of beneficial interest were
converted into approximately 3,144,000 shares of beneficial interest.

         The registrant in May 1998, sold its investment in the land beneath an
office building in Cleveland for $6 million resulting in a capital gain of $1.7
million. The proceeds were used to reduce short-term borrowings.

         In May 1998, the registrant obtained a $30 million non-recourse
mortgage secured by its parking garage in Chicago, IL. The mortgage is for three
years at an interest rate of LIBOR plus 175 basis points and is interest only.

         On June 1, 1998, the registrant's affiliated management company
purchased the remaining non-voting common shares of Impark for $11.2 million
from Impark's former owner.



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The non-voting common stock was recorded as an Other Liability in the Combined
Financial Statements. The registrant, for a fee from the former owner of Impark,
had provided a financial guarantee that the shares would be redeemed. Upon
completion of the redemption, the registrant sold $11.5 million of U.S. Treasury
bills which had collateralized the financial guarantee.

         In July 1998, the registrant commenced a tender offer to purchase for
cash all $100 million principal amount of its 8 7/8% Senior Notes due 2003 at
$970 per $1,000 principal amount of Senior Notes, plus accrued and unpaid
interest. Concurrently with the tender offer, the registrant conducted a consent
solicitation and offered a consent payment of $30 per $1,000 principal amount of
Senior Notes to amend the indenture governing the Senior Notes and to terminate
listing of the Senior Notes on the New York Stock Exchange (the "NYSE"). The
purpose of the tender offer and consent solicitation was (i) to prevent the
possibility that the registrant would be required to purchase the Senior Notes
at 101% of their principal amount, an obligation which the registrant would not
have had the financial resources to satisfy, and (ii) to provide the registrant
with additional financial and operating flexibility. Prior to its amendment, the
Senior Note indenture required the registrant to offer to purchase the Senior
Notes at 101% of their principal amount if within 90 days following the date of
a "change of control," the rating of the Senior Notes by both Standard & Poor's
Corporation ("S&P") and Moody's Investors Services, Inc. declined by one or more
rating gradations. During April 1998, S&P placed the registrant on Credit Watch
and in June 1998, Moody's placed the Senior Notes under review for possible
downgrade.

         In August 1998, pursuant to the tender offer and consent solicitation,
holders of approximately 88% of the outstanding Senior Notes consented to the
indenture amendments and delisting and the registrant purchased approximately
$88 million principal amount of Senior Notes. The purchase of the Senior Notes
was financed with the proceeds of a $90 million loan that has a term of six
months (subject to two three-month extension periods) and bears interest at 9
7/8% (the "Bridge Loan"). The lenders under the Bridge Loan are Bankers Trust,
as agent, and BankBoston, N.A., Blackacre Bridge Capital, Elliott Associates,
Gotham Partners, L.P. and Gotham Partners III, L.P., and Wellsford Capital, 
each as an equal participant.

         As a result of legal fees for several unusual, one-time matters, 
accrued severance expenses for anticipated employee terminations, a new
accounting pronouncement requiring the deferral of percentage rent from
tenants, and foreign currency mark-to-market losses, the registrant was not in
compliance with debt service coverage, interest coverage, the leverage ratio and
funds from operations covenants under its bank credit facility for the third
quarter of 1998. Additionally, Impark was not in compliance with covenants
relating to the leverage ratio and interest coverage under its bank credit
agreement for the third quarter of 1998. Further, the lenders under the
facilities determined that a change of control of the registrant occurred on May
19, 1998. Such change of control would have breached change of control covenants
under both credit facilities, but the lenders waived these breaches. 

         If the lenders under the bank credit facility and the Impark credit
agreement decline to extend the change of control waivers or declare defaults
relating to the other covenants, these credit facilities may be terminated and
the balances outstanding may become due immediately. If the registrant is not in
compliance with certain covenants or otherwise defaults under its credit
facility, the Bridge Loan lenders may accelerate repayment of the Bridge Loan. 

         The registrant and Impark have approximately $192 million outstanding
at September 30, 1998 under the bank facilities and Bridge Loan. Both the
registrant and Impark are presently negotiating the extension of waivers for the
breach of the change of control covenants, which were previously granted until
November 26, 1998 and December 31, 1998, respectively, and are negotiating with
the lenders of their credit facilities and the Bridge Loan to waive the
financial covenants non-compliance and to modify the financial covenants going
forward. 

         If the registrant and Impark cannot obtain the necessary waivers and
modifications, the lenders under the credit facilities and the Bridge Loan may
declare a default under their respective loans and the liquidity of the
registrant and Impark will be impaired. In the event of a default under such
agreements the lenders generally will be able to declare all such indebtedness,
together with accrued interest thereon, due and payable immediately, and in the
case of collateralized indebtedness, to proceed against their collateral. If the
registrant were unable to refinance the indebtedness on acceptable terms, or at
all, the registrant might be forced to dispose of one or more of its properties
at disadvantageous terms, which might result in losses to the registrant or seek
bankruptcy relief. These losses could have a material adverse effect on the 
registrant and its ability to pay amounts due on its indebtedness. 

         Furthermore, if a property is mortgaged to secure payment of
indebtedness and the registrant is unable to meet mortgage payments, the
mortgagee could foreclose on the property, appoint a receiver and receive an
assignment of rents and leases or pursue other remedies, all with a consequent
loss of revenues and asset value to the registrant. Foreclosures could also
create taxable income without accompanying cash proceeds, thereby hindering the
registrant's ability to meet the REIT distribution requirements under the
Internal Revenue Code. Accordingly, the occurrence of a default under any of the
aforementioned loan agreements could have a material adverse effect on the
registrant.

         In June 1998, the registrant implemented a multi-step Year 2000
Compliance Project (the "Project"). The Project is addressing the issue of
computer systems and embedded computer chips that may not be able to properly
recognize dates prior to, on, or after January 1, 2000.

         The general phases of the Project are as follows: (1) inventorying
systems and equipment that may be affected by the Year 2000 issue; (2) assigning
priorities to the items identified; (3) evaluating the Year 2000 compliance of
items deemed to be critical 

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to the registrant's operations; (4) testing critical items; (5) repairing or
replacing critical items that are determined not to be Year 2000 compliant and
(6) developing and implementing contingency plans for each location.

         As of September 30, 1998, the inventory and priority assessment phases
of the Project were completed. Critical items are those believed by the
registrant to involve a risk to the safety of individuals, or that may cause
damage to property, or affect revenues. Testing of critical items is being
performed and is expected to be completed in 1998.

         The Project addresses three main sections: (a) Information Technology
Systems; (b) Process Control and Instrumentation; and (c) Third Party Tenants,
Suppliers and Customers.

         The Information Technology Systems section consists of all computer
hardware and software. These systems are primarily used for accounting and
financial reporting as well as property management purposes throughout the
registrant's operations. Impark uses other systems, mainly for revenue control
purposes at the parking facility level. The testing phase is ongoing as hardware
and software are remediated, upgraded or replaced. Currently, Impark's
accounting and financial reporting systems are not Year 2000 compliant; these
systems will be replaced by a new general-purpose financial reporting and
general ledger package by September 30, 1999. Additionally, new hardware and
software are being installed at various properties and subsidiaries, which is
anticipated to be completed by June 30, 1999.

         The Process Control and Instrumentation section includes the hardware,
software and associated embedded computer chips that are used in the operations
of certain facilities owned by the registrant. Testing and repair of this
equipment is in process. The registrant's evaluation of these items and
communications with manufacturers and suppliers revealed that the majority of
this equipment is mechanical in nature and is not date-sensitive, and
accordingly will not require remediation or replacement to function properly in
the Year 2000. Contingency planning is in process, and all repair and testing is
expected to be completed by March 31, 1999.

         The Third Party Tenants, Suppliers and Customers section includes the
process of identifying critical suppliers and customers and obtaining
information from them regarding their plans and progress in addressing the Year
2000 problem. A written notice regarding the Year 2000 problem was sent to all
tenants occupying space at properties owned by the registrant and to landlords
of parking facilities operated by Impark. Additionally, inquiries have been
forwarded to critical third parties (primarily financial institutions and
utility service providers), and responses are currently being obtained and
evaluated. These evaluations will be followed by the development of contingency
plans. All activities for this section are expected to be completed by June 30,
1999.

         The total cost of required modifications to achieve Year 2000
compliance is not expected to be material to the registrant's financial
position. Estimated total costs are expected to be between $1.0 million and $2.0
million, including enhancements to software programs and upgrades to hardware,
some portion of which would have been done irrespective of the Year 2000 issue.

         The failure to correct a material Year 2000 problem could result in the
interruption or failure of certain normal business activities or operations.
Such failures could have a material adverse affect on the registrant's results
of operations, liquidity and financial condition. Due to the inherent
uncertainty of the Year 2000 problem, resulting in part from the uncertainty of
the Year 2000 readiness of third-party tenants, suppliers and customers, the
registrant is unable to determine whether the consequences of Year 2000 failures
will have a material impact on its results of operations, liquidity or financial
condition. The Project is expected to reduce the registrant's level of
uncertainty regarding the Year 2000 problem.




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Liquidity and Capital Resources
-------------------------------

         Net cash provided by operations was $4.3 million as compared to cash
provided by operations of $20.8 million when comparing the first nine months of
1998 to the same period of 1997. The decrease in cash provided from operations
is primarily the result of a net loss of $23.2 million offset by an increase in
accrued liabilities in the first nine months of 1998. The net loss was primarily
caused by several one-time charges relating to the Proxy contest and change in
the board of trustees' composition as detailed in the following section "Results
of Operations". Dividends to shares of beneficial interest paid in 1998 of $6.6
million represented 152% of net cash from operations.

         The registrant received $25 million in full repayment of two mortgage
investments secured by a mall in Middletown, WV and an office building in
Cleveland, OH during the first nine months of 1998. The proceeds were used to
repay borrowings under the registrant's bank credit facilities. Additionally,
the registrant in May 1998 sold land in Cleveland, OH for $6 million which was
also used to repay bank credit facilities.

         As noted previously, the registrant acquired five parking facilities
and a development site for $62.3 million in cash. The properties were acquired
by borrowing under the bank credit facilities, assumption of two mortgages
totaling $5.2 million and the issuance of a $.9 million second mortgage.

         The registrant invested $19.2 million in its existing portfolio
primarily to construct the first phase of a shopping center in Abilene, TX and
continue to tenant the former retail center in Denver, CO, which has been
converted into an office technology center.

         As noted previously, the registrant's affiliated management company
purchased the remaining non-voting common stock of Impark that it did not own in
June 1998 for $11.2 million.

         During the second quarter of 1998, the registrant sold $2.1 million of
stock of another REIT and $11.5 in U.S. Treasury bills. The U.S. Treasury bills
were collateral for a financial guarantee that the registrant had made in
conjunction with the registrant's affiliated management company's acquisition
of Impark.

         In May 1998, the registrant obtained a $30 million mortgage loan on its
Chicago, IL parking garage. The proceeds were used to repay bank lines of
credit.

         In June 1998, the registrant suspended its quarterly dividend to
shareholders of beneficial interest and adopted a policy of making only the
minimum required distributions to maintain its tax status as a REIT.
Additionally, the registrant has adopted a policy of making dividend
distributions on an annual basis. Based on current estimates of 1998 taxable
income, the registrant does not anticipate additional dividends for shareholders
of beneficial interest for 1998.

         As noted previously, the registrant obtained a $90 million Bridge Loan
which was utilized to repurchase approximately $88 million in Senior Notes. To
fund the repayment of the Bridge Loan, the registrant intends to, first, sell
certain assets, second, if necessary, conduct a rights offering. To facilitate 
the rights offering, the registrant, in September 1998, filed a registration 
statement on Form S-3 with the Securities and Exchange Commission
(SEC).


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Results of Operations
---------------------

         Net loss applicable to shares of beneficial interest for the third
quarter of 1998 was $11.7 million as compared to $.7 million in net income for
the same period of 1997. The net loss for the third quarter of 1998 included
$3.6 million in severance for current and future employee terminations, legal
fees of $1.6 million incurred to complete due diligence for possible corporate
and financial transactions of the registrant and $1.1 million for foreign
currency loss from the registrant's subordinated notes to Impark that it had
made in conjunction with its affiliated management company's acquisition of
voting control of Impark. Prior to the third quarter of 1998, the registrant had
hedged these notes to protect from the risk of currency fluctuations. The hedge
was sold in June 1998 requiring subsequent currency movements be recorded in the
results of operations. Additionally, in conjunction with the registrant's
adoption of the Financial Accounting Standards Board's Emerging Issues Task
Force bulletin 98-9 ("EITF 98-9"), "Accounting for Contingent Rent in Interim
Financial Periods", no percentage rent revenue was recorded in the third quarter
of 1998 as compared to $1 million in the same period of 1997. The new accounting
standard requires the accrual of percentage rent only when the tenant has
exceeded its defined sales breakpoint level. Consequently, instead of recording
participation rents throughout the year, the majority of this rent now will be
recorded in the fourth quarter of each year resulting in less percentage rent
being accrued during the first three quarters of the year.

         Net loss applicable to shares of beneficial interest for the nine
months ended September 30, 1998 was $25.5 million as compared to net income of
$2.4 million for the nine-month period ended September 30, 1997. The net loss
for the nine month period ending September 30, 1998 included a $2.3 million
reserve on a property acquisition deposit, a $3.4 million payment to the
registrant's former chairman and chief executive officer, a $5.1 million expense
due to lifting of restrictions on restricted shares which followed the change of
control of the registrant, $2.5 million in other professional fees relating to
the change of control, and $4.8 million in proxy and litigation expenses.
Additionally, as noted in the preceding paragraph, the registrant incurred $1.1
million in foreign currency declines and a decline in participation rent of $1
million due to the adoption of EITF 98-9 during the third quarter of 1998, $3.6
million in severance for anticipated employee terminations and $1.6 million in
legal fees. Net income applicable to shares of beneficial interest for 1997
included $.7 million of income from the repayment of a wraparound mortgage
investment, as the proceeds of $18 million exceeded the registrant's basis in
the wraparound mortgage investment and $.5 million resulting from a casualty
loss at one of the registrant's shopping centers.

         In February 1998, 951,000 preferred shares of beneficial interest were
converted into common shares of beneficial interest resulting in a decreased
accrued preferred dividend when comparing 1998 to 1997.

         Net loss for the first nine months of 1998 included $8.6 million of
capital gains. The registrant sold its land beneath a building in Cleveland,
Ohio resulting in a capital gain of $1.7 million. An additional capital gain of
$7.7 million was recognized when a mortgage investment was repaid. This capital
gain had been deferred from a property sale in 1982 since the registrant
received the mortgage note as purchase consideration. The registrant also
realized a capital loss from the sale of a forward exchange contract of $.8
million in the second quarter of 1998. Additionally, net loss for the first nine
months of 1998 included $1.6 million of unamortized Senior Note issue costs and
professional fees which were expensed in the third quarter of 1998 when the
registrant repaid $88 million of the Senior Notes prior to their maturity.

         Mortgage loan interest income declined by $.5 million and $1.1 million,
respectively, when comparing the third quarter and nine months of 1998 to the
same periods of 1997. The decline in interest income when comparing the third
quarter of 1998 to 1997 was caused by the repayment of a mortgage investment
secured by a shopping mall in Middletown, WV in January 1998 and the repayment
of a mortgage investment secured by an 




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office building in Cleveland, OH in May 1998. The decline in interest income
when comparing the nine months of 1998 to that of 1997 was caused by the
aforementioned mortgage repayments and the repayment of a wraparound mortgage
investment secured by an apartment complex in Atlanta, GA in February 1997.

         The registrant had approximately $11.5 million invested in U.S.
Treasury bills and approximately $2.1 million invested in the stock of another
REIT for the first five months of 1998. The U.S. Treasury bills were purchased
in April 1997 to secure the registrant's obligation under an agreement with the
former owners of Impark to collateralize the $10.5 million in non-voting stock
and accrued interest which the former owners of Impark received when the
registrant's affiliated management registrant purchased voting control of Impark
in April 1997. The REIT stock was acquired in the third and fourth quarter of
1997 as a long term investment. As noted previously, the non-voting common stock
of Impark was purchased in June 1998 allowing the registrant to liquidate the
investment. The registrant liquidated its holdings in the REIT stock as a result
of its change in investment strategy.

         In September 1996, the registrant invested in a joint venture that
owned eight shopping malls and 50% of another mall. The registrant in September
1997 purchased the interests of its joint venture partners. Consequently, the
registrant's investment income and management fees for the registrant's
affiliated management declined when comparing 1998 to 1997.

         Property net operating income, which is rental and parking revenues
less property operating expenses and real estate taxes was $4.5 million greater
when comparing the three months ended September 30, 1998 to the same period of
1997, on a non-comparable basis. Property net operating income for the
comparable portfolio and Impark declined by $1 million when comparing the third
quarter of 1998 to 1997. The decline in property net operating income was caused
primarily by the adoption of EITF 98-9, resulting in a reduction of $1 million
in participation rent accrued in the third quarter of 1998 as compared to the
same period of the prior year and a $.2 million decline in net operating income
from Impark primarily due to decreased sales at its equipment subsidiaries.
These declines were partially offset by the increased property net operating
income resulting from the continued retenanting of the North Valley Technical
Center. The acquisition of the former joint venture properties in September 1997
produced $4.5 million of increased property net operating income when comparing
the third quarter of 1998 to that of 1997. The registrant's acquisition of five
parking garages and a development site in the first half of 1998 resulted in
$1.1 million in additional property net operating income which was partially
offset by the loss of $.4 million in property net operating income from the sale
of an office complex and apartment complex in the last four months of 1997.

         Property net operating income for the nine months of 1998 increased $23
million when comparing the first nine months of 1998 to 1997 on a non-comparable
basis. The acquisition of Impark in April 1997 and the acquisition of the former
joint venture properties in September 1997 produced $.8 million and $21 million,
respectively of increased property net operating income when comparing the first
nine months of 1998 to the same period of 1997. Property net operating income
for the comparable portfolio was consistent when comparing the first nine months
of 1998 to the same period of 1997. However, after removing the effect of EITF
98-9 from the property operating results for the nine months ended September 30,
1998, comparable property net operating income increased by $1 million. The
increase was attributable to the continued lease-up of the North Valley
Technical Center and increased rental rates in the apartment portfolio. The
acquisition of five parking facilities, a development site and the Canadian
parking facilities produced $2.7 million in property net operating income which
was partially offset by the loss of $1.4 million in property operating income
from the sale of an office complex and an apartment complex in the last four
months of 1997.

         Mortgage interest expense increased when comparing the third quarter
and nine months of 1998 to that of 1997 primarily due to the $203 million in
mortgage debt assumed in




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September 1997 in conjunction with the purchase of the remaining interest in the
registrant's joint venture and the $30 million mortgage obtained in May 1998.

         Bank loan interest expense increased when comparing the third quarter
and nine months of 1998 to the same period of the prior year, exclusive of the
bank debt assumed in the April 1997 acquisition of Impark due to increased
borrowing. The average balance outstanding exclusive of Impark's bank debt for
the third quarter and nine months of 1998 was $77.3 million and $87 million,
respectively. The average balance outstanding for the third quarter and nine
months of 1997 was approximately $11 million.  The bank loans increased when
comparing 1998 to 1997 primarily due to borrowings to fund the parking garage
acquisitions and development site, partially fund the purchase of the
registrant's partners' interest in a joint venture and to fund tenant and
capital improvements during 1997 and 1998. Additionally, the bank covenant
waiver fees of $.7 million for the second quarter covenant violations were
recorded as bank loan interest expense in June 1998. Offsetting the increase in
the bank credit facilities was the proceeds from property sales during the last
four months of 1997 and in May 1998, the repayment of mortgage investments in
the first and third quarters of 1998 and the $30 million mortgage obtained in
May 1998. Additionally, the inclusion of Impark for a full nine months in 1998,
as opposed to five and a half months in 1997, in the results of the registrant
results in bank interest expense increasing by $.9 million when comparing 1998
to 1997.

         Depreciation and amortization expense for 1998 increased over 1997
primarily due to the amortization of goodwill and management contracts
associated with the acquisition of Impark in April 1997, the depreciation from
the eight shopping malls acquired in September 1997 when the registrant acquired
its joint venture partners' interest in the malls and the depreciation from the
four parking facilities which were acquired in the first quarter of 1998.

         General and administrative expenses for the third quarter of 1998
increased by $5.3 million when compared to the same period of 1997. The increase
was caused primarily due to a $3.6 million accrual for severance for current and
future employee terminations and $1.6 million of legal fees principally relating
to the proxy contest, the tender offer and consent solicitation, the Bridge
Loan, the rights offering and certain corporate restructuring matters.

         General and administrative expenses increased when comparing the nine
months of 1998 to the same period of 1997 primarily related to certain one-time
items. As noted earlier, in the second quarter of 1998, the registrant recorded
several one-time charges as a result of the change in control and professional
fees resulting from the proxy contest prior to the change in control. The
one-time charges in the second quarter of 1998 included $3.4 million resulting
from the termination of the former chairman and chief executive officer, $5.1
million for the vesting of restricted shares which occurred upon the change in
control, and $2.5 million in additional professional fees resulting from the
proxy contest. Additionally, in the third quarter of 1998, the registrant
incurred $3.6 of severance expense and $1.6 million in legal expense as
discussed in the preceding paragraph. Impark's general and administrative
expenses increased over 1997 due to its inclusion in results for a full nine
months in 1998 versus five and a half months in 1997, approximately $1.2 million
in expansion costs into U.S. markets incurred in 1998 and a $.4 million reserve
for the termination of a contract to replace its computer system. The registrant
also recorded a $2.3 million provision for the potential loss of an earnest
money deposit relating to a property acquisition which may not be consummated.

         The registrant during 1998 incurred $4.8 million in proxy and
litigation expenses, including $3.1 million for the proxy - expenses of Gotham
Partners L.P.

         Certain statements contained in this Form 10-Q that are
forward-looking are based on current expectations that are subject to a number
of uncertainties and risks, and actual results may differ materially. The
uncertanties and risks include, but are not limited to, changes in market
activity, changes in local real estate conditions and markets, actions by
competitors, interest rate movements and general economic conditions. Further
information about these matters can be found in the registrant's Annual Report
filed by the company with the SEC on Form 10K.


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PART II - OTHER INFORMATION
---------------------------

Item 1.  Legal Proceedings.
-------  ------------------

         Registrant vs. Gotham Partners, L.P. Cuyahoga County Court of Common
         Pleas, Case No. 347063

                  On September 16, 1998, pursuant to motion of the registrant,
         the court issued a Temporary Restraining Order prohibiting payments to
         be made pursuant to a certain Escrow Agreement between the registrant,
         First Union Management, Inc. and National City Bank dated May 22, 1998.
         Service of such order was made on National City Bank. A hearing on
         registrant's motion for preliminary injunction was scheduled for
         September 30, 1998. Prior to such hearing, the specific matter giving
         rise to the issuance of the Temporary Restraining Order was settled by
         agreement and the Order dissolved.

Item 2.  Changes in Securities.
-------  ----------------------

                  In July 1998, the registrant commenced a tender offer to
         purchase for cash all of its outstanding Senior Notes and concurrently
         conducted a consent solicitation to amend the indenture governing the
         Senior Notes and to terminate the listing of the Senior Notes on the
         New York Stock Exchange. In August 1998, pursuant to the tender offer
         and consent solicitation, holders of approximately 88% of the
         outstanding Senior Notes consented to the indenture amendments and
         delisting and registrant purchased approximately $88 million principal
         amount of Senior Notes.

                  The indenture amendments eliminated covenants relating to (i)
         limitation of indebtedness, (ii) limitation on certain liens, (iii)
         maintenance of a specified minimum tangible net worth, (iv)
         transactions with affiliates, (v) maintenance of corporate existence,
         (vi) maintenance of properties, (vii) maintenance of certain insurance,
         (viii) payment of taxes and other claims, (ix) statements as to
         compliance with covenants and conditions under the indenture, and (x)
         repurchase of the Senior Notes upon a change of control. In addition,
         the indenture amendments modified provisions in the indenture relating
         to when the registrant may merge, consolidate or sell its assets,
         eliminated certain events of default in the indenture, and made certain
         conforming and other changes to the indenture.

                  As a result of the indenture amendments, holders of Senior
         Notes that were not purchased pursuant to the tender offer no longer
         are entitled to the benefits of substantially all of the restrictive
         covenants and certain events of default contained in the indenture. The
         elimination of substantially all of these restrictive covenants permit
         the registrant to take actions that could increase the credit risks of
         the registrant. These increased credit risks may adversely affect the
         market prices of the Senior Notes or otherwise be adverse to the
         interests of the holders of the remaining Senior Notes. Elimination of
         certain events of default removed the right of holders of Senior Notes
         to pursue certain remedies. The indenture amendments do not relieve the
         registrant from any of its obligations to make payments of principal
         and interest on Senior Notes not purchased pursuant to the tender
         offer.

Item 3.  Defaults Upon Senior Securities.
-------  --------------------------------
              None.




                                       9

<PAGE>   10


Item 4.  Submission of Matters to a Vote of Security Holders.
-------  ----------------------------------------------------

                  As discussed above, in July 1998, the registrant commenced a
         tender offer to purchase for cash all of its outstanding Senior Notes
         and conducted a consent solicitation to amend the indenture governing
         the Senior Notes and to terminate the listing of the Senior Notes on   
         the New York Stock Exchange. The consent of more than a majority       
         in aggregate principal amount of the holders of Senior Notes 
         registered holders was required to approve the indenture amendments 
         and the consent of more than 66 2/3% in aggregate principal amount of
         the  holders of Senior Notes was required to approve the delisting. In 
         August 1998, pursuant to the tender offer and consent solicitation, 
         holders of approximately 88% of the outstanding principal amount of 
         Senior Notes consented to the indenture amendments and delisting.

Item 5.  Other Information.
-------  ------------------

                  In November 1998, the registrant hired Daniel P. Friedman as
         Chief Executive Officer, and David Schonberger and Anne Zahner as
         Executive Vice Presidents. Mr. Friedman, Mr. Schonberger and Ms. Zahner
         were previously employed by Enterprise Asset Management Inc.
         ("Enterprise"), a New York City based real estate investment firm. Mr.
         Friedman was also elected to fill one of the two vacant seats on the
         registrants board of trustees

                  At Enterprise, beginning in 1991, Mr. Friedman, age 41, served
         as President and Chief Operating Officer and directed Enterprise's
         opportunistic investment program which included the acquisition of
         Class B enclosed malls, Class B office buildings, tax-exempt financed
         apartments, non-performing loans, public and private real estate and
         real-estate-related securities, various development opportunities,
         underlying co-op loans and unsold co-op shares, as well as co-venture
         investments in a number of early-and later-stage real estate and
         real-estate-related investment programs. At Enterprise, Mr. Friedman
         was also responsible for the day-to-day asset management of the firm's
         $500 million real estate portfolio and for sourcing equity capital for
         co-investment opportunities from partners including university
         endowments, investment banks, and various opportunity funds. Mr.
         Friedman received an MBA from the Harvard Business School and a BS in
         Chemistry from Stanford University.

                  As Executive Vice President of Enterprise, Ms. Zahner, age 42,
         was responsible for asset management and new business development.
         Prior to joining Enterprise, Ms. Zahner was a regional director of real
         estate asset management and sales and vice president of investment
         management and recovery for the Travelers Insurance Registrant
         ("Travelers"), where she managed the workout of a $750 million loan and
         property portfolio. Prior to Travelers, Ms. Zahner was a real estate
         investment officer at Riverbank America and the ADCO Group. Ms. Zahner
         received an MBA from the Harvard Business School and a BA in Political
         Economy from the University of California at Berkley.

                  As Vice President of Development at Enterprise, Mr.
         Schonberger, age 44, was responsible for all development activities
         including major sub-division, pre-development planning, and
         construction of leased and build-to-suit properties. For 15 years, Mr.
         Schonberger has acted as a private developer of major retail and
         commercial properties in the New York metropolitan area. He also
         founded, managed, and later sold a property management and leasing
         company specializing in the third party management of institutional
         office properties. Mr. Schonberger received a BS in Life Sciences from
         Connecticut College.

                  In October 1998, William Scully was elected to fill one of
         three vacant seats on registrant's board of trustees. Mr. Scully has
         been with Apollo Real Estate Advisors, L.P. ("Apollo") since 1996 and
         is responsible for new investments and investment management for
         Apollo.


                                       10

<PAGE>   11



Item 6.  Exhibits and Reports on Form 8-K.
-------  ---------------------------------

<TABLE>
<CAPTION>
         (a)  Exhibits:
              ---------

<S>                           <C>
         Exhibit (20)    -    Financial Statements
                              Combined Balance Sheets as of September 30, 1998
                              (unaudited) and December 31, 1997 (audited)

                              Combined Statements of Income for the Nine Months
                              ended September 30, 1998 and 1997 (unaudited)

                              Combined Statements of Changes in Cash for the
                              Nine Months ended September 30, 1998 and 1997
                              (unaudited)

                              Notes to Combined Financial Statements

         Exhibit (27.1)  -    Nine months ended September 30, 1998

         Exhibit (27.2)  -    Nine months ended September 30, 1997 (restated)

         (b) Reports on Form 8-K:
             --------------------

                         July 21, 1998  -  Registrant's announcement of tender
                                           offer for its 8 7/8% Senior Notes and
                                           bank waiver of certain violations
                                           under existing credit facilities.
</TABLE>



                                       11

<PAGE>   12



                                   SIGNATURES
                                   ----------


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


                                         First Union Real Estate Equity and
                                               Mortgage Investments
                                         ----------------------------------
                                                   (Registrant)





Date: November 13, 1998                   By: /s/ Steven M. Edelman
                                              ---------------------------------
                                              Steven M. Edelman, Executive Vice
                                              President, Chief Financial Officer




Date: November 13, 1998                   By: /s/ Gregory C. Scott
                                              ---------------------------------
                                              Gregory C. Scott
                                              Controller







                                       12
<PAGE>   13


                                Index to Exhibits
                                -----------------



<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                           Number
                                                                                                           ------
<S>                     <C>                                                                                <C>
Exhibit (20)  - Financial Statements
                        Combined Balance Sheets as of September 30, 1998 (unaudited)
                        and December 31, 1997 (audited).................................................     14
                                                                                                            ----

                        Combined Statements of Income for the Nine
                        Months ended September 30, 1998 and 1997 (unaudited)............................     14
                                                                                                            ----

                        Combined Statements of Changes in Cash for the
                        Nine Months ended September 30, 1998 and 1997 (unaudited).......................     14
                                                                                                            ----

                        Notes to Combined Financial Statements..........................................     14
                                                                                                            ----


Exhibit (27)  - Financial Data Schedule                                                                      15
                                                                                                            ----
</TABLE>














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