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                       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 X

     For the Fiscal Year Ended December 31, 1996

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

     For the Transition Period from _______________ to __________________

                         Commission File Number 0-18525

                 CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
             (Exact name of Registrant as Specified in its Charter)

        Delaware                                         52-1616016
(State or other jurisdiction                          (I.R.S. Employer
of incorporation or organization)                   Identification Number)

    533 South Fremont Avenue
    Los Angeles, California                               90071-1798
(Address of Principal Executive Offices)                  (Zip Code)

Registrant's telephone number, including area code:  (213) 613-3123

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $.01
par value

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   Yes  X   No
                                                ---     ----

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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.  [ ]

     The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant on March 25, 1997 was 285,739,183.

     Number of shares of Common Stock outstanding at March 25, 1997 was
13,347,303.


                      DOCUMENTS INCORPORATED BY REFERENCE

                                      None
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                                    PART  I


ITEM 1.   BUSINESS

COMPANY OVERVIEW

  Founded in 1906, the Company is the largest vertically-integrated commercial
real estate services company in the United States with aggregate 1996 revenue of
$583 million and 230 business unit offices in 108 locations.  In addition, the
Company has established exclusive alliances with international commercial real
estate services firms (DTZ in Europe, C.Y. Leung & Company in Hong Kong, China
and Singapore, and Ikoma Corporation in Japan) which have offices in an
additional 134 locations in 31 countries.  These alliances have not generated
significant revenues to the Company to date.  The Company provides a full range
of services to commercial real estate tenants, owners and investors including:
(i) brokerage  (facilitating sales and leases), investment properties
(acquisitions and sales on behalf of investors), corporate services, property
management and real estate market research (collectively "Property and User
Services"), and (ii) mortgage banking (mortgage loan origination and servicing),
investment management and advisory services primarily for pension plans, and
valuation and appraisal services (collectively "Investor Services").


INDUSTRY TRENDS

  Over the last ten years, the commercial real estate industry has experienced
various structural changes and more recently has been experiencing a broad
recovery from the real estate "depression" of the early 1990s.  Management
believes these factors and the resulting trends, the most important of which are
discussed below, create an opportunity for the Company to leverage its
experience, multi-discipline integrated services, multi-market presence and
brand equity to its competitive advantage.

  .  RECOVERING COMMERCIAL REAL ESTATE MARKETS.

  Coincident with the longer term structural shifts in the commercial real
estate industry, commercial real estate markets in the United States have been
recovering over the last several years, experiencing increased activity in many
product types and geographical market areas.  This has been particularly true in
California, where the Company has a significant market presence.  National
office and industrial building occupancy levels have generally been rising,
rental rates are beginning to increase and, correspondingly, property values are
increasing.

  Geographically, recoveries are underway in a number of major U.S. real estate
markets where the Company has operations, including California, Arizona, Texas,
and the Washington, D.C./Baltimore areas.

  .  CHANGING COMPOSITION AND NEEDS OF INVESTORS IN AND OWNERS OF COMMERCIAL
REAL ESTATE ASSETS.

  Investors in and owners of commercial real estate assets have become
increasingly institutional (including pension funds, life insurance companies,
banks and publicly-held REITs).  Simultaneously, their investment and management
needs have become increasingly multi-market due to the fact that the commercial
real estate properties in their portfolios are typically located in numerous
geographic locations.  With respect to institutions other than REITs, this
change in the ownership characteristics and management requirements of
institutional real estate investors and owners has fueled the demand for the
growth of multi-service, nationally-oriented real estate service providers.  As
most REITs are internally managed and to date generally have outsourced only
their brokerage service needs, their demand for the Company's other real estate
services may be less than that of other institutional investors.

  .  ONGOING INDUSTRY CONSOLIDATION.

  The Company believes that the combination of more intense institutional and
corporate real estate service needs and demands, together with the real estate
"depression" of the early 1990s, has made it imperative that real estate service
firms (i) provide comprehensive, high-quality services, (ii) make significant
investments in corporate infrastructure, including information technology and
professional education, and (iii) have access to sufficient capital

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to support these service and investment needs.  These factors have fueled the
current consolidating industry environment, which the Company believes will
motivate local and regional real estate service providers to sell to, or form
alliances with, major national and international companies.

  .  CONTINUING CORPORATE OUTSOURCING TREND.

  Shareholder pressure for higher performance and return on equity within most
American corporations in the 1980s heightened corporate management's awareness
that corporate real estate assets are a major component of corporate net worth.
Simultaneously, with competitive pressures encouraging greater focus on core
businesses, companies have emphasized leaner staffing in non-core activities
and, as a result, outsourced certain non-core activities to third parties.  As a
consequence, the demand for multi-discipline, multi-market professional real
estate service firms that provide integrated services capable of supplementing a
corporate real estate department has increased significantly.

  .  EXPANDING CMBS MARKET.

  Historically, the majority of third-party financing for commercial real estate
assets was provided by banks and insurance companies who generally held the
mortgage loans they originated to the maturity date of the mortgage loans.  More
recently, Wall Street firms and financial institutions have been providing a
significant amount of third-party mortgage financing, and have been accessing
the public debt markets by issuing CMBS in order to securitize their portfolios
and avoid holding mortgage loans for the long term.  The Company believes that
its overall market presence, extensive available market data and access to real
estate transaction deal flow positions its mortgage banking business to benefit
substantially from the expansion of the CMBS market.  The Company's national
geographic coverage and mortgage origination capabilities through its L. J.
Melody & Company subsidiary have caused it to become the largest supplier of
commercial mortgages to the CMBS market (almost $1 billion in 1996).  In
addition, the Company expects to service a majority of the mortgage loans that
it originated and the profit margin potential for servicing an increasing volume
of mortgage loans may be significant for the Company's mortgage banking
business.  The acquisition and subsequent combination with L. J. Melody in July
1996 was a strategic step in substantially expanding the Company's capabilities
in this area.  The Company does not currently securitize loans and has no
present intention of doing so.


ACQUISITIONS

  As part of its growth strategy, the Company is continually assessing
acquisition opportunities.  Management believes that there are significant
opportunities in the fragmented and consolidating real estate services industry
to acquire additional companies to complement and expand the Company's existing
operations.  Since the beginning of 1995, the Company has completed three
strategic acquisitions.  In July 1996, the Company acquired L. J. Melody &
Company and L. J. Melody & Company of California (collectively "L. J. Melody"),
a nationally-known mortgage banking firm, for $15.0 million.  The L. J. Melody
acquisition provides the Company with leadership for its own mortgage banking
business, access to loan sources not previously available to the Company and an
enhanced ability to access the Company's deal flow in its investment properties
and brokerage businesses as a source of mortgage originations.  In June 1995,
the Company acquired Westmark Realty Advisors L.L.C.  ("Westmark"), an
investment management and advisory business with approximately $3.0 billion of
assets under management, for $37.5 million, plus a supplemental purchase price
component of up to $18.0 million based upon Westmark's adjusted operating
income.  The Westmark acquisition increased the Company's presence in a business
area which the Company believes has the potential for significant growth.  In
April 1995, the Company acquired Langdon Rieder Corporation ("Langdon Rieder"),
a nationally-known tenant representation firm, for $1.5 million in cash and a
deferred payment of $1.9 million payable over three years.  The deferred payment
is subject to forfeiture under  certain circumstances.  The Langdon Rieder
acquisition strengthened the Company's ability to provide sophisticated tenant
representation services to its corporate clients.

  The Company expects to continue its acquisitions program over the next several
years and will focus on acquisitions in its mortgage banking, property
management, and investment management and advisory businesses. The Company will
also consider opportunistic acquisitions for its brokerage and investment
properties businesses.  Based upon its historical experience, the Company
believes that seller financing generally will provide 40% to 50%

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of the purchase price for an acquisition, with the balance financed from third-
party borrowings and internally generated cash flow.

  Because of the substantial non-cash goodwill and intangible amortization
charges incurred by the Company in connection with acquisitions subject to
purchase accounting and because of interest expense associated with acquisition
financing, management anticipates that future acquisitions may adversely affect
net income.  In addition, during the first six months following an acquisition,
the Company believes there are generally significant one-time costs relating to
integrating information technology, accounting and management services and
rationalizing personnel levels (which the Company intends to take as a single
charge at the time of the acquisition to the maximum extent possible).
Management's strategy is to pursue acquisitions that are expected to be
accretive to income before interest expense and provision for amortization of
goodwill and intangibles, if any, resulting from the acquisitions and to
operating cash flows (excluding the costs of integration).

  On March 18, 1997, the Company announced that it had signed a non-binding
letter of intent to merge with Koll Real Estate Services, Inc. ("Koll") in a
tax-free reorganization to be accounted for as a purchase.  The Company has
agreed to issue 0.85 shares of its common stock for each share of Koll common
stock, which will result in the issuance of approximately 6.0 million shares.
The merger is subject to execution of a definitive agreement and the approval of
stockholders of both companies as well as regulatory approval.


THE COMPANY'S BUSINESSES

 Property and User Services

  Brokerage

  The Company has provided commercial real estate brokerage services since 1906
through the representation of buyers, sellers, landlords and tenants in
connection with the sale and lease of office space, industrial buildings, retail
properties, multi-family residential properties and unimproved land.  In 1996,
the Company generated revenue from commercial real estate brokerage services of
approximately $335.4 million representing approximately 19,950 completed
transactions.  In 1996, brokerage facilitated over 2,750 sale transactions with
an aggregate estimated total consideration of over $3.7 billion and
approximately 17,200 lease transactions involving aggregate rents, under the
terms of leases facilitated, of over $8.1 billion.

  Brokerage services comprise the largest source of revenue for the Company and
provide a foundation for growing the Company's other disciplines which make up
its multi-discipline integrated commercial real estate services.  The Company
believes that its position in the brokerage services industry provides a
competitive advantage for all of its lines of business by enabling them to
leverage off brokerage's (i) national network of relationships with owners and
users of commercial real estate, (ii) real-time knowledge of completed
transactions and real estate market trends, and (iii) brand recognition in the
brokerage area.

  OPERATIONS.  As of December 31, 1996, the Company employed approximately 1,630
brokerage professionals in 79 offices located in most of the largest MSAs in the
United States.  The Company maintains a decentralized approach to brokerage
services, bringing significant local knowledge and expertise to each assignment.
Each local office draws upon the broad range of support services provided by the
Company's other business groups, including a national network of market
research, mortgage originations, client relationships and transaction referrals
which the Company believes provide it with significant economies of scale over
many local competitors.

  In order to increase market share in its domestic brokerage business, the
Company has implemented a plan to establish "partnerships" with leading local
firms in order to institute geographic coverage in markets that currently are
not being served by the Company.  To date, through the "CB Commercial/Partners"
program, the Company has identified approximately 70 markets on which it intends
to focus during the next three years.  Through December 31, 1996, the Company
had established ten such partnership-type arrangements in Des Moines, Iowa;
Louisville, Kentucky; Buffalo and Rochester, New York; Pittsburgh, Pennsylvania;
Charleston and Columbia, South Carolina; Memphis, Tennessee; and Madison and
Milwaukee, Wisconsin.  Revenue anticipated from this program will be a
combination of an initial fee, fixed annual fees and a percentage of revenue in
excess of a pre-agreed threshold, comparable to a classic franchise program.

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  COMPENSATION.  Under a typical brokerage services agreement, the Company is
entitled to receive sale or lease commissions.  Sale commissions, which are
calculated as a percentage of sales price, are generally earned by the Company
at the close of escrow.  Sale commissions typically range from approximately 1%
to 6% with the rate of commission declining as the price of the property
increases.  Lease commissions, which are calculated as a percentage of the
minimum rent payable during the term of the lease, are generally earned by the
Company at the commencement of a lease and are not contingent upon the tenant
fulfilling the terms of the lease.  In cases where a third-party brokerage firm
is not involved,  lease commissions earned by the Company for a new lease
typically range between 2% and 6% of minimum rent payable under the lease
depending upon the value of the lease.  For renewal of an existing lease, such
fees are generally 50% of a new lease commission.  In sales and leases where a
third-party broker is involved, the Company must typically share 50% of the
commission it would have otherwise received with the third-party broker.  The
Company's brokerage sales professionals typically receive 50% of the Company's
share of commissions before costs and expenses.


  Investment Properties

  Since 1992, investment properties has provided sophisticated strategic
planning for, and execution of, acquisitions and sales of income-producing
properties for its clients.  In 1996, the Company completed approximately 1,200
investment property transactions with an aggregate value of over $7.0 billion,
generating total revenues of $130.2 million.  On behalf of property owners
seeking to dispose of investment properties, the Company strives to ensure that
the owner achieves the maximum value in the minimum amount of time by providing
services which include (i) accessing the Company's proprietary databases and
other information sources to provide real-time knowledge of available
properties, completed comparable transactions, real estate market trends, and
active investors in the market, and to assist with valuation and buyer
identification, and (ii) designing the appropriate marketing strategy that
allows the owner to target probable buyers or buyer categories.  On behalf of
prospective investors, access to the same sources of information provides the
Company's clients with a competitive advantage by enabling the Company's
professionals (i) to identify the geographical areas and specific properties
which are most suitable for the investor and (ii) to advise investors in
negotiations and due diligence.

  OPERATIONS.  As of December 31, 1996, the Company employed approximately 270
investment properties professionals who exclusively handle acquisitions and
sales of investment properties and are located in 37 offices in the United
States.

  A team of professionals with expertise within a given market and property type
is assembled for each investment properties assignment to best accomplish the
client's objectives.  As necessary, the team may also include professionals from
the Company's other disciplines.  On larger and more complex assignments, the
Company's financial consulting professionals provide sophisticated financial and
analytical resources to the client, the marketing team and the investor.  These
services provide the client with in-depth analyses of transaction specific data
as well as real estate market data.

  COMPENSATION.  Under the typical investment properties agreement, the Company
is entitled to receive sale commissions, which are calculated as a percentage of
sales price and are generally earned by the Company at the close of escrow.  In
cases where another real estate broker is not involved, sale commissions earned
by the Company typically range from 1% to 6% of the sales price, with the rate
of commissions generally declining as the sales price increases.  In cases where
another firm is involved in the transaction, the Company must typically share up
to 50% of the commission it would have otherwise received with the other firm.
The Company's investment properties professionals typically receive 50% of the
Company's commission before costs and expenses.


  Corporate Services

  Since 1992, the Company has provided corporate services through CBC/Madison
Advisory Group, assisting corporations in developing and executing multiple-
market real estate strategies.  The Company's objective is to establish long-
term relationships with corporations that require continuity in the delivery of
high-quality, multi-market management services and strategic advisory services
including acquisition, disposition and consulting services.  Global competition,
the focus on quality, "right-sizing" of corporate organizations and changes in
management philosophy have all contributed to an increased interest in and
reliance on outside third-party real estate

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service providers.  Specifically, through contractual relationships, the Company
assists major, multi-market companies in developing and executing real estate
strategies as well as addressing specific occupancy and facilities management
objectives. Corporate services coordinates the utilization of all the Company's
various disciplines to deliver an integrated service to its clients.
Essentially, corporate services expands a client's real estate department and
supports most of the functions involved in a corporate real estate department.

  OPERATIONS.  CBC/Madison Advisory Group is organized into three geographic
regions in the Eastern, Western and Central areas of the United States, with
each geographic region comprised of consulting, corporate services and team
management professionals who provide corporate service clients with a broad
array of financial, real estate, technological and general business skills.  In
addition to CBC/Madison Advisory Group's objective of providing a full range of
corporate services in a contractual relationship, the group will respond to
client requests generated by other Company business groups for significant,
single-assignment acquisition, disposition and consulting assignments that may
lead to long-term relationships.

  COMPENSATION.  A typical corporate services agreement gives the Company the
right to execute some or all of the client's future sales and leasing
transactions.  The commission rate with respect to such transactions frequently
reflects a discount for the captive nature and large volume of the business.

  TERM.  A typical corporate services agreement includes a stated term of at
least one year and normally contains provisions for extension of the agreement.
Agreements typically include a provision for cancellation by either party, upon
notice, within a specified short time frame.


  Property Management

  The Company provides value-added property management services for income-
producing properties owned primarily by institutional investors and, as of
December 31, 1996, managed approximately 107 million square feet of commercial
space.

  Property management services include maintenance, marketing and leasing
services for investor-owned properties, including office, industrial, retail and
multi-family residential properties.  Additionally, the Company provides
construction management services, which relate primarily to tenant improvements.
The Company works closely with its clients to implement their specific goals and
objectives, focusing on the enhancement of property values through maximization
of cash flow.  The Company markets its services primarily to long-term
institutional owners of large commercial real estate assets.

  OPERATIONS.  The Company employs approximately 190 property management
professionals in 31 offices.  Most property management services are performed by
management teams located on-site or in the vicinity of the properties they
manage.  This provides property owners and tenants with immediate and easily
accessible service, enhancing client awareness of manager accountability.  All
personnel are extensively trained and are encouraged to continue their education
through both Company-sponsored and outside training.  The Company provides each
local office with centralized corporate resources including investments in
computer software and hardware as described below under the caption "Information
Technology".   Property management personnel utilize state-of-the-art computer
systems for accounting, marketing, and maintenance management.

  COMPENSATION.  Under a typical property management agreement, the Company will
be entitled to receive management fees and lease commissions.  The management
fee in most cases is based upon a formula which gives the Company a specified
percentage of the monthly gross rental income collected from tenants occupying
the property under management and, as a result, will increase and decrease as
building rents and occupancies increase and decrease.  Many of these property
management agreements also include a stated minimum management fee.  The Company
also may be entitled to reimbursement for costs incurred that are directly
attributable to management of the property.  Reimbursable costs, which are not
included in the Company's revenue, include the wages of on-site employees and
the cost of field office rent, furniture, computers, supplies and utilities.
The Company pays its property management professionals a combination of salary
and incentive-based bonuses.  Lease commissions, which are paid in addition to
the management fee, are similar to those described for brokerage services.
Revenue from leasing services provided to the Company's property management
clients is reflected in brokerage rather than property management revenue since
brokerage professionals are normally engaged to accomplish the leasing.

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  TERM.  A typical property management agreement contains an evergreen provision
which provides that the agreement remains in effect for an indefinite period,
but enables the property owner to terminate the agreement upon 30 days prior
written notice, which the Company believes to be customary in the commercial
real estate industry.


  Real Estate Market Research

  Real estate market research services are provided by 15 professionals in
Boston, Massachusetts employed by CB Commercial/Torto Wheaton Research.  Real
estate market research services are provided to the Company's other businesses
as well as sold to third-party clients and include (i) data collection and
interpretation, (ii) econometric forecasting, and (iii) evaluating marketing
opportunities and portfolio risk for institutional clients within and across
U.S. commercial real estate markets.  The Company's publications and products
provide real estate data for more than 50 of the largest MSAs in the United
States and are sold on a subscription basis to many of the largest portfolio
managers, insurance companies and pension funds in the United States.


Investor Services

  Mortgage Banking

  The Company provides its mortgage origination and mortgage loan servicing
through L. J. Melody, which was acquired in July 1996 and is based in Houston,
Texas.  The Company, on a combined basis with L. J. Melody, originated
approximately $3.25 billion, $2.3 billion and $2.0 billion of mortgages in 1996,
1995 and 1994, respectively.  As part of these origination activities, the
Company has special conduit arrangements with affiliates of Merrill Lynch & Co.,
Citicorp, Lehman Brothers and NationsBank which permit it to service the
mortgage loans which it originates.  Under these arrangements, the Company
generally originates mortgages in its name, makes certain representations and
warranties based upon representations made to it by the borrower or another
party and immediately sells them into a conduit program.  The Company also
originates mortgages into other conduit programs where it does not have
servicing rights.  In addition, the Company is a major mortgage originator for
insurance companies having originated, on a combined basis with L. J. Melody,
mortgages in the names of the insurance companies valued at approximately $1.7
billion in 1996.  The Company has correspondency arrangements with various life
insurance companies which entitle it to service the mortgage loans it
originates.  As of December 31, 1996, 1995 and 1994, the Company, on a combined
basis with L. J. Melody, serviced mortgage loan portfolios of approximately $7.0
billion, $7.3 billion and $7.1 billion, respectively.

  OPERATIONS.  The Company employs approximately 90 mortgage banking
professionals in 22 offices in the United States.  The Company's mortgage loan
originations take place throughout the United States, with support from L. J.
Melody's headquarters in Houston, Texas.  All of the Company's mortgage loan
servicing is handled by L. J. Melody in Houston, Texas.

  COMPENSATION.  The Company typically receives origination fees, ranging from
0.5% for large insurance company mortgage loans to 1.0% for most conduit
mortgage loans.  In situations where the Company services the mortgage loans
which it originates, it also receives a servicing fee between .03% and .25%,
calculated as a percentage of the outstanding mortgage loan balance.  These
agreements generally contain an evergreen provision with respect to servicing
which provides that the agreement remains in effect for an indefinite period,
but enables the lender to terminate the agreement upon 30 days prior written
notice, which the Company believes to be a customary industry termination
provision.  A majority of the Company's 1996 mortgage loan origination revenue,
on a combined basis with L. J. Melody, was from agreements which entitled it to
both originate and service mortgage loans.  The Company also originates mortgage
loans on behalf of conduits and insurance companies for whom it does not perform
servicing.  The Company's client relationships have historically been long term.
The Company pays its mortgage banking professionals a combination of salary,
commissions and incentive-based bonuses which typically average between 46% and
50% of the Company's loan origination fees.

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  Investment Management and Advisory

  The Company provides its investment management and advisory services primarily
to tax-exempt corporate and public pension funds through Westmark.  Since 1971,
the Company has provided its clients with investment management and advisory
services, including the creation of investment products, raising of investor
capital, identification and acquisition of specific properties and management
and disposition of the assets.  As of December 31, 1996, the Company represented
more than 180 clients in 13 commingled funds and a variety of separate accounts.

    OPERATIONS.  Westmark operates as a separate and independent subsidiary of
the Company, providing advisory services and, as of December 31, 1996, managing
approximately $3.7 billion in tax-exempt capital invested in more than 215
office, industrial and retail properties located in more than 40 major U.S.
markets with an aggregate of more than 38 million square feet.  Westmark's
headquarters are located in Los Angeles and it maintains regional offices in
Boston, Dallas, New York City and Washington, D.C.   Westmark develops and
markets a variety of investment alternatives designed to meet its client's risk,
reward, and liquidity requirements.  Westmark employs approximately 100
professionals who perform the following services for its investors -- market
research and forecasting, acquisition strategy and implementation, portfolio
strategy and management, specific asset management, and development and
dispositions.  Westmark uses a state-of-the-art portfolio information system
that integrates property and fund-level accounting with specific asset
management data.

  Westmark's investors invest through separate accounts, commingled funds and
real estate operating companies, including limited partnerships.  Certain funds
and separate accounts are subject to ERISA regulations and, with respect to such
funds and accounts, Westmark is limited in its ability to employ any affiliated
company, including the Company.  Because Westmark must conduct its operations in
compliance with ERISA, where applicable, Westmark maintains both internal and
external control mechanisms to assure compliance.

  While Westmark has experienced significant growth in its separate accounts
business, it has been impacted by the industry's adverse investor response to
non-property specific commingled funds.  The Company believes that this lack of
investor interest in non-property specific commingled funds has been replaced
with interest in new, more narrowly focused investment vehicles.

  COMPENSATION.  Westmark's fees are typically higher for managing commingled
and other funds than they are for separate accounts, but all of the fees are
within the ranges indicated below.  Westmark receives an annual asset management
fee which is typically 0.5% to 1.2% of the lower of the cost of the assets
managed or their fair market value.  When debt is managed, the asset management
fee is at the lower end of the range. Westmark also receives an acquisition fee
when it acquires property or places debt on behalf of a client that is typically
0.5% to 1.0% of funds invested or debt placed (the placement fee for debt is at
the low end of this range).  In some, but not all cases, Westmark receives an
incentive fee when an asset or a fund is sold.  Typically, the incentive fee
will only be payable after the client has achieved a specified real (adjusted
for inflation) rate of return of 8% to 12% and is a percentage of value in
excess of that return.  In recent years, Westmark has experienced reduced rates
of asset management and acquisition fees.

  TERM.  The term of Westmark's advisory agreements vary by the form of
investment vehicle utilized.  In the commingled funds, the term is generally 10
years with extension and early termination provisions based upon a vote of the
investors.  Over the next several years several commingled funds formed in the
1980s will be liquidated.  In the Company's separate account relationships, the
agreements are generally one to three years in term, with "at will" termination
provisions. In general, both the capital managed by Westmark and its client
relationships are long-term in nature.


  Valuation and Appraisal Services

  The Company's valuation and appraisal services business delivers sophisticated
commercial real estate valuations through a variety of products including market
value appraisals, portfolio valuation, discounted cash flow analyses, litigation
support, feasibility land use studies and fairness opinions.   At December 31,
1996, the Company's appraisal staff had more than 80 professionals with
approximately 50% of the staff holding the MAI

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professional designation.  The business is operated nationally through 23
regional offices and its clients are generally corporate and institutional
portfolio owners and lenders.


INTERNATIONAL ALLIANCES AND ACTIVITIES

  In response to growing cross-border capital flows for investment in commercial
real estate, and the multi-national strategies of the Company's U.S. corporate
clients, the Company has developed exclusive alliances with leading firms in
various countries in Europe, the Far East and Southeast Asia, Australia and New
Zealand.  The relationships with DTZ, a consortium of 20 real estate advisory
firms operating in 15 countries in Europe as well as in Australia, New Zealand
and elsewhere, C.Y. Leung & Company, a locally-owned firm operating in Hong
Kong, China, Singapore and Malaysia, and, commencing in February 1997, Ikoma
Corporation, a commercial real estate services firm in Japan, have allowed the
Company to provide global corporate service capabilities and significantly
strengthen its client relationships in the United States.  These relationships
are reciprocal referral arrangements whereby the Company's clients who require
services in a geographical region serviced by its alliance partners must be
referred by the Company to its alliance partner operating in that region.
Conversely, the Company's alliance partners are obligated to refer their clients
with commercial real estate needs in the United States to the Company.  Revenues
from the Company's international activities currently represent a small portion
of total revenues.  In addition to cross-border corporate space acquisition and
disposition activity, Westmark is exploring the development of new cross-border
investment products with DTZ and C.Y. Leung.


INFORMATION TECHNOLOGY

  In order to enhance the quality of its real estate services and improve the
productivity of its employees, the Company has invested in state-of-the-art
computer and telecommunication systems to provide real-time real estate
information and sophisticated presentation and analysis tools.  The Company's
information technology group ("IT Group"), headquartered in Torrance,
California, employs 40 professionals that operate the Company's data center,
develop custom programs, implement special systems software, and provide support
for hardware and software utilized in the Company's national network of offices.

  The Company has adopted computer hardware and software standards to maintain
the consistency and quality of its real estate services.  Each office is
connected directly to the Company's IBM mainframe computer for real-time access
to the Company's centralized databases and customized software applications.

  By special arrangement, some of the Company's clients have remote modern
access to selected client-customized software application, and the CB Commercial
Web Site has also given clients direct access through the CB Internet home page.
These systems allow clients  to gain access to various levels of information,
maintain day-to-day contact with the Company's professionals, and track and
monitor property acquisition and disposition activities and property portfolios.


EMPLOYEE EDUCATION

  In 1991, the Company founded its training program, known as CB Commercial
University ("CBCU"), to provide professional development and industry training
for its key professional employees.  CBCU is distinguished in the industry for
its quality, intensity, scope and results.  The courses offered at CBCU are
typically one week in length and are customized to meet both employees' and
clients' needs and skill levels.  Courses focus on (i) employees' productivity
and quality consistency; (ii) management leadership and effectiveness in the
context of the latest industry knowledge and technology; and (iii) clients'
needs in the Company's various business lines and specialty practice areas.
Although CBCU was originally established to develop the skills of the Company's
employees, in 1995, in response to demand from its clients, the Company added
courses to the CBCU curriculum which involve its clients.  In 1996,
approximately 320 employees and clients took courses at CBCU.

                                       8
<PAGE>

COMPETITION

  The market for commercial real estate brokerage and other real estate services
provided by the Company is both highly fragmented and highly competitive.
Thousands of local commercial real estate brokerage firms and hundreds of
regional commercial real estate brokerage firms have offices in the United
States.  The Company believes that no more than two other major firms have the
ability to compete nationally with the Company's brokerage business and that the
Company's national brokerage network enables it to compete effectively with
these organizations.  Most of the Company's competitors are local or regional
firms that are substantially smaller than the Company on an overall basis, but
in some cases may be larger locally.

  L. J. Melody competes with a large number of mortgage banking firms and
institutional lenders as well as regional and national investment banking firms
and insurance companies in providing its mortgage banking services.  Appraisal
services are provided by other national, local and regional appraisal firms and
national and regional accounting firms.  Consulting services are provided by
numerous commercial real estate firms (national, regional and local), accounting
firms, appraisal firms and others.

  The Company's property management business competes for the right to manage
properties controlled by third parties.  The competitor may be the owner of the
property (who is trying to decide the efficiency of outsourcing) or another
property management company.  Increasing competition in recent years has
resulted in having to provide additional services  at lower rates through
eroding margins. In 1996, however, rates stabilized and, in some cases,
increased.

  Westmark competes with a significant number of investment advisors, banks and
insurance companies in attracting investor money.  Over the last several years,
Westmark experienced growth in its separate accounts and its commingled debt
funds, but not in its commingled equity funds.

  In all of its business disciplines, the Company competes on the basis of the
skill and quality of its personnel, the variety of services offered, the breadth
of geographic coverage and the quality of its infrastructure, including
technology.

EMPLOYEES

  As of December 31, 1996, the Company had approximately 4,100 employees,
approximately 66% of whom work in the areas of brokerage and investment
properties.  All of the Company's sales professionals are parties to contracts
with the Company which subject them to the Company's rules and policies during
their employment and limit their post-employment activities in terms of
soliciting clients or employees of the Company.  The  Company believes that
relations with its employees are good.


ITEM 2.    PROPERTIES

  The Company owns its headquarters building in downtown Los Angeles,
California.  In addition to the Company's headquarters, the Company owns and
occupies three smaller office buildings in Phoenix, Arizona, San Diego and
Carlsbad, California.  These properties are mortgaged to secure loans to the
Company.

  The Company also leases office space on terms that vary depending on the size
and location of the office.  The leases expire at various date through 2007.
For those leases that are not renewable, the Company believes there is adequate
alternative office space available at acceptable rental rates to meet its needs.

ITEM 3.    LEGAL PROCEEDINGS

  In August 1993, a former commissioned salesperson of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bergen County,
alleging gender discrimination and wrongful termination by the Company (the
"Mogull case").  On November 20, 1996, a jury returned a verdict against the
Company, awarding $6.5 million in general and punitive damages to the plaintiff.
The Company hired new counsel and in January 1997 filed motions for new trial,
reversal of the verdict and reduction of damages.  On March 27, 1997 the trial
court denied the Company's motions and awarded the plaintiff $638,000 in
attorneys' fees and costs. The Company has been advised by appellate counsel
that it has a meritorious basis to pursue an appeal of the verdict, which the

                                       9
<PAGE>

Company will do. Included in the Company's December 31, 1996 financial
statements is an accrual sufficient to reserve against any probable outcome in
the case. This accrual was initially established at $250,000 in 1994 and
increased to $800,000 in 1995 and represented the Company's estimate of its loss
exposure for this matter based on its assessment and analysis as of those dates.
Based on available cash and anticipated cash flows, the Company believes that
the ultimate outcome will not have an impact on the Company's ability to carry
on its operations.

  In addition, as a result of the thousands of transactions in which the Company
participates and its employment of over 4,000 people, it is a party to a number
of pending or threatened lawsuits, arising out of or incident to the ordinary
course of its business.  At any given time, the Company typically is a defendant
in 150 to 175 legal proceedings and a plaintiff in 50 to 100 legal proceedings.
Management believes that any liability to the Company, net of insurance
proceeds, that may result from proceedings to which it is currently a party will
not have a material adverse effect on the consolidated financial position or
results of operations of the Company.

  As part of its process of minimizing, to the extent possible, potential
litigation, the Company requires its sales professionals to agree to contribute
each month toward a "Reserve Account" to be used whenever a claim of
professional liability is asserted.  In addition, each  sales professional
contractually agrees to be responsible for a portion of any amount paid to
defend or settle a claim against that professional or for any resulting
judgment.


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

  (a) Special Meeting of Stockholders held on October 30, 1996.

  (b)  Not Applicable.

  (c) The matter voted upon was the proposed recapitalization of the Company's
     capital structure.  The stockholders approved the proposed recapitalization
     as follows:

     by the affirmative vote of 4,000,000 shares of the Company's Series A-1 and
     A-2 Preferred Stock (representing 100 percent of the outstanding shares of
     such Series), by the affirmative vote of 1,000,000 shares of the Company's
     Series A-3 Preferred Stock (representing 100 percent of the outstanding
     shares of such Series), by the affirmative vote of 1,854,106 shares of the
     Company's Class B-1 Common Stock (representing 100 percent of the
     outstanding shares of such Class), by the affirmative vote of 5,334,467
     shares of the Company's Class B-2 Common Stock, with 9,966 shares of Class
     B-2 Common Stock voting in the negative and 9,385 shares of Class B-2
     Common Stock abstaining, by the affirmative vote of 800,000 shares of the
     Company's Class C-1 Common Stock (representing 100 percent of the
     outstanding shares of such Class) and by the affirmative vote of 2 shares
     of the Company's Class J Common Stock (representing 100 percent of the
     outstanding shares of such Class).

  (d)  Not Applicable

                                       10
<PAGE>

                                    PART II



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

  (a) On November 26, 1996, trading of the Company's Common Stock on the Nasdaq
National Market tier of The Nasdaq Stock Market under the symbol "CBCG"
commenced.  Prior to that date, there was no established public trading market
for any of the Company's securities.  The high and low sales prices for the
Company's Common Stock during the period from November 26, 1996 through December
31, 1996 as reported by The Nasdaq Stock Market were $20 and $18, respectively.
The last reported sales price of the Company's Common Stock on March 25, 1997 as
reported by The Nasdaq Stock Market was 26 1/8.

  (b) As of March 25, 1997, the Company had 1,051 record holders of its Common
Stock.

  (c) Since its incorporation in March 1989 the Company has not declared any
cash dividends on any of its classes of common stock.  The Company's existing
credit agreements restrict its ability to pay dividends on common stock but
permit the payment of dividends on preferred stock.  See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
Item 7 of this report.

  (d) Since January 1, 1996, the Company has sold 510,906 shares of Common Stock
to eight executive officers of the Company under the Company's 1996 Equity
Incentive Plan.  These sales were made by private placement in reliance on the
exemption from registration provisions provided for in Section 4(2) of the
Securities Act of 1933.  The recipients of such securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof.  Appropriate legends were affixed to the stock
certificates issued in such transactions.  All recipients had adequate access,
through employment, to information about the Company.

                                       11
<PAGE>

Item 6. Selected Financial Data



        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

                 SELECTED CONSOLIDATED FINANCIAL INFORMATION:
                 (Dollars in thousands except per share data)
<TABLE>
<CAPTION>


                                                                               YEAR ENDED DECEMBER 31,
                                              --------------------------------------------------------------------------------------
                                                   1996          1995              1994              1993               1992
                                              --------------  -------------   ---------------   --------------   -------------------
<S>                                           <C>             <C>             <C>               <C>              <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................      $   583,068   $   468,460       $   428,988      $   392,037        $   360,223
Costs and Expenses:
   Commissions, fees and other incentives..          292,266       239,018           225,085          206,070            187,582
   Operating, administrative and other.....          228,799       187,968           170,234          160,073            152,402
   Depreciation and amortization...........           13,574        11,631             8,091           49,606             45,855
   Non-recurring charges...................                -             -                 -                -              4,500
                                                 -----------   -----------       -----------      -----------        -----------
Operating income (loss)....................           48,429        29,843            25,578          (23,712)           (30,116)
Interest income............................            1,503         1,674             1,109              915              1,083
Interest expense...........................           24,123        23,267            17,362           14,240             15,516
                                                 -----------   -----------       -----------      -----------        -----------
Income (loss) before provision (benefit)
 for income tax............................           25,809         8,250             9,325          (37,037)           (44,549)
Provision for income tax...................           11,160           841               152              112                 12
Reduction of valuation allowances (1)......          (55,900)            -                 -                -                  -
                                                 -----------   -----------       -----------      -----------        -----------
Net provision (benefit) for income tax.....          (44,740)          841               152              112                 12
                                                 -----------   -----------       -----------      -----------        -----------

Net income (loss)..........................      $    70,549   $     7,409       $     9,173      $   (37,149)       $   (44,561)
                                                 ===========   ===========       ===========      ===========        ===========

Net income (loss) applicable to common
 stockholders..............................      $    69,549   $     7,409       $     9,173      $   (37,149)       $   (44,561)
Primary earnings (loss) per share..........      $      5.02   $      0.55       $      0.69      $     (3.23)       $     (3.89)
Number of shares used in computing primary
 earnings (loss) per share.................       13,845,325    13,540,541        13,305,118       11,504,644         11,445,377
Fully diluted earnings (loss) per share....      $      4.97   $      0.55       $      0.69      $     (3.23)       $     (3.89)
Number of shares used in computing fully
 diluted earnings (loss) per share.........       14,184,296    13,540,541        13,305,118       11,504,644         11,445,377

OTHER DATA:
EBITDA (2).................................      $    62,003   $    41,474       $    33,669      $    25,894        $    15,739
Net cash provided by operating activities..      $    65,694   $    30,632       $    31,418      $    19,609        $    10,911
Net cash used in investing activities......      $   (10,906)  $   (24,888)      $    (3,865)     $    (5,629)       $    (4,821)
Net cash used in financing activities......      $   (28,505)  $   (11,469)      $    (4,923)     $   (14,662)       $    (2,157)

                                                                                  AS OF DECEMBER 31,
                                                 -------------------------------------------------------------------------------
BALANCE SHEET DATA:                                 1996          1995              1994             1993               1992
                                                 -----------   -----------       -----------      -----------        -----------
Cash and cash equivalents..................      $    49,328   $    23,045       $    28,770      $     6,140        $     6,822
Total assets...............................          278,944       190,954           150,100          128,914            173,274
Total long-term debt.......................          148,529       250,142           233,571          239,853            239,473
Total liabilities..........................          280,459       345,642           314,648          303,774            311,630
Total stockholders' equity (deficit).......           (1,515)     (154,688)         (164,548)        (174,860)          (138,356)

</TABLE>
-------------------
   (1) See Note 9 of Notes to Consolidated Financial Statements.

   (2) EBITDA effectively removes the impact of certain non-cash charges on
   income such as depreciation and the amortization of intangible assets
   relating to acquisitions and Federal income taxes (to the extent they are
   offset by NOLs).  Management believes that the presentation of EBITDA will
   enhance a reader's understanding of the Company's operating performance and
   ability to service debt as it provides a measure of cash generated that can
   be used by the Company to service its debt and other required or
   discretionary purposes.  Net cash that will be available to the Company for
   discretionary purposes represents remaining cash, after debt service and
   other cash requirements, such as capital expenditures, are deducted from
   EBITDA.  EBITDA should not be considered as an alternative to (i) operating
   income determined in accordance with GAAP or (ii) operating cash flow
   determined in accordance with GAAP.

                                       12
<PAGE>

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

INTRODUCTION

   The Company provides integrated real estate services which include (i)
Property and User Services, consisting of brokerage (facilitating sales and
leases), investment properties (acquisitions and sales on behalf of investors),
corporate services, property management, and real estate market research, and
(ii) Investor Services, consisting of mortgage banking (mortgage loan
origination and servicing) through L.J. Melody & Company ("L.J. Melody"),
investment management and advisory services through Westmark Realty Advisors,
L.L.C. ("Westmark"), and valuation and appraisal services.

   On November 25, 1996, the Company completed an initial public offering (the
"Offering") of 4,347,000 shares of common stock, par value $.01 per share (the
"Common Stock").  The net proceeds from the Offering of approximately $79.5
million were used to repay a portion of the Company's senior secured and senior
subordinated indebtedness.  Concurrently with the Offering, CB Commercial
Holdings, Inc. was renamed CB Commercial Real Estate Services Group, Inc.

   During the third quarter of 1996, the Company projected, on a more likely
than not basis, that a portion of its net operating loss carryforwards ("NOL")
would be realizable in future periods and, accordingly, reduced its existing
deferred tax asset valuation allowances by $45.7 million of which $5.3 million
was allocated to the purchase price of L.J. Melody based on its estimated future
potential to generate taxable income, and the remaining $40.4 million was
recorded as a tax benefit (a reduction in income tax provision).  During the
fourth quarter of 1996, the Company further reduced its deferred tax asset
valuation allowances by $15.5 million based on its ability to generate
additional taxable income in the future through interest savings resulting from
the paydown of part of its senior secured and senior subordinated debt with
proceeds from the Offering. This reduction has also been recorded as a tax
benefit resulting in a cumulative year-to-date tax benefit of $55.9 million.
With the recognition of deferred tax assets, the future period provisions for
income tax will be recorded at the full effective tax rate excluding the impact
of other adjustments, if any, to valuation allowances.  For the year ended
December 31, 1996, a $11.2 million provision for income taxes has been recorded
without regard to the income tax benefit resulting from the reduction of the
valuation allowance.  Net income for the year ended December 31, 1996 was $70.5
million ($5.02 per share of common stock), which includes the current year
provision of $11.2 million offset by the cumulative year-to-date tax benefit of
$55.9 million or a net benefit for income tax of $44.7 million.  If the Company
had not recorded tax benefits related to projected future taxable income for the
year ended December 31, 1996, the Company's provision for income tax would have
consisted of current and deferred state tax provisions and provision for Federal
alternative minimum tax and net income for such period would have been $24.2
million ($1.75 per share of common stock).  Provision for regular Federal taxes
would have been offset by reductions in valuation allowances to the extent of
such regular Federal taxes.  The $55.9 million recognized tax benefit has a
material effect on the reported net income for the year ended December 31, 1996.
This $55.9 million tax benefit is a nonrecurring item and is unrelated to the
Company's performance and should not be used in evaluating the Company's
prospects or future performance.  See "Net Operating Losses" below.

   A significant portion of the Company's revenue is transactional in nature and
seasonal.  Historically, this seasonality has caused the Company's revenue,
operating income and net income to be lower in the first two calendar quarters
and higher in the third and fourth calendar quarters of each year.

   Revenue from Property and User Services, which constitutes a substantial
majority of the Company's revenue, is largely transactional in nature and
subject to economic cycles.  However, the Company's significant size, geographic
coverage, number of transactions, diversity of services offered and large client
base tend to reduce the impact on annual revenue caused by economic cycles.  Due
in part to acquisitions, revenue from Investor Services, a significant portion
of which is non-transactional in nature, has grown more rapidly than revenue
from Property and User Services.  Approximately 54.0% of the costs and expenses
associated with Property and User Services are directly correlated to revenue
while approximately 23.0% of the costs and expenses of Investor Services are
directly correlated to revenue.

   The Company has completed three strategic acquisitions since the beginning of
1995 and is continually assessing acquisition opportunities as part of its
growth strategy (see Item 1 "Business--Acquisitions").  Because of the
substantial non-cash goodwill and intangible amortization charges incurred by
the Company in connection with acquisitions subject to purchase accounting and
because of interest expense associated with acquisition financing, management
anticipates that future acquisitions may adversely affect net income.  In
addition, during the first six months following an acquisition, the Company
believes there are generally significant one-time costs relating to integrating
information technology, accounting and management services and rationalizing
personnel levels (which the Company intends to take as a single charge at the
time of the acquisition to the maximum extent possible).  Management's strategy
is to pursue acquisitions that are expected to be accretive to income before
interest expense and provision for amortization of goodwill and intangibles, if
any, resulting from the acquisitions, and to

                                       13
<PAGE>

operating cash flows (excluding the costs of integration).

   Since 1992, the Company's results have benefitted from its ability to take
advantage of a significant and ongoing recovery in U.S. commercial real estate
markets and the generally rising level of occupancy and rental levels, and, as a
result, property values.  Since brokerage fees are typically based upon a
percentage of transaction value, and property management fees are typically
based upon a percentage of total rent collections, recent occupancy and rental
rate increases at the property level have generated an increase in brokerage and
property management fees to the Company.

   The $0.25 per share quarterly dividend on the Company's Preferred Stock,
which accrues from October 1, 1996, will result, if and when paid, in a cost of
$1.0 million per quarter.  Until the Company has completed its acquisition
program, it does not intend to pay dividends on the Preferred Stock.  As a
consequence, such dividends will accumulate and bear interest, which will be
paid on a current basis.

   The Company's revenues are impacted by numerous factors, including the
perception of trends in the general economy, interest rate levels and
anticipated and actual changes in the federal tax law.


RESULTS OF OPERATIONS

   The following table sets forth items derived from the Company's Consolidated
Statements of Operations for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                      ---------------------------------------------------------
                                                             1996                1995                 1994
                                                      -----------------    ----------------    -----------------
                                                                         (Dollars in thousands)
<S>                                                   <C>         <C>      <C>        <C>      <C>        <C>
Revenue............................................   $583,068    100.0%   $468,460   100.0%   $428,988   100.0%
Costs and Expenses:
 Commissions, fees and other incentives............    292,266     50.1     239,018    51.0     225,085    52.5
 Operating, administrative and other...............    228,799     39.3     187,968    40.1     170,234    39.7
 Depreciation and amortization.....................     13,574      2.3      11,631     2.5       8,091     1.9
                                                      --------    -----    --------   -----    --------   -----

Operating income...................................     48,429      8.3      29,843     6.4      25,578     5.9
Interest income....................................      1,503      0.2       1,674     0.4       1,109     0.3
Interest expense...................................     24,123      4.1      23,267     5.0      17,362     4.0
                                                      --------    -----    --------   -----    --------   -----

Income before provision (benefit) for income tax...     25,809      4.4       8,250     1.8       9,325     2.2

Provision for income tax...........................     11,160      1.9         841     0.2         152     0.0
Reduction of valuation allowances..................    (55,900)    (9.6)          -       -           -       -
                                                      --------    -----    --------   -----    --------   -----

Net provision (benefit) for income tax.............    (44,740)    (7.7)        841     0.2         152     0.0
                                                      --------    -----    --------   -----    --------   -----

Net income.........................................   $ 70,549     12.1%   $  7,409     1.6%   $  9,173     2.2%
                                                      ========    =====    ========   =====    ========   =====
</TABLE>

                                       14
<PAGE>

   The following tables summarize the revenue, cost and expenses, and operating
income by operating segment for the years ended December 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>

                                                               Year Ended December 31,
                                               ----------------------------------------------------------
                                                      1996              1995                  1994
                                               ----------------    ----------------     -----------------
                                                                (Dollars in thousands)
<S>                                            <C>        <C>      <C>         <C>      <C>         <C>
PROPERTY AND USER SERVICES
 Revenue:
   Brokerage................................   $335,401    65.3%   $294,290     69.6%   $284,775     71.1%
   Investment Properties....................    130,202    25.4      87,576     20.7      81,394     20.4
   Corporate Services.......................     25,550     5.0      21,723      5.1      15,631      3.9
   Property Management (1)..................     20,540     4.0      18,332      4.4      17,692      4.4
   Real Estate Market Research..............      1,378     0.3         912      0.2         758      0.2
                                               --------   -----    --------    -----    --------    -----
                                                513,071   100.0     422,833    100.0     400,250    100.0

 Costs and expenses:
   Commissions, fees and other incentives...    276,120    53.8     227,387     53.8     215,506     53.8
   Operating, administrative and other......    187,707    36.6     160,415     37.9     152,141     38.0
   Depreciation and amortization............      9,142     1.8       8,889      2.1       7,485      1.9
                                               --------   -----    --------    -----    --------    -----

 Operating income...........................   $ 40,102     7.8%   $ 26,142      6.2%   $ 25,118      6.3%
                                               ========   =====    ========    =====    ========    =====

INVESTOR SERVICES
Mortgage Banking
 Revenue....................................   $ 20,185   100.0%   $ 10,417    100.0%   $  9,488    100.0%
 Costs and expenses:
   Commissions, fees and other incentives...      8,007    39.7       4,209     40.4       3,914     41.3
   Operating, administrative and other......      9,489    47.0       6,338     60.8       5,538     58.4
   Depreciation and amortization............        703     3.5         268      2.6         195      2.1
                                               --------   -----    --------    -----    --------    -----

 Operating income (loss)....................   $  1,986     9.8%   $   (398)   (3.8)%   $   (159)   (1.8)%
                                               ========   =====    ========    =====    ========    =====

Investment Management and Advisory
 Revenue....................................   $ 31,022   100.0%   $ 18,610    100.0%   $  5,902    100.0%
 Costs and expenses:
   Operating, administrative and other......     24,096    77.7      13,745     73.9       5,580     94.5
   Depreciation and amortization............      3,316    10.7       2,148     11.5         149      2.5
                                               --------   -----    --------    -----    --------    -----

 Operating income...........................   $  3,610    11.6%   $  2,717     14.6%   $    173      3.0%
                                               ========   =====    ========    =====    ========    =====

Valuation and Appraisal Services
 Revenue....................................   $ 18,790   100.0%   $ 16,600    100.0%   $ 13,348    100.0%
 Costs and expenses:
   Commissions, fees and other incentives...      8,139    43.3       7,422     44.7       5,665     42.4
   Operating, administrative and other......      7,507    40.0       7,470     45.0       6,975     52.3
   Depreciation and amortization............        413     2.2         326      2.0         262      2.0
                                               --------   -----    --------    -----    --------    -----

 Operating income...........................   $  2,731    14.5%   $  1,382      8.3%   $    446      3.3%
                                               ========   =====    ========    =====    ========    =====

TOTAL INVESTOR SERVICES
 Revenue....................................   $ 69,997   100.0%   $ 45,627    100.0%   $ 28,738    100.0%
 Costs and expenses:
   Commissions, fees and other incentives...     16,146    23.1      11,631     25.5       9,579     33.3
   Operating, administrative and other......     41,092    58.7      27,553     60.4      18,093     63.0
   Depreciation and amortization............      4,432     6.3       2,742      6.0         606      2.1
                                               --------   -----    --------    -----    --------    -----

 Operating income...........................   $  8,327    11.9%   $  3,701      8.1%   $    460      1.6%
                                               ========   =====    ========    =====    ========    =====
</TABLE>
-------------------
   (1) Does not include reimbursable costs associated with the wages of on-site
       employees and the cost of field office rent, furniture, computers,
       supplies and utilities. Revenues from leasing services provided to the
       Company's property management clients are reflected in brokerage rather
       than property management revenue.

                                       15
<PAGE>

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

   REVENUE on a consolidated basis in 1996 was $583.1 million, an increase of
$114.6 million or 24.5% from $468.5 million in 1995.  The overall increase in
revenue, compared to 1995, reflected a continued improvement in the commercial
real estate markets in most areas of the United States.  This improvement
reflected increasing investor confidence, increasing prices and a more liquid
market than in prior years resulting from declining vacancy levels and the
return of some bargaining power to landlords.

   Property and User Services revenue was $513.1 million in 1996, an increase of
$90.3 million or 21.3% from $422.8 million in 1995.  Brokerage revenue accounted
for $335.4 million, an increase of $41.1 million or 14.0% from $294.3 million
and investment properties revenue accounted for $130.2 million, an increase of
$42.6 million or 48.7% from $87.6 million. Corporate services revenue accounted
for $25.6 million, an increase of $3.9 million or 17.6% from $21.7 million.
Property management revenue accounted for $20.5 million, an increase of $2.2
million or 12.1% from $18.3 million.  These increases resulted in part from an
increase in the total number and size of brokerage, investment properties and
corporate services sale transactions closed during 1996 and in part from an
increase in total size of brokerage lease transactions closed during 1996.
Although the number of lease transactions declined in 1996 from 1995 as
available quality space came into short supply, the average lease commission
amount increased by approximately 7.3%, resulting in an overall increase in
revenue from leasing.

   Investor Services revenue was $70.0 million in 1996, an increase of $24.4
million or 53.4% from $45.6 million in 1995, largely due to an increase in
investment management and advisory revenue to $31.0 million in 1996 from $18.6
million in 1995, primarily resulting from the Westmark acquisition.   Mortgage
banking revenue accounted for $20.2 million, an increase of $9.8 million or
93.8% from $10.4 million as a result of the L.J. Melody acquisition.  Valuation
and appraisal services revenue accounted for $18.8 million, an increase of $2.2
million or 13.2% from $16.6 million.

   COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis in 1996 were
$292.3 million, an increase of $53.3 million or 22.3% from $239.0 million in
1995.  The increase in these costs is largely correlated to the increase in
revenue since most of the Company's sales professionals are compensated based on
revenue.  As a percentage of revenue, commissions fees and other incentives
decreased from 51.0% in 1995 to 50.1% in 1996.  The decrease in commissions,
fees and other incentives as a percentage of revenue is primarily due to the
significant revenue growth in investment management and advisory, which does not
incur this type of revenue-based expense.  Excluding investment management and
advisory, commissions, fees and other incentives were relatively flat as a
percent of revenues decreasing to 52.9% for 1996 from 53.1% for 1995.

   Property and User Services commissions, fees and other incentives were $276.1
million in 1996, an increase of $48.7 million or 21.4% from $227.4 million in
1995 and constant as a percentage of revenue at 53.8%.

   Investor Services commissions, fees and other incentives were $16.1 million
in 1996, an increase of $4.5 million or 38.8% from $11.6 million in 1995 and a
decrease as a percentage of revenue from 25.5% to 23.1%.

   OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis in 1996 was
$228.8 million, an increase of $40.8 million or 21.7% from $188.0 million in
1995, and a decrease as a percentage of revenue from 40.1% for 1995 to 39.3% for
1996.

   Property and User Services operating, administrative and other was $187.7
million in 1996, an increase of $27.3 million or 17.0% from $160.4 million in
1995.  This increase was caused, in part, by additions to staff in anticipation
of further increases in operating activities and resulted in higher levels of
administrative, technical and other support expenditures and related personnel
costs, as well as higher business promotion and other expenses.

   Investor Services operating, administrative and other was $41.1 million in
1996, an increase of $13.5 million or 49.1% from $27.6 million in 1995,
primarily resulting from the Westmark acquisition.

   DEPRECIATION AND AMORTIZATION on a consolidated basis in 1996 was $13.6
million, an increase of $1.9 million or 16.7% from $11.6 million in 1995 as a
result of the Westmark and L.J. Melody acquisitions and new capital leases for
computer equipment entered into in 1996.

   Property and User Services depreciation and amortization was $9.1 million in
1996, an increase of $0.2 million or 2.9% from $8.9 million in 1995.

   Investor Services depreciation and amortization was $4.4 million in 1996, an
increase of $1.7 million or 61.6% from $2.7 million in 1995, primarily as a
result of a full year of Westmark expense in 1996 as compared to six months in
1995

                                       16
<PAGE>

and the L.J. Melody acquisition in July 1996.

   OPERATING INCOME on a consolidated basis in 1996 was $48.4 million, an
increase of $18.6 million or 62.3% from $29.8 million in 1995.  The increase in
operating income resulted from an increase in revenue of $114.6 million or 24.5%
partially offset by a related increase in commission expense of $53.3 million or
22.3%, a $40.8 million or 21.7% increase in operating expenses and a $1.9
million or 16.7% increase in depreciation and amortization as described above.

   Property and User Services operating income was $40.1 million in 1996, an
increase of $14.0 million or 53.4% from $26.1 million in 1995.  The increase in
Property and User Services operating income resulted from an increase in
Property and User Services revenue of $90.3 million or 21.3% partially offset by
a related increase in commission expense of $48.7 million or 21.4%, a $27.3
million or 17.0% increase in operating expenses and a $0.2 million or 2.9%
increase in depreciation and amortization as described above.

   Investor Services operating income was $8.3 million in 1996, an increase of
$4.6 million or 125.0% from $3.7 million in 1995.  The increase in Investor
Services operating income resulted from an increase in Investor Services revenue
of $24.4 million or 53.4% partially offset by a related increase in commission
expense of $4.5 million or 38.8%, a $13.5 million or 49.1% increase in operating
expenses and a $1.7 million or 61.6% increase in depreciation and amortization
primarily as a result of the Westmark acquisition as described above.

   INTEREST INCOME on a consolidated basis in 1996 was $1.5 million, a decrease
of $0.2 million or 10.2% from $1.7 million in 1995.

   INTEREST EXPENSE on a consolidated basis in 1996 was $24.1 million, an
increase of $0.8 million or 3.7% from $23.3 million in 1995 primarily resulting
from debt incurred with respect to the Westmark acquisition in June 1995 and the
L.J. Melody acquisition in July 1996, offset in part by reduced average
borrowing levels on other Company indebtedness.

   NET PROVISION (BENEFIT) FOR INCOME TAX on a consolidated basis in 1996 was a
benefit of $(44.7) million, compared to a $0.8 million provision in 1995.
During the third quarter of 1996, the Company projected, on a more likely than
not basis, that a portion of its NOL would be realizable in future periods and,
accordingly, reduced its existing deferred tax asset valuation allowances by
$45.7 million of which $5.3 million was allocated to the purchase price of L.J.
Melody based on its estimated future potential to generate taxable income, and
the remaining $40.4 million was recorded as a tax benefit (a reduction in income
tax provision).  During the fourth quarter of 1996, the Company further reduced
its deferred tax asset valuation allowances by $15.5 million based on its
ability to generate additional taxable income in the future through interest
savings resulting from the paydown of part of its senior secured and senior
subordinated debt with proceeds from the Offering. This reduction has also been
recorded as a tax benefit resulting in a cumulative year-to-date tax benefit of
$55.9 million.  With the recognition of deferred tax assets, the future period
provisions for income tax will be recorded at the full effective tax rate
excluding the impact of other adjustments, if any, to valuation allowances.  For
the year ended December 31, 1996, a $11.2 million provision for income taxes has
been recorded without regard to the income tax benefit resulting from the
reduction of the valuation allowance.  Net income for the year ended December
31, 1996 was $70.5 million ($5.02 per share of common stock), which includes the
current year provision of $11.2 million offset by the cumulative year-to-date
tax benefit of $55.9 million or a net benefit for income tax of $44.7 million.
If the Company had not recorded tax benefits related to projected future taxable
income for the year ended December 31, 1996, the Company's net income for such
period would have been $24.2 million ($1.75 per share of common stock).  The
provision for income tax would have consisted of current and deferred state tax
provisions and provision for Federal alternative minimum tax.  Provision for
regular Federal taxes would have been offset by reductions in valuation
allowances to the extent of such regular Federal taxes.  The $55.9 million
recognized tax benefit has a material effect on the reported net income for the
year ended December 31, 1996.  This $55.9 million tax benefit is a non-recurring
item and is unrelated to the Company's performance and should not be used in
evaluating the Company's prospects or future performance.

   NET INCOME on a consolidated basis in 1996 was $70.5 million ($5.02 per share
of common stock), after giving effect to the tax benefit resulting from the
reduction of valuation allowances of $55.9 million ($4.04 per share of common
stock) an improvement of $63.1 million from net income of $7.4 million ($0.55
per share of common stock) in 1995.  The improvement also resulted from a
revenue increase of $114.6 million or 24.5% which was partially offset by a
related increase in commission expense of $53.3 million or 22.3%, a $40.8
million or 21.7% increase in operating expenses and a $1.9 million or 16.7%
increase in depreciation and amortization as described above.

                                       17
<PAGE>

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

   REVENUE on a consolidated basis in 1995 was $468.5 million, an increase of
$39.5 million or 9.2% from $429.0 million in 1994.  The overall increase in
revenue, compared to 1994, reflected a continued improvement in the commercial
real estate markets in most areas of the United States.  This improvement
reflected increasing investor confidence, increasing prices and a more liquid
market than in prior years resulting from declining vacancy levels and the
return of some bargaining power to landlords.

   Property and User Services revenue was $422.8 million in 1995, an increase of
$22.5 million or 5.6% from $400.3 million in 1994.  Brokerage revenue accounted
for $294.3 million, an increase of $9.5 million or 3.3% from $284.8 million and
investment properties revenue accounted for $87.6 million, an increase of $6.2
million or 7.6% from $81.4 million. Corporate services revenue accounted for
$21.7 million, an increase of $6.1 million or 39.0% from $15.6 million.
Although the number of sale and lease transactions closed decreased in 1995 from
1994, the average dollar amount of both sale and lease transactions increased
approximately 9.0%, resulting in a net increase in brokerage and investment
properties revenue.

   Investor Services revenue was $45.6 million in 1995, an increase of $16.9
million or 58.8% from $28.7 million in 1994, largely due to an increase in
investment management and advisory revenue to $18.6 million from $5.9 million,
primarily resulting from the Westmark acquisition.  Valuation and appraisal
services revenue accounted for $16.6 million, an increase of $3.3 million or
24.4% from $13.3 million and mortgage banking revenue accounted for $10.4
million, an increase of $0.9 million or 9.8% from $9.5 million.

   COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis in 1995 were
$239.0 million, an increase of $13.9 million or 6.2% from $225.1 million in
1994.  The increase in these costs is directly correlated to the increase in
revenue since most of the Company's sales professionals are compensated based on
revenue.  As a percentage of revenue, commissions fees and other incentives
decreased from 52.5% in 1994 to 51.0% in 1995.  The decrease in commissions,
fees and other incentives as a percentage of revenue is primarily due to the
significant revenue growth of investment management and advisory, which does not
incur this type of revenue-based expense.  Excluding investment management and
advisory, commissions, fees and other incentives on a consolidated basis
remained constant as a percent of revenues at 53.2% for 1995 and 1994.

   Property and User Services commissions, fees and other incentives was $227.4
million in 1995, an increase of $11.9 million or 5.5% from $215.5 million in
1994 and a decrease as a percentage of revenue from 53.9% to 53.8%.

   Investor Services commissions, fees and other incentives was $11.6 million in
1995, an increase of $2.0 million or 21.4% from $9.6 million in 1994 and a
decrease as a percentage of revenue from 33.4% to 25.6%.

   OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis in 1995 was
$188.0 million, an increase of $17.8 million or 10.4% from $170.2 million in
1994, remaining relatively stable as a percentage of revenue for such periods at
40.0% and 39.7%, respectively.

   Property and User Services operating, administrative and other was $160.4
million in 1995, an increase of $8.3 million or 5.4% from $152.1 million in
1994.  This increase was caused, in part, by additions to staff in anticipation
of further increases in operating activities and resulted in higher levels of
administrative, technical and other support expenditures and related personnel
costs, as well as higher business promotion and other expenses.

   Investor Services operating, administrative and other was $27.6 million in
1995, an increase of $9.5 million or 52.3% from $18.1 million in 1994, primarily
resulting from the Westmark acquisition.

   DEPRECIATION AND AMORTIZATION on a consolidated basis in 1995 was $11.6
million, an increase of $3.5 million or 43.8% from $8.1 million in 1994 as a
result of the Westmark acquisition and new capital leases for computer equipment
entered into in 1995.

   Property and User Services depreciation and amortization was $8.9 million in
1995, an increase of $1.4 million or 18.8% from $7.5 million in 1994.

   Investor Services depreciation and amortization was $2.7 million in 1995, an
increase of $2.1 million or 352.5% from $0.6 million in 1994.

   OPERATING INCOME on a consolidated basis in 1995 was $29.8 million, an
increase of $4.3 million or 16.7% from $25.6

                                       18
<PAGE>

million in 1994. The increase in operating income resulted from an increase in
revenue of $39.5 million or 9.2% partially offset by a related increase in
commission expense of $13.9 million or 6.2%, a $17.8 million or 10.4% increase
in operating expenses and a $3.5 million or 43.8% increase in depreciation and
amortization as described above.

   Property and User Services operating income was $26.1 million in 1995, an
increase of $0.9 million or 4.1% from $25.1 million in 1994.  The increase in
Property and User Services operating income resulted from an increase in
Property and User Services revenue of $22.5 million or 5.6% partially offset by
a related increase in commission expense of $11.9 million or 5.5%, an $8.3
million or 5.4% increase in operating expenses and a $1.4 million or 18.8%
increase in depreciation and amortization as described above.

   Investor Services operating income was $3.7 million in 1995, an increase of
$3.3 million or 704.6% from $0.4 million in 1994.  The increase in Investor
Services operating income resulted from an increase in Investor Services revenue
of $16.9 million or 58.8% partially offset by a related increase in commission
expense of $2.0 million or 21.4%, a $9.5 million or 52.3% increase in operating
expenses and a $2.1 million or 352.5% increase in depreciation and amortization
primarily as a result of the Westmark acquisition as described above.

   INTEREST INCOME on a consolidated basis in 1995 was $1.7 million, an increase
of $0.6 million or 50.1% from $1.1 million in 1994.  This increase primarily
resulted from increased interest rates and improved cash management.

   INTEREST EXPENSE on a consolidated basis in 1995 was $23.3 million, an
increase of $5.9 million or 34.0% from $17.4 million in 1994.  This increase
resulted from a general increase in interest rates, the full year impact of the
higher interest rates on the senior secured and senior subordinated debt of
LIBOR plus 250 basis points and LIBOR plus 125 basis points, respectively, which
were effective June 30, 1994, and the addition of the debt incurred with respect
to the Westmark acquisition, offset in part by reduced average borrowing levels
on other Company indebtedness.

   NET INCOME on a consolidated basis in 1995 was $7.4 million ($0.55 per share
of common stock), a decrease of $1.8 million or 19.2% from $9.2 million ($0.69
per share of common stock) in 1994.  The decrease in net income resulted from an
increase in commission expense of $13.9 million or 6.2%, a $17.8 million or
10.4% increase in operating expenses, a $3.5 million or 43.8% increase in
depreciation and amortization and an increase in interest expense of $5.9
million or 34.0% partially offset by an increase in revenue of $39.5 million or
9.2% as described above.


LIQUIDITY AND CAPITAL RESOURCES -

   The Company has historically financed its operations and non-acquisition
related capital expenditures primarily with internally generated funds and
borrowings under a revolving credit facility.  In order to finance the
acquisition of CB Commercial Real Estate Group, Inc. and related expenses, in
April 1989 the Company incurred borrowings of $251.0 million, which included
$170.0 million under a senior secured credit agreement (the "Senior Secured
Credit Agreement") and $81.0 million under a senior subordinated credit
agreement (the "Senior Subordinated Credit Agreement").  As of December 31,
1996, the Company had outstanding $55.4 million, under the Senior Secured Credit
Agreement and no amounts outstanding under a revolving credit facility
("Revolving Credit Facility A"), no amounts outstanding under its second
revolving credit facility ("Revolving Credit Facility B" and together with
Revolving Credit Facility A, the "Revolving Credit Facilities") and $65.9
million (including $3.9 million of deferred interest) under the Senior
Subordinated Credit Agreement.  In addition, as of December 31, 1996 the Company
had outstanding other long-term indebtedness, consisting primarily of
acquisition debt, totaling approximately $42.3 million.

   In connection with the Offering, the senior secured lenders agreed to amend
the terms of the Senior Secured Credit Agreement.  As amended, the Company is
required to make quarterly principal payments of $2.625 million commencing March
31, 1997 with a final payment of $5.5 million on December 31, 2001. As amended,
the senior indebtedness bears interest at the rate of LIBOR plus 2.5%, all of
which interest is payable currently. Revolving Credit Facility A permits maximum
borrowings of $20.0 million which must be paid off in full for at least 30
consecutive days in each year commencing with 1997. Revolving Credit Facility B
is a facility that can be used for acquisitions and will bear interest at LIBOR
plus 300 basis points. The Company has begun discussions to increase Revolving
Credit Facility B from $10.0 million to $20.0 million sometime in 1997, although
there can be no assurance that such discussions will be successful or if
successful that $20.0 million will be adequate to finance the Company's
acquisition program.

   Also in connection with the Offering, the senior subordinated credit terms
were amended.  As amended, interest will be payable on a current basis
commencing January 1, 1997 and the entire amount outstanding under the Senior
Subordinated

                                       19
<PAGE>

Credit Agreement will be due on July 23, 2002. The senior subordinated
indebtedness bears interest at a rate of LIBOR plus 1.25% from January 1, 1997
through December 31, 1998 LIBOR plus 2.0% during 1999, LIBOR plus 3.0% during
2000 and LIBOR plus 4.0% during 2001 and subsequent periods. Interest in excess
of LIBOR plus 1.25% will be deferred and added to the principal balance of the
senior subordinated indebtedness until the final maturity of the senior
subordinated indebtedness. Interest payments on outstanding senior subordinated
debt had been deferred since June 1994 until the payment in full of the senior
secured debt.

   As of December 31, 1996, principal payments on the senior secured debt,
senior subordinated debt and the Company's other indebtedness, including debt
incurred to finance the acquisitions of Westmark and L.J. Melody, are as follows
(in thousands):
<TABLE>

                  <S>             <C>
                  1997.........   $ 15,314
                  1998.........     19,163
                  1999.........     12,807
                  2000.........     34,198
                  2001.........     14,582
                  Thereafter...     67,779
                                  --------
                                  $163,843
                                  ========
</TABLE>

   The Company expects to have capital expenditures of approximately $4.0
million in 1997 exclusive of acquisitions.  In connection with the Westmark
acquisition, the sellers may be entitled to a supplemental purchase price
payment based on the operating results of Westmark payable over a period of six
years and subject to a maximum aggregate payment of $18.0 million.  See "Note 1
of Notes to Consolidated Financial Statements."  The Company expects to use net
cash provided by operating activities for the next several years primarily to
fund acquisitions, including earnout payments, and to make required principal
payments under the Company's outstanding indebtedness.  The Company believes
that it can satisfy these obligations as well as working capital requirements
from internally generated cash flow, borrowings under the Revolving Credit
Facilities and, with respect to acquisitions, seller financing and third-party
borrowings.

   Effective October 1996, a dividend on the Company's Preferred Stock has been
reinstated.  The $0.25 per share quarterly dividend on the Company's Preferred
Stock has accrued from October 1, 1996, and will result, if and when paid, in a
cost of $1.0 million per quarter.  The Company currently expects to pay
dividends on the Preferred Stock out of working capital generated from operating
cash flow after it has completed its acquisition program.

   The Company anticipates that its existing sources of liquidity, including
cash flow from operations, will be sufficient to fund its operations.

   The Company's earnings before interest, income taxes, depreciation and
amortization ("EBITDA") were $62.0 million, $41.5 million and $33.7 million for
the years ended December 31, 1996, 1995 and 1994, respectively.  The improvement
in EBITDA reflects the overall period to period revenue growth discussed above.

   EBITDA effectively removes the impact of certain non-cash charges on income
such as depreciation and the amortization of intangible assets relating to
acquisitions and Federal income taxes (to the extent they are offset by NOLs).
Management believes that the presentation of EBITDA will enhance a reader's
understanding of the Company's operating performance and ability to service debt
as it provides a measure of cash generated that can be used by the Company to
service its debt and other required or discretionary purposes.  Net cash that
will be available to the Company for discretionary purposes represents remaining
cash, after debt service and other cash requirements, such as capital
expenditures, are deducted from EBITDA. EBITDA should not be considered as an
alternative to (i) operating income determined in accordance with GAAP or (ii)
operating cash flow determined in accordance with GAAP.


RECENT LITIGATION

   In August 1993, a former commissioned salesperson of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bargain County,
alleging gender discrimination and wrongful termination by the Company. On
November 20, 1996 a jury returned a verdict against the Company, awarding $6.5
million in general and punitive damages to the plaintiff. The Company hired new
counsel and in January 1997 filed motions for new trial, reversal of the verdict
and reduction of damages. On March 27, 1997 the trial court denied the Company's
motions and awarded the plaintiff $638,000 in attorneys' fees and costs. The
Company has been advised by appellate counsel that it has a meritorious basis to
pursue an appeal of the verdict, which the Company will do. Included in the
Company's December 31, 1996 financial statements is an

                                       20
<PAGE>

accrual sufficient to reserve against any probable outcome in the case. This
accrual was initially established at $250,000 in 1994 and increased to $800,000
in 1995 and represented the Company's estimate of its loss exposure for this
matter based on its assessment and analysis as of those dates. Based on
available cash and anticipated cash flows, the Company believes that the
ultimate outcome will not have an impact on the Company's ability to carry on
its operations.


CASH FLOWS

   Net cash provided by operating activities was $65.7 million in 1996, an
increase of $35.1 million from $30.6 million in 1995.  The increase resulted
primarily from an improvement in operating income, excluding the tax benefit
from the reduction of valuation allowances.  See "Net Operating Losses" below.
Additionally, non-cash charges, consisting of depreciation, amortization and
deferred compensation and interest, included in net income in 1996, were $3.0
million higher than 1995.  Net cash provided by operating activities was also
impacted by changes in components of other operating assets and liabilities
which provided a net increase to net cash provided by operating activities of
$16.0 million.

   Net cash used in investing activities decreased to $10.9 million in 1996,
compared to $24.9 million in 1995 as a result of the Westmark acquisition in
June 1995 and the L.J. Melody acquisition in July 1996.

   Net cash used in financing activities was $28.5 million in 1996, compared to
$11.5 million in 1995.  The $17.0 million difference between periods resulted
primarily from $95.9 million repayment of amounts outstanding under the Senior
Secured Credit Agreement in 1996 as compared to $19.0 million repayment in 1995,
$6.0 million repayment of amounts outstanding under the Senior Subordinated
Credit Agreement as compared to no repayments in 1995, and a $10.0 million
decrease in proceeds from the Senior Subordinated Credit Agreement, partially
offset by $80.0 million proceeds from issuance of common stock in 1996.

   Net cash provided by operating activities was $30.6 million in 1995 compared
to $31.4 million in 1994.  The decrease primarily resulted from a reduction in
net income of $1.8 million in 1995 compared to 1994, offset in part by changes
in components of operating assets and liabilities.

   Net cash used in investing activities was $24.9 million in 1995 compared to
$3.9 million in 1994.  The increase was caused by the acquisitions of Westmark
and Langdon Rieder in 1995 for $22.4 million, partially offset by a $2.1 million
decrease in purchases of property and equipment.

   Net cash used in financing activities was $11.5 million in 1995 compared to
$4.9 million in 1994.  The increase in 1995 resulted from the $19.0 million
repayment of senior term loans and $2.2 million repayment of capital leases,
partially offset by proceeds from the senior subordinated loan of $10.0 million.


NET OPERATING LOSSES

   The Company had NOLs of approximately $184.3 million as of December 31, 1996,
corresponding to $64.5 million of the Company's $77.8 million in net deferred
tax assets, of which $26.4 was reserved through valuation allowances.  The
valuation allowances were based on management's conclusion regarding the
realizability of this deferred tax asset on a more likely than not basis, as
defined in SFAS No. 109.  In reaching this conclusion, management considered the
Company's past operating results, the current year events and trends, including
the impact, if any, of the acquisitions that were concluded during the year and
other factors.

   Management evaluates the appropriateness of all or part of these valuation
allowances on a periodic basis and if the Company concludes there is a change
with respect to realizability, any necessary adjustments are made at that time.
As of September 30, 1996, the Company had experienced continuing profitability
due to a variety of reasons, including the strength of the commercial real
estate markets.  In addition, the Company had operated Westmark for one full
year since acquiring Westmark in June 1995, and as a result had concluded that
Westmark should make a positive contribution to the Company's consolidated
taxable income.  Finally, the acquisition of L.J. Melody in July 1996 is
expected to make a positive contribution to the Company's consolidated taxable
income.  As a result of these factors, during the third quarter of 1996, the
Company projected, on a more likely than not basis, that a portion of its NOL
would be realizable in future periods and, accordingly, reduced its existing
deferred tax asset valuation allowances by $45.7 million of which $5.3 million
was allocated to the purchase price of L.J. Melody based on its estimated future
potential to generate taxable income, and the remaining $40.4 million was
recorded as a tax benefit (a reduction in income tax provision).  During the
fourth quarter of 1996, the Company further

                                       21
<PAGE>

reduced its deferred tax asset valuation allowances by $15.5 million based on
its ability to generate additional taxable income in the future through interest
savings resulting from the paydown of part of its senior secured and senior
subordinated debt with proceeds from the Offering. This reduction has also been
recorded as a tax benefit resulting in a cumulative year-to-date tax benefit of
$55.9 million. With the recognition of deferred tax assets, the future period
provisions for income tax will be recorded at the full effective tax rate
excluding the impact of other adjustments, if any, to valuation allowances. For
the year ended December 31, 1996, an $11.2 million provision for income taxes
has been recorded without regard to the income tax benefit resulting from the
reduction of the valuation allowance. Net income for the year ended December 31,
1996 was $70.5 million ($5.02 per share of common stock), which includes the
current year provision of $11.2 million offset by the cumulative year-to-date
tax benefit of $55.9 million or a net benefit for income tax of $44.7 million.
If the Company had not recorded tax benefits related to projected future taxable
income for the year ended December 31, 1996, the Company's net income for such
period would have been $24.2 million ($1.75 per share of common stock). The
provision for income tax would have consisted of current and deferred state tax
provisions and provision for Federal alternative minimum tax. Provision for
regular Federal taxes would have been offset by reductions in valuation
allowances to the extent of such regular Federal taxes. The $55.9 million
recognized tax benefit has a material effect on the reported net income for the
year ended December 31, 1996. This $55.9 million tax benefit is a non-recurring
item and is unrelated to the Company's performance and should not be used in
evaluating the Company's prospects or future performance. The Company believes
that its future taxable income will be adequate to realize the deferred tax
assets on the December 31, 1996 balance sheet.

   The ability of the Company to utilize NOLs may be limited in the future if an
"ownership change" within the meaning of Section 382 of the Internal Revenue
Code of 1986, as amended, were deemed to occur.  Such an ownership change may be
deemed to occur if the Company engages in certain transactions involving the
issuance of shares of Common Stock, or by reason of a sale of capital stock by
an existing shareholder.  If an ownership change were to occur, Section 382
would impose an annual limit on the amount of NOLs the Company could utilize.
The Company believes that the Offering and recapitalization of its capital
structure consummated in connection with the Offering will not result in an
ownership change. An ownership change may not be within the control of the
Company, however, and therefore there is no assurance that an ownership change
will not occur in the future.  The availability of NOLs is, in any event,
subject to uncertainty since their validity is not reviewed by the Internal
Revenue Service until such time as they are utilized to offset taxable income.


INFLATION

   The Company's operations are directly affected by various national and
economic conditions, including interest rates, the availability of credit to
finance commercial real estate transactions and the impact of tax laws.  To
date, the Company does not believe that general inflation has had a material
impact upon its operations.  Revenues, commissions and other variable costs
related to revenues are primarily affected by real estate market supply and
demand versus general inflation.


NEW ACCOUNTING PRONOUNCEMENTS

   Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, SFAS No. 122,
Accounting for Mortgage Servicing Rights and SFAS No. 123, Accounting for Stock-
Based Compensation.  These standards, including the proforma effect of SFAS No.
123, were not material to the Company's financial statements.

   In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities.  This statement is required to be adopted by the Company in 1997
and only applies to the operations of L.J. Melody.  Under SFAS No. 125, the
Company will be required to recognize, at fair value, financial and servicing
assets it has acquired control over and related liabilities it has incurred and
amortize them over the period of estimated net servicing income or loss.  Write-
off of the asset is required when control is surrendered and of the liability
when extinguished.  The Company does not currently recognize the value of
financial and servicing assets when loans are originated.  The adoption of the
new statement will result in the recognition of amortization cost along with
income from servicing as services are performed and the recognition of gains or
losses at the time servicing rights are sold.  Management of the Company
believes that the adoption of this standard will not have a material impact on
the Company's financial position or results of operations.

                                       22
<PAGE>

QUARTERLY RESULTS OF OPERATIONS AND OTHER FINANCIAL DATA

   The following table sets forth certain unaudited consolidated statement of
operations data for each of the Company's last twelve quarters and the
percentage of the Company's revenues represented by each line item reflected in
each consolidated income statement.  In the opinion of management, this
information has been presented on the same basis as the consolidated financial
statements included in Item 8, and includes all adjustments, consisting only of
normal recurring adjustments and accruals, that the Company considers necessary
for a fair presentation.  The unaudited quarterly information should be read in
conjunction with the audited financial statements of the Company and the notes
thereto.  The operating results for any quarter are not necessarily indicative
of the results for any future period.
<TABLE>
<CAPTION>

                                                   1996                                           1995
                                -------------------------------------------- ------------------------------------------------
                                 DEC. 31    SEPT. 30   JUNE 30    MARCH 31    DEC. 31    SEPT. 30       JUNE 30     MARCH 31
                                ---------- ---------- ---------- ----------- ---------- -----------   -----------   ---------
                                                                    (Dollars in thousands)
<S>                             <C>        <C>        <C>        <C>         <C>        <C>           <C>           <C>
Results of Operations:
Revenue......................    $192,205   $147,168   $130,954    $112,741   $143,570    $116,603      $108,361    $ 99,926
Costs and Expenses:
 Commissions, fees and
  other incentives...........      96,801     74,196     66,262      55,007     71,449      57,804        57,370      52,395
 Operating, administrative
  and other..................      69,603     56,042     53,594      49,560     53,129      47,803        44,206      42,830
 Depreciation and
  amortization...............       3,825      3,431      3,038       3,280      3,458       3,546         2,297       2,330
                                 --------   --------   --------    --------   --------    --------      --------    --------
Operating income (loss)......      21,976     13,499      8,060       4,894     15,534       7,450         4,488       2,371
Interest income..............         468        286        354         395        446         345           393         490
Interest expense.............       6,240      6,196      5,759       5,928      6,323       6,428         5,313       5,203
                                 --------   --------   --------    --------   --------    --------      --------    --------
Income (loss) before
 provision (benefit) for
 income tax..................      16,204      7,589      2,655        (639)     9,657       1,367          (432)     (2,342)
Provision (benefit) for
 income tax..................       6,550      4,220        438         (48)       603         138            26          74
Reduction of valuation
 allowances..................     (15,500)   (40,400)         -           -          -           -             -           -
                                 --------   --------   --------    --------   --------    --------      --------    --------
Net provision (benefit) for
 income tax..................      (8,950)   (36,180)       438         (48)       603         138            26          74
                                 --------   --------   --------    --------   --------    --------      --------    --------
Net income (loss)............    $ 25,154   $ 43,769   $  2,217    $   (591)  $  9,054    $  1,229      $   (458)   $ (2,416)
                                 ========   ========   ========    ========   ========    ========      ========    ========
Other Financial Data:
EBITDA.......................    $ 25,801   $ 16,930   $ 11,098    $  8,174   $ 18,992    $ 10,996      $  6,785    $  4,701
Net cash provided by (used
 in) operating activities....    $ 41,524   $ 22,150   $ 13,865    $(11,845)  $ 30,082    $  8,143      $  6,890    $(14,483)
Net cash (used in) investing
 activities..................    $ (1,389)  $ (9,401)  $  1,768    $ (1,884)  $ (2,928)   $   (595)     $(18,887)   $ (2,478)
Net cash provided by (used
 in) financing activities....    $(15,710)  $(15,297)  $ (4,306)   $  6,808   $(16,002)   $ (8,098)     $ 15,391    $ (2,760)

<CAPTION>
                                                           1994
                                      -------------------------------------------------
                                       DEC. 31      SEPT. 30      JUNE 30      MARCH 31
                                      ----------   ----------   -----------   ---------
                                                    (Dollars in thousands)
<S>                                   <C>          <C>          <C>           <C>
Results of Operations:
Revenue......................          $128,905     $112,843      $103,730     $ 83,510
Costs and Expenses:
 Commissions, fees and
  other incentives...........            67,919       59,645        54,367       43,154
 Operating, administrative
  and other..................            46,316       42,675        42,487       38,756
 Depreciation and
  amortization...............             2,562        1,797         1,783        1,949
                                       --------     --------      --------     --------
Operating income (loss)......            12,108        8,726         5,093         (349)
Interest income..............               370          270           255          214
Interest expense.............             4,747        5,383         3,790        3,442
                                       --------     --------      --------     --------
Income (loss) before
 provision (benefit) for
 income tax..................             7,731        3,613         1,588       (3,577)
Provision (benefit) for
 income tax..................               (73)          75            75           75
Reduction of valuation
 allowances..................                 -            -             -            -
                                       --------     --------      --------     --------
Net provision (benefit) for
 income tax..................               (73)          75            75           75
                                       --------     --------      --------     --------
Net income (loss)............          $  7,804     $  3,538      $  1,483     $ (3,652)
                                       ========     ========      ========     ========
Other Financial Data:
EBITDA.......................          $ 14,670     $ 10,523      $  6,876     $  1,600
Net cash provided by (used
 in) operating activities....          $ 21,911     $ 13,817      $  5,894     $(10,204)
Net cash (used in) investing
 activities..................          $ (1,321)    $ (1,006)     $   (748)    $   (790)
Net cash provided by (used
 in) financing activities....          $ (4,369)    $ (5,114)     $ (5,407)    $  9,967



</TABLE>

<TABLE>
<CAPTION>

                                                                AS A PERCENTAGE OF REVENUES
                                ------------------------------------------------------------------------------------------
                                                    1996                                           1995
                                -------------------------------------------  ---------------------------------------------
                                  DEC. 31   SEPT. 30    JUNE 30    MARCH 31    DEC. 31     SEPT. 30    JUNE 30    MARCH 31
                                ---------  ---------  ---------  ----------  ---------   ----------  ----------  --------
<S>                             <C>        <C>        <C>        <C>         <C>         <C>         <C>         <C>
Results of Operations:
Revenue......................       100.0%     100.0%     100.0%      100.0%     100.0%      100.0%      100.0%    100.0%
Costs and expenses:
 Commissions, fees and
  other incentives...........        50.4       50.4       50.6        48.8       49.8        49.6        52.9      52.4
 Operating, administrative
  and other..................        36.2       38.1       40.9        44.0       37.0        41.0        40.8      42.9
 Depreciation and
  amortization...............         2.0        2.3        2.3         2.9        2.4         3.0         2.1       2.3
                                 --------   --------   --------    --------   --------    --------    --------  --------
Operating income (loss)......        11.4        9.2        6.2         4.3       10.8         6.4         4.2       2.4
Interest income..............         0.2        0.2        0.3         0.3        0.3         0.3         0.3       0.5
Interest expense.............         3.2        4.2        4.4         5.2        4.4         5.5         4.9       5.2
                                 --------   --------   --------    --------   --------    --------    --------  --------
Income (loss) before
 provision (benefit) for
 income tax..................         8.4        5.2        2.1        (0.6)       6.7         1.2        (0.4)     (2.3)
Provision for income tax.....         3.4        2.9        0.3         0.0        0.4         0.1         0.0       0.1
Reduction of valuation
 allowances..................        (8.1)     (27.5)         -           -          -           -           -         -
                                 --------   --------   --------    --------   --------    --------    --------  --------
Net provision (benefit) for
 income tax..................        (4.7)     (24.6)       0.3         0.0        0.4         0.1         0.0       0.1
                                 --------   --------   --------    --------   --------    --------    --------  --------
Net income (loss)............        13.1%      29.7%       1.8%      (0.6)%       6.3%        1.1%      (0.4)%    (2.4)%
                                 ========   ========   ========    ========   ========    ========    ========  ========
</TABLE>

<TABLE>
<CAPTION>
                                                   AS A PERCENTAGE OF REVENUES
                                        -------------------------------------------------
                                                               1994
                                        -------------------------------------------------
                                          DEC. 31     SEPT. 30     JUNE 30      MARCH 31
                                        ---------    ---------    ----------   ----------
<S>                                     <C>          <C>          <C>          <C>
Results of Operations:                     100.0%       100.0%        100.0%       100.0%
Revenue......................
Costs and expenses:
 Commissions, fees and                      52.7         52.9          52.4         51.7
  other incentives...........
 Operating, administrative                  35.9         37.8          41.0         46.4
  and other..................
 Depreciation and                            2.0          1.6           1.7          2.3
  amortization...............           --------     --------      --------     --------
                                             9.4          7.7           4.9         (0.4)
Operating income (loss)......                0.3          0.3           0.3          0.2
Interest income..............                3.7          4.8           3.7          4.1
Interest expense.............           --------     --------      --------     --------

Income (loss) before
 provision (benefit) for                     6.0          3.2           1.5         (4.3)
 income tax..................               (0.1)         0.1           0.1          0.1
Provision for income tax.....
Reduction of valuation                         -            -             -            -
 allowances..................           --------     --------      --------     --------

Net provision (benefit) for                 (0.1)         0.1           0.1          0.1
 income tax..................           --------     --------      --------     --------
                                             6.1%         3.1%          1.4%       (4.4)%
Net income (loss)............           ========     ========      ========     ========
</TABLE>


                                       23
<PAGE>

 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                   PAGE
 <S>                                                                                 <C>
 CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED FINANCIAL STATEMENTS

   Report of Independent Public Accountants.......................................   25

   Consolidated Balance Sheets as of December 31, 1996, and 1995..................   26

   Consolidated Statements of Operations for the Years Ended December 31, 1996,
    1995 and 1994.................................................................   27

   Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
    1995 and 1994.................................................................   28

   Consolidated Statements of Stockholders' Equity (Deficit) for the Years
    Ended December 31, 1996, 1995 and 1994........................................   30

   Notes to Consolidated Financial Statements.....................................   31

 SCHEDULES SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS

   III-Condensed Financial Information of Registrant..............................   49

   VIII-Valuation and Qualifying Accounts.........................................   50

 EXHIBIT SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS

   XI-Computation of Per Share Earnings...........................................   51

</TABLE>

   All other schedules and exhibits are not submitted because either they are
not applicable, not required or the information required is included in the
Consolidated Financial Statements, including the notes thereto.

                                       24
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To CB Commercial Real Estate Services Group, Inc.:

We have audited the accompanying consolidated balance sheets of CB Commercial
Real Estate Services Group, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1996, and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996.  These financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CB Commercial Real Estate
Services Group, Inc. and subsidiaries as of December 31, 1996, and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The schedules listed in the index of
consolidated financial statements are presented for purposes of complying with
the Securities and Exchange Commissions rules and are not part of the basic
financial statements.  These schedules have been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.



                                                             ARTHUR ANDERSEN LLP



Los Angeles, California
January 30, 1997

                                       25
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                 (Dollars in thousands except per share data)
<TABLE>
<CAPTION>


                                                                                            December 31,
                                                                                       -----------------------
                                                                                          1996         1995
                                                                                       ----------   ----------
<S>                                                                                    <C>          <C>
    ASSETS
Current Assets:
 Cash and cash equivalents..........................................................   $  49,328    $  23,045
 Receivables, less allowance of $4,423 and $4,400 for doubtful accounts
  at December 31, 1996 and 1995, respectively.......................................      40,927       28,322
 Deferred taxes.....................................................................      16,257          765
 Prepaid expenses and other.........................................................       7,440        4,889
                                                                                       ---------    ---------
  Total current assets..............................................................     113,952       57,021
Property and equipment, net.........................................................      40,835       44,500
Goodwill, net of accumulated amortization of $7,563 and $5,194 at
 December 31, 1996 and 1995.........................................................      65,362       59,491
Other intangible assets, net of accumulated amortization of $253,061 and $249,726
 at December 31, 1996 and 1995......................................................      10,521       10,783
Inventoried property................................................................       7,355        7,355
Deferred taxes......................................................................      35,146            -
Other assets, net...................................................................       5,773       11,804
                                                                                       ---------    ---------
  Total assets......................................................................   $ 278,944    $ 190,954
                                                                                       =========    =========

   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
 Compensation and employee benefits.................................................   $  38,747    $  28,324
 Accounts payable and accrued expenses..............................................      28,020       19,245
 Reserve for bonus and profit sharing...............................................      21,414       12,997
 Current maturities of long-term debt...............................................      15,314        8,250
 Current portion of capital lease obligations.......................................       2,510        2,592
                                                                                       ---------    ---------
  Total current liabilities.........................................................     106,005       71,408
                                                                                       ---------    ---------
Long-term debt, less current maturities:
 Senior term loans..................................................................      65,528      160,394
 Senior subordinated term loans.....................................................      72,872       78,963
 Inventoried property loan..........................................................       7,470        7,470
 Other long-term debt...............................................................       2,659        3,315
                                                                                       ---------    ---------
  Total long-term debt..............................................................     148,529      250,142
                                                                                       ---------    ---------
Other long-term liabilities.........................................................      25,925       24,092
                                                                                       ---------    ---------
  Total liabilities.................................................................     280,459      345,642
                                                                                       ---------    ---------

Commitments and contingencies

Stockholders' Equity (Deficit):
 Preferred stock, $.01 par value....................................................          40           40
 Common stock, $.01 par value.......................................................         133           93
 Additional paid-in capital.........................................................     198,026      110,326
 Notes receivable from sale of stock................................................      (5,109)           -
 Accumulated deficit................................................................    (194,605)    (265,147)
                                                                                       ---------    ---------
  Total stockholders' equity (deficit)..............................................      (1,515)    (154,688)
                                                                                       ---------    ---------
  Total liabilities and stockholders' equity (deficit)..............................   $ 278,944    $ 190,954
                                                                                       =========    =========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       26
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Dollars in thousands except per share data)
<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                      ----------------------------------------
                                                          1996          1995          1994
                                                      ------------   -----------   -----------
<S>                                                   <C>            <C>           <C>

Revenue............................................   $   583,068    $   468,460   $   428,988

Costs and Expenses:
   Commissions, fees and other incentives..........       292,266        239,018       225,085
   Operating, administrative and other.............       228,799        187,968       170,234
   Depreciation and amortization...................        13,574         11,631         8,091
                                                      -----------    -----------   -----------
Operating income...................................        48,429         29,843        25,578
Interest income....................................         1,503          1,674         1,109
Interest expense...................................        24,123         23,267        17,362
                                                      -----------    -----------   -----------

Income before provision (benefit) for income tax...        25,809          8,250         9,325

Provision for income tax...........................        11,160            841           152
Reduction of valuation allowances..................       (55,900)             -             -
                                                      -----------    -----------   -----------

Net provision (benefit) for income tax.............       (44,740)           841           152
                                                      -----------    -----------   -----------

Net income.........................................   $    70,549    $     7,409   $     9,173
                                                      ===========    ===========   ===========

Net income applicable to common stockholders.......   $    69,549    $     7,409   $     9,173
                                                      ===========    ===========   ===========

Primary earnings per share.........................   $      5.02    $      0.55   $      0.69
                                                      ===========    ===========   ===========

Weighted average shares outstanding for primary
   earnings per share..............................    13,845,325     13,540,541    13,305,118
                                                      ===========    ===========   ===========

Fully diluted earnings per share...................   $      4.97    $      0.55   $      0.69
                                                      ===========    ===========   ===========

Weighted average shares outstanding for fully
   diluted earnings per share......................    14,184,296     13,540,541    13,305,118
                                                      ===========    ===========   ===========

</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       27
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                ---------------------------------
                                                                  1996        1995        1994
                                                                ---------   ---------   ---------
<S>                                                             <C>         <C>         <C>
Cash flows from operating activities:
  Net income.................................................   $ 70,549    $  7,409    $  9,173
  Adjustments to reconcile net income to net cash provided
  by operating activities:
    Depreciation and amortization excluding deferred
      financing costs........................................     13,574      11,631       8,091
    Amortization of deferred financing costs.................      2,840       1,392       1,551
    Equity interest in (earnings) loss of unconsolidated
      subsidiaries...........................................       (145)        180         (44)
    Provision for litigation, doubtful accounts and other....      9,543         346       2,346
    Deferred interest........................................      6,927       7,738       2,338
    Deferred compensation....................................      2,159       1,762         877
    Deferred taxes...........................................    (46,128)          -           -
  (Increase) decrease in receivables.........................    (14,378)     (1,778)      1,134
  Decrease (increase) in prepaid expenses and other assets...        794         396        (885)
  Increase in compensation and employee benefits payable.....     19,793       3,276       7,222
  Increase (decrease) in other operating liabilities.........        166      (1,720)       (385)
                                                                --------    --------    --------

       Net cash provided by operating activities.............     65,694      30,632      31,418
                                                                --------    --------    --------

Cash flows from investing activities:
  Purchases of property and equipment........................     (3,002)     (2,143)     (4,250)
  Proceeds from collections on notes receivable..............      2,726         215         445
  Acquisitions of businesses including net assets
    acquired, intangibles and goodwill.......................     (8,625)    (22,376)          -
  Other investing activities, net............................     (2,005)       (584)        (60)
                                                                --------    --------    --------

       Net cash used in investing activities.................    (10,906)    (24,888)     (3,865)
                                                                --------    --------    --------

Cash flows from financing activities:
  Proceeds from senior revolving credit line.................     21,000      14,000      11,000
  Repayment of senior revolving credit line..................    (21,000)    (14,000)    (11,000)
  Repayment of senior term loans.............................    (95,865)    (18,997)     (4,100)
  Repayment of capital leases................................     (2,945)     (2,167)          -
  Proceeds from senior subordinated term loan................          -      10,000           -
  Repayment of senior subordinated term loan.................     (6,044)          -           -
  Proceeds from issuance of common stock.....................     79,540           -           -
  Other financing activities, net............................     (3,191)       (305)       (823)
                                                                --------    --------    --------

       Net cash used in financing activities.................    (28,505)    (11,469)     (4,923)
                                                                --------    --------    --------

Net increase (decrease) in cash and cash equivalents.........     26,283      (5,725)     22,630

Cash and cash equivalents, at beginning of period............     23,045      28,770       6,140
                                                                --------    --------    --------

Cash and cash equivalents, at end of period..................   $ 49,328    $ 23,045    $ 28,770
                                                                ========    ========    ========
</TABLE>

                                       28
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
                            (Dollars in thousands)
<TABLE>
<CAPTION>


                                                       Year Ended December 31,
                                                     ---------------------------
                                                      1996      1995      1994
                                                     -------   -------   -------
<S>                                                  <C>       <C>       <C>

Supplemental disclosures of cash flow
   information:

   Cash paid during the year for:
     Interest (none capitalized)..................   $25,899   $14,410   $12,172

     Federal and state income taxes...............   $ 1,284   $   497   $   152

   Non-cash investing and financing activities:
     Portion of Westmark acquisition
        financed by notes payable.................   $     -   $20,283   $     -
     Portion of L.J. Melody acquisition
        financed by notes payable.................   $ 3,667   $     -   $     -
     Equipment acquired under capital leases......   $ 1,701   $ 3,347   $ 4,569

</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       29
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                            (Dollars in thousands)
<TABLE>
<CAPTION>

                                                         Common stock   Additional       Notes
                                      Preferred  Common     options       paid-in   receivable from         Accumulated
                                        stock    stock    outstanding     capital    sale of stock     deficit        Total
                                      ---------  ------  -------------  -----------  --------------   ----------   ------------
<S>                                   <C>        <C>     <C>            <C>          <C>              <C>          <C>
Balance, December 31, 1993............      $40    $ 88     $294          $106,613     $     -        $(281,895)     $(174,860)
  Net income..........................        -       -        -                 -           -            9,173          9,173
  Common stock issued for
    deferred compensation,
    bonuses and profit sharing........        -       1        -             1,095           -                -          1,096
  Foreign currency translation
    adjustment........................        -       -        -                 -           -               43             43
                                      ---------    ----  -------          --------   ---------        ---------      ---------

Balance, December 31, 1994............       40      89      294           107,708           -         (272,679)      (164,548)
  Net income..........................        -       -        -                 -           -            7,409          7,409
  Common stock issued for deferred
    compensation......................        -       4        -             2,322           -                -          2,326
  Common stock options
    exercised.........................        -       -      (31)               33           -                -              2
  Foreign currency translation
    adjustment........................        -       -        -                 -           -              123            123
                                      ---------    ----  -------          --------   ---------        ---------      ---------

Balance, December 31, 1995............       40      93      263           110,063           -         (265,147)      (154,688)
  Net income..........................        -       -        -                 -           -           70,549         70,549
  Common stock issued for deferred
    compensation and other
    incentives........................        -       8        -             7,660      (5,109)               -          2,559
  Common stock options
    exercised.........................        -       -       (4)              104           -                -            100
  Preferred dividend accrual..........        -       -        -            (1,000)          -                -         (1,000)
  Net proceeds from initial public
    offering..........................        -      32        -            79,399           -                -         79,431
  Benefit of permanent deferred tax
    asset.............................        -       -        -             1,541           -                -          1,541
  Foreign currency translation
    adjustment........................        -       -        -                 -           -               (7)            (7)
                                      ---------    ----  -------          --------   ---------        ---------      ---------

Balance, December 31, 1996............      $40    $133     $259          $197,767     $(5,109)       $(194,605)     $  (1,515)
                                      =========    ====  =======          ========   =========        =========      =========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       30
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1996


1.  ORGANIZATION AND ACQUISITIONS

   ORGANIZATION.  CB Commercial Real Estate Services Group, Inc. (formerly CB
Commercial Holdings, Inc.) ("CB Commercial") was organized to acquire Coldwell
Banker Commercial Group, Inc. and had no operations prior to the acquisition on
April 19, 1989 (the "Acquisition").  In 1991 Coldwell Banker Commercial Group,
Inc. was renamed CB Commercial Real Estate Group, Inc.  On November 25, 1996, CB
Commercial completed an initial public offering (the "Offering") of 4,347,000
shares of common stock, par value $.01 per share (the "Common Stock").  The net
proceeds from the Offering of approximately $80.0 million were used to repay a
portion of the Company's senior secured indebtedness and senior subordinated
indebtedness.  CB Commercial is a holding company that conducts its operations
solely through CB Commercial Real Estate Group, Inc. and its subsidiaries
(collectively the "Company").

   NATURE OF OPERATIONS.  The Company provides a full range of services to
commercial real estate tenants, owners, and investors including:  (i) brokerage
(facilitating sales and leases), investment properties (acquisitions and sales
on behalf of investors), corporate services, property management, and real
estate market research (collectively, "Property and User Services"), and (ii)
mortgage banking (mortgage loan origination and servicing), investment
management and advisory services and valuation and appraisal services
(collectively, "Investor Services").  The Company's diverse client base includes
local, national and multinational corporations, financial institutions, pension
funds and other tax exempt entities, local, state and national governmental
entities, and individuals.

   A significant portion of the Company's revenue is transactional in nature and
seasonal.  Historically, this seasonality has caused the Company's revenue,
operating income and net income to be lower in the first two calendar quarters
and higher in the third and fourth calendar quarters of each year.

   ACQUISITIONS.  Effective July 1, 1996, CB Commercial Mortgage Company, Inc.
("CB Mortgage"), a wholly-owned subsidiary of the Company, acquired all of the
outstanding capital stock of L.J. Melody & Company, a Texas corporation, and
L.J. Melody & Company of California, a Texas corporation ("LJMCal").  On July 9,
1996, CB Mortgage merged into L.J. Melody & Company.  As a result, LJMCal is a
wholly-owned subsidiary of L.J. Melody & Company.  L.J. Melody & Company and
LJMCal (collectively "L.J. Melody") are commercial mortgage banking firms
engaged in mortgage loan origination and loan servicing.  L.J. Melody is
headquartered in Houston, Texas.  The purchase consideration for L.J. Melody was
$15.0 million, including a $2.3 million note to the principal seller bearing
10.0% interest with principal payments starting in 1998, $9.0 million in cash
and $3.7 million in additional notes to the sellers.  The notes bear interest of
10.0% per annum, with maturities through July 2001.  The $2.3 million note will
be accounted for as compensation over the term of the note as the payment of
this note is contingent upon the principal seller's continued employment with
the Company.  (See Note 6)

   The L.J. Melody acquisition was accounted for as a purchase.  The Company
allocated approximately $3.7 million of the total purchase price to identifiable
intangible assets, consisting of loan servicing and asset management contracts,
trade name, a covenant not to compete and other intangibles.  The remaining $9.0
million and a $1.5 million deferred tax liability resulting from the acquisition
were recorded to goodwill.  The intangibles are being amortized over their
estimated useful lives or the lives of the underlying contracts, as applicable,
over periods ranging from three to 13 years.  Goodwill is being amortized on a
straight line basis over 30 years.

   On June 30, 1995, CB Commercial Real Estate Group, Inc., through a general
partnership ("WREAP") in which it directly or indirectly owns all of the
partnership interests, acquired Westmark Realty Advisors L.L.C. ("Westmark").
Westmark is an investment management and advisory business headquartered in Los
Angeles.  The purchase price consisted of an aggregate initial purchase price of
$37.5 million plus $2.9 million in net liabilities assumed and an additional
$1.0 million in costs related to the Westmark acquisition.  Approximately $20.0
million ($19.8 million at December 31, 1996) of the $37.5 million is payable to
the sellers ("Westmark Senior Notes") over periods ranging from one to five
years.  The sellers may also be entitled to a supplemental purchase price based
on the operating results of

                                       31
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


Westmark payable over a period of six years and subject to a maximum aggregate
payment of $18.0 million.  The supplemental purchase price will be recorded as
additional goodwill, if and when earned.  As of December 31, 1996, approximately
$2.8 million was earned, of which $1.9 million and $0.9 million was paid to the
sellers on March 31, 1997 and 1996, respectively.  Approximately $17.5 million
of the purchase price was paid in cash using $7.5 million contributed to WREAP
by CB Commercial Real Estate Group, Inc. and $10.0 million of proceeds from a
senior subordinated loan ("Westmark Senior Subordinated Loan").  In November
1996, the terms of the Westmark Senior Subordinated Loan were amended to provide
for interest to be payable quarterly on a current basis at a rate of 11.0%,
effective June 30, 1995, and to provide for quarterly amortization payments by
CB Commercial Real Estate Group, Inc. of $500,000.  As amended, interest has
accrued on the Westmark Senior Subordinated Loan at the original interest rate
of 20.0%.  Interest in excess of 11.0% will be forgiven upon the payment of the
Westmark Senior Subordinated Loan in full.  If CB Commercial Real Estate Group,
Inc. defaults on its payment obligations under the loan at any time, such excess
interest will not be forgiven and the Westmark Senior Subordinated Loan will
bear interest at the rate of 20.0% from June 30, 1995.  (See Note 6)

   The Westmark acquisition was accounted for as a purchase.  The Company has
allocated approximately $6.9 million of the total purchase price of $41.4
million to identifiable intangible assets acquired, consisting of asset
management contracts, employment agreements, and trade name and the remaining
$34.5 million was recorded as goodwill.  The intangibles will be amortized over
their estimated useful lives of 6, 5 and 10 years, respectively.  Based on the
nature of the business, Westmark's market position, its workforce and other
factors, management estimates that the goodwill resulting from this acquisition
has a useful life of approximately 30 years and will be amortized on a straight
line basis over this period.  Based upon future experience, this useful life
could be decreased.  In that event, the charge for intangibles and goodwill
would be increased and earnings decreased.

   On April 11, 1995, the Company acquired certain assets of Langdon Rieder
Corporation ("Langdon Rieder"), a tenant advisory business.  The purchase price
consisted of a closing payment of $1.5 million in cash and a deferred payment of
$1.9 million payable over three years ($633,333 payable on each of January 2,
1997, 1998 and 1999), plus interest on the entire outstanding portion of the
deferred payment at an annual rate of 8.0%.  The deferred payment is subject to
forfeiture under certain circumstances.  The purchase price has largely been
allocated to intangibles and goodwill, which is being amortized on a straight-
line basis over their useful lives ranging from three to seven years.

   The assets and liabilities of Westmark and Langdon Rieder, along with the
related goodwill, intangibles and indebtedness resulting from the acquisitions,
are reflected in the accompanying consolidated financial statements as of
December 31, 1996 and 1995.  The respective financial information for L.J.
Melody is reflected in the accompanying consolidated financial statements as of
December 31, 1996.  The results of operations of the acquired companies are
included in the consolidated results from the dates of acquisition, and were not
material to the Company's results for the year ended December 31, 1996 and 1995,
respectively.  The pro forma results of operations of the Company for the years
ended December 31, 1996, 1995 and 1994, assuming the Westmark and Langdon Rieder
acquisitions had occurred on January 1, 1994 and the L.J. Melody acquisition had
occurred on January 1, 1995, would have been as follows:
<TABLE>
<CAPTION>

                                                               Year Ended December 31,
                                                          ---------------------------------
                                                                    (Unaudited)
                                                            1996       1995        1994
                                                          --------   --------   -----------
                                                                (Dollars in thousands
                                                               except per share data)
<S>                                                       <C>        <C>        <C>

   Revenues............................................   $586,485   $489,684     $452,284

   Net income..........................................     69,001      4,903        4,092

   Net income per common and common equivalent share
      outstanding......................................       4.98       0.36         0.31
</TABLE>

                                       32
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   PRINCIPLES OF CONSOLIDATION

   The accompanying consolidated financial statements include the accounts of
the Company.  All significant intercompany accounts and transactions have been
eliminated in consolidation.

   CASH AND CASH EQUIVALENTS

   Cash and cash equivalents consist of cash and highly liquid investments with
an original maturity of less than three months.

   INTANGIBLE ASSETS AND GOODWILL

   The Company obtained approximately $214.0 million of intangible assets (other
than goodwill) from the Acquisition, comprised of a covenant not to compete, a
trademark, deferred financing costs and other items.  As of December 31, 1996,
substantially all of these intangibles have been fully amortized.  The remaining
unamortized intangibles of approximately $10.5 million at December 31, 1996
consist of approximately $3.1 million relating to deferred financing costs and
$7.5 million are intangibles stemming from the L.J. Melody, Westmark and Langdon
Rieder acquisitions. (See Note 1)

   Goodwill of $65.4 million and $59.5 million at December 31, 1996 and 1995,
respectively, consists of $21.0 million and $21.6 million, respectively, related
to the Acquisition and $44.3 million and $37.9 million, respectively, related to
the Westmark, L.J. Melody and other acquisitions.  Goodwill related to the
Acquisition is being amortized over an estimated useful life of 40 years.
Goodwill related to Westmark, L.J. Melody and other acquisitions is being
amortized over an estimated useful life of 30 years.

   The Company periodically evaluates the recoverability of the carrying amount
of goodwill and other intangible assets.  In this assessment, the Company
considers macro market conditions and trends in the Company's relative market
position, its capital structure, lender relationships and the estimated
undiscounted future cash flows associated with these assets.  If any of the
significant assumptions inherent in this assessment change in a material way due
to market, economic and/or other factors, the recoverability is assessed based
on the revised assumptions and resultant undiscounted cash flows.  If such
analysis indicates impairment, it would be recorded in the period such changes
occur based on the fair value of the goodwill and other intangible assets.

   INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

   Investments in unconsolidated subsidiaries in which the Company does not have
majority control are accounted for under the equity method.  (See Note 4)

   INCOME RECOGNITION

   Real estate commissions on sales are recorded as income upon close of escrow
or upon transfer of title.  Real estate commissions on leases are generally
recorded as income upon date of occupancy.  Realty advisor incentive fees are
recognized when earned under the provisions of the related advisory agreements.
Other commissions and fees are recorded as income at the time the related
services have been performed unless significant future contingencies exist.

                                       33
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


   USE OF ESTIMATES

   The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities at the date of the
financial statements and the reported amounts of certain revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management believes that these estimates provide a reasonable basis for the fair
presentation of its financial condition and results of operations.

   CERTAIN SIGNIFICANT ESTIMATES

   DEFERRED TAXES.  The Company has net deferred tax assets of approximately
$77.8 million at December 31, 1996, of which $26.4 has been reserved through a
valuation allowance.  The valuation allowance is based on management's
conclusion regarding the realizability of this asset on a more likely than not
basis, as defined in SFAS No. 109.  In reaching this conclusion management
considered the Company's past operating results, as well as the current year
events and trends, including the impact if any, of the acquisitions that were
concluded during the year as well as other factors. Management will continue to
evaluate the appropriateness of all or part of this valuation allowance on a
periodic basis and if its conclusions change with respect to realizability, any
necessary adjustments will be made at that time.  The impact of these
adjustments, if any, could be material to the Company's financial statements.
(See Note 9)

   PER SHARE INFORMATION

   Primary earnings per share is calculated based on weighted average common
shares and common stock equivalents, which include preferred stock and dilutive
stock options outstanding.  This calculation also includes all issuances of
stock and stock options made within twelve months prior to the Offering as
promotional shares for all periods presented.  Fully diluted earnings per share
further assumes the conversion of preferred stock, if dilutive, for the period
after the Offering when the preferred stock was no longer considered to be a
common stock equivalent.

   The Company recapitalized its various classes of stock in conjunction with
the Offering.  (See Note 8)  Weighted average common and common equivalent
shares outstanding are comprised of the following:
<TABLE>
<CAPTION>

                                                   December 31,
                                       ------------------------------------
                                          1996         1995         1994
                                       ----------   ----------   ----------
<S>                                    <C>          <C>          <C>
PRIMARY EARNINGS PER SHARE:
Preferred stock:
     Series A-1.....................      909,836    1,000,000    1,000,000
     Series A-2.....................    1,819,672    2,000,000    2,000,000
     Series A-3.....................      909,836    1,000,000    1,000,000

Common stock:
     Common Stock (post-Offering)...    1,195,402            -            -
     Class B-1 (pre-Offering).......    1,687,013    1,850,034    1,850,000
     Class B-2 (pre-Offering).......    5,618,323    5,678,262    5,442,839
     Class C-1 (pre-Offering).......      727,869      800,000      800,000
     Class C-R (pre-Offering).......      727,869      800,000      800,000

Promotional shares..................      188,062      371,566      371,566

Stock options.......................       61,443       40,679       40,713
                                       ----------   ----------   ----------

                                       13,845,325   13,540,541   13,305,118
                                       ==========   ==========   ==========
</TABLE>

                                       34
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996
<TABLE>
<CAPTION>


                                                       December 31,
                                           ------------------------------------
                                              1996         1995         1994
                                           ----------   ----------   ----------
<S>                                        <C>          <C>          <C>
FULLY DILUTED EARNINGS PER SHARE:
Preferred stock:
     Series A-1.........................      909,836    1,000,000    1,000,000
     Series A-2.........................    1,819,672    2,000,000    2,000,000
     Series A-3.........................      909,836    1,000,000    1,000,000

Common stock:
     Common Stock (post-Offering).......    1,195,402            -            -
     Class B-1 (pre-Offering)...........    1,687,013    1,850,034    1,850,000
     Class B-2 (pre-Offering)...........    5,618,323    5,678,262    5,442,839
     Class C-1 (pre-Offering)...........      727,869      800,000      800,000
     Class C-R (pre-Offering)...........      727,869      800,000      800,000

Promotional shares......................      188,062      371,566      371,566

Stock options...........................      119,103       40,679       40,713

Assumed conversion of preferred stock...      281,311            -            -
                                           ----------   ----------   ----------

                                           14,184,296   13,540,541   13,305,118
                                           ==========   ==========   ==========
</TABLE>
   Actual shares of common stock outstanding at December 31, 1996 were
13,258,091.


   NEW ACCOUNTING PRONOUNCEMENTS

   Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, SFAS No. 122,
Accounting for Mortgage Servicing Rights and SFAS No. 123, Accounting for Stock-
Based Compensation.  These standards, including the proforma effect of SFAS No.
123, were not material to the Company's financial statements.

   In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities.  This statement is required to be adopted by the Company in 1997
and only applies to the operations of L.J. Melody.  Under SFAS No. 125, the
Company will be required to recognize, at fair value, financial and servicing
assets it has acquired control over and related liabilities it has incurred and
amortize them over the period of estimated net servicing income or loss.  Write-
off of the asset is required when control is surrendered and of the liability
when extinguished.  The Company does not currently recognize the value of
financial and servicing assets when loans are originated.  The adoption of the
new statement will result in the recognition of amortization cost along with
income from servicing as services are performed and the recognition of gains or
losses at the time servicing rights are sold.  Management of the Company
believes that the adoption of this standard will not have a material impact on
the Company's financial position or results of operations.

   RECLASSIFICATIONS

   Certain reclassifications, which do not have an effect on net income, have
been made to the 1995 and 1994 financial statements to conform to the 1996
presentation.

                                       35
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996

3.      PROPERTY AND EQUIPMENT

   Property and equipment is stated at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
                                                      December 31,
                                                  ---------------------
                                                    1996        1995
                                                  ---------   ---------
<S>                                               <C>         <C>
   Land........................................   $ 11,946    $ 11,843
   Buildings and improvements..................     23,977      26,553
   Furniture and equipment.....................     36,672      35,828
   Equipment under capital leases..............      9,617       7,916
                                                  --------    --------
                                                    82,212      82,140
   Accumulated depreciation and amortization...    (41,377)    (37,640)
                                                  --------    --------

         Property and equipment, net...........   $ 40,835    $ 44,500
                                                  ========    ========
</TABLE>

   The Company capitalizes expenditures that materially increase the life of the
related assets and charges the cost of maintenance and repairs to expense.  Upon
sale or retirement, the capitalized costs and related accumulated depreciation
or amortization are eliminated from the respective accounts, and the resulting
gain or loss is included in operating income.

   Depreciation is computed primarily using the straight-line method over
estimated useful lives ranging from 3 to 45 years.  Leasehold improvements are
amortized over the term of the respective leases, excluding options to renew.
Equipment under capital leases is depreciated over the related term of the
leases.


4.  OTHER ASSETS

   Included in other assets at December 31, 1996, and 1995 are $2.7 million and
$1.7 million, respectively, of investments in limited partnerships managed for a
fee for institutional investors.  The Company has a 1.0% general partnership
interest in each of the limited partnerships which is accounted for under the
equity method.  Although the Company is the general partner of each limited
partnership, it does not have majority control over investment decisions in any
of the limited partnerships.  Management fee income from the partnerships was
approximately $7.6 million, $6.4 million and $4.8 million for the years ended
December 31, 1996, 1995, and 1994, respectively.  The limited partnerships'
total assets were approximately $363.8 million and $405.9 million and total
liabilities were approximately $72.6 million and $74.1 million as of December
31, 1996, and 1995, respectively.  The partnerships' net income (loss) for the
years ended December 31, 1996, 1995, and 1994 was approximately $11.7 million,
$24.2 million and $(18.3) million, respectively.

   The general partner capital contributions for four of the partnerships are in
the form of unsecured notes payable totaling approximately $2.9 million and $3.2
million at December 31, 1996, and 1995, respectively.  (See Note 6)

                                       36
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


   Also included in other assets are investments in four unconsolidated
commercial real estate broker subsidiaries as of December 31, 1996 and 1995:
25.0% interest in CB Commercial Real Estate Group Canada Inc.; 5.0% interest as
of December 31, 1996 reduced from a 40.0% interest in CB Comercial de Mexico,
S.A. de C.V. as of December 31, 1995; 19.0% interest in DTZ Leung Pte Ltd.; and
50.0% interest in CB Commercial/Hampshire L.L.C. Investments in and advances to
(from) unconsolidated subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>

                                                      December 31,
                                                    ----------------
                                                     1996     1995
                                                    ------   -------
<S>                                                 <C>      <C>

   CB Commercial Real Estate Group Canada Inc....   $1,743   $1,604
   CB Comercial de Mexico, S.A. de C.V...........        -     (294)
   DTZ Leung Pte Ltd.............................      210      210
   CB Commercial/Hampshire L.L.C.................       22       22
</TABLE>

   Equity interest in earnings (losses) of the unconsolidated subsidiaries of
$145,000, $180,000 and $(44,000) for the years ended December 31, 1996, 1995 and
1994, respectively, have been included in "Operating, administrative and other"
on the Consolidated Statements of Operations.

   In addition, included in other assets were notes receivable aggregating $2.2
million and $5.0 million at December 31, 1996, and 1995, respectively.  During
the second quarter of 1996, payment in full on a 9.0% note totaling $2.7 million
was received.  The remaining 9.5% note has been reclassified to current and is
secured by a first mortgage lien on hotel properties.  Unpaid principal is due
at maturity in July 1997.


5. EMPLOYEE BENEFIT PLANS

   OPTION PLANS.  One million shares of common stock have been reserved for
issuance under the CB Commercial Real Estate Services Group, Inc. 1990 Stock
Option Plan.  Options for 1,000,000 shares, at an exercise price of $10 per
share, were granted pursuant to the plan and vest over one to four year periods,
expiring at various dates through September 2001.  Recent options for 40,000
shares were granted at a $20.00 exercise price.  Options for 960,000 shares were
outstanding as of December 31, 1996.

   A total of 600,000 shares of Common Stock have been reserved for issuance
under the CB Commercial Real Estate Services Group, Inc. 1991 Service Providers
Stock Option Plan to enable the Company to pay certain service providers with
options to purchase shares of the Company's Common Stock instead of with cash.
In a prior year, below market options were granted to certain directors in
partial payment of director fees.  All options vested at grant date and expire
at various dates through November 2006.  During 1996 and 1995, options to
purchase 467 and 4,106 shares, respectively, of Common Stock were exercised.  In
November 1996, options to purchase 30,000 shares were granted to certain
directors at $20.00 per share and vest over a three-year period.  As of December
31, 1996 and 1995, options to purchase 66,140 and 36,607 shares of Common Stock
were outstanding at $258,750 and $262,500, respectively.

   A total of 90,750 shares of Common Stock have been reserved for issuance
under the L.J. Melody Acquisition Stock Option Plan, which was adopted by the
Board of Directors in September 1996 as part of the July 1996 acquisition of
L.J. Melody.  Options for all such shares have been issued at an exercise price
of $10.00 per share and vest over a period of five years at the rate of five
percent per quarter.  Options for 90,750 shares of Common Stock were outstanding
as of December 31, 1996.

                                       37
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


   STOCK PURCHASE PLAN.  The Company has a restricted stock purchase plan
covering certain key employees including senior management.  A total of 550,000
shares of Common Stock have been reserved for issuance under the 1996 Equity
Incentive Plan of CB Commercial Real Estate Services Group, Inc.  The shares may
be issued to senior executives for a purchase price equal to the greater of
$10.00 per share or fair market value.  The purchase price for shares under this
plan must be paid either in cash or by delivery of a full recourse promissory
note.  As of December 31, 1996, the Company has issued 510,906 shares of Common
Stock to certain key employees at $10.00 per share  The related promissory notes
are also included in stockholders' equity (deficit).

   BONUSES.  The Company has bonus programs covering certain key employees,
including senior management. Awards are based on the position and performance of
the employee and the achievement of pre-established financial, operating and
strategic objectives.  The amounts charged to expense for bonuses were $19.0
million, $10.2 million and $10.3 million for the years ended December 31, 1996,
1995, and 1994, respectively.

   CAPITAL ACCUMULATION PLAN (THE "CAP PLAN").  The Cap Plan is a defined
contribution profit sharing plan under Section 401(k) of the Internal Revenue
Code and is the Company's only such plan.  Under the Cap Plan, each
participating employee may elect to defer a portion of his or her earnings and
the Company may make additional contributions from the Company's current or
accumulated net profits to the Cap Plan in such amounts as determined by the
Board of Directors.  The Company expensed, in connection with the Cap Plan, $1.9
million, $1.0 million and $1.0 million for the years ended December 31, 1996,
1995, and 1994, respectively.  (See Note 8)

   DEFERRED COMPENSATION PLAN (THE "DCP").  In 1994, the Company implemented the
DCP.  Under the DCP, a select group of management and highly compensated
employees can defer the payment of all or a portion of their compensation
(including any bonus).  The DCP permits participating employees to make an
irrevocable election at the beginning of each year to receive amounts deferred
at a future date either in cash, which accrues at a rate of interest determined
in accordance with the DCP and is an unsecured long term liability of the
Company, or in newly issued shares of Common Stock of the Company which
elections are recorded as additions to Stockholders' Equity.  For the year ended
December 31, 1996, approximately $1.1 million (including interest) and $1.3
million has been deferred in cash and stock, respectively, all of which was
charged to expense in 1996.  The accumulated deferrals as of December 31, 1996,
were approximately $2.0 million in cash (including interest) and $2.9 million in
stock for a total of $4.9 million, all of which was charged to expense in the
period of deferral.

                                       38
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


6.      LONG-TERM DEBT

   Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                        -------------------
                                                                                          1996       1995
                                                                                        --------   --------
<S>                                                                                     <C>        <C>
   Senior Term Loans, with variable interest rates based on
     LIBOR plus 2.5% (8.15625% and 7.0% weighted average
     at December 31, 1996, and 1995, respectively)
     Senior Term Loan due in quarterly installments of $2.625
        million commencing March 31, 1997, with the
        remaining balance due December 31, 2001......................................   $ 37,415   $130,021
     Mortgage Term Loan due in full March 31, 1999...................................     18,000     18,340
   Westmark Senior Notes, with interest at 12.0%, $0.283 million due
     January 2, 1997, $5.482 million due June 30, 1998, with the
     remaining balance due June 30, 2000.............................................     19,771     20,283
   L.J. Melody Senior Notes, with interest at 10.0%, due in quarterly installments
     of $0.375 million with final payment due July 1, 1998...........................      2,625          -
   Senior Subordinated Term Loan, with variable interest rates based on
     LIBOR plus 0.25% through December 31, 1996, LIBOR plus 1.25%
     during 1997 and 1998, LIBOR plus 2.0% during 1999, LIBOR plus
     3.0% during 2000 and LIBOR plus 4.0% during subsequent periods
     (5.90625% and 6.0% at December 31, 1996, and 1995, respectively)
     due in full on July 23, 2002....................................................     65,872     67,896
   Westmark Senior Subordinated Loan, with interest at 11.0%, due
     in quarterly installments of $0.5 million with final payment due
     July 31, 2001...................................................................      9,000     11,067
   Inventoried Property Loan, secured by inventoried property,
     with interest at short-term commercial paper borrowing rate
     plus 3.5% (9.0% and 9.37% at December 31, 1996, and 1995,
     respectively) due in full April 30, 2000........................................      7,470      7,470
   Equipment Loan, secured by computer equipment with interest at the
     prime rate plus 0.5% (8.75% and 9.25% at December 31, 1996 and
     1995, respectively), due in full December 1, 1998...............................        164        164
   L.J. Melody Contingent Note, with interest at 10%, due in quarterly
     installments of $0.056 million with final payment due July 1, 2001..............        667          -
   Unsecured Notes Payable, with fixed interest ranging from 6.0% to
     13.0% and variable interest at the higher of the Applicable
     Federal Rate or Consumer Price Index plus 6.0% (Note 4).........................      2,859      3,151
                                                                                        --------   --------
          Total......................................................................    163,843    258,392
          Less current maturities....................................................     15,314      8,250
                                                                                        --------   --------

                                                                                        $148,529   $250,142
                                                                                        ========   ========
</TABLE>

   Annual aggregate maturities of long-term debt as of December 31, 1996 are as
follows  (in thousands): 1997 -$15,314; 1998 - $19,163; 1999 - $12,807; 2000 -
$34,198; 2001 - $14,582; and $67,779 thereafter.

   Of the net proceeds of the Offering, approximately $74.4 million was used to
repay a portion of the indebtedness under the Senior Secured Credit Agreement
and $5.0 million was used to pay accrued and unpaid interest on the indebtedness
outstanding under the Senior Subordinated Credit Agreement.

                                       39
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


   In connection with the Offering, the Company's senior secured lenders agreed
to amend the terms of the Senior Secured Credit Agreement.  As amended, the
senior indebtedness bears interest at the rate of LIBOR plus 2.5%, all of which
interest is payable currently, has a final maturity date of December 31, 2001
and provides for quarterly principal repayments of $2.625 million with a final
payment of $5.5 million on December 31, 2001.  (See Note 8)

   Also in connection with the Offering, the senior subordinated credit terms
were amended.  As amended, interest is payable on a current basis commencing
January 1, 1997.  The senior subordinated indebtedness bears interest at a rate
of LIBOR plus 1.25% from January 1, 1997 through December 31, 1998, at LIBOR
plus 2.0% during 1999, LIBOR plus 3.0% during 2000 and LIBOR plus 4.0% during
2001 and subsequent periods.  Interest in excess of LIBOR plus 1.25% would be
deferred and added to the principal balance of the senior subordinated
indebtedness until the final maturity of the senior subordinated indebtedness.
The senior subordinated indebtedness may be prepaid at any time without penalty
and is due in full on July 23, 2002.

   The Company has two Senior Revolving Credit Lines of $20.0 million and $10.0
million expiring in December 2001.  Commitment fees of 0.5% and 0.375%,
respectively, per annum are payable quarterly in arrears on the unused portion
of the lines.  The $10.0 million Senior Revolving Credit Line can be used to
fund acquisitions and bears interest at a rate equal to, at the Company's
option, LIBOR plus 300 basis points or the prime rate plus 200 basis points
payable quarterly.  Quarterly principal payments are required but may be
borrowed back in full until the line expires, at which time it must be repaid in
full.  As of December 31, 1996, there were no amounts outstanding under the
lines.  Up to $10.0 million of the Senior Revolving Credit Lines may be used to
secure letters of credit.  As of December 31, 1996, $3.4 million of letters of
credit have been issued.

   Borrowings under the Senior Secured Credit Agreement are secured by
substantially all of the personal and real property assets of the Company.
Collectively these loans are guaranteed by CB Commercial and all the common
stock of CB Commercial Real Estate Group, Inc. is pledged to secure the
guarantee.  Borrowings under the Senior Subordinated Credit Agreement are
secured by a second priority lien on the common stock of CB Commercial Real
Estate Group, Inc.

   The Senior Secured Credit Agreement contains numerous restrictive covenants
that, among other things, limit the Company's ability to incur or repay other
indebtedness, make advances or loans to subsidiaries and other entities, make
capital expenditures, incur liens, enter into mergers or effect other
fundamental corporate transactions, sell its assets, or declare dividends.  In
addition, the Company is required to meet certain ratios relating to its
adjusted net worth, level of indebtedness, fixed charges and interest coverage.
The Company is in compliance with all covenants as of December 31, 1996.

   See Note 1 for indebtedness regarding the Westmark, Langdon Reider and L.J.
Melody acquisitions.


7. COMMITMENTS AND CONTINGENCIES

   The Company is a party to a number of pending or threatened lawsuits arising
out of, or incident to, its ordinary course of business.  In August 1993, a
former commissioned salesperson of the Company filed a lawsuit against the
Company in the Superior Court of New Jersey, Bargain County, alleging gender
discrimination and wrongful termination by the Company.  On November 20, 1996 a
jury returned a verdict against the Company, awarding $6.5 million in general
and punitive damages  to the plaintiff.  The Company hired new counsel and in
January 1997 filed motions for new trial, reversal of the verdict and reduction
of damages.  On March 27, 1997 the trial court denied the Company's motions and
awarded the plaintiff $638,000 in attorneys' fees and costs. The Company has
been advised by appellate counsel that it has a meritorious basis to pursue an
appeal of the verdict, which the Company will do. Included in the Company's
December 31, 1996 financial statements is an accrual sufficient to reserve
against any probable outcome in the case. This accrual was initially established
at $250,000 in 1994 and increased to $800,000 in 1995 and represented the
Company's estimate of its loss exposure for this matter based on its assessment
and analysis as of those dates. Based on available cash and anticipated cash
flows, the Company believes that the ultimate outcome

                                       40
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


will not have an impact on the Company's ability to carry on its operations.
Management believes that any liability to the Company that may result from
disposition of these lawsuits will not have a material effect on the
consolidated financial position or results of operations of the Company.

   Future minimum rental commitments for noncancelable operating leases at
December 31, 1996, are as follows (in thousands):  1997 - $21,320; 1998 -
$19,726; 1999 - $17,244; 2000 - $14,657; 2001 - $11,360; and $23,960 thereafter.

   Future minimum lease commitments for noncancelable capital leases at December
31, 1996, are as follows (in thousands):  1997 - $2,809; 1998 - $1,145; 1999 -
$286; and $3 thereafter.  The interest portion of these payments totals $472.
Capital lease payments due within one year are classified as current
liabilities.

   Substantially all leases require the Company to pay maintenance costs,
insurance and property taxes, and generally may be renewed for five year
periods.  Total rental expense under noncancelable operating leases was $18.1
million, $22.5 million and $21.3 million for the years ended December 31, 1996,
1995, and 1994, respectively.


8.      STOCKHOLDERS' EQUITY

   Stockholders' equity by class of stock at December 31, 1996, and 1995 is as
follows:
<TABLE>
<CAPTION>

                         Votes        Shares      Original Purchase
                          per         Shares         Issued and       Price of Shares
                         Share      Authorized       Outstanding        Outstanding
                       ---------   ------------   -----------------   ---------------
<S>                    <C>         <C>            <C>                 <C>

December 31, 1996
--------------------

Preferred stock:
 Series A-1.........           2      1,000,000           1,000,000      $ 10,000,000
 Series A-2.........           1      2,000,000           2,000,000        20,000,000
 Series A-3.........           -      1,000,000           1,000,000        10,000,000
                                   ------------         -----------      ------------
                                      4,000,000           4,000,000      $ 40,000,000
                                   ============         ===========      ============

Common Stock.........           1    100,000,000          13,258,091      $168,427,149
                                   ============         ===========      ============


December 31, 1995
--------------------

Preferred stock:
 Series A-1..........          2      2,000,000           1,000,000      $ 10,000,000
 Series A-2..........          1      4,000,000           2,000,000        20,000,000
 Series A-3..........          -      2,000,000           1,000,000        10,000,000
                                   ------------         -----------      ------------
                                      8,000,000           4,000,000      $ 40,000,000
                                   ============         ===========      ============
Common stock:
 Class B-1..........          1      4,000,000           1,854,106      $ 18,532,892
 Class B-2..........          1     12,000,000           5,836,142        55,483,519
 Class C-1..........          -      1,600,000             800,000             8,000
 Class C-R..........          -      1,600,000             800,000             8,000
 Class J............          -              2                   2                 -
                                   ------------         -----------      ------------
                                     19,200,002           9,290,250      $ 74,032,411
                                   ============         ===========      ============
</TABLE>

                                       41
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


   On November 25, 1996 the Company provided liquidity to its common
stockholders by publicly registering its common stock and raised additional
capital in the Offering.  The Company issued 4,347,000 shares of common stock in
the Offering at $20.00 per share.  The proceeds from the Offering totalled $79.5
million, net of a $6.1 million underwriters' discount and $1.4 million in
estimated offering expenses, all of which has been recorded to equity.  The
proceeds were used to repay $74.4 million and $5.0 million of the Company's
senior secured and subordinated indebtedness, respectively.  The Company
recapitalized its various classes of stock in conjunction with the Offering. The
following summarizes the terms of the recapitalization:

 .  Class B-1 and B-2 common stock of the Company was converted into Common
   Stock on a one-for-one basis;

 .  Class C-1 common stock of the Company was converted into Common Stock at a
   conversion ratio based on the greater of the Offering price per share and
   $22.00, which resulted in the issuance of 436,362 shares of Common Stock;

 .  The Company acquired all issued and outstanding shares of the Class C-R and
   Class J common stock at $.01 per share;

 .  The Preferred Stock became convertible into Common Stock at the holder's
   option at a ratio based upon the per share market price of the Common Stock,
   ranging from .60 shares of Common Stock per share of Preferred Stock at a
   market price of $30.00 or more per share of Common Stock to .78 shares of
   Common Stock per share of Preferred Stock at a market price of $10.00 to
   $21.99 per share of Common Stock.  No conversion of the Preferred Stock is
   permitted when the market price of the Common Stock is below $10.00 per
   share.

   Effective October 1996, a $1.00 per share annual dividend on the Company's
Preferred Stock was reinstated. The $0.25 per share quarterly dividend on the
Company's Preferred Stock has accrued from October 1, 1996, and will result, if
and when paid, in a cash outlay of $1.0 million per quarter.  The Company
currently expects to pay dividends on the Preferred Stock out of working capital
generated from operating cash flow after it has completed its acquisition
program.  The Company has elected to defer payment of the accumulated dividend
and utilize available cash to finance future acquisitions.  As a consequence,
such dividends will accumulate and bear interest which will be paid on a
quarterly basis and the Company will be prohibited from voluntarily repaying
long-term debt until such accumulated dividend has been paid in full.  In the
event the preferred dividend is not declared and paid within one year after the
last day of the quarter to which it relates, it will bear annual interest
compounding at either (i) a fixed rate of 8% annually or (ii) an annual rate
equal to the six-month rate offered to The Sumitomo Bank, Limited in the London
interbank market, for amounts comparable to the amount of any unpaid dividend,
plus 2.5%.  As of December 31, 1996, dividends payable were $1,000,000.

   Extraordinary distributions to stockholders, if any, and any proceeds
available to stockholders from any sale of all or substantially all of the
Company's assets, or a merger or liquidation of the Company, will be applied
first to pay accumulated but unpaid preference dividends, should they exist, and
thereafter to the return of $10.00 per share to all stockholders on a pro rata
basis, regardless of class or series.  After payment in full of $10.00 per
share, additional distributions, if any, will be made on a share-for-share
basis, but each share of preferred stock will be counted as 60.0% of a share of
Common Stock.

   The Company's Class J common stock did not participate in any dividends or
liquidation proceeds and had no voting rights except for the nomination and
election of Class J Directors or as required by law.

   The Class C-1 and C-R common shares were non-voting (other than as required
by law) and upon liquidation had the right to share in the return of the first
$10.00 of capital to stockholders only to the extent of their par value of $.01
per share but participated fully in proceeds in excess of $10.00 per share and
in all dividends declared on common stock.

                                       42
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


   In 1996, the Company issued 4,347,000 shares of Common Stock in the Offering,
510,906 shares to certain key employees in connection with the 1996 Equity
Incentive Plan, 125,389 shares with a stated value of approximately $1.0 million
to the Cap Plan for the year ended December 31, 1995, 8,501 shares to sales
professionals who elected to receive a portion of their annual premium on
earnings payments in stock rather than cash, 129,216 shares in connection with
the DCP (including bonuses deferred in stock) and 10,467 shares in connection
with stock option plans. Additionally, the Company repurchased 800,000 shares of
Class C-R common stock and 2 shares of Class J common stock and converted
800,000 shares of Class C-1 shares to 436,362 shares of Common Stock.  In 1995,
the Company issued 159,432 shares of its Class B-2 common stock to the Cap Plan
in connection with the profit sharing contribution, 33,636 shares to sales
professionals who elected to receive a portion of their annual premium on
earnings payments in stock rather than cash and 162,839 shares in connection
with the DCP, for a total of 355,907 Class B-2 common shares issued in 1995.
(See Note 5)


9. INCOME TAXES

   The regular federal tax return loss carryforward is $184.3 million as of
December 31, 1996, expiring in the years 2005 through 2008 as follows:  $55.4
million--2005; $76.2 million--2006; $38.0 million--2007; and $14.7 million--
2008.  The unexpired loss carryforward for federal alternative tax purposes is
$177.0 million as of December 31, 1996 primarily due to depreciation
differences.  Use of the federal alternative tax loss carryforward is limited to
the lesser of 90.0% of the year's alternative minimum taxable income or the
remaining alternative minimum tax loss carryforward.  The current federal tax
includes alternative minimum tax paid, for which credit carryforwards are
available, totaling $0.8 million as of December 31, 1996.  Loss carryforwards
for state income tax purposes expire in various states beginning in 1996.

   The tax provision for the years ended December 31, 1996, 1995 and 1994
consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                              Year Ended December 31,
                                          -------------------------------
                                            1996        1995       1994
                                          ---------   --------   --------
<S>                                       <C>         <C>        <C>

Federal:
   Current.............................   $    730    $   503    $    47
   Deferred tax........................      9,522      1,231     (3,563)
   Reduction of valuation allowances...    (55,900)    (1,231)     3,563
                                          --------    -------    -------
                                           (45,648)       503         47
State:
   Current.............................        658        338        105
   Deferred............................        250        209       (773)
   Reduction of valuation allowances...          -       (209)       773
                                          --------    -------    -------
                                               908        338        105
                                          --------    -------    -------
                                          $(44,740)   $   841    $   152
                                          ========    =======    =======
</TABLE>

                                       43
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


   The following is a reconciliation, stated as a percentage of pre-tax income,
of the U.S. statutory federal income tax rate to the Company's effective tax
rate on income from operations:
<TABLE>
<CAPTION>

                                                    Year Ended December 31,
                                                   --------------------------
                                                     1996      1995     1994
                                                   --------   ------   ------
<S>                                                <C>        <C>      <C>

   Federal statutory tax rate...................        35%      34%      35%
   Permanent differences, including goodwill,
     meals and entertainment....................         5       14        9
   State taxes, net of federal benefit..........         4        3        6
   Utilization of previously unrecognized net
     operating losses...........................         -      (41)     (48)
   Reduction of valuation allowances............      (217)       -        -
                                                     -----     ----     ----

   Effective tax rate...........................     (173)%      10%       2%
                                                     =====     ====     ====
</TABLE>

   Beginning in 1992, the Company implemented SFAS No. 109, the modified
liability method of accounting for income taxes.  Until the third quarter of
1996, the resulting net deferred tax asset had been fully reserved except for
utilization against earnings as realized.  Such asset was being recognized to
the extent of the tax effect of current taxable earnings.  Cumulative tax
effects of temporary differences are shown below as of December 31, 1996, and
1995 (in thousands):
<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                                                     -------------------------
                                                                         1996          1995
                                                                     ------------   ----------
<S>                                                                  <C>            <C>
   Asset (Liability)
   ----------------
   Property and equipment.........................................      $  1,952     $  1,289
   Reserves for bad debts, building write down,
     legal expenses...............................................         6,386        3,860
   Intangible amortization........................................         1,060        1,213
   Bonus, unexercised restricted stock, deferred
     compensation.................................................         2,907        1,901
   Partnership income.............................................           584          608
   Debt modification..............................................         1,871        1,549
   Net operating loss and alternative minimum tax carryforwards...        65,257       77,600
                                                                        --------     --------

     Total deferred tax assets....................................        80,017       88,020

   Unconsolidated affiliates......................................          (218)        (218)
   Acquisitions...................................................        (1,435)           -
   All other, net.................................................          (582)        (273)
                                                                        --------     --------
     Total deferred tax liabilities...............................        (2,235)        (491)
                                                                        --------     --------
   Net deferred tax asset before valuation allowances.............        77,782       87,529
   Valuation allowances...........................................       (26,379)     (87,529)
                                                                        --------     --------
     Net deferred tax asset.......................................      $ 51,403     $      -
                                                                        ========     ========
</TABLE>

                                       44
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


   Management evaluates the appropriateness of all or part of these valuation
allowances on a periodic basis and if the Company concludes there is a change
with respect to realizability, any necessary adjustments are made at that time.
As of September 30, 1996, the Company had experienced continuing profitability
due to a variety of reasons, including the strength of the commercial real
estate markets.  In addition, the Company had operated Westmark for one full
year since acquiring Westmark in June 1995, and as a result had concluded that
Westmark should make a positive contribution to the Company's consolidated
taxable income.  Finally, the acquisition of L.J. Melody in July 1996 is
expected to make a positive contribution to the Company's consolidated taxable
income.  As a result of these factors, during the third quarter of 1996, the
Company projected, on a more likely than not basis, that a portion of its NOL
would be realizable in future periods and, accordingly, reduced its existing
deferred tax asset valuation allowances by $45.7 million of which $5.3 million
has been allocated to the purchase price of L.J. Melody based on its estimated
future potential to generate taxable income, and the remaining $40.4 million has
been recorded as a tax benefit (a reduction in income tax provision). During the
fourth quarter of 1996, the Company further reduced its deferred tax asset
valuation allowances by $15.5 million based on its ability to generate
additional taxable income in the future through interest savings resulting from
the paydown of part of its senior secured and senior subordinated debt with
proceeds from the Offering.  This reduction has also been recorded as a tax
benefit resulting in a cumulative year-to-date tax benefit of $55.9 million.
With the recognition of deferred tax assets, the future period provisions for
income tax will be recorded at the full effective tax rate excluding the impact
of other adjustments, if any, to valuation allowances.  For the year ended
December 31, 1996, an $11.2 million provision for income taxes has been recorded
without regard to the income tax benefit resulting from the reduction of the
valuation allowance.  Net income for the year ended December 31, 1996 was $70.5
million, which includes the current year provision of $11.2 million offset by
the cumulative year-to-date tax benefit of $55.9 million or a net benefit for
income tax of $44.7 million.

   The ability of the Company to utilize NOLs may also be limited in the future
if an "ownership change" within the meaning of Section 382 of the Internal
Revenue Code of 1986, as amended, were deemed to occur.  Such an ownership
change may be deemed to occur if the Company engages in certain transactions
involving the issuance of shares of Common Stock, including the issuance of
shares of Common Stock in connection with an acquisition or otherwise or by
reason of a sale of capital stock by an existing shareholder.  If an ownership
change were to occur, Section 382 would impose an annual limit on the amount of
NOLs the Company could utilize.  The Offering and Recapitalization did not
result in an ownership change.  An ownership change may not be within the
control of the Company, however, and therefore there is no assurance that an
ownership change will not occur in the future.  The availability of NOLs is, in
any event, subject to uncertainty since their validity is not reviewed by the
Internal Revenue Service until such time as they are utilized to offset income.


10.  FIDUCIARY FUNDS

   The consolidated balance sheets do not include the net assets of escrow,
agency and fiduciary funds, which amounted to $96.7 million and $28.4 million at
December 31, 1996, and 1995, respectively.


11.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

   NOTES RECEIVABLE.  The Company has determined that it is not practicable to
estimate the fair value of the notes receivable due to the cost involved in
developing the information as such notes are not publicly traded.

   LONG-TERM DEBT.  The Senior Term Loans, the Senior Subordinated Term Loan,
the Senior Revolving Credit Lines, the Westmark and Melody Senior Notes, the
Westmark Senior Subordinated Loan, and the Melody Contingent Note, including
their respective maturities, are discussed in Note 6.  Estimated fair values for
these liabilities are not presented because the Company believes that the unique
circumstances that include the Company's leverage, the terms of its loans, the
timing of the interest and principal payments, the relative priorities of the
senior and subordinated indebtedness and other terms and conditions associated
with these loans require the expertise of an investment banker

                                       45
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


to determine the fair values.  The Company does not consider it practicable to
incur the excessive costs to engage an investment banker to perform a fair value
analysis of these liabilities.

   The effective interest rates associated with these loans at December 31, 1996
were not materially different from the stated value.

   The fair value of the Inventoried Property Loan discussed in Note 6 is not
materially different from the carrying value of the debt.

   The Unsecured Notes Payable discussed in Note 6, which represent the
Company's share of unfunded equity participation, are not considered financial
instruments.

                                       46
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


12.  INDUSTRY SEGMENTS

   The Company operates in two business segments--Property and User Services and
Investor Services.  Property and User Services including brokerage (facilitating
sales and leases), investment properties (acquisitions and sales on behalf of
investors), corporate services, property management and real estate market
research.  Investor Services includes mortgage banking (loan origination and
servicing), investment management and advisory services, and valuation and
appraisal services.
<TABLE>
<CAPTION>

                                                 Year Ended December 31,
                                              ------------------------------
                                                1996       1995       1994
                                              --------   --------   --------
                                                  (Dollars in thousands)
<S>                                           <C>        <C>        <C>
Revenue
   Property and User Services..............   $513,071   $422,833   $400,250
   Investor Services.......................     69,997     45,627     28,738
                                              --------   --------   --------
                                              $583,068   $468,460   $428,988
                                              ========   ========   ========

Operating income
   Property and User Services..............   $ 40,102   $ 26,142   $ 25,118
   Investor Services.......................      8,327      3,701        460
                                              --------   --------   --------
                                                48,429     29,843     25,578
Interest income............................      1,503      1,674      1,109
Interest expense...........................     24,123     23,267     17,362
                                              --------   --------   --------
Income before provision for income taxes...   $ 25,809   $  8,250   $  9,325
                                              ========   ========   ========

Depreciation and amortization
   Property and User Services..............   $  9,142   $  8,889   $  7,485
   Investor Services.......................      4,432      2,742        606
                                              --------   --------   --------
                                              $ 13,574   $ 11,631   $  8,091
                                              ========   ========   ========

Capital expenditures (purchases)
   Property and User Services..............   $  2,784   $  1,987   $  3,984
   Investor Services.......................        218        156        266
                                              --------   --------   --------
                                              $  3,002   $  2,143   $  4,250
                                              ========   ========   ========

                                                          As of December 31,
                                                         -------------------
                                                           1996       1995
                                                         --------   --------
Identifiable assets
   Property and User Services..............              $ 88,116   $ 85,182
   Investor Services.......................                73,971     58,800
   Corporate...............................               116,857     46,972
                                                         --------   --------
                                                         $278,944   $190,954
                                                         ========   ========
</TABLE>

   Identifiable assets by industry segment are those assets used in the Company
operations in each segment. Corporate identified assets are principally made up
of cash and cash equivalents, inventoried property, general prepaids and
deferred taxes.

                                       47
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                               DECEMBER 31, 1996


13.  SUBSEQUENT EVENT

   On March 18, 1997 the Company announced that it had signed a non-binding
letter of intent to merge with Koll Real Estate Services, Inc. ("Koll") in a
tax-free reorganization to be accounted for as a purchase.  The Company has
agreed to issue 0.85 shares of its common stock for each share of Koll common
stock, which will result in the issuance of approximately 6.0 million shares.
The merger is subject to execution of a definitive agreement and the approval of
stockholders of both companies as well as regulatory approval.

                                       48
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

         SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            (Dollars in thousands)
<TABLE>
<CAPTION>


                                                                                     December 31,
                                                                                    --------------
                                                                                   1996       1995
                                                                                 --------   ---------
<S>                                                                              <C>        <C>
BALANCE SHEET
-------------

Advances to CB Commercial Real Estate Group, Inc.............                    $124,274    $ 42,918
Investment in CB Commercial Real Estate Group, Inc. and
 subsidiaries................................................                      62,124      62,124
                                                                                 --------    --------
   Total assets..............................................                    $186,398    $105,042
                                                                                 ========    ========
Dividends Payable............................................                    $  1,000           -
Stockholders' Equity.........................................                     185,398     105,042
                                                                                 --------    --------
   Total Liabilities and Stockholders' Equity................                    $186,398    $105,042
                                                                                 ========    ========

</TABLE>
<TABLE>
<CAPTION>

                                                                          Year Ended December 31,
                                                                    ---------------------------------
                                                                        1996         1995        1994
                                                                    --------    ---------    --------
<S>                                                                 <C>          <C>         <C>
INCOME STATEMENT
----------------

Expenses - other.............................................       $      -        $  39       $ (45)
Provision for income tax.....................................            735           51           -
                                                                    --------    ---------    --------
   Net income (loss).........................................       $   (735)       $ (90)      $  45
                                                                    ========    =========    ========
</TABLE>

<TABLE>
<CAPTION>


                                                                                 Year Ended December 31,
                                                                         --------------------------------------
                                                                             1996         1995         1994
                                                                         --------    ---------    -------------
<S>                                                                      <C>         <C>          <C>
STATEMENT OF CASH FLOWS
-----------------------

Net income (loss)............................................            $   (735)       $ (90)           $  45
Adjustments to reconcile net income (loss) to
   net cash used in operating activities.....................                   -            -                -
              Advances to CB Commercial......................                 735           90              (45)
                                                                         --------    ---------    -------------
     Net cash provided by operating activities...............                   -            -                -

Cash flows from investing activities.........................                   -            -                -

Cash flows from financing activities.........................                   -            -                -

Net change in cash and cash equivalents......................                   -            -                -

Cash and cash equivalents, at beginning of period............                   -            -                -
                                                                         --------    ---------    -------------
Cash and cash equivalents, at end of period..................            $      -        $   -            $   -
                                                                         ========    =========    =============
</TABLE>

NOTES TO CONDENSED FINANCIAL INFORMATION
----------------------------------------

Note 1 -  In connection with the Acquisition, the Company, together with all
------
          other CB Commercial subsidiaries, has guaranteed any and all
          obligations of CB Commercial Real Estate Group, Inc.

                                       49
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

               SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
                            (Dollars in thousands)
<TABLE>
<CAPTION>


                                Reserve for    Allowance
                                  Employee      for Bad      Legal
                                   Loans         Debts      Reserve
                                ------------   ----------   --------
<S>                             <C>            <C>          <C>
Balance, December 31, 1993...        $1,768      $ 4,538    $ 2,609
   Charges to expense........             -        1,096      1,250
   Write-offs................           (23)      (1,090)      (404)
                                     ------      -------    -------

Balance, December 31, 1994...         1,745        4,544      3,455
   Charges to expense........             -          346          -
   Write-offs................          (210)        (490)         -
                                     ------      -------    -------

Balance, December 31, 1995...        $1,535      $ 4,400    $ 3,455
   Charges to expense........           600        1,257      7,686
   Write-offs................          (425)      (1,234)    (1,820)
                                     ------      -------    -------

Balance, December 31, 1996...        $1,710      $ 4,423    $ 9,321
                                     ======      =======    =======

</TABLE>

                                       50
<PAGE>

        CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. AND SUBSIDIARIES

                EXHIBIT XI - COMPUTATION OF EARNINGS PER SHARE
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                 (Dollars in thousands except per share data)
<TABLE>
<CAPTION>


                                                                  1996          1995          1994
                                                              ------------   -----------   -----------
<S>                                                           <C>            <C>           <C>
PRIMARY EARNINGS PER SHARE
--------------------------
Applicable to common shares:
 Net income................................................   $    70,549    $     7,409   $     9,173
   Preferred dividends.....................................        (1,000)             -             -
                                                              -----------    -----------   -----------

   Net income applicable to common stock...................   $    69,549    $     7,409   $     9,173
                                                              ===========    ===========   ===========

Weighted average common stock outstanding at end of
 period....................................................    13,595,820     13,128,296    12,892,839
Weighted average common stock equivalents outstanding
 at end of period..........................................        61,443         40,679        40,713
Issuance of promotional shares.............................       188,062        371,566       371,566

Weighted average shares outstanding for primary earnings
 per share.................................................    13,845,325     13,540,541    13,305,118
                                                              ===========    ===========   ===========

   Primary earnings per share..............................         $5.02          $0.55   $      0.69
                                                              ===========    ===========   ===========

FULLY DILUTED EARNINGS PER SHARE
--------------------------------
Net income.................................................   $    70,549    $     7,409   $     9,173
                                                              ===========    ===========   ===========

Weighted average common stock outstanding at end
 of period.................................................    13,595,820     13,128,296    12,892,839
Weighted average common stock equivalents outstanding
 at end of period..........................................       119,103         40,679        40,713
Issuance of promotional shares.............................       188,062        371,566       371,566
Effect of assumed conversions and exercises
 Dilutive effect of assumed conversion of preferred
   stock (a)...............................................       281,311              -             -
                                                              -----------    -----------   -----------

Weighted average shares outstanding for fully diluted
 earnings per share........................................    14,184,296     13,540,541    13,305,118
                                                              ===========    ===========   ===========

   Fully diluted earnings per share........................         $4.97          $0.55   $      0.69
                                                              ===========    ===========   ===========
</TABLE>

   (a) Convertible securities are not considered in the calculations if the
   effect of the conversion is anti-dilutive.

                                       51
<PAGE>

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


  None


                                   PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

  The following is a description of the positions with the Company presently
held by and the business experience for the past five years for each Director of
the Company.

  Stanton D. Anderson, age 56.  Mr. Anderson has been a Director of the Company
since 1989.  In 1995, he became counsel to the law firm of McDermott, Will &
Emery.  Prior to 1995, Mr. Anderson was founding partner in the law firm of
Anderson, Hibey & Blair.  He is also a founder of Global USA, Inc., an
international consulting company, where he serves as Chairman.  He served as
Deputy Director of the Republican Convention in 1980, 1984 and 1988, as counsel
to the Reagan-Bush Campaign in 1980 and as a Director of the 1980 Presidential
Transition.  Mr. Anderson serves on the Board of Directors of International
Management & Development Group, Ltd.  Mr. Anderson holds a B.A. degree from
Westmont College and a J.D. degree from Willamette University School of Law.

  Gary J. Beban, age 50.  Mr. Beban has been the President of the Company since
May 1995 and a Director since 1989.  He joined the Company's Los Angeles office
in 1970 as an industrial and investment properties specialist and thereafter
served in several management positions in Chicago.  Mr. Beban has also been the
President of CB Commercial Brokerage Services since 1987.  He is a member of the
Industrial Development Research Council and the National Realty Committee.  Mr.
Beban serves on the Board of Directors of The First American Financial
Corporation and its wholly-owned subsidiary, First American Title Insurance,
Inc.  Mr. Beban holds a B.A. degree from the University of California, Los
Angeles.

  Richard C. Blum, age 61.  Mr. Blum has been a Director of the Company since
1993.  He is the Chairman and President of Richard C. Blum & Associates, Inc., a
merchant banking firm he founded in 1975.  Mr. Blum is a member of the Board of
Directors of National Education Corporation; Sumitomo Bank of California;
Northwest Airlines Corporation; and URS Corporation.  Mr. Blum also serves as
Vice Chairman of URS Corporation.  Mr. Blum holds a B.A. from the University of
California, Berkeley, a graduate degree from the University of Vienna and an
M.B.A. degree from the University of California, Berkeley.

  Richard C. Clotfelter, age 59.  Mr. Clotfelter was elected Chairman and
President, Westmark Realty Advisors, an indirect wholly-owned subsidiary of the
Company, in 1995, and has been a Director of the Company since 1993.  Mr.
Clotfelter joined the Company in 1993 as President-Capital Markets, Asset
Valuation and Management Activities.  From April 1977 through January 1993, he
was President of Prescott, Inc., a real estate development and management
company.  Mr. Clotfelter is on the Board of Directors of The Commerce
Bancorporation.  Mr. Clotfelter is also a member of the Urban Land Institute,
serving on its Urban Development/Mixed Used Council. Mr. Clotfelter holds a B.A.
degree from Stanford University.

  Daniel A. D'Aniello, age 50.  Mr. D'Aniello has been a Director of the Company
since 1989.  He has served as Managing Director of The Carlyle Group, a merchant
banking firm, since May 1987.  From August 1986 through April 1987, Mr.
D'Aniello was Vice President-Finance and Development of Marriott Inflite
Services, Inc., a subsidiary of Marriott Corp.  Mr. D'Aniello is Chairman of the
Board of Directors of GTS Duratek, Inc. and also serves on the Board of
Directors of International Technology Corporation.  Mr. D'Aniello holds a B.S.
degree from Syracuse University and an M.B.A. from the Harvard University
Graduate School of Business.

  James J. Didion, age 57.  Mr. Didion has been Chairman and Chief Executive
Officer of CB Commercial since January 1987 and a Director since the Company's
incorporation.  Previously, he served as President of CB

                                       52
<PAGE>

Commercial Real Estate Group, Inc. following a career of almost 24 years in
sales and management positions in the commercial brokerage operations of CB
Commercial Real Estate Group, Inc.  Mr. Didion is a member and current trustee
of the Urban Land Institute.  He is also a member of the National Realty
Committee and was Chairman of the National Realty Committee from 1993 through
1996.  Mr. Didion holds an A.B. degree from the University of California,
Berkeley and serves on the University's Advisory Board for the Haas School of
Business.

  Hiroaki Hoshino, age 55.  Mr. Hoshino has been a Director of the Company since
1992.  Previously, he served as Senior Vice President, Treasurer and Chief
Financial Officer of Kajima International, Inc. from April 1987 to March 1990
and as Senior Vice President and Chief Financial Officer of that company from
April 1990 to March 1991.  From April 1991 to March 1993, he served as Executive
Vice President and Chief Financial Officer of Kajima International Inc.  Since
April 1991, he has served as the Chief Financial Officer and since April 1993 he
has been Executive Vice President and Chief Financial Officer of Kajima U.S.A.,
Inc.  From September 1992 to April 1996, he was Executive Vice President, Chief
Financial Officer and Director of Kajima Capital of America, Inc.  Since April
1996 he has been President, Chief Executive Officer and Chief Financial Officer
of Kajima Capital of America, Inc.  Mr. Hoshino holds a B.A. degree from
Gakushuin University.

  George J. Kallis, age 54.  Mr. Kallis has been the Company's Senior Executive
Vice President-Brokerage Western U.S. since 1992 and a Director of the Company
since 1995.  Prior to that time, he served as Executive Vice President from 1991
to 1992 and as Senior Vice President and Regional Manager-Brokerage from 1988 to
1991.  Mr. Kallis joined the Company in 1977.  Mr. Kallis is a member of the
International Council of Shopping Centers and the Urban Land Institute and is on
the Board of Directors of the Los Angeles County Economic Development Council.
Mr. Kallis holds a B.S. degree in Business Administration from the University of
Maryland.

  Takayuki Kohri, age 45.  Mr. Kohri has been a Director of the Company since
1989.  Previously, he was Assistant Manager of Sumitomo Real Estate Sales in
Japan from 1984 to August 1988.  From August 1988 to July 1993, he was an
Executive Vice President of Sumitomo Real Estate Sales L.A., Inc. Since July
1993, he has been Deputy Manager of Sumitomo Real Estate Sales Japan, a real
estate sales and development firm.  Mr. Kohri holds a B.A. degree in Economics
from Keio University.

  Paul C. Leach, age 51.  Mr. Leach has been a Director of the Company since
August 1996.  Since its founding in 1991, Mr. Leach has served as president of
Paul Leach & Company, a private investment banking firm in San Francisco that
specializes in international and domestic acquisitions and investments.  He has
been Managing Director of The Lone Cypress Company, the owner of Pebble Beach
Company, since 1992 and Managing Director of Rancho Cielo Company, a developer
in Rancho Santa Fe, California, since 1993.  From 1988 through 1991, Mr. Leach
was a senior manager and partner in the international merger and acquisition
group at Deloitte & Touche.  Prior to 1988, he held several positions in San
Francisco, including serving as a partner with both Osterweis Capital Management
and Centennial Petroleum Company and manager of corporate development for
Natomas Company.  From 1975 through 1977, Mr. Leach served as associate director
of the Domestic Council Staff at the White House during the Ford Administration.
Mr. Leach holds an A.B. degree from Dartmouth College and M.B.A. and J.D.
degrees from Stanford Graduate School of Business and Stanford Law School,
respectively.

  Frederic V. Malek, age 60.  Mr. Malek has been a Director of the Company since
1989.  He has served as Chairman of Thayer Capital Partners, a merchant banking
firm he founded, since 1993.  He was President of Marriott Hotels and Resorts
from 1981 through 1988 and was Executive Vice President of Marriott Corp. from
1978 through 1988.  He was Senior Advisor to The Carlyle Group, a merchant
banking firm, from November 1988 through December 1991.  From September 1989
through June 1990, he was President of Northwest Airlines and from June 1990
until December 1991 he served as Vice Chairman of Northwest Airlines.  From
December 1991 through November 1992, Mr. Malek served as Campaign Manager for
the 1992 Bush/Quayle presidential campaign.  He also serves on the Board of
Directors of American Management Systems, Inc.; Automatic Data Processing Corp.;
Choice Hotels International, Inc.; FPL Group, Inc.; Manor Care, Inc.; National
Educational Corp.; Northwest Airlines Corporation; and Paine Webber Funds.  Mr.
Malek holds a B.S. degree from the United States Military Academy at West Point
and an M.B.A. degree from the Harvard University Graduate School of Business.

  Lawrence J. Melody, age 59.  Mr. Melody has served as a Director since August
1996.  He is also President of L.J. Melody & Company, an indirect wholly-owned
subsidiary of the Company since July 1996, which he founded in February 1978.
He is a member of the International Council of Shopping Centers, the Urban Land
Institute (a member of the Multifamily Council), the Pension Real Estate
Association, the National Association of

                                       53
<PAGE>

Industrial and Office Parks, the National Multi Housing Council, as well as
other professional organizations.  He is a member of the Board of Governors of
the Mortgage Bankers Association of America and past President and Director of
the Texas Mortgage Bankers Association, which awarded him their Distinguished
Service Award in 1995.  Mr. Melody holds a B.A. degree from the University of
Notre Dame.

  Jeffrey S. Morgan, age 42.  Mr. Morgan has been a Senior Vice President of the
Company since 1991 and a Director of the Company since 1995.  He joined the
Company in 1978 and is a specialist in industrial properties.  He has been named
to the Company's Colbert Coldwell Circle (representing the top three percent of
the Company's sales force) for five of the last ten years.  In 1994 he was
awarded the William H. McCarthy Award, the highest honor awarded producing
professionals within the Company.  Mr. Morgan holds a B.S. degree in Marketing
from California State University (Northridge).

  Peter V. Ueberroth, age 59.  Mr. Ueberroth has been a Director of the Company
since 1989.  Since 1989, he has been an investor and Managing Director of
Contrarian Group, Inc., a business management company.  From 1984 through 1989,
he was the Commissioner of Major League Baseball in the United States.  Mr.
Ueberroth is a member of the Board of Directors of The Coca Cola Company;
Ambassadors International, Inc.; Candlewood Hotel Company, Inc.; Doubletree
Hotels Corp; and Transamerica Corporation.

  Gary L. Wilson, age 57.  Mr. Wilson has been a Director of the Company since
1989.  Since 1991, he has been Co-Chairman of Northwest Airlines, Inc.,
Northwest Airlines Corporation and NWA, Inc.  From 1985 until January 1990, Mr.
Wilson was an Executive Vice President and Chief Financial Officer and Director
for The Walt Disney Company and remains a Director of The Walt Disney Company.
Mr. Wilson also serves on the Board of Directors of On Command Corporation and
Veritas Holdings GmbH.  From 1974 until 1985, he was Executive Vice President
and Chief Financial Officer of Marriott Corporation.  Mr. Wilson holds a B.A.
degree from Duke University and an M.B.A. from the Wharton Graduate School of
Business and Commerce at the University of Pennsylvania.

  Frank C. Carlucci and Richard A. Pogue have resigned as directors of the
Company.

EXECUTIVE OFFICERS

  The following persons are executive officers in addition to the executive
officers included above under "Directors."  All executive officers hold their
office at the pleasure of the Board of Directors.

  David A. Davidson, age 62.  Mr. Davidson has been Senior Executive Vice
President, Chief Financial Officer and Treasurer of the Company since November
1992.  Mr. Davidson has announced his plans to retire and will leave the Company
after a transition period following the employment of the Company's new chief
financial officer.  From February 1991 to November 1992, he served as Executive
Vice President and from July 1990 to February 1991 was Senior Vice President.
Mr. Davidson joined the Company as Vice President, Treasurer and Assistant
Secretary in June 1989.  During 1987 and 1988 he was Executive Vice President
and Chief Operating Officer of Nationwide Health Properties, a real estate
investment trust.  Subsequently, he served as Executive Vice President of
Corporation Operations and Chief Financial Officer for Voluntary Hospitals of
America, an alliance of not-for-profit hospitals located in Dallas, Texas.  From
1981 to 1987, Mr. Davidson was Vice President, Treasurer of Beverly Enterprises,
a provider of health care services.  Mr. Davidson holds a B.S. degree and a
Masters of Accountancy degree from Brigham Young University.

  Thaddeus W. Jones, age 54.  Mr. Jones has been Senior Executive Vice President
of the Company and Senior Executive Director of CBC/Madison Advisory Group since
1994, after having served as Executive Director-CBC/Madison Advisory Group from
1992 to 1994.  From 1986 to 1992, Mr. Jones was President of CB Commercial
Realty Advisors and from 1984 to 1986 he was a Senior Vice President, after
having served in various management positions in the Company's brokerage
business.  Mr. Jones rejoined CB Commercial in 1982 after leaving in 1979.  Mr.
Jones holds a B.S. degree from the University of California, Los Angeles.

  Charles O. McBride, age 55.  Mr. McBride has been Senior Executive Vice
President of the Company and Chief Operating Officer-Property Management
Services since April 1991.  He joined the Company in 1989 as Executive Vice
President/Chief Operating Officer-Property Management Services.  Mr. McBride was
a senior

                                       54
<PAGE>

officer with PM Realty Corp, a national real estate management and services
company, from 1971 to 1989, serving as Executive Vice President from 1981 to
1989.  Mr. McBride holds a B.A. degree from the University of Texas.

  Ronald J. Platisha, age 50.  Mr. Platisha has been the Company's Executive
Vice President and Principal Accounting Officer since 1992.  Mr. Platisha was
promoted to Senior Vice President in 1991, after service as First Vice President
and Controller from 1982 to 1991.  Mr. Platisha joined the Company in 1976.  Mr.
Platisha holds a B.S. degree from California State University (Long Beach).

  Kenneth D. Sandstad, age 50.  Mr. Sandstad has been the Company's Senior
Executive Vice President-Brokerage Eastern U.S. since 1991.  He has also held
the following positions with the Company:  Institutional Services Manager from
1994 to 1996, Division Manager (Central Division) from 1990 to 1994 and Regional
Manager (South Central) from 1985 to 1990.  Mr. Sandstad was also a Director of
the Company from 1992 to 1994.  Mr. Sandstad joined the Company in 1974,
beginning at the Minneapolis office in the brokerage division.  He holds a B.S.
degree from St. Olaf College and a J.D. degree from the University of Minnesota.

  Walter V. Stafford, age 56.  Mr. Stafford has served as Senior Executive Vice
President and General Counsel of the Company since 1995.  Mr. Stafford was a
partner at the law firm Pillsbury Madison & Sutro LLP from 1988 to 1995 and from
1973 to 1982.  From 1982 to 1988 he was Senior Vice President and General
Counsel at Diasonics, Inc., a medical device manufacturer, and from 1982 to 1994
he was a director of that company.  Mr. Stafford holds a B.A. degree from the
University of California, Berkeley and an L.L.B. degree from Boalt Hall.

  John L. Stanfill, age 55.  Mr. Stanfill is President of CB Commercial
Investment Properties.  Previously, he was Managing Director-Special
Investments, a position he was appointed to when he rejoined the Company in 1990
after founding a real estate investment banking firm in 1979.  From 1976 to
1979, Mr. Stanfill served as Vice President of Investment Marketing of the
Company.  He originally joined the Company in 1971.  Mr. Stanfill holds a B.A.
in English Literature from the University of California, Los Angeles.

  On April 1, 1997, John C. Haeckel, 38, will join the Company as Chief
Financial Officer and Senior Executive Vice President.  Since 1996, Mr. Haeckel
has been President of Perdix Group, LLC, a management consulting firm that he
founded.  From 1993 to 1995, he was Chief Financial Officer and from 1994 to
1995 he was Executive Vice President of Broadway Stores, Inc.  From 1987 to 1994
he was a General Partner and from 1984 to 1986 he was an Associate with Chilmark
Partners, a merchant banking firm.  Mr. Haeckel holds a B.A. degree and a
Masters of Business and Public Management degree from Rice University.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

  Section 16(a) of the Securities Exchange Act of 1934 and the regulations of
the Securities and Exchange Commission (the "Commission") thereunder require the
Company's executive officers and directors to file reports of ownership and
changes in ownership of the Company's securities with the Commission and to
furnish the Company with copies of all such reports they file.  Based on its
review of such reports received by it and written representations from certain
reporting persons, the Company believes that during 1996 all filing requirements
applicable to its executive officers and directors were met except as follows.
A Statement of Changes in Beneficial Ownership on Form 4 reporting a transfer of
shares of the Company's Common Stock by Mr. Kallis to his former spouse was
inadvertently filed late.

                                       55
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table sets forth information concerning the compensation of
the Company's chief executive officer and the Company's four most highly
compensated executive officers for the three years ended December 31, 1996.
<TABLE>
<CAPTION>

                                                            Annual Compensation                     Long Term Compensation
                                                    ------------------------------------   -----------------------------------------

                                                                                Other                      Securities
                                                                                Annual      Restricted     Underlying    All Other
                                                                               Compen-         Stock         Stock        Compen-
Name and Principal Position              Year        Salary      Bonus(1)     sation(2)       Awards        Options      sation(3)
----------------------------------   ------------   ---------   -----------   ----------   -------------   ----------   ------------

<S>                                  <C>            <C>         <C>           <C>          <C>             <C>          <C>
James J. Didion                           1996      $400,000      $574,678      $   ---             (4)           ---      $1,262
Chairman of the Board                     1995       390,000       279,160       51,212             ---           ---       1,520
and Chief Executive Officer               1994       390,000       300,000       82,005             ---           ---       1,105


Gary J. Beban                             1996      $325,000      $503,156          ---             (4)           ---       1,262
President                                 1995       300,000       190,527          ---             ---           ---       1,520
                                          1994       300,000       236,118          ---             ---        10,000         273

Walter V. Stafford                        1996      $300,000      $359,798          ---             (4)           ---         ---
Senior Executive Vice                     1995(5)    114,646       116,998          ---         167,000(6)        ---         ---
President and General Counsel             1994           ---           ---          ---             ---           ---         ---

Thaddeus W. Jones                         1996      $210,000      $309,826          ---             ---           ---         ---
Senior Executive Vice President           1995       210,000       173,079          ---             ---           ---         ---
 Senior Executive Director-               1994       210,000       177,259          ---             ---        20,000         ---
CBC/Madison Advisory Group

George J. Kallis                          1996      $200,000      $294,835          ---              (4)          ---         567
Senior Executive Vice                     1995       200,000       153,538        8,770              ---          ---         ---
President--Brokerage                      1994       200,000       177,944       10,129           32,500(6)       ---         747

</TABLE>

________________________

(1)  Bonus for each year is paid in the first quarter of the following year.
Pursuant to the Company's Deferred Compensation Plan, Mr. Didion elected to
defer his entire bonuses in 1994, 1995 and 1996, Mr. Stafford elected to defer a
substantial portion of his bonuses in 1995 and 1996, and Mr. Kallis elected to
defer all or a substantial portion of his bonuses in 1994, 1995 and 1996.  A
substantial portion of such deferred amounts will be invested in shares of the
Company's Common Stock.

(2)   With respect to bonuses payable for 1994 and 1995, under the Company's
Deferred Compensation Plan, an individual who elected to defer any of such bonus
for investment in shares of the Company's Common Stock was credited with such
shares based on the appraised value of the shares at the time the election to
defer was made. The amounts shown represent the difference between the aggregate
appraised value of such shares at the time the bonus was paid and the aggregate
appraised value of such shares at the time the election to defer was made. The
amounts shown relate to bonuses payable in the first quarter of the following
year.

(3)   Consists of each individual's allocable share of profit sharing
contributions in the form of shares of Common Stock made by the Company to the
Company's Capital Accumulation Plan, based on the value of the stock at the time
of contribution based on the appraised value of the Company's Common Stock.

(4)   Pursuant to the Company's Equity Incentive Plan, a restricted stock
purchase plan, in 1996 shares of Common Stock were purchased by such individual
for a purchase price of $10 per share (the appraised value of the Common Stock
at the time of such purchase), which was paid by delivery of a full recourse
promissory note.  The aggregate number and value of such shares held by the
individuals named above as of December 31, 1996 (based on the last reported sale
price of the Common Stock on such date as reported by The Nasdaq Stock Market,
which was $20.00) and net of the purchase price of such shares was as follows:
Mr. Didion - 175,027 ($1,750,270); Mr. Beban - 53,910 ($539,100); Mr. Stafford -
70,750 ($707,500); and Mr. Kallis - 42,750 ($427,500).  The shares vest at the
rate of 5 percent per quarter commencing December 31, 1995.

(5)   Mr. Stafford's employment by the Company commenced in July 1995.

                                       56
<PAGE>

(6)   Represents the appraised value of restricted stock awards at the date of
grant.  The aggregate number of shares and value of restricted stock (excluding
stock issued pursuant to the Company's Equity Incentive Plan and stock issued in
prior years and no longer subject to any specified vesting period) held by the
individuals named above as of December 31, 1996 (based on the last reported sale
price of the Common Stock on such date as reported by The Nasdaq Stock Market)
was as follows: Mr. Kallis - 5,000 ($100,000); and Mr. Stafford - 20,000
($400,000).  The shares awarded to Mr. Stafford vest at the rate of 20 percent
per year.  Shares of restricted stock issued in prior years that are no longer
subject to vesting are included in the table under "Principal Stockholders"
above.  The holders of shares of restricted stock are entitled to receive
dividends on such shares to the extent dividends are paid on the Common Stock.


     AGGREGATED OPTIONS TABLE.  The following table sets forth information
concerning unexercised options held as of December 31, 1996 by the persons named
in the table under "Summary Compensation Table" above.  No options have been
exercised by any of such persons.

<TABLE>
<CAPTION>

                                                                                  Value of
                              Number of Securities Underlying              Unexercised In-The-Money
                          Unexercised Options at December 31, 1996      Options at December 31, 1996
                          ----------------------------------------      -----------------------------
     Name                   Exercisable       Unexercisable             Exercisable   Unexercisable
-------------------------   ---------------   ---------------           -----------   -------------
<S>                         <C>               <C>                      <C>           <C>
  James J. Didion              75,000                 0                  $750,000             ---

  Gary J. Beban                65,000             5,000                   650,000        $ 50,000

  Walter V. Stafford                0                 0                       ---             ---

  Thaddeus W. Jones            30,000            10,000                   300,000         100,000

  George J. Kallis             40,000                 0                   400,000             ---


</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

     The members of the Compensation Committee of the Board of Directors, who
are appointed by the Board of Directors, are Mr. Blum, Mr. Malek, Mr. Ueberroth
and Mr. Wilson.  Prior to September 1996, Mr. Malek was Co-Chairman of the
Company.


DIRECTORS FEES

     Each of the Directors of the Company who is not also an executive officer
is entitled to receive a fee of $2,500 for attendance at each meeting of the
Board of Directors, $2,500 for attendance at each meeting of a board committee
which does not coincide with a Board of Directors meeting and an annual retainer
of $15,000.  No Director received compensation from the Company for services as
a Director in 1996 in excess of $27,500.

                                       57
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding beneficial
ownership of the Company's voting capital stock as of March 25, 1997 by: (i)
each person who is known by the Company to own beneficially more than five
percent of each class of the Company's voting stock; (ii) each of the Company's
directors and nominees for directors; (iii) each of the Company's executive
officers named under Item 11 - "Executive Compensation - Summary Compensation
Table;" and (iv) all directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>


                                                                                            PERCENT
                                             TITLE OF CLASS      NUMBER OF SHARES           OF CLASS
                                          --------------------   -----------------          ---------
<S>                                       <C>                    <C>                       <C>
Kajima U.S.A., Inc.                       Series A-1 Preferred          1,000,000  (1)       100%
  320 Park Avenue                         Common                            6,586  (2)
  26th Floor
  New York, New York 10022

Fukoku Mutual Life                        Series A-2 Preferred          1,000,000  (1)        50%
  Insurance Company                                                         1,989  (3)
  2-2, Uchisaiwaicho 2-chome
  Chiyoda-ku, Tokyo 100 Japan

S.R.E.S. - Fifth Avenue, Inc.             Series A-2 Preferred          1,000,000  (1)        50%
  666 Fifth Avenue                        Common                            4,106  (4)
  New York, New York 10103

Kasen Development, Inc.                   Series A-3 Preferred          1,000,000  (1)       100%
  3-2, Toyo 6-chome
  Koto-Ku, Tokyo 135 Japan

Stanton D. Anderson (5)                   Common                           27,351              *

Gary J. Beban (5)                         Common                          194,029           1.46%

Richard C. Blum (5)(6)                    Common                          439,167           3.30%

Richard C. Clotfelter (5)(8)              Common                          113,835              *

Daniel A. D'Aneillo (5)(7)                Common                          306,734           2.31%

James J. Didion (5)(8)(9)                 Common                          403,137           3.00%

Hiroaki Hoshino (10)                         ---                              ---            ---

Thaddeus W. Jones (5)                     Common                           77,233              *

George J. Kallis (8)                      Common                          114,934              *

Takayuki Kohri (11)                          ---                             ---             ---

Paul C. Leach                                ---                             ---             ---

Frederic V. Malek (5)                     Common                          318,808           2.40%

Lawrence J. Melody (5)                    Common                            6,092              *


</TABLE>

                                       58
<PAGE>

<TABLE>
<S>                                       <C>                             <C>               <C>
Jeffrey S. Morgan                         Common                            5,437              *

Walter V. Stafford (5)(8)                 Common                           90,750              *

Peter V. Ueberroth (8)                    Common                           11,667              *

Gary L. Wilson (8)                        Common                            1,667            ---

All directors and executive officers
as a group (22 persons)(12)               Common                        2,482,479          18.01%
</TABLE>

______________________

* Less than 1%.
(1)  The Company's Series A-1 Preferred Stock, Series A-2 Preferred Stock and
     Series A-3 Preferred Stock is convertible into Common Stock at the holder's
     option at a ratio based upon the per share market price of the Common
     Stock, ranging from .60 shares of Common Stock per share of Preferred Stock
     at a market price of $30.00 or more per share of Common Stock to .78 shares
     of Common Stock per share of Preferred Stock at a market price of $10.00 to
     $21.99 per share of Common Stock. No conversion of the Preferred Stock is
     permitted when the market price of the Common Stock is below $10.00 per
     share. The holders of Series A-3 Preferred Stock are not entitled to vote
     except as required by statute.
(2)  Represents options to purchase 6,586 shares of Common Stock issued to
     Kajima U.S.A., Inc. in respect of services rendered as a director by Mr.
     Hoshino and by Kajima U.S.A., Inc.
(3)  Represents options to purchase 1,989 shares of Common Stock issued to
     Fukoku Mutual Life Insurance Company in respect of services rendered.
(4)  Represents 4,106 shares of Common Stock issued upon exercise of options
     issued to S.R.E.S. - Fifth Avenue, Inc. in respect of services rendered as
     a director by Mr. Kohri.
(5)  Represents number of shares of Common Stock which the named individual
     beneficially owns as well as those which the individual has options to
     acquire that are exercisable on or before May 31, 1997, which options have
     not been exercised. The respective numbers shown in the table include the
     following number of option shares for the following individuals: Anderson -
     4,235; Beban - 65,000; Blum - 1,667; Clotfelter - 50,000; D'Aniello - 4,235
     (options issued to the Carlyle Group, L.P.); Didion - 75,000; Jones -
     30,000; Kallis -40,000; Malek - 5,934; Melody - 6,050; Ueberroth - 1,667;
     and Wilson - 1,667. Such shares do not include options for 2,609 shares of
     Common Stock issued to Kajima U.S.A., Inc. in respect of services rendered
     as a director by Mr. Hoshino.
(6)  Includes 437,500 shares owned by BK Capital Partners and BK Capital
     Partners II, limited partnerships of which Richard C. Blum & Associates,
     L.P. is the general partner. Mr. Blum holds the majority of the interests
     in Richard C. Blum & Associates, L.P.
(7)  Includes 4,235 shares of Common Stock subject to outstanding options issued
     in the name of the Carlyle Group, L.P., which, by virtue of Mr. D'Aniello's
     interest in the general partner of the Carlyle Group, L.P. and investment
     control over such shares, may be deemed to be beneficially owned by Mr.
     D'Aniello.
(8)  Does not include shares of Common Stock issued in the name of the Company
     in respect of Common Stock units credited to the following persons in the
     following amounts under the Company's Deferred Compensation Plan but which
     are not beneficially owned by such persons: Clotfelter - 1,895; Didion -
     121,970; Kallis -10,991; Sandstad 1,506; and Stafford - 10,662. The
     foregoing amounts do not include any Common Stock units credited in respect
     of the deferred portion, if any, of bonuses payable for 1996.
(9)  Includes 6,000 shares held by a trust for the benefit of three members of
     Mr. Didion's immediate family.
(10) Mr. Hoshino is a Director of Kajima U.S.A., Inc., which together with an
     affiliate owns 2,000,000 shares of the Company's Preferred Stock, 1,000,000
     of which are voting securities, and 2,609 shares of Common Stock. Mr.
     Hoshino disclaims beneficial ownership of such shares.
(11) Mr. Kohri is Deputy Manager of Sumitomo Real Estate Sales Japan, an
     affiliate of S.R.E.S. - Fifth Avenue, Inc., which owns 1,000,000 shares of
     the Company's Preferred Stock and 4,106 shares of the Company's Common
     Stock.  Mr. Kohri disclaims beneficial ownership of such shares.
(12) Includes 435,455 shares of Common Stock subject to outstanding options
     exercisable on or before May 31, 1997.

                                       59
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Mr. Clotfelter, a director of the Company and president of Westmark, owns 85%
of the stock of Prescott, Inc. ("Prescott"), a property management company based
in Seattle, Washington.  In 1994, the Company completed the acquisition of
assets of Prescott consisting of property management agreements for an aggregate
purchase price of $175,000.  In connection with the acquisition of assets from
Prescott, in 1994 Mr. Clotfelter incurred indebtedness to the Company in an
aggregate principal amount of $106,000.  The indebtedness bore interest at nine
percent, which was determined under the Company's policies for employee loans
and the largest amount outstanding at any time (including principal and
interest) was $109,000.  The loan was paid in full as of March 20, 1996.

  In February 1995 the Company retained the law firm of McDermott, Will & Emery,
to which Mr. Anderson is counsel, to provide services to the Company consisting
of legal counsel in connection with the Company's activities with certain
Federal agencies.

  Pursuant to the terms of his employment arrangements, in each of 1991, 1992
and 1993 the Company paid Mr. Stanfill $50,000 as an interest free advance
against future bonuses.  Mr. Stanfill's maximum obligation pursuant to such
advances was $133,463.50.  His obligation as of December 31, 1996 was
$33,363.50, which was repaid in March 1997.

  In connection with the Company's acquisition of L.J. Melody the Company
entered into an Employment Agreement, dated as of July 1, 1996 (the "Melody
Employment Agreement"), pursuant to which the Company agreed to employ Mr.
Melody as President and Chief Executive Officer of L.J. Melody through June 30,
2001.  Pursuant to the Melody Employment Agreement, Mr. Melody is entitled to
receive (a) a base salary of $26,000 per month and (b) certain "incentive
compensation," based on L.J. Melody's profits.

  Under certain conditions, Mr. Melody is entitled to severance benefits from
L.J. Melody if the Melody Employment Agreement is terminated.  If the
termination occurs prior to July 1, 1997, the severance benefit is $43,750 per
month multiplied by 36 less the number of months elapsed since June 30, 1996.
If the termination occurs on or after July 1, 1997, the severance benefit is
equal to approximately two years of salary and two years of incentive
compensation. In addition, in connection with the acquisition, the Company
granted Mr. Melody an option to purchase 30,250 shares of the Company's Common
Stock.  See Item 12 - "Security Ownership of Certain Beneficial Owners and
Management."

  Pursuant to the Company's Equity Incentive Plan, a restricted stock purchase
plan, in 1996 shares of Common Stock were purchased by the executive officers
and Directors named below for a purchase price of $10 per share (the appraised
value of the Common Stock at the time of such purchase), which was paid by
delivery of a full recourse promissory note.  The notes bear interest at the
rate of 6.84% per annum which may be forgiven if the executive's performance
produces a high enough level of bonus (approximately $7,500 in interest is
forgiven for each $10,000 of bonus).  The aggregate number of shares purchased
and the amount of the promissory note delivered by the following individuals
were:  Mr. Beban - 53,910 ($539,100); Mr. Clotfelter - 33,750 ($337,500); Mr.
Didion - 175,027 ($1,750,270); Mr. Kallis - 42,750 ($427,500); Mr. Stafford -
70,750 ($707,500); and Mr. Stanfill - 54,383 ($543,830).

  Richard C. Blum & Associates, Inc., of which Mr. Blum, a director of the
Company, is Chairman and President, and the Company have tentatively agreed to
form a joint venture to opportunistically acquire and develop property on behalf
of mutual clients.  The specifics of any venture are still to be determined.

  The Company and CB Commercial have entered into Indemnity Agreements with each
of their present directors, some of whom are also officers of the Company.

                                       60
<PAGE>

                                    PART IV


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

  1. a.  Financial Statements

      See Index to Consolidated Financial Statements

     b.  Financial Statement Schedules

      See Index to Consolidated Financial Statements

     c.    Exhibits

      See Exhibit Index

  2.  Reports on Form 8-K

      No reports on Form 8-K have been filed by Registrant during the quarter
      ended December 31, 1996

  3.  See Exhibit Index

  4.  See Index to Consolidated Financial Statements

                                       61
<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.

                                  CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC.
                                                    (Registrant)


                         By  /s/  James J. Didion
                             ---------------------------
                                 James J. Didion
                             Chairman of the Board and Chief Executive Officer

                         Date:  March 28, 1997


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


        Signatures                          Title                         Date
        ----------                          -----                         ----
<S>                          <C>                                      <C>

/s/ James J. Didion          Chief Executive Officer and Director     March 28, 1997
--------------------------
James J. Didion


/s/ David A. Davidson        Senior Executive Vice President, Chief   March 28, 1997
--------------------------    Financial Officer and Treasurer
David A. Davidson


/s/ Ronald J. Platisha       Executive Vice President                 March 28, 1997
--------------------------    Principal Accounting Officer
Ronald J. Platisha


/s/ Stanton D. Anderson      Director                                 March 28, 1997
--------------------------
Stanton D. Anderson


/s/ Gary J. Beban            Director                                 March 28, 1997
--------------------------
Gary J. Beban

/s/ Richard C. Blum          Director                                 March 28, 1997
--------------------------
Richard C. Blum

/s/ Richard C. Clotfelter    Director                                 March 28, 1997
--------------------------
Richard C. Clotfelter
</TABLE>

                                       62
<PAGE>

<TABLE>

<S>                         <C>                                     <C>
/s/ Daniel A. D'Aniello       Director                              March 28, 1997
--------------------------
Daniel A. D'Aniello

/s/ Hiroaki Hoshino           Director                              March 28, 1997
-------------------------
Hiroaki Hoshino


/s/ George J. Kallis          Director                              March 28, 1997
--------------------------
George J. Kallis


/s/ Takayuki Kohri            Director                              March 28, 1997
--------------------------
Takayuki Kohri


/s/ Paul C. Leach             Director                              March 28, 1997
---------------------------
Paul C. Leach


/s/ Frederic V. Malek         Director                              March 28, 1997
---------------------------
Frederic V. Malek


/s/ Lawrence J. Melody        Director                              March 28, 1997
---------------------------
Lawrence J. Melody


/s/ Jeffrey S. Morgan         Director                              March 28, 1997
---------------------------
Jeffrey S. Morgan


/s/ Peter V. Ueberroth        Director                              March 28, 1997
---------------------------
Peter V. Ueberroth


/s/ Gary L. Wilson            Director                              March 28, 1997
---------------------------
Gary L. Wilson
</TABLE>

                                       63
<PAGE>

                                 EXHIBIT INDEX


EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
------                       ----------------------


 3.1        Fourth Restated Certificate of Incorporation of CB Commercial Real
              Estate Services Group, Inc. (the "Company").

 3.2        Third Amended and Restated Bylaws of the Company.

*4.1        Specimen Form of Common Stock Certificate, filed as Exhibit 4.1 to
              the Company's Form S-1 Registration Statement (File No. 333-
              12757).

*4.2        Form of the Company's Restricted Stock Agreement between the Company
              and the Company's Officer or Employee, filed as Exhibit 4.8 to the
              Company's Form S-1 Registration Statement (File No. 33-29410).

*4.3        First Amendment to the Company's Restricted Stock Agreement, filed
              as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the
              year ended December 31, 1989.

*10.1(i)    CB Commercial Real Estate Services Group, Inc. Omnibus Stock and
              Incentive Plan, filed as Exhibit 10.13 to Post-Effective Amendment
              No. 1 to the Company's Form S-1 Registration Statement (File No.
              33-29410).

*10.1(ii)   First Amendment to the CB Commercial Real Estate Services Group,
              Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.16 to
              the Company's Annual Report on Form 10-K for the year ended
              December 31, 1990.

*10.1(iii)  Second Amendment to the CB Commercial Real Estate Services Group,
              Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.16(iii)
              to the Company's Annual Report on Form 10-K for the year ended
              December 31, 1993.

*10.1(iv)   Third Amendment to the CB Commercial Real Estate Services Group,
              Inc. Omnibus Stock and Incentive Plan, filed as Exhibit 10.4(iv)
              to the Company's Annual Report on Form 10-K for the year ended
              December 31, 1994.

*10.2(i)    1990 Stock Option Plan, filed as Exhibit 4(a) to the Company's
              Quarterly Report on Form 10-Q for the quarter ended June 30, 1990.

*10.2(ii)   First Amendment to the 1990 Stock Option Plan, filed as Exhibit
              10.15(ii) to the Company's Annual Report on Form 10-K for the year
              ended December 31, 1992.

*10.2(iii)  Second Amendment to the 1990 Stock Option Plan, filed as Exhibit
              10.8(iii) to the Company's Annual Report on Form 10-K for the year
              ended December 31, 1993.

*10.2(iv)   Third Amendment to the 1990 Stock Option Plan, filed as Exhibit
              10.5(iv) to the Company's Annual Report on Form 10-K for the year
              ended December 31, 1994.

*10.3       Form of Incentive Stock Option Agreement, filed as Exhibit 4(b) to
              the Company's Quarterly Report on Form 10-Q for the quarter ended
              June 30, 1990.

*10.4       Form of Nonstatutory Stock Option Agreement, filed as Exhibit 4(c)
              to the Company's Quarterly Report on Form 10-Q for the quarter
              ended June 30, 1990.

                                       64
<PAGE>

 10.5       Third Amended and Restated Senior Secured Credit Agreement dated as
              of November 25, 1996 between CB Commercial Real Estate Group,
              Inc., the lenders from time to time party thereto and The Sumitomo
              Bank, Limited, as agent.

 10.6       Amended and Restated Senior Subordinated Credit Agreement dated as
              of November 25, 1996 among CB Commercial Real Estate Group, Inc.,
              the Company and certain subsidiaries of CB Commercial Real Estate
              Group, Inc., as guarantors, and Sumitomo Finance (Dublin) Limited.

*10.7       CB Commercial Real Estate Services Group, Inc. 1991 Service
              Providers Stock Option Plan, filed as Exhibit 10.27 to the
              Company's Current Report on Form 8-K dated April 1, 1992.

 10.8       CB Commercial Real Estate Services Group, Inc. Amended and Restated
              Deferred Compensation Plan.

*10.9       1996 Equity Incentive Plan of CB Commercial Real Estate Services
              Group, Inc., filed as Exhibit 10.10 to the Company's Annual Report
              on Form 10-K for the year ended December 31, 1995.

 10.10      CB Commercial Real Estate Services Group, Inc. L.J. Melody
              Acquisition Stock Option Plan.

*10.11      Form of Indemnification Agreement between the Company, CB Commercial
              Real Estate Group, Inc. and directors and officers, filed as
              Exhibit 10.29 to the Company's Annual Report on Form 10-K for the
              year ended December 31, 1992.

*10.12      Purchase Agreement dated as of May 15, 1995 among CB Commercial Real
              Estate Group, Inc., Westmark Real Estate Acquisition Partnership,
              L.P., and certain individuals signatory thereto, filed as Exhibit
              10.1 to the Company's Current Report on Form 8-K dated June 30,
              1995.

*10.13      Employment Agreement between the Company and Lawrence J. Melody
              dated July 1, 1996, filed as Exhibit 10.12 to the Company's Form
              S-1 Registration Statement (File No. 333-12757).

*10.14      Registration Rights Agreement dated as of December 2, 1996 among the
              Company and Kajima U.S.A., Inc., Fukoku Mutual Life Insurance
              Company, Kasen Development, Inc. and S.R.E.S.-Fifth Avenue, Inc.,
              filed as Exhibit 10.13 to the Company's Form S-1 Registration
              Statement (File No. 333-12757).

 21         Subsidiaries of the Company.

 23         Consent of Arthur Andersen LLP.

 27         Financial Data Schedule

_________________________
*  Incorporated by reference

                                       65