SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 1997
                                       OR
          [ ] 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 0-28354
                                    ---------

                             GREAT LAKES REIT, INC.
             (Exact Name of Registrant as Specified in Its Charter)

           Maryland                                36-3844714
 (State or Other Jurisdiction of         (I.R.S. Employer Identification Number)
  Incorporation or Organization)

                               823 Commerce Drive
                                    Suite 300
                            Oak Brook, Illinois 60523
                                 (630) 368-2900
          (Address and telephone number of principal executive offices)

               Securities registered  pursuant to Section 12(b) of the
                                    Act:

                          Common Stock, $.01 par value
                                (Title of class)

               Securities registered  pursuant to Section 12(g) of the
                                    Act:

                                      None

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. [ ]

         As of March 2, 1998, the aggregate market value of common stock held by
non-affiliates of the registrant was $267,619,543.

         The number of shares of the registrant's  common stock, $.01 par value,
outstanding as of March 2, 1998 was 15,841,027.

                      Documents Incorporated by Reference:

                                      None





<PAGE>



                             GREAT LAKES REIT, INC.

                         Form 10-K Annual Report -- 1997

                                Table of Contents


PART I Page
         Item 1.      Business............................................... 4
         Item 2.      Properties.............................................10
         Item 3.      Legal Proceedings......................................13
         Item 4.      Submission of Matters to a Vote of Security Holders....13

PART II
         Item 5.      Market for Registrant's Common Equity
                      and Related Stockholder Matters........................13
         Item 6.      Selected Financial Data................................14
         Item 7.      Management's Discussion and Analysis
                      of Financial Condition and Results of Operations.......15
         Item 8.      Financial Statements and Supplementary Data............18
         Item 9.      Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure.................18
PART III
         Item 10.     Directors and Executive Officers of the Registrant.....19
         Item 11.     Executive Compensation.................................22
         Item 12.     Security Ownership of Certain Beneficial
                      Owners and Management..................................26
         Item 13.     Certain Relationships and Related Transactions.........27

PART IV
         Item 14.     Exhibits, Financial Statement Schedules
                      and Reports on Form 8-K................................29

Signatures...................................................................32

Index to Financial Statements................................................F-1









<PAGE>
                                     PART I

ITEM 1--BUSINESS

General

         Great Lakes REIT, Inc., a Maryland  corporation (the "Company")  formed
in 1992, is a fully integrated,  self-administered  and self-managed real estate
company  focused  primarily  on  acquiring,  renovating,  owning  and  operating
suburban office properties.  Currently all of the Properties (as defined herein)
are located within an approximate  500-mile radius of metropolitan  Chicago (the
"Midwest  Region").  The  Company  acquired  six,  three,  seven,  ten and  nine
properties in 1993,  1994,  1995, 1996 and 1997,  respectively.  As of March 20,
1998,  the  Company  owned and  operated 34  properties  (the  "Properties")  in
suburban Chicago, Milwaukee,  Minneapolis, Detroit, Columbus and Cincinnati (the
"Current  Markets").  The Properties contain  approximately 4.1 million rentable
square feet leased to  approximately  500 tenants.  As of December 31, 1997, the
Properties had a weighted  average  occupancy rate of  approximately  92.9%. The
Company  has elected to be treated  for  federal  income tax  purposes as a real
estate investment trust ("REIT").

         In 1996,  the Company  organized  Great Lakes  REIT,  L.P.,  a Delaware
limited  partnership  (the  "Operating  Partnership")  and transferred 33 of the
Properties  to the  Operating  Partnership.  As the sole general  partner of the
Operating Partnership, the Company has exclusive power to manage and conduct the
business of the Operating  Partnership,  subject to certain limited  exceptions.
Although the Company and the Operating Partnership are separate entities, unless
the context  otherwise  requires,  all references in this Report on Form 10-K to
the "Company" refer to the Company and the Operating Partnership, collectively.

         Effective  April 1, 1996,  the Company became a  self-administered  and
self-managed  REIT upon the  consummation  of the merger (the  "Merger")  of the
Company with Equity  Partners,  Ltd. (the "Advisor").  Prior to the Merger,  the
Advisor provided  services to the Company  relating to the selection,  purchase,
financing and operation of the Company's properties.  Certain executive officers
and other employees of the Company were  previously  employed by the Advisor and
owned a  substantial  interest in the Advisor.  See "Certain  Relationships  and
Related Transactions".

         The Company's  primary  business  strategy is to acquire  well-located,
under performing  suburban office properties in the Midwest Region at attractive
yields  and  to  increase  cash  flow  and  property  value  by  implementing  a
comprehensive operating strategy. The Company's operating strategy includes: (i)
investment  in  value-enhancing  renovation  and  refurbishment  programs;  (ii)
aggressive leasing efforts;  (iii) reduction and containment of operating costs;
and (iv) a strong emphasis on tenant services and satisfaction. This value-added
operating  strategy is intended to establish  the Company as one of the suburban
office  property  owner/operators  of choice  in the  markets  it serves  and to
maximize tenant retention.  The Company's  commitment to tenant satisfaction and
retention is  evidenced by its  retention  rate of  approximately  67% (based on
square feet renewed) from January 1, 1993 to December 31, 1997. In addition, the
Company believes it has been successful in implementing  its operating  strategy
as evidenced by its  achievement of increased  occupancy rates and rental income
at the Properties during its period of ownership.

         The Company  focuses  primarily on acquiring  properties in the Midwest
Region  (i) with  less  than  300,000  rentable  square  feet and (ii)  that are
available at purchase prices below $25 million.  Management believes that assets
of this size are generally too small to be efficiently acquired on a stand-alone
basis by other  institutional  and larger  public  sector  buyers;  as a result,
competition for these properties is more limited than the competition for larger
properties.  The  Company's  recent  acquisition  activities  during the last 12
months  demonstrate the Company's ability to make  acquisitions  consistent with
its strategy for growth. During 1997, the Company acquired nine Properties at an
aggregate  cost  of  $112  million  (including  $9  million  in  future  capital
commitments).

         The Company  continues to evaluate  certain markets outside the Midwest
Region. In the event an appropriate  acquisition  opportunity is identified that
is  consistent  with  the  Company's  other  specified  criteria  and  operating
strategies,  the Company may acquire  properties in markets  outside the Midwest
Region.  In addition,  the Company may from time to time consider  opportunities
with respect to office properties  located in selected urban or central business
district areas.

     The Company believes that the economic  fundamentals in the Current Markets
and certain other markets in and outside the Midwest Region  provide  attractive
environments  for owning,  acquiring and operating  suburban office  properties.
Since 1990,  there has been a broad  expansion of the Midwest  Region's  economy
while there has been limited  construction of suburban office  properties in the
region.  These trends have reduced  office  vacancy  rates in all of the Current
Markets and resulted in generally  increasing rental rates. The Company believes
that continued strong demand for office space caused by the continuing growth of
the Midwest Region's  economy,  together with the limited supply of new suburban
office  properties  in most of the Current  Markets,  will continue to result in
increased  occupancies and rental rates for suburban office space in the Midwest
Region generally and the Company's properties specifically.

Competitive Advantages

         The  Company  believes  it enjoys  certain  competitive  advantages  in
pursuing its business and growth strategies.

         Experienced  Management  Team.  The  Company's  seven senior  executive
officers  have an average of 17 years of real estate  experience,  primarily  in
suburban office properties  located in the Midwest Region.  Management's  market
knowledge and long-standing relationships with tenants, brokers and institutions
lead to numerous investment and leasing opportunities.

         Focus  on  Suburban  Office  Properties  in  the  Midwest  Region.  The
Company's geographic and  property-specific  focus enables the Company to create
acquisition   opportunities,   rapidly   review  and   respond  to   acquisition
opportunities as they arise, and to anticipate and efficiently address the needs
of existing and  prospective  tenants,  resulting in favorable  lease  renewals,
tenant expansions and new lease opportunities.

     Fully Integrated Organization.  The Company utilizes an integrated approach
to acquisition,  management,  leasing and renovation  activities.  This approach
allows the Company to offer a full range of alternatives  (including  expansions
and  redevelopment  of  existing  facilities,   acquisitions  and  build-to-suit
projects) to satisfy the space needs of existing and prospective tenants.

     Access to Capital.  As a public company,  the Company has access to certain
equity  and  debt  financing  options  that  are  not  available  to many of its
competitors.  In addition,  because it is  organized as an umbrella  partnership
REIT  ("UPREIT"),  the Company has the ability to acquire  properties on a basis
that offers tax advantages to certain  sellers.  Accordingly, the Company may be
able  to  finance  and  take  advantage  of  certain  acquisition  or  operating
opportunities that certain of its competitors cannot.

Organization

         The Company is a Maryland corporation,  its principal executive offices
are located at 823 Commerce Drive,  Oak Brook,  Illinois 60523 and its telephone
number is (630) 368-2900.

Business and Growth Strategies

         The Company's  primary  business  objectives are to maximize  growth in
cash flow per  share  and to  enhance  the  value of its  portfolio  in order to
maximize total return to its  stockholders.  The Company believes it can achieve
these  objectives  by  continuing  to  implement  its  business  strategies  and
capitalizing on the internal and external growth opportunities  described below.
The Company also believes, based on its evaluation of market conditions,  that a
number of factors will  enhance its ability to achieve its business  objectives,
including  opportunities  to make  favorable  acquisitions,  increase  occupancy
rates,  rental rates and overall  portfolio  value.  These  factors  include the
continuing  economic  expansion  in the  Midwest  Region as well as the  limited
construction of new suburban office properties in most of the Midwest Region.

     Business Strategies

         The Company's  primary  business  strategy is to acquire  well-located,
underperforming  suburban office  properties in the Midwest Region at attractive
yields  and  to  increase  cash  flow  and  property  value  by  implementing  a
comprehensive  value-added operating strategy. This operating strategy includes:
(i) investment in value-enhancing  renovation and refurbishment  programs;  (ii)
aggressive leasing efforts;  (iii) reduction and containment of operating costs;
and (iv) a strong emphasis on tenant services and  satisfaction.  This operating
strategy is  intended to  establish  the Company as one of the  suburban  office
property  owner/operators  of choice in the  markets it serves  and to  maximize
tenant retention.

         Based on its  historical  activities and its knowledge of various local
marketplaces,  the Company  believes that the Midwest Region and certain markets
outside the Midwest Region offer  acquisition  and operating  opportunities  for
companies  that are  well-capitalized  experienced  owners of real  estate  with
extensive  local market  expertise.  In addition,  based on its  experience  and
knowledge,  the Company believes the existence of a public market for its common
stock,  par value $.01 per share  ("Common  Stock"),  has enhanced the Company's
access to capital,  thereby  allowing it to take advantage of  opportunities  to
acquire additional suburban office properties at attractive prices and to pursue
opportunities  to  develop  office  properties,  when  feasible,  at  attractive
returns.

         The Company  implements  its business  strategies  by (i) utilizing an
integrated   approach  to  acquisition,   management,   leasing  and  renovation
activities   that  is  designed  to  coordinate   decision-making   and  enhance
responsiveness to market opportunities and tenant needs; (ii) emphasizing tenant
satisfaction and retention and employing  intensive property marketing programs;
and (iii)  implementing  cost control  management and systems that capitalize on
economies  of  scale  arising  from  the  size  and  location  of the  Company's
portfolio.  The Company  believes  that the  implementation  of these  operating
practices has contributed to the increased occupancy rates and rental revenue of
the Properties.

         Integrated  Decision-making  and  Responsiveness.  In  addition  to the
location and quality of the Properties, management generally credits its ability
to maintain the  Properties  at  above-average  market  occupancy  levels to the
coordination  of its  decision-making  team.  Acquisition,  leasing and property
management  activities  are  coordinated  to  enhance  responsiveness  to market
opportunities and tenant needs. The acquisition, leasing and property management
teams work closely together from the initial meeting with prospective sellers or
tenants through the acquisition or lease  negotiation  process.  With respect to
acquisitions,  the  Company  can  therefore  quickly  analyze  the cash flow and
leasing  potential of a proposed  acquisition and the costs of proposed property
upgrades.  Following acquisition, the integrated approach permits the Company to
analyze  the  economic  terms  and  costs   (including   tenant   build-out  and
retrofitting  costs) for each lease on a timely and efficient  basis  throughout
lease  negotiations.  As a result,  the Company is able to commit to lease terms
quickly, facilitating timely transaction execution, and minimizing lost income.

         Aggressive  Leasing.  The  Company  implements  an  aggressive  leasing
strategy based on its knowledge of the Current  Markets and its tenants'  needs.
The Company's  relationships with the tenant and brokerage  communities  provide
the Company with information to enhance its leasing and marketing  efforts.  The
Company's  policies  of  maintaining   communications   with  existing  tenants,
delivering  a high level of service and  offering  leasing  flexibility  provide
existing  tenants  greater  control over space  management  and serve to enhance
tenant retention.

         As part of this leasing strategy, property-specific marketing plans are
prepared at the time of acquisition and are constantly  monitored and updated to
pro-actively  position each Property within its respective  market.  The Company
enhances its leasing efforts by utilizing employee  representatives  for certain
lease renewal activities and by retaining  third-party  leasing brokers that are
specifically  selected  for their market  knowledge,  tenant  relationships  and
historic  ability to  generate  leases.  This  strategy  enables  the Company to
promote  relationships  with its  existing  tenants and attract and lease office
space to a greater  number of tenants by improving the  Company's  visibility in
the tenant  community.  The Company believes its broad-based  market presence in
certain  Current  Markets  provides a wide  variety of Class A and Class B space
alternatives  for  prospective  tenants  and  existing  tenants  whose  facility
requirements evolve as their businesses grow.

         As part of its  leasing  strategy,  the Company  reviews the  financial
statements and other financial  information on prospective tenants to assess the
creditworthiness  of tenants as compared to the rents  required to be paid under
the tenants' leases and the aggregate dollar investment  required by the Company
for tenant improvements and leasing commissions.  The Company may require credit
enhancements  from tenants in the form of security  deposits,  letters of credit
and personal or corporate guarantees of lease obligations.

         Active Property  Management.  The Company believes that active property
management  is a  critical  aspect of the  Company's  activities,  and it is the
objective of  management  to  intensively  manage the  Company's  Properties  to
provide a high level of service and  flexibility to the Company's  tenants.  The
Company currently employs 36 individuals in its property management division.

         Economies  of Scale and Leasing  Flexibilities.  The  Company  seeks to
enhance  portfolio value by lowering total operating costs and expenses compared
to single-site  ownership and management and by  capitalizing  on its ability to
offer a range of leasing options in certain markets. The Company also strives to
minimize overhead by controlling corporate general and administrative expenses.


     Growth Strategies

     Internal Growth. The Company believes that opportunities  exist to increase
cash  flow  from the  Properties  as a result  of  general  improvements  in the
suburban  office markets in the Midwest Region and the improvement of individual
property  operations  by the  Company.  The Company  intends to pursue  internal
growth by (i) realizing fixed contractual base rental increases; (ii) re-leasing
expiring leases at increasing market rents that may result from increased demand
for and  decreased  supply of available  space in the areas in which the Company
owns  properties;  (iii)  continuing  to maintain  and improve  occupancy  rates
through active management and aggressive leasing; and (iv) controlling operating
expenses through the implementation of cost control management and systems.

         Contractual  base  rental  increases.  The  Company  expects to achieve
internal  growth in cash flow through leases which contain  provisions for fixed
contractual rental increases.

         Re-leasing  expiring  leases at increasing  market  rents.  Many of the
Company's tenants entered into leases at favorable rental rates, compared to the
current  prevailing  market  rates.  As a result,  as those leases  expire,  the
Company  believes that it will be able to re-lease the space at higher effective
rental rates.

         Maintaining and improving occupancy rates. The Company believes that it
has been successful in attracting, expanding and retaining a diverse tenant base
by actively  managing its  Properties  with an emphasis on tenant  retention and
satisfaction.  The Company  strives to be  responsive to the needs of individual
tenants  through  its on-site  professional  management  staff and by  providing
tenants with leasing  alternatives within the Company's portfolio to accommodate
their  changing space  requirements.  The Company's  success in maintaining  and
improving  occupancy rates is  demonstrated,  in part, by the number of existing
tenants which have renewed or released their space,  leased  additional space to
support  their  expansion  needs or moved to other  space  within the  Company's
portfolio. The Company has achieved a tenant retention rate of approximately 67%
(based on square feet renewed)  from January 1, 1993 through  December 31, 1997.
The  Company  also  seeks  to  improve  occupancies  by  aggressively  marketing
available space within its portfolio.

     As of December 31, 1997, the Properties  had a weighted  average  occupancy
rate of 92.9%  compared to 92.3% as of December  31,  1996 (or,  for  Properties
acquired during 1997, the date of acquisition).



     External  Growth.  Based on its historical  activities and its knowledge of
the Midwest Region, the Company believes that opportunities continue to exist to
acquire  additional office properties that (i) provide attractive initial yields
with potential for growth in cash flow; (ii) are in desirable  locations  within
submarkets  that exhibit  strong  growth  characteristics;  (iii) have  purchase
prices that represent a significant  discount to replacement  cost; and (iv) are
under performing or need renovation,  thereby  providing  opportunities  for the
Company to increase the cash flow and value of such  properties  through  active
management, rehabilitation and aggressive leasing.

         The Company  continues to evaluate  certain markets outside the Midwest
Region. In the event an appropriate  acquisition  opportunity is identified that
is  consistent  with  the  Company's  other  specified  criteria  and  operating
strategies,  the Company may acquire  properties in markets  outside the Midwest
Region.  In addition,  the Company may from time to time consider  opportunities
with respect to office properties  located in selected urban or central business
district areas.

         Acquisition Strategy.  The Company's primary acquisition strategy is to
acquire well-located, well-constructed suburban office properties that generally
contain  300,000  square  feet or  less,  are less  than 15  years  old and have
purchase  prices  of less  than $25  million.  The  Company  believes  that most
institutional  and  public-sector  buyers have tended to focus their acquisition
activities on  substantially  larger  properties in terms of square  footage and
purchase price. As a result of the purchasing  bias of these  institutional  and
public-sector  buyers,  the  Company  has  encountered  fewer   well-capitalized
competitors  for the  Company's  target  properties in its target  markets.  The
Company  believes it has been able to achieve more favorable  pricing because it
has been able to contract for the purchase of properties  without  financing and
other contingencies that are generally required by less  well-capitalized  local
buyers of these property types. In addition,  the Company has established a long
and  successful  track record and  reputation  for closing on  properties it has
contracted to purchase.

     The Company  believes that  attractive  opportunities  continue to exist to
acquire  well-located  suburban office properties in the Current Markets, in the
Midwest Region and in certain other markets,  at a discount to replacement cost.
Each  acquisition  opportunity  is reviewed to evaluate  whether it meets one or
more of the following criteria: (i) potential for higher occupancy levels and/or
rents as well as for lower turnover and/or operating  expenses;  (ii) ability to
generate  returns in excess of the Company's  weighted  average cost of capital,
taking into account the estimated  costs  associated with tenant turnover (i.e.,
tenant improvements,  leasing commissions and the loss of income due to vacancy)
and property  rehabilitation;  and (iii) availability for purchase at a price at
or below estimated replacement cost. The Company intends to focus its investment
activities on properties that are in one or more of the following categories:

         *  Under-managed properties: properties that have below market rents
         and/or occupancies.

         * Yield-oriented acquisitions: properties purchased below estimated
         replacement cost at attractive yields.

         *  Redevelopment   or  renovation   opportunities:   well  located  and
         fundamentally  sound properties that may require physical renovation or
         cosmetic improvement to achieve their full potential performance.

         * Opportunistic investments: opportunities to acquire under-valued
         assets using the Company's local market  knowledge and expertise.

         The Company  believes  that it  possesses a  competitive  advantage  in
identifying and  capitalizing on acquisition  opportunities  for targeted office
properties due to (i) its broad-based  market presence in certain of the Current
Markets,  (ii) the experience of its  management  team;  (iii) its  conservative
capital structure and its available liquidity, including amounts available under
its $100 million senior unsecured bank credit facility (the "Credit  Facility");
and (iv) its strong  relationships  with certain of the  region's  institutional
property owners and investment real estate brokers.

         Development.   Although   the  Company   will   continue  to  focus  on
acquisitions to provide the bulk of the Company's external growth opportunities,
the Company intends to pursue limited new property development  opportunities in
the event they are consistent with the overall business strategy of the Company.
The Company  recently  announced  its intention to pursue the  development  of a
96,000 square foot building in Pewaukee, Wisconsin, a suburb of Milwaukee, under
an  agreement  to purchase  the  to-be-built  property  for  approximately  $11
million.  The Company  intends to enhance its  leasing  flexibility  by offering
build-to-suit  development  options to current and prospective tenants requiring
space that is otherwise  unavailable in the  marketplace.  The Company will also
continue its  redevelopment  activities of older  buildings which have desirable
locations such as 777 Eisenhower in Ann Arbor, Michigan.

         Disposition  Strategy.  The Company  also seeks to enhance  stockholder
value  through the strategic  disposition  of its  Properties.  The Company will
consider  disposing of Properties on a tax-deferred  basis and  re-deploying any
proceeds from sales into properties with higher yield potential. The Company may
seek to  dispose  of  Properties  when one or more of the  following  conditions
apply: (i) market prices are at or near replacement cost; (ii) occupancy is high
and the potential to increase  cash flow and property  value within a reasonable
period is limited;  (iii) the Company  believes the capital received can be more
efficiently  redeployed;  or  (iv)  ownership  of  the  Property  is  no  longer
consistent with the Company's operating strategies.

         In 1996, the Company sold two  properties,  830 West End Court,  Vernon
Hills,   Illinois, and  10  Oak  Hollow,   Southfield,   Michigan,   aggregating
approximately 110,000 square feet. The Company's weighted average holding period
for the two properties was approximately 19 months. As a result of the Company's
value-added  operating  strategy  during the time the  Company  owned the Vernon
Hills and the 10 Oak Hollow  properties,  the weighted  average  occupancy  rate
increased from 90.4% to 99.4%. The total sale price of $12.1 million reflected a
36% increase over the Company's  aggregate cost of these  properties  (including
leasing  commissions).  Both properties were sold on a tax-deferred  basis using
like-kind exchanges.

Financing Strategy

     The Company seeks to maintain a  well-balanced,  conservative  and flexible
capital  structure by (i) targeting a total debt to total market  capitalization
ratio of no greater than 50%; and (ii)  limiting the use of the  Company's  bank
credit  facility to short-term  financing of  acquisitions  and working  capital
requirements.

Competition

         As a result of the  continued  expansion  of the number of public REITs
and a general  increase  in the  amount of public  and  private  debt and equity
capital  available to real estate  companies and for real estate  projects,  the
Company may be  competing  with other  owners and  developers  that have greater
resources and more experience than the Company. In addition,  an increase in the
quality and number of competitive  properties in any particular  market in which
the  Properties  are  located  could have a material  adverse  effect on (i) the
Company's  ability  to  lease  space  at the  Properties  or any  newly-acquired
property and (ii) the rents charged at the Properties.

Insurance

         The Company carries  comprehensive  liability,  fire, extended coverage
and  rental  loss  insurance  covering  all  of  the  Properties,   with  policy
specifications  and insured  limits that the Company  believes  are adequate and
appropriate under the circumstances. There are, however, certain types of losses
that are not  generally  insured  because  they are  either  uninsurable  or not
economically feasible to insure. Should an uninsured loss or a loss in excess of
insured limits occur,  the Company could lose its capital invested in any of the
Properties,  as well as the anticipated  future revenues from such Property and,
in the case of  recourse  debt,  the  Company  would  remain  obligated  for any
mortgage debt or other financial obligations related to such Property.  Any such
loss would adversely affect the Company.  Moreover,  as a general partner of the
Operating  Partnership,  the  Company  will  generally  be liable for any of the
Operating   Partnership's   unsatisfied   obligations  other  than  non-recourse
obligations.  The Company  believes that the Properties are adequately  insured;
however,  no assurance can be given that material  losses in excess of insurance
proceeds will not occur in the future.

Environmental Regulations

         Under various federal,  state and local environmental laws,  ordinances
and  regulations,  a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic  substances or petroleum
product  releases  at such  property  and may be held  liable to a  governmental
entity  or to third  parties  for  property  damage  and for  investigation  and
clean-up  costs incurred by such parties in connection  with the  contamination.
Such laws typically impose clean-up  responsibility and liability without regard
to whether the owner knew of or caused the presence of the contaminants, and the
liability  under such laws has been  interpreted  to be joint and several unless
the harm is  divisible  and  there  is a  reasonable  basis  for  allocation  of
responsibility.

     The costs of  investigation,  remediation or removal of such substances may
be substantial,  and the presence of such substances, or the failure to properly
remediate the  contamination on such property,  may adversely affect the owner's
ability  to sell or rent such  property  or to borrow  using  such  property  as
collateral.  Persons who arrange for the  disposal or  treatment of hazardous or
toxic substances at a disposal or treatment  facility also may be liable for the
costs of removal or remediation of a release of hazardous or toxic substances at
such  disposal or treatment  facility,  whether or not such facility is owned or
operated by such person. In addition,  some  environmental laws create a lien on
the contaminated  site in favor of the government for damages and costs incurred
in  connection  with  the  contamination.  Finally,  the  owner of a site may be
subject  to  common  law  claims by third  parties  based on  damages  and costs
resulting from environmental contamination emanating from such site.

         During the last two years, independent  environmental  consultants have
conducted or updated Phase I Environmental  Assessments  ("Phase I Assessments")
at each of the  Properties.  In addition,  a  limited-scope  Phase II Assessment
("Phase II  Assessment")  has been  conducted  at the  University  Office  Plaza
property (the Phase I Assessments  and the Phase II Assessment are  collectively
referred to as the  "Environmental  Assessments").  The Phase I Assessments have
included,  among other things,  a visual  inspection of the  Properties  and the
surrounding  area  and a  review  of  relevant  state,  federal  and  historical
documents.  Except for the Phase II Assessment and certain  limited  sampling in
connection with  underground  tank and/or piping removals at the Arlington Ridge
Service Center and One Park Plaza  properties,  no invasive  techniques  such as
soil or  groundwater  sampling  were  performed  at any of the  Properties.  The
Company's  Environmental  Assessments  of the  Properties  have not revealed any
condition  giving rise to an  environmental  liability that the Company believes
would  have a  material  adverse  effect on the  Company's  business,  assets or
results of operations,  taken as a whole, nor is the Company  otherwise aware of
any such  condition.  There can be no  assurance,  however,  that the  Company's
Environmental   Assessments   would  reveal  all   conditions   giving  rise  to
environmental  liabilities.  Moreover, there can be no assurance that (i) future
laws,  ordinances  or  regulations  will not impose any  material  environmental
liability or (ii) the current environmental condition of the Properties will not
be affected by tenants,  by the  condition of land or operations in the vicinity
of the Properties  (such as the presence of underground  storage  tanks),  or by
third parties unrelated to the Company.

Employees

         As of December 31, 1997, the Company had 55 employees,  none of whom is
represented by a collective bargaining unit.
<PAGE>


ITEM 2--PROPERTIES

General

     As  of  March  20,  1998,  the  Company  owned  34  Properties   containing
approximately 4.1 million square feet. The Properties consist primarily of Class
A and Class B suburban office properties, which range in size from approximately
15,000 to 273,000  rentable  square feet. The Properties  consist of 28 suburban
office properties, 1 light industrial distribution facility and 5 office/service
centers  (generally   single-story  buildings  with  both  finished  office  and
unfinished storage area). The 34 Properties are located in the suburban areas of
Chicago (17),  Milwaukee (5),  Minneapolis  (2),  Detroit (5),  Columbus (4) and
Cincinnati (1). Many of the Properties  offer  amenities,  including  indoor and
outdoor parking, loading dock facilities, on-site property management,  in-house
conference facilities and lounge areas with food and beverage service.

         Management  believes that the location and quality of  construction  of
the  Properties,  as well as the Company's  reputation  for  providing  superior
tenant service,  enable the Company to attract and retain a diverse tenant base.
As of  December  31,  1997,  the  Properties  were leased to  approximately  500
tenants, no single tenant accounted for more than 5% of the aggregate annualized
base  rent  of  the  Company's  portfolio  and  only  14  tenants   individually
represented more than 1% of such aggregate annualized base rent.

         The  Company  holds fee  simple  title to each of the  Properties.  The
following  table sets forth  certain  of the  information  as of January 1, 1998
regarding the Properties.

<TABLE>
<CAPTION>

                            Property   Ownership Company                              Land Area                Occupancy
Property location           Type       Interest Ownership % Year Built Date Acquired  in Acres Square footage 31-Dec-97  Encumbrance
<S>                         <C>        <C>      <C>         <C>        <C>            <C>      <C>            <C>       <C>

SUBURBAN CHICAGO
1900 East Golf Road         Multi-story   Fee         100%        1980         Dec-96       12.9     259,730      96%           (1)
Schaumburg, IL              Office

1750 East Golf Road         Multi-story   Fee         100%        1985         Sep-97        7.7     213,346      95%            -
Schaumburg, IL              Office

160-185 Hansen Court        Single story  Fee         100%        1986         Jan-94       10.6     113,911      85%            -
Wood Dale, IL               Office/Office service

3455, 3550, 3555 Salt Creek Single story  Fee         100%        1984         Oct-97        8.7      97,910     100%           -
Arlington Heights, IL       Office/Office service

601 Campus Drive            Single story  Fee         100%          1987       May-93        6.0      96,219      98%            -
Arlington Heights, IL       Office/Office service

1251 Plum Grove Road        Single story  Fee         100%          1986       Jan-96        3.2      43,301      46%            -
Schaumburg, IL              Office

1011 Touhy Avenue           Multi-story   Fee         100%          1978       Dec-93        5.3     155,657      90%            -
Des Plaines, IL             Office

2800 River Road             Multi-story   Fee         100%          1983       Feb-95        2.0     100,527      93%          (1)
Des Plaines, IL             Office

1660 Feehanville Drive      Multi-story   Fee         100%          1989       Aug-95        7.3      85,874     100%          (1)
Mount Prospect, IL          Office

565 Lakeview Parkway        Single story  Fee         100%          1991       Dec-95        7.1      84,808      50%          (1)
Vernon Hills, IL            Office

175 E. Hawthorn Parkway     Multi-story   Fee         100%          1986       Sep-94        4.6      84,065      94%            -
Vernon Hills, IL            Office

Two Marriott Drive          Single story  Fee         100%          1985       Jul-96        3.4      41,500     100%          (1)
Lincolnshire, IL            Office

3400 Dundee Road            Multi-story   Fee         100%          1986       Oct-93        2.6      74,884     100%           -
Northbrook, IL              Office

3010 & 3020 Woodcreek Dr    Single story  Fee         100%          1986       Nov-96        8.8     127,713      96%          (1)
Downers Grove, IL           Office/Office service

823 Commerce Drive          Multi-story   Fee         100%          1969       Nov-95        2.6      45,162     100%          (1)
Oak Brook, IL               Office

1675 Holmes Road            Industrial    Fee         100%          1990       Feb-97        5.5     101,286     100%     $2,173,457
Elgin, IL

16601 S. Kedzie Avenue      Single story  Fee         100%          1984       Feb-97        1.5      15,000      55%            -
Markham, IL                 Office
SUBURBAN MILWAUKEE
11270 W. Park Place         Multi-story   Fee         100%          1984       Sep-95        7.9     197,122     100%          (1)
Milwaukee, WI               Office

11925 W. Lake Park Drive    Single story  Fee         100%          1989       Jun-93        3.4      36,069     100%           -
Milwaukee, WI               Office

2514 S. 102nd Street &      Multi-story   Fee         100%          1987       Nov-96        6.8     121,508      97%          (1)
10150 W. National Avenue    Office
West Allis, WI

150, 175, 250 Patrick Blvd. Single story  Fee         100%          1987       Jun-94       12.0     117,615     100%     $3,269,300
Brookfield, WI              Office/Office service

375 Bishop's Way            Multi-story   Fee         100%          1987       Apr-97        4.1      53,353     100%           -
Brookfield, WI              Office
SUBURBAN MINNEAPOLIS / ST. PAUL
2550 University Avenue W    Multi-story   Fee         100%          1985       Dec-96        4.4     199,670      98%          (1)
St. Paul, MN                Office

2221 University Avenue SE   Multi-story   Fee         100%          1979       May-95        2.8      97,658      97%     $5,030,000
Minneapolis, MN             Office

11100 Hampshire Avenue      Industrial    Fee         100%          1980       Jan-93        4.0      50,625       0%            -
Bloomington, MN
SUBURBAN DETROIT
777 East Eisenhower Parkway Multi-story   Fee         100%          1975       Dec-97       23.6     273,355      88%            -
Ann Arbor, MI               Office

32255 Northwestern Highway  Multi-story   Fee         100%          1986       Dec-97       12.9     230,314      97%    $12,125,000
Farmington Hills, MI        Office

1301 W. Long Lake Road      Multi-story   Fee         100%          1988       Nov-96       11.5     169,959      96%          (1)
Troy, MI                    Office

No. 40 OakHollow            Multi-story   Fee         100%          1989       Dec-96        5.7      80,281      98%          (1)
Southfield, MI              Office

24800 Denso Drive           Multi-story   Fee         100%          1986       Aug-95       10.5      79,546      99%          (1)
Southfield, MI              Office
SUBURBAN COLUMBUS
655 Metro Place South       Multi-story   Fee         100%          1986       Sep-97       15.0     218,377      90%            -
Dublin, OH                  Office

4860-5000 Blazer Mem Pky    Single story  Fee         100%          1986       Sep-96       13.7     124,929     100%          (1)
Dublin, OH                  Office

425 Metro Place North       Multi-story   Fee         100%          1982       Sep-97        6.3     101,302      94%            -
Dublin, OH                  Office
SUBURBAN CINCINNATI
30 Merchant Street          Multi-story   Fee         100%          1988       Apr-96        5.9      95,910     100%          (1)
Springdale, OH              Office

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

Totals                                                                                              3,988,486          $22,597,757
                                                                                                 =============        ==============
</TABLE>

(1) These  properties  are pledged as security for the Company's  line of credit
 which totalled $72,500,000 at December 31, 1997.

(1) Weighted  average  calculation  based on aggregate leased square footage for
each tenant.

Leases

         The Company's leases are typically  structured for terms of five years.
The Company's  leases are a mixture of net leases (whereby tenants pay their pro
rata share of real estate tax and operating  expenses)  and full service,  gross
leases under which  tenants  typically pay for all real estate tax and operating
expenses above those for an established  base year or expense stop.  Leases on a
significant  portion of the rentable square feet in the Company's  portfolio are
net  leases  that  were in  existence  upon  the  Company's  acquisition  of the
Properties.  However, whether structured as net leases or gross leases with base
year or expense stop expense reimbursement clauses, virtually all leases entered
into by the Company  require  tenants to reimburse  the Company for the tenant's
pro-rata share of real estate tax and operating expense increases.

         Leases  often  contain  provisions   permitting  tenants  to  renew  at
prevailing market rates.  Under the Company's  leases,  the Company is generally
responsible  for structural  repairs.  Certain leases contain  provisions  which
permit the tenant to  terminate  its lease upon  written  notice to the Company,
subject  to  the  tenant's  obligation  to  pay  a  termination  penalty.   Such
termination  penalties  are generally  negotiated  with a tenant when a lease is
executed and are usually  calculated to compensate  the Company for  unamortized
tenant  improvements  and leasing  commissions at the termination  date, and, in
certain  instances,  for rent on the  space  for a period  of  months  after the
termination date.

         Lease  Distributions.   The  following  table  sets  forth  information
relating to the  distribution  of the Company's  leases based on rentable square
feet under lease, as of February 2, 1998.


                               Percentage                  Percentage
                               Of                          Of
                               Aggregate                   Aggregate
                               Portfolio      Annualized   Portfolio
     Square Feet               Leased         Base Rent    Annualized
     Under Lease               Square Feet    (000s)       Base Rent
     -----------               -----------    ------       ---------


2,500 or Less                     6.93%        3,943               7.83%
2,501 - 5,000                    11.47%        6,150              12.21%
5,001 - 7,500                    11.91%        6,037              11.99%
7,501 - 10,000                    8.38%        3,933               7.81%
10,001 - 20,000                  20.59%       10,419              20.69%
20,001 - 40,000                  18.77%        9,864              19.59%
40,001 +                         21.95%       10,001              19.86%
                              -------------------------------------------------

Totals                          100.00%      $50,347             100.00%
                              =================================================


         Lease  Expirations -- Portfolio Total. The following table sets forth a
summary schedule of the lease expirations for the Properties for leases in place
as of  February 2, 1998,  assuming  that none of the  tenants  exercise  renewal
options or termination rights, if any, at or prior to the scheduled expirations.

<TABLE>
<CAPTION>

                                                          Annualized
                         Square         Percentage of     Base Rent           Percentage
          Year of        Footage        Total Leased      Of Expiring         Of Total
          Lease          Of Expiring    Square            Leases (000s)      Annualized
          Expriration    Leases         Footage           at 02/02/98         Base Rent
------------------------------------------------------------------------------------------
          <S>            <C>            <C>               <C>                 <C>

            1998         442,721            11.82%         5,786                   11.49%
            1999         480,199            12.82%         6,089                   12.09%
            2000         593,574            15.84%         7,719                   15.33%
            2001         701,724            18.73%        10,001                   19.87%
            2002         759,611            20.28%         9,689                   19.24%
            2003         196,491             5.24%         3,339                    6.63%
            2004         131,857             3.52%         2,048                    4.07%
            2005          88,446             2.36%           886                    1.76%
            2006         117,317             3.13%         1,267                    2.52%
            2007         119,596             3.19%         1,658                    3.29%
            2008         115,146             3.07%         1,866                    3.71%
 -------------------------------------------------------------------------------------------


     Total             3,746,682           100.00%        50,347                  100.00%
                 ==========================================================================

</TABLE>
<PAGE>

Historic Lease Renewals
The following table sets forth certain historical  information regarding tenants
at the Properties who renewed an existing lease at or prior to the expiration of
the existing lease:

<TABLE>
<CAPTION>
                                                                                                                   Average
                                                               1993         1994      1995      1996      1997          1993 - 1997
<S>                                                         <C>          <C>       <C>       <C>      <C>               <C>

Number of leases expired during calander year (1)                 3            7        25        34        85                  154
Number of leases renewed                                          3            4        18        26        53                  104
Percentage of leases renewed                                    100%          57%       72%       76%       62%                  68%
Aggregate rentable square footage of expiring leases (1)     54,157       26,716    92,205   139,615   347,150              659,843
Aggregate rentable square footage of lease renewals          54,157       19,645    72,586   118,142   175,247              439,777
Percentage of expiring rentable square footage renewed          100%          74%       79%       85%       50%                  67%

</TABLE>

(1) The Aggregate  rentable  square  footage of expiring  leases  excludes those
leases for tenants moving out where the Company believes the tenants decision to
vacate was made prior to the Company's acquisition of the property.


ITEM 3--LEGAL PROCEEDINGS

         As of March 2, 1998,  the Company was not a party to any material legal
proceedings.


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

         No matters were submitted to stockholders  during the fourth quarter of
the fiscal year ended December 31, 1997.


                                     PART II

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

Price Range of Common Stock and Dividend Policy

         The  Company's  common stock (the "Common  Stock") is listed on the New
York Stock Exchange (the " NYSE") under the symbol "GL."

         As of March 2, 1998, there were  approximately 600 holders of record of
the Common  Stock,  which  excludes  beneficial  owners of shares  registered in
nominee or street name.

         The table below sets forth for the periods indicated, the reported high
and low sale  prices  of the  Common  Stock on the NYSE  Composite  Tape and the
quarterly  dividends  per share paid by the Company on such shares.  May 8, 1997
was the first day the Common Stock was listed on the NYSE. Prior to May 8, 1997,
there was no established trading market for the Common Stock.

<TABLE>
<CAPTION>

1997            1Q        2Q             3Q            4Q             1996            1Q           2Q        3Q        4Q

<S>             <C>      <C>            <C>            <C>            <C>            <C>          <C>        <C>      <C>
High            n/a       16 7/16        19 7/16       19 15/16       High            n/a          n/a       n/a       n/a
Low             n/a       15 3/8         16            18 1/8         Low             n/a          n/a       n/a       n/a
Dividend        $.30      $.30           $.30          $.30           Dividend        $.30         $.30      $.30      $.30
</TABLE>


         The Company,  in order to qualify as a REIT under the Code, is required
to  make   distributions   (other  than  capital  gain   distributions)  to  its
stockholders  with respect to each taxable year in amounts at least equal to (i)
the sum of (A) 95% of its "REIT taxable income"  (computed without regard to the
dividends paid deduction and its net capital gain) and (B) 95% of the net income
(after tax), if any, from  foreclosure  property,  minus (ii) the sum of certain
items of non-cash income. The Company's  distribution  strategy is to distribute
what it believes is a conservative  percentage of its cash flow,  permitting the
Company to retain funds for capital  improvements  and other  investments  while
funding its distributions.

         For federal income tax purposes,  distributions may consist of ordinary
income dividends,  nontaxable return of capital,  capital gains or a combination
thereof.  Distributions  in  excess of the  Company's  current  and  accumulated
earnings and profits  (calculated for tax purposes) will constitute a nontaxable
return of capital rather than a dividend and will reduce the stockholder's basis
in his or her shares of Common  Stock for tax  purposes.  To the  extent  that a
distribution  exceeds both the Company's  current and  accumulated  earnings and
profits and the  stockholder's  basis in his or her  shares,  the amount of such
excess  will  generally  be  treated as gain from the sale or  exchange  of that
stockholder's   shares.  The  Company  annually  notifies  stockholders  of  the
taxability of distributions  paid during the preceding year. The following table
sets forth the taxability of distributions paid in 1997, 1996 and 1995:

                                                 1997     1996     1995
                                                 ----     ----     ----

         Ordinary income.....................    88.4%   88.3%    87.4%
         Non-taxable return of capital.......    11.6%   11.7%    12.6%
                                                 -----   -----    -----

         Total...............................    100.0%  100.0%   100.0%
                                                 ======  ======   ======

Recent Sales of Unregistered Securities

     On February 10, 1997, the Company issued 118,134 shares of Common Stock and
24,050 units in the Operating Partnership ("OP Units) in with the acquisition by
the Company of all of the partnership interests not already owned by the Company
in the  partnerships  that previously  owned two of the Properties for aggregate
consideration  of  $1,848,397.  Each OP Unit is  convertible  into one  share of
Common  Stock at the option of the holders of such OP Units.  The  Company  sold
such securities pursuant to the exemption from the registration  requirements of
the  Securities  Act of 1933,  as amended (the  "Securities  Act"),  provided by
Section 4(2)  thereof,  including  in reliance  upon the  exemption  provided by
Regulation D thereunder  to  "accredited  investors" in those states in which it
was  authorized  to do so.  There was no  underwriter  involved  in such sale of
securities.

     During the quarter  ended  December 31, 1997,  the Company  issued  165,070
shares of Common Stock  pursuant to the exercise of  outstanding  stock  options
with an aggregate exercise price of $1,855,352.  These shares were issued to the
optionholders  pursuant to exemptions from the registration  requirements of the
Securities Act provided by Section 4(2) thereof or Rule 701 thereunder.


ITEM 6--SELECTED FINANCIAL DATA

         The following sets forth selected  financial and operating  information
for the  Company  for each of the periods  and dates  indicated.  The  following
information  should be read in  conjunction  with the financial  statements  and
notes  thereto of the Company  included  elsewhere in this report.  The selected
historical  financial and operating  information for the Company at December 31,
1997 and 1996,  and for each of the three years in the period ended December 31,
1997 has been derived from the Company's financial statements audited by Ernst &
Young LLP, independent  auditors,  whose report with respect thereto is included
elsewhere in this report. The selected  financial and operating  information for
the  Company  at  December  31,  1995,  1994,  and 1993 and for the years  ended
December  31,  1994,  and 1993  has been  derived  from  the  Company's  audited
financial statements.

(1) EBITDA is defined as net income before interest, gain on sale of properties,
taxes,  depreciation  and amortization  expenses.  Because of the Company's REIT
status,  the Company does not pay income taxes.  EBITDA should not be considered
as an  alternative  to net income  (determined  in  accordance  with GAAP) as an
indicator of the Company's financial  performance or to cash flow from operating
activities  (determined  in accordance  with GAAP) as a measure of the Company's
liquidity,  nor is it indicative of funds  available to fund the Company's  cash
needs, including its ability to make distributions.

(2) The White Paper on Funds From Operations  approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in March
1995 (the "White  Paper")  defines  Funds from  Operations  as net income (loss)
(computed  in  accordance  with GAAP),  excluding  gains (or  losses)  from debt
restructuring and sales of property,  plus real estate related  depreciation and
amortization  and after  adjustments for  unconsolidated  partnerships and joint
ventures.  Management  considers Funds from Operations an appropriate measure of
performance  of an equity REIT because it is predicated  on cash flow  analyses.
The  Company  computes  Funds  from  Operations  in  accordance  with  standards
established  by the  White  Paper  which may  differ  from the  methodology  for
calculating   Funds  from  Operations   utilized  by  other  equity  REITs  and,
accordingly,  may not be comparable to such other REITs.  Funds from  Operations
should  not be  considered  as an  alternative  to  net  income  (determined  in
accordance with GAAP) as an indicator of the Company's financial  performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's  liquidity,  nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make distributions.

(3) The earnings per share  amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, Earnings Per
Share. For further  discussion of earnings per share and the impact of Statement
No. 128, see the Note 1 to the Company's Consolidated Financial Statements.


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

Impact of Year 2000

         The Year 2000 Issue is the result of computer  programs  being  written
using two digits  rather  than four to define the  applicable  year.  Any of the
Company's  computer programs that have  time-sensitive  software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a  system  failure  or  miscalculations   causing   disruptions  of  operations,
including,  among other things, a temporary  inability to process  transactions,
send invoices, or engage in similar normal business activities.

         Based on a recent  assessment,  the Company determined that it will not
be required to modify or replace significant  portions of its financial software
so that its computer systems will function properly with respect to dates in the
year 2000 and thereafter.

         The  Company  has  initiated  formal  communications  with  all  of its
significant  suppliers  (including  operators  of heating  and air  conditioning
control systems,  building security  systems,  elevator  operating  software and
alarm  monitoring  systems) and large customers to determine the extent to which
the Company's  interface  systems are vulnerable to those third parties' failure
to remediate their own Year 2000 Issues.  (The Company's total Year 2000 project
cost and estimates to complete  include the estimated  costs and time associated
with the impact of third party Year 2000  Issues  based on  presently  available
information.)  However,  there can be no  guarantee  that the  systems  of other
companies  on which the  Company's  systems  rely will be  converted on a timely
basis and would not have an adverse  effect on the Company's  systems.  Based on
information  received to date, the Company  estimates that it will not incur any
material costs related to Year 2000 Issues.  However,  there can be no guarantee
that these estimates will be achieved and actual results could differ materially
from  those  anticipated.  Specific  factors  that  might  cause  such  material
differences  include,  but are not  limited  to,  the  availability  and cost of
personnel  trained in this area,  the ability to locate and correct all relevant
computer codes, and similar uncertainties.

Results of Operations

         1997 compared to 1996.

         The changes in the income  statement items in 1997 compared to 1996 are
as follows:
<TABLE>
<CAPTION>

                                                                       Increase (Decrease)



<S>                                                                   <C>
Rental and reimbursements                                             $21,856,000
Interest and other                                                        576,000
                                                                       ----------
     Total revenues                                                    22,432,000
                                                                       ----------
Real estate taxes                                                       3,748,000
Other property operating                                                5,421,000
General and administrative                                              1,138,000
Interest                                                                  530,000
Depreciation and amortization                                           4,199,000
                                                                       ----------
     Total expenses                                                    15,036,000
                                                                       ----------
     Income before gain on sale of properties                           7,396,000
     Gain on sale                                                     (3,140,000)
                                                                       ----------
     Net income                                                        $4,256,000
                                                                        =========
</TABLE>

     During 1997, the Company acquired nine properties. The operating results of
these properties have been included in the Company's  financial  statements from
the dates of their  respective  acquisitions.  In 1996, the Company acquired ten
properties,  and in 1997 a full year of operations of these  properties has been
included in the Company's financial statements.  In analyzing the 1997 operating
results of the Company,  the changes in rental  income,  real estate taxes,  and
other  property  operating  expenses from 1996 are due  principally  to: (i) the
addition of operating results from properties acquired in 1997 from the dates of
their  respective  acquisitions,  (ii) the  addition of a full year's  operating
results in 1997 of properties  acquired in 1996  compared to the partial  year's
operating  results from the dates of their  respective  acquisitions in 1996 and
(iii) improved  operations of properties during 1997 compared to 1996. A summary
of these  changes as they impact  rental  income,  real  estate  taxes and other
property operating expenses for 1997 follows:

<TABLE>
<CAPTION>

                                                               Rental and                                Other Property
                                                            Reimbursement           Real Estate               Operating
                                                                   Income                 Taxes                Expenses
                                                                   ------                ------                  ------
<S>                                                        <C>                     <C>                   <C>
Increase due to 1997 acquisitions                              $4,315,000              $743,000              $1,032,000
Increase due to inclusion of full year of
properties acquired in 1996                                    17,717,000             2,957,000               4,291,000
Property dispositions in 1996                                 (1,695,000)             (160,000)               (446,000)
Improved operations in 1997 compared
to 1996                                                         1,519,000               208,000                 544,000
                                                           --------------         -------------          --------------
                                                               21,856,000             3,748,000               5,421,000
                                                                 ========               =======                ========
</TABLE>

         Interest expense  increased by $530,000 in 1997 compared to 1996 as the
Company increased  amounts of outstanding  short-term  indebtedness  during 1997
compared with 1996. This indebtedness was incurred to finance the acquisition of
properties acquired in 1997.

         General and  administrative  expenses increased by $1,138,000 due to an
increase in compensation costs as the Company hired additional employees in 1997
($735,000), one-time costs associated with the hiring of the Company's president
($191,000),  increased franchise taxes ($80,000),  and increased  administrative
costs related to the increase in employees ($131,000).

         Depreciation  and  amortization  increased in 1997 by $4,199,000 as the
Company  incurred  these  expenses on 34  properties  as of December 31, 1997 as
compared to 25 properties as of December 31, 1996.

         Gain on sale  decreased by  $3,140,000  as the Company did not sell any
properties in 1997 as compared to two dispositions in 1996.

         1996 compared to 1995.

         The changes in the income  statement items in 1996 compared to 1995 are
as follows:
<TABLE>
<CAPTION>

                                                                                Increase (Decrease)

<S>                                                                            <C>
Rental and reimbursements                                                      $10,299,000
Interest and other                                                                (33,000)
                                                                                ----------
Total revenues                                                                  10,266,000
                                                                                ----------
Real estate taxes                                                                1,330,000
Other property operating                                                         2,581,000
General and administrative                                                       1,319,000
Interest                                                                         1,482,000
Depreciation and amortization                                                    2,045,000
                                                                                ----------
Total expenses                                                                   8,757,000
                                                                                ----------
Income before gain on sale of properties                                         1,509,000
Gain on sale of properties                                                       3,140,000
                                                                                ----------
Net income                                                                      $4,649,000
                                                                                ==========
</TABLE>


         In analyzing  the operating  results for 1996,  the increases in rental
income, real estate taxes and other property operating expenses compared to 1995
are due principally to three factors: (i) the addition of operating results from
properties  acquired  in 1996 from the dates of their  respective  acquisitions,
(ii) a complete year's operating results  attributable to properties acquired in
1995 compared to the partial period of operating results from the dates of their
respective  acquisitions  in 1995 and (iii)  improved  operations  of properties
during 1996 compared to 1995.

         During 1996, the Company acquired 10 properties.  The operating results
of these  properties  have been included in the Company's  financial  statements
from the dates of their respective  acquisitions.  In 1995, the Company acquired
seven properties,  and in 1996 a full year of operations of these properties has
been included in the Company's financial statements.

         A summary of these  changes as they impact rental  income,  real estate
taxes and other property operating expenses for 1996 follows:

<TABLE>
<CAPTION>

                                                                   Rental and                            Other Property
                                                                Reimbursement         Real Estate             Operating
                                                                       Income               Taxes              Expenses
                                                                       ------               -----              --------
<S>             <C>                                             <C>                 <C>                     <C>
Increase due to 1996 acquisitions                               $   3,392,000       $     462,000           $   940,000

Increase due to full year of results of                             5,413,000           1,040,000             1,220,000
properties acquired during 1995
Increase due to operations of                                         801,000              58,000               239,000
properties sold in 1996
1996 operations compared to 1995 for                                  693,000           (230,000)               182,000
properties owned at 12/31/95                                    -------------       -------------         -------------
Total increase in 1996                                          $  10,299,000       $   1,330,000           $ 2,581,000
                                                                   ==========           =========            ==========
</TABLE>

         Interest expense during 1996 increased by $1,482,000 as the Company had
greater amounts of long and short-term  debt  outstanding in 1996. This debt was
used to finance the acquisition of properties acquired in 1995 and 1996.

         General and administrative  expenses increased by $1,319,000 due to the
increase in the size of the Company  ($875,000),  increased audit and legal fees
($174,000), increased directors fees ($41,000), and the increase in amortization
of deferred compensation ($229,000).

         Depreciation  and  amortization  increased in 1996 by $2,045,000 as the
Company  incurred  these  expenses  on 25  properties  in  1996  compared  to 16
properties in 1995.

Forward-Looking Statements

         Certain  statements  in  this  document   constitute   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, and the Company intends that
such  "forward-looking  statements"  be  subject  to the  safe  harbors  created
thereby. The words "believe",  "expect" and "anticipate" and similar expressions
identify forward-looking  statements.  These forward-looking  statements reflect
the  Company's  current  views  with  respect  to future  events  and  financial
performance,  but are subject to many  uncertainties and factors relating to the
Company's  operations and business environment that may cause the actual results
of the Company to be materially  different from any future results  expressed or
implied  by such  forward-looking  statements.  Examples  of such  uncertainties
include,  but  are  not  limited  to,  changes  in  interest  rates,   increased
competition for acquisition of new properties, unanticipated expenses and delays
in acquiring  properties or increasing occupancy rates and regional economic and
business conditions.

Liquidity and Capital Resources

     The Company's  Credit Facility was $75 million.  In March 1998, the Company
accepted a commitment  for a new $100 million  unsecured  credit  facility  (the
"Unsecured Facility").  The Company anticipates that the Unsecured Facility will
be used  primarily  to acquire  additional  properties  and for general  working
capital purposes.  The Unsecured Facility contains financial covenants including
requirements  for a minimum  tangible  net  worth,  interest  and  fixed  charge
coverage and overall  Company  leverage (all  calculated in accordance  with the
Unsecured Facility). The Unsecured Facility also contains restrictions on, among
other  things,  indebtedness,  investments,  distributions,  liens,  mergers and
development activities of the Company.

         The  Company  expects  to meet its  short-term  liquidity  requirements
generally  through  its  available  working  capital  and net cash  provided  by
operations.  The Company  believes that its net cash provided by operations will
be sufficient to allow the Company to make any distributions necessary to enable
the Company to continue  to qualify as a REIT under the Code.  The Company  also
believes that the foregoing  sources of liquidity will be sufficient to fund its
short-term  liquidity  needs  for  the  foreseeable  future,  including  capital
expenditures, tenant improvements and leasing commissions.

         The Company expects to meet certain  long-term  liquidity  requirements
such  as  property   acquisitions,   scheduled  debt  maturities,   renovations,
expansions  and  other  non-recurring  capital  improvements  through  long-term
secured  and  unsecured  indebtedness  and the  issuance  of  additional  equity
securities.  The Company also expects to use funds available under the Unsecured
Facility to fund acquisitions,  development  activities and capital improvements
on an interim  basis.  At December 31, 1997,  the Company had  committed to fund
$6.5 million of improvements at its Ann Arbor,  Michigan  property.  In February
1998, the Company  committed to acquire a  to-be-constructed  office building in
Pewaukee,  Wisconsin,  for a contract  price of $11  million.  This  purchase is
expected  to close in June,  1999.  The  Company  intends  to use the  Unsecured
Facility, in part, to fund these commitments.

Statements of Cash Flows

         1997 compared to 1996

         Cash provided by operating  activities increased by $8.6 million as the
Company owned 34 properties during 1997 compared to 25 properties during 1996.

         Cash used by investing  activities primarily increased by $12.4 million
as the Company had property  sales proceeds of $11.7 million in 1996 compared to
none in 1997.

         Cash provided by financing  activities increased by $3.2 million as net
proceeds  from stock  sales  increased  by $44.0  million,  proceeds  from loans
increased by $60.9  million,  repayments  of loans  increased by $92.7  million,
distributions paid increased by $9.9 million,  and payment of deferred financing
costs decreased by $0.7 million.

         1996 compared to 1995.

         Cash flows from operating  activities  increased by $7.2 million as the
Company owned 25 properties during 1996 compared to 16 properties during 1995.

         Cash used by investing  activities  increased by $39.6  million in 1996
compared to 1995 as the Company  acquired 10 properties  during 1996 compared to
seven properties in 1995.

         Cash  provided by financing  activities  increased by $34.1  million as
proceeds from equity  offerings  increased by $28.6 million,  proceeds from bank
and mortgage loans increased by $12.0 million,  dividends paid increased by $3.4
million,  dividends  reinvested  decreased by $2.6 million and cash  provided by
other items declined by $0.5 million.


ITEM 8--FINANCIAL STATEMENTS

         The financial  statements and supplementary data required by Regulation
S-X are included in this Report on Form 10-K commencing on Page F-1.


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

         None.

<PAGE>
                                    PART III

ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers and Directors

         The Board of  Directors  consists of seven  directors,  all of whom are
elected for one-year terms at each annual meeting of stockholders. The Company's
bylaws  (the  "Bylaws")  require  that a majority of the Board of  Directors  be
comprised of persons who are not officers or employees of the Company (each such
director is referred to herein as an "Independent Director").  Holders of shares
of Common Stock have no right to cumulative voting in the election of directors.
Consequently,  at each annual meeting,  a majority of the  stockholders  will be
able to elect all of the directors. The Company's executive officers are elected
annually by the Board of Directors;  however, they may be removed at any time by
the Board of Directors.

         The following table sets forth certain  information with respect to the
executive officers and directors of the Company:

<TABLE>
<CAPTION>

Name                                        Age                 Position
---                                         ----                --------
<S>                                         <C>                 <C>
Richard A. May                              53                  Chairman of the Board  and Chief
                                                                Executive Officer
Patrick R. Hunt                             44                  President and Chief Operating Officer

Richard L. Rasley                           41                  Executive Vice President, Secretary, Co-
                                                                General Counsel and Director
James Hicks                                 42                  Senior Vice President - Finance, Chief
                                                                Financial Officer and Treasurer
Raymond M. Braun                            38                  Senior Vice President - Acquisitions
Kim S. Mills                                49                  Senior Vice President - Asset Management
                                                                and Leasing
Edith M. Scurto                             32                  Senior Vice President - Property
                                                                Management
James J. Brinkerhoff                        47                  Director
Daniel E. Josephs                           66                  Director
Edward Lowenthal                            53                  Director
Donald E. Phillips                          65                  Director
Walter H. Teninga                           70                  Director
</TABLE>

     Richard A. May.  Mr. May  co-founded  the Company in 1992 and has served as
principal  executive  officer and as Chairman of the Board of  Directors  of the
Company since its inception. Mr. May is currently the Chairman of the Board and
Chief Executive Officer of the Company.  In 1986, Mr. May co-founded the Advisor
and from 1987 until April 1, 1996, Mr. May was an officer and shareholder of the
Advisor.  Mr. May is a licensed real estate broker in the States of Illinois and
Indiana and holds several inactive National  Association of Securities  Dealers,
Inc.  ("NASD")  licenses.  He is also a member of National  Association  of Real
Estate Investment Trusts  ("NAREIT").  Mr. May received his Bachelor's Degree in
mechanical  engineering  from the University of Illinois and received his M.B.A.
degree from The University of Chicago.

     Patrick R. Hunt. Mr. Hunt,  President and Chief Operating  Officer,  joined
the  Company  in August  1997 and has  general  supervisory  responsibility  for
Company operating activities. From 1983 until August 1997, Mr. Hunt was employed
by LaSalle Partners  Incorporated ("LaSalle Partners"), a Chicago-based provider
of international real estate services. Mr. Hunt served as a managing director of
LaSalle  Partners  from 1996  until  August  1997.  Mr.  Hunt is a member of the
Pension Real Estate  Association and NAREIT.  He received his Bachelor's  Degree
from  Northwestern  University  and his M.B.A.  degree  from The  University  of
Chicago.

     Richard L. Rasley. Mr. Rasley co-founded the Company in 1992 and has served
as  Secretary  of the Company and a member of the Board of  Directors  since its
inception.  Mr.  Rasley is currently the Executive  Vice  President,  Co-General
Counsel and Secretary of the Company and has general supervisory  responsibility
for administrative and legal matters.  From 1987 until April l, 1996, Mr. Rasley
was an officer and shareholder of the Advisor.  Mr. Rasley is a Certified Public
Accountant,  holds  several  inactive  NASD  licenses,  and is a  member  of the
Illinois Bar and NAREIT.  Mr.  Rasley  received his  Bachelor's  Degree from the
University of Iowa and received his M.B.A.  and J.D. degrees from the University
of Illinois.

         James Hicks. Mr. Hicks, Senior Vice President-Finance,  Chief Financial
Officer and  Treasurer of the Company,  joined the Advisor in 1994 and currently
has general supervisory responsibility for the finance and accounting activities
of the Company.  From 1989 to 1993, Mr. Hicks was employed by JMB  Institutional
Realty  Corporation,  which was a real estate adviser to pension funds and other
institutional  investors,  as a vice  president  of  portfolio  management  with
responsibility  for overall asset management of a portfolio of international and
domestic commercial real estate properties. He received his Bachelor's Degree in
Accounting and  Mathematics  from Augustana  College and his M.B.A.  degree from
Northwestern  University.  Mr. Hicks is a Certified  Public  Accountant and is a
member of the Illinois CPA Society and  American  Institute of Certified  Public
Accountants.

     Raymond M. Braun. Mr. Braun, Senior Vice President-Acquisitions, joined the
Advisor in May 1990 and  currently  has  primary  responsibility  for all of the
Company's real estate acquisition activities.  Prior to joining the Advisor, Mr.
Braun was employed from 1986 to 1990 by The Balcor Company,  a major real estate
investment company involved in all aspects of real estate including development,
management,  syndication and mortgage lending. Mr. Braun received his Bachelor's
Degree from the  University  of Illinois.  Mr. Braun is a member of the National
Association of Industrial and Office Park Realtors.

     Kim S. Mills. Mr. Mills, Senior Vice President-Leasing,  joined the Advisor
in January 1996. Mr. Mills has primary  responsibility  for all of the Company's
leasing  activities.  Prior to joining the  Advisor,  Mr.  Mills was employed by
Simon  Property Group REIT, a commercial  property REIT,  from 1992 to 1995 as a
regional manager with  responsibility  for overall portfolio  management of high
rise office buildings totaling over four million square feet. Mr. Mills received
his  Bachelor's  Degree from Ohio  Northern  University  and has a Real Property
Administrator designation from the Building Owners and Managers Association.

     Edith M. Scurto.  Ms. Scurto,  Senior Vice  President-Property  Management,
joined  the  Advisor  in  December   1984.   In  August  1987,   she  was  given
responsibility for the Advisor's property management activities. Since that date
she has individually  managed or overseen the management of all of the Advisor's
and the Company's properties,  and has been involved with virtually every aspect
of property  management,  reporting,  improvement and  maintenance.  In December
1997, Ms. Scurto became the Company's Senior Vice President-Property Management.
Ms. Scurto currently oversees the management of all of the Company's properties.
Ms.  Scurto is a current  member of the  Institute  of Real  Estate  Management,
maintains  an  Illinois  Real  Estate  Sales  Person  License and is a Certified
Property Manager.

     James J. Brinkerhoff.  Mr.  Brinkerhoff has served as a member of the Board
of Directors  since August 1996. Mr.  Brinkerhoff  was nominated to the Board of
Directors pursuant to Fortis Benefits Insurance  Company's right to nominate one
director  under the Stock  Purchase  Agreement  dated as of August 20, 1996 (the
"Stock Purchase Agreement") by and among the Company,  Fortis Benefits Insurance
Company;  Morgan Stanley  Institutional Fund, Inc. - U.S. Real Estate Portfolio;
Morgan Stanley SICAV Subsidiary S.A., Wellsford Karpf Zarrilli Ventures, L.L.C.;
Logan,  Inc.; and Pension Trust Account No. 104972 Held by Bankers Trust Company
as Trustee.  Mr.  Brinkerhoff is Senior Vice President,  Real Estate,  of Fortis
Advisers,  Inc. ("Fortis Advisers"),  the New York-based  investment  management
affiliate  of Fortis,  Inc.  Prior to joining  Fortis  Advisers in 1994,  he was
Senior Vice  President  and Portfolio  Manager with  Aldrich,  Eastman & Waltch,
responsible  for managing the United States Real Estate  Portfolio of the Church
Commissioners  for England.  From 1983 to 1993, he was an officer and partner of
Chesterton  International,  a London-  based real estate  adviser,  where he was
responsible for the creation and management of the Church  Commissioners' United
States Real Estate Portfolio.  Mr. Brinkerhoff  received his M.B.A.  degree from
the Wharton School,  University of Pennsylvania,  and his Bachelor's Degree from
Boston University. He is a full member of the Urban Land Institute.

     Daniel  E.  Josephs.  Mr.  Josephs  has  served as a member of the Board of
Directors  since March 1993. Mr.  Josephs is currently an  independent  business
consultant.  From 1985 through 1995, Mr. Josephs served as the President,  Chief
Operating Officer and Director of Dominick's Finer Foods of Northlake, Illinois,
a major Chicago-area retail grocery company. Mr. Josephs currently serves on the
Boards of Directors of Grand Union Company, a regional grocery firm, and Options
for People,  Inc., a Chicago-area  non-profit concern.  Mr. Josephs received his
Bachelor's  Degree from Northwestern  University and received his M.B.A.  degree
from The University of Chicago.

     Edward  Lowenthal.  Mr.  Lowenthal  has  served as a member of the Board of
Directors  since  August  1996.  Mr.  Lowenthal  was  nominated  to the Board of
Directors  pursuant to Wellsford  Karpf  Zarrilli  Ventures,  L.L.C.'s  right to
nominate one director under the Stock Purchase  Agreement.  Mr.  Lowenthal was a
Founder,  Trustee and President of Wellsford Residential Property Trust ("WRP"),
a  NYSE-listed  multi-family  REIT  that  was  acquired  by  Equity  Residential
Properties Trust ("Equity Residential"),  a publicly-traded apartment properties
REIT, on May 30, 1997.  Upon completion of Equity  Residential's  acquisition of
WRP, Mr.  Lowenthal (i) joined the Board of Trustees of Equity  Residential  and
(ii) became  President of Wellsford Real Properties  Inc., a real estate company
that is listed on the American Stock Exchange.  Mr. Lowenthal is a member of the
Executive  Committee of NAREIT and was Co-chair of its 1993 Annual Meeting.  Mr.
Lowenthal  currently  serves as a member of the  Boards  of  Directors  of Omega
Healthcare  Investors,  Inc., a  health-care  REIT,  and  Corporate  Renaissance
Partners,  a securities mutual fund. Mr. Lowenthal is also a member of the Board
of Trustees of Corporate  Realty Income Trust, a REIT that invests in triple-net
leased commercial and industrial  properties.  He received his Bachelor's Degree
from  Case  Western  Reserve  University  and  received  his  J.D.  degree  from
Georgetown University Law Center.

     Donald E.  Phillips.  Mr.  Phillips  has served as a member of the Board of
Directors since September  1992. Mr.  Phillips is currently  retired.  From 1960
until  1980,  Mr.  Phillips  served as a  corporate  executive  in a variety  of
capacities  for  International  Minerals & Chemicals  Corporation of Northbrook,
Illinois and,  from 1976 to 1980,  he was Group  President & CEO of IMC Industry
Group,  Inc.  ("IMC"),  a chemical and minerals  firm.  From 1980 until 1988, he
served as Group  President  and CEO of Pitman Moore,  Inc.,  then a wholly owned
subsidiary  of IMC. Mr.  Phillips  currently  serves as Chairman of the Board of
Directors  of  Synbiotics   Corporation  of  Rancho  Bernardo,   California,   a
manufacturer and distributor of veterinary devices and products. Mr. Phillips is
also a member of the Board of Directors of Potash  Corporation of  Saskatchewan,
Canada,  a miner and distributer of minerals for agricultural  application.  Mr.
Phillips  received his Bachelor's  Degree from Mississippi  College and received
his M.B.A.  degree from the University of Mississippi.  He is also a graduate of
the  Executive  Program in Business  Administration  in the  Graduate  School of
Business,  Columbia  University  and he is a recipient of an Honorary  Doctor of
Laws degree from Mississippi College.

     Walter  H.  Teninga.  Mr.  Teninga  has  served as a member of the Board of
Directors  since  September  1992.  From 1991 to 1993, Mr. Teninga served as the
President and Chief  Executive  Officer of American Club Stores,  Inc., a wholly
owned  subsidiary of American  Stores Company,  a grocery and food  distribution
business. Prior to 1991, Mr. Teninga served as Chairman, Chief Executive Officer
and  Director  of the  Warehouse  Club,  a  wholesale  cash-and-carry  warehouse
business that he founded in 1982. Mr. Teninga is currently a member of the Board
of Directors of Developers  Diversified Realty  Corporation,  a NYSE-listed REIT
and Solo Serve Corporation,  an off-price apparel retailer. Mr. Teninga received
his Bachelor's Degree from the University of Michigan and his M.B.A. degree from
Michigan State University.

Committees of the Board of Directors

         Audit  Committee.  The Audit  Committee was established by the Board of
Directors in 1993 and is responsible for making  recommendations  concerning the
engagement of independent  public  accountants,  reviewing with the  independent
accountants   the  plans  and  results  of  the  audit   engagement,   approving
professional   services   provided  by  the  independent   public   accountants,
considering  the range of audit and  non-audit  professional  fees and reviewing
with the  independent  accountants  and management the adequacy of the Company's
internal accounting controls. The Audit Committee is required to be comprised of
two or more  Independent  Directors.  The current members of the Audit Committee
are Messrs. Phillips (Chairman), Brinkerhoff and Teninga.

     Compensation  Committee.  The Compensation Committee was established by the
Board of  Directors in 1995 and is  responsible  for  establishing  remuneration
levels for  executive  officers of the Company and  administering  the Company's
Stock  Incentive  Plan  and  any  other  incentive  programs.  The  Compensation
Committee is required to be comprised  of three or more  Independent  Directors.
The Compensation  Committee  currently consists of Messrs.  Josephs  (Chairman),
Phillips, and Lowenthal.

         Nominating  Committee.  The Nominating Committee was established by the
Board of Directors in 1997 and is  responsible  for:  recommending  criteria for
membership on the Board;  soliciting  potential Board candidates when there is a
need to fill a current  or future  Board  position;  propose  to the full  Board
recommendations  to  fill  vacant  positions  on  the  Board;   considering  and
recommending to the full Board the types and functions of Board committees.  The
Nominating  Committee is required to be  comprised of three or more  independent
Directors.  The Nominating  Committee currently consists of Messrs.  Brinkerhoff
(Chairman),  Josephs,  and  Lowenthal.  In the year ended December 31, 1997, the
Nominating  Committee  held two meetings,  in-person or by  teleconference.  The
Committee has adopted the policy that it will consider  nominees  recommended by
security  holders.  Any such  nominations  should be submitted to the  Committee
through a written recommendation addressed to the Secretary of the Company.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the  Securities  and Exchange Act of 1934 requires the
Company's  Directors and executive  officers,  and holders of 10% or more of the
outstanding  Common Stock to file an initial  report of  ownership  (Form 3) and
reports  of  changes  of  ownership  (Forms 4 and 5) of  Common  Stock  with the
Securities  and  Exchange  Commission.  Such persons are required to furnish the
Company  with  copies of all Section  16(a)  forms that they file.  Based upon a
review of these filings and written representations from the Company's directors
and executive  officers that no other reports were  required,  the Company notes
that the following  Section 16(a) reports related to 1997 were  delinquent:  Mr.
Braun reported on a Form 5 two transactions that should have been reported on an
earlier Form 4.


ITEM 11--EXECUTIVE COMPENSATION

Compensation of Directors

         Members of the Board of Directors  and  committees  thereof who are not
also officers of the Company receive an annual retainer fee of $12,000 plus fees
of $1,000 for each day on which they attend an in-person meeting of the Board of
Directors,  $500 for each day on which  they  attend an  in-person  meeting of a
committee  of the  Board of  Directors  and  $250  for  each  day on which  they
participate telephonically in a meeting of the Board of Directors or a committee
thereof. The Company reimburses each Director for expenses incurred in attending
meetings.  In addition,  Directors  who are not also officers of the Company are
currently eligible to be granted options to acquire up to 5,000 shares of Common
Stock under the  Company's  Stock  Option Plan for  Independent  Directors  (the
"Directors  Plan") at a price  equal to the fair market  value of the  Company's
Common  Stock as  determined  by the  Board of  Directors  as of the end of each
fiscal year. As compensation for services performed during 1997, each of Messrs.
Brinkerhoff,  Josephs,  Lowenthal,  and Phillips  received an option to purchase
5,000  shares of Common  Stock at an  exercise  price of $19.45 per share.  Such
options were exercisable when granted and will expire on the earlier of December
31, 2007 or six months after a Director is removed by the stockholders for cause
pursuant to the Bylaws.  Mr.  Brinkerhoff  assigned  his stock  option to Fortis
Benefits Insurance Company ("FBIC"), the parent company of his employer.

     During  the  period of 30 days  after any  "change  in  control,"  a person
entitled to exercise an option  granted  under the  Directors  Plan may elect to
require the Company to purchase  all or any portion of such option at a purchase
price  equal to the  difference  between  the fair  market  value and the option
exercise price.  For purposes of the Directors Plan, a "change in control" means
(i) certain  consolidations or mergers of the Company, (ii) certain sales of all
or  substantially  all of the  assets  of the  Company;  (iii)  the  filing of a
Schedule 13D or Schedule 14D-1 under the Exchange Act disclosing that any person
had become  the  beneficial  owner of 20% or more of the issued and  outstanding
shares of voting  securities  of the  Company  or (iv)  during any period of two
consecutive  years,  individuals  who  at  the  beginning  of  any  such  period
constitute the Board of Directors  cease for any reason to constitute at least a
majority  thereof  unless the election,  or the  nomination  for election by the
Company's  stockholders,  of each  new  member  of the  Board of  Directors  was
approved  by a vote of at  least  two-thirds  of the  members  of the  Board  of
Directors then still in office at the beginning of any such period.

     As cash  compensation for their services in 1997 the Independent  Directors
earned the  following:  Mr.  Brinkerhoff  $17,000;  Mr.  Josephs,  $19,500;  Mr.
Lowenthal $19,250; and Mr. Phillips,  $20,750. Mr. Brinkerhoff assigned the cash
compensation earned for his service on the Board to FBIC.

Compensation of Executive Officers.

         Until April 1, 1996, the Company had no employees and all services were
provided by the  Advisor  pursuant to various  fee-for-service  agreements.  The
table below sets forth the summary  compensation of the Chief Executive  Officer
and the four other most highly  paid  executive  officers  of the  Company  (the
"Named  Executive  Officers") based on the aggregate  compensation  paid to such
officers in 1997. All of the 1995 options to purchase Common Stock and a portion
of the 1996  options  to  purchase  Common  Stock  held by the  Named  Executive
Officers were  originally  granted to the Advisor  pursuant to various  services
agreements  and  the  Advisor  subsequently  transferred  such  options  to  its
employees as permitted by the Advisor's stock option plan.
<PAGE>

<TABLE>
<CAPTION>
                                                                                                 Long-Term
                                           Annual Compensation                                Compensation Awards

                                                                      Restricted        Securities
                                                                     Stock Awards    Underlying Options  All Other Compensation
  Name & Principal Position     Year  Salary ($)(1)      Bonus ($)     ($)(2)                (#)(3)                      ($)(4)
------------------------------  ----  -------------  -------------  -------------- -------------------- -------------------------
<S>                             <C>       <C>            <C>           <C>                 <C>                              <C>
Richard A. May                  1997      225,000        112,500                           320,000                          4,152
Chief Executive Officer         1996      180,000         72,000                            49,578                          4,038
                                1995      150,000         15,000                           229,568                          4,432
Richard L. Rasley               1997      125,000         50,000                           172,000                          4,090
Executive Vice President        1996      115,000         34,500         102,852            20,785                          4,007
                                1995      100,000         10,000                            86,310                          4,438
Raymond M. Braun                1997      125,000         62,500                           149,000                          4,328
Senior Vice President-          1996      105,000         36,750         222,852            18,800                          4,224
Acquisitions                    1995       86,875          9,000                            36,300                          4,421

James Hicks                     1997      125,000         43,750                           149,000                          4,340
Senior Vice President,          1996      100,000         30,000          51,432            14,800                          4,213
Chief Financial Officer         1995       86,875          9,000                            18,200                          4,421

Kim S. Mills                    1997      120,000         48,000                            88,000                            552
Senior Vice President-          1996      100,000         30,000                            12,000                            255
Asset Management (5)

</TABLE>

(1) The salary information  represents the individual's salary compensation paid
(i) by the Company in 1997 and in 1996 for the period beginning on April 1, 1996
and ending December 31, 1996 and (ii) by the Advisor for the period from January
1, 1996 to April 1, 1996 and for the year ended December 31, 1995.

(2) Effective April 1, 1996 and in connection with the Merger,  Messrs.  Rasley,
Braun and Hicks  received  8,571,  8,571 and 4,286  restricted  shares of Common
Stock ("Restricted Stock"),  respectively, as an inducement to accept employment
with the Company. Effective May 1, 1996, Mr. Braun received an additional 10,000
shares of Restricted Stock as an inducement to remain employed with the Company.
Such shares of  Restricted  Stock were valued at prices equal to the fair market
value on the dates of grant,  which in all cases  was  deemed to be  $12.00.  On
April  1,  1997,  the  restrictions  lapsed  with  respect  to 4,285  shares  of
Restricted  Stock  held by Messrs.  Rasley  and Braun and with  respect to 2,143
shares of Restricted  Stock held by Mr. Hicks. On May 13, 1997, upon the closing
of the  Company's  initial  public  offering of Common Stock,  the  restrictions
lapsed with respect to the remaining  shares of Restricted Stock held by Messrs.
Rasley and Hicks and with  respect to 4,286 shares of  Restricted  Stock held by
Mr. Braun.  As of December 31, 1997,  the number of shares of  Restricted  Stock
held by Mr. Braun was 10,000.  As of December 31, 1997,  the value of the shares
of Restricted Stock held by Mr. Braun was $194,400, based upon the closing price
of the Common Stock on the NYSE  Composite  Tape on December 31, 1997  ($19.44).
Dividends are paid on all shares of Restricted Stock held by Mr. Braun.

(3) Options  granted during 1997 and 1996 were issued at exercise prices greater
than or equal to the fair  market  value of Common  Stock on the dates of grant.
Since May 8, 1997,  the first day the Common Stock was listed on the NYSE,  fair
market value has been determined by reference to the closing price of the Common
Stock on the NYSE  Composite Tape on the last trading day prior to the effective
date of the grant.  Prior to May 8, 1997,  fair  market  value of the  Company's
Common Stock was  determined by the Board of Directors.  Options  granted during
1995 and options to purchase  17,578,  6,785,  2,800 and 2,800  shares of Common
Stock  deemed to have been  granted to  Messrs.  May,  Rasley,  Braun and Hicks,
respectively,  in 1996 represent  Advisor  Options (as defined herein) that were
assigned to such  individuals  by the Advisor during 1995 from a pool of options
that  had been  granted  to the  Advisor  by the  Company  pursuant  to  service
agreements during the period from the Company's  incorporation  through December
31, 1995. Advisor Options were exercisable on the date of grant. Options granted
in 1996 under the Company's  1996 Stock Option Plan (the "1996 Option Plan") and
in 1997  under the 1997  Incentive  Plan (as  defined  herein)  expire  upon the
earliest of (i) ten years  following the date of grant,  (ii) one year after the
termination  of the  optionee's  employment  due to death or disability or (iii)
three months after the  termination of the  optionee's  employment for any other
reason.  One-third  of the  options  granted in 1996 under the 1996  Option Plan
became  exercisable on September 24, 1997 and the balance of such options become
exercisable at the rate of one-third of the shares covered  thereby on September
24 in each of 1998 and 1999.  One-half  of the options  granted on February  27,
1997 became  exercisable  on September  11, 1997 and the balance of such options
will become  exercisable  August 27, 1998.  The options  granted on December 31,
1997 become  exercisable at the rate of one-third of the shares covered  thereby
on  December  31,  in each of 1998,  1999 and  2000.  All  such  options  become
exercisable  in  full  upon  a  "change  in  control"  of the  Company  (defined
substantially the same as under "-Change in Control Agreements" herein).

(4) These amounts represent group life and health insurance premiums paid by the
Advisor  (for 1995),  the Advisor and the Company  (for 1996) and by the Company
(for 1997).


(5)      Mr. Mills became an employee of the Advisor in January 1996; therefore,
no information is presented for 1995.


         The following  tables set forth  certain  information  regarding  stock
options granted to and exercised by the Named Executive Officers during 1997 and
the stock options held by them as of December 31, 1997:

<TABLE>

                        Option Grants in Last Fiscal Year

                                       Individual Grants

<CAPTION>


                        Number of          % of Total                                               Potential Realizable Value at
                       Securities             Options                                                     Assumed Annual Rates of
                       Underlying          Granted To        Exercise Price                          Stock Price Appreciation for
                          Options        Employees in                ($/sh)     Expiration Date                       Option Term
Name                      Granted         Fiscal Year
                                                                                                         5%($)(3)          10%($)(3)
----------------- --------------- ------------------- -------------------  ------------------- ----------------  -----------------
<S>                     <C>                     <C>                  <C>               <C>            <C>                <C>
Richard A. May          295,000(1)              22.72%               16.00              2/27/07        2,968,383          7,522,464
                         25,000(2)               1.93%               19.63             12/31/07          308,551            781,930
Richard L. Rasley       158,000(1)              12.17%               16.00              2/27/07        1,589,845          4,028,981
                         14,000(2)               1.08%               19.63             12/31/07          172,789            437,881
Raymond M. Braun        135,000(1)              10.40%               16.00              2/27/07        1,358,412          3,442,483
                         14,000(2)               1.08%               19.63             12/31/07          172,788            437,880
James Hicks             135,000(1)              10.40%               16.00              2/27/07        1,358,412          3,442,483
                         14,000(2)               1.08%               19.63             12/31/07          172,788            437,880
Kim S. Mills             75,000(1)               5.78%               16.00              2/27/07          754,673          1,912,490
                         13,000(2)               1.00%               19.63             12/31/07          160,447            406,603

</TABLE>

(1) Such options were  granted on February  27, 1997,  under the 1997  Incentive
Plan. One-half of the shares covered thereby became exercisable on September 11,
1997 and such  options  become  exercisable  in full on August  27,  1998.  Such
options expire upon the earliest of: (i) February 27, 2007,  (ii) one year after
the termination of the optionee's employment due to death or disability or (iii)
three months after the  termination of the  optionee's  employment for any other
reason.

(2) Such options were  granted on December  31, 1997,  under the 1997  Incentive
Plan and become  exercisable  at the rate of  one-third  of the  shares  covered
thereby on December 31 in each of 1998,  1999 and 2000. Such options expire upon
the earliest of: (i) December 31, 2007,  (ii) one year after the  termination of
the optionee's employment due to death or disability or (iii) three months after
the  termination  of the optionee's  employment  for any other reason.  All such
options  become  exercisable  in full upon a "change in  control" of the Company
(defined  substantially  the  same as  under  "-Change  in  Control  Agreements"
herein).

(3) Assumed annual rates of stock price  appreciation for illustrative  purposes
only as required by the rules of the  Securities  and Exchange  Commission.  The
actual  price of Common  Stock  will vary from time to time  based  upon  market
factors and the Company's financial performance.  No assurance can be given that
such rates will be achieved.
<PAGE>

 <TABLE>

                       Aggregated Option Exercises in Last
                  Fiscal Year and Fiscal Year-End Option Values

<CAPTION>
                                                                         Number of Securities
                                                                        Underlying Unexercised              Value of Unexercised In-
                                   Shares                                  Options at Fiscal                  The-Money Options at
                                 Acquired on           Value                 Year-End (#)                         Year-End ($)
           Name                 Exercise (#)          Realized         Exercisable/Unexercisable           Exercisable/Unexercisable
                                                                                                                       (1)
--------------------------- ---------------------  -------------- -----------------------------------  -----------------------------
<S>                                        <C>           <C>                          <C>                          <C>
Richard A. May                             64,196        $446,535                     147,500/193,833              $507,031/639,675
Richard L. Rasley                          97,761        $802,947                      79,000/102,334              $271,563/329,025
Raymond M. Braun                           12,025        $110,411                       91,833/92,167              $266,362/298,075
James Hicks                                11,600         $78,450                       67,500/89,500              $232,031/280,906
Kim S. Mills                                4,000         $25,750                       37,500/58,500              $128,906/177,969
</TABLE>

(1) Value is  calculated  by  multiplying  the number of shares of Common  Stock
underlying  the  options by the  difference  between the  exercise  price of the
options and the  closing  sale price of the Common  Stock on the NYSE  Composite
Tape on December 31, 1997($19.44).

Change in Control Agreements

     The Company has entered into change in control agreements with Messrs. May,
Rasley,  Braun, Hicks, and Mills providing for the payment of specified benefits
under the  circumstances  described  below  after a "change  in  control."  If a
"change in control"  occurs,  the executive  will receive an amount equal to two
times the sum of his base salary plus two times the amount that would  otherwise
be earned under certain existing  executive  compensation plans and arrangements
if within the period  commencing on the date of a "change in control" and ending
on the last day of the  month in which  occurs  the  second  anniversary  of the
"change in control" of the Company (the  "Employment  Period"),  the executive's
employment  with the  Company is  terminated  (a  "Termination")  other than for
death,  disability or "cause" or termination by the executive for "good reason,"
defined as (i) the  executive's  resignation  or  retirement is requested by the
Company other than for cause; (ii) any significant change in the nature or scope
of the executive's  duties or level of authority and  responsibility;  (iii) any
reduction in the  executive's  applicable  total  compensation or benefits other
than a reduction in compensation or benefits  applicable to substantially all of
the  Company's  employees;  (iv) a breach by the  Company of any other  material
provision of the change in control agreement; or (v) a reasonable  determination
by the  executive  that, as a result of a change in control of the Company and a
change in  circumstances  thereafter  significantly  affecting  the  executive's
position,  the  executive is unable to exercise the prior level of the executive
authority and responsibility. A "change in control" is deemed to occur under the
change in control  agreements  if (i) any person  other than  certain  "excluded
persons"  becomes  the  beneficial  owner  of  20%  or  more  of  the  Company's
outstanding Common Stock (a "20% Beneficial  Owner"),  (ii) during any 24- month
period,  individuals who at the beginning of such period constitute the Board of
Directors (the "Incumbent  Board") cease for any reason to constitute at least a
majority  of the Board of  Directors;  provided,  however,  that any  individual
becoming a director  during  such  period  whose  election,  or  nomination  for
election by the  Company's  stockholders,  was  approved by a vote of at least a
majority  of  the  directors  then  comprising  the  Incumbent  Board  shall  be
considered as though such individual were a member of the Incumbent  Board,  but
excluding  for this purpose any such  individual  whose  initial  assumption  of
office is in connection with an actual or threatened contest for the election of
directors (as such terms are used in Rule 14a-11 of Regulation  14A  promulgated
under the Exchange  Act, or any  successor  rule) or other actual or  threatened
solicitation  of proxies or consents by or on behalf of a person  other than the
Board of Directors,  (iii) certain  consolidations  or mergers of the Company or
(iv)  certain  sales,   leases,   exchanges  or  other   transfers  of  all,  or
substantially  all,  of the assets of the  Company.  An  executive  subject to a
Termination  will be subject to a  non-competition  agreement for the Employment
Period.

Limited Purpose Employee Loan Program

     The Company has established the Limited Purpose  Employee Loan Program (the
"Employee Loan Program") for the purpose of attracting and retaining certain key
employees by  facilitating  their ability to implement  the Company's  long term
incentive programs.  Under the Employee Loan Program, the Compensation Committee
has  authorized  the  Company to make loans and loan  guarantees  to, or for the
benefit of any employee of the Company to facilitate the  implementation  of the
Company's long term incentive plans. Under the Employee Loan Program,  employees
may borrow to fund up to 100% of (i) the cost of  exercising  stock options held
by the employee or (ii) individual  income tax obligations  which may arise as a
result of aspects of the  implementation  of the Company's  long term  incentive
plans.  Such loans bear  interest  payable  quarterly at the  interest  rate for
borrowings  under the  Company's  bank  credit  facility,  are  recourse  to the
employees  and are  secured by a pledge of the stock  acquired  by the  employee
through this program.  Such loans expire on the earlier of the fifth anniversary
of the loan date and the date  sixty  days  following  the date such  employee's
employment  with the  Company  ends.  As of December  31,  1997,  employees  had
acquired an  aggregate of 356,231  shares of Common  Stock  through this program
with  aggregate  outstanding  loan amounts of $4,654,176  due the Company.  Such
amount is reflected as a reduction of  stockholders'  equity until the loans are
repaid.  Mr. May has borrowed  $801,275 in 1997 under the Employee Loan Program,
all of which was  outstanding  at December 31,  1997.  The proceeds of Mr. May's
loan were used to pay the purchase price for options  covering  64,196 shares of
Common  Stock.  Mr.  Rasley  borrowed  $1,100,934  in  1997,  all of  which  was
outstanding  at December 31, 1997.  The proceeds of Mr.  Rasley's loan were used
together with other funds  supplied by Mr. Rasley to pay the exercise  price for
options covering 97,761 shares of Common Stock and withholding  taxes related to
the lapse of  restrictions  in May 1997 on Restricted  Stock that he received in
1996.  Mr.  Braun  borrowed  $136,952  in 1997 all of which was  outstanding  at
December 31,  1997.  The proceeds of Mr.  Braun's loan were used  together  with
other funds supplied by Mr. Braun to pay the exercise price for options covering
12,025  shares of Common  Stock and  withholding  taxes  related to the lapse of
restrictions in May 1997 on Restricted Stock that he received in 1996. Mr. Hicks
borrowed $97,279 in 1997, $85,500 of which was outstanding at December 31, 1997.
The proceeds of Mr. Hick's loan were used to pay the exercise  price for options
covering  11,600  shares of Common Stock and  withholding  taxes  related to the
lapse of restrictions in May 1997 on Restricted  Stock that he received in 1996.
Mr. Mills borrowed $46,800 in 1997, all of which was outstanding at December 31,
1997.  The  proceeds  of Mr.  Mills'  loan were used  together  with other funds
supplied  by Mr.  Mills to pay the  exercise  price for options  covering  4,000
shares of Common Stock.

Compensation Committee Interlocks and Insider Participation

     The  Compensation   Committee   currently   consists  of  Messrs.   Josephs
(Chairman),  Phillips  and  Lowenthal.  None of the members of the  Compensation
Committee  is or has ever been an officer or  employee of the Company or had any
other  relationship  with  the  Company,  except  as a  member  of the  Board of
Directors and as a stockholder.

ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following  table sets forth  certain  information  regarding the  beneficial
ownership of Common Stock as of March 2, 1998 by (i) each director, (ii) each of
the Named Executive Officers,  (iii) all directors and executive officers of the
Company as a group and (iv) each other  person who is known by the Company to be
the beneficial  owner of 5% or more of the  outstanding  shares of Common Stock.
Unless  otherwise  indicated in a footnote,  all such shares of Common Stock are
owned directly, and the indicated person has sole voting and investment power.

<TABLE>
<CAPTION>

                                                                 Number of Shares of             Percentage
          Name and Address of Beneficial Owner                      Common Stock                Beneficially
                                                               Beneficially Owned (1)              Owned
--------------------------------------------------------  --------------------------------- --------------------
<S>                                                                            <C>                      <C>
Fortis Benefits Insurance Company (2)                                             1,010,000                6.37%
    One Chase Manhattan Plaza, 41st Floor
    New York, New York  10005
Morgan Stanley Asset Management Inc. (3)                                          1,005,000                6.34%
    1221 Avenue of the Americas, 21st Floor
    New York, New York  10020
Raymond M. Braun (4)                                                                130,504                    *
James J. Brinkerhoff                                                                     --                    *
James Hicks (5)                                                                      97,786                    *
Raymond M. Braun (4)                                                                130,504                    *
Daniel E. Josephs (6)                                                                67,356                    *
Edward Lowenthal (7)                                                                 97,553                    *
Richard A. May (8)                                                                  479,469                3.00%
Kim S. Mills (9)                                                                     42,821                    *
Donald E. Phillips (10)                                                              48,980                    *
Richard L. Rasley (13)                                                              198,679                1.25%
Walter E. Teninga (12)                                                               49,424                    *
All directors and executive officers as a                                         1,212,572                7.43%
group (10 persons) (13)

</TABLE>

*  Less than 1%

(1) All share amounts reflect beneficial  ownership  determined pursuant to Rule
13d-3 under the Securities Exchange Act of 1934.

(2) Based on the most recent Schedule 13D on file with the SEC. Includes options
exercisable within 60 days of March 2, 1998 to purchase 10,000 shares of Common
Stock,  which options were granted to Mr.  Brinkerhoff as director  compensation
and assigned by Mr. Brinkerhoff to FBIC.

(3) As reported in Amendment  No. 3 to a Schedule 13D filed by MSAM on March 11,
1997,  (i) MSAM has shared  voting power as to 1,059,339  shares of Common Stock
and shared dispositive power as to 1,059,339 shares of Common Stock, (ii) Morgan
Stanley  Institutional  Fund,  Inc. - U.S.  Real Estate  Portfolio  ("MSIF") has
shared voting power as to 646,200 shares of Common Stock and shared  dispositive
power  as to  646,200  shares  of  Common  Stock,  (iii)  Morgan  Stanley  SICAV
Subsidiary S.A. (the "SICAV  Subsidiary")  has shared voting power as to 413,139
shares of Common  Stock and shared  dispositive  power as to  413,139  shares of
Common Stock,  (iv) Morgan Stanley - SICAV U.S. Real Estate  Securities Fund has
shared  voting ower as to 413,139  share of Common Stock and shared  disposition
power as to 413,139  shares of Common Stock.  (v) Morgan  Stanley Group Inc. has
shared  voting  power  as  to  1,059,339  shares  of  Common  Stock  and  shared
dispositive  power as to 1,059,339 shares of Common Stock.  Such 13D included an
aggregate of 54,399  shares of Common Stock that were  issuable  pursuant to the
conversion of outstanding  shares of Preferred  Stock.  Such shares of Preferred
Stock were cancelled upon the  consumation of the initial public offering of the
Common Stock. MSAM acts as investment  adviser to MSIF and the SICAV Subsidiary.
Includes options  exercisable within 60 days of March 25, 1998 to purchase 5,000
shares of Common Stock,  which options were granted to a former  director of the
Company, as director  compensation and assigned to MSIF and the SICAV subsidiary
in accordance with each entity's prorata investments in the Company.

(4) Includes  options  exercisable  within 60 days of March 2, 1998 to purchase
91,833 shares of Common Stock.

(5) Includes  options  exercisable  within 60 days of March 2, 1998 to purchase
67,500 shares of Common Stock.

(6) Includes  options  exercisable  within 60 days of March 2, 1998 to purchase
19,000 shares of Common Stock.

(7)  Includes  76,293  shares of Common  Stock  that are  beneficially  owned by
Wellsford Karpf Zarrilli Ventures, L.L.C. ("WKZV"). Mr. Lowenthal is a member of
and may be deemed to beneficially own the 76,923 shares of Common Stock that are
beneficially owned by WKZ., Mr. Lowenthal disclaims  beneficial ownership of all
such shares.  Includes  options  exercisable  within 60 days to purchase  10,000
shares of Common Stock.

(8) Includes  options  exercisable  within 60 days to purchase 147,500 shares of
Common  Stock and  Indemnification  Shares (as Defined  herein under the caption
"Certain  Relationships and Related Transactions Advisor  Relationship") held in
escrow pursuant to the terms of the Merger.

(9) Includes  options  exercisable  within 60 days of March 2, 1998 to purchase
37,500 shares of Common Stock.

(10) Includes  options  exercisable  within 60 days of March 2, 1998 to purchase
13,000 shares of Common Stock.

(11) Includes  options  exercisable  within 60 days of March 2, 1998 to purchase
79,000 shares of Common Stock and Indemnification Shares held in escrow pursuant
to the terms of the Merger.

(12) Includes  options  exercisable  within 60 days of March 2, 1998 to purchase
20,000 shares of Common Stock. Also includes 13,952 shares owned by Mr.
Teninga's spouse.

(13)  Includes options  exercisable  within 60 days of March 2, 1998 to purchase
an aggregate of 570,333 shares of Common Stock.


ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Advisor Relationship

     From the Company's  incorporation until the completion of the Merger on May
1, the Advisor  provided various services to the Company pursuant to an Advisory
Agreement  dated  July  2,  1992  as  restated  July 1,  1994,  relating  to the
selection,  purchase,  financing and operation of the Company's  properties (the
"Advisory  Agreement"),  and  pursuant to other  agreements  regarding  property
management and offering administration activities.

     In connection with the Merger,  the  shareholders  of the Advisor  received
100,000 shares of Common Stock,  15,000 of which were placed in escrow to secure
the  indemnification  obligations  of  the  shareholders  of  the  Advisor  (the
"Indemnification  Shares").  Indemnification  Shares  that  are not  applied  to
indemnifiable  damages will be  distributed to the  shareholders  of the Advisor
upon the later of (a) April 1, 2001 or (b) the expiration of the last applicable
statute of limitations  within which tax-based  claims can be made. In addition,
certain  employees of the Advisor received  restricted shares of Common Stock as
an inducement to accept employment with the Company,  including 8,571, 8,571 and
4,286  shares of  Restricted  Stock issued to Messrs.  Rasley,  Braun and Hicks,
respectively.  The  restrictions  on one-half of the shares of Restricted  Stock
lapsed on April 1,  1997 and May 13,  1997 (the  closing  date of the  Company's
public offering of Common Stock),  respectively.  In addition,  effective May 1,
1996,  Mr. Braun received an additional  10,000 shares of Restricted  Stock that
vest in equal  annual  installments  on May 1 of each of the years 1999  through
2002 provided that Mr. Braun is then employed by the Company.

Consultant Arrangement

     Beginning in December  1996,  the Company  retained  Karpf,  Zarrilli & Co.
Incorporated  ("Karpf  Zarrilli")  as a consultant  in  connection  with certain
matters. In its capacity as consultant, the Company paid Karpf Zarrilli $118,750
plus  expenses of $10,884  through the closing of the public  offering,  May 13,
1997.  Steven A. Karpf and  Frederick P.  Zarrilli are (i)  Principals  of Karpf
Zarrilli and (ii) members of WKZV. WKZV is the beneficial owner of 76,923 shares
of Common Stock and has certain  registration rights with respect to such shares
of Common Stock. In 1996, WKZV nominated Mr.  Lowenthal,  a member of WKZV, as a
member of the Board of Directors.  (See "Directors and Executive Officers of the
Registrant").

Registration Rights

     Pursuant to the  Registration  Rights Agreement dated as of August 20, 1996
(the  "Registration  Rights  Agreement")  by and among the  Company  and  Fortis
Benefits Insurance Company ("FBIC"); Morgan Stanley Institutional Fund, Inc. -
U.S.  Real Estate  Portfolio  ("MSIF");  Morgan  Stanley SICAV  Subsidiary  S.A.
("MSSICAV");  Wellsford Karpf Zarrilli Ventures,  L.L.C.  ("WKZV");  Logan, Inc.
("Logan"); and Pension Trust Account No. 104972 Held by Bankers Trust Company as
Trustee ("Pension Trust Account No. 104972;" FBIC, MSIF, MS SICAV, WKZV, Logan
and Pension Trust Account No. 104972 are collectively  referred to herein as the
"Institutional  Investors")  the  Company  granted the  Institutional  Investors
certain registration rights with respect to the 3,867,000 shares of Common Stock
(the  "Registrable  Shares")  acquired by them  pursuant  to the Stock  Purchase
Agreement.  Certain of the Institutional Investors are principal stockholders of
the Company. On December 5, 1997, a Registration  Statement on Form S-3 covering
the  Registrable  Shares became  effective under the Securities Act of 1933. See
"Security Ownership of Certain Beneficial Owners and Management."

Management Loans

         Pursuant to the Employee  Loan  Program,  an aggregate of $4,654,176 in
aggregate  principal amount of loans made to certain  executive  officers by the
Company was  outstanding  at December 31, 1997.  Such loans bear interest at the
interest rate of borrowings under the Credit Facility and are payable quarterly.
See "Executive Compensation of Directors and Executive Officers--Limited Purpose
Employee Loan Program" for a description of such loans.


<PAGE>





                                     PART IV

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

         (a)      1. See Index to Financial Statements.

                  2. See Index to Financial Statements.

         All other  schedules are not submitted  because the required  criterias
not  been  met,  or  because  the  required   information  is  included  in  the
consolidated financial statements or notes thereto.


        (b) Reports on Form 8-K:

         During the fourth  quarter ended  December 31, 1997,  the Company filed
the following reports on Form 8-K.

         Report on Form 8-K dated October 14, 1997 reporting the following item:

         Item 2. Acquisition or Disposition of Assets

         Report on Form 8-K/A dated  November 14, 1997  reporting  the following
item:

         Item 2. Acquisition or Disposition of Assets

         Report on Form 8-K/A dated December 12, 1997:

         Item 2. Acquisition on Disposition of Assets

         Report on Form 8-K dated December 23, 1997

         Item 2. Acquisition on Disposition of Assets

         Report on Form 8-K dated December 30, 1997

         Item 2. Acquisition on Disposition of Assets


       (c) Exhibits

Exhibit
Number                     Description of Document
------                     -----------------------

  3.1                      Articles of Amendment and Restatement of the Company
                           filed with the Maryland State Department of
                           Assessments and Taxation September 23, 1997
                           (incorporated by reference to Exhibit 3.1 to the
                           Company's Quarterly Report on Form 10-Q for the
                           period end June 30, 1997

  3.2                      Amended and restated bylaws of the Company dated
                           September 11, 1997 (incorporated by reference to
                           Exhibit 4.2 to the Company's Registration Statement
                           on Form S-3 dated November 13, 1997) (No. 333-40129)

  4.1                      Registration Rights Agreement dated as of August 20,
                           1996 by and among the Company, Fortis Benefits
                           Insurance Company, Morgan Stanley Institutional Fund,
                           Inc. - U.S. Real Estate Portfolio, Morgan Stanley
                           SICAV Subsidiary SA, Wellsford Karpf Zarrilli
                           Ventures, L.L.C., Logan, Inc.; and Pension Trust
                           Account 104972 Held by Bankers Trust Company as
                           Trustee (incorporated by reference to Exhibit 2 to
                           the Company's Current Report on Form 8-K dated August
                           28, 1996)

  10.1                     Form of Unsecured Revolving Credit Agreement dated as
                           of January 6, 1998 among Great Lakes REIT, L.P., and
                           Bank of America National Trust Savings Association.

  10.2                     Amended and Restated Agreement of Limited Partnership
                           of Great Lakes REIT, L.P., dated December 27, 1996
                           (Incorporated by reference to Exhibit 5 to the
                           Company's Current Report on Form 8-K dated January
                           14, 1997 (the "January 1997 8-K"))

  10.3                     First Amendment to the Amended and Restated Agreement
                           of Limited Partnership of Great Lakes REIT, L.P.,
                           dated February 6, 1997 (incorporated by reference
                           to Exhibit 10.31 in the Company's Registration
                           Statement on Form S-11) (No. 333-22619)

* 10.4                     The Company's 1997 Equity and Performance Incentive
                           Plan

  10.5                     Indemnification Escrow Agreement dated April 1, 1996
                           between the Company, Richard A. May, Richard L.
                           Rasley, Tim A. Grodrian, and American National Bank
                           and Trust Company of Chicago (incorporated by
                           reference to Exhibit 10.8 from the Company's Form 10
                           Registration Statement (the "Form 10"))(Commission
                           File No. 0-28354)

* 10.6                     Restricted  Stock Agreement dated May 1, 1996 between
                           the Company and Raymond  Braun  (Incorporated  by
                           reference  to Exhibit 10.8.6 to the S-11)

* 10.7                     Stock Option Plan for Independent Directors and
                           Brokers (the "Directors Plan") dated July 2, 1992 as
                           amended November 18, 1997

* 10.8                     Form of  Non-Qualified  Stock Option Certificate
                           dated December 31, 1997, between the Company and Jay
                           Brinkerhoff (assigned to Fortis Benefits Insurance
                           Company), Daniel E. Josephs, Edward Lowenthal, Donald
                           E. Phillips, and Walter Teninga for 5,000 shares of
                           Common Stock for use in connection with options
                           granted pursuant to the Directors Plan (incorporated
                           by reference to Exhibit 10.11.12 to the S-11)

  10.9                     Form of Change in Control  Agreement between
                           the Company and Messrs.  May, Hunt,  Rasley,
                           Braun, Hicks, Mills and Scurto

* 10.10                    Form of Stock Option Agreement for use in connection
                           with incentive stock option, and pursuant to the
                           Company's 1997 Equity and Performance Incentive Plan;
                           Richard A. May, Patrick R. Hunt, Richard L. Rasley,
                           James Hicks, Raymond Braun, Kim S. Mills and Edith M.
                           M. Scurto entered into agreements in 1997 that
                           evidenced 320,000, 174,000, 172,000, 149,000,
                           149,000, 88,000 and 86,000 options to purchase Common
                           Stock,  respectively under the Company's  1997 Equity
                           and Performance Incentive Plan

* 10.11                    Limited Purpose Employee Loan Program of the Company
                           (incorporated by reference to Exhibit 10.61 of the
                           Form 10/A filed with the SEC on January 9, 1997)

  10.12                    Form  of  Limited   Purpose   Employee  Loan
                           Program   Promissory   Note   for   use   in
                           connection  with  limited  purpose  employee
                           loans

  10.13                    Amended and Restated Revolving Credit Agreement (the
                           "Amended and Restated Revolving Credit Agreement")
                           Dated as of December 27, 1996 among the Operating
                           Partnership and the Company and The First National
                           Bank of Boston and Bank of America Illinois and First
                           Bank National Association and Other Banks Which May
                           Become Parties to the Agreement and The First
                           National Bank of Boston as Agent (incorporated by
                           reference to Exhibit 3 of the January 1997 8-K)

  10.14                    Form of Amendment to the Amended and Restated
                           Revolving Credit Agreement dated as of March 1, 1997
                           (incorporated by reference to Exhibit 10.25 to the
                           S-11)

  23.1                     Consent of Ernst & Young LLP

  24.1                     Powers of Attorney

  27.1                     Financial Data Schedule for year ended December 31,
                           1997

  27.2                     Restated Financial Data Schedule for Nine Months
                           ended September 30, 1997

  27.3                     Restated Financial Data Schedule for Six Months ended
                           June 30, 1997

  27.4                     Restated Financial Data Schedule for Three Months
                           ended March 31, 1997

  27.5                     Restated Financial Data Schedules for year ended
                           December 31, 1996

  27.6                     Restated Financial Data Schedule for Nine Months
                           ended September 30, 1996

  27.7                     Restated Financial Data Schedule for Six Months ended
                           June 30, 1996

  27.8                     Restated Financial Data Schedule for Three Months
                           ended March 31, 1996

* Management contract or compensation plan or arrangement.

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


<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,  in the  City of
Chicago, State of Illinois on the 27th day of March, 1998.


                                    GREAT LAKES REIT, INC.


                                    By: /s/ Richard A. May
                                    -----------------------------------
                                    Richard A. May
                                    Chairman of the Board of Directors
                                    and Chief Executive Officer



         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 indicated and on the 27th day of March, 1998.

                                    Title

/s/ Richard A. May                  Chairman of the Board of Directors and Chief
----------------                    Executive Officer (Principal Executive
Richard A. May                      Officer)

/s/ Richard L. Rasley               Executive Vice President,
-----------------                   Secretary, Co-General Counsel and Director
Richard L. Rasley

/s/ James Hicks                     Senior Vice President-Finance,
------------------                  Chief Financial Officer and Treasurer
James Hicks                         (Principal Financial Officer and
                                    Principal Accounting Officer)

          *                         Director
---------------------
James J. Brinkerhoff

          *                         Director
---------------------
Daniel E. Josephs

          *                         Director
---------------------
Edward Lowenthal

          *                         Director
---------------------
Donald E. Phillips

          *                         Director
---------------------
Walter H. Teninga


*The  undersigned  by signing his name  hereunto  has hereby  signed this Annual
Report  Form 10-K on behalf of the  above-named  directors,  on March 31,  1998,
pursuant to a power of attorney  executed  on behalf of each such  director and
filed with the Securities and Exchange Commission.

By: /s/ James Hicks
---------------------
James Hicks

By: /s/ Richard A. May
---------------------
Richard A. May

<PAGE>




                             Great Lakes REIT, Inc.

                          Index to Financial Statements
                                  (Item 14(a))


Financial Statements

Report of Independent Auditors                                   F-2

Consolidated Balance Sheets as of December 31, 1997 and 1996     F-3

Consolidated  Statements of Income for the years ended
December 31, 1997,  1996 and 1995                                F-4

Consolidated  Statements of Changes in Stockholders'
Equity for the years ended December 31, 1997, 1996
and 1995                                                         F-5

Consolidated  Statements  of Cash Flows for the years
ended  December  31, 1997, 1996 and 1995                         F-7

Notes to Consolidated Financial Statements                       F-8


Financial Statement Schedules

  Schedule III - Real Estate and Accumulated Depreciation
  as of December 31, 1997                                        S-1



Schedules,  other than as listed above, are omitted for the reason that they are
not applicable or equivalent information has been included elsewhere herein.



                                      F-1
<PAGE>



                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Great Lakes REIT, Inc.

         We have audited the accompanying  consolidated  balance sheets of Great
Lakes REIT,  Inc. as of December 31, 1997 and 1996 and the related  consolidated
statements of income,  changes in stockholders'  equity, and cash flows for each
of the three  years in the  period  ended  December  31,  1997.  Our audit  also
included the  financial  statement  schedule  listed in the Index at Item 14(a).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule 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 consolidated  financial position of Great
Lakes REIT, Inc. at December 31, 1997 and 1996, and the consolidated  results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December  31,  1997 in  conformity  with  generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.


Ernst & Young LLP

Chicago,  Illinois January 29, 1998, except for Note 14, as to which the date is
March 13, 1998


                                      F-2

<PAGE>

<TABLE>
Great Lakes REIT, Inc.
Consolidated Balance Sheets
<CAPTION>
                                                                                  December 31,
                                                                      ------------------------------------
<S>                                                                       <C>               <C>
                                                                            1997              1996
Assets
Properties:
Land                                                                        $46,044,153       $31,529,000
Buildings, improvements and equipment                                      251,352,961       157,902,629
                                                                      ------------------  ------------------

                                                                            297,397,114       189,431,629
Less accumulated depreciation                                                11,456,297         5,309,666
                                                                      ------------------  ------------------

                                                                            285,940,817       184,121,963
Cash and cash equivalents                                                     1,436,542         1,688,173
Real estate tax escrows                                                         331,597         1,065,182
Rents receivable                                                              3,279,354         2,130,935
Deferred financing and leasing costs,                                         3,444,404         2,976,902
net of accumulated amortization
Goodwill, net of accumulated amortization                                     1,358,742         1,433,194
Other assets                                                                  1,345,098           732,533
                                                                      ------------------------------------

Total assets                                                               $297,136,554      $194,148,882
                                                                      ====================================

Liabilities and Stockholders' Equity

Bank loan payable                                                           $72,500,000       $63,802,368
Mortgage loans payable                                                       17,567,757        17,073,979
Bonds payable                                                                 5,030,000         5,235,000
Accounts payable and accrued liabilities                                      3,464,500         4,153,800
Accrued real estate taxes                                                     7,776,804         5,423,160
Prepaid rent                                                                  2,780,816         1,170,101
Security deposits                                                               924,938           695,570
                                                                      ------------------------------------

Total liabilities                                                           110,044,815        97,553,978
                                                                      ------------------------------------

Preferred stock ($0.01 par value, 10,000,000 authorized;                                            2,101
none issued in 1997 and 210,128 issued in 1996)
Common stock ($0.01 par value, 60,000,000 authorized;                           158,628            88,323
15,862,811 and 8,832,268 shares issued in 1997 and
1996 respectively)
Paid-in-capital                                                             196,430,927        98,096,085
Retained earnings (deficit)                                                  (4,500,901)          177,320
Employee stock loans                                                         (4,654,176)       (1,247,351)
Deferred compensation                                                           (72,500)         (251,335)
Treasury stock, at cost (21,784 shares)                                        (270,239)         (270,239)
                                                                      ------------------------------------

Total stockholders' equity                                                  187,091,739        96,594,904
                                                                      ------------------------------------

Total liabilities and stockholders' equity                                 $297,136,554      $194,148,882
                                                                      ====================================

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      F-3
<PAGE>

<TABLE>
Great Lakes REIT, Inc.
Consolidated Statements of Income
<CAPTION>
                                                                                                  Years Ended December 31,
                                                                         -----------------------------------------------------------
                                                                                      1997                1996                1995
<S>                                                                           <C>                   <C>                <C>

Revenues
Rental                                                                         $36,231,301          $20,249,565        $12,410,510
Reimbursements                                                                  10,688,046            4,814,005          2,354,598
Interest and other                                                                 744,514              168,739            200,818
                                                                         -----------------------------------------------------------

Total revenues                                                                  47,663,861           25,232,309         14,965,926
                                                                         -----------------------------------------------------------

Expenses
Real estate taxes                                                                7,702,203            3,954,144          2,624,588
Other property operating                                                        11,969,092            6,548,057          3,967,543
General and administrative                                                       3,379,121            2,242,165            922,652
Interest                                                                         4,308,173            3,778,065          2,296,457
Depreciation and amortization                                                    8,199,846            4,000,736          1,954,885
                                                                         -----------------------------------------------------------

Total expenses                                                                  35,558,435           20,523,167         11,766,125
                                                                         -----------------------------------------------------------

Income before gain on sale of properties                                        12,105,426            4,709,142          3,199,801

Gain on sale of properties                                                                            3,139,892
                                                                         -----------------------------------------------------------

Net income                                                                     $12,105,426           $7,849,034         $3,199,801
                                                                         ===========================================================

Earnings per common share                                                            $0.92                $1.33              $0.89
                                                                         ===========================================================

Weighted average common shares outstanding                                      13,140,124            5,884,708          3,605,450
                                                                         ===========================================================

Diluted earnings per common share                                                    $0.91                $1.32              $0.88
                                                                         ===========================================================


Weighted average common shares outstanding - diluted                            13,304,540            5,927,208          3,650,133
                                                                         ===========================================================

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>

<TABLE>
Great Lakes REIT, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997, 1996, and 1995
<CAPTION>

                                                 Preferred  Stock                          Common  Stock
                                        Shares             Amount              Shares             Amount             Paid in
                                        Outstanding                            Outstanding                           Capital
<S>                                     <C>            <C>                    <C>         <C>                      <C>
Balance at 1/1/95                                                              2,561,418            $25,614         $24,121,806

Net proceeds from the sale
of common stock                                                                1,698,610             16,986          18,810,244
Exercise of stock options                                                         32,410                324             322,571
Net income
Distributions/ dividends
($1.13 per share)
Distributions/ dividends
reinvested                                                                       228,458              2,285           2,606,731
Purchase of treasury stock                                                       (12,951)
                                        --------------------------------------------------------------------------------------------

Balance at 12/31/95                                                            4,507,945             45,209          45,861,352

Net proceeds from the sale
of stock                                 210,128              2,101            3,867,000             38,670          47,378,490
Exercise of stock options                                                        304,372              3,044           3,247,071
Net income
Distributions/ dividends
($1.20 per share)
Issuance of shares in
acquisition of Advisor,                                                          100,000              1,000           1,129,572
net of issuance costs of $219,428
Restricted stock awards                                                           40,000                400             479,600
Purchase of treasury stock                                                        (8,833)
                                        --------------------------------------------------------------------------------------------

Balance at 12/31/96                      210,128              2,101            8,810,484             88,323          98,096,085

Net proceeds from the sale
of common stock                         (210,128)            (2,101)           6,555,000             65,550          92,939,810
Exercise of stock options                                                        357,409              3,574           3,860,465
Net income
Distributions / dividends
($1.20 per share)
Issuance of shares for
property acquisitions                                                            118,134              1,181           1,534,567
                                        --------------------------------------------------------------------------------------------

Balance at 12/31/97                                                           15,841,027           $158,628        $196,430,927
                                        ============================================================================================

                                      F-5
<PAGE>

<CAPTION>

                                        Retained                                                                Total
                                        Earnings           Employee            Deferred           Treasury      Stockholders'
                                        (Deficit)          Stock Loans         Compensation       Stock         Equity

Balance at 1/1/95                        ($85,298)                                                             $24,062,122
<S>                                    <C>                <C>                 <C>               <C>           <C>

Net proceeds from the sale
of common stock                                                                                                          0
Exercise of stock options                                                                                                0
Net income                              3,199,801                                                                3,199,801
Distributions/ dividends
($1.13 per share)                      (3,900,456)                                                              (3,900,456)
Distributions/ dividends
reinvested                                                                                                               0
Purchase of treasury stock                                                                         (155,411)      (155,411)
                                 --------------------------------------------------------------------------------------------

Balance at 12/31/95                      (785,953)                                                 (155,411)    23,206,056

Net proceeds from the sale
of stock                                                                                                                 0
Exercise of stock options                                     (1,247,351)                                       (1,247,351)
Net income                              7,849,034                                                                7,849,034
Distributions/ dividends
($1.20 per share)                      (6,885,761)                                                              (6,885,761)
Issuance of shares in
acquisition of Advisor,                                                                                                  0
net of issuance costs of $219,428
Restricted stock awards                                                            (480,000)                      (480,000)
Purchase of treasury stock                                                                         (114,828)      (114,828)
Amortization of deferred                                                            228,665                        228,665
compensation
                                --------------------------------------------------------------------------------------------

Balance at 12/31/96                       177,320             (1,247,351)          (251,335)       (270,239)    22,555,815

Net proceeds from the sale
of common stock                                                                                                          0
Exercise of stock options                                     (3,406,825)                                       (3,406,825)
Net income                             12,105,426                                                               12,105,426
Distributions / dividends
($1.20 per share)                     (16,783,647)                                                             (16,783,647)
Issuance of shares for
property acquisitions                                                                                                    0
Amortization of deferred
 compensation                                                         178,835                         178,835
                                --------------------------------------------------------------------------------------------

Balance at 12/31/97                   ($4,500,901)           ($4,654,176)         ($72,500)       ($270,239)   $14,649,604
                                ============================================================================================
</TABLE>


The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>

<TABLE>
Great Lakes REIT, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
                                                                                            Years  Ended December 31,
                                                                               -----------------------------------------------------
                                                                                      1997               1996               1995

<S>                                                                             <C>                 <C>                 <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                            $12,105,426         $7,849,034     $3,199,801
Adjustments to reconcile net income to cash
     flows from operating activities
   Depreciation and amortization                                                        8,378,681          4,229,401      1,954,885
   Gain on sale of properties                                                                             (3,139,892)
Net changes in assets and liabilities
   Rents receivable                                                                    (1,148,419)          (846,619)      (714,156)
   Real estate tax escrows and other assets                                               421,020            293,536     (1,053,270)
   Accounts payable, accrued expenses and other liabilities                             1,150,783          3,513,972      1,124,108
   Accrued real estate taxes                                                            2,353,644          2,222,590      1,699,512
   Payment of deferred leasing costs                                                   (1,832,010)        (1,293,616)      (561,373)
                                                                               -----------------------------------------------------
Net cash provided by operating activities                                              21,429,125         12,828,406      5,649,507
                                                                               -----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of properties                                                                (97,757,922)       (97,563,034)   (47,838,629)
Additions to buildings, improvements and equipment                                     (5,999,111)        (6,305,673)    (2,861,135)
Proceeds from property sales, net                                                                         11,707,438
Other investing activities                                                               (300,000)           514,846       (950,000)
                                                                               -----------------------------------------------------
Net cash used by investing activities                                                (104,057,033)       (91,646,423)   (51,649,764)
                                                                               -----------------------------------------------------

Proceeds from sale of common and preferred stock                                      101,602,500         50,271,000     20,628,232
Payment of stock offering costs                                                        (8,599,241)        (2,851,739)    (1,801,002)
Proceeds from exercise of stock options                                                   457,214          2,002,764        322,895
Proceeds from bank and mortgage loans payable                                         100,425,000         39,549,220     27,503,148
Distributions/ dividends                                                              (16,783,647)        (6,885,761)    (3,523,211)
Distributions/ dividends reinvested                                                                                       2,609,016
Purchase of treasury stock                                                                                  (114,828)      (155,411)
Payment of bank and mortgage loans and bonds                                          (94,428,005)        (1,745,043)      (740,996)
Payment of deferred financing costs                                                      (297,544)        (1,022,151)      (216,280)
                                                                               -----------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                              82,376,277         79,203,462     44,626,391
                                                                               -----------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     (251,631)           385,445     (1,373,866)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                            1,688,173          1,302,728      2,676,594
                                                                               -----------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                                 $1,436,542         $1,688,173     $1,302,728
                                                                               =====================================================

Supplemental disclosure of cash flow
Interest paid                                                                          $4,136,198         $3,542,064     $2,311,568
                                                                               =====================================================


Non cash financing transactions
Issuance of shares to acquire Advisor                                                                     $1,350,000
                                                                               =====================================================
Restricted stock awards                                                                                     $480,000
                                                                               =====================================================
Employee stock loans                                                                   $3,406,825         $1,247,351
                                                                               =====================================================
Issuance of shares to acquire properties                                               $1,535,748
                                                                               =====================================================
Mortgages and bonds assumed to acquire properties                                      $2,989,415                        $5,590,000
                                                                               =====================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      F-7
<PAGE>

                             GREAT LAKES REIT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Summary of Significant Accounting Policies

         Nature of Activities

         Great Lakes REIT, Inc., ( the "Company"),  a Maryland corporation,  was
formed on June 22,  1992,  to  invest in  income-producing  real  property.  The
principal  business  of the  Company  is  the  ownership,  management,  leasing,
renovation and acquisition of suburban office and industrial  properties located
in the Midwest. At December 31, 1997, the Company owned and operated 34
 properties   located  in  suburban  areas  of  Chicago,   Detroit,   Milwaukee,
Cincinnati,  Columbus and Minneapolis.  The Company leases office and industrial
space to over 500 tenants in a variety of businesses.

         Principles of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company and its wholly-owned  subsidiaries  and  partnership,  each of which was
formed in 1996.  Significant  intercompany  accounts and transactions  have been
eliminated in consolidation.

         Properties

         Costs  incurred  for the  acquisition,  development,  construction  and
improvement of properties are capitalized.  Certain costs of yet-to-be  acquired
properties,  including  deposits and professional fees, are capitalized as other
assets.  These costs are subsequently  capitalized as property acquisition costs
or charged to expense when it becomes  apparent that acquisition of a particular
property is not  probable.  Maintenance  and repairs are charged to expense when
incurred.

         Depreciation  of buildings is computed using the  straight-line  method
over the estimated useful lives of the assets, generally 40 years.  Depreciation
of tenant  improvements  is  computed  using the  straight-line  method over the
shorter of the lease term or useful life. For the years ended December 31, 1997,
1996 and 1995,  depreciation  expense  amounted to $6,463,342,  $3,169,182,  and
$1,665,730, respectively.

         Properties  are  carried  at  cost,  which  is  not  in  excess  of net
realizable  value. The Company  recognizes  impairment losses for its properties
when indicators of impairment are present and a property's expected undiscounted
cash flows are not sufficient to recover the property's carrying amount.

         Deferred Costs

         Deferred  costs  consist  principally  of  financing  fees and  leasing
commissions that are amortized over the terms of the respective agreements.

         Revenue Recognition

         Minimum rentals are recognized on a  straight-line  basis over the term
of the related leases.  Additional rents from expense  reimbursements for common
area maintenance  expenses and real estate taxes are recognized in the period in
which the related expenses are incurred.

         Cash and Cash Equivalents

         The Company  considers all highly liquid  investments  purchased with a
maturity of three  months or less to be cash  equivalents.  At December 31, 1997
and 1996,  the Company had  $1,411,796  and $418,528,  respectively,  in a money
market fund.

         Income Taxes

         The Company has elected to be treated as a real estate investment trust
("REIT") under the applicable  provisions of the Internal  Revenue Code of 1986,
as amended. In order to qualify as a REIT, the Company is required to distribute
to stockholders at least 95% of its taxable income and to meet certain asset and
income tests as well as certain other  requirements.  Accordingly,  no provision
for income taxes has been reflected in the financial statements.

                                      F-8
<PAGE>

         As of December 31, 1997,  properties,  rents  receivable,  goodwill and
prepaid  rent have a federal  income  tax basis of  approximately  $284,250,000,
$1,018,000, $-0- and $-0-, respectively.

         Earnings Per Share

         In 1997, the Financial  Accounting Standards Board issued Statement No.
128,  Earnings Per Share.  Statement 128 replaced the calculation of primary and
fully  diluted  earnings  per share with basic and diluted  earnings  per share.
Unlike  primary  earnings  per share,  basic  earnings  per share  excludes  any
dilutive  effects of  options,  warrants  and  convertible  securities.  Diluted
earnings  per share is very similar to the  previously  reported  fully  diluted
earnings per share.  All  earnings  per share  amounts for all periods have been
presented,  and where  appropriate,  restated  to conform to the  Statement  128
requirements.

         Stock Options

         The Company has elected to follow  Accounting  Principles Board Opinion
No. 25,  "Accounting  for Stock Issued to Employees" (APB 25), in accounting for
its stock options.  Under APB 25, no compensation  expense is recognized because
the exercise price of the Company's employee stock options equals or exceeds the
market price of the underlying stock at the date of grant.

         Fair Value of Financial Instruments

     The Company  discloses  information  concerning the fair value of financial
instruments for which it is practical to estimate such fair values. The carrying
amounts reported for cash and cash equivalents in the accompanying  consolidated
balance sheets  approximate its fair value. The carrying amount of the Company's
long-term debt  approximates  its fair value at December 31, 1997 and 1996 based
upon (a) the fixed  interest  rates on mortgage  loans payable are comparable to
interest  rates offered in the market as of the  respective  balance sheet dates
and (b) the variable interest rates on other long-term debt.

         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 amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

2.       Deferred Costs

         Deferred  costs  consisted  of the  following  at December 31, 1997 and
1996:

                                                  1997              1996
Deferred financing costs                          $1,439,491        $1,526,503
Deferred leasing costs                             4,072,356         2,345,455
                                            ----------------  ----------------
                                                   5,511,847         3,871,958
Less accumulated amortization                      2,067,443           895,056
                                            ----------------  ----------------
                                                  $3,444,404        $2,976,902
                                            ================  ================

         During the years ended December 31, 1997,  1996 and 1995,  amortization
of financing costs was $1,098,829,  $427,375,  and $130,500,  respectively,  and
amortization   of  leasing   costs  was   $563,223,   $348,340,   and  $158,655,
respectively.

3.       Long-Term Debt

         Mortgage  loans  payable  aggregated  $17,567,757  and  $17,073,979  at
December 31, 1997 and 1996,  respectively.  The mortgage  loans payable  require
monthly payments of principal and interest. Interest rates at December 31, 1997,
ranged from 7.08% to 8.95%.

         The Company has obtained a bank letter of credit to secure repayment of
the bonds payable in an amount of  approximately  $5.3 million.  The Company has
guaranteed  repayment  of the  letter of credit to the  issuing  bank as well as
granted the issuing bank a first mortgage on the property.  The interest rate on
the bonds  (4.25% per annum at December  31,  1997) is reset  weekly by the bond
placement agent.

                                      F-9
<PAGE>
     On March 13, 1998, the Company accepted a commitment for a new $100 million
unsecured  credit  facility (the  "Unsecured  Facility")  (see Note 14) which is
expected  to be  funded  upon  closing  of the  transaction.  The  terms  of the
Unsecured  Facility  include  maturity  in March 2001 and  interest at a rate of
LIBOR plus 1% to 1.3% depending on overall  Company  leverage,  as defined.  The
borrowings   under  the   Unsecured   Facility   would  be  limited  by  certain
loan-to-value  covenants  related to the  Company's  properties.  The  Unsecured
Facility will replace the Company's  prior facility under which  $72,500,000 was
outstanding at December 31, 1997.  This prior facility  provided for interest at
LIBOR plus 1.5% (7.5% at December 31, 1997).

         The following is a summary of principal  maturities  of mortgage  loans
and bonds payable after giving consideration to the Unsecured Facility described
above:

      Year Ending December 31,              Amount
                1998                             $553,978
                1999                              615,975
                2000                              675,506
                2001                           73,237,448
                2002                              801,999
             Thereafter                        19,212,851
                                               ----------
                                              $95,097,757
                                              ===========

         At  December  31,   1997,   properties   with  a  carrying   amount  of
approximately  $181.1 million were pledged as collateral  under the various debt
agreements.

4.       Related Parties
         On April 1, 1996, the Company  acquired all the  outstanding  shares of
Equity  Partners  Ltd.  (the  "Advisor")  in exchange for 100,000  shares of its
common stock (the "Merger"). The Merger has been accounted for as a purchase. Of
the total purchase price of $1,565,726,  $1,489,033 was assigned to goodwill and
$76,693 to the net  tangible  assets of the  Advisor  acquired  by the  Company.
Goodwill  amortization  is  computed  on a  straight-line  basis  over a 20-year
period.  As of April 1, 1996, the Company  employed the employees of the Advisor
and is now self-managed and self-advised.  Certain employees of the Advisor have
received 40,000  restricted  shares of common stock.  Certain  restricted shares
(30,000  shares) vested to the recipients in 1997. The other  restricted  shares
(10,000  shares)  vest 25% on May 1,  1999,  and 25% on May 1 of the next  three
years (2000-2002)  provided the recipient is still employed by the Company.  The
fair  value of the  restricted  shares  at the  dates of  grant  ($480,000)  was
deferred  and is being  recognized  as  compensation  expense  over the  vesting
periods.

         Pursuant to various advisory and management  agreements,  the following
fees were  incurred  with respect to the  Advisor,  or  affiliates  prior to the
Merger. Two directors of the Company were shareholders of the Advisor.
<TABLE>
<CAPTION>

                                                                1996                   1995
                                                            --------               --------
<S>                                                        <C>                     <C>
Property acquisition fees                                  $  15,750               $787,256
Stock offering fees                                               --                131,747
Stock selling commissions (a)                                     --                217,046
Advisory fees (b)                                            203,697                608,612
Property management fees (b)                                 217,971                564,369
Construction management fees                                 107,717                 73,549
Other, primarily legal fees                                   17,712                 30,703
</TABLE>

(a)      Selling commissions were paid to owners and/or employees of the Advisor
who are registered representatives.

(b) Advisory fees are classified as general and administrative expenses in these
financial  statements.  Property  management  fees are  classified  as  property
operating expenses in these financial statements.

         Certain computer  hardware and software owned by the Company was leased
to the Advisor  under a five-year  lease that would have expired  April 1, 1999.
Semi-annual  rental payments of $9,103 were made to the Company from the Advisor
until the lease agreement was terminated on the date of the Merger.

                                      F-10
<PAGE>
5.       Stock Options
         Prior to 1996,  the Company had a stock  option plan that  provides for
the granting of options to non-employee directors. At December 31, 1997, options
on 130,590 shares were available for future grant.

         In 1996, the Company  adopted the 1996 Incentive Stock Option Plan (the
"1996 Plan") which  authorized the issuance of 500,000 shares of common stock to
key employees.  The 1996 Plan was superseded by the 1997 Equity and  Performance
Incentive Plan (the "1997 Plan").

         In 1997, the Company adopted the 1997 Plan whereby  2,250,000 shares of
common stock were reserved for issue to key  employees.  In connection  with the
1997 Plan,  options on shares issued  pursuant to the 1996 Plan (94,000) are now
covered by the 1997 Plan. At December 31, 1997,  838,000  shares were  available
for future grant under the 1997 Plan.

         For options  granted in 1997, 1996 and 1995, the exercise prices at the
dates of grant  were equal to or  greater  than the fair value of the  Company's
stock. Accordingly, no compensation expense was recognized in these years.

         A  summary  of  the  Company's   stock  option   activity  and  related
information for the years ended December 31, 1997, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
                                 1997                                1996                              1995

                              Options            Weighted         Options           Weighted        Options        Weighted
                                                  Average                            Average                        Average
                                                 Exercise                           Exercise                       Exercise
                                                    Price                              Price                          Price
<S>     <C>                 <C>                  <C>            <C>                 <C>           <C>              <C>
Balance 1/1                   601,628              $11.69         735,576             $11.02        451,129          $10.10
                            1,343,000               16.52         170,424              12.76        316,857           12.24
Exercised                     370,725               11.30         304,372              10.68         32,410            9.96
                      ---------------  ------------------  -------------- ------------------ -------------- ---------------
Balance 12/31               1,573,903              $15.91         601,628             $11.69        735,576          $11.02
                      ===============  ==================  ============== ================== ============== ===============

Exercisable                   779,847              $15.29         507,628             $11.45        735,576          $11.02
                      ===============  ==================  ============== ================== ============== ===============
</TABLE>

         The weighted  average  fair value of the options  granted in 1997 where
the stock price equals the exercise  price is $3.18.  The weighted  average fair
value of options  granted where the stock price is less than the exercise  price
is $1.43.  The weighted  average fair value of options granted in 1996 where the
stock price equals the exercise price is $0.13 per share.  The weighted  average
fair value of options  granted in 1995 where the stock price equals the exercise
price at date of grant is $0.12 per share.  The  weighted  average fair value of
options granted in 1995 where the stock price is less than the exercise price at
the date of grant is $0.02 per  share.  The  weighted  average  life of  options
outstanding at December 31, 1997, was 8.96 years.

         Pro forma  information  regarding  net income and earnings per share is
required by FASB Statement 123 "Accounting for  Stock-Based  Compensation,"  and
has been  determined  as if the Company had  accounted  for its  employee  stock
options under the fair value method of that Statement.  The fair value for these
options was estimated at the date of grant using a Black-Scholes  option pricing
model  with the  following  weighted-average  assumptions  for  1997:  risk-free
interest rate of 5.75%;  dividend yields of 6.17% to 7.5%; volatility factors of
the expected market price of the Common Stock of 0.341%;  and a weighted-average
expected life of the options of three years.

         The  Black-Scholes  option  valuation  model was  developed  for use in
estimating  the fair value of traded  options that have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

                                      F-11
<PAGE>
         The  effects  on 1997 and 1996  pro  forma  net  income  and pro  forma
earnings per common share, both basic and diluted,  of amortizing to expense the
estimated fair value of stock options are not necessarily  representative of the
effects on net income to be reported  in future  years due to such things as the
vesting  period  of the  stock  options,  and  the  potential  for  issuance  of
additional stock options in future years.

         For purposes of pro forma disclosures,  the estimated fair value of the
options is amortized to expense over the options' vesting period.  The Company's
unaudited pro forma  information  follows for the years ended  December 31, 1997
and 1996:

                                               1997               1996
Pro forma net income                           $10,567,711         $7,838,767
Pro forma basic earnings per
common share                                         $0.80              $1.33
Pro forma diluted earnings
per common share                                     $0.79              $1.32

         The  Company  has a  limited  purpose  employee  loan  program  whereby
employees may borrow up to 100% of the cost of exercising  stock options held by
the employee.  Such loans bear  interest at the Company's  cost of funds payable
quarterly, are recourse to the employees, have a term of five years provided the
employee  remains  employed by the  Company,  and are secured by a pledge of the
common stock acquired by the employee  through this program.  As of December 31,
1997,   employees  had  acquired   356,231  shares  through  this  program  with
outstanding loan amounts of $4,654,176 due the Company. Such amount is reflected
as a reduction of stockholders' equity until the loans are repaid.

6.       Stock Offerings

         In 1996, the Company sold  3,867,000  shares of common stock at $13 per
share and issued  210,128  shares of Class A  Convertible  Preferred  Stock (the
"Preferred  Shares").  The Company  received  proceeds of $47.4  million (net of
offering  costs of  $2,851,739)  from the sale of these  shares.  The  Preferred
Shares were canceled in 1997.

         In February  1997,  the Company  issued  118,134 shares of common stock
with a total value at issuance of $1,535,748 in connection  with the acquisition
of the Markham, Illinois and Elgin, Illinois properties.

         In May 1997,  the  Company  closed the initial  public  offering of its
common shares. The Company sold 6.55 million shares of common stock at the price
of $15.50 per share including  shares issued upon exercise of the  underwriter's
over  allotment  option.  Net  proceeds to the Company  were  approximately  $93
million,  substantially  all of which was used to repay its bank lines of credit
and  other  indebtedness  including  certain  mortgage  debt  on  the  Company's
properties.  With the completion of the initial public  offering,  the Preferred
Shares were canceled.

7.       Leases

         The Company  leases office and  industrial  properties to tenants under
noncancellable  operating  leases that expire at various dates through 2008. The
lease  agreements   typically  provide  for  a  specific  monthly  payment  plus
reimbursement of certain operating expenses.

The following is a summary of minimum future rental revenue under noncancellable
operating leases:

      Year ending December 31,              Amount
                1998                           $44,166,562
                1999                            38,827,645
                2000                            31,993,193
                2001                            22,409,580
                2002                            14,463,867
             Thereafter                         24,688,289
                                     ---------------------
                                              $176,549,136
                                     =====================

         Minimum  future  rentals do not include  amounts that are received from
tenants as a reimbursement of property operating expenses.

                                      F-12
<PAGE>
8.       Distributions

         The Company declared periodic distributions of $16,783,647, $6,885,761,
and $3,900,456 to  stockholders  of record during the calendar years 1997,  1996
and 1995,  respectively.  Of the $3,900,456 of distributions for 1995,  $504,564
were paid in January of the next calendar  year,  respectively.  The Company has
determined the stockholders'  treatment for Federal income tax purposes to be as
follows:

<TABLE>
<CAPTION>

                                                       1997                          1996             1995
<S>                                             <C>                            <C>                           <C>
Ordinary income                                 $14,848,493                    $6,078,061                    $3,410,249
Return of capital                                 1,935,154                       807,700                       490,207
                              ----------------------------- ----------------------------- -----------------------------
Total                                           $16,783,647                    $6,885,761                    $3,900,456
                              ============================= ============================= =============================
</TABLE>

9.       Property Acquisitions

         The following properties were acquired in 1997 and 1996 and the results
of their  operations  are  included  in the  statements  of  income  from  their
respective dates of acquisition.

<TABLE>

                                              Total Acquisition Price

<CAPTION>
Location                                                          Date               1997                 1996
                                    Acquired
<S>                                                            <C>             <C>                  <C>
Markham, IL                                                    2/10/97         $1,262,887
Elgin, IL                                                      2/10/97          3,816,230
375 Bishop's Way
Brookfield, WI                                                 4/18/97          4,961,434
1750 East Golf Road
Schaumburg, IL                                                 9/01/97         19,831,768
425 Metro Place North
Dublin, OH                                                     9/30/97          7,158,772
655 Metro Place South
Dublin, OH                                                     9/30/97         19,639,612
3455, 3550, 3555 Salt Creek Lane
Arlington Heights, IL                                         10/10/97          5,176,641
Farmington Hills, MI                                          12/10/97         23,828,038
Ann Arbor, MI                                                 12/17/97         16,607,703
1251 Plum Grove Rd.
Schaumburg, IL                                                 1/01/96                              $1,080,911
Springdale, OH                                                 4/17/96                               6,145,650
Lincolnshire, IL                                               7/24/96                               2,840,378
4860-5000 Blazer Memorial Parkway
Dublin, OH                                                     9/25/96                               8,382,268
Downers Grove, IL                                             11/01/96                               9,373,393
West Allis, WI                                                11/08/96                               7,994,581
Troy, MI                                                      11/22/96                              16,100,416
St. Paul, MN                                                  12/13/96                              14,327,418
40 Oak Hollow
Southfield, MI                                                12/18/96                               7,306,200
Centennial Center
Schaumburg, IL                                                12/27/96                              24,011,819

</TABLE>

10.      Property Dispositions

         In October 1996,  the Company sold for cash its property  located at 10
Oak Hollow,  Southfield,  Michigan,  for a contract  price of  $9,300,000  (less
selling  costs  of  approximately  $278,771)  resulting  in a gain  on  sale  of
$2,273,800.  The  proceeds  from the sale were  invested in the  Downers  Grove,
Illinois property (see Note 9) via a tax-deferred exchange.

                                      F-13
<PAGE>
         In December 1996, the Company sold for cash its property located at 830
West End Court in Vernon  Hills,  Illinois,  for a contract  price of $2,778,000
(less selling  costs of  approximately  $91,791)  resulting in a gain on sale of
$866,092.  Long term debt in an amount of $926,051 was retired  concurrent  with
the sale.  The proceeds from the sale were  invested in the St. Paul,  Minnesota
property (see Note 9) via a tax-deferred exchange.


11.      Earnings Per Share

         The  following  table sets forth the  computation  of basic and diluted
earnings per share:
<TABLE>
<CAPTION>

                                                                               1997        1996                    1995
Numerator:
<S>                                                                     <C>                <C>               <C>
Net income                                                              $12,105,426        $7,849,034        $3,199,801
Numerator for basic and fully diluted earnings
per share                                                                12,105,426         7,849,034         3,199,801

Denominator:
Denominator for basic earnings per share
Weighted average shares                                                  13,140,124         5,884,708         3,605,450

Effect of dilutive securities
Employee stock options                                                      164,416            42,500            44,683
                                                               --------------------  ----------------  ----------------

Denominator for fully diluted earnings per share                         13,304,540         5,927,208         3,650,133
                                                               ====================  ================  ================

Basic earnings per share                                                      $0.92             $1.33             $0.89
                                                               ====================  ================  ================

Diluted earnings per share                                                    $0.91             $1.32             $0.88
                                                               ====================  ================  ================

</TABLE>

12.      Quarterly Financial Data (Unaudited)

         The 1996 and first three  quarters of 1997  earnings per share  amounts
have been restated to comply with  Statement of Financial  Accounting  Standards
No. 128, Earnings per Share.

<TABLE>
<CAPTION>
                                         3/31/97                 6/30/97                 9/30/97                12/31/97
<S>                                  <C>                     <C>                     <C>                     <C>
Revenues                             $10,643,218             $11,074,050             $11,817,223             $14,129,370
Net income                            $1,808,634              $2,303,731              $4,115,734              $3,877,327
Basic earnings
per share                                  $0.20                   $0.19                   $0.26                   $0.25
Diluted earnings
per share                                  $0.20                   $0.18                   $0.26                   $0.24

<CAPTION>
                                         3/31/96                 6/30/96                 9/30/96                12/31/96
Revenues                              $5,543,783              $5,927,282              $6,141,521              $7,619,723
Net income                              $971,412                $939,374              $1,001,779              $4,936,469
Basic earnings
per share                                  $0.21                   $0.20                   $0.17                   $0.59
Diluted earnings
per share                                  $0.21                   $0.19                   $0.17                   $0.58
</TABLE>

                                      F-14
<PAGE>
13.      Pro Forma Information (unaudited)

         The following  unaudited pro forma summary  presents  information as if
the Company's property acquisitions,  property dispositions, and sales of common
stock through  December 31, 1997 had occurred at the beginning of each year. The
pro forma information is provided for  informational  purposes only. It is based
on historical  information and does not  necessarily  reflect the actual results
that would have occurred nor is it  necessarily  indicative of future results of
operations of the Company.


                                          1997                      1996
Total revenue                             $63,195,000               $57,792,000
Net income                                $16,674,000               $14,564,000
Basic earnings per share                  $1.05                     $0.92
Diluted earnings per share                $1.04                     $0.92

14.      Subsequent Events

         On January 6, 1998,  the Company  entered into a $35 million  unsecured
revolving  loan  agreement  with a  commercial  bank.  Amounts  due  under  this
agreement mature July 6, 1998.

         On January 7,  1998,  the  Company  bought  the Star Bank  Building  in
Columbus, Ohio, for a contract price of $22 million.

         In February,  1998,  the Company  entered into a contract to purchase a
96,000  square  foot  to-be-constructed  office  building  located in  Pewaukee,
Wisconsin,  for a contract  price of  approximately  $11  million.  The  Company
expects to complete this purchase in June 1999 subject to the seller meeting the
terms and conditions of the purchase contract.

         In February 1998, the Company sold its Bloomington,  Minnesota property
for a contract  price of $1.4 million which  approximated  the net book value of
the property.

         On March 13, 1998,  the Company  accepted a  commitment  for a new $100
million unsecured credit facility (Note 3).






                                      F-15
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
                                                                           Costs Capitalized
                                        Initial Cost to the Company    Subsequent to Acquisition
                                        ---------------------------    -------------------------
                                                       Buildings &            Buildings &
                            Encumbrance         Land  Improvements       Land Improvements
<S>                         <C>         <C>          <C>              <C>    <C>

1900 East Golf Road                 (B)   $3,800,000   $20,211,819     -         $951,707
Schaumburg, IL

1750 East Golf Road                   -   $2,300,000   $17,531,768     -          $26,155
Schaumburg, IL

160-185 Hansen Court                  -   $2,100,000    $3,210,289     -         $870,371
Wood Dale, IL

3455, 3550, 3555 Salt Creek Lane      -     $850,000    $4,326,641     -               $0
Arlington Heights, IL

601 Campus Drive                      -     $900,000    $2,263,967     -       $1,059,986
Arlington Heights, IL

1251 Plum Grove Road                  -     $372,750      $708,161     -         $257,651
Schaumburg, IL

1011 Touhy Avenue                     -     $720,000    $3,932,248     -       $2,095,378
Des Plaines, IL

2800 River Road                     (B)   $1,300,000    $3,461,053     -         $655,665
Des Plaines, IL

1660 Feehanville Drive              (B)   $1,100,000    $4,302,526     -         $285,166
Mount Prospect, IL

565 Lakeview Parkway                (B)   $1,300,000    $3,581,675     -         $372,175
Vernon Hills, IL

175 E. Hawthorn Parkway               -   $1,600,000    $4,721,338     -         $936,899
Vernon Hills, IL

Two Marriott Drive                  (B)     $610,000    $2,230,378     -          $27,526
Lincolnshire, IL

3400 Dundee Road                      -     $607,500    $3,475,922     -         $676,689
Northbrook, IL

3010 & 3020 Wood Creek Drive        (B)   $2,385,000    $6,988,393     -          $39,364
Downers Grove, IL

823 Commerce Drive                  (B)     $500,000    $1,260,930     -       $3,198,566
Oak Brook, IL

1675 Holmes Road             $2,173,457     $842,609    $2,973,621     -               $0
Elgin, IL

16601 S. Kedzie Avenue                -     $132,544    $1,130,342     -          $31,152
Markham, IL

11270 W. Park Place                 (B)     $940,000   $14,735,908     -         $573,226
Milwaukee, WI

11925 W. Lake Park Drive              -     $318,750    $1,819,058     -         $286,834
Milwaukee, WI

2514 S. 102nd Street & 10150        (B)     $975,000    $7,019,581     -         $219,226
W. National Avenue
West Allis, WI

150, 175, 250 Patrick Blvd.  $3,269,300   $2,600,000    $3,964,742     -         $822,923
Brookfield, WI

                                      S-1
<PAGE>
375 Bishop's Way                      -     $600,000    $4,361,434     -          $19,665
Brookfield, WI

2550 University Avenue West         (B)     $850,000   $13,477,418     -         $272,905
St. Paul, MN

2221 University Avenue SE    $5,030,000   $1,100,000    $7,090,374     -         $198,655
Minneapolis, MN

11100 Hampshire Avenue                -     $310,000    $1,123,932     -          $24,353
Bloomington, MN

777 East Eisenhower Parkway           -   $4,000,000   $12,607,703     -          $32,782
Ann Arbor, MI

32255 Northwestern Highway  $12,125,000   $3,700,000   $20,128,038     -               $0
Farmington Hill, MI

1301 W. Long Lake Road              (B)   $2,500,000   $13,600,416     -         $418,091
Troy, MI

No. 40 OakHollow                    (B)   $1,250,000    $6,056,200     -         $244,804
Southfield, MI

24800 Denso Drive                   (B)   $1,400,000    $4,546,304     -         $784,726
Southfield, MI

655 Metro Place South                 -   $1,470,000   $18,169,612     -           $7,635
Dublin, OH

4860-5000 Blazer Memorial Pkwy      (B)   $1,340,000    $7,042,268     -         $348,215
Dublin, OH

425 Metro Place North                 -     $620,000    $6,538,772     -           $6,202
Dublin, OH

30 Merchant Street                  (B)     $650,000    $5,495,650     -       $1,133,088
Springdale, OH

                           ---------------------------------------------------------------
Totals                      $22,597,757  $46,044,153  $234,088,482         $0 $16,877,782
                           ===============================================================

                                      S-2
<PAGE>
<CAPTION>
                             Gross Amount at which
                             Carried at December 31, 1997
                                           Buildings &               Accumulated   Date    Method of
                                    Land  Improvements        Total Depreciation Acquired  Depreciation
<S>                           <C>       <C>            <C>          <C>         <C>       <C>

1900 East Golf Road           $3,800,000   $21,163,526  $24,963,526     $577,620  Dec-96      (A)
Schaumburg, IL

1750 East Golf Road           $2,300,000   $17,557,923  $19,857,923     $130,334  Sep-97      (A)
Schaumburg, IL

160-185 Hansen Court          $2,100,000    $4,080,660   $6,180,660     $659,930  Jan-94      (A)
Wood Dale, IL

3455, 3550, 3555 Salt Creek Ln  $850,000    $4,326,641   $5,176,641      $22,535  Oct-97      (A)
Arlington Heights, IL

601 Campus Drive                $900,000    $3,323,953   $4,223,953     $630,631  May-93      (A)
Arlington Heights, IL

1251 Plum Grove Road            $372,750      $965,812   $1,338,562      $96,947  Jan-96      (A)
Schaumburg, IL

1011 Touhy Avenue               $720,000    $6,027,626   $6,747,626     $774,402  Dec-93      (A)
Des Plaines, IL

2800 River Road               $1,300,000    $4,116,718   $5,416,718     $446,943  Feb-95      (A)
Des Plaines, IL

1660 Feehanville Drive        $1,100,000    $4,587,692   $5,687,692     $264,829  Aug-95      (A)
Mount Prospect, IL

565 Lakeview Parkway          $1,300,000    $3,953,850   $5,253,850     $227,522  Dec-95      (A)
Vernon Hills, IL

175 E. Hawthorn Parkway       $1,600,000    $5,658,237   $7,258,237     $735,025  Sep-94      (A)
Vernon Hills, IL

Two Marriott Drive              $610,000    $2,257,904   $2,867,904      $82,056  Jul-96      (A)
Lincolnshire, IL

3400 Dundee Road                $607,500    $4,152,611   $4,760,111     $714,468  Oct-93      (A)
Northbrook, IL

3010 & 3020 Wood Creek Drive  $2,385,000    $7,027,757   $9,412,757     $199,124  Nov-96      (A)
Downers Grove, IL

823 Commerce Drive              $500,000    $4,459,496   $4,959,496     $299,479  Nov-95      (A)
Oak Brook, IL

1675 Holmes Road                $842,609    $2,973,621   $3,816,230      $65,048  Feb-97      (A)
Elgin, IL

16601 S. Kedzie Avenue          $132,544    $1,161,494   $1,294,038      $67,362  Feb-97      (A)
Markham, IL

11270 W. Park Place             $940,000   $15,309,134  $16,249,134     $966,942  Sep-95      (A)
Milwaukee, WI

11925 W. Lake Park Drive        $318,750    $2,105,892   $2,424,642     $310,205  Jun-93      (A)
Milwaukee, WI

2514 S. 102nd Street & 10150    $975,000    $7,238,807   $8,213,807     $210,865  Nov-96      (A)
W. National Avenue
West Allis, WI

150, 175, 250 Patrick Blvd.   $2,600,000    $4,787,665   $7,387,665     $731,286  Jun-94      (A)
Brookfield, WI

375 Bishop's Way                $600,000    $4,381,099   $4,981,099      $77,921  Apr-97      (A)
Brookfield, WI

2550 University Avenue West     $850,000   $13,750,323  $14,600,323     $388,665  Dec-96      (A)
St. Paul, MN

                                      S-3
<PAGE>


2221 University Avenue SE     $1,100,000    $7,289,029   $8,389,029     $482,305  May-95      (A)
Minneapolis, MN

11100 Hampshire Avenue          $310,000    $1,148,285   $1,458,285     $143,679  Jan-93      (A)
Bloomington, MN

777 East Eisenhower Parkway   $4,000,000   $12,640,485  $16,640,485      $13,133  Dec-97      (A)
Ann Arbor, MI

32255 Northwestern Highway    $3,700,000   $20,128,038  $23,828,038      $21,649  Dec-97      (A)
Farmington Hill, MI

1301 W. Long Lake Road        $2,500,000   $14,018,507  $16,518,507     $416,943  Nov-96      (A)
Troy, MI

No. 40 OakHollow              $1,250,000    $6,301,004   $7,551,004     $166,384  Dec-96      (A)
Southfield, MI

24800 Denso Drive             $1,400,000    $5,331,030   $6,731,030     $501,044  Aug-95      (A)
Southfield, MI

655 Metro Place South         $1,470,000   $18,177,247  $19,647,247     $132,547  Sep-97      (A)
Dublin, OH

4860-5000 Blazer Memorial Pkwy$1,340,000    $7,390,483   $8,730,483     $231,902  Sep-96      (A)
Dublin, OH

425 Metro Place North           $620,000    $6,544,974   $7,164,974      $48,541  Sep-97      (A)
Dublin, OH

30 Merchant Street              $650,000    $6,628,738   $7,278,738     $475,300  Apr-96      (A)
Springdale, OH

                             ----------------------------------------------------
Totals                       $46,044,153  $250,966,264 $297,010,417  $11,313,566
                             ====================================================

<FN>

(A)  Depreciation  of  buildings  is  computed  over a 15 to 40  year  life on a
     straight line basis.  Tenant  improvements are depreciated over the shorter
     of the estimated useful life of the improvements or the term of the lease.
(B)  These  properties  are pledged as security for the Company's  line of
     credit which  totalled  $72,500,000 at December 31, 1997.
(C)  At December 31, 1997, the aggregate cost of land, buildings, & improvements
     for  Federal  income  tax purposes was approximately $295,417,000.
(D)  Reconciliation of Real Estate Owned and Accumulated Depreciation

Real Estate Owned:                                                    Accumulated Depreciation:
                               1997          1996           1995                                     1997         1996        1995
Balance beginning of year  $189,113,668  $94,265,979    $37,976,215   Balance beginning of year   $5,239,656   $2,462,187   $817,114
Property acquisitions      $102,283,086  $97,563,034    $53,428,629   Depreciation expenses       $6,073,910   $3,119,829 $1,645,073
Additions                    $5,613,663   $6,136,428     $2,861,135   Retirements                          -            -          -
Disposals                             -   $8,851,773              -   Disposals                            -     $342,360          -
                            ---------------------------------------                               ----------------------------------

Balance end of year        $297,010,417  $189,113,668   $94,265,979   Balance end of year        $11,313,566   $5,239,656 $2,462,187
                            =======================================                               ==================================

</FN>
</TABLE>

                                      S-4

<PAGE>




                       Securities and Exchange Commission
                             Washington, D.C. 20549


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

                                    EXHIBITS

                                       To

                           ANNUAL REPORT ON FORM 10-K
                               FOR THE YEAR ENDED
                               DECEMBER 31, 1997


<PAGE>

Exhibit
Number                     Description of Document
------                     -----------------------

  3.1                      Articles of Amendment and Restatement of the Company
                           filed with the Maryland State Department of
                           Assessments and Taxation September 23, 1997
                           (incorporated by reference to Exhibit 3.1 to the
                           Company's Quarterly Report on Form 10-Q for the
                           period end June 30, 1997

  3.2                      Amended and restated bylaws of the Company dated
                           September 11, 1997 (incorporated by reference to
                           Exhibit 4.2 to the Company's Registration Statement
                           on Form S-3 dated November 13, 1997) (No. 333-40129)

  4.1                      Registration Rights Agreement dated as of August 20,
                           1996 by and among the Company, Fortis Benefits
                           Insurance Company, Morgan Stanley Institutional Fund,
                           Inc. - U.S. Real Estate Portfolio, Morgan Stanley
                           SICAV Subsidiary SA, Wellsford Karpf Zarrilli
                           Ventures, L.L.C., Logan, Inc.; and Pension Trust
                           Account 104972 Held by Bankers Trust Company as
                           Trustee (incorporated by reference to Exhibit 2 to
                           the Company's Current Report on Form 8-K dated August
                           28, 1996)

  10.1                     Form of Unsecured Revolving Credit Agreement dated as
                           of January 6, 1998 among Great Lakes REIT, L.P., and
                           Bank of America National Trust Savings Association.

  10.2                     Amended and Restated Agreement of Limited Partnership
                           of Great Lakes REIT, L.P., dated December 27, 1996
                           (Incorporated by reference to Exhibit 5 to the
                           Company's Current Report on Form 8-K dated January
                           14, 1997 (the "January 1997 8-K"))

  10.3                     First Amendment to the Amended and Restated Agreement
                           of Limited Partnership of Great Lakes REIT, L.P.,
                           dated February 6, 1997 (incorporated by reference
                           to Exhibit 10.31 in the Company's Registration
                           Statement on Form S-11) (No. 333-22619)

* 10.4                     The Company's 1997 Equity and Performance Incentive
                           Plan

  10.5                     Indemnification Escrow Agreement dated April 1, 1996
                           between the Company, Richard A. May, Richard L.
                           Rasley, Tim A. Grodrian, and American National Bank
                           and Trust Company of Chicago (incorporated by
                           reference to Exhibit 10.8 from the Company's Form 10
                           Registration Statement (the "Form 10"))(Commission
                           File No. 0-28354)

* 10.6                     Restricted  Stock Agreement dated May 1, 1996 between
                           the Company and Raymond  Braun  (incorporated  by
                           reference  to Exhibit 10.8.6 to the S-11)

* 10.7                     Stock Option Plan for Independent Directors and
                           Brokers (the "Directors Plan") dated July 2, 1992 as
                           amended November 18, 1997

* 10.8                     Form of  Non-Qualified  Stock Option Certificate
                           dated December 31, 1997, between the Company and Jay
                           Brinkerhoff (assigned to Fortis Benefits Insurance
                           Company), Daniel E. Josephs, Edward Lowenthal, Donald
                           E. Phillips, and Walter Teninga for 5,000 shares of
                           Common Stock for use in connection with options
                           granted pursuant to the Directors Plan (incorporated
                           by reference to Exhibit 10.11.12 to the S-11)

  10.9                     Form of Change in Control  Agreement between
                           the Company and Messrs.  May, Hunt,  Rasley,
                           Braun, Hicks, Mills and Scurto

* 10.10                    Form of Stock Option Agreement for use in connection
                           with incentive stock option, and pursuant to the
                           Company's 1997 Equity and Performance Incentive Plan;
                           Richard A. May, Patrick R. Hunt, Richard L. Rasley,
                           James Hicks, Raymond Braun, Kim S. Mills and Edith M.
                           M. Scurto entered into agreements in 1997 that
                           evidenced 320,000, 174,000, 172,000, 149,000,
                           149,000, 88,000 and 86,000 options to purchase Common
                           Stock, respectively, under the Company's  1997 Equity
                           and Performance Incentive Plan

* 10.11                    Limited Purpose Employee Loan Program of the Company
                           (incorporated by reference to Exhibit 10.61 of the
                           Form 10/A filed with the SEC on January 9, 1997)

  10.12                    Form  of  Limited   Purpose   Employee  Loan
                           Program   Promissory   Note   for   use   in
                           connection  with  limited  purpose  employee
                           loans

  10.13                    Amended and Restated Revolving Credit Agreement (the
                           "Amended and Restated Revolving Credit Agreement")
                           Dated as of December 27, 1996 among the Operating
                           Partnership and the Company and The First National
                           Bank of Boston and Bank of America Illinois and First
                           Bank National Association and Other Banks Which May
                           Become Parties to the Agreement and The First
                           National Bank of Boston as Agent (incorporated by
                           reference to Exhibit 3 of the January 1997 8-K)

  10.14                    Form of Amendment to the Amended and Restated
                           Revolving Credit Agreement dated as of March 1, 1997
                           (incorporated by reference to Exhibit 10.25 to the
                           S-11)

  23.1                     Consent of Ernst & Young LLP

  24.1                     Powers of Attorney

  27.1                     Financial Data Schedule for year ended December 31,
                           1997

  27.2                     Restated Financial Data Schedule for Nine Months
                           ended September 30, 1997

  27.3                     Restated Financial Data Schedule for Six Months ended
                           June 30, 1997

  27.4                     Restated Financial Data Schedule for Three Months
                           ended March 31, 1997

  27.5                     Restated Financial Data Schedules for year ended
                           December 31, 1996

  27.6                     Restated Financial Data Schedule for Nine Months
                           ended September 30, 1996

  27.7                     Restated Financial Data Schedule for Six Months ended
                           June 30, 1996

  27.8                     Restated Financial Data Schedule for Three Months
                           ended March 31, 1996