UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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 0-21849
                      ------------------------------------


                          METROPOLIS REALTY TRUST, INC.
             (Exact name of Registrant as specified in its charter)

              MARYLAND                                     13-3910684
   (State or other jurisdiction of                         (IRS Employer
    incorporation or organization)                        Identification No.)



                                605 Third Avenue
                                   26th Floor
                            New York, New York 10016
          (Address of principal executive offices, including zip code)

                                 (212) 655-0220
              (Registrant's telephone number, including area code)

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

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

                                 Title of Class
                Class A Common Stock, par value $10.00 per share
                Class B Common Stock, par value $10.00 per share
                Class C Common Stock, par value $10.00 per share

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 [ ]

<PAGE>




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

Of the Company's 12,966,646 shares of Common Stock outstanding, 9,330,410 shares
are held by affiliates of the Registrant and 3,636,236 of the Company's shares
are held by non-affiliates of the Registrant. The Common Stock is not listed on
any exchange; the Company does not intend to list the Common Stock on any
exchange in the near term; there is not currently a public market for the Common
Stock; and there can be no assurance that an active trading market for the
Common Stock will develop or be sustained.

As of March 27, 1998, there were 12,966,646 shares of the Registrant's Common
Stock issued and outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:

           The Exhibits to the Company Registration Statement on Form
         10, as amended, are hereby incorporated by reference in Item 14
                       of this Annual Report on Form 10-K.

                                       -ii-

<PAGE>



                                TABLE OF CONTENTS



PART I
    ITEM 1.    BUSINESS........................................................1
    ITEM 2.    PROPERTIES......................................................5
    ITEM 3.    LEGAL PROCEEDINGS..............................................14
    ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............14

PART II
    ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                   STOCKHOLDER MATTERS........................................15
    ITEM 6.    SELECTED FINANCIAL DATA........................................15
    ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                   AND RESULTS OF OPERATIONS..................................17
    ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................21
    ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                   ACCOUNTING AND FINANCIAL DISCLOSURE........................40

PART III
    ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............41
    ITEM 11.   EXECUTIVE COMPENSATION.........................................44
    ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                   AND MANAGEMENT.............................................44
    ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................47
    ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
                   FORM 8-K...................................................50



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



             CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
           PROVISIONS OF THE SECURITIES LITIGATION REFORM ACT OF 1995

     WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS -- QUALIFICATION AS A REIT". READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF OR THEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER
THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. THE
COMPANY'S ACTUAL RESULTS OR OUTCOMES MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED.

                                      -iii-


<PAGE>



                                     PART I


ITEM 1.   BUSINESS

          Overview

          Metropolis Realty Trust, Inc., a Maryland corporation (the "Company"),
is a real estate investment trust (a "REIT"). The Company was formed on May 13,
1996 to facilitate the consummation of the Second Amended Joint Plan of
Reorganization of 237 Park Avenue Associates, L.L.C. ("237 LLC") and 1290
Associates, L.L.C. ("1290 LLC" and, together with 237 LLC, the "Debtors"), dated
September 20, 1996 (as amended, the "Plan"), and, thereby, acquire the interests
of 237 LLC and 1290 LLC in the properties located in New York City at 237 Park
Avenue (the "237 Property") and 1290 Avenue of the Americas (the "1290
Property," and together with the 237 Property, the "Properties"). The Debtors
were two of the many companies, partnerships and joint ventures that
collectively constituted the United States operations of the Olympia & York
("O&Y") group of companies. The transactions contemplated by the Plan were
consummated on October 10, 1996 (the "Effective Date").

          As depicted in the following chart, the Company owns a 95% partnership
interest, as general partner, in 237/1290 Lower Tier Associates, L.P., a
Delaware limited partnership (the "Lower Tier Limited Partnership") which owns a
99% partnership interest, as limited partner, in each of 237 Park Partners,
L.P., a Delaware limited partnership (the "237 Property Owning Partnership") and
1290 Partners, L.P., a Delaware limited partnership (the "1290 Property Owning
Partnership," and together with the 237 Property Owning Partnership, the
"Property Owning Partnerships"). The Property Owning Partnerships own the
Properties. The remaining 1% interest in each of the Property Owning
Partnerships is owned by one of two wholly-owned subsidiaries of the Company
(the "GP Corps"), as general partner. The remaining 5% interest in the Lower
Tier Limited Partnership (the "LP Interest") is owned by a limited partnership
(the "Upper Tier Limited Partnership") which is owned almost entirely by JMB/NYC
Office Building Associates, L.P. ("JMB LP"), a former holder of equity interests
in the Debtors, as limited partner. The 5% LP Interest is subordinated to the
95% partnership interest of the Company with respect to certain priority
distributions from the Lower Tier Limited Partnership. The Upper Tier Limited
Partnership, the Lower Tier Limited Partnership and the Property Owning
Partnerships are hereinafter referred to, collectively, as the "Partnerships."
Pursuant to the Plan, the Company also succeeded to certain other assets held by
the Debtors, and certain affiliates of the Debtors, as further described under
the caption titled "PROPERTIES -- Other Assets."

                                       -1-

<PAGE>



          The following chart depicts the Company's indirect ownership of the
Properties as described above.  [Organization Chart]


                                       -2-


<PAGE>


          Business

          Since the Effective Date, the Company has held, through its interests
in the Partnerships, the assets described below under "ITEM 2. -- PROPERTIES."
The Company's principal business objective is to operate the Properties in a
manner that will maximize the Properties' revenues and value and in turn
maximize funds from operations and stockholder value. The Company may acquire
additional properties in the future, although it has no present plans to do so.
As further described under "MANAGEMENT OF THE COMPANY -- Asset Management
Agreement" and " -- Management and Leasing Agreements," the Property Owning
Partnerships have retained 970 Management, LLC (the "Asset Manager"), an
affiliate of Victor Capital Group, L.P. ("VCG"), to serve as asset manager and
Tishman Speyer Properties, L.P. (the "Property Manager/Leasing Agent"), to serve
as property manager/leasing agent to manage the day-to-day operations of the
Properties.

          Competition

          Numerous office building properties in New York City compete with the
Properties in attracting tenants to lease space. Some of these competing
properties are newer or better located than the Properties. The amount of space
available in competitive commercial properties in the New York City area could
have a material effect on the Property Owning Partnerships' ability to lease
space in the Properties and on the rents charged. However, the 1290 Property is
currently 98% leased, with leases aggregating approximately 21% of the total
rentable square feet expiring over the next five years and the 237 Property is
currently 98% leased, with leases aggregating approximately 25% of the total
rentable square feet expiring over the next five years. See "Item 2 --
Properties."

          Employees

          The Company does not have any employees. The Property Owning
Partnerships assumed the Debtors' labor agreements with respect to union
employees employed at the Properties. The Property Manager/Leasing Agent has
employed such union employees on behalf of the Property Owning Partnerships. The
Property Manager/Leasing Agent offered employment to certain of the non-union
employees of the Properties and will continue the Debtors' non-union employee
policies relating to seniority, vacations and severance.

          The Plan provided that pursuant to section 1129(a)(13) of the
Bankruptcy Code, the Property Owning Partnerships or their successors and
assigns will continue to pay all retiree benefits related to the Properties
(within the meaning of section 1114 of the Bankruptcy Code), at the level
established in accordance with subsection (e)(1)(B) or (g) of section 1114 of
the Bankruptcy Code at any time prior to the Confirmation Date (as such term is
defined in the Plan) for the duration of the period the Debtors obligated
themselves to provide such benefits. The Company believes that there are no
unfunded retiree benefits liabilities under the pension plans established
pursuant to the labor agreements referred to above.

          Qualification as a REIT

          The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), commencing with its taxable year ended December 31, 1996. As a
REIT, the Company (subject to certain exceptions) will not be subject to federal
income taxation at the corporate level on income it distributes to stockholders
so long as it distributes at least 95% of its REIT taxable income. For any year
in which the Company does not meet the requirements for qualifying to be taxed
as a REIT, it will be taxed as a corporation. Although the Company believes that
it will operate in such a manner so as to qualify to be taxed as a REIT,
qualification as a REIT involves the application of highly technical and complex
Internal Revenue Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the Company's control may affect its ability
to qualify and to continue to qualify as a REIT. Moreover, no

                                      -3-

<PAGE>

assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a REIT or the Federal income tax consequences of such
qualification.

          To obtain the favorable tax treatment accorded to a REIT under the
Internal Revenue Code, the Company generally will be required each year to
distribute to its stockholders at least 95% of its taxable income. The Company
will be subject to income tax on any of its undistributed taxable income and net
capital gains, and to a 4% nondeductible excise tax on the amount, if any, by
which certain distributions paid by it with respect to any calendar year are
less than the sum of 85% of its ordinary income plus 95% of its capital gain net
income for the calendar year, plus 100% of its undistributed income from prior
years.

          The Company intends to make distributions to its stockholders to
comply with the distribution provisions of the Internal Revenue Code and to
avoid Federal income taxes and the nondeductible 4% excise tax. A substantial
portion of the Company's income will consist of the income of the Property
Owning Partnerships and the Company's cash flow will consist primarily of
distributions from the Property Owning Partnerships through the Lower Tier
Limited Partnership.

          Differences in timing between the receipt of income and the payment of
expenses in arriving at taxable income of the Company, the Upper Tier Limited
Partnership, the Lower Tier Limited Partnership or the Property Owning
Partnerships, the effect of nondeductible capital expenditures, the creation of
reserves or required debt amortization payments could require the Company to
borrow funds on a short-term or long-term basis to meet the distribution
requirements that are necessary to continue to qualify as a REIT. In such
circumstances, the Company might need to borrow funds to avoid adverse tax
consequences even if the Company's management believes that the then prevailing
market conditions generally are not favorable for such borrowings or that such
borrowings are not advisable in the absence of such tax considerations. There is
no assurance that the Company will be able to continue to satisfy the annual
distribution requirement so as to qualify as a REIT.

          In order for the Company to qualify as a REIT under the Internal
Revenue Code, not more than 50% in value of its outstanding stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Internal
Revenue Code to include certain entities) during the last half of a taxable year
(other than the first year) (the "Five or Fewer Requirement"), and such shares
of stock must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. In order to protect the Company
against the risk of losing its status as a REIT on account of a concentration of
ownership among its stockholders, the Company's Amended and Restated Articles of
Incorporation (the "Charter"), subject to certain exceptions, provides that no
Person (as defined in the Charter) may beneficially own, or be deemed to own by
virtue of the attribution provisions of the Internal Revenue Code, more than
7.9% (the "Ownership Limit") of the aggregate value of the Company's shares of
stock. The restrictions contained in the Charter, however, may not ensure that
the Company will be able to satisfy the Five or Fewer Requirement in all cases.
If the Company fails to satisfy such requirement, the Company's status as a REIT
will terminate, and the Company will not be able to prevent such termination. If
the Company were to fail to qualify as a REIT in any taxable year, the Company
would be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, and would not be
allowed a deduction in computing its taxable income for amounts distributed to
its stockholders. Moreover, unless entitled to relief under certain statutory
provisions, the Company also would be ineligible for qualification as a REIT for
the four taxable years following the year during which qualification was lost.
Such disqualification would reduce the net earnings of the Company available for
investment or distribution to its stockholders due to the additional tax
liability of the Company for the years involved.

          Subject to certain exceptions, the Charter does not permit any person
to acquire or own (either actually or constructively under the applicable
attribution rules of the Code) more than the Ownership Limit. In addition, no
holder may own or acquire (either actually or constructively under the
applicable attribution rules of

                                      -4-

<PAGE>



the Code) shares of any class of the Company's common stock, par value $10.00
per share (the "Common Stock"), if such ownership or acquisition (i) would cause
more than 50% in value of the outstanding Common Stock to be owned by five or
fewer individuals or (ii) would otherwise result in the Company failing to
qualify as a REIT. The Charter provides that the foregoing ownership
restrictions will not apply to persons designated by Apollo Real Estate
Investment Fund, L.P. ("Apollo") provided that the aggregate percentage by which
all individuals permitted, by designation, to exceed the Ownership Limit will
not be greater than 10%.

          Any attempted acquisition (actual or constructive) of Common Stock by
a person who, as a result of such acquisition, would violate certain of the
limitations set forth in the Charter will cause the Common Stock purportedly
transferred to be automatically transferred to the trustee of a trust for the
benefit of a charitable beneficiary and such shares will not be entitled to
voting rights or rights to distributions and the transfer resulting in such
violation may be deemed void ab initio. Violations of the ownership limitations
may result in a repurchase by the Company of shares in excess of the Ownership
Limit.

ITEM 2.   PROPERTIES

          The 1290 Property

          The 1290 Property Owning Partnership holds the fee title to the 1290
Property and all improvements thereon. The 1290 Property, completed in 1963, is
a 43-story, first class commercial office building with approximately 1,957,000
rentable square feet of space. The building is centrally located in midtown
Manhattan and is connected to the famed "Rockefeller Center" complex via an
underground passageway.

          The average occupancy rates for the 1290 Property for the years 1993
through 1997 were 98%, 94%, 78%, 90% and 97%, respectively.

          As of December 31, 1997, the 1290 Property was approximately 98%
leased and there were leases and license agreements with 35 tenants and 4
licensees covering approximately 1,924,000 rentable square feet of space. For
the year ended December 31, 1997, the annual average rent (including electricity
and additional rent payable on account of operating expenses, porters wage, and
real estate tax escalations) for office space leased in the building was
approximately $41.00 per square foot. For the year ended December 31, 1997,
approximately 47,000 square feet of space was under lease to retail tenants, at
an average annual rent (including electricity and additional rent payable on
account of operating expenses, porters wage and real estate tax escalations) of
approximately $70.90 per rentable square foot. As of December 31, 1997,
approximately 33,000 rentable square feet of office and storage space was
available for rent.

          The building serves as the corporate headquarters of The Equitable
Life Assurance Society of the United States ("Equitable"). In addition to
Equitable, the building houses a variety of tenants, including financial
institutions, entertainment companies and law firms.

                                      -5-

691098.5


<PAGE>


          The following table summarizes certain information regarding the
largest leases at the 1290 Property as of December 31, 1997:

<TABLE>
<CAPTION>
                                                                           Annual Base
                                                               Leased         Rent          Gross Rent        Date(s) of
                                                               square       per square      per square           Lease
Tenant                             Nature of Business       footage(1)    foot leased(2)  foot leased(3)      Expiration
------                             ------------------       -------       -----------     -----------         ----------
<S>                              <C>                         <C>          <C>             <C>                 <C>

Equitable(4)                      Insurance/Financial
                                  Services                    565,099      $36.48(5)       $38.50(5)           12/31/11
Warner Communications, Inc.       Entertainment               270,710      $37.32(6)       $40.90(6)            6/30/12(7)
The Bank of New York              Financial Services          213,720      $36.44(8)       $38.08(8)           12/31/10(9)
EMI Entertainment World, Inc.     Entertainment               144,981      $38.56(10)      $42.14(10)           9/30/02
Deutsche Bank, AG                 Financial Services          120,741      $37.94(11)      $38.72(11)              2013(12)
Other Office and Retail Tenants   Various                     811,861(13)  $39.92          $49.01              1998-2013
</TABLE>

(1)  Leased square footage does not include approximately 14,400 square feet of
     storage space.

(2)  Annual Base Rent means the amount contractually due (excluding adjustments
     related to recoveries from tenants for operating expenses, porters wage,
     real estate taxes, utilities or other items and rent concessions) for the
     year ended December 31, 1997. The Company believes that base rent is a
     conservative and appropriate measure for comparative purposes of
     commercial real estate rental revenue from office building properties that
     do not generate percentage rents based on sales.

(3)  Gross Rent means Annual Base Rent plus recoveries from tenants for
     operating expenses, porters wage, real estate taxes, utilities and other
     items.

(4)  The lease agreements with Equitable provide for the delivery of space to
     Equitable in five separate blocks: Block A, comprising 287,664 rentable
     square feet; Block B, comprising 135,528 rentable square feet; Block C,
     comprising 79,288 rentable square feet; Block D, comprising 27,090 rentable
     square feet; and Block E, comprising 24,752 rentable square feet. As of
     December 31, 1997, Equitable was in possession of the space designated as
     Blocks A, B and D and was entitled to a free rent period through June 1997
     with respect to Block A, through October 1997 with respect to Block B and
     through July 1998 with respect to Block D. The space designated as Block E
     was occupied by another tenant as of December 31, 1997 and was delivered to
     Equitable in January 1998. Equitable is entitled to a free rent period
     through November 1998 with respect to Block E. The space designated as
     Block C is currently occupied by another tenant and such space will be
     delivered to Equitable on March 1, 1999. Equitable is entitled to a free
     rent period through December 1999 with respect to Block C. In addition to
     free rent, Equitable is entitled to a credit against rent of up to
     approximately $4,749,000 for all five blocks as reimbursement for the cost
     of certain tenant improvements made by and paid for by Equitable.

(5)  Does not include (i) 10,574 square feet leased in the basement at an Annual
     Base Rent of $20.00 per square foot and a Gross Rent of $21.00 per square
     foot and (ii) an additional 203 square feet leased in the basement at an
     Annual Base Rent of $15.00 per square foot and a Gross Rent of $16.50 per
     square foot.

(6)  The lease agreements with Warner Communications, Inc. ("Warner") provide
     that, with respect to 133,011 rentable square feet of space, Warner was not
     required to pay rent until July 1, 1997. A block of space constituting
     24,380 rentable square feet is not scheduled to be delivered to Warner
     until June 30, 1998, following which Warner is entitled to a free rent
     period of approximately 14 1/2 months with respect to such

                                      -6-

<PAGE>



     space. Does not include 8,555 square feet of space leased in the basement
     at an Annual Base Rent of $20.00 per square foot and a Gross Rent of $22.33
     per square foot.

(7)  Leases with Warner expire May 31, 1999 (with respect to 76,708 square
     feet); February 28, 2000 (with respect to 28,056 square feet and 8,555
     square feet in the basement); and June 30, 2012 (with respect to 157,391
     square feet).

(8)  Does not include 11,633 square feet of space leased in the basement at an
     Annual Base Rent and a Gross Rent of $40.00 per square foot.

(9)  The Bank of New York lease expires May 31, 1998 (with respect to 24,380
     square feet); April 30, 2003 (with respect to 31,402 square feet and 11,633
     square feet in the basement); and December 31, 2010 (with respect to
     146,405 square feet). The lease agreement with the Bank of New York
     provides that, with respect to 46,146 square feet, Bank of New York will
     not be required to pay rent until October 15, 1998. The Bank of New York
     lease also provides that the Bank of New York has the option to terminate
     its lease with respect to 100,159 square feet on the third floor of the
     1290 Property effective as of December 31, 2006 by giving the 1290 Property
     Owning Partnership notice on December 31, 2005 and by paying a fee of
     $1,000,000.

(10) Does not include (i) 923 square feet of space leased in the basement at an
     Annual Base Rent of $17.32 per square foot and a Gross Rent of $22.92 per
     square foot and (ii) an additional 1,533 square feet of space leased in the
     basement at an Annual Base Rent of $32.50 per square foot and a Gross Rent
     of $37.99 per square foot.

(11) Of the 100,380 square feet to be delivered to Deutsche Bank, a portion was
     delivered in the first quarter of 1998, and the remainder is expected to be
     delivered in the second quarter of 1998. Deutsche Bank is entitled to a
     free rent period of 10 months with respect to such space.

(12) The lease with Deutsche Bank expires in 1998 with respect to 20,361 square
     feet and in 2013 with respect to 100,380 square feet.

(13) Other Office and Retail Tenants includes 104,040 square feet of office
     space that was occupied by other tenants on December 31, 1997, 24,752
     square feet of which was delivered to Equitable in January 1998 and 79,288
     square feet of which will be delivered to Equitable on March 1, 1999 as
     disclosed in footnote (4). Other Office and Retail Tenants also includes
     24,380 square feet of office space occupied by a tenant on December 31,
     1997 that is to be delivered to Warner on June 30, 1998, as disclosed in
     footnote (6). Additionally, Other Office and Retail Tenants includes 96,700
     square feet of office space occupied by another tenant on December 31,
     1997, a portion of which was delivered to Deutsche Bank during the first
     quarter of 1998, and the remainder of which is expected to be delivered in
     the second quarter of 1998, as disclosed in footnote (11).

          Expenditures for capital projects for the 1290 Property in 1997
aggregated approximately $1,688,000 and related primarily to (i) the
commencement of an elevator modernization program; (ii) the conversion of a
refrigeration machine (in accordance with the 1992 Clean Air Act); and (iii)
removal of asbestos in certain mechanical rooms. Anticipated expenditures for
capital projects for the 1290 Property in 1998 are approximately $1,632,000 and
relate primarily to: (i) the continuation of an elevator modernization program;
(ii) removal of asbestos in several mechanical rooms; (iii) the continuation of
the conversion of a refrigeration machine (in accordance with the 1992 Clean Air
Act); and (iv) the replacement of the main roof and the repair of certain roof
setbacks.

          An environmental report prepared for the Properties indicates that the
1290 Property contains asbestos or asbestos containing materials in several
mechanical rooms and certain other locations. The total cost of removing the
asbestos in accordance with the operations and maintenance plan for the 1290
Property is estimated to be approximately $340,000 and the removal is
anticipated to occur over a two-year period.


                                      -7-

<PAGE>


          The following table shows anticipated lease expirations on an
aggregate basis for each calendar year from 1998 through and including 2007.
Such chart assumes that there are no early terminations of leases and that
leases expire without extension by existing tenants pursuant to lease options.

<TABLE>
<CAPTION>

                                                                                               Percentage of Total
                                                                                              1290 Property Owning
                                              Rentable Square         Annual Base Rent       Partnership Annual Base
   Year of Lease          Number of           Feet Subject to          Represented by           Rent Represented
    Expiration         Leases Expiring        Expiring Leases          Expiring Leases         by Expiring Leases
   ------------        ---------------        ---------------         -----------------       -------------------
      <S>                    <C>                  <C>                    <C>                         <C>

       1998                   5                    80,620                 $3,002,826                  4.38%
       1999                   3                    80,562                 $2,908,093                  4.33%
       2000                   3                    45,333                 $1,607,494                  2.37%
       2001                   3                   101,601                 $2,070,520                  3.10%
       2002                   3                   221,334                 $9,309,000                 15.04%
       2003                   3                    47,003                 $2,039,799                  3.77%
       2004                   3                   173,546                 $8,416,272                 17.57%
       2005                   5                    16,845                 $1,094,808                  2.41%
       2006                   2                    91,042                 $3,811,656                  5.70%
       2007                   -                       -                        -                        -
</TABLE>

          Annual real estate taxes assessed against the 1290 Property for the
fiscal years ended June 30, 1998, 1997 and 1996 were $17,152,000, $17,300,250
and $19,023,178, respectively, which amounts were calculated on assessed values
of approximately $168,750,000, $168,750,000 and $189,000,000, respectively. See
-- "Tax Certiorari Proceedings and Tenant Reimbursement Claims."

          The 237 Property

          The 237 Property Owning Partnership holds the fee title to the 237
Property and all improvements thereon. The 237 Property is a 21-story, first
class commercial office building with approximately 1,141,000 rentable square
feet of space. The building was completed in 1981 as a comprehensive renovation
of an existing structure and now features an interior layout of an open full
atrium. The building, centrally located in midtown Manhattan, is situated off of
one of New York City's prestigious thoroughfares and is within close proximity
to Grand Central Station, a transportation hub.

          The average occupancy rate for the 237 Property for each of the years
1993 through 1997 was 98%.

          As of December 31, 1997, the 237 Property was approximately 98% leased
and there were leases and license agreements with 16 tenants and 2 licensees
covering approximately 1,117,000 rentable square feet of space. For the year
ended December 31, 1997, the annual average rent (including electricity and
additional rent on this space payable on account of operating expenses, porters
wage and real estate tax escalations) for office space leased in the building
was approximately $43.70 per square foot. For the year ended December 31, 1997,
approximately 20,000 square feet of space was under lease to retail tenants, at
an average annual rent (including electricity and additional rent on this space
payable on account of operating expenses, porters wage and real estate tax
escalations) of approximately $60.16 per rentable square foot. As of December
31, 1997, approximately 24,000 rentable square feet of retail space was
available for rent.


                                      -8-

<PAGE>



          The following table summarizes certain information regarding the
largest leases at the 237 Property as of December 31, 1997:

<TABLE>

                                                                       Annual Base       Gross
                                                                        Rent per       Rent per      Year of
                                                    Leased Square      square foot    square foot     Lease
      Tenant                Nature of Business        Footage(1)        leased(2)      leased(3)    Expiration
      ------                ------------------        ----------        ---------      ---------    ----------

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

J. Walter Thompson          Advertising                 456,132           $22.39       $32.58         8/31/06
Company(4)

Swiss Reinsurance
Company, U.S. Branch
(and certain of its         Insurance/Financial
affiliates)                 Services                    279,906           $36.09       $57.19         8/31/01

E.M. Warburg Pincus &
Co., LLC                    Financial Services          167,788           $47.33(5)    $53.43        10/31/09

Champion International      Pulp and Paper
Corporation                 Industry                    110,800           $39.20       $44.88         9/30/11

Other Office and Retail
Tenants                     Various                     101,000           $41.37       $42.25        1998-2011
</TABLE>

(1)  Leased square footage does not include approximately 1,000 square feet of
     storage space.

(2)  Annual Base Rent means the amount contractually due (excluding adjustments
     related to recoveries from tenants for operating expenses, porters wage,
     real estate taxes, utilities or other items and rent concessions) for the
     year ended December 31, 1997. The Company believes that base rent is a
     conservative and appropriate measure for comparative purposes of commercial
     real estate rental revenue from office building properties that do not
     generate percentage rents based on sales.

(3)  Gross Rent means Annual Base Rent plus recoveries from tenants for
     operating expenses, porters wage, real estate taxes, utilities and other
     items.

(4)  J. Walter Thompson Company ("JWT") has the option to terminate its lease on
     September 30, 2000 with respect to up to 110,607 rentable square feet of
     space on the 8th Floor and the 9th Floor if JWT's subtenant exercises its
     option to terminate its sublease. JWT must provide notice to the 237
     Property Owning Partnership with respect to such termination at least one
     year in advance of such date.

(5)  The lease agreement with E.M. Warburg Pincus & Co., LLC ("Warburg Pincus")
     provided that, with respect to 56,243 rentable square feet, Warburg Pincus
     was not required to pay rent until May 1, 1997. The lease agreement also
     provides that fixed rent shall be abated in full with respect to 77,238
     rentable square feet for the months of September and October in each of
     1998 and 1999.

          Expenditures for capital projects for the 237 Property in 1997
aggregated approximately $666,000 and related primarily to facade and roof
repairs and an upgrade of the condenser water system. Anticipated expenditures
for capital projects for the 237 Property in 1998 are approximately $1,830,000
and relate primarily to an upgrade of the building's electrical capacity system.

                                      -9-

<PAGE>



          The following table sets forth anticipated lease expirations on an
aggregate basis for each calendar year from 1998 through and including 2007.
This chart assumes that there are no early terminations of leases and that
leases expire without extension by existing tenants pursuant to lease options.

<TABLE>
<CAPTION>
                                                                                              Percentage of Total
                                                                                              237 Property Owning
                                              Rentable Square         Annual Base Rent         Partnership Annual
                          Number of            Feet Subject             Represented          Base Rent Represented
   Year of Lease       Leases/Licenses          to Expiring             by Expiring               by Expiring
    Expiration            Expiring            Leases/Licenses         Leases/Licenses           Leases/Licenses

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

       1998                   1                      900               $     36,000                    .10%
       1999                   1                    3,372                   $269,760                    .74%
       2000                   1                    3,450               $    196,656                    .56%
       2001                   3                  283,001               $ 10,283,328                  31.98%
       2002                   -                      -                      -                            -
       2003                   1                    2,050               $    189,660                    .73%
       2004                   2                    9,693               $    350,352                   1.34%
       2005                   -                      -                      -                            -
       2006                   1                  456,132               $ 10,898,364                  47.98%
       2007                   1                      713               $    105,372                    .67%
</TABLE>

          Annual real estate taxes assessed against the 237 Property for the
fiscal years ended June 30, 1998, 1997 and 1996 were $9,827,000, $9,835,307 and
$9,511,807, respectively, which amounts were calculated on assessed values of
approximately $108,805,000, $110,250,000 and $108,450,000, respectively. See --
"Tax Certiorari Proceedings and Tenant Reimbursement Claims."

          Other Assets

          Tenant Notes Receivable

          An affiliate of O&Y was the holder of a note (the "Robinson Silverman
Note") issued by Robinson Silverman Pearce & Aronsohn ("Robinson Silverman"),
dated April 1, 1989 in the face amount of $6,500,000 and a maturity date of
September 1, 1999, which note was executed in connection with Robinson
Silverman's lease at the 1290 Property. The Robinson Silverman Note was assigned
to the 1290 Property Owning Partnership on the Effective Date. In 1991 and 1992,
Robinson Silverman claimed certain concessions regarding the payment terms of
such note. Although 1290 LLC was unable to locate any records evidencing an
agreement to such concessions, Robinson Silverman has made payments reflecting
such concessions and such payments were not rejected by 1290 LLC and have not
been rejected by the 1290 Property Owning Partnership. Without the Company
expressing any opinion with regard thereto, if such concessions were granted,
the Robinson Silverman note would have an outstanding principal balance as of
December 31, 1997 of $4,430,762, would bear interest at 7.5% per annum and would
require level monthly payments of interest and principal of $75,000. If such
concessions were not granted, then the Robinson Silverman Note would bear
interest at 10% and, based on the monthly payments of $75,000 received from
Robinson Silverman, the outstanding balance as of December 31, 1997 would be
approximately $5,758,182.

          An affiliate of O&Y was the holder of a note (the "Warburg Pincus
Note," and together with the Robinson Silverman Note, the "Tenant Notes"),
issued by Warburg Pincus, dated August 20, 1985, in the face amount of
$4,354,758, which note was executed in connection with Warburg Pincus' lease at
the 237 Property. The note is payable on October 31, 1999 and does not bear
interest prior to its maturity. The Warburg Pincus Note was assigned to the 237
Property Owning Partnership on the Effective Date.


                                      -10-


<PAGE>



          JMB Notes

          Certain notes (the "JMB Notes") were issued by JMB LP's predecessor in
interest to an affiliate of O&Y in 1984 in connection with the admission of such
predecessor as a partner of the predecessor of the Debtors and an affiliate of
the Debtors which owned the property located at 2 Broadway, New York, New York
(the "2 Broadway Property"). The amount outstanding on an aggregate basis under
all the JMB Notes, as of the Effective Date, was $83,918,815. On the Effective
Date, the JMB Notes and related security agreements were assigned by such O&Y
affiliate to the Company. Immediately prior to such assignment, the Company
entered into a Participation Agreement with an affiliate of JMB LP pursuant to
which the Company or its designee will receive the first $750,000 of payments
made pursuant to, or in respect of, the JMB Notes and the JMB LP affiliate will
receive all further payments in respect of the JMB Notes. Amounts, if any,
distributable to JMB LP from the Upper Tier Limited Partnership, including
pursuant to the Company's purchase option and JMB LP's put option as provided
for in the Upper Tier Limited Partnership Agreement, would first be applied to
the prepayment of the JMB Notes. On the Effective Date, the JMB Notes were
restated. The JMB Notes, as restated, bear interest at 12.75% per annum and have
a maturity date of January 1, 2001. The JMB Notes are non-recourse and are
payable solely out of the distributions JMB LP receives from the Upper Tier
Limited Partnership.

          Tax Certiorari Proceedings and Tenant Reimbursement Claims

          The Debtors and their predecessors-in-interest commenced tax
certiorari proceedings which remain outstanding against the City of New York,
for over-assessment of property taxes for the tax years ending June 30, 1995
through June 30, 1997 with respect to the 237 Property and for the tax years
ending June 30, 1991 through June 30, 1997 with respect to the 1290 Property. In
addition, 2 Broadway Associates, L.P. ("2 Broadway LP") similarly commenced tax
certiorari proceedings against the City of New York for over-assessment of
property taxes for the tax years ending June 30, 1988 through June 30, 1995 with
respect to the 2 Broadway Property. The rights to the proceeds of the 2 Broadway
Property tax certiorari proceedings were assigned to the Company pursuant to the
Plan. See "-- Certain Assets Related to 2 Broadway." The Property Owning
Partnerships and the Company have been substituted for the Debtors and 2
Broadway LP, respectively, in such tax certiorari proceedings. The Company
estimates Net Tax Proceeds (as hereinafter defined) from such tax certiorari
proceedings of approximately $14,088,000. Certain current and former tenants of
the Properties and the 2 Broadway Property hold unsecured claims (the "Tenant
Reimbursement Claims") against the Property Owning Partnerships and the Company
based upon a right to payment provided in such tenants' leases, contingent upon
the realization by the Property Owning Partnerships and the Company of the
proceeds, if any, of any tax certiorari proceedings which were commenced by the
Debtors and 2 Broadway LP, net of any amounts, fees and expenses incurred to
prepare for, institute and prosecute such tax certiorari proceedings (the "Net
Tax Proceeds"). The Property Owning Partnerships and/or the Company receiving
such Net Tax Proceeds will cause an amount necessary, in their sole
determination, to reserve in full for all Tenant Reimbursement Claims to be
deposited in a reserve account (the "Claims Reserve"). Within 30 days after the
date of such deposit, the Property Owning Partnerships and the Company will
determine the entitlement of holders of Tenant Reimbursement Claims to payment
of such Tenant Reimbursement Claims by reason of the receipt of such Net Tax
Proceeds and, in making such determination, will be entitled to give effect to
any rights of setoff, recoupment or other claims that the Property Owning
Partnerships and/or the Company or any predecessor-in-interest may have against
the holders of such Tenant Reimbursement Claims. Thereafter, the Property Owning
Partnerships and/or the Company will deliver a notice of such determination to
each holder of a Tenant Reimbursement Claim. Each holder of a Tenant
Reimbursement Claim will have 30 days after receipt of such notice to object to
the determination of the amount to which it is entitled. If the holder of a
Tenant Reimbursement Claim does not object to the determination by the Property
Owning Partnerships and/or the Company within such 30 day period, then such
Tenant Reimbursement Claim will be paid from the Claims Reserve at the request
of the Property Owning Partnerships and/or the Company, without the necessity of
Bankruptcy Court approval. If the holder of a Tenant Reimbursement Claim objects
on a timely basis to the determination by the Property Owning Partnerships
and/or the Company, then such Tenant Reimbursement Claim will be a disputed
claim and no payments will be made on account of such claim until such claim is
allowed, in whole or in part, by final order of the Bankruptcy Court. All
remaining Net


                                      -11-

<PAGE>


Tax Proceeds held by the Property Owning Partnerships will be distributed to the
Lower Tier Limited Partnership which will in turn distribute such Net Tax
Proceeds related to the Properties to the Company; provided, that, the Property
Owning Partnerships are required to retain sufficient cash to pay all disputed
Tenant Reimbursement Claims until such claims have been allowed or disallowed.
The Company estimates that approximately $6,414,000 will be paid to current and
former tenants in respect of Tenant Reimbursement Claims resulting in a net
recovery by the Property Owning Partnerships and the Company of an aggregate of
approximately $7,674,000.

          Certain Assets Related to 2 Broadway

          Prior to the Merger of the Debtors into the Upper Tier Limited
Partnership, 1290 LLC assigned to the Company all of its rights in certain
assets related to the sale of 2 Broadway that were owned by 2 Broadway LP, an
affiliate of the Debtors, including the assets described below and segregated
reserve accounts established by the Trustee, as disbursing agent under the
reorganization plan related to the 2 Broadway Property (the "2 Broadway Plan"),
(i) for potential utility tax claims of the taxing authorities of the City and
State of New York (the "2 Broadway Utility Tax Claims") and (ii) for the payment
of all claims which were not then, but might become allowed claims (other than
the 2 Broadway Priority Utility Tax Claims) in connection with the 2 Broadway
Plan. Pursuant to an Assumption and Indemnification Agreement, dated as of the
Effective Date, by and among 1290 LLC, 2 Broadway LP, the Company and the
Indenture Trustee, (i) the Company assumed any and all remaining obligations of
1290 LLC and 2 Broadway LP in connection with any claims reserved pursuant to
section 9.3 of the 2 Broadway Plan, and (ii) the Company received all amounts
remaining in the 2 Broadway claims reserve. Effective March 6, 1997, the 2
Broadway Utility Claims reserve account was closed and the balance was
transferred to the Claims Reserve. The balance included in the Claims Reserve
for settlement of the 2 Broadway Utility Tax Claims as of December 31, 1997 was
$2,422,000. The Company believes that amounts held in the Claims Reserve will be
sufficient to pay in full all claims arising under the 2 Broadway Plan. In
December 1997, the Company entered into a resolution with the City of New York
Department of Finance settling the 2 Broadway Priority Utility Tax Claims with
respect to New York City utility taxes for an aggregate of $236,000.

          The assets related to the 2 Broadway Property that were assigned to
the Company include the following:

                    a.   the right to receive any surplus amounts in the claims
                         reserve and the utility tax reserve under the 2
                         Broadway Plan;

                    b.   the right to proceeds of certain tax certiorari
                         proceedings existing with respect to 2 Broadway (net of
                         costs of collections and payments to be made to
                         tenants);

                    c.   the right to receive any remaining post-closing
                         apportionments under the contract of sale pursuant to
                         which the 2 Broadway Property was sold; and

                    d.   the right to receive dividends and distributions under
                         certain non-transferable stock received by 2 Broadway
                         LP in connection with the bankruptcy of Drexel Burnham
                         Lambert, a former tenant of the 2 Broadway Property.

          The Company received the remaining post-closing apportionments
described in (c) above, totaling approximately $86,000, in 1997.

                                      -12-


<PAGE>



          Priority Utility Tax Claims

          Pursuant to the Plan, the Debtors were deemed to have objected to all
claims against the Debtors arising from the nonpayment of New York State or New
York City utility taxes (the "Priority Utility Tax Claims"). As successor to the
Debtors, the Upper Tier Limited Partnership has the exclusive right to prosecute
any objection to Priority Utility Tax Claims, any litigation related to any
objection to Priority Utility Tax Claims and to compromise or settle any such
objection or litigation. Pursuant to the Plan, the Company funded the Claims
Reserve for such claims. If the Upper Tier Limited Partnership settles any
Priority Utility Tax Claim, the Property Owning Partnership owning the Property
in question will indemnify the holders of equity interests in the Debtor which
had formerly owned the Property in question (and their successors and assigns)
from all claims which may be made by the City or State of New York in respect of
utility taxes, interest and penalties in connection with such Property unless
such settlement includes a release of such holders from all such claims. At such
time as the Priority Utility Tax Claims are disallowed or allowed (as determined
by either a court of competent jurisdiction or by agreement between the Company
and the relevant taxing authority), the Company will pay any such allowed claims
from cash held in the Claims Reserve and any amount held in the Claims Reserve
in excess of the amount of such allowed claims will be paid to the Company. The
Company believes that amounts held in the Claims Reserve will be sufficient to
pay in full all Priority Utility Tax Claims.

          In December 1997, the Property Owning Partnerships entered into a
resolution with the City of New York Department of Finance settling the Priority
Utility Tax Claims with respect to New York City utility taxes for an aggregate
of $34,000. The Claims Reserve was reduced by the amount of the settlement.

          Claims Reserve

          As of December 31, 1997, $2,872,000 is being held in trust for the
benefit of holders of Priority Utility Tax Claims and the 2 Broadway Utility Tax
Claims pending determination of their entitlement thereto (the "Claims
Reserve"). The Company believes that amounts in the Claims Reserve will be
sufficient to pay in full all claims arising from the Debtors' bankruptcy cases.
If any cash held in the Claims Reserve remains after all claims have been
allowed or disallowed and distributions have been made in accordance with the
Plan, such cash will be transferred to the Company.

          Indebtedness

          On the Effective Date, The Chase Manhattan Bank ("Chase") and certain
other lenders made a loan (the "Loan") to the Property Owning Partnerships in
the aggregate principal amount of $420,000,000. The Property Owning Partnerships
will pay debt service on this indebtedness out of the Property Owning
Partnerships' revenues from their operation of the Properties. The Company
believes that the cash flow generated by the Properties will be sufficient to
meet the debt service requirements of the loan and that it has sufficient cash
to fund its working capital needs for the next twelve months.


                                      -13-

<PAGE>



ITEM 3.   LEGAL PROCEEDINGS

          There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Company, against or
involving the Company, the Partnerships or the Properties.

          Retention of Jurisdiction by Bankruptcy Court

          In July 1997, the Bankruptcy Court entered a final decree closing the
reorganization cases of the Debtors.

          The Bankruptcy Court may retain jurisdiction, and if the Bankruptcy
Court exercises its retained jurisdiction, it will have exclusive jurisdiction
of all matters arising out of, and related to, the Plan and, for among other
things, the following purposes: (a) to determine any and all adversary
proceedings, applications and contested matters; (b) to allow or disallow any
disputed claim, including Tenant Reimbursement Claims, in whole or in part; (c)
to issue such orders in aid of execution of the Plan, to the extent authorized
by section 1142 of the Bankruptcy Code; (d) to cure any defect or omission, or
reconcile any inconsistency in any order of the Bankruptcy Court, including the
Confirmation Order (as such term is defined in the Plan); (e) to hear and
determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Plan; and (f) to hear and determine
matters concerning state, local and federal taxes in accordance with sections
346, 505 and 1146 of the Bankruptcy Code including, without limitation, the New
York Real Property Transfer Gains Tax, Article 31-B of the New York Tax Law.

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

          No matters have been submitted to a vote of the Company's security
holders since the Effective Date.

                                      -14-

<PAGE>



                                     PART II


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

          The Common Stock is not listed on any exchange, the Company does not
intend to list the Common Stock on any exchange in the near term, there is not
currently a public market for the Common Stock and there can be no assurance
that an active trading market for the Common Stock will develop or be sustained.

          As of March 4, 1998, there were approximately 116 holders of record of
the Company's Common Stock.


           Distribution Policy


          On March 6, 1997, the Board of Directors adopted a distribution policy
calling for regular quarterly distributions. The Board of Directors, in its sole
discretion, determines the actual distribution rate based on a number of
factors, including the amount of cash available for distribution, the Company's
financial condition, capital expenditure requirements for the Company's
Properties, the annual distribution requirements under the REIT provisions of
the Internal Revenue Code and such other factors as the Board of Directors deems
relevant. The Company intends to make distributions to comply with the REIT
distribution requirements. In order to maintain its qualification as a REIT, the
Company must make annual distributions to stockholders of at least 95% of its
taxable income (excluding capital gains).

          On January 20, 1997, the Company made a special distribution of $.50
per share of Common Stock to shareholders of record of Common Stock on December
31, 1996.

          On April 15, 1997, the Company made a regular distribution of $.25 per
share of Common Stock to shareholders of record of Common Stock on March 31,
1997.

          On July 15, 1997, the Company made a regular distribution of $.50 per
share of Common Stock to shareholders of record of Common Stock on June 30,
1997.

          On October 15, 1997, the Company made a distribution of $1.00 per
share of Common Stock to shareholders of record of Common Stock on September 30,
1997; consisting of a regular distribution of $.50 per share of Common Stock and
a special distribution of $.50 per share of Common Stock.

          On December 31, 1997, the Company made a distribution of $1.00 per
share of Common Stock to shareholders of record of Common Stock on December 26,
1997; consisting of a regular distribution of $.50 per share of Common Stock and
a special distribution of $.50 per share of Common Stock.

          On March 17, 1998, the Board of Directors of the Company declared a
regular dividend of $.50 per share of Common Stock (aggregating to $6,483,323),
payable on April 15, 1998 to shareholders of record of Common Stock on March 31,
1998.

ITEM 6.   SELECTED FINANCIAL DATA

          The following table sets forth selected historical financial data.


                                      -15-

<PAGE>




                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>


                                                         Period October 10, 1996
                                                             (commencement of
                                            Year ended         operations) to
                                          December 31, 1997    December 31, 1996
                                          -----------------    -----------------
                                           (In thousands, except share amounts)
<S>                                              <C>               <C>

REVENUES
  Rental income                                   $130,807           $ 30,106
  Interest income                                    3,676                779
                                                   -------            -------
    Total revenues                                 134,483             30,885
                                                   -------            -------

OPERATING EXPENSES
  Real Estate Taxes                                 26,813              6,208
  Operating and Maintenance                          7,553              1,774
  Utilities                                          6,870              1,195
  Payroll                                            4,332              1,170
  Management Fees                                    2,121                426
  Professional Fees                                  2,055                384
  General and Administrative                         1,032                204
                                                   -------           --------
    Total Operating Expenses                        50,776             11,361
                                                   -------           --------

OTHER ITEMS
  Interest Expense                                  34,048              7,484
  Depreciation and Amortization                     15,532              3,457
                                                   -------           --------
    Total Other Expenses                            49,580             10,941
                                                   -------           --------

NET INCOME                                         $34,127            $ 8,583
                                                   =======           ========

Net Income Per Common Share:
Net Income                                           $2.63              $ .66
                                                     =====              =====
Weighted Average Common Shares Outstanding      12,963,963         12,963,046
                                                ==========         ==========
Net Income Per Common Share
(assuming dilution):
Net Income                                           $2.63              $ .66
                                                     =====              =====
Weighted Average Common Shares Outstanding      12,988,963         12,990,046
                                                ==========         ==========
Funds from Operations                              $47,422            $11,541
                                                    ======             ======
Total Assets as of year end                       $757,932           $766,219
                                                   =======            =======
Long-Term Debt as of year end                     $418,125           $420,000
                                                   =======            =======
Cash Dividends Declared Per Common Share             $2.75              $ .50
                                                      ====               ====
</TABLE>


                                      -16-

<PAGE>



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

          The following discussion should be read in conjunction with Selected
Financial Data and the financial statements included in "ITEM 6. -- SELECTED
FINANCIAL DATA" and "ITEM 8. -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

          Overview

          The Company was formed on May 13, 1996 and commenced operations on
October 10, 1996, upon acquisition of the 237 Property and the 1290 Property
pursuant to the Plan. The Company is a Maryland corporation that qualifies as a
REIT for tax purposes.

          The Company's principal business objective is to operate the
Properties in a manner that will maximize the Properties' revenues and value and
in turn maximize funds from operations and stockholder value.

          The 1290 Property is a 43-story Class A commercial office building
with approximately 1.9 million rentable square feet of space. The building is
centrally located in midtown Manhattan and is connected to the famed
"Rockefeller Center" complex via an underground passageway. The 1290 Property
serves as the corporate headquarters for The Equitable Life Assurance Society of
the United States, and is currently 98% leased. Over the next five years,
approximately 21% of the total rentable area of the building is subject to
expiring leases.

          The 237 Property is a 21-story Class A commercial office building with
approximately 1.1 million rentable square feet of space. The building, centrally
located in midtown Manhattan, is situated off one of New York City's most
prestigious thoroughfares and is within close proximity to Grand Central
Station, a transportation hub. The 237 Property serves as the corporate
headquarters for J. Walter Thompson Company, a major advertising agency, as well
as Swiss Reinsurance Company ("Swiss Re"), an insurance/financial services
organization, and is currently 98% leased. Over the next five years,
approximately 25% of the total rentable area of the building is subject to
expiring leases.

          The Company, through the Property Owning Partnerships, has retained
Tishman Speyer Properties, L.P. to serve as the property manager and leasing
agent, which is responsible for managing the daily operations of the Properties,
and 970 Management, LLC, an affiliate of Victor Capital Group, L.P., to serve as
the Asset Manager. The Company has also entered into a REIT Management Agreement
with Tishman Speyer Properties, L.P. to perform certain accounting,
administrative and REIT compliance monitoring services.

          On March 6, 1997, the Board of Directors adopted a distribution policy
calling for a regular quarterly dividend. On January 20, 1997, the Company made
a special distribution of $.50 per share of Common Stock to shareholders of
record on December 31, 1996. On April 15, 1997, the Company made a regular
distribution of $.25 per share of Common Stock to shareholders of record on
March 31, 1997. On July 15, 1997, the Company made a regular distribution of
$.50 per share of Common Stock to shareholders of record on June 30, 1997. On
October 15, 1997, the Company made a distribution of $1.00 per share of Common
Stock to shareholders of record on September 30, 1997, consisting of a regular
distribution of $.50 per share of Common Stock and a special distribution of
$.50 per share of Common Stock. On December 31, 1997, the Company made a
distribution of $1.00 per share of Common Stock to shareholders of record on
December 26, 1997, consisting of a regular distribution of $.50 per share of
Common Stock and a special distribution of $.50 per share of Common Stock. On
March 17, 1998, the Board of Directors of the Company declared a regular
dividend of $.50 per share of Common Stock (aggregating to $6,483,323), payable
on April 15, 1998 to shareholders of record on March 31, 1998. As of December
31, 1997, 12,966,646 shares of common stock were issued and outstanding. The
Common Stock of the Company is not listed on any exchange, and the Company does
not intend to list the Common Stock on any exchange in the near term.

                                      -17-

<PAGE>



          The assets and results of operations of the Properties are reported in
the consolidated financial statements of the Company using the consolidation
method of accounting. In accordance with Rule 3-14 of Regulation S-X of the
Securities and Exchange Commission, the financial information presented for the
year ended December 31, 1995 and for the period January 1, 1996 to October 10,
1996 represent Combined Statements of Revenues and Certain Expenses. These
statements are not representative of the actual operations for the respective
periods, as certain expenses, which may not be comparable to the expenses
expected to be incurred in the future operations of the Properties, have been
excluded. As a result, the operating results of the Company for the year ended
December 31, 1997 and for the period October 10, 1996 to December 31, 1996 are
not directly comparable with the prior periods.

          Historical Consolidated Statement of Income, year ended December 31,
1997

          The Company's revenues of $134,483,000 for the year consisted of base
rental income of $114,183,000 (84.9%), escalation income of $15,434,000 (11.5%),
and other income of $4,866,000 (3.6%). This revenue is achieved based on the 237
Property and the 1290 Property being approximately 98% and 97% leased,
respectively, during the year.

          Historical Consolidated Statement of Income, Period October 10, 1996
to December 31, 1996.

          The Company's revenues of $30,885,000 for the period consisted of base
rental income of $24,919,000 (80.7%), operating escalation income of $3,222,000
(10.4%), and miscellaneous income of $2,744,000 (8.9%). This revenue is achieved
based on the 237 Property and the 1290 Property being approximately 98% and 90%
leased, respectively, during the period.

          Liquidity and Capital Resources

          At December 31, 1997, the Company had unrestricted cash on hand of
approximately $24,627,000 of which $6,483,323 will be used to pay dividends on
April 15, 1998 to shareholders of record on March 31, 1998. At December 31,
1996, the Company had unrestricted cash on hand of approximately $37,675,000 of
which $6,481,000 was used to pay a dividend on January 15, 1997 to stockholders
of record on December 31, 1996. On October 10, 1996, the Property Owning
Partnerships borrowed $420,000,000 secured by the 1290 Property and the 237
Property. The Loan is cross-collateralized by the Properties and prohibits the
Property Owning Partnerships from incurring any additional indebtedness. The
Company may, however, be able to incur unsecured indebtedness, although it has
no present plans to do so. The Company believes that cash on hand and existing
cash flow from operations are sufficient to satisfy the Company's foreseeable
cash requirements which consist primarily of property operating expenses, real
estate taxes, capital expenditures, debt service on the Loan and distributions
necessary to enable the Company to continue to qualify as a REIT. The Loan
matures on October 10, 2001. If not repaid or refinanced prior to such date, the
Property Owning Partnerships will be required to refinance the Loan on that
date. There can be no assurance, however, that the Company will be able to
refinance the Loan on that date or what the terms of any refinancing will be.

          Year 2000 Compliance

          The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.

          The Company began preparations for the year 2000 in 1996 and has
identified all significant applications that will require modification to ensure
compliance. Internal and external resources have been and

                                      -18-

<PAGE>



continue to be used to make the required modifications and test Year 2000
Compliance. The modification process of all significant applications is
substantially complete.

          In addition, the Company has communicated with others with whom it
does significant business to determine their Year 2000 Compliance readiness and
the extent to which the Company is vulnerable to any third party Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.

          The total cost to the Company of these Year 2000 Compliance activities
has not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs to complete the Year 2000
modification and testing processes are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans.

          Funds from Operations

          The Company generally considers Funds from Operations to be a useful
measure of the operating performance of an equity REIT because, together with
net income and cash flows, Funds from Operations provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. Funds from Operations does
not represent net income or cash flows from operations as defined by generally
accepted accounting principles ("GAAP") and does not necessarily indicate that
cash flows will be sufficient to fund cash needs. It should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. Funds from Operations
does not measure whether cash flow is sufficient to fund all of the Company's
cash needs, including principal amortization, capital improvements and
distributions to shareholders. Funds from operations also does not represent
cash flows generated from operating, investing or financing activities as
defined by GAAP. Further, Funds from Operations as disclosed by other REITs may
not be comparable to the Company's calculation of Funds from Operations. The
Company adopted the National Association of Real Estate Investment Trusts
("NAREIT") definition of Funds from Operations in 1996 and has used it for all
periods presented. Funds from Operations is calculated as net income (loss)
computed in accordance with GAAP adjusted for depreciation expense attributable
to real property, amortization expense attributable to real property,
amortization expense attributable to capitalized leasing costs, tenant
allowances and improvements, gains and losses on sales of real estate
investments and extraordinary and nonrecurring items.


                                      -19-

<PAGE>



          Funds from Operations for the year ended December 31, 1997 and the
period October 10, 1996 (commencement of operations) to December 31, 1996 is
summarized in the following table (in thousands, except share data).

<TABLE>
<CAPTION>


                                                                 Year ended         Period October 10, 1996
                                                              December 31, 1997  (commencement of operations)
                                                              -----------------     to December 31, 1996
                                                                                 ----------------------------
<S>                                                             <C>                        <C>

Net Income                                                       $ 34,127                   $ 8,583
Add:
Depreciation attributable to real property and
amortization attributable to leasing costs                         13,295                     2,958
                                                                   ------                    ------
Funds from Operations                                             $47,422                   $11,541
                                                                   ======                    ======
Weighted average number of shares of                           12,988,963                12,990,046
Common Stock outstanding (1)                                   ==========                ==========

</TABLE>


(1)  Includes 25,000 and 27,000 shares of Common Stock issuable upon the
     exercise of outstanding options as of December 31, 1997 and 1996,
     respectively.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          The Property Owning Partnerships and the lead lender under the
Loan entered into an Interest Rate Exchange Agreement effective
October 10, 1996 (the "Swap Agreement"). The Swap Agreement has a term of 5
years and provides that the Property Owning Partnerships will pay interest at an
effective rate of 7.987% per annum of the notional amount of $420,000,000.
Management believes the risk of incurring losses related to the credit risk is
remote and any losses would be immaterial.

          The Company believes the fair value of the Swap Agreement generally
offsets gains or losses on the Loan being hedged and changes the nature of such
underlying financial instruments. Because the maturity date of the Loan and the
termination date of the Swap Agreement are identical and the Company has no
intention of terminating either the Loan or the Swap Agreement, the fair value
of the Swap Agreement may be of limited usefulness.


                                      -20-


<PAGE>



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          METROPOLIS REALTY TRUST, INC.
                          INDEX TO FINANCIAL STATEMENTS


                                                                            Page


HISTORICAL FINANCIAL STATEMENTS

    Independent Auditors' Report............................................  22

    Consolidated Balance Sheets as of December 31, 1997 and 1996............  23

    Consolidated Statements of Income for the year ended December 31,
    1997 and the period October 10, 1996 (commencement of operations) to
    December 31, 1996.......................................................  24

    Consolidated Statements of Stockholders' Equity for year ended
    December 31, 1997 and the period October 10, 1996 (commencement
    of operations) to December 31, 1996.....................................  25

    Consolidated Statements of Cash Flows for year ended December 31,
    1997 and the period October 10, 1996 (commencement of operations)
    to December 31, 1996....................................................  26

    Notes to Consolidated Financial Statements..............................  27

PURCHASED PROPERTIES

    Independent Auditors' Report............................................  34

    Combined Balance Sheet as of December 31, 1995..........................  35

    Combined Statements of Revenues and Certain Expenses for the period
    January 1, 1996 to October 10, 1996 and for the year ended
    December 31, 1995.......................................................  36

    Notes to Combined Balance Sheet and Statements of Revenues
    and Certain Expenses....................................................  37


                                      -21-

<PAGE>



INDEPENDENT AUDITORS' REPORT

To the Stockholders of Metropolis Realty Trust, Inc.

We have audited the accompanying consolidated balance sheets of Metropolis
Realty Trust, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of income, stockholders' equity and cash flows
for the year ended December 31, 1997 and the period October 10, 1996
(commencement of operations) to December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Metropolis Realty Trust, Inc. and
Subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for the year ended December 31, 1997 and the
period October 10, 1996 (commencement of operations) to December 31, 1996 in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP
New York, New York
February 23, 1998


                                      -22-

<PAGE>


METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

ASSETS
                                                                                                 December 31,
                                                                                            1997             1996
                                                                                            ----             ----

<S>                                                                                     <C>              <C>

Rental property - net of accumulated depreciation of $16,165 and $2,958,                $  649,107       $  655,755
   respectively
Cash and cash equivalents                                                                   24,627           37,675
Escrow deposits                                                                              2,909           13,757
Tenant security deposits                                                                       640              594
Due from tenants - net of doubtful accounts of $2,745 and $2,745, respectively               3,005            3,952
Deferred financing costs - net of amortization of $2,678 and $493,                           8,247           10,432
   respectively
Real estate tax refunds                                                                     14,088           14,088
Notes receivable - net of unamortized discount of $420 and $636, respectively                9,101            8,904
Deferred rent receivable                                                                    26,855            6,576
Prepaid real estate taxes                                                                   13,575           13,208
Deferred leasing costs, net of amortization of $110 and $0, respectively                     5,266              170
Other assets                                                                                   512            1,108
                                                                                           -------          -------
TOTAL ASSETS                                                                            $  757,932       $  766,219
                                                                                           =======          =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
  Secured notes                                                                         $  418,125       $  420,000
  Accounts payable and accrued expenses                                                     16,968           16,421
  Tenants' security deposits and unearned revenue                                            2,009            1,115
  Dividends payable                                                                              -            6,481
                                                                                           -------          -------

Total Liabilities                                                                          437,102          444,017
                                                                                           -------          -------

Subordinated Minority Interest                                                              14,855           14,855
                                                                                           -------          -------

Stockholders' Equity
  Common Stock - $10 par value
  (Class A - outstanding - 7,990,586 and 7,986,986 shares, respectively; Class B
    - outstanding - 4,936,060 and 4,936,060 shares, respectively;
    and Class C - outstanding - 40,000 and 40,000 shares, respectively)                    129,666          129,630
  Paid-in capital                                                                          175,736          175,615
  Retained earnings                                                                            573            2,102
                                                                                           -------          -------

Total Stockholders' Equity                                                                 305,975          307,347
                                                                                           -------          -------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                $757,932         $766,219
                                                                                           =======          =======
</TABLE>

See notes to consolidated financial statements.


                                      -23-

<PAGE>


METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------------------------------------------



                                                                                              October 10, 1996
                                                                                              (commencement of
                                                                       Year ended              operations) to
                                                                    December 31, 1997        December 31, 1996
<S>                                                                 <C>                      <C>
REVENUES:
  Base rental income                                                    $ 114,183               $    24,919
  Operating escalation income                                              15,434                     3,222
  Interest income                                                           3,676                       779
  Miscellaneous income                                                      1,190                     1,965
                                                                          -------                    ------
    Total revenues                                                        134,483                    30,885
                                                                          -------                    ------

OPERATING EXPENSES:
  Real estate taxes                                                        26,813                     6,208
  Operating and maintenance                                                 7,553                     1,774
  Utilities                                                                 6,870                     1,195
  Payroll                                                                   4,332                     1,170
  General and administrative                                                1,032                       204
  Professional fees                                                         2,055                       384
  Management fees                                                           2,121                       426
                                                                           ------                    ------
    Total operating expenses                                               50,776                    11,361
                                                                           ------                    ------

OTHER ITEMS:
  Interest expense                                                         34,048                     7,484

  Depreciation and amortization                                            15,532                     3,457
                                                                           ------                    ------
    Total other items                                                      49,580                    10,941
                                                                           ------                    ------

NET INCOME                                                            $    34,127               $     8,583
                                                                          =======                ==========

NET INCOME PER COMMON SHARE:
  Net income                                                          $      2.63               $       .66
                                                                          =======                ==========
  Weighted Average Common Shares Outstanding                           12,963,963                12,963,046
                                                                       ==========                ==========

NET INCOME PER COMMON SHARE (assuming
dilution):
  Net income                                                          $      2.63               $       .66
                                                                             ====                      ====
  Weighted Average Common Shares Outstanding (including                12,988,963                12,990,046
  25,000 and 27,000 shares of Common Stock issuable                    ==========                ==========
  upon the exercise of outstanding options as of
  December 31, 1997 and 1996, respectively).

See notes to consolidated financial statements.
</TABLE>

                                      -24-


<PAGE>


METROPOLIS REALTY TRUST, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>           <C>               <C>
                                                Common                                          Total
                                               Stock at        Paid-in       Retained       Stockholders'
                                              Par Value        Capital       Earnings          Equity
                                              ---------      ----------   --------------    -------------
BALANCE, OCTOBER 10, 1996                      $129,630      $175,615     $      --           $305,245
Net income                                           --            --         8,583              8,583
Dividend Declared                                    --            --        (6,481)            (6,481)
                                                -------       -------      --------            -------
BALANCE, DECEMBER 31, 1996                      129,630       175,615         2,102            307,347

Shares issued under Directors' Stock Plan            36           121            --                157
Net income                                           --            --        34,127             34,127
Dividends Declared                                   --            --       (35,656)           (35,656)
                                                -------       -------      --------            -------
BALANCE, DECEMBER 31, 1997                     $129,666      $175,736     $     573           $305,975
                                                =======       =======      ========            =======
</TABLE>

See notes to consolidated financial statements.


                                      -25-

<PAGE>


METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------------------
                                                                                                  Period
                                                                                             October 10, 1996
                                                                                             (Commencement of
                                                                      Year Ended              Operations) to
                                                                  December 31, 1997         December 31, 1996
                                                                  -----------------         ------------------
<S>                                                               <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                              $34,127                     $ 8,583
Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization                                         15,532                       3,457
   Issuance of shares of Common Stock                                       157                          --
   Amortization of discount - notes receivable                             (504)                        (96)
   Change in:
      Decrease in escrow deposits                                        10,848                       8,177
      Decrease in due from tenants                                          947                         734
      Decrease/(Increase) in prepaid expenses and other assets              199                      (7,860)
      Increase in deferred rent receivable                              (20,279)                     (6,576)
      Increase/(Decrease) in accounts payable and accrued                   547                         (79)
      expenses
      Increase/(Decrease) in unearned revenue                               848                      (5,125)
                                                                         ------                      ------
         Net cash provided by operating activities                       42,422                       1,215
                                                                         ------                      ------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to building and equipment                                     (6,559)                     (2,405)
 Leasing and organization costs                                          (5,206)                       (182)
 Collections on notes receivable                                            307                          48
                                                                         ------                      ------
         Net cash used in investing activities                          (11,458)                     (2,539)
                                                                         ------                      ------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on Secured Notes                                             (1,875)                         --
   Dividends Paid                                                       (42,137)                         --
                                                                        -------                      ------
         Net cash used in financing activities                          (44,012)                         --
                                                                        -------                      ------

(DECREASE) IN CASH AND CASH EQUIVALENTS                                 (13,048)                     (1,324)

CASH AND CASH EQUIVALENTS, BEGINNING OF                                  37,675                      38,999
                                                                         ------                      ------
PERIOD

CASH AND CASH EQUIVALENTS, END OF PERIOD                                $24,627                     $37,675
                                                                         ======                      ======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
 Interest paid                                                          $33,905                     $ 5,341
                                                                         ======                       =====
 Dividends declared                                                     $35,656                     $ 6,481
                                                                         ======                       =====
</TABLE>

See notes to consolidated financial statements.

                                      -26-

<PAGE>


METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE PERIOD OCTOBER 10, 1996 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 1996
(In Thousands except share amounts)

--------------------------------------------------------------------------------
      1.          BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
                  ACCOUNTING POLICIES





    Organization - Metropolis Realty Trust, Inc., a Maryland corporation
    ("Metropolis" or the "Company"), was formed on May 13, 1996 to facilitate
    the consummation of the Second Amended Joint Plan of Reorganization of 237
    Park Avenue Associates, L.L.C. ("237 LLC") and 1290 Associates, L.L.C.
    ("1290 LLC" and together with 237 LLC, the "Predecessors"), dated September
    20, 1996 (the "Plan"). Pursuant to the Plan, on October 10, 1996, the date
    operations commenced ("Effective Date"), the Company acquired the interests
    of 237 LLC and 1290 LLC in the properties located at 237 Park Avenue (the
    "237 Property") and 1290 Avenue of the Americas (the "1290 Property," and
    together with the 237 Property, the "Properties"). The Company owns a 95%
    interest, as general partner, and .05% interest, as limited partner (through
    its 1% general partnership interest in Upper Tier Associates, L.P.), in
    237/1290 Lower Tier Associates, L.P., a Delaware limited partnership (the
    "Lower Tier Limited Partnership") which owns a 99% partnership interest, as
    limited partner in each of 237 Park Partners, L.P., a Delaware limited
    partnership (the "237 Property Owning Partnership") and 1290 Partners, L.P.,
    a Delaware limited partnership (the "1290 Property Owning Partnership," and
    together with the 237 Property Owning Partnership, the "Property Owning
    Partnerships"). The Property Owning Partnerships were formed to own the
    Properties. The remaining 1% general partnership interest in each of the
    Property Owning Partnerships is owned by 237 GP Corp. and 1290 GP Corp. (the
    "GP Corps") which are wholly-owned subsidiaries of the Company.

    Basis of Presentation - The consolidated financial statements include
    Metropolis, the Lower Tier Limited Partnership, the GP Corps and each of
    the Property Owning Partnerships.

    Certain 1996 amounts have been reclassified to conform with the 1997
    presentation.

    The presentation of the consolidated financial statements requires estimates
    and assumptions that affect the reported amounts of assets and liabilities
    at the balance sheet date. Actual results could differ from those estimates.

    Rental Property - Rental property is carried at cost, net of accumulated
    depreciation and amortization and, includes land, building, tenant
    improvements and building improvements. Land is valued at $134,518 as of
    December 31, 1997 and 1996 and building, tenant improvements and building
    improvements are carried at $531,914 and $521,789 as of December 31, 1997
    and 1996, respectively. In accordance with SFAS No. 121, impairment of
    property is determined to exist when estimated amounts recoverable through
    future operations and sale of property on an undiscounted basis are below
    that property's carrying value. If a property is determined to be impaired,
    it must be written down to its estimated fair value. Fair value is defined
    as the amount for which the asset could be bought or sold in a current
    transaction, that is, other than a forced or liquidation sale.

    Cash and Cash Equivalents - Cash and cash equivalents includes investments
    purchased with an original maturity of three months or less.

                                      -27-

<PAGE>



    Depreciation and Amortization - Building and building improvements are
    depreciated over their useful life of 40 years. Furniture and fixtures are
    depreciated over their useful life, ranging from 5 to 7 years. Tenant
    improvements are amortized on a straight-line basis over the terms of the
    respective leases.

    Deferred Charges - Deferred financing costs are amortized over the term of
    the related loan. Direct costs related to leasing are amortized over the
    related lease term on a straight-line basis.

    Rental Income - Rental income is recognized on a straight-line basis over
    the terms of the related leases. Differences between actual base amounts due
    from tenant losses and the straight-line basis are included in deferred rent
    receivable.

    Escrow Deposits - Escrow deposits include reserves for certain claims made
    in conjunction with the Plan and escrow deposits for building and tenant
    improvements, insurance and real estate taxes.

    Income Taxes - The Company qualifies as a REIT under the Internal Revenue
    Code, as amended, and will generally not be taxed at the corporate level on
    income it currently distributes to its stockholders so long as it, among
    other things, distributes at least 95% of its REIT taxable income.

    Amounts Per Share - In 1997, the Financial Accounting Standards Board issued
    Statement No. 128, Earnings per Share (SFAS 128). SFAS 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 requirements of SFAS 128.


2.  REAL ESTATE TAX REFUNDS

    Real estate tax refunds represent real estate tax proceeds expected to be
    recovered by the Company as a result of real estate tax certiorari
    proceedings commenced by the Predecessors, net of any fees and expenses
    incurred to collect such proceeds (the "Tax Proceeds"). The Company has
    reserved approximately $6,414 for tenant claims against the Tax Proceeds.
    This reserve is included in accounts payable and accrued expenses on the
    accompanying balance sheet.


3.   NOTES RECEIVABLE

     Included in Notes Receivable are two tenant notes aggregating approximately
     $9,101 at December 31, 1997. The first note, dated April 1, 1989 with a
     face amount of $6,500 and a maturity date of September 1, 1999, is carried
     at $5,338, based on certain payment terms net of unamortized discount. Such
     payment terms include a stated interest rate of 10%. In 1991 and 1992, the
     tenant claimed certain concessions regarding the payment terms of such
     note. Without the Company expressing an opinion with regard thereto, if
     such concessions were granted, the note would bear interest at 7.5% per
     annum and would require level monthly payments of interest and principal of
     $75. The second note, dated August 20, 1985, with a face value of $4,355,
     is carried at $3,763 net of unamortized discount. The second note does not
     bear interest and is payable on October 31, 1999.


4.   SECURED NOTES

     Secured Notes consist of promissory notes ("Loan") issued by the Property
     Owning Partnerships in the original principal amount of $420,000 pursuant
     to a Credit Agreement ("Agreement") among the Property Owning Partnerships,
     the lenders as signatories thereto in the Agreement and the lead lender. Of
     the aggregate principal amount of the loan, $250,000 of the Loan is
     allocated to the 1290 Property and $170,000 is allocated to the 237
     Property. The Loan is cross collateralized by the Properties. The Loan will
     terminate on October


                                      -28-

<PAGE>



     10, 2001 unless sooner terminated by the occurrence of an Event of Default
     as described in the Agreement. The Loan requires the Property Owning
     Partnerships to make payments of interest only through October 7, 1997 and
     then make principal payments of $1,875, $7,500, $8,125, $11,250 and $11,250
     in each of 1997, 1998, 1999, 2000 and 2001, respectively. Scheduled
     principal payments of $625 were made on each of October 7, 1997, November
     7, 1997, December 8, 1997, January 7, 1998 and February 9, 1998. If any
     such scheduled principal payments would cause the Company to fail to comply
     with any income test requirements necessary for the Company to maintain its
     status as a REIT, then the Property Owning Partnerships may, in lieu of
     such principal payment, post an irrevocable letter of credit in the amount
     of such payment. The Property Owning Partnerships have entered into lock
     box agreements for the collection of rents and have established escrow
     accounts for real estate taxes and insurance.

     The Property Owning Partnerships and the lead lender entered into an
     Interest Rate Exchange Agreement effective October 10, 1996 (the "Swap
     Agreement"). The Swap Agreement has a term of 5 years and provides that the
     Property Owning Partnerships will pay interest at an effective rate of
     7.987% per annum of the notional amount of $420,000. Management believes
     the risk of incurring losses related to the credit risk is remote and any
     losses would be immaterial.

5.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses include funded reserves held by the
     Company for utility tax claims, certain claims related to the Plan, tenant
     claims against Tax Proceeds and property operating expenses payable. The
     utility tax claims include approximately $2,422 of claims pertaining to a
     property owned by an affiliate of the Predecessors which was disposed of
     prior to October 10, 1996.

6.   SUBORDINATED MINORITY INTEREST

     The Subordinated Minority Interest represents 4.95% of the net
     reorganization value of the Lower Tier Limited Partnership, reflecting the
     99% limited partnership interest of JMB/NYC Office Building Associates,
     L.P. ("JMB LP") in the limited partnership (the "Upper Tier Limited
     Partnership") which owns a subordinated 5% limited partnership interest in
     the Lower Tier Limited Partnership (the "Subordinated Minority Interest").
     Management believes, however, that no economic obligation exists to JMB LP
     as of December 31, 1997 and, that, pursuant to the distribution priorities
     set forth in the limited partnership agreement of the Lower Tier Limited
     Partnership (the "Lower Tier Partnership Agreement"), if the Company's
     Properties were sold, JMB LP would be entitled to receive approximately
     $450 in respect of the Subordinated Minority Interest. Pursuant to the
     Lower Tier Limited Partnership Agreement, JMB LP would be entitled to
     distributions only after the Company has received certain priority
     distributions as more fully described below. As of December 31, 1997, the
     Company, as general partner of the Lower Tier Limited Partnership, is
     entitled to receive $400,000 and a 12% cumulative compounded return (from
     October 10, 1996) on such amount from the Lower Tier Limited Partnership,
     before any distributions are made in respect of the Subordinated Minority
     Interest.

     The Upper Tier Limited Partnership has the right to require the Company to
     acquire the Subordinated Minority Interest at a price based upon a multiple
     of the net operating income of the Properties for the immediately preceding
     calendar year reduced by the debt encumbering the Properties and any
     priority distributions to which the Company is entitled as general partner
     of the Lower Tier Limited Partnership. As of December 31, 1997, no economic
     obligation exists based upon such formula.

                                      -29-
<PAGE>






     The Lower Tier Limited Partnership Agreement provides that the aggregate
     Available Cash (as defined in the Lower Tier Limited Partnership
     Agreement), from distributions from the Property Owning Partnerships will
     be distributed no less frequently than quarterly to the partners of the
     Lower Tier Limited Partnership as follows:

     (i) 100% to the Company, as general partner, until it has received,
     together with all prior distributions pursuant to this clause and clauses
     (i) and (iv) of the succeeding paragraph, aggregate distributions equal to
     a cumulative compounded return, commencing on October 10, 1996 (or with
     respect to capital contributions made after October 10, 1996, the date of
     such capital contributions), of 12% per annum on the sum of (x) $280,000,
     (y) any additional capital contributions made by the Company, as general
     partner, to the Lower Tier Limited Partnership ($20,000 as of December 31,
     1997), and (z) a $100,000 preference amount (the "Preference Amount") (the
     amounts in (x), (y) and (z), as reduced by distributions in respect of such
     amounts referred to herein as the "Adjusted GP Contribution");

     (ii) 100% to the Company, as general partner, until it has received in
     total, taking into account distributions made to it from Available Cash and
     sale or refinancing proceeds, the Adjusted GP Contribution; and

     (iii) the balance, 95% to the Company, as general partner, and 5% to the
     Upper Tier Limited Partnership, as limited partner.

     The Lower Tier Limited Partnership Agreement also provides that net
     proceeds from any distributions from the Property Owning Partnerships
     related to any sale, refinancing, condemnation or insurance recovery of the
     Properties or any loan made to the Partnership will be distributed by the
     Lower Tier Limited Partnership to its partners as follows:

     (i) 100% to the Company, as general partner, until it has received,
     together with all prior distributions pursuant to this clause (i) and
     clause (i) of the immediately preceding paragraph, aggregate distributions
     equal to the product of (x) 0.5 and (y) a 12% per annum cumulative
     compounded return on the Adjusted GP Contribution from October 10, 1996 (or
     with respect to capital contributions made after October 10, 1996, the date
     of such capital contributions);

     (ii) 100% to the Company, as general partner, until it has received,
     together with all prior distributions pursuant to this clause (ii) and
     clause (ii) of the immediately preceding paragraph, aggregate distributions
     equal to the product of (x) .75 and (y) the Adjusted GP Contribution;

     (iii) from the next $500, 90% (i.e., $450) to the Upper Tier Limited
     Partnership, as limited partner, and 10% to the Company, as general
     partner;

     (iv) 100% to the Company, as general partner, until it has received,
     together with all prior distributions pursuant to this clause (iv), clause
     (i) of this paragraph and clause (i) of the immediately preceding
     paragraph, a 12% per annum cumulative compounded return on the Adjusted GP
     Contribution commencing with respect to each capital contribution, on the
     date such Capital Contribution was made;

     (v) 100% to the Company, as general partner, until it has received,
     together with all prior distributions pursuant to this clause (v), clause
     (ii) of this paragraph and clause (ii) of the immediately preceding
     paragraph, aggregate distributions equal to the Adjusted GP Contribution;
     and

     (vi) 95% to the Company, as general partner, and 5% to the Upper Tier
     Limited Partnership, as limited partner.


                                      -30-

<PAGE>



7.  STOCKHOLDERS' EQUITY

    The Company has the authority to issue 50,000,000 shares of common stock,
    par value $10 per share (the "Common Stock"), and 10,000,000 shares of
    Preferred Stock, par value $10 per share. Stockholders' equity consists of
    12,966,646 shares of Common Stock issued and outstanding. Of the 12,966,646
    shares issued and outstanding, 7,990,586 represent shares of Class A Common
    Stock, 4,936,060 represent shares of Class B Common Stock, and 40,000
    represent shares of Class C Common Stock which were issued to affiliates of
    the Company's Asset Manager. Of the 7,990,586 of Class A Common Stock issued
    and outstanding, approximately 923,077 shares were issued as part of a
    subscription rights offering under the Plan. 12,962,046 shares were issued
    on the Effective Date pursuant to the Plan, 1,000 were subsequently
    distributed, and 3,600 were issued to the members of the Board of Directors
    as part of the annual compensation. The Class A Common Stock, the Class B
    Common Stock and the Class C Common Stock have identical rights and
    privileges, and are treated as a single class, with respect to all matters
    (other than certain voting rights) including, without limitation, the
    payment of distributions and upon liquidation.

    On January 20, 1997, the Company made a special distribution of $.50 per
    share of Common Stock to shareholders of record on December 31, 1996.

    On April 15, 1997, the Company made a distribution of $.25 per share of
    Common Stock to shareholders of record on March 31, 1997.

    On July 15, 1997, the Company made a distribution of $.50 per share of
    Common Stock to shareholders of record on June 30, 1997.

    On October 15, 1997, the Company made a distribution of $1.00 per share of
    Common Stock to shareholders of record on September 30, 1997; consisting of
    a regular distribution of $.50 per share of Common Stock and a special
    distribution of $.50 per share of Common Stock.

    On December 31, 1997, the Company made a distribution of $1.00 per share of
    Common Stock to shareholders of record on December 26, 1997; consisting of a
    regular distribution of $.50 per share of Common Stock and a special
    distribution of $.50 per share of Common Stock.


8.  STOCK PLAN AND REGISTRATION RIGHTS

    The Board of Directors of the Company adopted a Directors' Stock Plan
    effective October 10, 1996. Pursuant to the Stock Plan, the Board of
    Directors of the Company has the authority to issue to members of the
    Company's Board of Directors options to purchase, in the aggregate, 100,000
    shares of Common Stock. On the Effective Date, the initial members of the
    Company's Board of Directors were granted options entitling each director to
    purchase an aggregate of 3,000 shares of Common Stock at an exercise price
    of $25 per share.

    Pursuant to the Stock Plan, each Director received 400 shares of Common
    Stock in September 1997 in consideration for services rendered to the
    Company during the Company's first fiscal year of operations. The value of
    such shares was based upon the most recent price at which shares of the
    Company's Common Stock were traded prior to such grant of shares and is
    included as an operating expense. Each Director will receive an additional
    400 shares of Common Stock at the 1998 annual meeting of the Company's
    stockholders and at each subsequent annual meeting. Total outstanding
    options at December 31, 1997 aggregated 25,000, of which 17,000 were
    exercisable at December 31, 1997; and an additional 8,000 will become
    exercisable as of October 10, 1998.

    The Company has entered into a Registration Rights Agreement between the
    Company and the holders of Common Stock. The Registration Rights Agreement
    permits certain of the Company's stockholders to

                                      -31-

<PAGE>



    demand, subject to certain conditions, that the Company register their
    Common Stock for sale and provides all of the Company's stockholders with
    the right to participate proportionally in any public offering of the
    Company's securities.

9.  RELATED PARTY TRANSACTIONS

    Asset Management - The Company has entered into an Asset Management
    Agreement with a company ("Asset Manager") that is directly affiliated with
    two of Metropolis' shareholders. One of these shareholders is also a
    Director and Officer of the Company. The Asset Manager provides asset
    advisory, consultation and management services for the Company. Fees for
    such services are payable in arrears, on a monthly basis of $25. The Asset
    Management Agreement also provides for reimbursement for costs and expenses
    for contractors and professional fees, payable as incurred. Asset management
    fees incurred for the year ended December 31, 1997 and the period October
    10, 1996 to December 31, 1996 aggregated approximately $300 and $74,
    respectively.

    Property Management - The Company has also entered into a Management and
    Leasing Agreement with a company ("Property Manager/Leasing Agent") that is
    an affiliate of a shareholder. The Property Manager/Leasing Agent is to
    manage and operate the property and provide all supervisory, management and
    leasing services. The Management and Leasing Agreement provides for a fee of
    1.5% of Gross Revenues, payable monthly and reimbursement for overhead and
    all reasonable out-pocket-expenses incurred. The Management and Leasing
    Agreement also provides for leasing commissions to be calculated on a
    sliding scale percentage basis of the lease's base rent. Fees under
    Management and Leasing Agreement for the year ended December 31, 1997 and
    the period October 10, 1996 to December 31, 1996 aggregated approximately
    $3,333 and $392, respectively.

    An affiliate of the Property Manager/Leasing Agent provides the cleaning
    services for the Properties. Fees paid for cleaning services for the year
    ended December 31, 1997 and the period October 10, 1996 through December 31,
    1996 totaled $4,226 and $196, respectively.

    REIT Management - The Company has entered into a REIT Management Agreement
    with the Property Manager/Leasing Agent ("REIT Manager"). The REIT Manager
    is to perform certain accounting, administrative and monitoring services.
    The REIT Management Agreement provides for compensation to the REIT Manager
    of a monthly fee and reimbursement of documented out-of-pocket expenses.
    Fees incurred under the REIT Management Agreement for the year ended
    December 31, 1997 aggregated $140. There were no fees paid under the REIT
    Management Agreement for the period October 10, 1996 to December 31, 1996.


10. FAIR VALUE OF FINANCIAL INSTRUMENTS

    The carrying amount of cash and cash equivalents, escrow deposits, tenant
    security deposits, tax refunds receivable, and accounts receivable are a
    reasonable estimate of their fair value due to their short-term nature. The
    Company believes the fair value of the Swap Agreement generally offsets
    gains or losses on the Secured Notes being hedged and changes the nature of
    such underlying financial instruments. Because the maturity date of the
    Secured Notes and the termination date of the Swap Agreement are identical
    and the Company has no intention of terminating either the Secured Notes or
    the Swap Agreement, the fair value of the Swap Agreement may be of limited
    usefulness.

    The fair value of the notes receivables has been estimated by discounting
    cash flows at the current rate at which similar instruments would be issued
    with similar credit ratings for the remaining term. Management believes the
    fair market value of the notes receivables approximates the carry value at
    December 31,1997.

    The fair value of the Secured Notes has been estimated by discounting cash
    flows at the current rate at which similar loans would be made to borrowers
    with similar credit ratings for the remaining term.  Management believes

                                      -32-

<PAGE>



    the fair market value of the Secured Notes approximates the carrying value
    at December 31, 1997.

    The fair value estimates presented herein are based on pertinent information
    available to management as of December 31, 1997.



11. LEASES


    Minimum future rents (excluding escalation rentals) due to the Company under
    noncancellable leases as of December 31, 1997 are as follows:




                              1998                  $  103,966
                              1999                     101,091
                              2000                     103,293
                              2001                      99,025
                              2002                      88,090
                              Thereafter               547,747
                                                     ---------
                                                    $1,043,212
                                                     =========

                                      -33-

<PAGE>



                          INDEPENDENT AUDITORS' REPORT








To the Stockholders of Metropolis Realty Trust, Inc.:


                  We have audited the combined balance sheet of the Purchased
Properties owned indirectly by Metropolis Realty Trust, Inc. as described in
Note 1 as of December 31, 1995 and the combined statements of revenues and
certain expenses as described in Note 1 for the period January 1, 1996 to
October 10, 1996 and for the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

                  We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
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.

                  The accompanying combined statements of revenue and certain
expenses were prepared in compliance with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the Annual Report on Form
10-K of Metropolis Realty Trust, Inc.) and as described in Note 1, are not
intended to be a complete presentation of the Purchased Properties' revenue and
expenses.

                  In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined financial position of the
Purchased Properties owned indirectly by Metropolis Realty Trust, Inc. as
described in Note 1 as of December 31, 1995 and the statements of combined
revenues and certain expenses as described in Note 1 for the period January 1,
1996 to October 10, 1996 and for the year ended December 31, 1995 in conformity
with generally accepted accounting principles.




Deloitte & Touche LLP
New York, New York
December 5, 1996


                                      -34-


<PAGE>




                              PURCHASED PROPERTIES

                             COMBINED BALANCE SHEET
                                December 31, 1995
                                ($000's Omitted)


ASSETS

  Rental property                                         $645,235
  Cash and restricted cash                                   7,218
  Escrow deposits                                              493
  Rent receivables                                          54,573
  Deferred expenses                                         18,169
  Other assets                                               1,024
                                                           -------
TOTAL ASSETS                                              $726,712
                                                           =======


LIABILITIES & CUMULATIVE DEFICIT

Liabilities
  Long-term debt                                          $902,603
  Deferred rent                                             20,706
  Accounts payable and accrued expenses                     11,280
  Security deposit payable                                     493
                                                           -------
Total Liabilities                                          935,082
                                                           -------

Cumulative Deficit                                        (208,370)

TOTAL LIABILITIES AND CUMULATIVE DEFICIT                  $726,712
                                                           =======

See notes to combined balance sheet.



                                      -35-

<PAGE>


                              PURCHASED PROPERTIES




              COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
                    Period January 1, to October 10, 1996 and
                      For the Year Ended December 31, 1995
                                ($000's Omitted)







                                             Period
                                           January 1,         Year Ended
                                           to October          December
                                            10, 1996           31, 1995

REVENUES:
  Rental Income                             $90,993             $121,209
  Interest Income                               410                  820
                                             ------              -------
    Total Revenues                           91,403              122,029

CERTAIN EXPENSES:
  Payroll and Benefits                        3,258                4,058
  Operating and Maintenance                   4,798                7,397
  Utilities                                   5,288                6,685
  Management Fees                               528                1,163
  Real Estate Taxes                          21,299               28,309
  General and Administrative                  1,991                3,956
                                             ======              =======
   Total Certain Expenses                    37,162               51,568
                                             ------              -------

REVENUES IN EXCESS OF CERTAIN EXPENSES      $54,241             $ 70,461
                                             ======              =======




See notes to Combined Statements of Revenues and Certain Expenses.

                                     -36-

<PAGE>



                              PURCHASED PROPERTIES
                         NOTES TO COMBINED BALANCE SHEET
                             As of December 31, 1995



        AND NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
             For the period January 1, 1996 to October 10, 1996 and
                      For the year ended December 31, 1995


                                ($000's Omitted)




1.       BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES


         Organization - Metropolis Realty Trust, Inc., a Maryland corporation
         ("Metropolis" or the Company"), was formed on May 13, 1996 to
         facilitate the consummation of the Second Amended Joint Plan of
         Reorganization of 237 Park Avenue Associates, L.L.C. ("237 LLC") and
         1290 Associates, L.L.C. ("1290 LLC" and together with 237 LLC, the
         "Predecessors"), dated September 20, 1996 (the "Plan"). Pursuant to the
         Plan, on October 10, 1996 (the "Effective Date") the Company acquired
         the interests of 237 LLC and 1290 LLC in the office properties located
         at 237 Park Avenue (the "237 Property") and 1290 Avenue of the Americas
         (the "1290 Property," and together with the 237 Property, the
         "Properties"). The Company owns a 95% interest, as general partner, in
         237/1290 Lower Tier Associates, L.P., a Delaware limited partnership
         (the "Lower Tier Limited Partnership") which owns a 99% partnership
         interest, as limited partner in each of 237 Park Partners, L.P., a
         Delaware limited partnership (the "237 Property Owning Partnership")
         and 1290 Partners, L.P., a Delaware limited partnership (the "1290
         Property Owning Partnership," and together with the 237 Property Owning
         Partnership, the "Property Owning Partnerships"). The Property Owning
         Partnerships were formed to own the Properties. The remaining 1%
         interest in each of the Property Owning Partnerships is owned by one of
         two wholly-owned subsidiaries of the Company.

         Basis of Presentation - The combined statements relate to the
         operations of the Properties (the "Purchased Properties"). The
         Purchased Properties have a combined net leasable area of approximately
         3,103,000 square feet. As of October 10, 1996, the Purchased Properties
         are encumbered with less debt and related interest; the asset base and
         related depreciation is significantly different; one of the
         Predecessor's equity holders has a remaining subordinated 5% indirect
         interest; and the properties are managed by an affiliated property
         manager with a different management structure. Accordingly, Management
         believes the combined statements are the most meaningful presentation
         as they present the Purchased Properties' operations in a manner which
         excludes variables associated with the ownership and management of the
         Predecessors.

         Combined Statements of Revenue and Certain Expenses:

         The accompanying combined statements of revenue and certain expenses
         are presented in conformity with Rule 3-14 of Regulation S-X of the
         Securities and Exchange Commission. Accordingly, the statements are not
         representative of the actual operations for the period January 1, 1996
         to October 10, 1996 and for the year ended December 31, 1995 as certain
         expenses which may not be comparable to the expenses expected to be
         incurred in the proposed future operations of the Purchased Properties
         have been excluded. Expenses excluded consist of interest, depreciation
         and amortization and other costs not directly related to the future
         operations of the Purchased Properties.

         Rental income is recognized on a straight line basis over the term of
         the related leases.


                                      -37-

<PAGE>



         Combined Balance Sheet:

         The accompanying combined balance sheet of the Purchased Properties
         includes the separate balance sheets of each of the Properties.

         The presentation of the accompanying combined balance sheet in
         accordance with generally accepted accounting principles requires the
         management of the Purchased Properties to make estimates and
         assumptions that affect the reported amounts of assets and liabilities
         at the date of the balance sheet.
         Actual results could differ from those estimates.

         In conjunction with the negotiations with representatives of the first
         mortgage lender regarding a loan restructure, affiliates of the
         Predecessors reached an agreement with the first mortgage lender
         whereby effective January 1, 1993, the affiliates of the Purchased
         Properties were limited to taking distributions of $250 on a monthly
         basis from the Purchased Properties reserving the remaining excess cash
         flow in a separate interest-bearing account to be used exclusively to
         meet the obligations of the Purchased Properties. Such reserved
         amounts, of approximately $6,576 in the aggregate at December 31, 1995,
         are classified as restricted funds in the accompanying combined balance
         sheet.

         Provisions for value impairment are recorded with respect to the
         investment properties whenever the estimated future cash flows from a
         property's operations and projected sale are less than the property's
         net carry value. The investment properties are carried at historical
         cost on the accompanying balance sheet.

         Deferred expenses are comprised of leasing and renting costs which are
         amortized using the straight-line method over the terms of the related
         leases.

         No provision for State or Federal income taxes has been made as the
         liability for such taxes is that of the Purchased Properties' owners.

         Depreciation on the investment properties has been provided over the
         estimated useful lives of 5 to 39 years using the straight-line method.

         Although certain leases of the Purchased Properties provide for tenant
         occupancy during periods for which no rent is due, the Purchased
         Properties accrue prorated rental income for the full period of
         occupancy. In addition, although certain leases provide for step
         increases in rent during the lease term, the Purchased Properties
         recognize the total rents receivable on a straight-line basis. Such
         amounts are included in accrued rents receivable in the accompanying
         combined balance sheet.

         Significant betterments and improvements are capitalized and
         depreciated over their estimated useful lives. An affiliate of the
         Predecessor Owners of the Purchased Properties' performs certain
         maintenance and repair work and construction of certain tenant
         improvements.

2.       LONG TERM DEBT

         Long term debt consists of a first mortgage loan of $902,603 bearing
         interest at the short-term U.S. Treasury obligation note rate plus
         1-3/4% with a minimum rate on the loan of 7% per annum; allocated among
         and cross-collaterally secured by the Properties. Monthly payments of
         principal and interest are based upon a 30-year amortization schedule.
         The loan is in technical default at December 31, 1995. The terms of
         default were subsequently cured through the Plan. The stated maturity
         of the principal plus accrued interest is due March 1999.


                                      -38-

<PAGE>



3.       LEASES

         At December 31, 1995, all leases relating to the properties are
         properly classified as operating leases. Leases with commercial tenants
         range in term from 1 to 17 years and provide for fixed minimum rent and
         partial to full reimbursement of operating costs. Affiliates of the
         Predecessor Owner of the Purchased Properties have lease agreements and
         occupy approximately 95,000 square feet of space at 237 Park Avenue at
         rental rates which approximate market.

         Deferred rent represents the unearned portion of lease termination fees
         paid by certain tenants of the 1290 Avenue of America's property. The
         lease termination fees are being amortized over the remaining terms of
         the tenant and sub-tenant leases.


         Minimum future rents due under noncancellable leases as of December 31,
         1995 are as follows:


                              1996                  $   80,951
                              1997                      90,148
                              1998                     101,492
                              1999                      97,235
                              2000                      96,314
                              Thereafter               665,041
                                                     ---------
                                                    $1,131,181
                                                     =========



4.       CAPITAL EXPENDITURES

         For the period from January 1, 1996 to October 10, 1996 and for the
         year ended December 31, 1995, capital expenditures related to the
         rental property aggregated $4,048 and $4,142, respectively.


                                      -39-

<PAGE>



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



                  None.


                                      -40-

<PAGE>




                                    PART III





ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


The directors and executive officers of the Company as of December 31, 1997 are
as follows:

<TABLE>
<CAPTION>
Name                                                  Age                         Position
---                                                   ---                         --------
<S>                                                    <C>            <C>
William L. Mack...................................... 58                Director and Chairman of the Board

Lee S. Neibart....................................... 47                Director and President

Bruce H. Spector..................................... 55                Director

John R.S. Jacobsson.................................. 29                Director and Secretary

John R. Klopp........................................ 44                Director and Vice President

Russel S. Bernard.................................... 40                Director

Ralph F. Rosenberg................................... 33                Director

David A. Strumwasser................................. 46                Director

David Roberts........................................ 36                Director
</TABLE>

               Each of the officers and directors listed above, other than John
R. Klopp and John Jacobsson, has served in the positions listed for the Company
since September 1996. Mr. Klopp has served as a Director since September 1996
and as an officer since December 1996. Mr. Jacobsson has served as a Director
since October 1997 and as an officer since December 1996.

               William L. Mack is the managing partner of Apollo Real Estate
Advisors, L.P., the manager of three opportunistic real estate investment funds,
which he founded in 1993 and serves as President of its corporate general
partner. Beginning in 1969, Mr. Mack served as Managing Partner of the Mack
Company, where he oversaw the dynamic growth of the Mack Company's office,
industrial, retail and hotel facilities. Mr. Mack has served as a director of
Mack-Cali Realty Corporation since the 1997 merger of the Mack Company's office
portfolio into Mack-Cali. Mr. Mack is also a director of The Bear Stearns
Companies, Inc., an investment banking firm, Koger Equity, Inc., a REIT which
owns and operates suburban office parks in the Southeast and the Southwest, and
Vail Resorts, Inc., an owner and operator of Colorado ski resorts. Mr. Mack
attended the Wharton School of Business and Finance at the University of
Pennsylvania and received a B.S. degree in business administration, finance and
real estate from New York University.

               Lee S. Neibart is a partner of Apollo Real Estate Advisors, L.P.,
with which he has been associated since 1993, and directs portfolio and asset
management. From 1979 to 1993, he was Executive Vice President and Chief
Operating Officer of the Robert Martin Company, a private real estate
development and management firm. Mr. Neibart is a director of Atlantic Gulf
Communities Corp., a land development company, Koger Equity, Inc., NextHealth,
Inc., an owner and operator of spa and wellness facilities, and Roland
International Corporation, a land development company. Mr. Neibart received a BA
from the University of Wisconsin and an MBA from New York University.


                                      -41-


<PAGE>
               Bruce H. Spector is a partner of Apollo Real Estate Advisors,
L.P., with which he has been associated since 1993 and has been responsible for
advising on matters of reorganization strategy. From 1967 to 1992, Mr. Spector
was a member of the law firm of Stutman, Treister and Glatt, spending a
substantial amount of that time as a senior partner and head of the firm's
executive committee. Mr. Spector is a director of NextHealth, Inc., Telemundo
Group, Inc., a national Spanish-language oriented television producer, United
International Holding, Inc., a designer and owner of cable and telephone systems
outside of North America, and Vail Resorts, Inc. Mr. Spector received a B.A.
from the University of Southern California and a J.D. from the UCLA School of
Law.

               John R.S. Jacobsson is a partner of Apollo Real Estate Advisors,
L.P., with which he has been associated since 1993 and is responsible for
investments. Prior to 1993, Mr. Jacobsson was associated with the acquisitions
group of Trammell Crow Ventures, a real estate investment firm. Mr. Jacobsson is
a director of Koger Equity, Inc. and Roland International Corporation. Mr.
Jacobsson received a B.A. from Harvard College in 1990.

               John R. Klopp is a Trustee, the Chief Executive Officer and a
Vice Chairman of Capital Trust, a specialty finance company focused on the
commercial real estate industry. Mr. Klopp is a founder and has been a Managing
Partner of VCG since 1989. VCG is presently a subsidiary of Capital Trust. From
1982 to 1989, Mr. Klopp was a Managing Director and co-head of Chemical Realty
Corporation ("Chemical Realty"), the real estate investment banking affiliate of
Chemical Bank. Prior to founding Chemical Realty, he held various positions in
Chemical Bank's Real Estate Division and was responsible for originating,
closing and monitoring portfolios of construction and interim loans. He received
a B.A. from Tufts University in 1976 with a major in economics, and an M.B.A. in
1978 from the Wharton School at the University of Pennsylvania with a major in
real estate and finance.

               Russel S. Bernard is a principal of Oaktree Capital Management,
LLC ("Oaktree"), with which he has been involved since 1995, and is the
portfolio manager of Oaktree's real estate and mortgage funds. Prior to joining
Oaktree in 1995, Mr. Bernard was a Managing Director of Trust Company of the
West (TCW). Under subadvisory relationships with Oaktree, Mr. Bernard continues
to serve as portfolio manager for the TCW Special Credits distressed mortgage
funds. From 1986 to 1994, Mr. Bernard was a partner in Win Properties, Inc., a
national real estate investment company, where he was responsible for the
acquisition, financing and operation of a national real estate portfolio. Mr.
Bernard is a director of Cadillac Fairview Corporation, which owns, manages and
develops shopping centers and office and mixed use properties in the U.S. and
Canada. Mr. Bernard holds a B.S. in Business Management and Marketing from
Cornell University.

               Ralph F. Rosenberg has been a Vice President in the Investment
Banking Division at Goldman, Sachs & Co. since 1994. Prior to that he was an
Associate in the Real Estate Principal Investment Area from 1992 to 1994, and he
served as an Associate in the Real Estate Department from 1990 to 1992. Mr.
Rosenberg was a Financial Analyst at Goldman, Sachs & Co. from 1986 until 1988.
Mr. Rosenberg is a director of Cadillac Fairview Corporation and Rockefeller
Center Properties, Inc. He received a B.A. from Brown University in 1986, and an
M.B.A. from the Stanford Graduate School of Business in 1990.

               David A. Strumwasser is a principal of Whippoorwill Associates,
Incorporated ("Whippoorwill"), an investment management firm, and has served as
a Managing Director and General Counsel of Whippoorwill since 1993. From 1984 to
1993, Mr. Strumwasser was a Partner and co-head of the Bankruptcy and
Reorganization Practice at the New York law firm of Berlack, Israels & Liberman
LLP. Prior to that, he practiced bankruptcy law at Anderson Kill & Olick, LLP,
from 1981 to 1984, and at Weil, Gotshal & Manges LLP, from 1976 to 1979. From
1979 to 1981, Mr. Strumwasser was an Assistant Vice President at Citicorp


                                      -42-


<PAGE>


Industrial Credit, Inc. Mr. Strumwasser received a B.A. in political science
from the State University of New York at Buffalo in 1973, and a J.D. from Boston
College Law School in 1976.

               David Roberts has been a Managing Director of Angelo, Gordon &
Co., L.P. ("Angelo, Gordon") an investment management firm, since 1993, where he
oversees the firm's real estate and special situations investment activities.
From 1988 until 1993, Mr. Roberts was a principal of Gordon Investment
Corporation, a Canadian merchant bank, where he participated in a wide variety
of principal transactions including investments in the real estate and mortgage
banking industries. Prior to that, Mr. Roberts worked in the Corporate Finance
Department of L.F. Rothschild & Co. Incorporated, an investment bank, as a
Senior Vice President specializing in mergers and acquisitions. Mr. Roberts has
a B.S. in Economics from the Wharton School of the University of Pennsylvania.

               Pursuant to the Charter, until the occurrence of a Simplification
Event (as hereinafter defined), the Company's nine-member Board of Directors is
divided into five classes. The Class I Director, Lee S. Neibart, was designated
by the holder of the Class B Common Stock; the Class II Directors consist of
Bruce H. Spector, a director designated by the holder of the Class B Common
Stock and David Roberts, a director designated by the holders of the Class A
Common Stock; the Class III Directors consist of John Jacobsson, a director
designated by the holder of the Class B Common Stock and David A. Strumwasser, a
director designated by the holders of Class A Common Stock; the Class IV
Directors consist of William L. Mack, a director designated by the holder of the
Class B Common Stock and Ralph F. Rosenberg, a director designated by Whitehall
Street Real Estate Limited Partnership V ("Whitehall"); and the Class V
Directors consist of Russel S. Bernard, a director designated by Oaktree and
John R. Klopp, a director designated by stockholders (other than Apollo,
Whitehall and Oaktree).

               The term of the Class I Director will terminate upon the election
and qualification of a successor Class I Director at the next annual meeting of
stockholders; the term of the initial Class II Directors will terminate upon the
election and qualification of their successors at the 1998 annual meeting of
stockholders; the term of the initial Class III Directors will terminate upon
the election and qualification of their successors at the 1999 annual meeting of
stockholders; the term of the initial Class IV Directors will terminate upon the
election and qualification of their successors at the 2000 annual meeting of
stockholders; and the term of the initial Class V Directors will terminate upon
the election and qualification of their successors at the 2001 annual meeting of
stockholders. At the 1998 annual meeting of stockholders, the successor to the
initial Class I Director will be elected for a three-year term; at the 1998
annual meeting of stockholders, the successors to the initial Class II Directors
will be elected for a three-year term; at the 1999 annual meeting of
stockholders, the successors to the initial Class III Directors will be elected
for a two-year term; at the 2000 annual meeting of stockholders, the successors
to the initial Class IV Directors will be elected for a one-year term; at the
2001 annual meeting of stockholders, the successors to the Class I, Class II,
Class III, Class IV and Class V Directors will be elected for a one year term.
Directors will hold office until the annual meeting for the year in which their
terms expire and until their successors shall be elected and qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. The Charter provides that the Company will at all times have at
least two directors that are not affiliated with Apollo, any Transferee (as
defined in the Charter) or any other stockholder of more than 10% of the stock
of the Company.

               For so long as any shares of Class C Common Stock are outstanding
as Class C Common Stock, holders of Class C Common Stock will not be permitted
to vote in any election of Directors.

               "Simplification Event" means the earliest to occur of (i) the
date on which Apollo and its affiliates (taken together) or any transferee and
its affiliates (taken together) no longer hold a number of shares of Common
Stock representing at least 30% of the combined voting power of all outstanding
shares of stock of the Company; (ii) the date on which Apollo and its affiliates
(taken together) or any transferee and its affiliates (taken together) or any
other person or entity and its affiliates (taken together) holds a number of
shares of Common

                                      -43-

<PAGE>



Stock representing at least 75% of the combined voting power of all outstanding
shares of stock of the Company; (iii) the fifth anniversary of the Effective
Date; and (iv) the date of the annual meeting of stockholders in 2001.


ITEM 11.       EXECUTIVE COMPENSATION

               The Company has no employees. The members of the Board of
Directors will each receive as an annual retainer (i) $10,000 which will be paid
in cash, and (ii) 400 shares of Common Stock to be issued under the Stock Plan.
Such stock and cash will be paid to the current Board of Directors at the time
of the 1998 annual meeting of directors. Directors will receive an additional
payment of seven hundred and fifty dollars for each Board of Directors meeting
attended. Upon election to the Board of Directors, each initial Director
received options to purchase 3,000 shares of the Company's common stock which
will vest over two years and are exercisable at $25.00 per share. In March 1998,
a new director was granted 400 shares of Common Stock and options entitling him
to purchase an aggregate of 3,000 shares of Common Stock at an exercise price of
$42.50 per share. Of such options, 1,000 were immediately exercisable and 1,000
become exercisable on each of October 10, 1998 and October 10, 1999. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Description
of the Company's Stock Plan."

               The Company has purchased a directors' and officers' liability
insurance policy in the amount of $10,000,000.

               The Directors and officers of the Company, the Upper Tier GP
Corp. and the GP Corps are identical. The officers of the Company will not
receive any compensation from the Company, other than any compensation they may
receive as Directors. The Directors and officers of the Upper Tier GP Corp. and
the GP Corps will not receive any compensation from the Upper Tier GP Corp. or
the GP Corps.


ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT

               The information set forth in the following table is furnished as
of March 5, 1998, with respect to any person (including, any "group," as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) who is known to the Company to be the beneficial
owner of more than 5% of any class of the Company's voting securities, and as to
those shares of the Company's equity securities beneficially owned by each of
its Directors, its executive officers, and all of its executive officers and
Directors as a group. As of December 31, 1997, there were 12,966,646 shares of
Common Stock outstanding.

                                      -44-

<PAGE>



<TABLE>
<CAPTION>
                                                               Number of Shares          Percent of Common
                                                              Beneficially Owned               Stock
<S>                                                         <C>                          <C>
Principal Stockholders

Apollo Real Estate Investment Fund, L.P. (1)                     4,936,060                   38.1%
The TCW Group, Inc.(2)                                           2,254,341                   17.4%
Oaktree Capital Management, LLC (3)                              1,762,863                   13.6%
Whitehall Street Real Estate Limited Partnership V (4)           1,122,821                    8.7%
Angelo, Gordon & Co., L.P. (5)                                     818,739                    6.3%
Intermarket Corp. (6)                                              890,862                    6.9%



Directors and Executive Officers



William L. Mack (7)                                                2,400                    *
Lee S. Neibart (8)                                                 2,400                    *
John R. S. Jacobsson (9)                                               -                    *
Bruce H. Spector (10)                                              2,400                    *
John R. Klopp (11)                                                22,400                    *
Russel S. Bernard (12)                                             2,000                    *
Ralph F. Rosenberg (13)                                            2,000                    *
David A. Strumwasser (14)                                          2,400                    *
David Roberts (15)                                                 2,000                    *
                                                                  ------
Directors and Executive Officers as a group (9 persons) (16)      38,000                    *
                                                                  ======
</TABLE>

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

*        Less than 1%

(1)      Held of record by Atwell & Co., c/o The Chase Manhattan Bank, N.A., 4
         New York Plaza, New York, NY 10004.

(2)      Includes 1,586,814 shares as to which voting and dispositive power is
         shared with Oaktree Capital Management, LLC ("Oaktree"), as an
         investment sub-adviser to TCW Asset Management Company. Also includes
         667,527 shares held by various limited partnerships, trusts and third
         party accounts for which TCW Special Credits acts as general partner or
         investment manager. The shares shown are held of record by (i) Taylor &
         Co., c/o Sanwa Bank California Trust Operations, 1977 Saturn Street,
         Montrerey Park, CA 91754 (1,848,248 shares), and (ii) Salkeld & Co.,
         c/o Bankers Trust Company, 14 Wall Street, New York, NY 10015 (406,093
         shares)

(3)      Includes 1,586,814 shares as to which voting and dispositive power is
         shared with TCW Asset Management Company, which acts as general partner
         or investment manager for certain funds and accounts for which Oaktree
         acts as an investment sub-adviser. Also includes 140,839 shares held by
         a limited partnership of which Oaktree is general partner and 35,210
         shares held by a third party account for which Oaktree acts as
         investment manager. The 176,049 shares as to which Oaktree has sole
         voting and dispositive power are held of record by Cun & Co., c/o The
         Bank of New York, One Wall Street, New York, NY 10005. Also includes
         400 shares held directly by Oaktree Capital Management, LLC.

(4)      Held of record by WSB Realty LLC, (1,122,421 shares) and The Goldman
         Sachs Group, L.P. (400 shares) 85 Broad Street, New York, NY 10004.

(5)      Angelo, Gordon & Co., L.P.'s address is 245 Park Avenue, New York, NY
         10167.

(6)      Intermarket Corp.'s address is 667 Madison Avenue, New York, NY 10021.

(7)      Does not include shares owned by Apollo. Includes 400 shares of Common
         Stock and 2,000 shares of Common Stock issuable upon the exercise of
         options granted to Mr. Mack under the Company's Stock Plan. Mr. Mack is
         the managing partner of Apollo Real Estate Advisors, L.P., the general
         partner of Apollo, and the President of its corporate general partner.
         Mr. Mack disclaims beneficial ownership of the shares of Common Stock
         owned by Apollo.

(8)      Does not include shares owned by Apollo. Includes 400 shares of Common
         Stock and 2,000 shares of Common Stock issuable upon the exercise of
         options granted to Mr. Neibart under the Company's Stock Plan. Mr.
         Neibart is a partner of Apollo Real Estate Advisors, L.P. Mr. Neibart
         disclaims beneficial ownership of the shares of Common Stock owned by
         Apollo.


                                      -45-

<PAGE>



(9)      Does not include shares owned by Apollo.  Mr. Jacobsson is a partner of
         Apollo Real Estate Advisors, L.P. Mr. Jacobsson disclaims beneficial
         ownership of the Common Stock owned by Apollo.

(10)     Does not include shares owned by Apollo. Includes 400 shares of Common
         Stock and 2,000 shares of Common Stock issuable upon the exercise of
         options granted to Mr. Spector under the Company's Stock Plan. Mr.
         Spector is a partner of Apollo Real Estate Advisors, L.P. Mr. Spector
         disclaims beneficial ownership of the shares of Common Stock owned by
         Apollo.

(11)     Includes 20,400 shares of Common Stock and 2,000 shares of Common Stock
         issuable upon the exercise of options granted to Mr. Klopp under the
         Company's Stock Plan.

(12)     Does not include shares owned by funds and accounts managed by Oaktree.
         Includes 2,000 shares of Common Stock issuable upon the exercise of
         options granted to Mr. Bernard under the Company's Stock Plan. Mr.
         Bernard is a principal of Oaktree. Mr. Bernard disclaims beneficial
         ownership of the shares of Common Stock owned by funds and accounts
         managed by Oaktree. Mr. Bernard is required to transfer to funds
         managed by Oaktree any shares of Common Stock he either receives
         directly under the Company's Stock Plan or purchases upon an exercise
         of options granted under the Company's Stock Plan.

(13)     Does not include shares owned by Whitehall. Includes 2,000 shares of
         Common Stock issuable upon the exercise of options granted to Mr.
         Rosenberg under the Company's Stock Plan. Mr. Rosenberg disclaims
         beneficial ownership of the shares of Common Stock owned by Whitehall.
         Mr. Rosenberg is a Vice President of Goldman, Sachs & Co. Pursuant to
         Mr. Rosenberg's employment arrangements with Goldman Sachs, Mr.
         Rosenberg is required to transfer to Goldman Sachs any shares of Common
         Stock he receives either directly under the Company's Stock Plan or
         purchases upon an exercise of options granted under the Company's Stock
         Plan.

(14)     Does not include 314,024 shares held by various limited partnerships,
         trusts and third party accounts for which Whippoorwill Associates,
         Inc. has discretionary authority and acts as general partner or
         investment manager. Includes 400 shares of Common Stock and 2,000
         shares of Common Stock issuable upon the exercise of options granted
         to Mr. Strumwasser under the Company's Stock Plan. Mr. Strumwasser is
         a principal of and Managing Director and General Counsel of
         Whippoorwill Associates. Mr. Strumwasser disclaims beneficial
         ownership of the shares of Common Stock owned by discretionary
         accounts managed by Whippoorwill Associates as set forth above.

(15)     Does not include shares owned by Angelo, Gordon. Includes 2,000 shares
         of Common Stock issuable upon the exercise of options granted to Mr.
         Roberts under the Company's Stock Plan. Mr. Roberts is a Managing
         Director of Angelo, Gordon. Mr. Roberts disclaims beneficial ownership
         of the shares of Common Stock owned by Angelo, Gordon.

(16)     See notes 1 through 15 above with respect to the nature of the
         ownership of Directors and Executive Officers as a group, including
         disclaimers of beneficial ownership described therein.



                  Description of Stock Plan


               The following is a summary of the material terms of the Stock
Plan. Such summary does not purport to be complete and is qualified in its
entirety by reference to the Stock Plan, a copy of which has been filed as an
exhibit to the Company's Registration Statement on Form 10 and is incorporated
by reference herein.

               The Board of Directors adopted the Stock Plan on the Effective
Date. The purpose of the Stock Plan is to attract and retain qualified persons
as Directors. Pursuant to the Stock Plan, the Board of Directors of the Company
has the authority to issue to members of the Company's Board of Directors
options to purchase, in the aggregate, 100,000 shares of Common Stock. Pursuant
to the Plan and the Stock Plan, on the Effective Date, the initial members of
the Company's Board of Directors were granted options entitling each director to
purchase an aggregate of 3,000 shares of Common Stock at an exercise price of
$25.00 per share. In March 1998, a new director was granted 400 shares of Common
Stock and options entitling him to purchase an aggregate of 3,000 shares of
Common Stock at an exercise price of $42.50 per share. Of such options, 1,000
were immediately exercisable and 1,000 become exercisable on each of October 10,
1998 and October 10, 1999. Each Director who is elected or appointed after the
Effective Date will be granted options to purchase 3,000 shares of Common Stock
on the date of the meeting of the Company's stockholders at which such Director
is first elected to the Board of Directors or the date of the Board of Directors
meeting at which such Director is first appointed to the Board of Directors to
fill a vacancy on the Board of Directors. Each holder of an option issued under
the Stock Plan will be entitled to exercise the option to purchase one-third of
the shares of Common Stock covered by such option on the date of original
issuance thereof, one-third on the first anniversary of such date and one-third
on the second anniversary of such date, in each case, any time prior to the
tenth anniversary of the date of grant.

                                      -46-

<PAGE>



               If the holder of an option ceases to serve as a Director of the
Company for any reason, options that have been previously granted to such holder
and that have not been vested will be forfeited and options that are vested as
of the date of such cessation may be exercised by such holder in accordance with
and subject to the Stock Plan. If the holder of an option dies while serving as
a Director of the Company, options that have been previously granted to such
holder and that are vested as of the date of such holder's death may be
exercised by such holder's legal representative in accordance with and subject
to the Stock Plan.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  Asset Manager

                  The Company has retained 970 Management, LLC, an affiliate of
Victor Capital Group, L.P. to serve as the Company's Asset Manager pursuant to
an Asset Management Agreement, dated as of the Effective Date (the "Asset
Management Agreement"). John R. Klopp, one of the Company's Directors and an
officer and a stockholder of the Company, is a Managing Partner of VCG. Pursuant
to the Asset Management Agreement, the Asset Manager will act as the Company's
advisor and consultant with respect to the management of the Properties and the
Company's interests in the Property Owning Partnerships and Lower Tier Limited
Partnership.

                  The Asset Management Agreement has an initial term of one
year, which term will be automatically extended for consecutive one year periods
thereafter unless the Company or the Asset Manager notify the other at least 30
days before the then current term would otherwise terminate, of its election not
to extend the term.

                  The Company may terminate the Asset Management Agreement (i)
after the expiration of a cure period, by notice to the Asset Manager if the
Asset Manager defaults in any material respect in its performance under the
Asset Management Agreement, and (ii) immediately upon notice to the Asset
Manager if the Properties are sold or if there is a change in control of the
Asset Manager. The Asset Manager may terminate the Asset Management Agreement if
the Company defaults in the payment of any amount due and payable to the Asset
Manager and such failure continues for 30 days after the Asset Manager's written
notice of such failure. Either party may terminate the Asset Management
Agreement by giving notice to the other upon the occurrence of certain events
relating to the bankruptcy or insolvency of the other party.

                  The Company will pay the Asset Manager a fee (the "Asset
Management Fee") in an amount equal to $25,000 per month. Asset management fees
incurred for the year ended December 31, 1997 and the period October 10, 1996 to
December 31, 1996 aggregated approximately $300,000 and $74,000, respectively.
In addition to the payment of the Asset Management Fee, the Company will
reimburse the Asset Manager for certain expenses. If the Company sells or
disposes of one but not both of the Properties, the Company and the Asset
Manager will review whether an adjustment to the Asset Management Fee is
appropriate. If the Company believes that the Asset Management Fee should be
reduced and the parties are unable in good faith to agree upon a reduced fee,
the Asset Management Agreement will be terminable by either party upon 90 days'
notice to the other.


                                      -47-

<PAGE>



                  Management and Leasing Agreements

                  Each of the Property Owning Partnerships entered into a
Management and Leasing Agreement, dated as of the Effective Date (the "Property
Management Agreements") with the Property Manager/Leasing Agent. Nyprop, LLC, a
stockholder of the Company, is an affiliate of the Property Manager/Leasing
Agent. Pursuant to the Property Management Agreements, the Property
Manager/Leasing Agent will perform all supervisory, management and leasing
services and functions reasonably necessary or incidental to the leasing,
management and operations of the Properties. Fees under the Property Management
Agreements for the year ended December 31, 1997 and the period October 10, 1996
to December 31, 1996 aggregated approximately $3,333,000 and $392,000,
respectively.

                  An affiliate of the Property Manager/Leasing Agent provides
the cleaning services for the Properties. Fees paid for cleaning services for
the year ended December 31, 1997 and the period October 10, 1996 through
December 31, 1996 totaled $4,226,000 and $196,000, respectively.

                  The Property Management Agreements have an initial term of two
years, which term will be automatically extended for additional consecutive 90
day terms until such time as a Property Owning Partnership notifies the Property
Manger/Leasing Agent in writing, at least 30 days before the then current term
would otherwise terminate, of its election not to extend the term of a Property
Management Agreement.

                  A Property Owning Partnership may terminate its Property
Management Agreement on 60 days notice if its Property is either sold by the
Property Owning Partnership or refinanced by the Property Owning Partnership
pursuant to a securitized financing of the Property, provided that termination
of the Property Management Agreement as a result of such financing will only be
effective if the Property Manager/Leasing Agent is not approved by the rating
agency participating in such financing. Each Property Owning Partnerships may
terminate its Property Management Agreement (i) after a certain cure period,
upon notice to the Property Manager/Leasing Agent if the Property
Manager/Leasing Agent breaches a material term of the Property Management
Agreement, and (ii) immediately upon notice to the Property Manager/Leasing
Agent if (x) the Property Manager/Leasing Agent or any principal of the Property
Manager/Leasing Agent intentionally misappropriates funds of the Property Owning
Partnership or commits fraud against the Property Owning Partnership or if there
is a change in control of the Property Manager/Leasing Agent. The Property
Manager/Leasing Agent may terminate a Property Management Agreement (i) after a
certain cure period, upon notice to the Property Owning Partnership if the
Property Owning Partnership breaches a material term of the Property Management
Agreement, and (ii) upon 60 days notice to the Property Owning Partnership if
the Property Owning Partnership fails to provide funds on a consistent basis to
operate and maintain the Property. Either party may terminate a Property
Management Agreement upon notice to the other party in the event that a petition
in bankruptcy is filed against the other party and is not dismissed within 60
days, or a trustee, receiver or other custodian is appointed for a substantial
part of the other party's assets and is not vacated within 60 days or the other
party makes an assignment for the benefit of its creditors.

                  On the Effective Date, each Property Owning Partnership paid
the Property Manager/Leasing Agent $50,000 per month (pro rated for any partial
month) for services provided by the Property Manager/Leasing Agent prior to the
Effective Date in connection with the transition of ownership and management of
the Properties from the Property Owning Partnerships' predecessors, for the
period commencing August 1, 1996 and ending on the Effective Date. Each Property
Owning Partnership will (i) pay the Property Manager/Leasing Agent a fee in an
amount equal to 1.5% of gross revenues from the respective Property, which fee
will be paid monthly, and (ii) reimburse the Property Manager/Leasing Agent for
all reasonable out-of-pocket expenses incurred by the Property Manager/Leasing
Agent related to the performance of its responsibilities under the Property
Management Agreement, to the extent set forth in the annual budget. In addition,
the Property Manager/Leasing Agent will be entitled to receive commissions in
connection with the leasing of space at the Properties and renewals and
extensions of leases.


                                      -48-

<PAGE>



                  The Company has entered into a REIT Management Agreement with
the Property Manager/Leasing Agent ("REIT Manager"). The REIT Manager is to
perform certain accounting, administrative and monitoring services. The REIT
Management Agreement provides for compensation to the REIT Manager of monthly
fees aggregating approximately $125,000 per annum, a one-time fee of $15,000,
and reimbursement of documented out-of-pocket expenses. Fees incurred under the
REIT Management Agreement for the year ended December 31, 1997 aggregated
$140,000. There were no fees paid under the REIT Management Agreement for the
period October 10, 1996 to December 31, 1996.


                                      -49-

<PAGE>


<TABLE>
<S>            <C>
ITEM 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1)         Financial Statements are included in the response to Item 8 hereof.

(a)(2)         Financial Statement Schedules have been omitted because they are
               inapplicable, not required, or the information is included in the
               financial statements or notes thereto.

(a)(3)         Exhibits

2.1            Second Amended Joint Plan of Reorganization of 237 Park Avenue Associates, L.L.C. and 1290
               Associates, L.L.C.*

2.2            Technical Amendment to Second Amended Joint Plan of Reorganization of 237 Park Avenue
               Associates, L.L.C. and 1290 Associates, L.L.C.*

2.3            Second Technical Amendment to Second Amended Joint Plan of Reorganization of 237 Park
               Avenue Associates, L.L.C. and 1290 Associates, L.L.C.*

3.1            Articles of Amendment and Restatement of Metropolis Realty, Trust, Inc., dated October 7,
               1996.*

3.2            Amended and Restated By-Laws of Metropolis Realty Trust, Inc.*

10.1           Agreement and Plan of Merger among 1290 Associates, L.L.C., 237
               Park Avenue Associates, L.L.C. and 237/1290 Upper Tier
               Associates, L.P., as of October 10, 1996.*

10.2           Limited Partnership Agreement of 237 Park Partners, L.P.*

10.3           Limited Partnership Agreement of 1290 Partners, L.P.*

10.4           Agreement of Limited Partnership of 237/1290 Lower Tier Associates, L.P.*

10.5           Amended and Restated Limited Partnership Agreement of 237/1290 Upper Tier Associates, L.P.*

10.6           Redemption and Substitution Agreement among JMB/NYC Office Building Associates, L.P.,
               O&Y Equity Company, L.P., O&Y NY Building Corp., 237/1290 Upper
               Tier GP Corp., and 237/1290 Upper Tier Associates, L.P., dated
               October 10, 1996.*

10.7           Metropolis Realty Trust, Inc. 1996 Directors' Stock Plan.*

10.8           Form of Metropolis Realty Trust, Inc. Stock Option Agreement for Directors.*

10.9           Form of Indemnification Agreement, dated as of October 10, 1996.*

10.10          Registration Rights Agreement, dated as of October 10, 1996.*

10.11          Participation Agreement (JMB Notes) between Metropolis Realty Trust, Inc. and Michigan
               Avenue L.L.C., dated as of October 10, 1996.*

10.12          Indemnification Agreement given by Property Partners, L.P.,
               Carlyle-XIII Associates, L.P., and Carlyle-XIV Associates, L.P.
               to Metropolis Realty Trust, Inc., dated as of October 10, 1996.*

10.13          Modification of Operating Agreement of 237 Park Avenue Associates, L.L.C., dated as of
               October 10, 1996.*

10.14          Noteholders Contribution and Participation Agreement between Metropolis Realty Trust, Inc. and
               Bankers Trust Company, dated as of October 10, 1996.*

--------------------------
* Incorporated by reference to the Registrant's Registration Statement on Form 10 (File No. 0-21849) and any
  amendments thereto.
</TABLE>


                                      -50-

<PAGE>



<TABLE>
<S>            <C>
10.15          Debt Contribution Agreement, dated as of October 10, 1996, among
               Metropolis Realty Trust, Inc., 237/1290 Lower Tier Associates,
               L.P., 237 Park Partners, L.P., and 1290 Partners, L.P.*

10.16          Debt Assumption, Release and Security Agreement (237 Excess amount) dated October 10,
               1996.*

10.17          Debt Assumption, Release and Security Agreement (1290 Excess amount) dated October 10,
               1996.*

10.18          Release of Assumed Debt and Termination of Security Interest by Bankers Trust Company for the
               benefit of O&Y NY Building Corp. and O&Y Equity Company, L.P., dated as of October 10,
               1996.*

10.19          237 Property Contribution Agreement between 237/1290 Upper Tier Associates, L.P., 237/1290
               Lower Tier Associates, L.P. and 237 Park Partners, L.P. dated as of October 10, 1996.*

10.20          1290 Property Contribution Agreement among 237/1290 Upper Tier Associates, L.P., 237/1290
               Lower Tier Associates, L.P. and 1290 Partners, L.P. dated as of October 10, 1996.*

10.21          Credit Agreement among 1290 Partners, L.P., 237 Park Partners, L.P., the lenders listed herein
               and The Chase Manhattan Bank, dated as of October 10, 1996.*

10.22          Consolidated, Amended and Restated Promissory Note in the amount of $420,000,000 from 1290
               Partners, L.P., and 237 Park Partners, L.P. to The Chase Manhattan Bank, dated October 10,
               1996.*

10.23          Mortgage Modification, Restatement and Security Agreement from 1290 Partners, L.P., and 237
               Park Partners, L.P., to The Chase Manhattan Bank, dated as of October 10, 1996.*

10.24          Master Agreement among The Chase Manhattan Bank, 1290 Partners, L.P. and 237 Park
               Partners, L.P., dated as of October 10, 1996.*

10.25          Schedule to the Master Agreement between The Chase Manhattan Bank and 1290 Partners, L.P.
               and 237 Park Partners, L.P., dated as of October 10, 1996.*

10.26          Interest Rate Agreement Pledge, and Security Agreement among 1290 Partners, L.P., 237 Park
               Partners, L.P., and The Chase Manhattan Bank, dated as of October 10, 1996.*

10.27          Assignment of Leases, Rents and Security Deposits, dated October 10, 1996, by 1290 Partners,
               L.P. and 237 Park Partners L.P. to The Chase Manhattan Bank.*

10.28          Note Pledge and Security Agreement among 1290 Partners, L.P., 237 Park Partners, L.P. and
               The Chase Manhattan Bank, dated as of October 10, 1996.*

10.29          Consent and Subordination of Property Management Agreement, dated as of October 10, 1996.*

10.30          Cash and Collateral Account Security, Pledge and Assignment Agreement among 1290 Partners,
               L.P., 237 Park Partners, L.P., and The Chase Manhattan Bank, dated as of October 10, 1996.*

10.31          Management and Leasing Agreement between 237 Park Partners, L.P. and Tishman Speyer
               Properties, L.P.*

10.32          Management and Leasing Agreement between 1290 Partners, L.P. and Tishman Speyer
               Properties, L.P.*

-----------------
* Incorporated by reference to the Registrant's Registration Statement on Form 10 (File No. 0-21849) and any
  amendments thereto.
</TABLE>

                                      -51-

<PAGE>



<TABLE>
<S>            <C>
10.33          Asset Management Agreement between Metropolis Realty Trust, Inc. and 970 Management,
               L.L.C., dated as of October 10, 1996.*

27.1           Financial Data Schedule as of, and for the year ended, December 31,
               1997.

(b)            Reports on Form 8-K.  No Current Reports on Form 8-K were filed by the Company during
               the last quarter of the period covered by this report.

(c)            Exhibits.
               Refer to paragraph (a)(3) under this Item 14.

(d)            Not applicable.

----------------------
* Incorporated by reference to the Registrant's Registration Statement on Form 10 (File No. 0-21849) and any
  amendments thereto.
</TABLE>

                                      -52-

<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.



                                    METROPOLIS REALTY TRUST, INC.


                                    By:       /s/ Lee S. Neibart
                                       ---------------------------------------
                                       Name:  Lee S. Neibart
                                       Title: President and Director



                                    By:       /s/ Stuart Koenig
                                       ---------------------------------------
                                       Name:  Stuart Koenig
                                       Title: Principal Financial Officer


Date:  March 30, 1998



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

<TABLE>
<S>                                                              <C>                                     <C>
           Signature                                              Title                                    Date


/s/ Lee S. Neibart
------------------------                                President and Director                       March 30, 1998
Lee S. Neibart


/s/ William L. Mack
------------------------                                Chairman of the Board and                    March 30, 1998
William L. Mack                                                 Director


/s/ John R. S. Jacobsson
------------------------                                Secretary and Director                       March 30, 1998
John R. S. Jacobsson


/s/ John R. Klopp
------------------------                                Vice President and Director                  March 30, 1998
John R. Klopp


/s/ Bruce H. Spector
------------------------                                        Director                             March 25, 1998
Bruce H. Spector
</TABLE>




                                       S-1

<PAGE>


<TABLE>
<S>                                                       <C>                                     <C>
            Signature                                     Title                                    Date


/s/ Russel S. Bernard
------------------------                                Director                              March 30, 1998
Russel S. Bernard


------------------------                                Director                              March   , 1998
Ralph F. Rosenberg                                                                                  --


------------------------                                Director                              March   , 1998
David A. Strumwasser                                                                                --


/s/ David Roberts
------------------------                                Director                              March 30, 1998
David Roberts

</TABLE>

                                      S-2

                                                                    Exhibit 27.1

                          METROPOLIS REALTY TRUST, INC.
                             FINANCIAL DATA SCHEDULE

                      (In thousands, except per share data)

         THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
         AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF METROPOLIS REALTY TRUST,
         INC. AS OF, AND FOR THE YEAR ENDED, DECEMBER 31, 1997 AND IS
         QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.


<TABLE>
<S>                                     <C>                                                                  <C>
Item Number                              Item Description                                                    Amount

5.02(1)                                  cash and cash items                                                 28,176

5.02(2)                                  marketable securities                                                    0

5.02(3)(a)(1)                            notes and accounts receivable - trade                               12,106

5.02(4)                                  allowances for doubtful accounts                                         0

5.02(6)                                  inventory                                                                0

5.02(9)                                  total current assets                                                     0

5.02(13)                                 property, plant and equipment                                      665,272

5.02(14)                                 accumulated depreciation                                            16,165

5.02(18)                                 total assets                                                       757,932

5.02(21)                                 total current liabilities                                           18,977

5.02(22)                                 bonds, mortgages and similar debt                                  418,125

5.02(28)                                 preferred stock - mandatory redemption                                   0

5.02(29)                                 preferred stock - no mandatory redemption                                0

5.02(30)                                 common stock                                                       129,666

5.02(31)                                 other stockholders' equity                                         175,736

5.02(32)                                 total liabilities and stockholders' equity                         757,932

5.03(b)1(a)                              net sales of tangible products                                     129,617

5.03(b)1                                 total revenues                                                     134,483

5.03(b)2(a)                              cost of tangible goods sold                                              0

5.03(b)2                                 total costs and expenses applicable to sales and revenues           50,776
</TABLE>



699374.1


<PAGE>



<TABLE>
<S>                                     <C>                                                                      <C>
5.03(b)3                                 other costs and expenses                                            15,532

5.03(b)5                                 provision for doubtful accounts and notes                                0

5.03(b)(8)                               interest and amortization of debt discount                          34,048

5.03(b)(10)                              income before taxes and other items                                 34,127

5.03(b)(11)                              income tax expense                                                       0

5.03(b)(14)                              income/loss continuing operations                                   34,127

5.03(b)(15)                              discontinued operations                                                  0

5.03(b)(17)                              extraordinary items                                                      0

5.03(b)(18)                              cumulative effect - changes in accounting principles                     0

5.03(b)(19)                              net income or loss                                                  34,127

5.03(b)(20)                              earnings per share - basic                                            2.63

5.03(b)(20)                              earnings per share - diluted                                          2.63
</TABLE>