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

                                   FORM 10 - Q


(Mark One)

      |X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934
            For the quarterly period ended September 30, 2004

                                       OR

      |_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934
            For the transition period _________ to __________.

                         Commission File Number: 0-32615


                        Franklin Street Properties Corp.
             (Exact name of registrant as specified in its charter)


           Maryland                                      04-3578653
(State or other jurisdiction of             (IRS Employer Identification Number)
 incorporation or organization)


                         401 Edgewater Place, Suite 200
                            Wakefield, MA 01880-6210
                    (Address of principal executive offices)

                  Registrant's telephone number: (781) 557-1300

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 ninety days.

         YES |X|                                               NO |_|

Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.

         YES |X|                                               NO |_|

The number of shares of common stock outstanding as of October 29, 2004 was
49,629,763.
<PAGE>

                        Franklin Street Properties Corp.

                                    Form 10-Q

                                Quarterly Report
                               September 30, 2004

                                Table of Contents


Part I.  Financial Information
                                                                            Page
                                                                            ----
         Item 1.  Financial Statements

                  Consolidated Balance Sheets as of September 30, 2004
                     and December 31, 2003................................     3

                  Consolidated Statements of Income for the three and
                     nine months ended September 30, 2004 and 2003........     4

                  Consolidated Statements of Cash Flows for the nine
                     months ended September 30, 2004 and 2003.............     5

                  Notes to Consolidated Financial Statements..............  6-15

         Item 2.  Management's Discussion and Analysis of Financial
                     Condition and Results of Operations.................. 16-28

         Item 3.  Quantitative and Qualitative Disclosures about
                     Market Risk..........................................    28

         Item 4.  Controls and Procedures.................................    29

Part II. Other Information

         Item 1.  Legal Proceedings.......................................    30

         Item 2.  Unregistered Sales of Equity Securities and
                     Use of Proceeds......................................    30

         Item 3.  Defaults upon Senior Securities.........................    30

         Item 4.  Submission of Matters to a Vote of Security Holders.....    30

         Item 5.  Other Information.......................................    30

         Item 6.  Exhibits................................................ 30-31

Signatures        ........................................................    32
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                        Franklin Street Properties Corp.
                           Consolidated Balance Sheets
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              September 30,       December 31,
(in thousands, except shares and par value amounts)                               2004               2003
==============================================================================================================
<S>                                                                             <C>                  <C>
Assets:

Real estate investments, at cost:
     Land                                                                       $  71,236            $ 71,236
     Buildings and improvements                                                   404,131             403,243
     Fixtures and equipment                                                           894                 889
--------------------------------------------------------------------------------------------------------------
                                                                                  476,261             475,368
     Less accumulated depreciation                                                 34,064              25,836
--------------------------------------------------------------------------------------------------------------

Real estate investments, net                                                      442,197             449,532

Acquired real estate leases, net of accumulated amortization of
   $3,157 and $1,539                                                                6,346               7,964
Investment in non-consolidated REITs                                                4,292                  --
Assets held for syndication                                                            --               4,117
Cash and cash equivalents                                                          50,630              58,793
Restricted cash                                                                     1,039                 982
Tenant rent receivables, less allowance for doubtful accounts of
    $386 and $155, respectively                                                       552                 881
Straight-line rent receivables, less allowance for doubtful accounts of
   $460 and $360, respectively                                                      4,980               4,087
Prepaid expenses                                                                    3,475                 806
Office computers and furniture, net of accumulated depreciation of
   $563 and $473, respectively                                                        408                 398
Deferred leasing commissions, net of accumulated amortization of
   $810 and $586, respectively                                                      1,293                 969
--------------------------------------------------------------------------------------------------------------

      Total assets                                                              $ 515,212            $528,529
==============================================================================================================

Liabilities and Stockholders' Equity:

Liabilities:
Bank note payable                                                               $      --            $  4,117
Accounts payable and accrued expenses                                               8,574               5,030
Accrued compensation                                                                1,050               1,545
Tenant security deposits                                                            1,039                 982
--------------------------------------------------------------------------------------------------------------

     Total liabilities                                                             10,663              11,674
--------------------------------------------------------------------------------------------------------------

Commitments and Contingencies

Stockholders' Equity:
     Preferred Stock, $.0001 par value, 20,000,000 shares
       authorized, none issued or outstanding                                          --                  --
     Common Stock, $.0001 par value, 180,000,000 shares
        authorized, 49,629,763 and 49,630,338 issued and outstanding                    5                   5
     Additional paid-in capital                                                   512,813             512,797
     Treasury stock, 575 shares, at cost                                              (10)                 --
     Retained earnings (distributions in excess of earnings)                       (8,665)              3,647
     Accumulated undistributed net realized gain on sale of properties                406                 406
--------------------------------------------------------------------------------------------------------------

     Total Stockholders' Equity                                                   504,549             516,855
--------------------------------------------------------------------------------------------------------------

     Total Liabilities and Stockholders' Equity                                 $ 515,212            $528,529
==============================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                        3
<PAGE>

                        Franklin Street Properties Corp.
                        Consolidated Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                        For the                       For the
                                                                                   Three Months Ended            Nine Months Ended
                                                                                     September 30,                 September 30,
                                                                                ----------------------------------------------------
(in thousands, except per share amounts)                                          2004           2003           2004         2003
====================================================================================================================================

<S>                                                                              <C>             <C>           <C>           <C>
Revenue:
     Rental                                                                      $ 16,344        $17,767       $51,411       $32,606
     Syndication fees                                                                 155          6,019         8,603        11,426
     Transaction fees                                                                 467          6,128         9,209        11,565
     Sponsored REIT revenue                                                            23          1,541         2,357         2,442
     Management fees and interest income from loans                                   185            247           803           837
     Equity in earnings of investment in non-consolidated REITs                        70             --           182            --
     Other                                                                              1              1            13            16
------------------------------------------------------------------------------------------------------------------------------------

             Total revenue                                                         17,245         31,703        72,578        58,892
------------------------------------------------------------------------------------------------------------------------------------

Expenses:
     Real estate operating expenses                                                 3,496          3,540        10,267         7,125
     Real estate taxes and insurance                                                2,135          2,325         6,702         4,229
     Depreciation and amortization                                                  3,287          3,219         9,984         5,464
     Sponsored REIT expenses                                                           15          1,365         1,693         2,006
     Selling, general and administrative                                            1,626          1,376         4,920         4,124
     Commissions                                                                       97          3,006         4,384         5,712
     Interest                                                                          --            257           517           795
------------------------------------------------------------------------------------------------------------------------------------

       Total expenses                                                              10,656         15,088        38,467        29,455
------------------------------------------------------------------------------------------------------------------------------------

Income before interest income and taxes on income                                   6,589         16,615        34,111        29,437
Interest income                                                                       140            130           489           238
------------------------------------------------------------------------------------------------------------------------------------

Income before taxes on income                                                       6,729         16,745        34,600        29,675
Income tax expense (benefit)                                                         (216)         1,035           760         1,460
------------------------------------------------------------------------------------------------------------------------------------

Income from continuing operations                                                   6,945         15,710        33,840        28,215
Income from discontinued operations                                                    --             56            --           201
Gain on  sale of properties, less applicable income tax                                --          4,914            --         6,335
------------------------------------------------------------------------------------------------------------------------------------

Net income                                                                       $  6,945        $20,680       $33,840       $34,751
====================================================================================================================================

Weighted average number of shares outstanding,
     basic and diluted                                                             49,630         49,630        49,628        35,741
====================================================================================================================================

Net income per share, basic and diluted, attributable to:
     Continuing operations                                                       $   0.14        $  0.32       $  0.68       $  0.79
     Gain on sale of properties, less applicable income tax                            --           0.10            --          0.18
------------------------------------------------------------------------------------------------------------------------------------

Net income per share, basic and diluted                                          $   0.14        $  0.42       $  0.68       $  0.97
====================================================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                        4
<PAGE>

                        Franklin Street Properties Corp.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                                     For the
                                                                                                                Nine Months Ended
                                                                                                                  September 30,
                                                                                                            ------------------------
(in thousands)                                                                                                2004          2003
====================================================================================================================================
<S>                                                                                                         <C>           <C>
Cash flows from operating activities:
   Net income                                                                                               $ 33,840      $  34,751
   Adjustments to reconcile net income to net cash provided by  operating activities:
     Depreciation and amortization expense                                                                     9,984          5,808
     Amortization of above market lease                                                                          176             --
     Gain on sale of real estate assets                                                                           --         (6,335)
     Equity in earnings from non-consolidated REITs                                                             (182)            --
     Distributions from non-consolidated REITs                                                                   147             --
     Shares issued as compensation                                                                               162             --
   Changes in operating assets and liabilities:
     Restricted cash                                                                                             (57)            30
     Tenant rent receivables, net                                                                                329           (312)
     Straight-line rents, net                                                                                   (893)          (454)
     Prepaid expenses and other assets, net                                                                   (2,669)          (274)
     Accounts payable and accrued expenses                                                                     3,534         (5,114)
     Accrued compensation                                                                                       (485)           730
     Tenant security deposits                                                                                     57            (30)
   Payment of deferred leasing commissions                                                                      (548)          (481)
------------------------------------------------------------------------------------------------------------------------------------

      Net cash provided by (used for) operating activities                                                    43,395         28,319
------------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
     Cash acquired through issuance of common stock in merger transaction                                         --         23,524
     Purchase of real estate assets, office computers and furniture, capitalized merger costs                   (993)        (2,246)
     Investment in non-consolidated REITs                                                                     (4,257)            --
     Change in deposits on real estate assets                                                                     --            341
     Sale of assets held for syndication                                                                       4,117             --
     Proceeds received on sales of real estate assets                                                             --         21,815
------------------------------------------------------------------------------------------------------------------------------------

     Net cash provided by (used for) investing activities                                                     (1,133)        43,434
------------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
     Distibutions to stockholders                                                                            (46,152)       (25,406)
     Proceeds from (payments to) bank note payable, net                                                       (4,117)            --
     Purchase of treasury stock                                                                                 (156)            --
------------------------------------------------------------------------------------------------------------------------------------

     Net cash  provided by (used for) financing activities                                                   (50,425)       (25,406)
------------------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                                                          (8,163)        46,347

Cash and cash equivalents, beginning of period                                                                58,793         22,316
------------------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period                                                                    $ 50,630      $  68,663
====================================================================================================================================

Supplemental disclosure of cash flow information:
     Cash paid for:
       Interest                                                                                             $     51      $     795
       Income taxes                                                                                            1,450          1,963
     Non-cash investing and financing activities:
       Dividends declared but not paid                                                                            --         21,341
       Assets acquired through issuance of common stock in merger transaction, net                                --        297,648
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                        5
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.    Organization, Properties, Basis of Presentation, and Recent Accounting
      Pronouncements

Organization

Franklin Street Properties Corp. (together with its subsidiaries, "FSP Corp." or
the "Company," known as Franklin Street Partners Limited Partnership, or the
"Partnership", prior to January 1, 2002) was formed as a Massachusetts limited
partnership on February 4, 1997. In December 2001, the limited partners of the
Partnership approved the conversion of the Partnership from a partnership into a
corporation (the "Conversion"). The Conversion was effective January 1, 2002,
and was accomplished as a tax-free reorganization by merging the Partnership
with and into a wholly owned subsidiary, Franklin Street Properties Corp., with
the subsidiary as the surviving entity. In 2002, the Company elected to be taxed
as a real estate investment trust ("REIT"). As part of the Conversion, all of
the Partnership's outstanding units were converted on a one-for-one basis into
24,586,249 shares of common stock of the Company. The Conversion was accounted
for as a reorganization of affiliated entities, with assets and liabilities
recorded at their historical costs.

On May 30, 2003, the shareholders of the Company approved the Company's
acquisition by merger of 13 REITs (the "Target REITs"). The mergers were
effective June 1, 2003 and, as a result, the Company issued 25,000,091 shares in
a tax-free exchange for all the outstanding preferred shares of the Target
REITs. The mergers were accounted for as a purchase and the acquired assets and
liabilities were recorded at their fair value.

The Company operates in two business segments: real estate operations and
investment banking/investment services. As part of the Company's real estate
operations segment, FSP Property Management LLC, a wholly owned subsidiary of
the Company, provides asset management and property management services for the
Company's properties and for the Sponsored REITs (as defined below). As part of
the Company's investment banking/investment services segment, FSP Investments
LLC, a wholly owned subsidiary of the Company, provides real estate investment
and broker/dealer services. FSP Investments' services include: (i) the
organization of REIT entities (the "Sponsored REITs"), which are syndicated
through private placements; (ii) the acquisition of real estate on behalf of the
Sponsored REITs; and (iii) the sale of preferred stock in the Sponsored REITs.

As of September 30, 2004, the Company had a non-controlling interest in 12
Sponsored REITs.

Properties

The following table summarizes the Company's investment in real estate assets,
excluding assets held for syndication:

                                                           As of
                                                       September 30,
                                                  2004               2003
                                             ---------------    ---------------
      Residential real estate
             Number of properties                       4                  4
             Number of apartments                     837                837

      Commercial real estate
             Number of properties                      24                 24
             Square feet                        3,049,357          3,049,357


                                        6
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.    Organization, Properties, Basis of Presentation and Recent Accounting
      Pronouncements (continued)

Basis of Presentation

The unaudited consolidated financial statements of the Company include all the
accounts of the Company and its wholly and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated. These
financial statements should be read in conjunction with the Company's financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 2003, as filed with the Securities
and Exchange Commission.

The accompanying interim financial statements are unaudited; however, the
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and in conjunction with the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the disclosures
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting solely of normal recurring matters) necessary for a fair
presentation of the financial statements for these interim periods have been
included. Operating results for the three and nine months ended September 30,
2004 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2004 or for any other period.

Certain prior-year balances have been reclassified in order to conform to the
current-year presentation.

Recent Accounting Standards

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
In December 2003, the FASB revised FIN 46 with certain modifications and
clarifications. The objective of this interpretation is to provide guidance on
how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
VIE need to be included in a company's consolidated financial statements. A VIE
exists when either the total equity investment at risk is not sufficient to
permit the entity to finance its activities by itself, or the equity investors
lack one of three characteristics associated with owning a controlling financial
interest. Application of this guidance was effective for all enterprises with
VIEs created after January 31, 2003. In December 2003, FASB issued a revised FIN
46 which provided for the deferral of the effective date of the interpretation
to January 1, 2004, for VIEs created prior to January 31, 2003. The adoption of
FIN 46 had no effect on our financial statements.

2.    Investment Banking/Investment Services Activity

During the nine months ended September 30, 2004, the Company sold on a best
efforts basis, through private placements, the preferred stock in the following
Sponsored REITs:

<TABLE>
<CAPTION>
                                                                       Date Syndication      Gross Proceeds
         Sponsored REIT                        Property Location       Completed             (in thousands)
         ------------------------------------- ----------------------- --------------------- ----------------
<S>                                            <C>                     <C>                      <C>
         FSP Blue Lagoon Drive Corp.           Miami, FL               January 30, 2004(1)      $    3,925(2)
         FSP Eldridge Green Corp.              Houston, TX             March 25, 2004               45,250
         FSP Highland Place I Corp.            Englewood, CO           May 13, 2004                 21,000
         FSP Satellite Place Corp.             Duluth, GA              June 21, 2004                27,700
         FSP 1441 Main Street Corp.            Columbia, SC            July 26, 2004                37,000
                                                                                                -------------
                                               Total                                            $  134,875
                                                                                                =============
</TABLE>

      1.    The syndication of FSP Blue Lagoon Drive Corp. commenced in the
            fourth quarter of 2003.

      2.    Reflects gross proceeds received in 2004 by FSP Blue Lagoon Drive
            Corp., out of an aggregate of $54,975,000 raised in the syndication
            from outside investors.


                                        7
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

2.    Investment Banking/Investment Services Activity (continued)

Of the $134,875,000 gross proceeds from the sale of preferred stock in the
Sponsored REITs, approximately $49,175,000 was syndicated in the three months
ended March 31, 2004; $83,050,000 was syndicated in the three months ended June
30, 2004; and $2,650,000 was syndicated in the three months ended September 30,
2004.

The Company has in the past acquired by merger Sponsored REITs and entities
similar to Sponsored REITs. On August 13, 2004 the Company entered into a merger
agreement to acquire four Sponsored REITs (the "Merger Agreement"). The
Company's business model for growth includes the potential acquisition by merger
of Sponsored REITs in the future. However, except pursuant to the Merger
Agreement, the Company has no legal or any other enforceable obligation to
acquire or to offer to acquire any Sponsored REIT. In addition, any offer (and
the related terms and conditions) that might be made in the future to acquire
any Sponsored REIT would require the approval of the boards of directors of the
Company and the Sponsored REIT and the approval of the shareholders of the
Sponsored REIT, and any such acquisition may also require the approval of the
shareholders of the Company.

3.    Related Party Transactions and Investments in Non-consolidated Entities

Syndication fees, Transaction fees and Sponsored REIT revenue and expenses:
The Company typically purchases and retains a non-controlling common stock
ownership interest in the Sponsored REITs that it has organized. These ownership
interests have virtually no economic benefit or risk. At September 30, 2004,
December 31, 2003 and September 30, 2003, the Company had ownership interests in
twelve, eight and seven Sponsored REITs, respectively.

Summarized financial information for these Sponsored REITs is as follows:

                                               September 30,   December 31,
        (unaudited)                               2004             2003
                                             ---------------   --------------
                                                      (in thousands)

        Balance Sheet Data:
        Real estate, net                          $ 374,243        $ 257,700
        Other assets                                 49,857           53,646
        Total liabilities                            (8,847)         (18,129)
                                             --------------------------------
        Shareholders' equity                      $ 415,253        $ 293,217
                                             ================================

<TABLE>
<CAPTION>
                                                        For the                        For the
                                                   Three Months Ended             Nine Months Ended
                                                      September 30,                 September 30,
                                                  2004            2003           2004           2003
                                                 ----------------------------------------------------
                                                                    (in thousands)
<S>                                              <C>           <C>            <C>            <C>
        Operating Data:
        Rental revenue                           $ 14,522      $ 9,077        $ 41,076       $ 19,934
        Other revenue                                 141           47             383            122
        Operating and maintenance expenses         (5,684)      (2,873)        (13,896)        (6,535)
        Depreciation and amortization              (2,719)      (1,441)         (8,966)        (3,708)
        Interest expense and commitment fees         (154)      (6,155)         (8,403)       (11,751)
                                                 ----------------------------------------------------
        Net income (loss)                        $  6,106      $(1,345)       $ 10,194       $ (1,938)
                                                 ====================================================
</TABLE>

The Company's proportionate share of revenue and expenses prior to completion of
the syndication from these Sponsored REITs is shown in the following table:


                                        8
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

3.    Related Party Transactions and Investments in Non-consolidated Entities
      (continued)

                               For the                          For the
                          Three Months Ended                Nine Months Ended
                             September 30,                    September 30,
                           2004        2003                 2004         2003
                         ------------------------------------------------------
                                            (in thousands)
       Revenue           $ 23       $ 1,541                $ 2,357      $ 2,442
       Expenses           (15)       (1,365)                (1,693)      (2,006)
                         ------------------------------------------------------
       Net               $  8       $   176                $   664      $   436
                         ======================================================

The Company provided syndication and real estate acquisition advisory services
for Sponsored REITs in 2004 and 2003. For the three months ended September 30,
2004 and 2003, syndication fees were approximately $0.2 million and $6.0
million, respectively, and transaction fees were approximately $0.5 million and
$6.1 million, respectively. For the nine months ended September 30, 2004 and
2003, syndication fees were approximately $8.6 million and $11.4 million,
respectively, and transaction fees were approximately $9.2 million and $11.6
million, respectively.

Management fees and interest income from loans:

Asset management fees charged by the Company to the Sponsored REITs and reported
as revenue by the Company amounted to approximately $183,000 and $85,000 for the
three months ended September 30, 2004 and 2003, respectively, and $438,000 and
$383,000 for the nine months ended September 30, 2004 and 2003, respectively.
Asset management fees range from 1% to 5% of collected rents and the applicable
contracts are cancelable with 30 days' notice. The Company is typically entitled
to interest on funds advanced to Sponsored REITs. The Company recognized
interest income of approximately $2,000 and $162,000 for the three months ended
September 30, 2004 and 2003, respectively, and $365,000 and $454,000 for the
nine months ended September 30, 2004 and 2003, respectively, relating to these
loans.

Equity in earnings of investment in non-consolidated REITs:

In January 2004 the Company purchased 49.25 preferred shares or 8.22% of Blue
Lagoon for $4,248,000 (which represented $4,925,000 at the offering price net of
commissions of $394,000 and loan fees of $283,000 that were excluded). The
Company recognized equity in earnings resulting from its interest in preferred
stock of Blue Lagoon of $70,000 and $182,000 for the three and nine months ended
September 30, 2004, respectively. The Company received $88,000 and $147,000 in
dividends for the three and nine months ended September 30, 2004, respectively.

4.    Bank Note Payable

The Company has a revolving line of credit agreement (the "Loan Agreement") with
a group of banks providing for borrowings at the Company's election of up to
$125.0 million. Borrowings under the Loan Agreement bear interest at either the
bank's base rate or a variable LIBOR rate, as defined. There were no borrowings
at September 30, 2004, and as of December 31, 2003 there was $4,117,000
outstanding.

The Loan Agreement includes restrictions on property liens and requires
compliance with various financial covenants. Financial covenants include the
maintenance of at least $1.5 million in operating cash accounts, a minimum
tangible net worth and compliance with various debt and operating income ratios,
as defined in the Loan Agreement. The Company was in compliance with the Loan
Agreement's financial covenants as of September 30, 2004. The Loan Agreement
matures on August 18, 2005.

5.    Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
net income per share reflects the potential dilution that could occur if
securities or other contracts to issue shares are convertible into shares. There
were no potential dilutive shares outstanding at or during the periods ended
September 30, 2004 and 2003.


                                        9
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

6.    Business Segments

The Company operates in two business segments: real estate operations, which
includes real estate leasing, interim acquisition financing and asset/property
management and investment banking/investment services, which include real estate
acquisition and broker/dealer services. The Company has identified these
segments because this discrete information is the basis upon which management
makes decisions regarding resource allocation and performance assessment. The
accounting policies of the reportable segments are the same as those described
in the "Significant Accounting Policies" set forth in Note 2 to the Company's
audited financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 2003. The Company's segments are located in
the United States of America.

The Company evaluates the performance of its reportable segments based on Cash
Available for Distribution ("CAD") as management believes that CAD represents
the most accurate measure of the reportable segment's activity and is the basis
for distributions paid to equity holders. The Company defines CAD as: net income
as computed in accordance with accounting principles generally accepted in the
United States of America ("GAAP"); plus certain non-cash items included in the
computation of net income (depreciation and amortization, gain or loss on the
sale of real estate, equity in earnings from non-consolidated REITs net of cash
received, certain non-cash compensation expenses and straight-line rent
adjustments); plus the net proceeds from the sale of land; less capital
expenditures and payments for deferred leasing commissions, plus proceeds from
(payments to) cash reserves established at the acquisition date of the property.
Depreciation and amortization, gain or loss on the sale of real estate, equity
in earnings from non-consolidated REITs net of cash received, non-cash
compensation and straight-line rents are an adjustment to CAD, as these are
non-cash items included in net income. Capital expenditures, payments of
deferred leasing commissions and the proceeds from (payments to) the funded
reserve are an adjustment to CAD, as they represent cash items not reflected in
net income.

The funded reserve represents funds that the Company has set aside in
anticipation of future capital needs. These reserves are typically used for the
payment of capital expenditures, deferred leasing commissions and certain tenant
allowances; however, there are no legal restrictions on their use and they may
be used for any business purpose.

CAD should not be considered as an alternative to net income (determined in
accordance with GAAP), as an indicator of the Company's financial performance,
nor as an alternative to cash flows from operating activities (determined in
accordance with GAAP), nor as a measure of the Company's liquidity, nor is it
necessarily indicative of sufficient cash flow to fund all of the Company's
needs. Other real estate companies may define CAD in a different manner. It is
at the Company's discretion to retain a portion of CAD for operational needs. We
believe that in order to facilitate a clear understanding of the financial
results of the Company, CAD should be examined in connection with net income and
cash flows from operating, investing and financing activities in the
consolidated financial statements.


                                       10
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

6.    Business Segments (continued)

Cash Available for Distribution by business segment is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                      Rental        Investment Banking/
                                                                    Operations      Investment Services       Totals
                                                                ------------------  -------------------  ------------------

<S>                                                             <C>                  <C>                 <C>
Three months ended March  31, 2003

Net Income                                                      $            6,986   $              302  $            7,288
Depreciation and amortization                                                  901                   30                 931
Straight line rent                                                             432                   --                 432
Gain on sale of property                                                    (1,421)                  --              (1,421)
Capital expenditures                                                          (183)                  --                (183)
Payment of deferred leasing costs                                              (53)                  --                 (53)
Proceeds from funded reserve                                                   191                   --                 191
                                                                ------------------   ------------------  ------------------
Cash Available for Distribution                                 $            6,853   $              332  $            7,185
                                                                ==================   ==================  ==================

Three months ended June 30, 2003

Net Income                                                      $            6,474   $              309  $            6,783
Depreciation and amortization                                                1,530                  (23)              1,507
Straight line rent                                                             208                   --                 208
Capital expenditures and capitalized merger costs                           (1,525)                  --              (1,525)
Payment of deferred leasing costs                                              (94)                  --                 (94)
Proceeds from funded reserve                                                   615                   --                 615
                                                                ------------------   ------------------  ------------------
Cash Available for Distribution                                 $            7,208   $              286  $            7,494
                                                                ==================   ==================  ==================

Three months ended September 30, 2003
Net income                                                      $           19,190   $            1,490  $           20,680
Depreciation and amortization                                                3,267                   25               3,292
Straight line rent                                                          (1,015)                  --              (1,015)
Gain on sale of property                                                    (4,914)                  --              (4,914)
Capital expenditures; capitalized merger costs                                (331)                (207)               (538)
Payment of deferred leasing costs                                             (334)                  --                (334)
Proceeds from funded reserve                                                   824                   --                 824
                                                                ------------------   ------------------  ------------------
Cash Available for Distribution                                 $           16,687   $            1,308  $           17,995
                                                                ==================   ==================  ==================

Nine months ended September 30, 2003
Net income                                                      $           32,650   $            2,101  $           34,751
Depreciation and amortization                                                5,698                   32               5,730
Straight line rent                                                            (375)                  --                (375)
Loss (gain) on sale of property                                             (6,335)                  --              (6,335)
Capital expenditures; capitalized merger costs                              (2,039)                (207)             (2,246)
Payment of deferred leasing costs                                             (481)                  --                (481)
Proceeds from funded reserves                                                1,630                   --               1,630
                                                                ------------------   ------------------  ------------------
Cash Available for Distribution                                 $           30,748   $            1,926  $           32,674
                                                                ==================   ==================  ==================
</TABLE>


                                       11
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

6.    Business Segments (continued)

Cash Available for Distribution by business segment is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                      Rental          Investment Banking/
                                                                    Operations        Investment Services        Totals
                                                                ------------------    -------------------   ------------------

<S>                                                             <C>                   <C>                   <C>
Three months ended March 31, 2004

Net Income                                                      $           12,739    $              480    $           13,219
Depreciation and amortization                                                3,235                    24                 3,259
Straight line rent revenue                                                    (340)                   --                  (340)
Non-cash compensation expense                                                   --                   162                   162
Capital expenditures                                                          (100)                  (17)                 (117)
Payment of deferred leasing costs                                             (151)                   --                  (151)
Equity in earnings from non-consolidated REITs, net of
   cash received                                                               (44)                   --                   (44)
Proceeds from funded reserves                                                  251                    --                   251
                                                                ------------------    ------------------    ------------------
Cash Available for Distribution                                 $           15,590    $              649    $           16,239
                                                                ==================    ==================    ==================

Three months ended June 30, 2004

Net Income                                                      $           12,780    $              896    $           13,676
Depreciation and amortization                                                3,501                    55                 3,556
Straight line rent revenue                                                    (514)                   --                  (514)
Capital expenditures                                                          (430)                  (72)                 (502)
Payment of deferred leasing costs                                             (101)                   --                  (101)
Payments to (proceeds from) funded reserve                                     531                    --                   531
Equity in earnings from non-consolidated REITs, net of
   cash received                                                                (9)                   --                    (9)
                                                                ------------------    ------------------    ------------------
Cash Available for Distribution                                 $           15,758    $              879    $           16,637
                                                                ==================    ==================    ==================

Three months ended September 30, 2004

Net Income                                                      $            7,247    $             (302)   $            6,945
Depreciation and amortization                                                3,311                    34                 3,345
Straight line rent revenue                                                     (39)                   --                   (39)
Capital expenditures                                                          (363)                  (11)                 (374)
Payment  of merger costs                                                       (80)                   --                   (80)
Payment of deferred leasing costs                                             (296)                   --                  (296)
Payments to (proceeds from) funded reserve                                     659                    --                   659
Equity in earnings from non-consolidated REITs, net of
   cash received                                                                18                    --                    18
                                                                ------------------    ------------------    ------------------
Cash Available for Distribution                                 $           10,457    $             (279)   $           10,178
                                                                ==================    ==================    ==================

Nine months ended September 30, 2004

Net Income                                                      $           32,766    $            1,074    $           33,840
Depreciation and amortization                                               10,047                   113                10,160
Straight line rent revenue                                                    (893)                   --                  (893)
Capital expenditures                                                          (893)                 (100)                 (993)
Payment of merger costs                                                        (80)                   --                   (80)
Payment of deferred leasing costs                                             (548)                   --                  (548)
Payments to (proceeds from) funded reserve                                   1,441                    --                 1,441
Non-cash compensation                                                           --                   162                   162
Equity in earnings from non-consolidated REITs, net of
   cash received                                                               (35)                   --                   (35)
                                                                ------------------    ------------------    ------------------
Cash Available for Distribution                                 $           41,805    $            1,249    $           43,054
                                                                ==================    ==================    ==================
</TABLE>


                                       12
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

6.    Business Segments (continued)

The following table is a summary of other financial information by business
segment (in thousands):

<TABLE>
<CAPTION>
                                                                      Rental         Investment Banking/
                                                                    Operations       Investment Services       Totals
                                                                ------------------   -------------------  ------------------
<S>                                                             <C>                  <C>                  <C>
Three months ended September 30, 2004:
Revenue                                                         $           16,775   $              470   $           17,245
Interest Income                                                                129                   11                  140
Interest Expense                                                                --                   --                   --
Capital Expenditures                                                           363                   11                  374

Total assets at September 30, 2004                              $          511,641   $            3,571   $          515,212

Three months ended September 30, 2003:
Revenue                                                         $           25,048   $            6,655   $           31,703
Interest Income                                                                112                   18                  130
Interest Expense                                                               257                   --                  257
Income from discontinued operations                                             56                   --                   56
Gain on sale of property                                                     4,914                   --                4,914
Capital Expenditures                                                           331                  207                  538

Total assets at September 30, 2003                              $          529,800   $            9,819   $          539,619

Nine months ended September 30, 2004:
Revenue                                                         $           62,524   $           10,054   $           72,578
Interest Income                                                                457                   32                  489
Interest Expense                                                               517                   --                  517
Capital Expenditures                                                           893                  100                  993

Total assets at September 30, 2004                              $          511,641   $            3,571   $          515,212

Nine months ended September 30, 2003:
Revenue                                                         $           46,295   $           12,597   $           58,892
Interest Income                                                                180                   58                  238
Interest Expense                                                               795                   --                  795
Income from discontinued operations                                            201                   --                  201
Gain on sale of property                                                     6,335                   --                6,335
Capital Expenditures                                                         2,039                  207                2,246

Total assets at September 30, 2003                              $          529,800   $            9,819   $          539,619
</TABLE>


                                       13
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

7.    Cash Dividends

The Company declared and paid dividends as follows (in thousands, except per
share amounts):

                                            Dividends Per         Total
               Quarter Paid                    Share             Dividends
      -------------------------------      ---------------   ---------------

      First Quarter of 2004                        $0.31           $ 15,382
      Second Quarter of 2004                        0.31             15,385
      Third Quarter of 2004                         0.31             15,385
                                                             ---------------
                                                                   $ 46,152
                                                             ===============

8.    Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"). As a REIT, the Company generally is entitled to a
tax deduction for dividends paid to its shareholders, thereby effectively
subjecting the distributed net income of the Company to taxation at the
shareholder level only. The Company must comply with a variety of restrictions
to maintain its status as a REIT. These restrictions include the type of income
it can earn, the type of assets it can hold, the number of shareholders it can
have and the concentration of their ownership, and the amount of the Company's
income that must be distributed annually.

One such restriction is that the Company generally cannot own more than 10% of
the voting power or value of the securities of any one issuer unless the issuer
is itself a REIT or a "taxable REIT subsidiary" ("TRS"). The Company's ownership
of securities in all TRSs generally cannot exceed 20% of the value of all of the
Company's assets and, when considered together with other non-real estate
assets, cannot exceed 25% of the value of all of the Company's assets. Effective
January 1, 2001, FSP Investments has elected to be treated as a TRS. As a
result, FSP Investments operates as a taxable corporation under the Code and has
accounted for income taxes in accordance with the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes."
Taxes are provided when FSP Investments has net profits for both financial
statement and income tax purposes.

Income taxes are recorded based on the future tax effects of the difference
between the tax and financial reporting bases of the Company's assets and
liabilities. In estimating future tax consequences, potential future events are
considered except for potential changes in income tax law or in rates.

The income tax expense reflected in the consolidated statement of income relates
only to FSP Investments. The expense differs from the amounts computed by
applying the Federal statutory rate of 35% to income before income taxes as
follows:

<TABLE>
<CAPTION>
                                                             For the                For the
                                                           Nine Months            Nine Months
                                                              Ended                  Ended
      (in thousands)                                    September 30, 2004      September 30, 2003
                                                        ------------------      ------------------
<S>                                                     <C>                     <C>
      Federal income tax expense at statutory rate      $              640      $            1,235
      Increase in taxes resulting from:
      State income taxes, net of federal impact                        105                     215
      Other                                                             15                      10
                                                        ------------------      ------------------
                                                        $              760      $            1,460
                                                        ==================      ==================
</TABLE>

No deferred income taxes were provided as there were no material temporary
differences between the financial reporting basis and the tax basis of FSP
Investments.


                                       14
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

9.    Merger Transactions

On June 1, 2003, the Company issued approximately 25 million shares of common
stock, $0.0001 par value per share in exchange for all of the outstanding
preferred stock of 13 Sponsored REITs it acquired by merger. The results of
operations for each of the acquired Sponsored REITs have been included in the
Company's consolidated financial statements since that date. The merger
transactions were structured as exchanges of shares and no cash was involved.

The aggregate purchase price for the 13 Sponsored REITs was approximately $321
million. On the acquisition date, for each Sponsored REIT, the increase between
the appraised value of the property and the historical cost of the property was
allocated to real estate investments and leases, including lease origination
costs. Lease origination costs represent the value associated with acquiring an
in-place lease (i.e. the market cost to execute a similar lease, including
leasing commission, legal, vacancy, and other related costs). The value assigned
to buildings approximates their replacement cost; the value assigned to land
approximates its appraised value; and the value assigned to leases approximates
their fair value. Other assets and liabilities are recorded at their historical
costs, which approximates fair value.

Pro forma operating results for the Company and the 13 Sponsored REITs the
Company acquired during 2003 are shown in the following table. The results
assume that the mergers occurred and the shares of the Company's common stock
were issued on January 1, 2003 and are not necessarily indicative of what the
Company's actual financial position or results of operations would have been for
the period indicated, nor do they purport to represent the results of operations
for any future period.

                                                         For the
                                                    Nine Months Ended
                                                      September 30,
      (in thousands)                                      2003
                                                   ------------------

      Revenue                                      $           77,295
      Expenses                                                (39,792)
      Interest income                                             354
      Taxes on income                                          (1,460)
                                                   ------------------
      Net income from continuing operations                    36,397
      Income from discontinued operations                         201
      Gain on sale of property                                  6,335
                                                   ------------------
      Net income                                   $           42,933
                                                   ==================

      Weighted average shares outstanding                      49,630
                                                   ==================

      Net income per share                         $             0.87
                                                   ==================

10.   Subsequent Events

The Company declared a dividend of $0.31 per share on October 29, 2004, to
shareholders of record on October 29, 2004.

During October 2004 the Company borrowed approximately $117 million and repaid
$16 million under its Loan Agreement. The Company used the borrowed funds to
make interim mortgage loans to newly formed Sponsored REITs.


                                       15
<PAGE>

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

The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report and in our
Annual Report on Form 10-K for the year ended December 31, 2003. Historical
results and percentage relationships set forth in the Consolidated Statements of
Income contained in the financial statements, including trends which might
appear, should not be taken as necessarily indicative of future operations. This
discussion may also contain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. For example, statements containing
the words "believes," "anticipates," "plans," "expects," "estimates," "intends,"
"may," "will" and similar expressions may be forward-looking statements. For
purposes of these Acts, any statement that is not a statement of historical fact
may be deemed a forward-looking statement. The forward-looking statements found
in this Quarterly Report on Form 10-Q are based on current judgments and current
knowledge of management, which are subject to certain risks, trends and
uncertainties that could cause actual results to differ materially from those
indicated in such forward-looking statements. Accordingly, readers are cautioned
not to place undue reliance on forward-looking statements. Investors are
cautioned that our forward-looking statements involve risks and uncertainty,
including without limitation, changes in economic conditions in the markets in
which we own properties, expectations with respect to individual properties
owned by us, changes in the demand by investors for investment in Sponsored
REITs, risks of a lessening of demand for the types of real estate owned by us,
changes in government regulations, and expenditures that cannot be anticipated
such as utility rate and usage increases, unanticipated repairs, additional
staffing, insurance increases and real estate tax valuation reassessments. See
the factors set forth below under the caption, "Certain Factors That May Affect
Future Results". Although we believe the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We will not update any of the
forward-looking statements after the date this quarterly report is filed to
conform them to actual results or to changes in our expectations that occur
after such date, other than as required by law.

Overview

FSP Corp. operates in two business segments: real estate operations and
investment banking/investment services. The real estate operations segment
involves real estate rental operations, leasing, interim acquisition financing
and asset/property management services. The investment banking/investment
services segment involves the provision of real estate investment and
broker/dealer services that include the organization of Sponsored REITs, the
acquisition of real estate on behalf of Sponsored REITs and the syndication of
Sponsored REITs through sale of preferred stock in private placements.

The main factor that affects our real estate operations is the broad economic
market conditions in the United States. These market conditions affect the
occupancy levels and the rent levels on both a national and local level. We have
no influence on the national market conditions. We look to acquire quality
properties in good locations in order to lessen the impact of downturns in the
local markets and to take advantage of upturns in these same local markets when
they occur.

Our investment banking/investment services customers are primarily institutions
and high net-worth individuals. To the extent that the broad capital markets
affect these investors, our business is also affected. These investors have many
investment choices. We must continually search for real estate at a price and at
a competitive risk/reward rate of return that meets our customer's risk/reward
profile for providing a stream of income and as a long-term hedge against
inflation.

Critical Accounting Policies

We have certain critical accounting policies that are subject to judgments and
estimates by our management and uncertainties of outcome that affect the
application of these policies. We base our estimates on historical experience
and on various other assumptions we believe to be reasonable under the
circumstances. On an on-going basis, we evaluate our estimates. In the event
estimates or assumptions prove to be different from actual results, adjustments
are made in subsequent periods to reflect more current information. The
accounting policies that we believe are most critical to the understanding of
our financial position and results of operations, and that require significant
management estimates and judgments, are discussed in Item 7, Management's
Discussion and Analysis of Financial Conditions and Results of Operations in our
Annual Report on Form 10-K for the year ended December 31, 2003.


                                       16
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Critical Accounting Policies (continued)

Critical accounting policies are those that have the most impact on the
reporting of our financial condition and results of operations and those
requiring significant judgments and estimates. We believe that our judgments and
assessments are consistently applied and produce financial information that
fairly presents our results of operations.

No changes to our critical accounting policies have occurred since our Annual
Report on Form 10-K for the year ended December 31, 2003 except with respect to
our accounting policy regarding "Ownership of Stock in a Sponsored REIT" as
described below. This policy was originally reported on our Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2004.

Ownership of Stock in a Sponsored REIT

We typically purchase and retain a common stock ownership in a Sponsored REIT
following syndication, and earn an ongoing asset and/or property management fee.
Accordingly, transaction fee revenue and our share of the operations of these
Sponsored REITs are not classified as discontinued operations due to our
continuing involvement.

Our investment in non-consolidated REITs represents our investment in the common
and preferred stock in Sponsored REITs. We account for these investments using
the equity method of accounting as we exercise significant influence over, but
do not control, these entities. Under the equity method of accounting we record
our percentage share of net earnings from these investments and our investment
balance of these entities is subsequently adjusted. Equity in the losses of
these entities is not recognized to the extent that the investment balance would
become negative. Dividends are recognized as income after the investment balance
is reduced to zero.

Under the equity method, accounting policy judgments made by the Sponsored REITs
could have a material effect on our net income. Also, if we determine that there
is an other than temporary decline in the fair value of any of these
investments, the investment balance would be written down to fair value and the
amount of the write down would be included in our earnings. In evaluating the
fair value of these investments, we have considered, among other things, the
financial condition and near term prospects of the investment, earnings trends,
asset quality, asset valuation models, and the financial condition and prospects
for its industry. Incorrect assumptions may incorrectly report the carrying
value of the asset and incorrectly report revenue.

Trends and Uncertainties

Real Estate Operations

Our portfolio of real properties averaged 90% leased at the end of the third
quarter. Most of the leasing activity for the quarter consisted of lease
renewals. The major lease renewals took place at Gateway Crossing in Columbia,
Maryland where approximately 60,000 square feet of space was scheduled to expire
during the quarter. Approximately 45,000 square feet out of the 60,000 square
feet of space has been renewed on a long-term basis, and the balance is
currently leased on a short-term basis. The lease at Lyberty Way in Westford,
Massachusetts for 104,700 square feet expires on October 31, 2004, which
represents approximately 1.4% of our revenue. We are currently marketing the
space.

We expect the competition for office tenants that we experienced in the first
three quarters of the year to continue in the fourth quarter of 2004 and to
cause leasing commissions, tenant improvement costs and rent concessions to
remain high. We saw little change in rents in the third quarter in markets where
we are actively leasing, but we cannot predict if that trend will continue or if
there will be a change in rents during the fourth quarter.

Our three Houston area apartment projects and our Baton Rouge apartment project
have been able to maintain their occupancy rates. We, along with other Class A
apartments in the local market, have lowered rents to draw tenants away from
Class B apartments. We cannot predict how much longer these trends will continue
or when the trends may reverse.

Utility costs are expected to increase throughout the portfolio in the fourth
quarter. While many of our leases allow us to pass the increase in utility costs
on to the tenants, not all of our leases allow us to do so. We have to pay for
100% of utility costs if the space becomes vacant.


                                       17
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

The following table summarizes property wholly owned by us as of the dates
indicated:

                                                        September 30,
                                                 --------------------------
                                                    2004             2003

       Residential:
             Number of properties                        4                4
             Number of apartment units                 837              837

       Commercial:
             Number of properties                       24               24
             Square footage                      3,049,357        3,049,357

Investment Banking/Investment Services

Unlike our real estate operations business, which provides a rental revenue
stream which is ongoing and recurring in nature, our investment
banking/investment services business is transactional in nature. Both the number
of Sponsored REIT syndications completed and the amount of equity raised in 2003
were below our expectations. Syndication business in the first three quarters of
2004 was also below already reduced expectations. The third quarter of 2004 had
the worst investment banking activity in our Company's modern history as we
completed the syndication of only one Sponsored REIT. Future business in this
area is very unpredictable.

Our property acquisition executives continue to be concerned about high
valuation levels for prime commercial investment real estate for the remainder
of 2004 and into 2005. We believe that a combination of factors, including
relatively low interest rates, a recovering general economy and increased
capital allocation to real estate assets, is increasing prices on many
properties we would have an interest in acquiring. We believe this general price
increase is causing capitalization rates to fall and prices per square foot to
rise. Specifically, our acquisition executives fear that we will not be able to
purchase enough property for the remainder of 2004 and at the start of 2005 at a
price acceptable under our investment criteria to grow our overall investment
banking/investment services business at targeted levels. In the first three
quarters of 2004 investment demand by our client base exceeded our ability to
acquire acceptable properties. If this situation continues into 2005, lower
revenues from this business could reduce the cash available for distribution to
stockholders as dividends. However, we believe that the same capital market
forces that are causing higher real estate prices and difficulties in achieving
property acquisition goals are also presenting some appealing opportunities for
the dispositions of certain of our assets. Although our general intention is to
hold our properties for long-term appreciation, if opportunities present
themselves that are sufficiently attractive, we may take advantage of the market
environment in 2004 and early 2005 and sell certain selected real estate assets.
The sale of these assets could generate cash gains available for distribution to
shareholders as dividends.

We continue to rely solely on our in-house investment executives to access
interested investors who have capital they can afford to place in an illiquid
position for an indefinite period of time (i.e., invest in a Sponsored REIT).
While we continue to expand our in-house sales force, uncertainties always exist
as to whether we are capable, either through our existing client base or through
new clients, of raising the amount of capital invested in Sponsored REITs to
achieve future performance objectives.


                                       18
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Results of Operations

The following table shows variance in dollars for the three and nine months
ended September 30, 2004 and 2003:

<TABLE>
<CAPTION>
                                                                          Variance              Variance
                                                                        For the three         For the nine
(in thousands)                                                          months ended          months ended
                                                                        September 30,        September 30,
                                                                        2004 and 2003        2004 and 2003
                                                                        -------------         -------------
<S>                                                                     <C>                   <C>
Revenue
  Rental operations
    Rental                                                              $      (1,423)        $      18,805
    Transaction fees                                                           (5,341)               (2,636)
    Sponsored REIT revenue                                                     (1,518)                  (85)
    Management fee and interest income from loans                                 (62)                  (34)
    Equity in earnings of investment                                               70                   182
    Other                                                                          --                    (3)
                                                                        -------------         -------------
        Total rental operations                                                (8,274)               16,229
                                                                        -------------         -------------
  Investment banking/investment services
    Syndication fees                                                           (5,864)               (2,823)
    Transaction fees                                                             (320)                  280
                                                                        -------------         -------------
        Total investment banking/investment services revenue                   (6,184)               (2,543)
                                                                        -------------         -------------
Total revenue                                                                 (14,458)               13,686
                                                                        -------------         -------------

Expenses
  Rental operations
    Rental operating expenses                                                     (44)                3,142
    Real estate taxes and insurance                                              (190)                2,473
    Depreciation and amortization                                                  75                 4,439
    Sponsored REIT expense                                                     (1,350)                 (313)
    Selling, general and administrative                                           483                   391
    Interest expense                                                             (257)                 (278)
                                                                        -------------         -------------
         Total rental operations                                               (1,283)                9,854
                                                                        -------------         -------------
  Investment banking/investment services
    Selling, general and administrative                                          (249)                  405
    Commission expense                                                         (2,909)               (1,328)
    Depreciation and amortization                                                   9                    81
                                                                        -------------         -------------
        Total investment banking/investment services                           (3,149)                 (842)
                                                                        -------------         -------------
Total expenses                                                                 (4,432)                9,012
                                                                        -------------         -------------

Income before interest income and taxes on income                             (10,026)                4,674
  Interest income                                                                  10                   251
  Taxes on income                                                              (1,251)                 (700)
                                                                        -------------         -------------
Income from continuing operations                                              (8,765)                5,625

  Income from discontinued operations                                             (56)                 (201)
  Gain on sale of real estate from discontinued operations                     (4,914)               (6,335)
                                                                        -------------         -------------

Net income                                                              $     (13,735)        $        (911)
                                                                        =============         =============
</TABLE>


                                       19
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Comparison of the three months ended September 30, 2004 to the three months
ended September 30, 2003:

We completed the partial syndication of one Sponsored REIT in the three months
ended September 30, 2004. The gross proceeds generated by this syndication were
$2.7 million, a decrease of $92.8 million compared to the gross proceeds of
$95.5 million in the comparable period in 2003 from the syndication of two
Sponsored REITs.

We operated 28 properties for the three-month period ended September 30, 2004,
and 2003. The results of operations for the two properties that were sold in
2003 have been classified as discontinued operations.

Revenue

Total revenues decreased $14.5 million, or 46%, to $17.2 million for the three
months ended September 30, 2004, as compared to $31.7 million for the comparable
period in 2003.

Income from rental operations was $16.8 million for the three months ended
September 30, 2004, a decrease of $8.3 million, or 33%, compared to the three
months ended September 30, 2003. The decrease is primarily attributable to:

      o     A decrease in rental revenue of $1.4 million relating to lower
            reimbursable expenses, expiring leases renewed at lower rates and
            slightly reduced occupancy rates;
      o     A decrease in transaction fees of $5.3 million as a result of
            decreased syndication activity; and
      o     A decrease in Sponsored REIT revenue of $1.5 million as a result of
            decreased syndication activity.

Investment banking/investment services revenue was $0.5 million for the three
months ended September 30, 2004, a decrease of $6.2 million, or 93%, compared to
the three months ended September 30, 2003. The decrease is attributable to the
decrease in syndication activity.

Expenses

Total expenses were $10.7 million for the three months ended September 30, 2004,
a decrease of $4.4 million, or 29%, compared to the three months ended September
30, 2003.

Expenses for rental operations were $9.7 million for the three months ended
September 30, 2004, a decrease of $1.3 million, or 12%, compared to the three
months ended September 30, 2003. The decrease is attributable to:

      o     A decrease of real estate taxes of $0.2 million primarily as a
            result of reduced assessments;
      o     A decrease of $1.4 million of Sponsored REIT expenses as a result of
            decreased syndication activity; and
      o     A decrease in interest expense of $0.3 million as a result of
            decreased syndication activity.

These expenses were offset by an increase in selling, general and administrative
expenses of $0.5 million of which $0.2 million relates to expenses allocated
from investment banking/investment services and the balance primarily relates to
an increase in cost of corporate governance and related professional fees.

Expenses for investment banking/investment services were $1.0 million for the
three months ended September 30, 2004, a decrease of $3.1 million, or 76%,
compared to the three months ended September 30, 2003. The increase is
attributable to:

      o     A decrease of $2.9 million of commission expenses relating to
            decreased syndication activity;
      o     A decrease of $0.2 million in selling, general and administrative
            expenses primarily relating to expenses allocated to real estate
            operations costs;

Interest income for the three month period ended September 30, 2004 was
consistent with the comparable period of 2003.

Taxes on income decreased $1.3 million as a result of decreased syndication
activity. The tax rate was consistent with the comparable period of 2003.


                                       20
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Comparison of the nine months ended September 30, 2004 to the nine months ended
September 30, 2003:

We completed the syndication of five Sponsored REITs in the nine months ended
September 30, 2004. The gross proceeds generated by these syndications were
$134.9 million, a decrease of $45.8 million compared to gross proceeds of $180.7
million in the comparable period in 2003 from the syndication of four Sponsored
REITs.

The results of operations for the 13 properties acquired in 2003 are included in
our operating results for nine months in 2004 compared to four months in 2003.
We operated 28 properties for the nine-month period ended September 30, 2004,
and 15 properties for five months, and 28 properties for four months, in the
comparable period of 2003. Increases in revenues and expenses related to rental
operations for the nine months ended September 30, 2004 are primarily a result
of these acquisitions. The results of operations for the two properties that
were sold in 2003 have been classified as discontinued operations.

Revenue

Total revenue increased $13.7 million, or 23%, to $72.6 million for the nine
months ended September 30, 2004, as compared to $58.9 million for the comparable
period in 2003.

Revenue from rental operations was $62.5 million for the nine months ended
September 30, 2004, an increase of $16.2 million, or 35%, compared to the nine
months ended September 30, 2003. The increase is primarily attributable to:

      o     An increase in rental revenue of $18.8 million, primarily relating
            to the 13 properties acquired by the Company in June 2003, which
            includes a lease termination fee of approximately $1.2 million paid
            by a tenant; and
      o     An increase in other revenue of $0.1 million primarily representing
            our proportionate share of income from FSP Blue Lagoon Drive Corp.
            in which we acquired an interest in preferred stock in January 2003.

These increases are offset by a decrease in transaction income of $2.6 million
and sponsored REIT income of $0.1 million, both as a result of our decreased
syndication activity in 2004.

Investment banking/investment services revenue was $10.1 million for the nine
months ended September 30, 2004, a decrease of $2.5 million, or 20%, compared to
the nine months ended September 30, 2003. The decrease is attributable to the
decrease in gross syndication proceeds as discussed above.

Expenses

Total expenses were $38.5 million for the nine months ended September 30, 2004,
an increase of $9.0 million, or 31%, compared to the nine months ended September
30, 2003.

Expenses for rental operations were $30.2 million for the nine months ended
September 30, 2004, a net increase of $9.9 million, or 48%, compared to the nine
months ended September 30, 2003. The increase is attributable to:

      o     An increase in rental operation expenses aggregating $10.1 million
            primarily related to the 13 properties acquired by the Company in
            June, 2003; and
      o     An increase in selling, general and administrative expenses of $0.3
            million primarily relating to an increase in costs for corporate
            governance and related professional fees.

These expenses are offset by a decrease of $0.3 million of Sponsored REIT
expenses as a result of decreased syndication activity; and a decrease in
interest expense of $.03 million as a result of decreased syndication activity.

Expenses for investment banking services were $8.3 million for the nine months
ended September 30, 2004, a decrease of $0.8 million, or 9.3%, compared to the
nine months ended September 30, 2003. The decrease is attributable to a decrease
of $1.3 million in commissions and broker expenses as a result of decreased
syndication activity.

The decrease was offset by:

      o     an increase of $0.1 million in office rents and occupancy expenses
            as a result of increasing office space in the third quarter of 2003;
      o     An increase of $0.2 million relating to a investor relations
            consulting project; and
      o     Expenses of $0.2 million as a result of the issuance of shares as
            compensation in 2004. No shares were issued in 2003.


                                       21
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Interest income for the nine-month period ended September 30, 2004 was
consistent with the comparable period of 2003.

Taxes on income decreased $0.7 million as a result of decreased syndication
activity. The tax rate was consistent with the comparable period of 2003.

Liquidity and Capital Resources

Cash and cash equivalents were $50.6 million and $58.8 million at September 30,
2004 and December 31, 2003, respectively. This decrease of $8.2 million is
attributable to $43.4 million provided by operating activities; $1.1 million
used for investing activities; and $50.4 million used for financing activities.
Management believes that existing cash, cash anticipated to be generated
internally by operations and cash anticipated to be generated by the sale of
preferred stock in future Sponsored REITs will be sufficient to meet working
capital requirements and anticipated capital expenditures for at least the next
12 months. Our line of credit matures on August 18, 2005, and management
believes it will be renewed, extended or replaced with another facility. We
borrow against the line of credit to make loans to enable a Sponsored REIT to
acquire real property prior to the consummation of the offering of its equity
interests, and the loan is subsequently repaid out of the offering proceeds. We
believe that we will be able to repay all amount currently outstanding under the
line of credit prior to its expiration in August 2005.

Operating Activities

The cash provided by our operating activities of $43.4 million is primarily
attributable to net income of $33.8 million plus the add-back of $10.3 million
from non-cash activity, principally consisting of depreciation and amortization,
less a $0.2 million net change in operating assets and liabilities, less
payments for deferred leasing costs of $0.5 million.

Investing Activities

Our cash used for investing activities of $1.1 million is attributable to $4.1
million in proceeds from the sale of assets held for syndication offset by $1.0
million used for the purchase of real estate assets, office computers and
furniture, and a $4.3 million investment in non-consolidated [Sponsored] REITs.

Financing Activities

Our cash used for financing activities of $50.4 million is attributable to $4.1
million in payments on our line of credit, and $46.2 million of distributions to
our stockholders as dividends; and $0.1 million used to purchase treasury stock.

Sources and Uses of Funds

Our principal demands for liquidity are cash for operations, dividends to
stockholders, debt repayments and expenses associated with indebtedness. As of
September 30, 2004 we had approximately $10.7 million in liabilities. We have no
permanent, long-term debt. In the near term, liquidity is generated from funds
from ongoing real estate operations and transaction fees and commissions
received in connection with the sale of shares in new Sponsored REITs.

Contingencies

We are subject to various legal proceedings and claims that arise in the
ordinary course of its business. Although occasional adverse decisions (or
settlements) may occur, we believe that the final disposition of such matters
will not have a material adverse effect on our financial position or results of
operations.

Assets Held For Syndication

There were no assets held for syndication as of September 30, 2004. During
October 2004 we borrowed approximately $117 million against and repaid $16
million on our line of credit. We use these borrowings to make interim mortgage
loans to newly formed Sponsored REITs. The newly-formed Sponsored REITs use the
funds to purchase real property, and the loan amounts have historically been
repaid by the sale of the Sponsored REIT's preferred stock through private
placements.

Related Party Transactions

In the three months ended September 30, 2004, we completed the syndication of
one Sponsored REIT. We did not enter into any other significant transactions
with related parties during the quarter ended September 30, 2004. For a
discussion of transactions between us and related parties during 2003, see
"Related Party Transactions" under Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - of our Annual Report on Form
10-K for the year ended December 31, 2003.


                                       22
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Economic Conditions

We generally pay the ordinary annual operating expenses of our properties from
the rental revenue generated by the properties. For the nine months ended
September 30, 2004, the rental income exceeded the expenses for each individual
property, with the exception of Blue Ravine. The single tenant lease at the Blue
Ravine property located in Folsom, California, expired June 30, 2003. We have
not re-let the property and expect that the property will not produce revenue to
cover its expenses in the fourth quarter.

Management believes that cash and cash equivalents, as of September 30, 2004,
are in excess of our known needs for extraordinary expenses or capital
improvements within the next twelve months.

Although there is no guarantee that we will be able to obtain the funds
necessary for our future growth, we anticipate generating funds from continuing
real estate operations and from fees and commissions from the sale of shares in
newly formed Sponsored REITs. We believe that we have adequate funds to cover
unusual expenses and capital improvements, in addition to normal operating
expenses. Our ability to maintain or increase our level of dividends to
stockholders, however, depends in part upon the level of interest on the part of
investors in purchasing shares of Sponsored REITs and the level of rental income
from our real properties.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management from
time to time.

If we are not able to collect sufficient rents from each of our owned real
properties, we may suffer significant operating losses.

A substantial portion of our revenue is generated by the rental income of our
real properties. If our properties do not provide us with a steady rental income
as a result of an inability to re-let space upon the termination of existing
leases or of the inability of existing tenants to meet their obligations under
existing leases, our revenues will decrease and may cause us to incur operating
losses in the future.

We face risks in continuing to attract investors for Sponsored REITs.

Our investment banking/investment services business continues to depend upon its
ability to attract purchasers of equity interests in Sponsored REITs. Our
success in this area will depend on the propensity and ability of investors who
have previously invested in Sponsored REITs to continue to invest in future
Sponsored REITs and on our ability to expand the investor pool for the Sponsored
REITs by identifying new potential investors. Moreover, our investment
banking/investment services business may be affected to the extent existing
Sponsored REITs incur losses or have operating results that fail to meet
investors' expectations.

If we are unable to fully syndicate a Sponsored REIT, we may be required to keep
a balance outstanding on our line of credit or use our cash balance to repay our
line of credit, which may reduce cash available for distribution to our
stockholders.

We typically draw on our line of credit to make an interim mortgage loan to a
Sponsored REIT, so that it can acquire real property prior to the consummation
of the offering of its equity interests; this interim loan is secured by a first
mortgage of the real property acquired by the Sponsored REIT. Once the offering
has been completed, the Sponsored REIT repays the loan out of the offering
proceeds. If we are unable to fully syndicate a Sponsored REIT, the Sponsored
REIT could be unable to fully repay the loan, and we would have to satisfy our
obligation under our line of credit through other means. If we are required to
use cash for this purpose, we would have less cash available for distribution to
our stockholders.


                                       23
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Failure to renew, replace or extend our line of credit could have a material
adverse effect on the cash available for distribution to our stockholders and
would limit our growth.

Our line of credit matures in August 2005. We typically draw on our line of
credit to make an interim mortgage loan to a Sponsored REIT, so that it can
acquire real property prior to the consummation of the offering of its equity
interests. Once the offering has been completed, the Sponsored REIT repays the
loan out of the offering proceeds. An inability to renew, replace or extend our
line of credit could result in difficulty financing growth in the investment
banking/investment services segment of our business. It could also result in a
reduction in the cash available for distribution to our stockholders because
revenue for our investment banking/investment services segment is directly
related to the amount of equity raised by Sponsored REITs which we syndicate. In
addition, a significant part of our growth strategy is to acquire additional
real properties by cash purchase or by acquisition of Sponsored REITs, and the
loss of the line of credit would make it substantially more difficult to pursue
acquisitions by either method. To the extent we have a balance outstanding on
the line of credit on the date of its maturity; we would have to satisfy our
obligation through other means. If we are required to use cash for this purpose,
we would have less cash available for distribution to our stockholders.

We may not be able to find properties that meet our criteria for purchase.

Growth in our investment banking/investment services business is dependent on
the ability of our acquisition executives to find properties for sale which meet
our investment criteria. To the extent they fail to find such properties, we
will be unable to syndicate offerings of Sponsored REITs to investors, and this
segment of our business could have lower revenue, which would reduce the cash
available for distribution to our stockholders.

We are dependent on key personnel.

We depend on the efforts of George Carter, our Chief Executive Officer, and our
other executive officers. If they were to resign, our operations could be
adversely affected. We do not have employment agreements with Mr. Carter or any
other of our executive officers.

Our level of dividends may fluctuate.

Because our investment banking/investment services business is transactional in
nature and real estate occupancy levels and rental rates can fluctuate, there is
no predictable recurring level of revenue from such activities. As a result of
this, the amount of cash available for distribution may fluctuate, which may
result in us not being able to maintain or grow dividend levels in the future.

The real properties held by us may significantly decrease in value.

As of September 30, 2004, we owned 28 properties. Some or all of these
properties may decline in value. To the extent our real properties decline in
value, our stockholders could lose some or all the value of their investments.
Although currently there is no public market for the shares of our common stock,
the value of our common stock may still be adversely affected if the real
properties held by us decline in value since these real properties represent the
majority of our tangible assets. Moreover, if either we are forced to sell or
lease the real property held by us below its initial purchase price or carrying
costs or if we are forced to lease real property at below market rates because
of its condition, our results of operations would be adversely affected and such
negative results of operations may result in lower dividends being paid to
holders of our common stock.

We face risks in owning and operating real property.

An investment in us is subject to the risks incident to the ownership and
operation of real estate-related assets. These risks include the fact that real
estate investments are generally illiquid, which may impact our ability to vary
our portfolio in response to changes in economic and other conditions, as well
as the risks normally associated with:

      o     changes in general and local economic conditions;
      o     the supply or demand for particular types of properties in
            particular markets;
      o     changes in market rental rates;
      o     the impact of environmental protection laws; and
      o     changes in tax, real estate and zoning laws.


                                       24
<PAGE>

Certain significant costs, such as real estate taxes, utilities, insurance and
maintenance costs, generally are not reduced even when a property's rental
income is reduced. In addition, environmental and tax laws, interest rate
levels, the availability of financing and other factors may affect real estate
values and property income. Furthermore, the supply of commercial and
multi-family residential space fluctuates with market conditions.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

We face risks from tenant defaults or bankruptcies.

If any of our tenants defaults on its lease, we may experience delays in
enforcing our rights as a landlord and may incur substantial costs in protecting
our investment. In addition, at any time, a tenant of one of our properties may
seek the protection of bankruptcy laws, which could result in the rejection and
termination of such tenant's lease and thereby cause a reduction in cash
available for distribution to our stockholders.

We may encounter significant delays in reletting vacant space, resulting in
losses of income.

When leases expire, we will incur expenses and may not be able to re-lease the
space on the same terms. Certain leases provide tenants the right to terminate
early if they pay a fee. If we are unable to re-lease space promptly, if the
terms are significantly less favorable than anticipated or if the costs are
higher, we may have to reduce distributions to our stockholders.

We face risks from geographic concentration.

The properties in our portfolio, by aggregate square footage, are distributed
geographically as follows: Southwest - 26%, Northeast - 31%, Midwest - 19%, West
- 16% and Southeast 8%. However, within certain of those segments, we hold a
larger concentration of our properties in Houston, Texas - 18% and Washington,
DC - 13%. We are likely to face risks to the extent that any of these areas in
which we hold a larger concentration of our properties suffer deteriorating
economic conditions.

We compete with national, regional and local real estate operators and
developers, which could adversely affect our cash flow.

Competition exists in every market in which our properties are located and in
every market in which our properties will be located. We compete with, among
others, national, regional and numerous local real estate operators and
developers. Such competition may adversely affect the percentage of leased space
and the rental revenues of our properties, which could adversely affect our cash
flow from operations and our ability to make expected distributions to our
stockholders. Some of our competitors may have more resources than we do or
other competitive advantages. Competition may be accelerated by any increase in
availability of funds for investment in real estate. For example, decreases in
interest rates tend to increase the availability of funds and therefore can
increase competition. To the extent that our properties continue to operate
profitably, this will likely stimulate new development of competing properties.
The extent to which we are affected by competition will depend in significant
part on local market conditions.

There is limited potential for an increase in leased space gains in our
properties.

We anticipate that future increases in revenue from our properties will be
primarily the result of scheduled rental rate increases or rental rate increases
as leases expire. Properties with higher rates of vacancy are generally located
in soft economic markets so that it may be difficult to realize increases in
revenue when vacant space is re-leased.

We are subject to possible liability relating to environmental matters, and we
cannot assure you that we have identified all possible liabilities.

Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its property. Such
laws may impose liability without regard to whether the owner or operator knew
of, or caused, the release of such hazardous substances. The presence of
hazardous substances on a property may adversely affect the owner's ability to
sell such property or to borrow using such property as collateral, and it may
cause the owner of the property to incur substantial remediation costs. In
addition to claims for cleanup costs, the presence of hazardous substances on a
property could result in the owner incurring substantial liabilities as a result


                                       25
<PAGE>

of a claim by a private party for personal injury or a claim by an adjacent
property owner for property damage.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

In addition, we cannot assure you that:

      o     future laws, ordinances or regulations will not impose any material
            environmental liability;
      o     the current environmental conditions of our properties will not be
            affected by the condition of properties in the vicinity of such
            properties (such as the presence of leaking underground storage
            tanks) or by third parties unrelated to us;
      o     tenants will not violate their leases by introducing hazardous or
            toxic substances into our properties that could expose us to
            liability under federal or state environmental laws; or
      o     environmental conditions, such as the growth of bacteria and toxic
            mold in heating and ventilation systems or on walls, will not occur
            at our properties and pose a threat to human health.

We are subject to compliance with the Americans With Disabilities Act and fire
and safety regulations which could require us to make significant capital
expenditures.

All of our properties are required to comply with the Americans With
Disabilities Act (ADA), and the regulations, rules and orders that may be issued
thereunder. The ADA has separate compliance requirements for "public
accommodations" and "commercial facilities," but generally requires that
buildings be made accessible to persons with disabilities. Compliance with ADA
requirements might require, among other things, removal of access barriers and
noncompliance could result in the imposition of fines by the U.S. government, or
an award of damages to private litigants.

In addition, we are required to operate our properties in compliance with fire
and safety regulations, building codes and other land use regulations, as they
may be adopted by governmental agencies and bodies and become applicable to our
properties. Compliance with such requirements may require us to make substantial
capital expenditures, which expenditures would reduce cash otherwise available
for distribution to its stockholders.

There are significant conditions to our obligation to redeem shares of our
common stock, and any such redemption will result in the stockholders tendering
shares receiving less than their fair market value.

Under our redemption plan, we are only obligated to use our best efforts to
redeem shares of our common stock from stockholders wishing to have them
redeemed. There are significant conditions to our obligation to redeem shares of
our common stock including:

      o     we cannot be insolvent or be rendered insolvent by the redemption;
      o     the redemption cannot impair our capital or operations;
      o     the redemption cannot contravene any provision of federal or state
            securities laws;
      o     the redemption cannot result in our failing to qualify as a REIT;
            and
      o     our management must determine that the redemption is in our best
            interests.

Any redemption effected by us under this plan would result in those stockholders
tendering shares of our common stock receiving 90% of the fair market value of
such shares, as determined by our board of directors in its sole and absolute
discretion, and not their full fair market value. If our common stock becomes
listed for trading on the American Stock Exchange or any other national
securities exchange or the NASDAQ National Market, we will no longer be
obligated to effect any redemption.

We may lose capital investment or anticipated profits if an uninsured event
occurs.

We carry or our tenants carry comprehensive liability, fire and extended
coverage with respect to each of our properties, with policy specification and
insured limits customarily carried for similar properties. There are, however,
certain types of losses, such as from wars, pollution or earthquakes, that may
be either uninsurable or not economically insurable (although the properties
located in California all have earthquake insurance). Should an uninsured
material loss occur, we could lose both capital invested in the property and
anticipated profits.


                                       26
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Contingent or unknown liabilities acquired in mergers or similar transactions
could require us to make substantial payments.

The properties which we acquired in mergers were acquired subject to liabilities
and without any recourse with respect to liabilities, whether known or unknown.
As a result, if liabilities were asserted against us based upon any of these
properties, we might have to pay substantial sums to settle them, which could
adversely affect our results of operations and financial condition and our cash
flow and ability to make distributions to our stockholders. Unknown liabilities
with respect to properties acquired might include:

      o     liabilities for clean-up or remediation of environmental conditions;
      o     claims of tenants, vendors or other persons dealing with the former
            owners of the properties; and
      o     liabilities incurred in the ordinary course of business.

We would incur adverse tax consequences if we failed to qualify as a REIT.

If in any taxable year we do not qualify as a real estate investment trust, we
would be taxed as a corporation and distributions to our stockholders would not
be deductible by us in computing our taxable income. In addition, if we were to
fail to qualify as a real estate investment trust, we could be disqualified from
treatment as a real estate investment trust in the year in which such failure
occurred and for the next four taxable years and, consequently, we would be
taxed as a corporation during such years. Failure to qualify for even one
taxable year could result in a significant reduction of our cash available for
distribution to stockholders or could require us to incur indebtedness or
liquidate investments in order to generate sufficient funds to pay the resulting
federal income tax liabilities. In addition, timing differences between the
receipt of income and payment of expenses and the inclusion and deduction of
such amounts in arriving at taxable income could make it necessary for us to
borrow in order to make certain distributions to our stockholders in
satisfaction of the 90% distribution requirement applicable to real estate
investment trusts. The provisions of the Internal Revenue Code governing the
taxation of real estate investment trusts are very technical and complex, and
although we expect that we will be organized and will operate in a manner that
will enable us to meet such requirements, no assurance can be given that we will
always succeed in doing so.

In addition, you should note that if one or more of the REITs we acquired in
June 2003 did not qualify as a real estate investment trust immediately prior to
the consummation of the mergers, we would be disqualified as a REIT as a result
of the mergers.

Provisions in our organizational documents may prevent changes in control.

Our Articles of Incorporation and Bylaws contain provisions, described below,
which may have the effect of discouraging a third party from making an
acquisition proposal for us and may thereby inhibit a change of control under
circumstances that could otherwise give the holders of our common stock the
opportunity to realize a premium over the then-prevailing market prices.

Ownership Limits. In order for us to maintain our qualification as a real estate
investment trust, the holders of our common stock may be limited to owning,
either directly or under applicable attribution rules of the Internal Revenue
Code, no more than 9.8% of the lesser of the value or the number of equity
shares of us, and no holder of common stock may acquire or transfer shares that
would result in our shares of common stock being beneficially owned by fewer
than 100 persons. Such ownership limit may have the effect of preventing an
acquisition of control of us without the approval of our board of directors.
Moreover, we will have the right to redeem any shares of common stock that are
acquired or transferred in violation of these provisions at the market price,
which is determined by our board of directors. In addition, our Articles of
Incorporation give our board of directors the right to refuse to give effect to
the acquisition or transfer of shares by a stockholder in violation of these
provisions.

Staggered Board. Our board of directors is divided into three classes. The terms
of these classes will expire in 2005, 2006 and 2007, respectively. Directors of
each class are elected for a three-year term upon the expiration of the initial


                                       27
<PAGE>

term of each class. The staggered terms for directors may affect our
stockholders' ability to effect a change in control even if a change in control
were in the stockholders' best interests.

Preferred Stock. Our Articles of Incorporation authorize our board of directors
to issue up to 20,000,000 shares of preferred stock, par value $.0001 per share,
and to establish the preferences and rights of any such shares issued. The
issuance of preferred stock could have the effect of delaying or preventing a
change in control even if a change in control were in our stockholders' best
interest.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)

Increase of Authorized Stock. Our board of directors, without any vote or
consent of the stockholders, may increase the number of authorized shares of any
class or series of stock or the aggregate number of authorized shares we have
authority to issue. The ability to increase the number of authorized shares and
issue such shares could have the effect of delaying or preventing a change in
control even if a change in control were in our stockholders' best interest.

Amendment of Bylaws. Our board of directors has the sole power to amend our
Bylaws. This power could have the effect of delaying or preventing a change in
control even if a change in control were in our stockholders' best interests.

Stockholder Meetings. Our Bylaws require advance notice for stockholder
proposals to be considered at annual meetings of stockholders and for
stockholder nominations for election of directors at special meetings of
stockholders. Our Bylaws also provide that stockholders entitled to cast more
than 50% of all the votes entitled to be cast at a meeting must join in a
request by stockholders to call a special meeting of stockholders. These
provisions could have the effect of delaying or preventing a change in control
even if a change in control were in the best interests of our stockholders.

Supermajority Votes Required. Our Articles of Incorporation require the
affirmative vote of the holders of no less than 80% of the shares of capital
stock outstanding and entitled to vote in order (i) to amend the provisions of
our Articles of Incorporation relating to the classification of directors,
removal of directors, limitation of liability of officers and directors or
indemnification of officers and directors or (ii) to amend our Articles of
Incorporation to impose cumulative voting in the election of directors. These
provisions could have the effect of delaying or preventing a change in control
even if a change in control were in our stockholders' best interest.

There is no public trading market for our securities.

There is no public trading market for our common stock, and we cannot assure you
that any market will develop or that, if such a market develops, there will be
any liquidity in such a market for our common stock. We have announced our
intention to file an application for the listing of our stock on the American
Stock Exchange. However, there is no assurance that we will file such
application, or in the event that we do, that the American Stock Exchange will
accept it.


                                       28
<PAGE>

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We were not a party to any derivative financial instruments at or during the
three months ended September 30, 2004.

We borrow from time to time on our line of credit. These borrowings bear
interest at a variable rate. As of September 30, 2004, there were no borrowings
outstanding under this line of credit. We have used the funds from our line of
credit for the purpose of making interim mortgage loans to Sponsored REITs.
These mortgage loans bear interest at the same variable rate payable by us under
our line of credit. Therefore, we believe that we have mitigated our interest
rate risk with respect to our borrowings.


                                       29
<PAGE>

Item 4. Controls and Procedures.

Our management, with the participation of FSP Corp.'s President and Chief
Executive Officer and FSP Corp.'s Vice President and Chief Operating Officer
(equivalent of Chief Financial Officer), evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(d)
under the Exchange Act) as of September 30, 2004. Based on this evaluation, FSP
Corp.'s President and Chief Executive Officer and FSP Corp.'s Vice President and
Chief Operating Officer (equivalent of Chief Financial Officer) concluded that,
as of September 30, 2004, our disclosure controls and procedures were (1)
designed to ensure that material information relating to us, including our
consolidated subsidiaries, is made known to FSP Corp.'s President and Chief
Executive Officer and FSP Corp.'s Vice President and Chief Operating Officer
(equivalent of Chief Financial Officer) by others within these entities,
particularly during the period in which this report was being prepared and (2)
effective, in that they provide reasonable assurance that information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.

No change to our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter
ended September 30, 2004 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.


                                       30
<PAGE>

                           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings:

           Not applicable.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds:

           (c) The following table provides information about purchases by
Franklin Street Properties Corp. during the quarter ended September 30, 2004 of
equity securities that are registered by the Company pursuant to Section 12 of
the Exchange Act:

                      ISSUER PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------

                                (a)                  (b)                  (c)                     (d)

                                                                    Total Number of        Maximum Number (or
                                                                   Shares (or Units)   Approximate Dollar Value)
                                                                   Purchased as Part   of Shares (or Units) that
                          Total Number of                             of Publicly         May Yet Be Purchased
                         Shares (or Units)    Average Price Paid   Announced Plans or      Under the Plans or
Period                     Purchased (1)      per Share (or Unit)     Programs (1)            Programs (1)
-----------------------------------------------------------------------------------------------------------------
<C>                             <C>                 <C>                    <C>                     <C>
07/01/04-07/31/04                0                   N/A                   0                       0

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

08/01/04-08/31/04               575                 $17.70                 0                       0
-----------------------------------------------------------------------------------------------------------------

09/01/04-09/30/04                0                   N/A                   0                       0
-----------------------------------------------------------------------------------------------------------------
Total:                          575                 $17.70                 0                       0

-----------------------------------------------------------------------------------------------------------------
</TABLE>

(1) In connection with its entrance into an Agreement and Plan of Merger among
FSP Corp., four wholly-owned acquisition subsidiaries of FSP Corp. and four
Sponsored REITs, FSP Corp.'s Board of Directors authorized the redemption of all
fractional shares of common stock outstanding and of record as of July 30, 2004,
effective as of August 16, 2004. FSP Corp. sent a letter to its stockholders
regarding this redemption on August 13, 2004, which was attached as Exhibit 99.1
to FSP Corp.'s Current Report on 8-K filed with the Securities and Exchange
Commission on August 13, 2004.

FSP Corp. does not have any publicly announced repurchase plans or programs.
However, FSP Corp.'s Articles of Incorporation provide that FSP Corp. will use
its best efforts to redeem shares of its common stock from stockholders who
request such redemption. Any FSP Corp. stockholder wishing to have shares
redeemed must make such a request no later than July 1 of any year for a
redemption that would be effective the following January 1.

This obligation is subject to significant conditions, including that (i) FSP
Corp. cannot be insolvent or rendered insolvent by the redemption, (ii) the
redemption cannot impair the capital or operations of FSP Corp., (iii) the
redemption cannot contravene any provision of federal or state securities law,
(iv) the redemption cannot result in FSP Corp.'s failing to qualify as a REIT,
and (v) the management of FSP Corp. must determine that the redemption is in the
best interest of FSP Corp. Redemptions pursuant to these provisions result in
redeeming stockholders receiving cash in an amount of 90% of the fair market
value of the stock redeemed, as determined by FSP Corp.'s Board of Directors.

Item 3.    Defaults Upon Senior Securities:

           Not applicable.

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

           Not applicable.

Item 5.    Other Information:

           Not applicable.


                                       31
<PAGE>

                     PART II - OTHER INFORMATION (Continued)

Item 6.    Exhibits:

           2.1 Agreement and Plan of Merger, dated as of August 13, 2004, by
           and among the Registrant and the parties thereto (incorporated by
           reference to Exhibit 2.1 to the Registrant's Current Report on Form
           8-K dated August 13, 2004).

           31.1 Certification of the President and Chief Executive Officer of
           the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of
           2002.

           31.2 Certification of the Vice President, Chief Operating Officer
           (equivalent of Chief Financial Officer), Treasurer and Secretary of
           the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of
           2002.

           32.1 Certification of the President and Chief Executive Officer of
           the Registrant pursuant to 18 U.S.C. Section 1350, as adopted
           pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

           32.2 Certification of the Vice President, Chief Operating Officer
           (equivalent of Chief Financial Officer), Treasurer and Secretary of
           the Registrant pursuant to 18 U.S.C. Section 1350, as adopted
           pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                       32
<PAGE>

                                   SIGNATURES

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

                                 Franklin Street Properties Corp.

      Date                    Signature                      Title


November 8, 2004         /s/ George J. Carter     Chief Executive Officer and
                         -----------------------  Director (Principal Executive
                         George J. Carter         Officer)


November 8, 2004         /s/ John G. Demeritt     Senior Vice President
                         -----------------------  (Principal Accounting Officer)
                         John G. Demeritt


                                       33