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                                  Exhibit 10.25

                          TAX INDEMNIFICATION AGREEMENT

         TAX INDEMNIFICATION AGREEMENT (the "Agreement"), dated as of November
17, 1997 between STEPHEN J. NARDI, an individual ("SJ Nardi"), NARCO
ENTERPRISES, INC., an Illinois corporation, and NARDI GROUP LIMITED, a Delaware
corporation, (collectively, the "Nardi Indemnitees"), and PRIME GROUP REALTY,
L.P., a Delaware limited partnership ("UpREIT").

         WHEREAS, certain of the Nardi Indemnitees (or their predecessors in
interest) had interests in one or more of those certain partnerships set forth
on Exhibit A hereto ("Nardi Partnerships"), which owned the "Nardi Properties"
(as such term is defined in that certain Contribution Agreement, between the
parties set forth on Schedule I attached to such agreement, The Prime Group,
Inc., Prime Group Realty, L.P. and Prime Group Realty Trust, dated October 20,
1997 (the "Contribution Agreement");

         WHEREAS, certain each of the Nardi Indemnitees is a member of a limited
liability company, (the "Nardi LLC"), which has entered into the that certain
Agreement of Limited Partnership of Prime Group Realty, L.P. (the "Partnership
Agreement"), dated the date hereof,

         NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

                  Section 1. Definitions. For purposes of the Agreement,
capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the Partnership Agreement or the Contribution
Agreement. Any term defined by reference to an agreement, instrument or other
document shall have the meaning so assigned to it whether or not such document
is in effect. Unless otherwise indicated, references in the Agreement to
articles, Sections, paragraphs, clauses, appendices, schedules and exhibits are
to the same contained in or attached to this Agreement.

                  For purposes of this Tax Indemnification Agreement, the
following terms shall apply:

                  (a) The term "After-Tax Basis" shall mean, with respect to any
payment to be received, the amount of such payment supplemented by a further
amount so that, after deduction of the amount of all federal, applicable state
and Burr Ridge income taxes that are required to be paid by the recipient
thereof (assuming that the recipient is taxable at the highest marginal federal,
applicable state and Burr Ridge income tax rates then applicable to the
recipient and taking into account any tax benefits to be realized by such
recipient from the receipt of the indemnified amount) with respect to the
receipt by it of such amounts, the net amount received is equal to such payment.

                  (b) The term "Realistic Possibility of Success" shall mean
such circumstances that tax counsel may properly advise reporting such position
on a tax return in accordance with Section


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10.34 of 31 C.F.R. part 10, governing practice before the Internal Revenue
Service.

                  (c) The term "GP Termination Date" shall mean the period
beginning the date hereof and ending on the date on which the Nardi LLC (or its
successor) is no longer a General Partner in the Partnership.

                  (d) The term "Indemnity Term" shall mean the period beginning
on the GP Termination Date and ending on the tenth anniversary thereof.

                  (e) The term "Final Determination" shall mean (i) a decision,
judgment, decree or other order by any court of competent jurisdiction, which
decision, judgment, decree or other order has become final after all allowable
appeals by either party to the action have been exhausted or the time for filing
such appeal has expired, or in any case where judicial review shall at the time
be unavailable because the proposed adjustment involves a decrease in net
operating loss carry forward or a business credit carry forward, a decision,
judgment, decree or other order of an administrative official or agency of
competent jurisdiction, which decision, judgment, decree or other order has
become final (i.e., where all administrative appeals have been exhausted by all
parties thereto), (ii) a closing agreement entered into under Section 7121 of
the Code, or any other final settlement agreement entered into in connection
with an administrative or judicial proceeding and with the consent of UpREIT or
as otherwise permitted in Section 6 of the Partnership Agreement, or (iii) the
expiration of the time for instituting a claim for refund, or if such a claim
was filed, the expiration of the time for instituting suit with respect thereto.

                  (f) The term "Indemnity Debt Allocation Method" shall mean the
allocation of the Partnership's excess nonrecourse liabilities in any UpREIT
taxable year for purposes of Regulations Section 1.752-3(a)(3) based upon each
Partner's relative ownership of Units as of the beginning of such UpREIT taxable
year-provided, that nothing in this Agreement shall be interpreted as
prohibiting the UpREIT from actually using a different debt allocation than that
based upon the Indemnity Debt Allocation Method.

                  (g) The term "Burr Ridge" shall mean the municipality of the
Village of Burr Ridge, Illinois.

         Section 2. Tax Representations. The Nardi Indemnitees jointly and
severally represent, warrant and covenant as follows:

                  (a) immediately prior to the relevant Adjustment Date, the
Nardi Properties are subject to aggregate Nonrecourse Liabilities, allocable
among the Nardi Properties, as shown on Exhibit B attached hereto;

                  (b) each Nonrecourse Liability, described in Section 2(a) of
this Agreement, was incurred by the Nardi Partnership or Nardi Indemnitee, which
owned the Nardi Properties to which such Nonrecourse Liability is allocated,
either (i) more than two years prior to the date of the Contribution Agreement,
or (ii) not in anticipation of the transfer of such Nardi Property to UpREIT
(within the meaning of Regulations Section 1.707-5(a)(6));


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                  (c) each Nonrecourse Liability, described in Section 2(a) of
this Agreement, has encumbered such Nardi Properties throughout the period
beginning on the earlier of the date two years prior to the date of the
Contribution Agreement and the date such liability was incurred by the Nardi
Partnership or Nardi Indemnitee, as applicable, and ending on the Adjustment
Date in respect of such Nardi Properties;

                  (d) each Nonrecourse Liability, described in Section 2(a) of
this Agreement, is nonrecourse for purposes of Regulations Section
1.752-1(a)(2),

                  (e) immediately prior to the relevant Adjustment Date, each
Nardi Indemnitee's share of Partnership Minimum Gain under Regulations Section
1.704-2(g)(1) is as shown on Exhibit B attached hereto;

                  (f) immediately prior to the relevant Adjustment Date, each
Nardi Indemnitee is allocated Nonrecourse Liabilities under Code Section 752 and
the Regulations as shown on Exhibit B attached hereto;

                  (g) intentionally omitted;

                  (h) intentionally omitted;

                  (i) the gross fair market value of any Nardi Property equals
the initial Gross Asset Value of such Property credited to the Capital Account
of the relevant contributing Nardi Partnership or Nardi Indemnitee;

                  (j) each Nardi Indemnitee will report any payment received by
it under this Agreement as a payment made within Section 707(a) of the Code.

                  (k) each Nardi Indemnitee has and will have a taxable year
that is the calendar year; and

                  (l) each Nardi Property constitutes nonresidential real
property under Code Section 168;

provided, however that the breach of any of the foregoing representations,
warranties and covenants shall operate only to reduce the UpREIT's indemnity
obligation under this Agreement, and no one shall have any other rights, damages
or recoveries in respect of any such breach.

         Section 3. Indemnified Income Inclusions. If any Nardi Indemnitee shall
be required to include in its gross income for federal, applicable state or Burr
Ridge income tax purposes (including by way of either an adjustment proposed by
an examining agent during audit or at a closing conference or the receipt of a
"30-day letter" by a Nardi Indemnitee or a `60-day letter" by the Tax Matters
Partner of the UpREIT proposing an adjustment to the tax returns of the Nardi
Indemnitee or the UpRE1T, respectively, and treating the Nardi Indemnitee's
distributive share of taxable items of the UpREIT allocated to the Nardi
Indemnitee under the Partnership Agreement as "required" for


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this purpose), with respect to any of its taxable years which begin prior to the
end of the Indemnity Term, any of the following:

                  (a) UpREIT items of income and gain attributable to such Nardi
Indemnitee's share of the net decrease in Partnership Minimum Gain from Nardi
Properties (to the extent not duplicative with subsection (c));

                  (b) Gain under Code Section 731 from a deemed distribution
under Code Section 752 from the retirement or refinancing of either the
Nonrecourse Liabilities shown on Exhibit B attached hereto, or the debt which
refinances or replaces such Nonrecourse Liabilities; or

                  (c) gain from the sale, transfer or disposition of Nardi
Properties,

                  (d) income under Code Section 704(c) in excess of that
allocable to such Nardi Indemnitee under the "traditional method" of Regulations
Section 1.704-3(b), (such an inclusion being an "Income Inclusion"), UpREIT
shall pay to such Nardi Indemnitee an indemnity with respect to the additional
federal, applicable state and Burr Ridge income tax liability from such Income
Inclusion in the amount determined in Section 4 hereof.

         Section 4. Amount of Indemnification.

                  (a) In the case of any Income Inclusion that is indemnifiable
pursuant to Section 3 of this Agreement, the relevant Nardi Indemnitee (x) shall
notify UpREIT orally and in writing as soon as possible (so as to minimize
indemnifiable costs and expenses incurred under this Agreement prior to such
Income Inclusion), and (y) shall give UpREIT a written certificate setting forth
in reasonable detail (i) the computation of the amount of such Income Inclusion
and (ii) the computation of such amount or amounts that shall equal the sum of
(1) the actual net increase in federal, applicable state and Burr Ridge income
tax (including any interest, penalties, fines, or other additions thereto)
("Inclusion Taxes") actually payable by a Nardi Indemnitee on an After-Tax
Basis, as a result of such Income Inclusion, determined after taking into
account all deductions, credits, or other federal, applicable state and Burr
Ridge income tax benefits then realized and resulting from (a) such Income
Inclusion, (b) the incurrence of the tax liability indemnified under this
Agreement, or (c) the receipt of any indemnity payment made under this Agreement
(computed in accordance with Sections 3 and 6 of this Agreement), plus (2) the
reasonable costs and expenses incurred by such Nardi Indemnitee in respect of
such Income Inclusion.

                  (b) Each Nardi Indemnitee agrees to act in good faith to claim
any tax benefits (including filing claims for refunds and amended tax returns)
and take such other actions as may be reasonable to minimize the net amount of
any indemnity payment due from UpREIT hereunder and to maximize the amount of
its tax savings; provided, however that such Nardi Indemnitee shall not be
required to take any action which, in its good faith judgment, would have any
material adverse business consequences to it. If UpREIT shall disagree with such
computation and so requests in a written notice delivered to such Nardi
Indemnitee within thirty (30) days following UpREIT's receipt of the
certificate, such amount shall be reviewed and determined by an independent
public accounting firm of national recognition selected by SJ Nardi and
reasonably acceptable to UpREIT. The costs


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of such verification shall be borne by UpREIT unless such verification shall
result in an adjustment in UpREIT's favor by an amount of more than 5 % of the
Inclusion Taxes actually due, in which case such costs shall be borne by such
Nardi Indemnitee. Each Nardi Indemnitee agrees to cooperate with such
independent accounting firm and to supply it with all information reasonably
necessary to permit it to accomplish such review and determination. Such
information shall be for the confidential use of such accountants and shall not
be disclosed to UpREIT or any other person. UpREIT and each Nardi Indemnitee
agree that the sole responsibility of the independent public accounting firm
shall be to verify the amount of a payment pursuant to this Agreement and that
matters of interpretation of this Agreement are not within the scope of the
independent accounting firm's responsibilities.

                  (c) To the extent that a Nardi Indemnitee recognizes an amount
in respect of an Income Inclusion that is indemnifiable pursuant to Section 3 of
this Agreement for any UpREIT taxable year beginning prior to the Indemnity
Term, UpREIT will pay such Nardi Indemnitee as its indemnity obligation under
this Agreement 100% of the amount described in Section 4(a).

                  (d) Any payment due to a Nardi Indemnitee pursuant to this
Section 4 shall be paid upon the earlier of the date that (1) the additional
federal income tax in respect of such Income Inclusion is due from the Nardi
Indemnitee, or (2) the Nardi Indemnitee has filed a return that reflects or
would reflect such additional federal income tax; provided, however that (A)
obligations of such Nardi Indemnitee and UpREIT under this Agreement will first
be set off against each other, and (B) no payment shall be due earlier than
completion of the computation of such indemnity amount as described in Section
4(a).

         Section 5. Exclusions.

                  (a) Notwithstanding the foregoing, UpREIT shall not have any
liability for indemnification under this Agreement (other than for reasonable
costs and expenses incurred by a Nardi Indemnitee in accordance with this
Agreement) to the extent the amount otherwise indemnifiable is payable by such
Nardi Indemnitee as a result of one or more of the following:

                      (i) Any Nardi Indemnitee recognizing gain in respect of
the Capital Contribution of Nardi Properties under Code section 707(a)(2),
assuming that each Nonrecourse Liability described in Section 2(a) of this
Agreement is a "qualified liability" within the meaning of Regulations Section
1.707-5(a)(6), except as a result of either a sale or disposition of such Nardi
Property, an indemnity payment under this Agreement, or the general partner
nature of the Nardi LLC's interest in the Partnership and the put right
described in the Put Agreement;

                      (ii) Any payment of cash to a Contributor under Section
3.02(a)(i) of the Contribution Agreement;

                      (iii) Any Nardi Indemnitee's Interest in the UpREIT not
being respected as a partnership interest to the extent, and as provided in, the
Partnership Agreement;

                      (iv) The allocations of income, gain, loss, deduction and
credit set forth in the Partnership Agreement not being respected under Sections
704(b) and 704(c) of the Code, except


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as a result of the exercise of discretion by the Managing General Partner of the
UpREIT in respect of (A) an adjustment to the "Gross Asset Values" of UpREIT
assets, as described in clause (b) of the definition thereof, or (B) the
allocation of Nonrecourse Deductions under the proviso within Section 6.6.A. of
the Partnership Agreement;

                      (v) The UpREIT not being the owner of the Nardi Properties
for federal income tax purposes as of the relevant Adjustment Date;

                      (vi) Immediately after the relevant Adjustment Date, any
Nardi Indemnitee's share of Partnership Minimum Gain under Regulations Section
1.704-2(g)(1) not being as shown on Exhibit B attached hereto;

                      (vii) (1) any change in, or amendment to, the Code or any
other federal tax statute, which is effective on or after the relevant
Adjustment Date, (2) any final or temporary regulation, which is enacted or
adopted after the relevant Adjustment Date, or (3) any court decision issued
after the relevant Adjustment Date;

                      (viii) No Nardi Indemnitee is or will be a tax-exempt
entity or person;

                      (ix) A determination that any Nardi Indemnitee did not
enter the transactions contemplated by the Partnership Agreement for profit or
with a sufficient business purpose;

                      (x) A voluntary or involuntary sale, assignment, transfer
or other disposition by any Nardi Indemnitee of any interest in the UpREIT or
any part thereof,

                      (xi) The failure of any Nardi Indemnitee to claim or to
follow the proper procedure in claiming in a timely manner any UpREIT item
allocated to such Nardi Indemnitee by the Partnership;

                      (xii) The failure of any Nardi Indemnitee to take timely
action or follow the proper procedures in reporting his distributive share from
the UpREIT or contesting a claim made by the Internal Revenue Service in
accordance with the Partnership Agreement;

                      (xiii) The gross negligence or the willful misconduct of
any Nardi Indemnitee or any affiliate thereof,

                      (xiv) Any breach by any Nardi Indemnitee of any of its
representations, warranties or covenants in Sections 7.1.A. or 8.2 of the
Partnership Agreement (prior to the GP Termination Date), Sections 10.5,
11.3.A., 11.6.A., D or E. of the Partnership Agreement, Sections 2 or 6 of this
Agreement, or the Contribution Agreement;

                      (xv) Any guarantee by any Nardi Indemnitee or a person
related to any Nardi Indemnitee of any Nonrecourse Liability encumbering a Nardi
Property or Nardi Interest or any other debt of the UpREIT or its affiliates;


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                      (xvi) Any Nardi Indemnitee recognizing taxable income
under Code Section 704(c), except to the extent such income results from either
a sale or other disposition of a Nardi Property or income under Code Section
704(c) in excess of that allocable to such Nardi Indemnitee under the
"traditional method" of Regulations Section 1.704-3(b);

                      (xvii) Any recapture under Code Section 1245 or 1250 of
depreciation attributable to Nardi Properties that was allocated to any Nardi
Indemnitee after the relevant Adjustment Date.;

                      (xviii) the sale, transfer or other disposition of any
Nardi Property after the fifth anniversary of the GP Termination Date; provided,
however, that the UpREIT uses its best efforts to cause such sale, transfer or
other disposition to be on a tax-deferred or tax-exempt basis- or

                      (xix) the sale, transfer or other disposition of all or
any portion of the land described in Exhibit D hereto (the "Land"); provided,
however, that the UpREIT uses its best efforts to cause such sale, transfer or
other disposition of the Land that occurs within the period ending on or prior
to the fifth anniversary of the GP Termination Date, to be on a tax-deferred or
tax-exempt basis;

                      (xx) The exercise of the lessee purchase option with
respect to the property at 1301 E. Tower Road (but not including any purchase
pursuant to the right of first refusal thereto).

                  (b) Further, notwithstanding anything to the contrary within
this Agreement, after taking into account any amounts thereof excluded under
Section 5(a), the cumulative Income Inclusions for all Nardi Indemnitees in
respect of Section 3(a), 3(b) and 3(c) that will be indemnifiable by the UpREIT
shall not exceed the following:

                      (i) For any Income Inclusion under Section 3(b),the
aggregate negative Capital Accounts of all Nardi Indemnitees as set forth on
Exhibit B;

                      (ii) For any Income Inclusion under Section 3(a), the
aggregate Minimum Gain of all Nardi Indemnitees as set forth on Exhibit B; and

                      (iii) For any Income Inclusion under Section 3(c), the
excess of the aggregate Gross Asset Value of the Nardi Properties contributed to
the UpREIT on the relevant Adjustment Dates, over the aggregate initial adjusted
tax bases of such Nardi Properties on such relevant Adjustment Dates.

                  (c) Finally, notwithstanding anything to the contrary within
this Agreement, after taking into account any amounts thereof excluded under
Sections 5(a) and 5(b), UpREIT shall not be liable for indemnification under
this Agreement in respect of an Income Inclusion under Section 3(a) or (b), to
the extent of that such Income Inclusion arises from a Final Determination that
the amount of debt of UpREIT allocable to such Nardi Indemnitee for purposes of
Section 752 of the Code and Regulations Section 1.752-3(a)(3) is less than the
amount of debt such Nardi Indemnitee


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would be allocated if the UpREIT allocated the Nardi Indemnitees collectively an
aggregate amount of debt, using the Indemnity Debt Allocation Method for
purposes of Section 752 of the Code and Regulations Section 1.752-3(a)(3), of at
least $25,000,000 (with such amount to be increased in respect of the
contribution subsequent to the date hereof of the Rawls Road Property, the Craig
Place Property, the property located at 2050 Hammond Drive, Schaumburg, Illinois
or the property located at 5600 Proviso Drive, Berkeley, Illinois, by $600,000,
$4,000,000, $500,000 and $2,000,000, respectively- provided, however, that
UpREIT actually allocates to the Nardi Indemnitee, collectively, on the UpREIT's
federal, applicable state and Burr Ridge income tax returns, at least such
aggregate amount of debt.

         Section 6. Contests.

                  (a) Nothing in this Agreement shall be construed to prevent
UpREIT from contesting, through its Tax Matters Partner in accordance with the
Partnership Agreement as part of the unified audit of the UpREIT, any claim in
respect of any "partnership" item of the UpREIT that, if successful, would
result in an Income Inclusion (a "Partnership Level Issue").

                  (b) If UpREIT contests a Partnership Level Issue that, if
successful, would result in an Income Inclusion, UpREIT's liability for
indemnification under Section 4 hereof (other than reasonable costs and expenses
described in Section 6(f) of the Agreement) shall, at UpREIT's election, be
deferred until thirty (30) days after a Final Determination of such Nardi
Indemnitee's federal income tax liability in respect of an Income Inclusion.

                  (c) If any audit or proceeding involving an indemnifiable
adjustment is being conducted in a proceeding involving such Nardi Indemnitee,
which cannot be transferred to the UpREIT as a partnership item (a "Nardi Level
Issue"), such Nardi Indemnitee hereby agrees (i) promptly to notify UpREIT in
writing of such adjustment (and the failure of such Nardi Indemnitee to so
notify UpREIT shall preclude any indemnity hereunder to the extent UpREIT's
right to effect its contest rights hereunder has been precluded by such
failure), and (ii) upon UpREIT's delivery to of a written opinion of nationally
recognized tax counsel reasonably acceptable to such Nardi Indemnitee ("Tax
Counsel") to the effect that there is a Realistic Possibility of Success upon
contest of such Nardi Level Issue, such Nardi Indemnitee will contest that
adjustment by filing a protest and administrative appeal and prosecuting the
same in good faith; provided, however, that such Nardi Indemnitee will not be
obligated to pursue an administrative appeal if such Nardi Indemnitee instead
pursues relief in Tax Court or a court having refund jurisdiction.

                  (d) If , within 30 days following the failure of such
administrative proceedings with respect to a Nardi Level Issue, UpREIT delivers
to a Nardi Indemnitee a written opinion of Tax Counsel to the effect that there
is a Realistic Possibility of Success if the proposed adjustment is presented to
a court for resolution, then such Nardi Indemnitee will contest the proposed
adjustment in good faith in the Tax Court or by paying the tax (and any
applicable interest and penalties) and suing for refund in the Court of Federal
Claims or appropriate Federal District Court. If, within 30 days following a
final adverse decision of such court with respect to such Nardi Level Issue,
UpREIT delivers to such Nardi Indemnitee a written opinion of Tax Counsel to the
effect that it is more likely than not that such decision would be reversed on
appeal, then such Nardi Indemnitee will appeal such


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decision to the appropriate Federal Court of Appeals. With respect to any of the
above-described proceedings, such Nardi Indemnitee will keep UpREIT and its
counsel informed as to the progress of such proceedings, give UpREIT and its
counsel the opportunity to review and comment in advance on all written
submissions and filings relevant to indemnifiable issues (after making
appropriate redactions to preserve the confidentiality of the such Nardi
Indemnitee return as to other issues), and consider in good faith any
suggestions made by UpREIT or its counsel.

                  (e) Such Nardi Indemnitee shall present any settlement offer
provided to such Nardi Indemnitee pursuant to a Nardi Level Issue to UpREIT. If
UpREIT recommends acceptance of a settlement offer of a Nardi Level Issue or if
the Tax Matters Partner recommends acceptance of a settlement offer in respect
of a Partnership Level Issue, but such Nardi Indemnitee declines to accept such
offer in writing within 30 days (if such Nardi Indemnitee does not respond
within 30 days, such lack of response shall be treated as acceptance of UpREIT's
or the Tax Matters Partner's recommendation, respectively), (1) the obligation
of UpREIT to make indemnity payments as the result of any such contest or
proceedings shall not thereafter exceed the obligation that it would have had if
such contest had been settled or proceeding terminated on the basis recommended
by UpREIT or the Tax Matters Partner, as applicable, and (2) in the case of a
Nardi Level Issue, UpREIT shall have no further liability for costs or other
expenses in respect of such contest.

                  (f) Notwithstanding the foregoing, such Nardi Indemnitee will
have no obligation to contest any action with respect to a Nardi Level Issue (i)
unless such items could give rise to a federal income tax liability
(disregarding other items in the assessment and considering effects in future
years) in excess of $10,000, (ii) without UpREIT paying when due, reasonable
third-party costs and out-of-pocket expenses including reasonable legal, witness
and accounting fees and other expenses and, in the case of proceedings before
the Court of Federal Claims or Federal District Court, the amount of tax (and
any applicable interest and penalties) for which refund is claimed, and (iii) to
the extent such Nardi Indemnitee waives in writing UpREIT's obligation to
indemnify such Nardi Indemnitee for such items, in which case all third-party
costs and out-of-pocket expenses described in clause (ii) thereafter incurred
and all taxes would be paid by such Nardi Indemnitee.

                  (g) such Nardi Indemnitee shall not settle any such Nardi
Level Issue without UpREIT's consent; provided that such Nardi Indemnitee shall
not be required to contest any proposed adjustment and may settle any such
proposed adjustment if such Nardi Indemnitee shall waive its right to indemnity
under this Agreement with respect to such adjustment and any Income Inclusion
that results from such adjustment and, in the case of proceedings before the
Court of Federal Claims or Federal District Court, shall pay to UpREIT the
amount of tax (and any applicable interest and penalties) previously paid or
advanced by UpREIT with respect to such adjustment or the contest of such
adjustment under Section 6(f), plus interest at the rate per annum equal to the
weighted average cost of debt capital to the UpREIT, computed from the time such
amounts were paid or advanced by UpREIT.

                  (h) Within thirty (30) days after a Final Determination of the
liability of such Nardi Indemnitee in respect of a Nardi Level Issue, UpREIT and
each Indemnitee agree to pay each other, as applicable, the net amount of (i)
the payment owed by the UpREIT to such Nardi Indemnitee of any indemnification
hereunder, not theretofore paid resulting from the outcome of such contest, and


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(ii) in the case of proceedings before the Court of Federal Claims or Federal
District Court, the repayment owed by such Nardi Indemnitee to UpREIT of the
amount of tax (and any applicable interest and penalties) previously paid or
advanced by UpREIT with respect to such adjustment or the contest of such
adjustment under Section 6(f), together with any interest received by or
credited to such Nardi Indemnitee that is attributable to such advance.

         Section 7. Tax Savings.

                  (a) In the event that UpREIT makes an indemnity payment
pursuant to Section 4, if such Nardi Indemnitee shall realize with respect to
any year, any federal, applicable state or Burr Ridge income tax savings that
would not have been realized but for receipt of such payment, the related Income
Inclusion or the event giving rise thereto, (and which tax savings were not
taken into account in calculating UpREIT's indemnity payment to such Nardi
Indemnitee), such Nardi Indemnitee shall pay to UpREIT, on an After-Tax Basis,
an amount equal to the actual net reduction in federal, applicable state and
Burr Ridge income tax actually realized by such Nardi Indemnitee. Each Nardi
Indemnitee agrees to act in good faith to claim any tax benefits or savings
(including filing claims for refunds and amended tax returns) and take such
other actions as may be reasonable to minimize the net amount of any indemnity
payment due from UpREIT hereunder and to maximize the amount of its tax savings;
provided, however, that such Nardi Indemnitee shall not be required to take any
action which, in its good faith judgment, would have any material adverse
business consequences to it.

                  (b) Any payment due to UpRE1T pursuant to this Section 7 shall
be paid within one business day after such Nardi Indemnitee has (1) received (or
is deemed to have received) a refund or (2) has filed a return that reflects or
would reflect such tax saving; provided, however, that (A) obligations of such
Nardi Indemnitee and UpREIT under this Agreement will first be set off against
each other, and (B) any loss of such tax savings by such Nardi Indemnitee
subsequent to the year of realization by such Nardi Indemnitee shall be treated
as an Income Inclusion that is indemnifiable pursuant to the provisions of this
Agreement.

                  Section 8. State and Burr Ridge Tax. For purposes of this
Agreement, each Indemnitee will be treated as having an Income Inclusion,
realizing any deductions, credits or other income tax benefits, having the same
tax savings and having the same tax attributes and status for applicable state
income and Burr Ridge tax purposes at the same time, in the same amount and in
the same manner, as such Nardi Indemnitee does for federal income tax purposes.

                  Section 9. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois.

                  Section 10. Notices. All notices, demands, declarations,
consents, directions, approvals, instructions, requests and other communications
required or permitted by the terms hereof shall be given in the manner described
in Section 14.1 of the Partnership Agreement.

                  Section 11. Successors and Assigns. The terms of this Tax
Indemnification Agreement may not be assigned by any Indemnitee (including,
without limitation, by descent or will),


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without the written consent of UpREIT.

                  Section 12. Miscellaneous. This Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one Agreement. Any provision of this Agreement which is
prohibited and unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Neither this Agreement
nor any of the terms hereof may be terminated, amended, supplemented, waived or
modified orally, but only by an instrument in writing signed by the party
against which the enforcement of the termination, amendment, supplement, waiver
or modification is sought.

                  Section 13. Anticipated Indemnitee Debt Allocation
Methodology. UpREIT acknowledges and agrees with each Indemnitee that the
aggregate nonrecourse indebtedness of UpREIT that is apportioned to the
Indemnities collectively under this Agreement and the Partnership Agreement
pursuant to Code Section 752 and Regulations Sections 1.702-3(a)(2) shall be
apportioned among the various Indemnitees using a method substantially similar
to that within the debt allocation model set forth on Exhibit C hereto.

                  Section 14. Term. The term of this Agreement shall be from the
date hereof until such time as the applicable statute of limitations under the
Code bars any claim by the Internal Revenue Service against a Indemnitee for
Inclusion Taxes otherwise indemnifiable under this Agreement.

                  Section 15. Exhibits. The parties to this Agreement
acknowledge and agree that future Capital Contributions may be made to the
UpREIT pursuant to Section 3.02(b) of the Contribution Agreement, and agree to
reasonably cooperate to update the Exhibits and other factual information
referenced or contained in this Agreement to take such Capital Contributions
into account.

                  Section 16. Assumption of Recourse Liabilities. Prior to the
GP Termination Date, upon 30 days written notice to the Managing General
Partner, the Nardi LLC may agree to indemnify the Managing General Partner for
the debt obligations of the UPREIT that are recourse to the general partners of
the UpREIT under relevant state law, but only to the extent necessary for the
Nardi LLC to be allocated a greater share of recourse liabilities of the UpREIT
for the purposes of Regulations Section 1.752.-2 to avoid an Income Inclusion;
and provided, however, that such indemnification shall not be allowed to the
extent it would cause adverse tax consequences to the Managing General Partner,
another partner in the UpREIT or the REIT.


<PAGE>



                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective Officers thereunto duly
authorized as of the day and year first above written.

                                    PRIME GROUP REALTY, L.P.

                                    By:  PRIME GROUP REALTY TRUST
                                    Its: Managing General Partner

                                    By:  /s/ W. Michael Karnes
                                        ------------------------------------
                                         Name:    W. Michael Karnes
                                         Title:   Executive Vice President

                                    NARCO ENTERPRISES, INC., an Illinois
                                    corporation

                                    By:  /s/ Stephen J. Nardi
                                        ------------------------------------
                                    Title: President
                                          ----------------------------------
                                    NARDI GROUP LIMITED, a Delaware
                                    corporation

                                    By:  /s/ Stephen J. Nardi
                                        ------------------------------------
                                    Title: President
                                          ----------------------------------

                                    STEPHEN J. NARDI


                                          /s/ Stephen J. Nardi
                                         ----------------------------------

<PAGE>


                           THE NARDI GROUP, LTD, ETAL
                           PARTNERSHIP AND PROPERTIES

                                    EXHIBIT A

<TABLE>
<CAPTION>
         Partnership                       Property Name/Location                       City/State
         -----------                       ----------------------                       ----------
<S>                                        <C>                                  <C>
Madison Group                              1021 Kirk Road                       Batavia, IL

Madison Group 90                           4211 Madison St.                     Hillside, IL

Madison Group 200                          200 E. Fullerton                     Carol Stream, IL

Narco 350 Associates                       350 Randy Rod                        Carol Stream, IL

Narco 4300 Associates                      4300 Madison Street                  Hillside, IL

Narco Elmhurst Center                      370 Carol Lane                       Elmhurst, IL
                                           388 Carol Lane                       Elmhurst, IL
                                           941-961 Weigal Dr                    Elmhurst, IL
                                           342-46 Carol Lane                    Elmhurst, IL
                                           343 Carol Lane                       Elmhurst, IL

Narco Gary Avenue Associates               371-385 Gary Ave.                    Carol Stream, IL

Narco Mannheim I                           350 N Mannheim Road                  Hillside, IL

Narco River Business Center West           1600-1700 167th St.                  Calumet City, IL

Narco Schaumburg J.V,                      2050 Hammond Drive                   Schaumburg, IL

Narco Tower Road                           1301 Tower Road                      Schaumburg, IL

Olympian Office Center J.V.                4343 Commerce Ct.                    Lisle, IL

Proviso Park J.V.                          5600 Proviso Dr.                     Berkeley, IL

Rawls 130                                  130 E. Rawl Road                     Des Plaines, IL

Tri-State Industrial Park                  11039 Gage Avenue                    Franklin Park, IL
                                           11045 Gage Avenue                    Franklin Park, IL

Steve Nardi                                1401 S. Jefferson                    Chicago, IL
                                           4100 Madison Street                  Hillside, IL
                                           4100-41900 Madison Street            Hillside, IL
                                           300-320 Craig Place                  Hillside, IL
                                           550 Kehoe Blvd.                      Carol Stream, IL

Carol Stream Industrial Park               Carol Stream Land Parcel             Carol Stream
                                           Batavia Land Parcel                  Batavia
</TABLE>