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

                                    FORM 10-K

                |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2003

                                       or

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

                        For the transition period from to

                         Commission file number: 1-13589

                            PRIME GROUP REALTY TRUST
             (Exact name of registrant as specified in its charter)

                                    Maryland
                         (State or other jurisdiction of
                         incorporation or organization)

               77 West Wacker Drive, Suite 3900, Chicago, Illinois
                    (Address of principal executive offices)


                                   36-4173047
                                (I.R.S. Employer
                               Identification No.)

                                      60601
                                   (Zip Code)
                                 (312) 917-1300
              (Registrant's telephone number, including area code)

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

     Title of each class               Name of each exchange on which registered
Common Shares of Beneficial Interest,          New York Stock Exchange
   $0.01 par value per share
Series B - Cumulative Redeemable               New York Stock Exchange
Preferred Shares of Beneficial Interest,
  $0.01 par value per share

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

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


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

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). _X_ Yes ___No

     The  aggregate  market  value of the  registrant's  common  shares  held by
non-affiliates  as of the last  business day of the  registrant's  most recently
completed second fiscal quarter was approximately  $137,289,028 based on the per
share closing  price on the New York Stock  Exchange for such shares on June 30,
2003.

     The number of the registrant's  common shares outstanding was 23,670,522 as
of March 10, 2004.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Part III of this report  incorporates  information  by  reference  from the
definitive Proxy Statement for the Registrant's  Annual Meeting of Shareholders,
to be held on June 4, 2004.
================================================================================
<PAGE>


                                      INDEX


PART I                                                                      PAGE

Item 1.   Business.............................................................3
Item 2.   Properties..........................................................18
Item 3.   Legal Proceedings...................................................21
Item 4.   Submission of Matters to a Vote of Security Holders.................22

PART II

Item 5.   Market for Registrant's Common Equity and Related
            Stockholder Matters...............................................22
Item 6.   Selected Financial Data.............................................24
Item 7.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.........................................30
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk..........60
Item 8.   Financial Statements and Supplementary Data.........................61
Item 9.   Changes in and Disagreements With Accountants on Accounting
            and Financial Disclosure..........................................61
Item 9A.  Controls and Procedures.............................................61

PART III

Item 10.  Directors and Executive Officers of the Registrant..................61
Item 11.  Executive Compensation..............................................61
Item 12.  Security Ownership of Certain Beneficial Owners and Management......62
Item 13.  Certain Relationships and Related Transactions......................63
Item 14.  Principal Accounting Fees and Services..............................63

PART IV

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K....64

          Signatures..........................................................80



<PAGE>


     Forward-Looking  Statements  contained in this Annual  Report on Form 10-K,
including  the  section  entitled  "Management's   Discussion  and  Analysis  of
Financial Condition and Results of Operations," include certain  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which reflect  management's current view with respect to future events and
financial  performance.  Such forward-looking  statements are subject to certain
risks and  uncertainties  which could cause actual results to differ  materially
from those  anticipated,  and  include  but are not  limited  to, the effects of
future events on our financial performance; risks associated with our high level
of indebtedness and our ability to refinance our indebtedness as it becomes due;
the risk that we or our subsidiaries  will not be able to satisfy scheduled debt
service  obligations  or will  not  remain  in  compliance  with  existing  loan
covenants;  the effects of future  events,  including  tenant  bankruptcies  and
defaults;  the risk that we may be unable to finance our short-term  operational
activities;  risks  related to the office  and  industrial  markets in which our
properties  compete,  including the adverse  impact of external  factors such as
inflation,  consumer  confidence,  unemployment  rates and  consumer  tastes and
preferences;  risks  associated  with our  development  activities,  such as the
potential for cost overruns,  delays and lack of predictability  with respect to
the financial returns associated with these development activities;  the risk of
potential  increase  in market  interest  rates from  current  rates;  and risks
associated with real estate  ownership,  such as the potential adverse impact of
changes  in the local  economic  climate  on the  revenues  and the value of our
properties  as  well  as our  tenants'  and  vendors'  operations.  Readers  are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of December 31, 2003.

Among the matters about which we have made assumptions are the following:

o    future  economic  and  market  conditions  which may  impact the demand for
     office and industrial space either at current or increased levels;
o    the extent of any tenant bankruptcies or defaults that may occur;
o    prevailing interest rates;
o    the effect of inflation  and other  factors on operating  expenses and real
     estate taxes;
o    our ability to reduce various expenses as a percentage of our revenues; and
o    the availability of financing and capital.

     In addition,  historical results and percentage  relationships set forth in
this  Annual  Report  on Form  10-K are not  necessarily  indicative  of  future
operations.

                                     PART I

ITEM 1.  BUSINESS

Background and General

     We are a fully-integrated,  self-administered, and self-managed real estate
investment trust (REIT) which owns, manages,  leases,  develops,  and redevelops
office and industrial real estate,  primarily in the Chicago  metropolitan area.
Our  portfolio of  properties  consists of 13 office  properties,  containing an
aggregate of 5.5 million net rentable square feet, and 30 industrial properties,
containing  an  aggregate  of 3.9  million  net  rentable  square  feet (See the
"Properties"  section  for  detailed   information   concerning  the  individual
properties).  All of our properties are located in the Chicago metropolitan area
in prime business locations within established  business communities and account
for all of our rental revenue and tenant reimbursements revenue. In addition, we
own 217.4 acres of developable land and have the rights to acquire an additional
1.3 acres.  We also have joint  venture  interests  in three  office  properties
containing an aggregate of 2.8 million net rentable square feet.

     Our three joint  venture  interests are  accounted  for as  investments  in
unconsolidated  entities using the equity method.  These consist of a 50% common
interest  in a joint  venture  which owns the 944,556  square foot office  tower
located at 77 West Wacker Drive,  Chicago,  Illinois,  a 30% subordinated common
interest in a joint venture which owns the 1,497,472 square foot Bank One Center
office building  located at 131 South Dearborn Street,  Chicago,  Illinois and a
23.1% common  interest in a joint venture that owns a 385,274 square foot office
property located in Phoenix, Arizona.

     Our  Company  was  formed  on July  21,  1997  as a  Maryland  real  estate
investment  trust and we  completed  the initial  public  offering of our common
shares on November 17, 1997. Our executive offices are located at 77 West Wacker
Drive,  Suite 3900,  Chicago,  Illinois 60601, and our telephone number is (312)
917-1300.

     We are the sole general  partner of, and currently own all of the preferred
units and 88.5% of the common interests in Prime Group Realty,  L.P., a Delaware
limited partnership (the "Operating Partnership").  We conduct substantially all
of our business through the Operating  Partnership,  except for certain services
requested  by our  tenants,  certain  management  contracts  and  build  to suit
construction  activities,   which  are  conducted  through  Prime  Group  Realty
Services, Inc., a Maryland corporation,  and its affiliates  (collectively,  the
"Services Company"), a wholly-owned subsidiary of the Operating Partnership.


<PAGE>

Tax Status


     We have  elected to be taxed as a real  estate  investment  trust  ("REIT")
under Sections 856 through 860 of the Internal  Revenue Code of 1986, as amended
(the  "Code").  As a REIT,  we will not be subject to federal  income tax at the
corporate level on our income as long as we distribute 90% of our taxable income
(excluding  any net  capital  gain)  each  year to our  shareholders.  Since our
inception,  we believe that we have complied with the tax rules and  regulations
to  maintain  our REIT  status.  If we fail to qualify as a REIT in any  taxable
year,  we will be subject  to  federal  income  tax  (including  any  applicable
alternative  minimum tax) on our taxable income at regular corporate rates. Even
if we qualify as a REIT,  we are subject to certain state and local taxes on our
income and property.  In addition,  our Services  Company's income is subject to
state and federal income taxation.

Business Strategy

     Our business  strategy is to operate our portfolio of office and industrial
properties to create the optimum  level of service and value to our tenants,  to
retain  our  existing  tenant  base as their  leases  expire,  to search for and
identify  prospective  tenants for office and industrial space in our properties
which is  unoccupied  or is subject to expiring  leases,  and to create  maximum
portfolio  value  for our  shareholders.  In  conjunction  with our  efforts  to
maximize value for our  shareholders,  we are continuing to pursue an initiative
to identify and complete a strategic  transaction or  transactions to the extent
that it or they would enhance overall shareholder value.

     Review of Strategic Alternatives.  In December 2002, our Board approved the
engagement of two  investment  banks as our financial  advisors to assist in the
evaluation of our strategic alternatives, including, but not limited to, a sale,
merger or other business combination involving the Company, or a sale of some or
all of our assets.  On February 13, 2004, we entered into an  engagement  letter
with one of these advisors,  Wachovia  Securities,  extending  their  engagement
through December 24, 2004. The engagement of our other financial advisor expired
in December 2003.

     Our continuing goal is to achieve a desirable  result for our  shareholders
which may include a strategic transaction(s) and/or the continued implementation
of our primary business strategy, as discussed below. There can be no assurances
that any transaction or transactions  will occur. We anticipate the net proceeds
from any  transaction  other than a sale of the  Company  (whether  by merger or
otherwise)  may be used for a variety of purposes  including  the  repayment  of
debt, to provide working capital to fund capital expenditures,  including tenant
improvements  and  leasing  commissions,   the  payment  of  accumulated  unpaid
dividends  on our  Series B  Shares,  and/or  for  distributions  to our  common
shareholders and common unit holders of our Operating  Partnership.  We may also
utilize a portion of any proceeds for general and corporate  operating needs and
to consummate tax-deferred exchanges to minimize any tax exposure under existing
tax indemnification agreements.

     Ongoing  Operations.  Our primary  business  is to focus on the  operation,
leasing  and  management  of our  existing  office and  industrial  real  estate
properties.

     We strive to enhance our  property-level net operating income and cash flow
by:

o    engaging in pro-active leasing programs and effective property management;
o    managing  operating  expenses  through  the  use  of  in-house   management
     expertise;
o    maintaining and developing  long-term  relationships  with a diverse tenant
     group;
o    attracting  and retaining  motivated  employees by providing  financial and
     other incentives; and
o    emphasizing  value-added  capital  improvements to maintain and enhance our
     properties' competitive advantages in their submarkets.

     Liquidity  and Capital  Requirements.  Net cash  provided  from  operations
represents our primary source of liquidity to fund  distributions,  debt service
and recurring  capital  costs.  In order to qualify as a REIT for federal income
tax purposes,  we must distribute 90% of our taxable income  (excluding  capital
gains) annually. As previously disclosed, due to a number of factors,  including
capital requirements in our current operating environment,  our Board decided to
suspend the  declaration and payment of  distributions  on our common shares and
Series B Shares. In March 2004, our Board declared one quarterly distribution of
$0.5625 per share on our Series B Shares for shareholders of record on March 31,
2004, payable on April 30, 2004. Under our Charter,  this distribution is deemed
to be a  quarterly  distribution  which  relates  to  the  fourth  quarter  2002
distribution  period, the earliest accrued but unpaid quarterly  distribution on
our Series B Shares.  There can be no assurances as to the timing and amounts of
any future  distributions  on our Series B Shares and the  payment of the fourth
quarter  2002  preferred  distribution  at this time should not be  construed to
convey any degree of  certainty  with respect to future  preferred  distribution
payments. Our management and Board review our cash position and requirements for
cash  reserves  each quarter prior to making any decision with respect to paying
distributions.  We currently do not anticipate declaring or paying distributions
on our common shares/units for 2004.  Distributions on our common shares may not
be made until all accrued  distributions on our Series B Shares are declared and
paid or set apart for payment.  Future  distributions  will depend on the actual
cash available for distribution,  our financial condition, capital requirements,
the completion of any capital  transactions,  including  refinancings  and asset
sales,  the annual  distribution  requirements  under the REIT provisions of the
Code, and such other factors as our Board deems relevant. Based upon our current
tax  projections,  we do not  anticipate  an  obligation  to make  distributions
related to 2004 to comply with the annual REIT distribution requirements.

     We can give no assurances that if any capital transactions are completed on
terms  favorable  to us or  otherwise  pursuant  to  our  pursuit  of  strategic
alternatives,  distributions  on our  common  shares  and  common  units will be
resumed either during 2004 or thereafter,  or that we will be able to pay future
distributions  on our Series B Shares.  After (i) payment of the fourth  quarter
2002 Series B  distribution  referred to above and (ii) the accrual of the first
quarter  2004  Series B Shares'  distribution,  we will be in  arrears  for five
quarters of Series B Shares' distributions for a total of $11.3 million.

     Our  anticipated  cash  flows  from  operations  are  not  expected  to  be
sufficient to fund our anticipated  short and long-term  capital needs.  This is
principally a result of capital required to fund tenant improvements and leasing
costs for new and expiring leases and the current  operating  results of certain
of our  properties,  including  our office  property  located at 33 West  Monroe
Street.  This  property's  principal  tenant  was  Arthur  Andersen  LLP,  which
terminated  its lease at the  property  in  February  2003.  As a result of this
termination,  the operating  income from this property is not sufficient to fund
the  property's  operating  costs  and debt  service.  During  2003,  we  funded
operating  deficits at this property from an $8.1 million escrow  established at
the time of receipt of Arthur  Andersen  LLP's lease  termination  payment.  The
funds in this escrow were fully  disbursed in December  2003.  In  addition,  we
anticipate  substantial  costs will need to be  incurred  to release  the vacant
space at this property in excess of the existing escrow  established at the time
of the lease  termination for this purpose.  We are currently  pursuing  various
capital transactions concerning this property including a sale or joint venture,
as well as other  options.  We can provide no assurance  that we will be able to
complete  a capital  transaction  with  respect to this  property,  or if one is
completed, if it will be on terms which are favorable to us.

     During  2004,  we  anticipate   the  need  to  fund   significant   capital
expenditures  to  retenant  space  that  has  been  previously   vacated  or  is
anticipated to be vacated during the year or renew existing  tenants' leases. In
order to fund these and our other  short-term and long-term  capital  needs,  we
expect to utilize  available  funds from cash on hand,  cash  generated from our
operations,  existing escrows with lenders and capital  transactions,  which may
include asset sales,  debt or equity  financings and modifications or extensions
of existing loans. There can be no assurances that any capital transactions will
occur or, if they do occur,  that they will yield adequate  proceeds to fund our
capital needs.

     The  financial  covenants  contained  in many of our  loan  agreements  and
guarantee  agreements  with our lenders  include minimum ratios for debt service
coverage and liabilities as a percentage of total assets, as well as minimum net
worth levels,  limits as to recourse  indebtedness  and numerous other financial
covenants.  In some  past  quarters,  we have  failed to meet  certain  of these
covenants  and after  negotiations  with our lenders (and in certain  instances,
after agreeing to post additional cash collateral, provide other security and/or
otherwise modify the terms of the relevant loans) we have obtained the necessary
loan  modifications  and/or  waivers.  We did not comply  with  certain of these
ratios  with  respect  to two of our  mezzanine  loans and the  letter of credit
facility supporting our industrial revenues bonds for the quarter ended December
31, 2003 and do not expect to comply for the quarter  ended March 31,  2004.  We
have obtained waivers and modifications of these requirements for these periods.
Compliance with these covenants for the remainder of 2004 is highly dependent on
our financial results  (including but not limited to a failure of one or more of
our  significant  tenants to pay rent when due) and could be  impacted by future
capital  events such as asset sales,  debt  refinancings  and new debt or equity
transactions.  There can be no  assurances  that our  financial  results will be
sufficient to enable us to meet these  covenants in the future and, if we do not
meet a  covenant,  whether  appropriate  loan  modifications  or waivers  can be
obtained.

     At December 31, 2003, we had $89.3 million of outstanding  debt maturing in
2004,  including $60.0 million maturing in January 2004 secured by our 180 North
LaSalle Street  property,  $5.6 million maturing in May 2004 secured by our 1455
Sequoia Drive property and two loans totaling $23.7 million maturing in November
2004 secured by our 33 West Monroe  Street,  208 South LaSalle  Street and Jorie
Plaza properties.  We refinanced the $60.0 million loan in January 2004, and are
in discussions with the other two existing lenders with respect to extensions or
refinancing of the remaining maturing indebtedness.  If the necessary extensions
or  refinancings  are  not  consummated  with  existing  lenders,  we  may  have
discussions with other lending sources. If this indebtedness is not extended, or
repaid,  the lenders'  default remedies may hinder our ability to meet financial
loan  covenants  and could result in  cross-defaults  under certain of our other
loans.  There can be no assurances  as to our ability to obtain funds  necessary
for the refinancing of these maturing debts.

     Given our  current  level of debt,  limited  availability  of  unencumbered
collateral and our current financing arrangements,  we may not be able to obtain
additional  debt  financing at interest rates that are below the rates of return
on our  properties.  In  addition,  any  equity  capital  we might  raise may be
dilutive to our current common shareholders.

     Development  Activity.  We do not currently anticipate  undertaking any new
speculative office development  activity in the near future. Any new development
activity we may pursue will likely  involve joint  ventures with other  entities
that would provide a significant  portion of the required  equity  capital.  Our
Services  Company also may perform build to suit  development  for sale which we
anticipate would be funded by the purchaser.

     Acquisition Activity. Given the general economic conditions and our capital
availability,  we do not anticipate any significant property acquisitions during
the next year.  Certain  tax-deferred  exchanges,  however,  may be desirable in
connection  with  property  sales in order to eliminate or minimize any payments
required under existing tax indemnification agreements.

     Financing  Policy.  In December 1998, our Board adopted a financing  policy
with the following targets:  (i) a minimum interest coverage ratio of 2.25, (ii)
a minimum  fixed  coverage  charge ratio of 1.90,  (iii) a ratio of  debt-to-net
asset  value  of no  more  than  50%  and  (iv)  unencumbered  cash  and  credit
availability of at least $40.0 million, of which $15.0 million should be cash on
hand.  The  foregoing  ratios and measures are  calculated  pursuant to detailed
definitions set by our Board,  and, in some  instances,  have been adjusted over
time pursuant to a schedule set by our Board.  The above targets do not bind the
Board and do not mean that we will operate within each of these ratios at any or
all times.  Our Board must approve all material  financing  and  acquisition  or
disposition  activities until the targets are met. Our Board has approved in the
past,  and has the  authority to approve in the future,  transactions  and other
actions which would cause non-compliance with this policy.

     At  present  we are not in  compliance  with the  targets  above and do not
anticipate  being in compliance  during 2004.  Our Board may alter our financing
policy without the consent of our shareholders, and our organizational documents
do not limit the amount or type of indebtedness that we may incur.

     We intend to use one or more sources of capital for the funding of property
level capital  needs.  If available,  these capital  sources may include cash on
hand,  undistributed cash flow,  property specific  non-recourse and/or recourse
debt,  proceeds from the issuance of long-term,  tax-exempt bonds and other debt
or equity  securities,  bank and  institutional  borrowings or proceeds from the
sale of assets or joint venture interests.

<PAGE>




Recent Developments

     Acquisition and Sales

     During the period  from  January 1, 2003  through  December  31,  2003,  we
acquired and sold the following operating properties and parcels of land.



<TABLE>
<CAPTION>






                                                 Net           Acquisition     Mortgage       Month
                                           Rentable Square  Cost/Sales Price     Debt       Acquired/
         Property             Location        Feet/Acres      (in millions)  (in millions)     Sold
---------------------------------------------------------------------------------------------------------
<S>                        <C>              <C>               <C>              <C>           <C>

Acquired
Land:
   Aurora Land             Aurora, IL            30.3            $    2.4       $     -         June
                                          =================================================

Sold
Land:
   Aurora Land             Aurora, IL            15.0            $    2.8       $     -       December
                                          =================================================
Office:
   National City Center    Cleveland, OH      767,181            $   80.0       $  64.7        June
                                          =================================================
   70% of Common Interest:
     Bank One Center       Chicago, IL      1,497,472            $  105.0       $ 244.5       October
                                          =================================================

</TABLE>


Aurora  Land  Purchase.  We  purchased  land in Aurora,  Illinois  pursuant to a
purchase  contract  entered into in February 1998 by our Operating  Partnership.
Our 2003 purchase fulfilled our obligation under this contract.

Aurora Land Sale.  We sold 15.0 acres of our land in Aurora,  Illinois  for $2.8
million resulting in a gain of $0.2 million.

National City Center Office Building Sale. We sold this property to an affiliate
of our major  tenant  at the  property,  National  City  Corporation.  The gross
contract price for the sale,  included a lease termination fee from an affiliate
of the  purchaser.  During the  fourth  quarter of 2002,  we  recorded  an asset
impairment of $22.1 million  related to this  property.  After  reflecting  this
impairment, our sale of this property resulted in a gain of $1.2 million and has
been  recorded  in  discontinued   operations  in  our  consolidated   financial
statements.

Bank One Center Office Building Joint Venture.  On October 8, 2003, we closed on
a transaction admitting a new 70% joint venture partner to our former subsidiary
that owns this office building  located at 131 South Dearborn  Street,  Chicago,
Illinois. At the closing, our partner made a cash contribution to the venture of
$106.4  million  (which  includes $1.4 million  retained by the joint venture as
working  capital) in exchange for 70% of the  membership  interests in the joint
venture. Upon closing, the joint venture, in turn, distributed $105.0 million to
us.  Under  the  terms of the  contribution  agreement,  an  additional  capital
contribution  in the  amount of $9.8  million is to be made by our  partner  and
distributed to us when the joint venture leases an additional 40,000 square feet
of space in the property.

During the third  quarter  of 2003,  we  recorded  an asset  impairment  of $0.9
million  representing  our estimate of the difference  between our equity in the
property and the equity value determined by the acquisition  price to be paid by
our joint  venture  partner for the 70% interest,  net of estimated  transaction
costs.  Our  subsequent  admission of the JV Partner  resulted in a gain of $0.9
million as a result of a difference  between  estimates  and actual  transaction
costs. See Note 15 - Property  Acquisitions,  Placed in Service and Dispositions
to our  Consolidated  Financial  Statements  for a  further  discussion  of this
transaction.

<PAGE>

     Indebtedness

     During 2003, we completed the  following  transactions  with respect to our
indebtedness:

<TABLE>
<CAPTION>

                                            Original Loan
                                              Commitment                                     Original
                                                Amount                        Transaction    Maturity
        Collateral          Type of Loan    (in millions)     Interest Rate      Date          Date
---------------------------------------------------------------------------------------------------------
<S>                        <C>                  <C>            <C>             <C>            <C>

New Indebtedness
   IBM Plaza               First Mortgage        $130.2       LIBOR + 1.43%        3/03        3/06
   IBM Plaza               Mezzanine               64.8       LIBOR + 5.70%        3/03        3/06
   Bank One Center         Mezzanine               75.0            16.22%          3/03        1/04

Indebtedness Retirement
   IBM Plaza               First Mortgage         150.8       LIBOR + 1.70%        3/03       12/03
   IBM Plaza               Mezzanine               30.3            11.75           3/03        2/03
   Bank One Center         Mezzanine               65.0            23.00%          3/03        1/04
   Bank One Center         Construction           220.0       LIBOR + 2.65%       10/03        1/04
   Bank One Center         Mezzanine               75.0            16.22%         10/03        1/04
   Various Properties      Mezzanine               37.3            13.50%         10/03        1/04
   Various Properties      Mezzanine               20.0            15.75%         10/03        1/04

Principal Payments
   33 West Monroe Street   First Mortgage           7.0       LIBOR + 1.50%        5/03       11/04
   Various Properties      Mezzanine                8.1       LIBOR + 7.00%        6/03       11/04
   Amortization            Various                  4.5          Various        Various      Various


</TABLE>

     IBM Plaza Refinancing. We obtained a $195.0 million loan secured by a first
mortgage encumbering this office property. The proceeds of the loan retired both
the existing senior and mezzanine loans encumbering the property.  The loan does
not require any scheduled repayments of principal prior to maturity.

     Under the terms of the loan, the lender had the option of dividing the loan
into a mortgage  loan and a mezzanine  loan so long as the  aggregate  principal
amount,  weighted  average  interest rate, debt service payments and other terms
and  conditions  of the two loans were the same as the initial  loan. On May 28,
2003,  the lender  exercised  this option by having an  affiliate  of the lender
extend a $64.8 million  mezzanine loan to one of our  subsidiaries  which is the
owner of all of the limited  liability  company  interests of our affiliate that
owns the property and the mezzanine loan is secured by a pledge of these limited
liability  company  interests.  The proceeds of the mezzanine  loan were used to
reduce the outstanding principal amount of the first mortgage loan.

     As with the first  mortgage  loan,  the mezzanine  loan has a term of three
years  from  March  10,  2003.  The loan and the  mezzanine  loan  each have two
one-year  extension options  exercisable for a fee of 0.25% of the amount of the
respective  loan for each  extension.  The  mezzanine  loan does not require any
scheduled  repayments of principal prior to maturity and has an interest rate of
5.70% over one-month LIBOR with a minimum LIBOR rate of 2.0%. The mezzanine loan
may not be prepaid until March 10, 2004,  but may be prepaid in whole or in part
thereafter, without any prepayment penalty.

     Simultaneous  with the making of the mezzanine loan, the lender amended the
terms of the initial loan to, among other things, reduce the principal amount to
$130.2  million and modify the loan's  interest rate to 1.43195% over  one-month
LIBOR,  with a minimum LIBOR rate of 2.2688%.  This results in a blended minimum
annual  interest  rate equal to the 5.03%  interest  rate in effect for the loan
immediately prior to the creation of the separate loans. As required by the loan
documents,  we have  obtained  an  interest  rate  cap of  LIBOR at 6.6% for the
initial term of the loan and the mezzanine loan. See Note 4 - Mortgage and Notes
Payable and Bonds Payable to our Consolidated Financial Statements for a further
discussion of this financing.

     Bank One Center Mezzanine Loan Refinancing. On March 19, 2003, we closed on
a new $75.0 million  mezzanine loan. The proceeds of the loan combined with $1.5
million  of our own  funds,  retired  previous  mezzanine  loan  secured  by the
property with a principal balance of $61.7 million, plus accrued interest.  This
loan was  subsequently  repaid in connection with the subsequent  refinancing of
the property as described below.

     Bank One Center Refinancing.  Simultaneous with the admittance of our joint
venture  partner  to the joint  venture  which owns Bank One  Center,  the joint
venture closed on a new $270.0 million  mortgage loan with a new lender,  $247.5
million of which was funded at closing. These funds, together with proceeds from
the joint venture  transaction,  were used to repay in full the outstanding Bank
One Center  construction and mezzanine  financing.  This included a repayment to
the construction  lender of $169.8 million  (including  accrued  interest) and a
repayment of $80.7 million to the mezzanine lender, which included $75.0 million
of principal,  a $2.7 million yield maintenance  charge, $2.2 million of accrued
interest  and  a  $0.8  million  exit  fee.  See  Note  16  -   Investments   in
Unconsolidated  Joint Ventures to our  Consolidated  Financial  Statements for a
further discussion of this financing.

     Security Capital Preferred Growth Debt Retirement.  We retired  outstanding
debt totaling $57.3 million with Security Capital Preferred Growth ("SCPG") from
the proceeds of the sale of the National City Center  property  ($5.9  million),
the sale of a 70% interest in the Bank One Center joint venture ($40.0 million),
the  refinancing  of our IBM Plaza  property  ($8.5 million) and the sale of the
Centre Square I property ($2.9 million) in late 2002.

     Other  Indebtedness  Transactions.  On January 16, 2003,  a $157.5  million
interest  rate collar  agreement  pertaining  to our 50% common  interest in the
unconsolidated  real estate joint venture which owns the office property located
at 77 West Wacker Drive, Chicago, Illinois was assigned to a different financial
institution  for a fee of $0.1 million and modified  such that the joint venture
would need to make cash escrow  deposits  only to the extent that the  liability
that  results  from  changes in the  instrument's  market  value  exceeds  $20.0
million.  As a result,  previously  escrowed  funds  totaling  $6.9 million were
returned to the joint venture.

     On February 19, 2003 we extended the maturity dates of two mezzanine  loans
having a combined  principal  amount of $32.5 million from the same lender.  The
two loans  consisted of a $20.0 million loan having a previous  maturity date of
June 30,  2003 and a $12.5  million  loan  having a  previous  maturity  date of
November 15, 2003.  Our  ownership  interests in the 208 South  LaSalle  Street,
National City Center and Jorie Plaza office properties secured the $20.0 million
mezzanine  loan  while  the  $12.5  million  mezzanine  loan is  secured  by our
ownership  interest in our 33 West Monroe Street office property.  In June 2003,
we repaid $8.1 million of a $20.0 million  mezzanine  utilizing a portion of the
proceeds  from the sale of our National  City Center  property.  These loans are
guaranteed  by our  Operating  Partnership.  The maturity  dates for both of the
loans were  extended  until  November  15, 2004 at interest  rates of LIBOR plus
7.00%.

     In May  2003 we made a  principal  payment  of $7.0  million  on our  first
mortgage  loan secured by our 33 West Monroe Street  property.  This payment was
funded by an escrow  established  at the time of the Arthur  Andersen  LLP lease
termination  (see further  discussion of the termination  under "Arthur Andersen
Lease Termination"  below) and was pursuant to an agreement made with our lender
at the time of the termination.

     On August 4, 2003, we made a principal  payment of $0.2 million on the $5.7
million  mortgage note payable secured by 100% of our ownership  interest in the
property at 1455 Sequoia Drive, Aurora, Illinois, and extended the maturity date
of the  principal  balance  of $5.6  million  until  May 31,  2004  for a fee of
$19,000. In order to obtain the extension,  we also funded an escrow account for
$0.6 million to secure the payment of future tenant improvements.

     On October 31, 2003, we amended a $4.1 million mortgage loan collateralized
by our property  located at 200 South Mitchell  Court,  Addison,  Illinois,  and
guaranteed by our Operating Partnership.  Under the amendment, the maturity date
of the loan was  extended for two years  through  September 1, 2005 for a fee of
$40,000. In addition,  the financial covenant  requirements in the guaranty were
eliminated.

     Amortization  of  Principal.  During 2003 we made  payments  totaling  $4.5
million for amortization of principal for loans on various properties.

     Arthur Andersen Lease Terminations

     In February 2003, we entered into lease termination  agreements with Arthur
Andersen LLP ("Arthur  Andersen")  whereby Arthur Andersen was released from its
remaining lease obligations at two of our properties  subsequent to December 31,
2002 in exchange for total termination  payments consisting of $32.4 million for
their 33 West Monroe Street  property lease and $1.1 million for their IBM Plaza
property lease. In addition,  the agreements provided we could retain previously
paid rent for the month of January 2003 which was recorded as rental revenue. As
required by the lender for the 33 West Monroe Street property, the $32.4 million
termination payment was deposited into an escrow to be utilized as follows:  (i)
up to a  maximum  of $8.1  million  to be  utilized  to fund  debt  service  and
operating deficits at the 33 West Monroe Street property;  (ii) $7.0 million was
to be utilized to repay  principal  on the loan  collateralized  by the property
ninety-one  days following the receipt of the proceeds;  and (iii) the remainder
is available to fund future tenant  improvements  and other  re-leasing costs at
the  property.  On May 27,  2003,  in  accordance  with clause (ii) above,  $7.0
million was utilized to repay a portion of the  principal on the first  mortgage
loan  secured by the 33 West  Monroe  Street  property.  In  addition,  the $8.1
million referred to in clause (i) above was fully drawn to fund debt service and
operating deficits at this property during 2003.

     In connection with these  terminations,  we recorded lease  termination fee
income of $29.7  million  for the three  months  ended  March  31,  2003,  which
represents the termination payments described above less outstanding receivables
(including  deferred rent receivable)  related to these leases. In addition,  in
May and June 2003,  we received real estate tax refunds for prior years taxes on
the 33 West Monroe Street property,  of which $1.5 million related to the Arthur
Andersen  space.  As part of the lease  termination  agreement,  Arthur Andersen
relinquished  its right to these funds.  Therefore,  this amount was recorded as
additional  lease  termination  fee income for the three  months  ended June 30,
2003.

     Also, in connection with the termination of Arthur  Andersen's  leases,  we
entered  into new leases for an aggregate  of 61,114  square  feet,  with 19,540
square feet being leased for an approximate ten-year term (the "Ten-Year Lease")
and  41,574  square  feet of space  being  leased  to two  tenants  for terms of
approximately  two years.  Under one of the two-year leases, we received prepaid
rent of $1.1  million.  The tenant under the Ten-Year  Lease is in default under
the lease and we are currently  pursuing our remedies under the lease.  On March
9, 2004, we agreed to terminate the Ten-Year Lease. The agreement  releases both
parties from their  respective  obligations  under the lease effective April 15,
2004. A court order for  possession as well as other remedies will accompany the
termination.  A portion of the  proceeds  from the tenant's  existing  letter of
credit  will be  released  to the  tenant  as part of the  termination  with the
balance applied towards the tenant's outstanding rent balance.

     Shareholders and Board of Trustees Developments

     On April 14, 2003,  we announced  that our Board of Trustees had  increased
the size of the Board from six to eight members and elected Mr. Ray H. D'Ardenne
and Mr.  Daniel A. Lupiani to fill the newly  created  positions as  independent
Trustees. In addition, Governor James R. Thompson informed our Board that he had
decided not to stand for reelection. His term of office expired on May 23, 2003,
the date of our annual meeting of shareholders.

     Subsequently,  on April 17, 2003, Mr. Michael W. Reschke  resigned from our
Board of Trustees.  In  connection  with his  resignation,  we agreed to pay Mr.
Reschke  his  Trustee's  salary for the  entire  second  quarter of 2003,  which
equaled $6,500. Our Board of Trustees,  therefore, reduced the size of the Board
to six members.

     On June 11, 2003,  we issued  3,972,447 of our common shares to Vornado PS,
L.L.C.  ("Vornado  PS"),  in  connection  with the exercise by Vornado PS of the
exchange  rights  associated  with the  3,972,447  common units in our Operating
Partnership  held by Vornado PS.  Simultaneous  with the  issuance of the common
shares to Vornado PS, we  cancelled  all of the common units  exchanged  for the
common shares.

     On June 13,  2003,  we  issued  3,972,446  of our  common  shares  to Cadim
Acquisition, LLC ("Cadim Acquisition"), in connection with the exercise by Cadim
Acquisition of the exchange rights associated with the 3,972,446 common units in
our Operating  Partnership held by Vornado PS. Simultaneous with the issuance of
the common  shares to Cadim  Acquisition,  we cancelled  all of the common units
exchanged for the common shares.

     The Vornado PS and Cadim  Acquisition  exchanges of common units for common
shares resulted in an increase in our ownership of our Operating  Partnership by
29.8%.  The  transaction  price recorded for the units  purchased was our common
share price on the date of notices  from Vornado PS and Cadim  Acquisition  (May
23,  2003 -- $6.37 per share) of the  exercising  of their  respective  exchange
rights. The difference between the transaction price and the book value of these
equity  accounts  at the  Operating  Partnership  level has been  recorded  as a
reduction of the carrying  value of our real estate and other assets as follows:
a reduction in minority interest reflected in our consolidated  balance sheet of
$76.5 million,  an increase in our  shareholder's  equity of $50.6 million and a
reduction in real estate and other assets of $25.9 million. The determination of
the  allocation  of this  reduction was based on our estimate of the fair market
value of each asset.

     Other Recent Developments

     On March 19, 2003, we purchased  all of our prior joint  venture  partner's
ownership  interest  in the entity  that owns Bank One Center  which made us the
sole owner of the property at that time.  We paid $9.2 million for the interest,
of which  $0.5  million  was  deposited  into an escrow  account  that was to be
released  to  the  joint  venture  partner  upon  the  satisfaction  of  certain
post-closing  obligations of the joint venture partner (and in all events on the
first  anniversary of the closing date). The joint venture partner had continued
to provide certain  development  services through November 3, 2003 for a monthly
fee. As of December 31, 2003,  the $0.5 million  escrow has been released to the
joint venture partner.  Simultaneous  with this  transaction,  the joint venture
partner repaid us in full a loan  previously made by us to them of $1.0 million,
plus accrued interest of $0.2 million.

     On March 25,  2003,  we, The Prime  Group,  Inc.  ("PGI")  and one of PGI's
affiliates  entered  into an  amendment  to the  environmental  remediation  and
indemnity  agreement  previously  entered  into by PGI and us in November  1997.
Pursuant  to the  existing  agreement,  PGI has agreed to  indemnify  us against
certain  environmental  liabilities  related to our  Chicago,  Hammond  and East
Chicago  Enterprise  industrial parks. The existing agreement also provides that
PGI is entitled to use the proceeds  from  certain  pending  litigation  we have
against a third party relating to these environmental liabilities. The amendment
to the agreement provides, among other things, that all of the proceeds from the
litigation  will not be funded to PGI or its affiliate,  but instead that if any
proceeds are recovered in connection  with the litigation,  sufficient  proceeds
(if  recovered)  will be placed  in an  escrow to be used to fund the  estimated
environmental remediation costs. This indemnification agreement has been further
amended to provide  that we will be  responsible  for the first $0.5  million of
costs as further described in "Certain  Relationships and Related Transactions."
As of December 31, 2003, a total of $0.3 million of this amount had been paid.

     On July 17,  2003,  we entered into a lease  agreement  with a tenant at an
industrial  property  located  at 1051  North  Kirk Road in  Batavia,  Illinois,
whereby the tenant has an option to purchase  the  property on December 31, 2009
for $4.1 million, by providing written notice to us by December 31, 2008.

     On September 24, 2003, we entered into a lease  agreement  with a tenant at
an industrial property located at 343 Carol Lane in Elmhurst,  Illinois, whereby
the tenant has an option to purchase  the  property on February 1, 2008 for $1.5
million, by providing written notice to us by August 1, 2007.

     On October 10, 2003 we sent a letter to Louis G. Conforti, our Co-President
and Chief  Financial  Officer,  terminating  his employment  agreement under the
provision of the agreement  providing for termination  without cause. On October
17, 2003, we and Mr. Conforti entered into an agreement regarding separation and
release pursuant to which, in exchange for a full release from Mr. Conforti, Mr.
Conforti  received  payments   accelerated  by  approximately  30  days  and  in
accordance with the terms of his employment agreement,  for (a) his severance of
$560,000,  (b) a  pro-rata  bonus  of  $140,712,  (c) 30  days  of  base  salary
compensation and (d) five weeks of accrued vacation.

     On October 29, 2003, we hired Richard M. FitzPatrick as our Chief Financial
Officer and concurrently entered into an employment contract with him.

Segment Reporting Data

     See Note 17 - Segment  Reporting to our Consolidated  Financial  Statements
for a discussion of our operating  segment data for the years ended December 31,
2003, 2002 and 2001.

Competition

     We compete with many other owners and  developers of office and  industrial
real estate, some of which may have greater financial and marketing resources or
expertise.  In addition, the amount of available space in competitive properties
in any particular  market or submarket in which our properties are located could
have a material  adverse  effect on both our  ability to lease  space and on the
rents charged at our properties.

Services Company

     We provide  certain  services  requested  by tenants  through our  Services
Company. As a Taxable REIT Subsidiary, our Services Company can provide services
to tenants of our properties, even if these services are not considered services
customarily  furnished in  connection  with the rental of real estate  property,
without  causing the rental  income from the  properties  to be treated as other
than rents  from real  property.  Our  Services  Company  provides  leasing  and
property management services to the unconsolidated  joint venture that owns Bank
One Center and in 2003 provided leasing and property management services for our
180 North LaSalle Street  property.  In January 2004,  concurrent with acquiring
fee title to our 180 North LaSalle Street  property,  our Operating  Partnership
replaced our Services Company as its leasing and managing agent.

Government Regulations

     Environmental  Matters.  Phase I or similar environmental  assessments have
been  performed  by  independent   environmental   consultants  on  all  of  our
properties.  Phase I assessments are intended to discover information regarding,
and to evaluate  the  environmental  condition  of, the  surveyed  property  and
surrounding  properties.  Phase I  assessments  generally  include a  historical
review,  a public  records  review,  an  investigation  of the surveyed site and
surrounding  properties,  and the  preparation and issuance of a written report,
but do not include soil sampling or subsurface investigations.

     We are aware of contamination at certain of our industrial properties which
are already in  remediation  programs  sponsored  by the state in which they are
located. Our environmental  consultants estimate that remedial action plans will
have a probable cost of approximately $3.2 million.  During 1997, a liability of
$3.2 million was recorded  (included in other  liabilities  at December 31, 2003
and 2002). During 1997, PGI, the former owner of the above mentioned  industrial
properties,  initiated  lawsuits against a former  environmental  consultant for
damages to cover the cost of the remedial  action plans.  PGI has  contractually
agreed to indemnify us for any environmental  liabilities we may incur for known
contamination  in  connection  with  our  Chicago,  Hammond,  and  East  Chicago
Enterprise  industrial  parks. In 1998, PGI sued a then current (and now former)
tenant  of one of the  properties  in order  to force  the  tenant  to  submit a
hazardous waste closure plan to the Illinois Environmental Protection Agency. In
January 2004, the court ruled that the tenant did not have to submit a hazardous
waste closure plan under  applicable  regulations.  The  litigation  against the
environmental    consultant   continues.    As   previously   discussed,    this
indemnification   agreement  has  been  amended  to  provide  that  we  will  be
responsible for the first $0.5 million of costs as further described in "Certain
Relationships and Related Transactions."

     We are also aware of contamination at two other  properties.  At one of the
properties,  the tenant has  provided us with an  indemnity  for all of the cost
associated with the  environmental  remediation and the tenant has purchased the
property.  The second  property is in the remediation  program  sponsored by the
state in which it is located and the previous  owner placed in an escrow account
$0.8 million (the maximum cost the previous owner has agreed to pay),  which was
used in the clean up of the property.  A no further  remediation letter from the
Illinois  Environmental  Protection  Agency  approving  the  completion  of  the
remediation  work has been obtained for this  property.  Accordingly,  we do not
anticipate any material liability related to these environmental matters.

     In  November  2001,  at the  request of the  Department  of the Army of the
United  States of America (the  "DOA"),  we granted the DOA a right of entry for
environmental  assessment and response in connection  with our property known as
the Atrium at 280 Shuman Boulevard in Naperville,  Illinois (the "Atrium").  The
DOA  informed us that the  property  was located  north of a former Nike missile
base and that the DOA was investigating  whether certain regional  contamination
of the groundwater by  trichloethene  ("TCE") emanated from the base and whether
the DOA would be required to restore the  environmental  integrity of the region
under the Defense  Environmental  Restoration  Program for Formerly Used Defense
Sites. In December 2001, the results from the tests of the groundwater  from the
site indicated  elevated levels of TCE. It is currently our understanding  based
on information provided by the DOA and an analysis prepared by its environmental
consultants that (i) the source of the TCE contamination did not result from the
past or current activities on the Atrium property, (ii) the TCE contamination is
a regional problem that is not confined to the Atrium, and (iii) the DOA has not
yet  identified  the  source of the TCE in the  groundwater.  Our  environmental
consultants  have  advised us that the United  States  Environmental  Protection
Agency (the "EPA") has issued a Statement of Policy  towards  owners of property
containing  contaminated  acquifers.  According to this policy,  it is the EPA's
position that where  hazardous  substances have come to be located on a property
solely as a result of subsurface migration in an aquifer from an offsite source,
the EPA will not take enforcement actions against the owner of the property. The
groundwater  underneath  this  property is  relatively  deep,  and the  property
obtains its potable  water  supply  from the City of  Naperville  and not from a
groundwater  well.  Accordingly,  we do not  anticipate  any material  liability
because of this TCE contamination.

     We believe  that our other  properties  are in  compliance  in all material
respects  with all federal,  state and local laws,  ordinances  and  regulations
regarding  hazardous  or toxic  substances.  We have not  been  notified  by any
governmental   authority,   and  are  not  otherwise   aware,  of  any  material
noncompliance,  liability or claim relating to hazardous or toxic  substances in
connection  with  any  of  our  other  properties.  None  of  the  environmental
assessments of our properties  have revealed any  environmental  liability that,
after giving effect to the contractual  indemnities and escrows described above,
we believe would have a material  adverse  effect on our financial  condition or
results of  operations  taken as a whole,  nor are we aware of any such material
environmental liability. Nonetheless, it is possible that our assessments do not
reveal all  environmental  liabilities or that there are material  environmental
liabilities  of which we are unaware.  Moreover,  there can be no assurance that
(i)  future  laws,  ordinances  or  regulations  will not  impose  any  material
environmental  liability  or (ii) the  current  environmental  condition  of our
properties  will  not be  affected  by  tenants,  by the  condition  of  land or
operations  in  the  vicinity  of  our  properties  (such  as  the  presence  of
underground  storage  tanks) or by third parties  unrelated to us. If compliance
with the  various  laws and  regulations,  now  existing or  hereafter  adopted,
exceeds our budgets for such items,  our  financial  condition  could be further
adversely affected.

     Our IBM Plaza office property  currently  contains  asbestos in the form of
non-friable  spray-on  insulation  located  on  the  decking  and  beams  of the
building.  We have  been  informed  by our  environmental  consultants  that the
asbestos  in IBM Plaza is not  friable  and no  remediation  of the  asbestos is
necessary.

     Costs of Compliance with Americans with Disabilities Act (the "ADA"). Under
the ADA, all public  accommodations  and  commercial  facilities are required to
meet certain federal requirements related to access and use by disabled persons.
These   requirements   became  effective  in  1992.   Compliance  with  the  ADA
requirements could require removal of access barriers,  and noncompliance  could
result  in the  imposition  of fines by the  federal  government  or an award of
damages to private  litigants.  We believe that our properties are substantially
in compliance with these requirements, however, we may incur additional costs to
fully  comply with the ADA.  Although we believe that such costs will not have a
material adverse effect on our financial position, if required changes involve a
greater amount of  expenditures  than we currently  anticipate,  our capital and
operating resources could be further adversely affected.

     Other  Regulations.  Our  properties  are also subject to various  federal,
state and local regulatory  requirements,  such as state and local fire and life
safety  requirements.  Failure to comply with these requirements could result in
the  imposition  of fines by  governmental  authorities  or awards of damages to
private  litigants.  We believe that our  properties  are  currently in material
compliance  with all such  regulatory  requirements.  However,  there  can be no
assurance that these  requirements  will not be changed or that new requirements
will not be imposed  which would  require us to make  significant  unanticipated
expenditures  and could have an adverse effect on our net income and our capital
and operating resources.

Insurance

     In the regular course of our business, we maintain comprehensive  liability
and  all-risk  property  insurance  with  respect  to our  properties.  Prior to
September 11, 2001,  liability and property insurance policies generally did not
expressly  exclude  coverage  for  terrorism;  provided,  however,  coverage was
generally  excluded for acts of war, military action,  nuclear hazards and other
standard insurance exclusions.

     After  September  11,  2001,  liability  and  property  insurance  policies
generally added an express exclusion for terrorist acts.  Effective November 26,
2002, the United States federal  government  passed the Terrorism Risk Insurance
Act of 2002 (The "Terrorism  Act"). This law provides  insurance  companies with
government  sponsored  financial  backing for "acts of terrorism".  This new law
requires insurance carriers to provide as a covered loss, "acts of terrorism" as
defined in the Terrorism Act.

     The  Terrorism  Act defines the term "act of  terrorism" as any act that is
certified by the Secretary of the Treasury, in concurrence with the Secretary of
State and the Attorney  General of the United States,  to be a violent act or an
act that is  dangerous  to  human  life,  property  or  infrastructure,  to have
resulted in damage within the United States, or outside the United States in the
case of an air carrier or vessel or the premises of a United States mission, and
to have been committed by an individual or  individuals  acting on behalf of any
foreign person or foreign interest,  as part of an effort to coerce the civilian
population of the United States or to influence the policy or affect the conduct
of the United  States  Government  by coercion.  The Terrorism Act also provides
that no  terrorist  act  that  is part of the  course  of war,  as  declared  by
Congress, will be certified as an "act of terrorism".

     The Terrorism Act provides that prior terrorism  exclusions in property and
liability  insurance  policies  became  null  and  void  to  the  extent  of the
definition of "act of terrorism".

     On March 22, 2003, we obtained new property insurance  policies  consisting
of (i) a primary policy  covering the first $100.0 million of physical damage to
the properties in our portfolio  (the "Primary  Policy") and (ii) several layers
of excess property  insurance in an aggregate  amount of $450.0 million covering
physical property damages to our properties in excess of our Primary Policy (the
"Excess Policies"). Our Primary Policy and Excess Policies include insurance for
acts of  Terrorism  as a covered  loss,  although  the word  "Terrorism"  is not
defined. We are at risk for financial loss, which could be material, relating to
losses in excess of our policy  limits.  In  addition,  we are at risk under our
insurance  policies for losses of any amount  relating to occurrences  which are
not covered by our insurance  policies,  such as occurrences  excluded under the
standard  coverage  exclusions  such as acts of war,  military  action,  nuclear
hazards,  governmental action, illegal acts of the insured and pollution,  which
in the event of such losses could be material.

     Our Primary  Property Policy and Excess Property  Policies include coverage
for flood and earthquake  losses. In certain instances our policy sub-limits for
these losses may be less than the value of specific  properties.  Our properties
are not generally  located in geographical  areas typically  subject to flood or
earthquake losses. However, we may be at risk of financial losses resulting from
losses that exceed these policy sub-limits.

     We maintain  liability  insurance  including  but not limited to commercial
general  liability,  auto liability,  garage  liability and commercial  umbrella
insurance (the  "Liability  Policies") in amounts and limits that are similar to
other property owners in geographic areas similar to that of our properties. Our
Liability  Policies  include  coverage  for acts of  Terrorism as a covered loss
although the word "Terrorism" is not defined.  Additionally, we maintain workers
compensation  and employers  liability  insurance in compliance  with  statutory
limits and  requirements.  These policies contain  standard  exclusions that are
typical of liability insurance policies.  We may be at financial risk for losses
that exceed our limits of liability or which may be excluded  from the insurance
policies, which could be material.

     In connection  with the  ownership of our  properties,  certain  events may
occur that would  require us to expend funds for  environmental  remediation  of
some of our properties and adjacent properties.  Certain environmental exposures
are excluded from coverage  under our insurance  policies.  Effective  April 30,
2003,  we obtained a pollution  legal  liability  policy having a limit of $10.0
million, which includes coverage for liability,  third party property damage and
remediation costs as a result of pollution  conditions.  Pre-existing  pollution
conditions  are excluded from the policy and certain  property  locations may be
excluded in the future by our insurer based on its ongoing due diligence.  Costs
not covered under our pollution legal liability policy could be material,  which
could adversely affect our financial condition. We are unable to predict changes
in future  environmental laws and the financial impact we may incur as result of
these changes.

Employees

     As of December 31, 2003, we had approximately 148 full-time  employees.  We
believe that our relations with our employees are satisfactory.

Available Information

     We make available,  free of charge, on our Internet website,  www.pgrt.com,
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and  amendments  to those  reports  filed or  furnished  pursuant to
Section 13(a) or 15(d) of the  Securities  Exchange Act of 1934, as amended,  as
soon as reasonably  practicable after the reports are electronically  filed with
the United States Securities and Exchange  Commission.  Copies of our governance
guidelines,  code of ethics and the  charters  of our audit,  compensation,  and
governance and nominating committees are also available,  free of charge, on our
Internet website,  and are available in print to any shareholder who requests it
from our  investor  relations  representative  c/o  Prime  Group  Realty  Trust,
Investor Relations  Representative,  77 West Wacker Drive, Suite 3900,  Chicago,
Illinois 60601.


<PAGE>


ITEM 2.  PROPERTIES

General

     We own 13 office  properties  and 30 industrial  properties  located in the
Chicago  metropolitan area. This includes  Continental Towers,  Rolling Meadows,
Illinois,  on which we own a second mortgage note which results in a controlling
financial interest in this property and we therefore consolidate its operations.
Our properties located in the Chicago metropolitan area accounted for all of our
rental revenue and tenant reimbursements revenue for the year ended December 31,
2003.  In addition,  we own a 50% common  interest in a joint venture which owns
the 944,556 square foot office tower located at 77 West Wacker Drive in downtown
Chicago,  a 30%  subordinated  common  interest in a joint  venture which owns a
1,497,472  square  foot office  building  located at 131 S.  Dearborn  Street in
downtown  Chicago,  known as Bank One Center and a 23.1%  common  interest  in a
venture  which owns a 385,274  square foot office  property  located in Phoenix,
Arizona.

     Our management  team has developed or  redeveloped a significant  number of
office  properties,  such as 77 West Wacker Drive, 180 North LaSalle Street, and
Bank One  Center,  all  located  in  downtown  Chicago.  In the  course  of such
activities,  we have acquired experience across a broad range of development and
redevelopment projects. Bank One Center, located in downtown Chicago, is a Class
A office tower  containing an aggregate of 1,497,472  rentable  square feet. The
building is 72.2%  leased and  includes  three  anchor  tenants;  Bank One,  NA,
Citadel  Investment  Group  L.L.C.  ("Citadel")  and  Holland  &  Knight.  As an
inducement to consummate the Citadel lease,  we agreed to reimburse  Citadel for
its financial  obligations  related to a 161,488 square foot lease obligation at
an office tower located at One North Wacker Drive in downtown  Chicago.  We have
mitigated  a portion of this  obligation  by  subleasing  the space at One North
Wacker Drive. We have reflected a liability  related to this obligation,  net of
our estimates of proceeds from estimated future  subleases.  This is included in
liabilities for leases assumed on our balance sheet and is periodically adjusted
to reflect the effects signed subleases have upon our estimates.

     We own  approximately  217.4 acres of  developable  land and have rights to
acquire  approximately 1.3 acres of additional  developable land. However, we do
not currently  anticipate  commencing any new  development  projects in the near
future.

     Our office  properties are leased to tenants either (i) on a net basis with
tenants  obligated  to pay  their  proportionate  share  of real  estate  taxes,
insurance,  utilities and operating  expenses or (ii) on a gross basis, with the
landlord responsible for the payment of these expenses up to the amount incurred
during the tenants' first year of occupancy ("Base Year") or a negotiated amount
approximating the tenants' pro rata share of these expenses ("Expense Stop"). In
the latter cases,  the tenants pay their pro rata share of increases in expenses
above the Base Year or  Expense  Stop.  Most of the  leases  for our  industrial
properties  are written on either (i) a net basis,  with  tenants  paying  their
proportionate  share  of real  estate  taxes,  insurance,  utilities  and  other
operating expenses as additional rent or (ii) a triple net lease basis, with the
tenants  paying all of the real estate  taxes,  insurance,  utilities  and other
operating expenses for the property.



<PAGE>


Properties

     The following table sets forth certain information  relating to each of our
properties.  Through the Operating Partnership and other subsidiaries,  we own a
100%  interest in all of the office and  industrial  properties,  except for the
unconsolidated joint venture properties identified below.



<TABLE>
<CAPTION>


                                                                                       Net        Percentage
                                                                    Year Built/     Rentable     Occupied as
                                                  Location           Renovated     Square Feet   of 12/31/03
                                          ---------------------------------------------------------------------
<S>                                           <C>                  <C>            <C>                <C>

Office Properties:
IBM Plaza (1)                                Chicago, IL            1971           1,364,811          89.2%
Continental Towers (2)                       Rolling Meadows, IL    1977 thru        925,887          72.9%
                                                                     1981/2001
208 South LaSalle Street                     Chicago, IL            1914/1956/       866,108          87.8%
                                                                    1982/1991
33 West Monroe Street (3)                    Chicago, IL            1980             852,075          21.2%
180 North LaSalle Street                     Chicago, IL            1982/1999        766,424          78.9%
800-810 Jorie Boulevard                      Oak Brook, IL          1961/1992        191,666         100.0%
4343 Commerce Court                          Lisle, IL              1989             165,685          91.9%
740-770 Pasquinelli Drive                    Westmont, IL           1986             109,975          99.0%
1600-1700 167th Street                       Calumet City, IL       1981              64,929          81.1%
280 Shuman Blvd.                             Naperville, IL         1979              65,329          89.1%
Enterprise Center II                         Westchester, IL        1999              62,619          86.7%
1301 E. Tower Road                           Schaumburg, IL         1992              50,400         100.0%
7100 Madison Avenue                          Willowbrook, IL        1999              50,157         100.0%
                                                                                 ------------------------------
Office properties subtotal                                                         5,536,065          75.1%
                                                                                 ------------------------------
</TABLE>


(1)  The land  underlying  a portion of this  property,  related to the  parking
     garage,  is leased for a term  expiring on April 30, 2019 with an option to
     extend the term for an additional twenty-five years.

(2)  We hold a  mortgage  note  receivable  on this  office  property  and  have
     consolidated  the  underlying   property   operations  because  we  receive
     substantially all of the economic benefits of the property's operations.

(3)  A  portion  of the land  underlying  this  property  is  leased  for a term
     expiring on April 30, 2048.


<PAGE>

<TABLE>
<CAPTION>




                                                                                     Net        Percentage
                                                                 Year Built/      Rentable      Occupied as
                                               Location          Renovated       Square Feet   of 12/31/03
                                          -------------------------------------------------------------------
<S>                                        <C>                    <C>            <C>             <C>

Industrial Properties:

Warehouse/Distribution Facilities:
  425 E. Algonquin Road                    Arlington Heights, IL   1978            304,506          100.0%
  1455 Sequoia Drive                       Aurora, IL              2000            257,600           78.6%
  200 S. Mitchell                          Addison, IL             1981            152,200          100.0%
  11045 Gage Avenue                        Franklin Park, IL       1970/1992       136,600          100.0%
  4248, 4250 and 4300 Madison Street       Hillside, IL            1980            127,129           87.7%
  1051 N. Kirk Road                        Batavia, IL             1990            120,004          100.0%
  4211 Madison Street                      Hillside, IL            1977/1992        90,344          100.0%
  4160-4190 W. Madison Street              Hillside, IL            1974/1992        79,532          100.0%
  342-346 Carol Lane                       Elmhurst, IL            1989             67,935          100.0%
  200 E. Fullerton Avenue                  Carol Stream, IL        1968/1995        66,254          100.0%
  555 Kirk Road                            St. Charles, IL         1990             62,400          100.0%
  370 Carol Lane                           Elmhurst, IL            1977/1994        60,290          100.0%
  550 Kehoe Blvd.                          Carol Stream, IL        1997             44,575          100.0%
  1543 Abbott Drive                        Wheeling, IL            1983             43,930          100.0%
  388 Carol Lane                           Elmhurst, IL            1979             40,502          100.0%
  343 Carol Lane                           Elmhurst, IL            1989             30,084          100.0%
  350 Randy Road                           Carol Stream, IL        1974             25,200           87.5%
  11039 Gage Avenue                        Franklin Park, IL       1965/1993        21,935          100.0%
  1401 S. Jefferson Street                 Chicago, IL             1965/1985        17,265            0.0%

Overhead Crane/Manufacturing Facilities:
Chicago Enterprise Center                  Chicago, IL
                                                                    1916/1991-1996
  13535-A S. Torrence Avenue                                                       385,345          100.0%
  13535-B S. Torrence Avenue                                                       242,199            0.0%
  13535-C S. Torrence Avenue                                                        99,333          100.0%
  13535-D S. Torrence Avenue                                                        77,325          100.0%
  13535-E S. Torrence Avenue                                                        50,983          100.0%
  13535-F S. Torrence Avenue                                                        56,486          100.0%
  13535-G S. Torrence Avenue                                                        55,213            0.0%
  13535-H S. Torrence Avenue                                                        73,442           58.7%
East Chicago Enterprise Center             East Chicago, IN
                                                                    1917/1991-1997
  4407 Railroad Avenue - Building 2                                                169,435           17.1%
  4407 Railroad Avenue - Building 3                                                291,550           52.9%
  4407 Railroad Avenue - Building 4                                                 87,484           98.1%
  4635 Railroad Avenue                                                              14,070            0.0%
Hammond Enterprise Center                  Hammond, IN             1920-1952
  4507 Columbia Avenue                                                             256,595          100.0%
  4527 Columbia Avenue (2)                                                          16,701           64.0%
  4531 Columbia Avenue                                                             250,266           99.2%
                                                                               ------------------------------
Industrial properties subtotal                                                   3,874,712           81.4%
                                                                               ------------------------------
Portfolio total                                                                  9,410,777           77.7%
                                                                               ==============================

Unconsolidated Joint Venture Office
   Properties:
Bank One Center (3)                        Chicago, IL             2002          1,497,472           67.7%
77 West Wacker Drive (4)                   Chicago, IL             1992            944,556           91.0%
Thistle Landing (5)                        Phoenix, AZ             1999            385,274           57.2%


</TABLE>



(2)  This property is an office building within the Hammond Enterprise Center.

(3)  We own a 30% subordinated common ownership interest in a joint venture that
     owns this office property.

(4)  We own a 50% common  ownership  interest in a joint  venture that owns this
     office property.

(5)  We own a 23.1% common ownership  interest in a joint venture that owns this
     office property.



<PAGE>




ITEM 3.  LEGAL PROCEEDINGS

     Except  as  described  below,  neither  we nor  any of our  properties  are
presently subject to any material  litigation or legal  proceeding,  nor, to our
knowledge,  is any material or other litigation or legal  proceeding  threatened
against us, other than  routine  litigation  arising in the  ordinary  course of
business, some of which is expected to be covered by liability insurance and all
of which  collectively is not expected to have a material  adverse effect on our
consolidated financial statements.

     On August 29, 2002, 180 Acquisition  Company, LLC ("180 Acquisition") filed
a  complaint  (the  "Complaint")  against  us, our  Operating  Partnership,  our
Services Company, one of our subsidiaries holding our interests in the 180 North
LaSalle Street property in Chicago, Illinois (the "180 Interests"),  and Jeffrey
A.  Patterson,  our President and Chief  Investment  Officer.  The Complaint was
filed in the  County  Department,  Law  Division  of the  Circuit  Court of Cook
County, Illinois.

     In the  Complaint,  180  Acquisition  alleges  that the  defendants  orally
promised to sell the 180 Interests to them, and that 180  Acquisition  relied on
these alleged  promises,  notwithstanding  the facts that (i) a written contract
was not entered into among the parties and (ii) we  terminated  negotiations  to
sell the 180  Interests to 180  Acquisition  in July 2002.  180  Acquisition  is
asking the Court to award it $1.7 million in direct  damages,  $15.7  million in
lost profits and $34.9 million in punitive  damages.  We vigorously  dispute the
allegations contained in the Complaint,  deny making the promises alleged by the
plaintiff and believe that we have valid defenses in this case.  However,  there
can be no assurances that the outcome of this case will be favorable to us.

     The Internal  Revenue  Service (the "Service") has conducted an examination
of the federal  income tax returns filed by certain of our  affiliated  entities
for the taxable years ended  December 31, 1999,  2000,  and 2001.  The Service's
examination   included  the  review  of  certain   transactions   involving  our
acquisition of the IBM Plaza office property located in Chicago, Illinois, which
was  reported  on  the  examined  returns  as  acquired  in  connection  with  a
nontaxable, like-kind exchange involving an interest in the 77 West Wacker Drive
office property located in Chicago, Illinois (the "1999 Transaction").  On March
13,  2003,  the  Service  issued  preliminary  reports  proposing  that the 1999
Transaction constituted the taxable sale of an interest in 77 West Wacker Drive.

     On June 19, 2003, the Service issued a "60-day letter" to us regarding this
issue  which  stated  that we had 60 days to  file a  protest  of the  Service's
position. We then issued protest letters protesting the proposed adjustments and
requesting  a  conference  with the IRS Chicago  Office of Appeals.  On July 25,
2003, the Service issued preliminary reports proposing adjustments for the years
ending  December  31,  2000 and 2001  resulting  from the 1999  Transaction.  On
January 5, 2004,  the  Service  issued a "60-day  letter"  to us  regarding  the
proposed  adjustments  for the years ended  December  31,  2000 and 2001,  which
stated that we had 60 days to file a protest of the Service's position.  We plan
to  issue  protest  letters  protesting  the  proposed  adjustments.  For a more
detailed  description  of this  matter,  please  see Note 14 -  Commitments  and
Contingencies to our Consolidated Financial Statements.

     We are a defendant  in various  other legal  actions  arising in the normal
course of business.  We believe that the ultimate  outcome of those actions will
not  materially  affect  our  consolidated  financial  position  or  results  of
operations.



<PAGE>


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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 2003.

                                     PART II

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

     Our common shares began trading on the New York Stock Exchange  ("NYSE") on
November  12, 1997,  under the symbol  "PGE".  On March 10,  2004,  the reported
closing  sale price on the NYSE was  $6.60,  and there  were  23,670,522  common
shares outstanding held by approximately  2,850 holders of record. The following
table sets forth the high and low closing sales prices per common share reported
on the NYSE and the  distributions we paid for the years ended December 31, 2003
and 2002:

<TABLE>
<CAPTION>


                                                                 Cash
                                                             Distributions
                              High              Low           Paid (1)(2)
                        -----------------------------------------------------
<S>                           <C>            <C>               <C>

Fiscal Year 2003
First quarter                 $ 5.44         $ 4.61                  -
Second quarter                  6.95           5.19                  -
Third quarter                   7.00           6.00                  -
Fourth quarter                  6.55           5.97                  -

Fiscal Year 2002
First quarter                 $ 9.85         $ 6.80                  -
Second quarter                  8.36           4.05                  -
Third quarter                   6.66           4.10                  -
Fourth quarter                  5.30           4.26                  -

</TABLE>


(1)  No  distributions  were  declared or paid for the four  quarters of 2003 or
     2002.

(2)  In March 2004, our Board declared one quarterly distribution of $0.5625 per
     share on our Series B Shares for  shareholders of record on March 31, 2004,
     payable on April 30, 2004. Under our Charter,  this  distribution is deemed
     to be a quarterly  distribution  which  relates to the fourth  quarter 2002
     distribution period, the earliest accrued but unpaid quarterly distribution
     on our Series B Shares.

     Due  to  a  number  of  factors,   including  our  capital   resources  and
requirements,  our Board decided not to pay a distribution  on the common shares
and units  during 2003.  (See  "Business - Business  Strategies - Liquidity  and
Capital  Requirements.")  Any future  distributions on our common shares will be
made at the  discretion  of our Board.  These  distributions  will depend on the
actual  cash  available  for  distribution,  our  financial  condition,  capital
requirements, the completion of capital events, including refinancings and asset
sales,  the annual  distribution  requirements  under the REIT provisions of the
Code,  and such  other  factors  as our  Board  deems  relevant.  We can give no
assurance  that we will be able to  complete  capital  events  or,  if they  are
completed,  whether they will be on terms that are  favorable to us. We also can
give no assurances that if capital events are completed on terms favorable to us
or  otherwise,  distributions  on our common  shares  and  common  units will be
resumed in 2004 or  thereafter.  Distributions  on our common  shares and common
units are not permitted unless all current and any accumulated  distributions on
our Series B Shares and the related preferred units in the Operating Partnership
have been paid in full or declared and set aside for payment.  After (i) payment
of the fourth quarter 2002 Series B distribution  referred to above and (ii) the
accrual of the first quarter 2004  distribution,  we will be in arrears for five
quarters of Series B Share distributions for a total of $11.3 million and we can
give  no  assurances  as to the  timing  and  amounts  of  distributions  on our
preferred shares of beneficial interest in future periods.

     Equity  Compensation  Plans.  For a discussion  of our equity  compensation
plans see the information contained in "Security Ownership of Certain Beneficial
Owners and Management - Equity Compensation Plan Information" of this report.

<PAGE>

     Recent Sales of Unregistered Securities

     Concurrent  with  the  completion  of  our  initial  public  offering,  the
Operating  Partnership  issued an aggregate  of  9,994,310  common units to PGI,
Primestone  (a joint venture of PGI and a third party  contributor)  and certain
members of management in exchange for property  contributions and cash. On April
30, 2002, Vornado PS, L.L.C.  ("Vornado PS") acquired the 7,944,893 common units
held by Primestone in a foreclosure auction. Vornado PS subsequently transferred
3,972,446 of these units to Cadim Acquisition LLC ("Cadim Acquisition").

     On June 11, 2003, we issued to Vornado PS in  connection  with the exercise
by Vornado PS of the exchange rights associated with its units, 3,972,447 of our
common shares in  accordance  with the terms of the common units and pursuant to
the  Securities  Act of 1933,  as amended,  in reliance  on the  exemption  from
registration set forth in Section 4(2) thereof.  Simultaneous  with the issuance
of the common shares to Vornado PS, we cancelled  the 3,972,447  common units in
our Operating Partnership held by Vornado PS which were exchanged for the common
shares.

     On June 13, 2003, we issued to Cadim  Acquisition,  in connection  with the
exercise by Cadim  Acquisition of certain  exchange  rights  associated with its
units, 3,972,446 of our common shares in accordance with the terms of the common
units and pursuant to the Securities Act of 1933, as amended, in reliance on the
exemption from registration set forth in Section 4(2) thereof. Simultaneous with
the  issuance  of the  common  shares to Cadim  Acquisition,  we  cancelled  the
3,972,446 common units in our Operating  Partnership  held by Cadim  Acquisition
which were exchanged for the common shares.

     As of December 31, 2003, and subject to our 9.9% ownership  limitation,  we
have an aggregate of 3,076,586 limited partner common units outstanding,  all of
which are exchangeable in accordance with their terms for common shares.

     We issued no other common shares in 2003.


<PAGE>

 ITEM 6.  SELECTED FINANCIAL DATA

     The following tables set forth our selected consolidated financial data and
should  be  read in  conjunction  with  our  consolidated  financial  statements
included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>

                                                            Year ended December 31
                                             2003         2002        2001        2000      1999
                                         ---------------------------------------------------------
                                               (Dollars in thousands, except per share amounts)
<S>                                      <C>         <C>         <C>          <C>         <C>

 Statements of Operations Data (1)
 Revenue:
 Rental...............................   $   99,149  $    95,568 $    96,928 $  102,548   $90,787

Lease termination fees................       32,123        2,313         416      1,403     4,940
 Tenant reimbursements................       58,252       57,002      56,036     53,212    38,370
 Other property revenues..............        4,918        5,047       5,681      5,954     8,251
 Mortgage note interest...............            -            -           -      4,864     6,926
 Services Company revenue.............        2,923        7,366       7,219          -         -
                                         ---------------------------------------------------------
    Total revenue.....................      197,365      167,296     166,280    167,981   149,274

 Expenses:
 Property operations..................       43,630       43,503      44,307     42,686    34,468
 Real estate taxes....................       35,546       36,026      32,974     32,115    27,275
 Depreciation and amortization........       36,882       29,519      28,806     25,949    26,910
 General and administrative...........        9,681        9,794       9,085     10,359     7,565
 Services Company operations..........        2,582        4,811       6,898          -         -
 Provision for asset impairment.......       45,353        7,952      20,337      1,000         -
 Severance costs......................          701        2,525           -          -         -
 Strategic alternative costs..........          485        1,561       3,289        717         -
         Loss on tax indemnification..            -          189       1,191          -         -
 Loss on land development option......            -            -           -          -       600
                                         ----------------------------------------------------------
 Total expenses.......................      174,860      135,880     146,887    112,826    96,818
                                         ----------------------------------------------------------

 Operating income.....................       22,505       31,416      19,393     55,155    52,456
 Other (expense) income...............         (953)       2,190       4,587      7,513     1,569
 Interest:
    Expense...........................      (53,386)     (36,977)    (38,886)   (42,897)  (32,547)
    Amortization of deferred
 financing costs......................       (7,539)      (4,064)     (3,638)    (6,153)   (2,318)
                                         ----------------------------------------------------------
 (Loss) income from continuing
    operations before minority              (39,373)      (7,435)    (18,544)    13,618    19,160
    interests.........................
 Minority interests...................        1,054        8,895      11,323      (561)    (2,674)
                                         ----------------------------------------------------------
 (Loss) income from continuing
    operations........................      (38,319)       1,460     (7,221)     13,057    16,486
 Discontinued operations, net of
    minority interests of $(1,113),
    $21,818, $(1,962), $(2,442) and
    $(5,164) in 2003, 2002, 2001,
    2000 and 1999, respectively.......        2,748      (31,138)     2,870       3,946     7,407
                                         ----------------------------------------------------------
 (Loss) income before (loss) gain
    on sales of real estate and
    cumulative effect of change
    in accounting principles..........      (35,571)     (29,678)    (4,351)     17,003    23,893
 (Loss) gain on sales of real
    estate, net of minority
    interests of  $84, $660, $(118),
    $786 and $(22,095) in 2003,
    2002, 2001, 2000 and 1999,
    respectively......................         (646)        (943)       174     (1,271)    30,955
 Cumulative effect of change in
    accounting principles, net of
    minority interests of $218 in
    2001 and $1,140 in 2000 (2).......            -            -       (321)    (1,843)         -
                                         ----------------------------------------------------------
 Net (loss) income....................      (36,217)     (30,621)    (4,498)    13,889     54,848
 Net income allocated to preferred
    shareholders......................       (9,000)     (11,280)   (12,150)   (12,147)   (12,103)
                                         ----------------------------------------------------------
 Net (loss) income available to
    common shareholders...............   $  (45,217)  $  (41,901) $ (16,648) $   1,742  $  42,745
                                         ==========================================================
</TABLE>

<PAGE>


<TABLE>
<CAPTION>



                                                            Year ended December 31
                                             2003        2002        2001        2000         1999
                                         --------------------------------------------------------------
<S>                                       <C>          <C>         <C>          <C>          <C>

Basic earnings available to common
  shares per weighted-average common
  share (3)
(Loss) income from continuing operations  $ (2.35)   $  (0.62)    $ (1.24)     $ 0.06        $  0.28
Discontinued operations, net of minority
  interests.............................     0.13       (1.99)       0.18        0.25           0.49
(Loss) gain on sales of real estate, net
  of minority interests..................   (0.03)      (0.06)       0.01       (0.08)          2.05
Cumulative effect of change in
  accounting principles, net of minority
  interests.............................        -           -       (0.02)      (0.12)             -
                                         --------------------------------------------------------------
Net (loss) income available per
  weighted-average common share of
  beneficial
  interest -basic....................... $  (2.25)    $ (2.67)    $ (1.07)     $ 0.11        $  2.82
                                         ==============================================================
Diluted earnings available to common
  shares per weighted-average common
  share (3)
(Loss) income from continuing operations $  (2.35)   $  (0.62)    $ (1.24)     $ 0.06        $  0.28
Discontinued operations, net of minority
  interests.............................     0.13       (1.99)       0.18        0.25           0.49
(Loss) gain on sales of real estate, net
  of minority interests..................   (0.03)      (0.06)       0.01       (0.08)          2.04
Cumulative effect of change in
  accounting principles, net of minority
  interests.............................        -           -       (0.02)      (0.12)             -
                                         --------------------------------------------------------------
Net (loss) income available per
  weighted-average common share of
  beneficial interest-diluted........... $  (2.25)   $  (2.67)    $ (1.07)     $ 0.11        $  2.81
                                         ==============================================================

</TABLE>

<TABLE>
<CAPTION>





                                                            Year ended December 31
                                             2003        2002        2001        2000         1999
                                         --------------------------------------------------------------
                                                            (Dollars in thousands)
<S>                                      <C>          <C>        <C>          <C>           <C>

Balance Sheet Data
Real estate assets, exclusive of
  property held for or under development
  and property held for sale and before
  accumulated depreciation..............  $  867,021  $1,338,325  $1,206,516  $1,180,206   $1,151,094
Total assets............................     948,781   1,410,181   1,527,649   1,439,093    1,444,175
Mortgage notes payable, credit
  facilities, construction financing and     572,820     904,438     925,136     799,171      799,171
  bonds payable.........................
Total liabilities.......................     663,640   1,064,099   1,076,737     924,124      901,767
Minority interests......................      21,803     100,643     128,806     153,206      169,070
Series A Preferred Shares...............           -           -      40,000      39,850       39,703
Shareholders' equity....................     263,338     245,439     282,106     321,913      333,635


</TABLE>

<PAGE>


<TABLE>
<CAPTION>





                                                  --------------------------------------------------------------
                                                                     Year ended December 31
                                                     2003         2002         2001        2000        1999
                                                  ------------ ------------ ----------- ----------- ------------
<S>                                              <C>          <C>          <C>        <C>    <C>    <C>

Cash Flow and Operating Data
Funds from operations (4)....................     $   (1,085)    $(29,924)     $ 15,786   $  40,462  $   52,295

Cash flow provided by (used in):
   Operating activities......................         29,286       42,320        52,810      64,393     106,296
   Investing activities......................        324,321      (75,951)     (144,744)    (26,248)   (439,793)
   Financing activities......................       (336,799)      42,849        73,248     (32,787)    306,907
   Ratio of earnings to combined fixed charges
     and preferred share distributions (5)...              -            -             -           -           -
Office Properties:
   Square footage............................      5,536,065    6,281,263     7,807,576   7,955,524   8,049,941
   Occupancy (%).............................           75.1         91.5          92.0        95.7        95.0
Industrial Properties:
   Square footage............................      3,874,712    3,874,712     3,914,712   4,187,030   5,146,668
   Occupancy (%).............................           81.4         84.4          81.7        93.2        84.3
Unconsolidated Joint Venture Properties:
   Square footage............................      2,827,302    2,831,943     1,421,658   1,330,604   1,330,604
   Occupancy (%).............................           74.1         39.9          81.9        90.3        70.5

</TABLE>



(1)  Information for the years ended December 31, 2002, 2001, 2000 and 1999 have
     been restated for the reclassification of the operations of properties,  in
     which we sold 100% of our  ownership  interest  during 2003 and 2002,  from
     continuing operations to discontinued operations.

(2)  In December  1999, the SEC issued Staff  Accounting  Bulletin No. 101 ("SAB
     101"),  "Revenue  Recognition in Financial  Statements." SAB 101 summarizes
     certain  of the  SEC's  views in  applying  generally  accepted  accounting
     principles  to revenue  recognition  in  financial  statements.  We granted
     permanent  property  easements on portions of certain of our  properties in
     1999 for which we recorded  all of the  revenue in 1999 when the  easements
     were granted. In addition,  the Services Company previously recognized 100%
     of leasing commissions at the time of lease signing.  However,  half of the
     commission amounts are subject to the tenant occupying the space. Under SAB
     101,  revenue  should be recognized  over the  anticipated  period that the
     easement would be used and lease commissions  should be recognized when all
     conditions  related to  earning  the  commission  have been  settled  which
     usually  occurs within twelve months of the lease  signing.  In determining
     the periods over which we would  recognize  revenue  under SAB 101, we took
     into consideration factors such as the expected life of physical structures
     constructed  on easement  sites at our  properties  and other  factors that
     provided an indication of the periods of active use of the easements by the
     respective grantees. These periods range from five to ten years. We adopted
     SAB 101  retroactive  to January 1, 2000 and recorded a charge to income of
     $1.8 million,  net of minority interests of $1.1 million,  representing the
     cumulative effect of adopting SAB 101 as of January 1, 2000. The cumulative
     effect  represents  income  recognized in 1999 and relates to the permanent
     property  easements and to leasing activity  described above.  During 2003,
     2002 and 2001,  respectively,  we recognized $0.3 million, $0.3 million and
     $0.3  million  of other  income (a portion  of which is  included  in other
     property revenues in the consolidated  statement of operations)  previously
     recorded in 1999.


<PAGE>


     On January 1, 2001, we adopted Statement of Financial  Accounting Standards
     ("SFAS")  No.  133,  "Accounting  for  Derivative  Instruments  and Hedging
     Activities"  ("SFAS  133"),  as amended by SFAS No.  138,  "Accounting  for
     Certain  Derivative  Instruments  and Certain  Hedging  Activities"  ("SFAS
     138"). SFAS 133, as amended, established accounting and reporting standards
     for  derivative  instruments.  Specifically  SFAS 133 requires an entity to
     recognize all  derivatives as either assets or liabilities in the statement
     of  financial  position  and to measure  those  instruments  at fair value.
     Additionally,  the fair value adjustments will affect either  shareholders'
     equity  or net  income  depending  on  whether  the  derivative  instrument
     qualifies as a hedge for accounting  purposes and, if so, the nature of the
     hedging activity.  Upon adoption of SFAS 138 and SFAS 133, we recorded as a
     cumulative  effect  of an  accounting  change a net  transition  adjustment
     (realized loss) of $0.5 million in net income, and a transition  adjustment
     of $3.2 million as an increase in  accumulated  other  comprehensive  loss.
     Adoption of the standard  resulted in a net  transition  adjustment of $3.8
     million on the balance  sheet  reflected  as a $0.5  million  reduction  in
     deferred  costs, a $1.4 million  reduction in investment in  unconsolidated
     entities and a deferred  hedge  liability of $1.9 million.  In August 2001,
     the Financial  Accounting Standards Board ("FASB") issued final guidance on
     the  accounting for options used as hedges under SFAS 133. This guidance is
     pursuant to Derivatives Implementation Group ("DIG") Issue No. G20 ("G20").
     Provided  certain  criteria  are  met,  options  can  be  considered  fully
     effective hedging vehicles,  with gains and losses due to changes in market
     value  recorded in other  accumulated  comprehensive  income on the balance
     sheet.  On  September 1, 2001,  we adopted G20 for its interest  rate hedge
     instruments.  Any subsequent  unrealized  gains or losses due to changes in
     market value of options,  such as interest  rate caps,  will be recorded in
     the other accumulated comprehensive income.

(3)  Net  income  available  per  weighted-average  common  share of  beneficial
     interest-basic  equals  net  income  divided  by  20,105,183,   15,673,544,
     15,630,586,  15,408,822  and  15,141,630  common shares for the years ended
     December 31, 2003,  2002,  2001,  2000 and 1999,  respectively.  Net income
     available per weighted-average share of beneficial  interest-diluted equals
     net income divided by 20,105,183,  15,673,544,  15,630,586,  15,539,337 and
     15,208,911, common shares for the year ended December 31, 2003, 2002, 2001,
     2000 and 1999, respectively.

(4)  We compute Funds from Operations in accordance  with standards  established
     by the Board of Governors of National Association of Real Estate Investment
     Trust's)  ("NAREIT"),  in its April 2002 White Paper. Funds from Operations
     does not represent  amounts  available for management's  discretionary  use
     because  of  needed  capital  replacement  or  expansion,   debt  repayment
     obligations, or other commitments and uncertainties.  Funds from Operations
     should not be  considered as an  alternative  to net (loss)  income,  as an
     indication of our performance or to cash flows as a measure of liquidity or
     the ability to pay dividends or make distributions.

(5)  The ratios of earnings  to  combined  fixed  charges  and  preferred  share
     distributions  were computed by dividing earnings by combined fixed charges
     and preferred share  distributions.  For this purpose,  earnings consist of
     income (loss) before  minority  interests,  plus  combined  fixed  charges.
     Combined fixed charges consist of interest  incurred,  amortization of debt
     issuance costs and preferred share  distributions.  Our 2003,  2002,  2001,
     2000  and  1999  earnings  were  insufficient  to cover  fixed  charges  by
     approximately $52.1 million,  $48.7 million,  $54.6 million,  $12.8 million
     and $0.9 million for the years ended December 31, 2003,  2002,  2001,  2000
     and 1999, respectively.


<PAGE>


     The following is our consolidated quarterly summary of operations for 2003:





<TABLE>
<CAPTION>


                                                                            Year ended December 31, 2003
                                                       -----------------------------------------------------------------------
                                                                        Fourth        Third        Second          First
                                                           Total        Quarter      Quarter       Quarter        Quarter
                                                       -----------------------------------------------------------------------
                                                                      (in thousands, except per share amounts)
<S>                                                    <C>            <C>            <C>          <C>          <C>

Total revenue......................................       $  197,365  $   33,306     $    45,850  $   45,043   $     73,166
Total expenses.....................................          174,860      69,496          35,957      35,077         34,330
                                                       -----------------------------------------------------------------------
Operating income (loss)............................           22,505     (36,190)          9,893        9,966        38,836
Other income (expense).............................             (953)     (3,684)            366        1,723           642
Interest:
   Expense.........................................          (53,386)     (9,695)        (13,928)     (14,464)      (15,299)
   Amortization of deferred financing costs........           (7,539)     (3,562)         (1,027)      (1,328)       (1,622)
                                                       -----------------------------------------------------------------------
(Loss) income from continuing operations before
   minority interests..............................          (39,373)    (53,131)         (4,696)      (4,103)       22,557
Minority interests.................................            1,054       6,370             804        2,238        (8,358)
                                                       -----------------------------------------------------------------------
(Loss) income from continuing operations...........          (38,319)    (46,761)         (3,892)      (1,865)       14,199
Discontinued operations, net of minority interests
   in  the amount of $(10) in the fourth quarter,
   $(2) in the third quarter, $(627) in the second
   quarter and  $(474) in the first quarter........            2,748          76              16        1,984           672
                                                       -----------------------------------------------------------------------
(Loss) income before loss on sales of real
   estate  ........................................          (35,571)    (46,685)         (3,876)         119        14,871
Loss on sales of real estate, net of minority
   interest of $84 in the fourth quarter...........             (646)       (646)              -            -             -
                                                       -----------------------------------------------------------------------
Net (loss) income..................................          (36,217)    (47,331)         (3,876)         119        14,871
Net income allocated to preferred shareholders.....           (9,000)     (2,250)         (2,250)      (2,250)       (2,250)
                                                       -----------------------------------------------------------------------
Net (loss) income available to common shareholders.       $  (45,217)   $(49,581)    $    (6,126) $    (2,131)  $    12,621
                                                       =======================================================================

Basic and diluted earnings available to common
  shares per weighted average common share
 (Loss) income from continuing operations..........       $    (2.35)   $  (2.07)    $     (0.26) $     (0.24)  $      0.76
 Discontinued operations, net of minority interests             0.13           -               -         0.12          0.04
 Loss on sales of real estate, net of minority
   interests.......................................            (0.03)      (0.03)              -            -             -
                                                       -----------------------------------------------------------------------
Net (loss) income available per weighted-average
  common share of beneficial interest - basic and
  diluted..........................................       $    (2.25)   $  (2.10)    $     (0.26) $     (0.12)  $      0.80
                                                       =======================================================================
Weighted average common shares--basic and diluted
                                                              20,105      23,665          23,665       17,379        15,713
                                                       =======================================================================
Distributions paid per common share................                -           -               -            -             -
                                                       =======================================================================
</TABLE>




<PAGE>



<TABLE>
<CAPTION>



     The following is our consolidated quarterly summary of operations for 2002:

                                                                         Year ended December 31, 2002 (1)
                                                        --------------------------------------------------------------------
                                                                        Fourth        Third       Second         First
                                                            Total       Quarter      Quarter      Quarter       Quarter
                                                        --------------------------------------------------------------------
                                                                     (In thousands, except per share amounts)
<S>                                                        <C>         <C>            <C>        <C>           <C>


Total revenue.......................................       $  167,296    $   40,947   $   43,100  $   41,481    $   41,768
Total expenses......................................          135,880        33,352       32,554      34,061        35,913
                                                        --------------------------------------------------------------------
Operating income....................................          135,880        33,352       32,554      34,061        35,913
                                                               31,416         7,595       10,546       7,420         5,855
Other income........................................            2,190           450          493         410           837
Interest:
   Expense..........................................          (36,977)       (9,958)      (9,934)     (8,424)       (8,661)
   Amortization of deferred financing costs.........           (4,064)       (1,755)        (933)       (682)         (694)
                                                        --------------------------------------------------------------------
(Loss) income from continuing operations before
   minority interests...............................           (7,435)       (3,668)         172      (1,276)       (2,663)
Minority interests..................................            8,895         2,467          967       1,876         3,585
                                                        --------------------------------------------------------------------
Income (loss) from continuing operations............            1,460        (1,201)       1,139         600           922
Discontinued operations, net of minority interests
   in  the amount of $8,474 in the fourth quarter,
   $(322) in the third quarter, $784 in the second
   quarter and  $12,882 in the first quarter........          (31,138)      (12,054)         533        (903)      (18,714)
                                                        --------------------------------------------------------------------
(Loss) income before loss on sales of real
   estate  .........................................          (29,678)      (13,255)       1,672        (303)      (17,792)
Loss on sales of real estate, net of minority
   interest of $34 in the fourth quarter, $408 in
   the  second quarter and $218 in the first quarter             (943)          (48)           -        (580)         (315)
                                                        --------------------------------------------------------------------
Net (loss) income...................................          (30,621)      (13,303)       1,672        (883)      (18,107)
Net income allocated to preferred shareholders......          (11,280)       (2,250)      (2,450)     (3,381)       (3,199)
                                                        --------------------------------------------------------------------
Net loss available to common shareholders...........       $  (41,901)  $   (15,553)  $     (778)$    (4,264)  $   (21,306)
                                                        ====================================================================

Basic and diluted earnings available to common
  shares per weighted average common share
 Loss from continuing operations....................    $      (0.62)   $    (0.22)   $   (0.08) $     (0.18)  $     (0.14)
 Discontinued operations, net of minority interests.           (1.99)        (0.77)        0.03        (0.06)        (1.19)
 Loss on sales of real estate, net of minority
   interests........................................           (0.06)            -            -        (0.04)        (0.02)
                                                        --------------------------------------------------------------------
Net loss available per weighted-average common
  share of beneficial interest - basic and diluted..    $      (2.67)  $    (0.99)    $   (0.05) $     (0.28)  $     (1.35)
                                                        ====================================================================
Weighted average common shares--basic and diluted              15,674      15,675        15,675       15,674        15,664
                                                        ====================================================================
Distributions paid per common share.................    $            - $        -     $       -  $         -   $         -
                                                        ====================================================================
</TABLE>



(1)  Reclassifications  of  information  for the year ended  December  31,  2002
     related to the  operations of properties  sold during 2003 from  continuing
     operations to discontinued operations have been made.


<PAGE>


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

Overview

     The following  discussion should be read in conjunction with our historical
consolidated  financial  statements and related notes thereto included elsewhere
in this Form 10-K.

     We are a fully-integrated,  self-administered, and self-managed real estate
investment trust (REIT) which owns, manages,  leases,  develops,  and redevelops
office and industrial real estate,  primarily in the Chicago  metropolitan area.
Our  portfolio of  properties  consists of 13 office  properties,  containing an
aggregate of 5.5 million net rentable square feet, and 30 industrial properties,
containing an aggregate of 3.9 million net rentable square feet. In addition, we
own 217.4 acres of  developable  land and have joint venture  interests in three
office properties containing an aggregate of 2.8 million rentable square feet.

     All of our properties are located in the Chicago metropolitan area in prime
business locations within established  business  communities and account for all
of our  rental  revenue  and  tenant  reimbursements  revenue.  One of our joint
venture properties is located in Arizona.

     Our 2003 results reflect the general  weakness in the economy over the past
couple of years,  which has  resulted in less  demand for office and  industrial
property.  Since national and regional  office and industrial  vacancy rates are
higher  than they  would be in a  stronger  economic  environment,  we have been
challenged to retain existing  tenants and locate new tenants for our vacant and
non-renewing  space at  acceptable  economic  occupancy  and rental  rates.  The
unforeseen demise of Arthur Andersen LLP put a significant  amount of additional
pressure on our cash flow, liquidity and earnings during 2003. In addition,  the
supply of downtown  Chicago  office space  continues to grow,  principally  as a
result of the construction of new office  buildings.  As these buildings come on
line in the next few years,  the  additional  supply may  continue to add to the
challenge.

     Our  income  and  cash  flow  is  derived  primarily  from  rental  revenue
(including  tenant  reimbursements)  from our  properties.  We  expect  that any
revenue  growth over the next  several  years will come from  revenue  generated
through  increased  rental and occupancy  rates in our portfolio.  The following
summarizes our portfolio occupancy at the end of each quarter of 2003 and at the
end of 2002:

<TABLE>
<CAPTION>


                                                           Portfolio Occupancy
                            December 31,      September 30,        June 30,      March 31,      December 31,
                                2003               2003              2003           2003            2002
                           ---------------- ------------------- -------------- --------------- ----------------
<S>                        <C>              <C>                  <C>           <C>             <C>

Office                           75.1%            75.9%               76.0%          81.4%            91.5%
Industrial                       81.4             77.2                79.9           83.0             84.4
                           ---------------- ------------------- -------------- --------------- ----------------
Portfolio Total                  77.7%            76.5%               77.6%          82.0%            88.8%
                           ================ =================== ============== =============== ================

Unconsolidated Joint
  Venture Properties             74.1%            74.2%               73.9%          65.6%            39.9%
                           ================ =================== ============== =============== ================
</TABLE>


     Office occupancy has been significantly affected since December 31, 2002 by
the February 2003  terminations of the Arthur Andersen leases.  Excluding our 33
West  Monroe  Street  office  building,  which was Arthur  Andersen's  corporate
offices,  the overall  office  occupancy  was 82.1% at December 31, 2003 and the
portfolio occupancy was 81.8%.

     It should also be noted that the Bank One Center office building  (included
in  investments in  unconsolidated  entities) was placed in service late in 2002
and is still in the lease-up phase with occupancy at December 31, 2003 of 67.7%.


<PAGE>


2003 Business Summary

     For 2003, our focus was on:

o    retiring or refinancing debt which had maturity dates in 2003 and 2004;
o    reducing our overall debt levels;
o    stabilizing portfolio cash flow;
o    reducing operating costs;
o    aggressively pursuing leasing transactions; and
o    continuing to explore strategic alternatives.

     Below is a summary of several of the  activities  we  undertook  in 2003 in
keeping with these objectives.

o    We reduced our outstanding indebtedness by $331.6 million to $572.8 million
     at the end of the year from $904.4  million at the  beginning  of the year,
     including the retirement of $145.2 million of high interest rate debt.
o    We  purchased  our prior  partner's  interest in the Bank One Center  joint
     venture in March 2003 and then  subsequently,  in October 2003,  sold a 70%
     interest in the joint venture to a new partner for $105.0 million.
o    We sold our National  City Center office  property in  Cleveland,  Ohio for
     $80.0 million.
o    We  refinanced  the first  mortgage and  mezzanine  loan secured by our IBM
     Plaza office  property  with $195.0  million of new  financing.
o    We negotiated  and received  $33.5 million of lease  termination  fees from
     Arthur Andersen LLP.
o    We commenced 53 new and expansion  office leases totaling  1,238,283 square
     feet and we renewed 49 office leases totaling 329,053 square feet.
o    We commenced  six new and  expansion  industrial  leases  totaling  322,736
     square feet and we renewed two  industrial  leases  totaling  56,804 square
     feet.

     In addition to our day-to-day  operational  focus, we continued to evaluate
strategic  alternatives in  consideration  of any/all  opportunities  to enhance
shareholder  value.  On February 13, 2004, we extended the  engagement of one of
our investment banks, Wachovia Capital Markets, LLC through December 24, 2004.

Key Performance Indicators

     We  evaluate  the  performance  of our  reportable  segments  based  on the
occupancy  percentages and operating  profit of the respective  property segment
which includes rental revenue, tenant reimbursement revenue, property operations
expense and  administrative  expenses and the  allocation of corporate  overhead
expenses.  We also use other metrics such as gross rent, net  occupancy,  tenant
retention,  percent of property operating expenses recovered,  results of tenant
satisfaction  surveys and net  effective  rent, in analyzing  individual  tenant
lease agreements.

     In addition to net income under generally accepted  accounting  principles,
we use funds from  operations,  which is a  measurement  tool common  among real
estate investment trusts for measuring profitability.


<PAGE>


     Results of Operations

     Comparison of the Year ended  December 31, 2003 to the Year Ended  December
     31, 2002

     The table below  represents  selected  operating  information for the Total
Portfolio and for the Same Store  Portfolio  consisting of 13 Office  Properties
and 30  Industrial  Properties  acquired  or  placed in  service  on or prior to
January  1,  2002.   Property   revenues   include   rental   revenues,   tenant
reimbursements  and  other  property  operating  revenues.   Property  operating
expenses  include real estate  taxes,  utilities  and other  property  operating
expenses.



<TABLE>
<CAPTION>




                                                   Total Portfolio                                  Same Store Portfolio
                                 ----------------------------------------------------  ---------------------------------------------
                                                             Increase/       %                                 Increase/        %
(Dollars in thousands)              2003          2002      (Decrease)     Change         2003        2002      (Decrease)    Change
-------------------------------- ------------ ------------- ---------- ------------  ----------- ------------ ----------- --------
<S>                              <C>         <C>           <C>         <C>            <C>         <C>          <C>        <C>

Property revenues                $162,319    $ 157,617     $   4,702         3.0%  $ 135,228    $ 158,266    $  (23,038)    (14.6)%
Lease termination fees             32,123        2,313        29,810     1,288.8      32,123        2,313        29,810   1,288.8
Services Company revenues           2,923        7,366        (4,443)      (60.3)          -            -            -         -
                                 ------------ ------------- ---------- ------------ ----------- ------------ ----------- --------
 Total revenues                   197,365      167,296        30,069        18.0     167,351      160,579        6,772        4.2

Property operating expenses        79,176       79,529          (353)       (0.4)     70,463       80,379       (9,916)     (12.3)
Depreciation and amortization      36,882       29,519         7,363        24.9      29,484       28,903          581        2.0
General and administrative          9,681        9,794          (113)       (1.2)          -            -            -         -
Services Company operations         2,582        4,811        (2,229)      (46.3)          -            -            -         -
Provision for asset impairment     45,353        7,952        37,401       470.3      43,405        1,749       41,656    2,381.7
Severance costs                       701        2,525        (1,824)      (72.2)          -            -            -         -
Strategic alternative costs           485        1,561        (1,076)      (68.9)          -            -            -         -
Loss on tax indemnification             -          189          (189)     (100.0)          -            -            -         -
                                 ------------ ------------- ---------- ------------ ----------- ------------ ----------- --------
 Total expenses                   174,860      135,880        38,980        28.7     143,352      111,031       32,321       29.1
                                 ------------ ------------- ---------- ------------ ----------- ------------ ----------- --------
Operating income                   22,505       31,416        (8,911)      (28.4)     23,999       49,548      (25,549)     (51.6)
Other (expense) income               (953)       2,190        (3,143)     (143.5)          -            -            -         -
Interest:
 Expense                          (53,386)     (36,977)      (16,409)       44.4     (30,907)     (31,857)         950        3.0
 Amortization of deferred
    financing costs                (7,539)      (4,064)       (3,475)       85.5      (2,352)      (2,625)         273       10.4
                                 ------------ ------------- ---------- ------------ ----------- ------------ ----------- --------
(Loss) income from continuing
 operations before minority
 interests                        (39,373)      (7,435)      (31,938)      429.6   $  (9,260)  $   15,066    $ (24,326)    (161.5)%
                                                                                   =========== ============ =========== ==========

Minority interests                  1,054        8,895        (7,841)      (88.2)
                                 ------------ ------------- ---------- ------------
Income (loss) from continuing     (38,319)       1,460       (39,779)   (2,724.6)
 operations
Discontinued operations, net of
 minority interests                 2,748      (31,138)       33,886      (108.8)
                                 ------------ ------------- ---------- ------------
Loss before loss on sales of
 real estate                      (35,571)     (29,678)       (5,893)       19.9
Loss on sales of real
 estate, net of minority interest    (646)        (943)          297       (31.5)
                                 ------------ ------------- ---------- ------------
Net loss                         $(36,217)   $  (30,621)   $  (5,596)       18.3%
                                 ============ ============= ========== ============
</TABLE>




<PAGE>



       Property Revenues.  The decrease of $23.0 million in property revenues in
the same store portfolio  resulted primarily from the termination of leases with
Arthur Andersen LLP at two of our office  properties,  which accounted for $15.4
million of the total. In addition,  other decreases included $3.9 million due to
the  expiration  of leases at various  office  properties,  a  decrease  of $1.1
million  due to a  decrease  in tenant  reimbursement  revenue  as a result of a
decrease in expenses at two of our office buildings,  $1.1 million due to tenant
bankruptcies  at three  industrial  properties and $0.5 million due to the early
termination of leases at two of our industrial properties.

     The  increase  of $4.7  million  in 2003  property  revenues  in the  total
portfolio  included  $27.5 million of revenues  generated  from Bank One Center,
offset by the previously described changes in the same store portfolio. The Bank
One Center  property  was placed in service in November  2002 with tenant  lease
commencements in January, February and April 2003. We have recorded revenue from
January  1, 2003  through  October  8,  2003  (admittance  of our joint  venture
partner) for this  property.  Subsequent  to October 8, 2003,  we recorded  this
investment under the equity method of accounting.

     Lease  Termination Fees. The increase of $29.8 million in lease termination
fees was  primarily due to the February 2003  termination  of Arthur  Andersen's
leases at two of our  office  properties,  which  resulted  in $31.2  million of
revenue,  after  deducting  outstanding  receivables  (including  deferred  rent
receivable). We expect that future property revenues may continue to be affected
by early lease  terminations  if economic  conditions  do not improve or if they
worsen.

     Services Company Revenues. The decrease of $4.4 million in Services Company
revenues  during 2003 was primarily due to our  recognition of  development  fee
income of $4.2 million in 2002  related to the  development  of a  build-to-suit
industrial building.

     Property  Operating  Expenses.  The  decrease  of $9.9  million in property
operating  expenses  in the same store  portfolio  was  primarily  due to a $5.0
million decrease in operating  expenses resulting from the termination of Arthur
Andersen's  leases at two  Chicago  office  properties,  $4.1  million  of which
related  to real  estate  taxes,  a $1.2  million  decrease  in  property  level
administrative costs as a result of staffing reductions, a $0.8 million decrease
due to fewer  repairs and  maintenance  being  performed  at our Chicago  office
properties in 2003, a $0.7 million  decrease in bad debt expense from 2002 and a
$0.7 million  decrease  resulting from  adjustments to the estimates of the 2002
real estate taxes. In addition,  2002 results included a $0.8 million adjustment
in the  previously  estimated  real  estate  tax  expense  for a Chicago  office
property for 2001, which also contributed to the decrease in property  operating
expenses.

     The decrease in property operating expenses in the total portfolio included
Bank One Center's  operating  expenses  totaling $8.5  million,  which is net of
amounts  capitalized  of $4.1  million  related to vacant  space,  offset by the
previously described changes in the same store portfolio.

     Depreciation and Amortization. The increase of $7.4 million in depreciation
and  amortization in the total portfolio in 2003 was  attributable  primarily to
$5.9 million of depreciation and amortization related to the portion of the Bank
One Center  building in which tenant leases  commenced in 2003 and therefore the
related tenant improvement and leasing cost amortization began. In addition,  we
recorded a write-off  of $0.4 million of  unamortized  tenant  improvements  and
leasing  commissions  associated with the Arthur Andersen LLP lease termination.
This latter item also accounted for the principal  variance in depreciation  and
amortization for the same store portfolio.

     General and Administrative.  General and administrative  expenses decreased
$0.1  million   primarily   due  to  decreases  in  salaries  and  benefits  and
professional  fees which  were  partially  offset by an  increase  in  corporate
insurance costs, principally directors' and officers' liability insurance.

     Services Company  Operations.  The decrease of $2.2 million in the Services
Company's  operating  expenses was primarily due to a decrease in the income tax
provision  by $1.3  million  due to the  decrease  in  revenue  from  2002.  The
remaining  difference  was primarily due to the  elimination  of the expenses of
operating  non-core  business  activities  of third party  brokerage  and tenant
construction services which were discontinued in March 2002.

     Provision for Asset Impairment.  Provision for asset impairment  represents
impairment losses  associated with certain operating and development  properties
in reducing their net book value to their current  estimated value. The increase
in the  provision  for asset  impairment  is  primarily  due to a $43.4  million
impairment  loss related to our 33 West Monroe  Street office  property,  as our
anticipated  hold period for the property was reduced based upon our decision to
pursue a sale or joint  venture  transaction  during 2004.  We also  recorded an
asset  impairment of $1.0 million related to costs associated with a development
project,  which we determined no longer had value as the development is on hold,
and a $0.9 million asset  impairment  related to the sale of a 70% interest to a
new  partner in the entity  that owns the Bank One Center  office  building.  In
2002, we recorded a $5.7 million asset impairment related to various development
projects we abandoned  and a $1.7 million asset  impairment  related to an asset
associated  with an industrial  property as it was determined  that the asset no
longer had value.  In  addition,  we also  transferred  our  interest in a joint
venture to our joint  venture  partner and recorded an asset  impairment of $0.5
million related to our investment in this unconsolidated entity.

     Severance  Costs.  For 2003,  we recorded  severance  costs of $0.7 million
resulting from the  termination of Mr. Louis G. Conforti as our Chief  Financial
Officer and, for 2002,  we recorded  severance  costs of $2.5 million  resulting
from the resignations of Mr. Michael W. Reschke and Mr. Richard S. Curto as well
as a reduction of corporate management and support staff.

     Other (Expense) Income.  The decrease in other (expense) income during 2003
of $3.1 million was  primarily  due to a $2.6 million loss  associated  with our
equity  investment  in the Bank One Center  joint  venture  for the period  from
October 8, 2003 through the end of the year. As  distributions to our partner in
this joint venture exceeded the joint venture's net income,  income equal to the
distribution  was  allocated to our partner and we recorded a loss in the amount
of the difference between this allocation and the actual net income of the joint
venture.  Also  contributing  to the  decrease was a decrease of $0.4 million in
interest  income earned on restricted cash due to lower interest rates and lower
restricted cash balances.

     Interest Expense.  The increase in interest expense of $16.4 million in the
total  portfolio is  primarily  due to an increase of $9.2  million  related to
interest  expense  previously  capitalized  for projects under  development,  an
increase of $11.9  million due to Bank One Center being  completed and placed in
service  and an increase  of $1.6  million  related to  increased  average  debt
outstanding, offset by a decrease of $5.0 million resulting from the refinancing
of our IBM Plaza  property  and a decrease of $1.3 million due to lower rates on
our variable rate debt.

     The  decrease  in  interest  expense  of $1.0  million  in the  same  store
portfolio  resulted  primarily  from  a  decrease  of  $6.0  million  due to the
refinancing  of our IBM Plaza  property  and a decrease  of $1.1  million due to
lower rates on our  variable  rate debt,  offset by an increase of $4.7  million
related  to  interest   expense   previously   capitalized  for  projects  under
development  and an increase of $1.6  million due to exit fees and  underwriting
expenses  relating to the  refinancing of the IBM Plaza property and accrual for
our 180 North LaSalle Street office property.

     Amortization of Deferred  Financing  Costs. The increase in amortization of
deferred financing costs of $3.5 million in the total portfolio is primarily due
to an  increase of $1.1  million  related to the  write-off  of  financing  fees
associated with the refinancings in March and October 2003 related to financings
secured  by the  Bank One  Center  office  property,  offset  by a $2.4  million
reduction in the amount of amortized  financing  fees  capitalized  for projects
under development.

     Strategic  Alternative Costs. These costs consist primarily of professional
and  investment  banking fees.  For the year ended December 31, 2003 compared to
2002, we incurred  lower expenses in connection  with our  continuing  review of
strategic alternatives.

     Discontinued Operations.  Discontinued operations reflect net income (loss)
(including  provisions for asset  impairment)  and  gain/(loss) on sales of real
estate for operating properties sold.  Discontinued  operations for 2003 include
the results for National City Center, which was sold in June 2003. This includes
operating income of $2.6 million and a gain on the sale of this property of $1.2
million. Discontinued operations for 2002 includes the results for National City
Center and various other  properties sold in 2002. This includes  provisions for
asset impairment of $56.6 million and a net loss on sales of real estate of $3.2
million,  offset by $6.8 million of operating  income from the properties and is
net  of  $21.8   million  of  these  amounts   attributable   to  our  operating
partnership's minority interest holders. See Note 9 - Discontinued Operations to
our Consolidated  Financial  Statements for further discussion of the impairment
provisions.


<PAGE>


     Comparison of the Year ended  December 31, 2002 to the Year Ended  December
     31, 2001

     The table below  represents  selected  operating  information for the Total
Portfolio and for the Same Store  Portfolio  consisting of 14 Office  Properties
and 29  Industrial  Properties  acquired  or  placed in  service  on or prior to
January 1, 2001.


<TABLE>
<CAPTION>



                                                   Total Portfolio                                     Same Store Portfolio
                                 ----------------------------------------------------  ---------------------------------------------
                                                              Increase/       %                                 Increase/      %
(Dollars in thousands)              2002          2001      (Decrease)     Change         2002        2001      (Decrease)  Change
-------------------------------- ------------ ------------- ------------ ------------  ----------- ------------ ----------- --------
<S>                              <C>         <C>            <C>           <C>         <C>          <C>

Property revenues                $ 157,617    $  158,645    $ (1,028)         (0.6)%   $ 157,374   $ 158,554      (1,180)     (0.7)%
Lease termination fees               2,313           416       1,897         456.0         2,313         392       1,921     490.1
Services Company revenues            7,366         7,219         147           2.0            --          --          --        --
                                 ------------ ------------- ------------ ------------  ----------- ------------ ----------- --------
 Total revenues                    167,296       166,280       1,016           0.6       159,687     158,946         741       0.5

Property operating expenses         79,529        77,281       2,248           2.9        80,200      75,961       4,239       5.6
Depreciation and amortization       29,519        28,806         713           2.5        28,735      28,054         735       2.6
General and administrative           9,794         9,085         709           7.8             -           -           -         -
Services Company operations          4,811         6,898      (2,087)        (30.3)            -           -           -         -
Provision for asset impairment       7,952        20,337     (12,385)        (60.9)        1,749           -       1,749         -
Severance costs                      2,525             -       2,525            -              -           -           -         -
Strategic alternative costs          1,561         3,289      (1,728)        (52.5)            -           -           -         -
Loss on tax indemnification            189         1,191      (1,002)        (84.1)            -           -           -         -
                                 ------------ ------------- ------------ ------------  ----------- ------------ ----------- --------
 Total expenses                    135,880       146,887     (11,007)         (7.5)      110,738     104,015       6,723       6.5
                                 ------------ ------------- ------------ ------------  ----------- ------------ ----------- --------
Operating income                    31,416        19,393      12,023          62.0        48,949      54,931      (5,982)    (10.9)
Other income                         2,190         4,587      (2,397)        (52.3)            -           -           -         -
Interest:
 Expense                           (36,977)      (38,886)      1,909          (4.9)      (31,617)    (37,301)      5,684      15.2
 Amortization of deferred
    financing costs                 (4,064)       (3,638)       (426)         11.7        (2,598)     (1,909)       (689)    (36.1)
                                 ------------ ------------- ------------ ------------  ----------- ------------ ----------- --------
(Loss) income from continuing
 operations before minority
 interests                          (7,435)      (18,544)     11,109         (59.9)    $  14,734   $  15,721        (987)     (6.3)%
                                                                                       =========== ============ =========== ========
Minority interests                   8,895        11,323      (2,428)        (21.4)
                                 ------------ ------------- ------------ ------------
Income (loss) from continuing
 operations                          1,460        (7,221)      8,681        (120.2)
Discontinued operations, net of
 minority interests                (31,138)        2,870     (34,008)     (1,184.9)
                                 ------------ ------------- ------------ ------------
Loss before (loss) gain on sales
 of real estate and cumulative
 effect of change in accounting
 principle                         (29,678)       (4,351)    (25,327)        582.1
(Loss) gain on sales of real
  estate, net of minority interest    (943)          174      (1,117)       (642.0)
Cumulative effect of change in
 accounting principles, net of
 minority interest                       -          (321)        321        (100.0)
                                 ------------ ------------- ------------ ------------
Net loss                         $ (30,621)   $   (4,498)  $ (26,123)        580.8%
                                 ============ ============= ============ ============
</TABLE>




<PAGE>




     Property  Revenues.  The decrease in property revenues was primarily due to
the expiration of a lease at a suburban  office property in 2001 ($1.5 million),
net of re-leasing of a portion of the space in 2002.  The  expiration of a lease
at a Chicago office property also contributed a decrease of $0.9 million, net of
additional  property  revenues  generated  from the  subsequent  re-leasing of a
portion of the space in 2002. In addition,  the expiration of a lease at another
Chicago  office  property  resulted in a decrease  to property  revenues of $0.8
million.  These were offset by a $1.6 million increase in property revenues as a
result of an  increase in  straight-line  rent in 2002 in  conjunction  with the
bankruptcy  of a tenant at an  industrial  property in 2001.  We  wrote-off  the
remaining deferred rent receivable  balance (related to straight-line  rent), as
of the date of the bankruptcy.

     Lease  Termination  Fees.  The  increase  in  lease  termination  fees  was
primarily due to the 2002  terminations  of leases at a Chicago office  property
and an industrial  property,  which resulted in $1.3 million and $0.9 million of
revenue, respectively.

     Services Company Revenues. The increase in Services Company revenues during
2002 was  primarily due to our  recognition  of  development  fee income of $4.2
million related to the development of a build-to-suit  industrial building. This
increase was partially offset by decreased leasing and consulting income of $1.4
million and decreased  construction  and painting revenue of $2.5 million during
2002 due to the Company's  discontinuance of providing third party brokerage and
tenant construction services in March 2002.

     Property Operating Expenses. The increase in property operating expenses in
the same store  portfolio was  primarily due to a $3.8 million  increase in real
estate taxes principally  resulting from the change in the assessed valuation of
two Chicago office and two industrial properties. In addition, security coverage
increased  $0.5  million and property  insurance  increased by $1.1 million from
2001 due to increased  premiums as a result of the events of September 11, 2001.
These  increases were partially  offset by a $1.0 million  decrease in utilities
expenses  primarily  as a result  of lower  occupancy  levels  and  efficiencies
achieved from changes in service providers. In addition,  property level general
and   administrative   expenses  decreased  by  $0.6  million  as  a  result  of
reallocations of staff responsibilities in conjunction with staffing reductions.

     The increase in property operating expenses in the total portfolio included
the previously described changes in the same store portfolio but was offset by a
decrease in property operating expenses associated with properties sold prior to
January 1, 2002.

     Depreciation and Amortization. The increase of $0.7 million in depreciation
and  amortization  during 2002  compared to 2001 was primarily due to additional
tenant  improvements  and lease  commissions  associated with new leasing at our
properties  offset by the write-off of  undepreciated  tenant  improvements  and
unamortized  lease  commissions in 2001  associated with a bankrupt tenant at an
industrial property.

     General and  Administrative.  For 2002  compared  to 2001,  our general and
administrative  expenses  increased $0.7 million primarily due to an increase in
professional  fees and corporate  insurance  costs,  principally  directors' and
officers'  liability  insurance  increases,  which  were  partially  offset by a
decrease in salaries and benefits.

     Services  Company  Operations.  The  decrease  in  the  Services  Company's
operating  expenses  was  primarily  due to the  elimination  of the expenses of
operating  non-core  business  activities  of third party  brokerage  and tenant
construction  services  which was  partially  offset by an  increase in expenses
related to the  development  services  provided to a third  party  relating to a
build-to-suit industrial building.

     Provision for Asset Impairment.  Provision for asset impairment  represents
the  write-down of certain  operating  properties,  development  properties  and
investments in  unconsolidated  entities to their current  estimated  value. The
decrease in the provision  for asset  impairment is primarily due to recording a
$15.1  million  impairment  in 2001 to reflect the effect of the then  impending
assignment of our interest in a development  to our joint venture  partner based
upon our decision not to participate in the  development.  We also recorded $5.7
million and $4.9  million in asset  impairments  related to various  development
projects we abandoned in 2002 and 2001, respectively.  In 2002, we also recorded
a  $1.7  million  asset  impairment  related  to an  asset  associated  with  an
industrial property as it was determined that the asset no longer had value, and
we transferred  our interest in a joint venture to our joint venture partner and
recorded an asset  impairment of $0.5 million  related to our investment in this
unconsolidated entity.

     Severance  Costs.  In 2002,  we recorded  severance  costs of $2.5  million
resulting  from the  resignations  of Mr.  Michael W. Reschke and Mr. Richard S.
Curto and the reduction of corporate management and support staff.


<PAGE>


     Loss on Tax  Indemnification.  The $1.0 million change is due to a decrease
in expense related to tax indemnity payments incurred due to the sale of certain
properties  covered  by tax  indemnities  with the  prior  owner.  See Note 14 -
Commitments and  Contingencies  to our Consolidated  Financial  Statements for a
further discussion concerning these tax indemnities.

     Other Income.  The decrease in other income during 2002 of $2.4 million was
primarily  due to a  decrease  of $1.9  million  in  interest  income  earned on
restricted cash due to lower interest rates and lower  restricted cash balances.
A decrease  during 2002 in income earned from an  unconsolidated  entity of $0.5
million also contributed to the overall decrease in other income.

     Interest Expense.  The decrease in interest expense of $1.9 million for the
total  portfolio is primarily due to lower  interest  rates on our variable rate
debt of $4.2 million, a decrease of $3.5 million relating to loan repayments and
a  decrease  of $2.0  million  due to the  refinancing  of  several  office  and
industrial properties,  offset by an increase of $3.7 million for a reduction in
the  amount of  interest  capitalized  for  projects  under  development  and an
increase of $4.1 million  related to increased  average  debt  outstanding.  The
decrease  in interest  expense of $5.7  million in the same  portfolio  resulted
primarily from a decrease in interest expense of $3.6 million due to lower rates
on our variable rate debt, a decrease of $1.9 million due to the  refinancing of
several  office and  industrial  properties  and $0.2  million  related to lower
average debt outstanding.

     Strategic  Alternative Costs. These costs consist primarily of professional
and  investment  banking fees.  For the 2002 compared to 2001, we incurred fewer
expenses in connection with our continuing review of strategic alternatives.

     Discontinued  Operations.  In  accordance  with  SFAS  144,  effective  for
financial  statements issued for fiscal years beginning after December 15, 2001,
net  income  and  gain/(loss)  on  sales  of real  estate  for  properties  sold
subsequent to December 31, 2001 are reflected in the consolidated  statements of
operations as "Discontinued Operations" for both periods presented. The decrease
in  the  results  is  primarily  due  to  the  impairment   losses  included  in
discontinued  operations in 2002 (net of the minority  interest  effect),  which
include $33.6 million  related to assets sold during the second quarter when the
anticipated  hold period was  reduced  based upon our  decision to sell  certain
non-core suburban office properties,  $22.1 million related to the National City
Center office  property  based upon our decision to exit the  Cleveland  market,
which  shortened our  anticipated  hold period for the property and $0.8 million
related to an office  property  sold  during the fourth  quarter  based upon our
decision to exit the Tennessee market.

Liquidity and Capital Resources

     Recent Developments. In December 2002, our Board approved the engagement of
two  investment  banks as our financial  advisors to assist in the evaluation of
strategic alternatives,  including,  but not limited to, a sale, merger or other
business  combination  involving  the  Company,  or a sale of some or all of our
assets.  On February 13, 2004, we entered into an engagement  letter with one of
these advisors, Wachovia Securities, extending their engagement through December
24, 2004.  The  engagement of our other  financial  advisor  expired in December
2003.

     Our continuing goal is to achieve a desirable  result for our  shareholders
which may include a strategic transaction(s) and/or the continued implementation
of our primary business strategy (See "Business - Business Strategy"). There can
be no assurances that any transaction or transactions  will occur. We anticipate
utilizing  net proceeds  from any  transaction  other than a sale of the Company
(whether by merger or otherwise) to repay debt,  provide working capital to fund
capital  expenditures,  including tenant  improvements and leasing  commissions,
and/or  distribute them to our  shareholders  and the common unit holders of our
Operating Partnership. We may also utilize a portion of any proceeds for general
and  corporate  operating  needs and to  consummate  tax-deferred  exchanges  to
minimize any tax exposure under existing tax indemnification agreements.

     Liquidity.  We require  cash to pay our  operating  expenses,  make capital
expenditures, fund tenant improvements and leasing costs, pay distributions, and
service  our debt and  other  long-term  liabilities.  Net  cash  provided  from
operations   represents   our  primary   source  of   liquidity  to  fund  these
expenditures.  In assessing our liquidity, key components include our net income
adjusted  for  non-cash  and   non-operating   items,  and  current  assets  and
liabilities,  in particular accounts  receivable,  accounts payable, and accrued
expenses.  For the longer  term,  our debt and  long-term  liabilities  are also
considered key to assessing our liquidity.

     In order to qualify as a REIT for  federal  income  tax  purposes,  we must
distribute 90% of our taxable income  (excluding  capital  gains)  annually.  As
previously  disclosed,  due  to a  number  of  factors,  including  our  capital
requirements in our current operating environment,  our Board decided to suspend
the declaration and payment of  distributions  on our common shares and Series B
Shares. In March 2004, our Board declared one quarterly  distribution of $0.5625
per share on our Series B Shares for  shareholders  of record on March 31, 2004,
payable on April 30, 2004. Under our Charter,  this distribution is deemed to be
a quarterly  distribution  which relates to the fourth quarter 2002 distribution
period,  the earliest accrued but unpaid quarterly  distribution on our Series B
Shares.  There can be no  assurances  as to the timing and amounts of any future
distributions  on our Series B Shares and the payment of the fourth quarter 2002
preferred distribution at this time should not be construed to convey any degree
of  certainty  with  respect  to future  preferred  distribution  payments.  Our
management and Board review our cash position and requirements for cash reserves
each quarter prior to making any decision with respect to paying  distributions.
We currently do not anticipate  declaring or paying  distributions on our common
shares/units for 2004.  Distributions on our common shares may not be made until
all accrued  distributions  on our Series B Shares are  declared and paid or set
apart for payment. Future distributions will depend on the actual cash available
for distribution,  our financial condition, capital requirements, the completion
of any capital transactions,  including refinancings and asset sales, the annual
distribution  requirements under the REIT provisions of the Code, and such other
factors as our Board deems relevant. Based upon our current tax projections,  we
do not anticipate an obligation to make distributions  related to 2004 to comply
with the annual REIT distribution requirements.

     We can give no assurances that if any capital transactions are completed on
terms  favorable  to us or  otherwise  pursuant  to  our  pursuit  of  strategic
alternatives,  distributions  on our  common  shares  and  common  units will be
resumed either during 2004 or thereafter,  or that we will be able to pay future
distributions  on our Series B Shares.  After (i) payment of the fourth  quarter
2002 Series B Shares' distribution referred to above and (ii) the accrual of the
first quarter 2004 Series B Shares' distribution, we will be in arrears for five
quarters of Series B Share distributions for a total of $11.3 million.

     Our  anticipated  cash  flows  from  operations  are  not  expected  to  be
sufficient to fund our anticipated  short and long-term  capital needs.  This is
principally  a  result  of the  current  operating  results  of  certain  of our
properties, including our office property located at 33 West Monroe Street. This
property's  principal  tenant was Arthur Andersen LLP which terminated its lease
with us in February 2003. As a result of this termination,  the operating income
from this property is not sufficient to fund the property's  operating costs and
debt  service.  In addition,  we anticipate  substantial  costs would need to be
incurred to release the vacant  space at this  property in excess of an existing
escrow  established at the time of the lease  termination  for this purpose.  We
have funded $8.1 million of the 2003 operating deficits at this property from an
escrow  established  at the time of  receipt  of  Arthur  Andersen  LLP's  lease
termination  payment.  We are currently  pursuing  various capital  transactions
concerning  this property  including a sale or joint venture.  We can provide no
assurance that we will be able to complete a capital transaction with respect to
this  property,  or if one is  completed,  if it  will  be on  terms  which  are
favorable to us.

     During  2004,  we  anticipate   the  need  to  fund   significant   capital
expenditures  to retenant  space that has been vacated or is  anticipated  to be
vacated during the year. In addition, we continue to incur and pay certain costs
and expenses related to Bank One Center consisting principally of the funding of
a sublease  obligation  in  connection  with the lease of an anchor  tenant.  We
recorded  a  liability  related to this  obligation  which had a balance of $8.7
million at December 31, 2003, net of estimated future subleasing.  We anticipate
these will be funded out of an existing escrow, which contained $12.7 million at
December 31, 2003, for this purpose.

     The  financial  covenants  contained  in many of our  loan  agreements  and
guarantee  agreements  with our lenders  include minimum ratios for debt service
coverage and liabilities as a percentage of total assets, as well as minimum net
worth levels,  limits as to recourse  indebtedness  and numerous other financial
covenants.  In some  past  quarters,  we have  failed to meet  certain  of these
covenants  and after  negotiations  with our lenders (and in certain  instances,
after agreeing to post additional cash collateral, provide other security and/or
otherwise modify the terms of the relevant loans) we have obtained the necessary
loan  modifications  and/or  waivers.  We did not comply  with  certain of these
ratios  with  respect  to two of our  mezzanine  loans and the  letter of credit
facility supporting our industrial revenues bonds for the quarter ended December
31, 2003 and do not expect to comply for the quarter  ended March 31,  2004.  We
have obtained waivers and modifications of these requirements for these periods.
Compliance with these covenants for the remainder of 2004 is highly dependent on
our financial results  (including but not limited to a failure of one or more of
our  significant  tenants to pay rent when due) and could be  impacted by future
capital  events such as asset sales,  debt  refinancings  and new debt or equity
transactions.  There can be no  assurances  that our  financial  results will be
sufficient to enable us to meet these  covenants in the future and, if we do not
meet a  covenant,  whether  appropriate  loan  modifications  or waivers  can be
obtained.

     At December 31, 2003, we had $89.3 million of outstanding  debt maturing in
2004,  including $60.0 million maturing in January 2004 secured by our 180 North
LaSalle Street  property,  $5.6 million maturing in May 2004 secured by our 1455
Sequoia Drive  property and $23.7  million  maturing in November 2004 secured by
our 33 West Monroe Street,  208 South LaSalle Street and Jorie Plaza properties.
We refinanced  the $60.0 million loan in January  2004,  and are in  discussions
with the other two existing lenders with respect to extensions or refinancing of
the remaining maturing indebtedness. If the necessary extensions or refinancings
are not consummated  with existing  lenders,  we may have discussions with other
lending sources.  If this indebtedness is not extended,  or repaid, the lenders'
default  remedies may hinder our ability to meet  financial  loan  covenants and
could result in cross-defaults under certain of our other loans. There can be no
assurances as to our ability to obtain funds  necessary for the  refinancing  of
these maturing debts.

<PAGE>

     Given our  current  level of debt,  limited  availability  of  unencumbered
collateral and our current financing arrangements,  we may not be able to obtain
additional  debt  financing at interest rates that are below the rates of return
on our  properties.  In  addition,  any  equity  capital  we might  raise may be
dilutive to our common shareholders.

     The following  tables disclose our  contractual  obligations and commercial
commitments as of December 31, 2003:

<TABLE>
<CAPTION>




                                                                                Payments Due by Period
                                                                               (dollars in thousands)
                                                         ----------------------------------------------------
                                                           Less than         1-3         3-5        More than
Contractual Obligations (A)                     Total         1 Year        Years        Years       5 Years
-------------------------------------------------------------------------------------------------------------
<S>                                         <C>         <C>            <C>        <C>           <C>

Mortgages and notes payable (B)             $  547,920  $   94,037     $ 266,714   $   49,186    $ 137,983
Bonds payable (C)                               24,900           -             -       24,900            -
Capital lease obligations                          294         294             -            -            -
Operating lease obligations                     10,643       2,604         3,902        2,350        1,787
Tenant improvement allowances (D)               10,973      10,973             -            -            -
Liabilities for leases
   assumed and lease reimbursement
   obligations (E)                              87,226      12,946        22,732       18,096       33,452
Loan exit fees                                   1,069       1,069             -            -            -
                                        ---------------------------------------------------------------------
Total contractual cash
   obligations                              $  683,025  $  121,923     $ 293,348   $   94,532    $ 173,222
                                        =====================================================================
</TABLE>


(A)  We anticipate funding these obligations from operations, escrowed funds and
     the proceeds of equity,  debt or asset sale(s)  transaction(s) as discussed
     in "Liquidity and Capital Resources".

(B)  See Note 4 - Mortgage and Notes  Payable,  Bonds  Payable and  Construction
     Financing to our  Consolidated  Financial  Statements for further detail on
     interest rates and other terms.

(C)  The scheduled  maturity date for our tax-exempt  bonds is 2022. The earlier
     payment due shown here reflects the 2007 scheduled expiration of letters of
     credit which credit  enhance the bonds which,  if not extended or replaced,
     would accelerate the maturity of the bonds.

(D)  We  have  escrows  of $4.4  million  that  may be  utilized  to fund  these
     obligations.

(E)  These  obligations  would be offset by any receipts from  subleasing of the
     related space.  We currently have executed  subleases that we estimate will
     provide  subleasing  receipts of $67.7 million  consisting of base rent and
     the  pro-rata  share of  operating  expenses  and  real  estate  taxes.  In
     addition,  we have  escrowed  reserves  totaling  $12.7  million  to fund a
     portion of this contractual amount.


<TABLE>
<CAPTION>


                                                                             Amount of Commitment
                                                                             Expiration Per Period
                                                                            (dollars in thousands)
                                                       --------------- ------------- ------------ --------------
               Other                       Total            Less                                      More
             Commercial                   Amounts           Than           1-3           3-5          Than
            Commitments                  Committed         1 Year         Years         Years        5 Years
------------------------------------- ---------------- --------------- ------------- ------------ --------------
<S>                                      <C>             <C>           <C>            <C>        <C>    <C>

Standby letters of credit                $  28,741        $   3,500      $       -    $  25,241    $      -
Guarantees (A)                               5,406              600          1,200        1,200       2,406
Unconsolidated joint ventures (B)          160,035            2,785          7,366       12,363     137,521
Tax indemnifications (C)                    70,462              (C)            (C)          (C)           -
Series B preferred shares (D)                  (D)           20,250         18,000       18,000         (D)
                                       ---------------- -------------- ------------ ------------ --------------
Total commercial commitments             $ 264,644        $  27,135      $  26,566    $  56,804    $139,927
                                       ================ ============== ============ ============ ==============

</TABLE>

(A)  Included is a guarantee  for $5.4 million as of December 31, 2003 to ensure
     certain tenant  improvement and leasing  commission  payments are made with
     respect to the joint  venture that owns the office  building  located at 77
     West Wacker Drive.

(B)  We have a 50%  common  interest  in an  unconsolidated  real  estate  joint
     venture that owns an office building  located at 77 West Wacker Drive.  The
     amount  shown  includes 50% of the balance of the $166.0  million  mortgage
     note payable  secured by the  property.  On November  10,  1999,  the joint
     venture entered into an interest rate collar  agreement for the period from
     October 1, 2002 through September 30, 2004 with a financial institution for
     an original  notional amount of $157.5  million.  The interest rate ceiling
     under  the  agreement  is based  on a LIBOR  index  rate of  7.75%  and the
     interest  floor is based on a LIBOR index rate of 6.10%.  The joint venture
     would need to make cash escrow  deposits  to the extent that the  liability
     that results from changes in the  instrument's  market value  exceeds $20.0
     million.  Our joint venture  partner is the  guarantor to the  counterparty
     related  to  this  collar  agreement.  If our  joint  venture  partner,  as
     guarantor,  were  required to pay the  counterparty  under the terms of the
     interest  rate  collar  agreement,  we have agreed to  reimburse  our joint
     venture partner our fifty percent share of any amount paid.

     We also have a 30.0% subordinated  interest in a real estate joint venture,
     which we  account  for using the  equity  method,  which  owns the Bank One
     Center office property.  While we are not a guarantor or responsible party,
     the  joint  venture  has a $247.5  million  mortgage  loan  secured  by the
     property.  The amount  shown  includes  30% of the balance of the  mortgage
     loan.

     In addition,  we have a 23.1% interest in a real estate  venture,  which we
     account  for using the  equity  method,  which owns an office  property  in
     Phoenix,  Arizona.  While we are not a guarantor or responsible  party, the
     venture  has a $22.0  million  loan  secured by the  property.  We have not
     included any amounts related to this loan in this table.

(C)  We estimate our maximum  possible  exposure on tax  indemnifications  to be
     $70.5 million is all  remaining  indemnity  properties  had been sold as of
     December 31, 2003. The amount of certain indemnities  decreases by 10% each
     calendar  year with the  first  decrease  beginning  in the  calendar  year
     following  the  period  ending   December  31,  1998.  See  "Tax  Indemnity
     Agreements"  and  "Certain  Relationships  and Related  Transactions  - Tax
     Indemnification Agreements" for further discussion of these indemnities.

(D)  Dividends  are  cumulative  and payable at a 9.0% annual rate each  quarter
     that the  Series B Shares  remain  outstanding.  The  Series B Shares  rank
     senior to the common  shares as to the payment of  dividends.  The Series B
     Shares may be  redeemed at our option at a  redemption  price of $25.00 per
     share  plus  accrued  and unpaid  distributions.  The  redemption  price is
     payable solely out of the proceeds from our sale of other capital shares of
     beneficial interest.

     Tenant Concentration.  The following represents our five largest tenants in
2003 based on gross revenue  (excluding  termination fee income and discontinued
operations) recognized during 2003 (in thousands of dollars):



                                        Gross
                                        Tenant         % Of Total Company
              Tenant                   Revenue             Revenue
  -----------------------------------------------------------------------
  Jenner & Block                     $  13,381               6.8%
  IBM Corporation                        8,663               4.4
  ST Holdings, Inc.                      6,367               3.2
  Accenture                              5,582               2.8
  ABN AMRO                               5,512               2.8
                                 ----------------------------------------
                                     $  39,505              20.0%
                                 ========================================

     If one or more of the tenants  listed  above were to  experience  financial
difficulties  and cease paying rent,  our cash flow and earnings would likely be
negatively  impacted  in the near  term.  The extent and length of this would be
impacted by several factors, including:

o    the nature of the financial difficulties;
o    our ability to obtain control of the space for releasing;
o    market conditions;
o    the length of time it would  require for us to release the tenant's  space;
     and
o    whether the tenant's rent was above or below market.

     Property  Sales.  On June  18,  2003,  we sold  our  National  City  Center
property,  a 767,181  square foot  office  building in  Cleveland,  Ohio,  to an
affiliate of National City  Corporation.  The gross contract price for the sale,
including a lease termination fee from an affiliate of the purchaser,  was $80.0
million.

     We received net  proceeds of $15.7  million,  which  includes the return of
real estate tax and capital  escrows of $2.5 million,  and is net of transaction
costs,  adjustments for prorations,  repayment of the property's  first mortgage
debt of $63.7  million and payment of a loan exit fee of $1.0  million.  We used
$8.1  million of the net  proceeds to pay down a portion of our  mezzanine  debt
with Fleet National Bank which is secured by the property. We used the remaining
$7.6 million, plus $0.2 million of additional funds, to pay down one of the SCPG
loans  (including  accrued interest of $1.7 million and an extension fee of $0.2
million) and extended  the maturity  dates of both the SCPG loans until  January
12, 2004.

     On October 8, 2003,  we closed on a  transaction  admitting a new 70% joint
venture  partner to our former  subsidiary  that owns the Bank One Center office
building.  At the  closing,  our partner made a cash  contribution  to the joint
venture of $106.4  million  (which  includes $1.4 million  retained by the joint
venture as working  capital) in exchange for 70% of the membership  interests in
the joint venture. Under the terms of the contribution  agreement, an additional
capital  contribution in the amount of $9.8 million is to be made by our partner
and distributed to us when the joint venture leases an additional  40,000 square
feet of space  in the  property.  Upon  closing,  the  joint  venture,  in turn,
distributed $105.0 million to us.

     After closing  prorations and funding certain  required closing escrows and
costs,  we  received  approximately  $323.0  million  in net  proceeds  from the
transaction, of which $293.2 million was used to retire outstanding construction
and mezzanine  indebtedness  secured by the property of $169.8 million and $80.7
million,  respectively,  and $42.7 million of which we used to repay in full our
outstanding  indebtedness to SCPG, including accrued interest, and the remainder
of which we have retained for working capital.

     Preferred  Shares.  Our Board suspended the payment of dividends is 2002 in
anticipation  of the Company's  need for liquidity for dealing with its maturing
indebtedness,  its capital needs for property level  expenditures in retenanting
its vacant office and  industrial  space and capital needs for the completion of
the Bank One Center development  project.  In March 2004, our Board declared one
quarterly  distribution  of  $0.5625  per  share  on our  Series  B  Shares  for
shareholders of record on March 31, 2004,  payable on April 30, 2004.  Under our
Charter,  this  distribution  is deemed  to be a  quarterly  distribution  which
relates to the fourth quarter 2002 distribution period, the earliest accrued but
unpaid quarterly distribution on our Series B Shares. There can be no assurances
as to the timing and amounts of any future  distributions on our Series B Shares
and the payment of the fourth quarter 2002 preferred  distribution  at this time
should not be construed to convey any degree of certainty with respect to future
preferred  distribution  payments.  After (i) payment of the fourth quarter 2002
Series B  distribution  referred  to above  and (ii) the  accrual  of the  first
quarter  2004  Series B Shares'  distribution,  we will be in  arrears  for five
quarters  on the Series B Shares.  The  holders of our Series B Shares  have the
right to elect two additional members to our Board if six consecutive  quarterly
distributions on the Series B Shares are  outstanding.  The term of any Trustees
elected by the Series B  Shareholders  will expire  whenever the total  dividend
arrearage  on the Series B Shares has been paid and current  dividends  declared
and set apart for payment.

     Under the terms of a $11.8 million mezzanine note payable collateralized by
our 33 West Monroe Street  property and a $11.9 million  mezzanine  note payable
collateralized  by three of our other  properties  we are  required to limit the
amount of distributions  that can be paid on our preferred and common shares and
units to a maximum of 90% of funds from  operations  (as defined in the relevant
loan  documents)  for  each  calendar  year.  For  purposes  of this  limitation
distributions  on Series B Shares are  assumed to have  occurred  whether or not
they are actually  paid.  In March 2004,  this  provision was modified such that
provisions for asset impairment and writeoffs of deferred  financing fees (other
than due to regular  amortization)  are excluded from the  computation  of funds
from operations beginning with the quarter ended December 31, 2003.

     Tax Indemnity  Agreements.  In connection with the  contribution of certain
properties   during  our  initial   public   offering,   we  entered   into  tax
indemnification agreements with certain principals affiliated with Mr. Edward S.
Hadesman, a former executive officer, and certain principals affiliated with Mr.
Stephen J. Nardi,  the Chairman of our Board.  The terms of these agreements are
discussed  in  Note  14 -  Commitments  and  Contingencies  to our  Consolidated
Financial Statements.

     In addition,  on December 12, 1997,  we purchased  and amended the mortgage
note  encumbering  the property known as  Continental  Towers located in Rolling
Meadows,  Illinois. As part of this transaction,  we agreed to indemnify the two
limited partners of the limited  partnership  which owns the property for, among
other  things,  the federal and  applicable  state income tax  liabilities  that
result  from the income or gain which they  recognize  upon  refinancing,  sale,
foreclosure  or other  action  taken by us with  respect to the  property or the
mortgage note.

     As discussed  above,  sales of properties which result in taxable income to
parties  covered by tax  indemnification  agreements  would  create an indemnity
obligation  on our part to the  indemnified  party.  In order to  mitigate  this
obligation,  we may enter into tax deferred exchange  transactions,  which would
defer the tax sale and related indemnity  obligation.  Proceeds  available to us
from sales of  properties  covered by tax  indemnification  agreements  would be
reduced by the amount  necessary  to fund any  indemnity  payment or to purchase
properties to satisfy tax deferred exchange transactions.

     Indebtedness. Our aggregate indebtedness was $572.8 million at December 31,
2003. This  indebtedness  had a weighted  average maturity of 3.7 years and bore
interest at a weighted average interest rate of 5.71% per annum. At December 31,
2003,  $200.0  million,  or 34.9%,  bore  interest at a fixed  rate,  and $372.8
million,  or 65.1% of this  indebtedness,  including $24.9 million of tax-exempt
bonds,  bore interest at variable  rates. Of the $372.8 million of variable rate
debt, $338.3 million was subject to various interest rate protection agreements.



<PAGE>


     Interest  Rate  Protection  Agreements.  We have entered into the following
interest rate cap agreements:

<TABLE>
<CAPTION>


                                              Notional Amount
                                                   as of
                                              December 31,      Capped LIBOR    Effective Date   Expiration
            Loan Associated with                  2003             Rate              Date
--------------------------------------------- ---------------- -------------- --------------- ---------------
<S>                                            <C>             <C>             <C>            <C>

180 North LaSalle Street,
   REMIC Certificate A (1)                     $  60,000,000         7.25%           3/01/01         1/15/04
33 West Monroe Street
   First Mortgage Loan (2)                        67,000,000         6.50            1/31/03        10/31/04
Jorie Plaza & 208 South LaSalle Street
   Mezzanine Loan (3)                             11,900,000         7.50            7/01/03        11/15/04
33 West Monroe Street
   Mezzanine Loan                                 11,900,000         4.50           11/15/03        11/15/04
None (4)                                         230,000,000         7.40            1/22/02         1/05/04
IBM Office Plaza
   First Mortgage/Mezzanine Loans                195,000,000         6.60            2/21/03         3/15/06

</TABLE>


(1)  This expired on January 15, 2004,  concurrent  with the  refinancing of the
     underlying loan.
(2)  The original  notional  amount of this interest rate cap was $67.0 million.
     On May 27,  2003,  $7.0 million of the loan hedged by this  derivative  was
     repaid and a notional  amount of $7.0 million of the interest  rate cap was
     de-designated  as a cash flow  hedge and will be  marked-to-market  through
     earnings  each  period.  The  impact  of the  change  in value for 2003 was
     nominal.
(3)  In June 2003,  this  agreement  was  extended  to January  15, 2004 and the
     notional  amount  was  reduced  to $11.9  million  as $8.1  million  of the
     underlying  loan hedged by this  derivative  instrument  and secured by the
     National City Center property was repaid upon sale of the property.
(4)  The  interest  rate cap  agreement  related to the Bank One  Center  office
     property  expired  on  January  5,  2004.  As  previously  discussed,   the
     underlying  loan  was  refinanced  concurrent  with  the  October  8,  2003
     admittance  of our joint  venture  partner  to the  entity  which owns this
     property.  See Note 4 -  Mortgages  and Notes  Payable,  Bonds  Payable and
     Construction Financing to our Consolidated Financial Statements for further
     explanation.

     No  amounts  were  received  under  the terms of any of the  interest  rate
protection agreements in 2003.

     Debt  Repayments.  Scheduled  principal  payments were made totaling  $37.7
million and the total  loans  repaid for the year ended  December  31, 2003 were
$586.4  million  resulting  in total debt repaid for the year of $625.0  million
including a total of $177.1 million that was refinanced.  See Note 4 - Mortgages
and Notes Payable,  Bonds Payable and Construction Financing to our Consolidated
Financial Statements for further explanation.

     Capital  Improvements.  In order to  secure  new and  renewal  leases,  our
properties  require an infusion of capital for tenant  improvements  and leasing
commissions.  For the years ended  December 31, 2003,  2002 and 2001, our tenant
improvements  and  leasing  commissions  averaged  $37.75,  $26.94  and  $31.16,
respectively,  per square foot of  newly-leased  office space totaling  427,756,
70,969  and  338,013  square  feet,  respectively,  $16.85,  $13.18  and  $9.09,
respectively,  per square  foot of office  leases  renewed by  existing  tenants
totaling  303,965,  277,248 and 309,685  square feet,  respectively,  and $1.78,
$0.00 and $3.83, respectively,  per square foot of newly-leased industrial space
totaling 215,267, 154,275 and 160,085 square feet, respectively.  Our total cost
of general  capital  improvements to our properties  historically  averages $5.0
million  annually  based upon an estimate of $0.42 per square foot. For 2003, we
incurred  $5.0  million of capital  improvement  expenditures,  and we expect to
incur a similar amount for 2004.
Off-Balance Sheet Arrangements

     As part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated  entities or financial  partnerships,
often referred to as structured  finance or special purpose  entities  ("SPEs"),
which would have been  established for the purpose of  facilitating  off-balance
sheet  arrangements or other  contractually  narrow or limited  purposes.  As of
December 31, 2003, we are not involved in any unconsolidated SPE transactions.

<PAGE>

Historical Cash Flows


<TABLE>
<CAPTION>




                                                                 Year ended December 31
                                            -----------------------------------------------------------
                                                                              Increase/
                                                  2003           2002        (Decrease)   % Change
                                            -----------------------------------------------------------
                                                                 (dollars in thousands)
<S>                                         <C>          <C>            <C>               <C>

Operating Activities
Net loss                                    $  (36,217)   $    (30,621)  $    (5,596)        (18.3)
Amortization of discount on notes payable          343             290            53          18.3
Amortization of costs for leases assumed         2,968             836         2,132         255.0
   Net equity in loss (income) of
     unconsolidated investments                  2,249            (810)        3,059        (377.7)
   Depreciation and amortization                41,453          39,295         2,158           5.5
   Provision for asset impairment               45,353          64,525       (19,172)        (29.7)
   (Gain) loss on sales of real estate            (496)          4,814        (5,310)       (110.3)
   Minority interests                              (23)        (31,373)       31,350          99.9
   Changes in operating assets and
     liabilities                               (26,344)         (4,636)      (21,708)        468.2
                                            -----------------------------------------------------------
Net cash provided by operating
   activities                               $   29,286    $     42,320   $   (13,034)        (30.8)
                                            ===========================================================
Investing Activities
   Expenditures for real estate and
     equipment                              $  (76,883)   $  (124,054)   $    47,171          38.0
   Proceeds from sales of real estate          430,254         26,596        403,658       1,517.7
   Leasing costs                               (20,201)       (13,770)        (6,431)        (46.7)
   (Increase) decrease in restricted
     cash escrows                              (13,483)        13,187        (26,670)        202.2
   Proceeds from joint ventures                      -         22,969        (22,969)        100.0
   Net distributions from (contributions
     to) unconsolidated entities                 4,634           (879)         5,513        (627.2)
                                            ------------------------------------------------------------
Net cash provided by (used in) investing
   activities                               $  324,321    $   (75,951)   $   400,272         527.0
                                            ============================================================

Financing Activities
   Financing costs                          $  (4,838)    $    (2,950)   $    (1,888)        (64.0)
   Proceeds from mortgages and notes          195,000          20,448        174,552         853.6
     payable
   Repayment of mortgages and notes
     payable                                 (318,763)        (35,310)      (283,453)       (802.8)
   Repayment of bonds payable                       -         (27,150)        27,150        (100.0)
   Proceeds from construction financing        97,155          102,561        (5,406)         (5.3)
   Repayment of construction financing       (305,353)               -      (305,353)            -
   Series A preferred share repurchases             -          (5,000)         5,000        (100.0)
   Dividends paid to Series B preferred
     shareholders                                   -          (9,000)         9,000        (100.0)
   Dividends paid to Series A preferred
     shareholder                                    -            (750)           750        (100.0)
                                            ------------------------------------------------------------
Net cash (used in) provided by financing
activities                                  $(336,799)   $     42,849   $   (379,648)       (886.0)
                                            ============================================================

</TABLE>




<PAGE>


     Operating  Activities.  Operating activities provided $29.3 million of cash
flow in 2003 as compared to $42.3 million in 2002, a decrease of $13.0  million.
This decrease was primarily due to:

o    the  payment  of  accrued  interest  in 2003 of $20.0  million  principally
     associated with the sale and/or refinancing of several of our assets;
o    a $15.2  million loss of income in 2003 related to the sale of our National
     City  Center  office  property  in June 2003 and the sale of various  other
     properties in 2002 (See Note 15 - Property Acquisitions,  Placed in Service
     and Dispositions to our Consolidated  Financial Statements for a listing of
     the properties we sold in 2002); and
o    a $12.0 million loss of income in 2003 as compared to 2002  resulting  from
     the  termination  of Arthur  Andersen's  lease at our 33 West Monroe Street
     office property; offset by
o    a $33.5 million lease termination fee received in 2003 from Arthur Andersen
     LLP.

     Investing  Activities.  During 2003,  investing  activities provided $324.3
million of cash,  as  compared  to  utilizing  $76.0  million in 2002.  The 2003
investing activities were primarily comprised of:

o    $323.0 million of proceeds from the admittance of our Bank One Center joint
     venture partner in October 2003;
o    $79.2  million of proceeds from the sale of our National City Center office
     property in June 2003; and
o    a $4.4 million  distribution  from the 77 West Wacker Drive joint  venture;
     offset by
o    $76.9  million of  expenditures  for real  estate and  equipment  primarily
     related to construction costs for our Bank One Center office property;
o    $20.2  million  of leasing  costs  principally  related  to the  payment of
     liabilities for leases assumed  associated  with the Citadel  Reimbursement
     Obligation of $7.7 million and leasing commissions  associated with leasing
     activity at our properties; and
o    a  net  increase  in  our  deposits  to  restricted  cash  escrow  accounts
     principally consisting of a $33.5 million deposit required by our lender in
     connection  with the February 2003 Arthur  Andersen LLP lease  termination,
     net of a partial release of these funds during 2003 for a $7.0 million debt
     reduction  payment and $8.1  million to fund  operating  deficits at our 33
     West Monroe Street property,  and the release of $5.0 million of previously
     restricted escrows on sold properties.

     The 2002 investing activities were primarily comprised of:

o    $124.1  million of  expenditures  for real estate and  equipment  primarily
     related to construction costs for our Bank One Center office property and
o    $13.8  million of  leasing  costs  paid  primarily  related to our Bank One
     Center office property, offset by
o    a $22.9 million  payment  received  from our joint venture  partner for the
     assignment  of our  interest  in a joint  venture  relating  to a parcel of
     developable land located in Chicago, Illinois;
o    $16.1  million of proceeds from the sale of suburban  office  properties in
     June 2002;
o    $9.9  million of  proceeds  from the sale of two land  parcels in  February
     2002; and
o    a $13.2 million  decrease in restricted cash escrows  primarily  related to
     the use of escrows in our  purchase  of a portion of  industrial  bonds for
     $23.3  million and the  retirement  of $3.9 million in bonds as a result of
     the sale of our  Tennessee  property,  net of an  additional  $7.7  million
     funding into an escrow  associated  with the  construction  of the Bank One
     Center office  property and a $6.2 million  increase to the escrows related
     to the Citadel Reimbursement Obligation.

Financing Activities.  During 2003, financing activities utilized $336.8 million
of cash, as compared to proceeds in 2002 of $42.8  million.  The 2003  financing
activities were primarily comprised of:

o    a repayment of mortgage and notes payable of $318.8 million consisting of:


     o    $72.9  million of first  mortgage and mezzanine  financing  secured by
          National City Center with the proceeds from the sale of the property;
     o    $177.1  million of first mortgage and mezzanine  financing  secured by
          our IBM Plaza property with $195.0 million of new financing; and
     o    $64.3  million of payments  reduced the  principal  balance of several
          loans (See Note 4 - Mortgages  and Notes  Payable,  Bonds  Payable and
          Construction  Financing to our Consolidated Financial Statements for a
          further discussion of these transactions);
     o    $4.5 million of principal amortization payments and


o    a repayment of  construction  financing of $305.4 million  (which  includes
     2003 construction draws of $22.2 million) consisting primarily of:

     o    a $61.7  million  mezzanine  loan  (which  includes  $0.9  million  of
          additional  interest added to the loan), plus accrued  interest,  with
          the proceeds of a new $75.0 million mezzanine loan; and
     o    $169.5 million of  construction  financing  secured by Bank One Center
          and the $75.0  million  of  mezzanine  financing  discussed  above and
          refinancing proceeds from our sale of an interest in Bank One Center.

No distributions were paid on the Series B shares or common shares in 2003.

     The 2002 financing activities were primarily comprised of:

o    an additional $102.6 million of construction  financing associated with the
     development of Bank One Center and o new indebtedness of $20.0 million from
     SCPG, offset by
o    a repayment of two notes payable in the amount of $24.5 million;
o    $10.5 million of principal amortization payments;
o    a  purchase  of $27.2  million  of  industrial  development  revenue  bonds
     utilizing the escrows previously  securing letters of credit related to the
     bonds;
o    a  payment  of  $0.8  million  of  dividends  to  the  Series  A  Preferred
     shareholders  and the subsequent  $5.0 million  repurchase by our Operating
     Partnership of our Series A Preferred shares; and
o    a  payment  of  $9.0  million  of  dividends  to  the  Series  B  Preferred
     shareholders,  which were  subsequently  suspended  beginning in the fourth
     quarter of 2002.


<PAGE>


Historical Cash Flows (continued)

<TABLE>
<CAPTION>



                                                                 Year ended December 31
                                            ----------------------------------------------------------
                                                                                 Increase/
                                                  2002           2001          (Decrease)  Change
                                            ----------------------------------------------------------
                                                                 (dollars in thousands)
<S>                                          <C>            <C>            <C>               <C>

Operating Activities
Net loss                                    $    (30,621)   $    (4,498)   $  (26,123)       (580.8)%
Amortization of discount on notes payable            290              -           290         100.0
Amortization of costs for leases assumed             836            767            69           9.0
   Net equity in income of unconsolidated
     investments                                    (810)        (1,770)          960          54.2
   Depreciation and amortization                  39,295         42,047        (2,752)         (6.5)
   Unrealized loss on derivatives                      -            230          (230)       (100.0)
   Provision for asset impairment                 64,525         21,837        42,688         195.5
   Loss (gain) on sales of real estate             4,814           (292)        5,106       1,748.6
   Minority interests                            (31,373)        (9,461)      (21,912)       (231.6)
   Cumulative effect of change in
     accounting principle                              -            539          (539)       (100.0)
   Changes in operating assets and
     liabilities                                  (4,636)         3,411        (8,047)       (235.9)
                                            ---------------------------------------------------------
Net cash provided by operating
activities                                  $     42,320    $    52,810    $  (10,490)        (19.9)%
                                            ==========================================================

Investing Activities
   Expenditures for real estate and
     equipment                              $ (124,054)     $  (146,423)   $   22,369          15.3%
   Proceeds from sales of real estate           26,596           25,413         1,183           4.7
   Leasing costs                               (13,770)          (9,239)       (4,531)        (49.0)
   Decrease (increase) in restricted
     cash escrows                               13,187          (14,496)       27,683         191.0
   Proceeds from joint ventures                 22,969                -        22,969         100.0
   Net (contributions to) distributions
     from unconsolidated entities                 (879)               1          (880)       (100.0)
                                            ----------------------------------------------------------
Net cash used in investing activities       $  (75,951)     $  (144,744)   $   68,793          47.5%
                                            ==========================================================
Financing Activities
   Financing costs                          $   (2,950)     $    (4,714)   $    1,764          37.4%
   Proceeds from mortgages and notes
     payable                                    20,448          136,237      (115,789)        (85.0)
   Repayment of mortgages and notes
     payable                                   (35,310)        (115,909)       80,599          69.5
   Repayment of bonds payable                  (27,150)               -       (27,150)       (100.0)
   Proceeds from construction financing        102,561          105,637        (3,076)         (2.9)
   Series A preferred share and common
     share repurchases and proceeds from
     exercise of stock options                  (5,000)            (456)       (4,544)       (996.5)
   Distributions to minority interest -
     operating partnership                           -          (14,485)       14,485         100.0
   Dividends paid to Series B preferred
     shareholders                               (9,000)          (9,000)            -            -
   Dividends paid to Series A preferred
     shareholder                                  (750)          (3,000)        2,250          75.0
   Dividends paid to common
     shareholders                                    -          (21,062)       21,062         100.0
                                            ----------------------------------------------------------
Net cash provided by financing activities   $   42,849      $    73,248    $  (30,399)        (41.5)%
                                            ==========================================================

</TABLE>



<PAGE>


     Operating Activities.  The net decrease in operating assets and liabilities
is primarily due to a decrease of $9.2 million in accounts payable, offset by an
increase in accrued interest payable primarily due to new indebtedness with SCPG
in the amount of $2.6 million.

     In 2002, we recorded  severance  costs of $2.5 million  resulting  from the
resignations  of Mr.  Michael  W.  Reschke  and Mr.  Richard  S.  Curto  and the
reduction of corporate  management  and support  staff.  For 2002 as compared to
2001, we incurred  fewer expenses in connection  with our  continuing  review of
strategic alternatives.

     Investing  Activities.  During  2001 we executed  1,252,971  square feet of
leases compared to 658,886 square feet in 2002. The decrease in leasing activity
was a result of general  economic  conditions  and the sale of certain  suburban
office  properties.  This resulted in a decline in  expenditures  for tenant and
building improvements of $11.5 million in 2002 as compared to 2001. Expenditures
for projects under development also decreased $8.5 million relating primarily to
our Aurora Land  development  (decrease of $1.5 million) and our Bank One Center
development due to its  substantial  completion as of November 1, 2002 (decrease
of $6.1 million).

     Leasing  costs  increased  by $1.3  million  due to  leases  with two major
tenants at our Continental Towers property and $3.2 million of leasing costs for
Bank One Center.

     The increase in proceeds  from joint  ventures is due to the  assignment of
our  interest in a joint  venture  relating to certain  property  located at the
northeast corner of Wacker Drive and Monroe Street in Chicago,  Illinois, to our
joint venture partner for $22.9 million.

     Financing  Activities.  Proceeds from mortgages and notes payable decreased
in 2002  primarily  due to reduced  refinancing  activity.  During 2002, we also
incurred new indebtedness of $20.0 million from SCPG,  retired two notes payable
in the amount of $24.5  million  and made  principal  payments  in the amount of
$10.5 million.

     Proceeds  from  construction   financing  decreased  $3.0  million  due  to
substantial completion of Bank One Center as of November 1, 2002.

     The utilized  restricted escrows in 2002 as the principal source of funding
for our purchase of industrial revenue bonds for $23.3 million. Additionally, we
retired $3.9 million in bonds as a result of the sale of our Tennessee property.

     The decrease in distributions to minority  interest--operating  partnership
of $14.5 million and dividends paid to common  shareholders of $21.0 million was
due to the suspension of quarterly  dividends/distributions on our common shares
and units.

Funds from Operations

     Industry analysts generally  consider Funds from Operations,  as defined by
the  National  Association  of Real  Estate  Investment  Trusts  ("NAREIT"),  an
alternative  measure of performance of an equity REIT.  Funds from Operations is
defined by NAREIT as net  income  (loss)  determined  in  accordance  with GAAP,
excluding gains (or losses) from sales of depreciable  operating property,  plus
depreciation and  amortization  (other than  amortization of deferred  financing
costs and  depreciation  of non-real  estate  assets) and after  adjustment  for
unconsolidated  partnerships  and joint  ventures  and  discontinued  operations
(primarily  for adding back the effect of gains  (losses) on sale of depreciable
operating  property and depreciation and  amortization  expense).  Non-recurring
items,  other  than  those  considered   "extraordinary"  under  GAAP,  are  not
adjustments to funds from  operations.  We believe that in order to facilitate a
clear  understanding of our combined  historical  operating results,  Funds from
Operations should be examined in conjunction with net income (loss) as presented
in the financial statements included elsewhere in this Form 10-K.



<PAGE>


<TABLE>
<CAPTION>





                                                               Year ended December 31, 2003
                                          -----------------------------------------------------------------------
                                                           Fourth         Third        Second         First
                                              Total        Quarter       Quarter       Quarter       Quarter
                                          -----------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                                        <C>             <C>       <C>              <C>         <C>


Net (loss) income (1)..................    $  (36,217)    $  (47,331)   $  (3,876)    $     119    $   14,871
Adjustments to reconcile Funds from
   Operations:
Real estate depreciation and
   amortization (2)....................        35,508          7,407        9,365         9,615         9,121
Amortization of costs for
   leases assumed (3)..................         1,912            169          675           748           320
Share of joint venture real estate
   depreciation and amortization.......         7,324          4,726          873           871           854
Adjustment for discontinued operations:
   Real estate depreciation and
     amortization (4)..................           555              -            -             -           555
   (Gain) loss on sale (included in
     discontinued operations) (5)......        (1,226)            (6)           -        (1,220)            -
   Minority interests..................         1,113             10            2           627           474
Minority interests.....................        (1,054)        (6,370)        (804)       (2,238)        8,358
                                          -----------------------------------------------------------------------
Funds from operations (1)..............         7,915        (41,395)       6,235         8,522        34,553
Income allocated to preferred
   shareholders........................        (9,000)        (2,250)      (2,250)       (2,250)       (2,250)
                                          -----------------------------------------------------------------------
Funds from Operations available to
   common share/unit holders...........   $    (1,085)    $  (43,645)   $   3,985     $   6,272    $   32,303
                                          =======================================================================

FFO available  to  common   share/unit
   holders  per  share/unit  of
   beneficial interest:
   Basic and Diluted                      $     (0.04)    $    (1.63)   $    0.15     $    0.23    $     1.21
                                          =======================================================================

Weighted average shares/units of
 beneficial interest:
     Common shares                             20,105        23,665        23,665        17,378        15,713
     Nonvested employee stock grants                6             6             6             6             6
     Operating Partnership units                6,636         3,076         3,076         9,363        11,028
                                          -----------------------------------------------------------------------
       Basic                                   26,747        26,747        26,747        26,747        26,747
                                          =======================================================================
     Common shares                             20,105        23,665        23,665        17,378        15,713
     Nonvested employee stock grants                6             6             6             6             6
     Employee stock options                        19            20            17             -             -
     Operating Partnership units                6,636         3,076         3,076         9,363        11,028
                                          -----------------------------------------------------------------------
       Diluted                                 26,766        26,767        26,764        26,747        26,747
                                          =======================================================================

Other data:
   Net cash provided by (used in)
     operating activities...............       29,286       (10,700)          883        18,425        20,678
   Net cash provided by (used in)
     investing activities...............      324,321       320,243        (3,908)       61,115       (53,129)
   Net cash (used in) provided by
     financing activities...............     (336,799)     (286,429)        3,833       (77,970)       23,767

</TABLE>




<PAGE>




<TABLE>
<CAPTION>



                                                               Year ended December 31, 2002
                                          -----------------------------------------------------------------------
                                                           Fourth         Third        Second         First
                                              Total        Quarter       Quarter       Quarter       Quarter
                                          -----------------------------------------------------------------------
                                                                   (dollars in thousands)
<S>                                       <C>           <C>           <C>           <C>            <C>

Net (loss) income (1)..................   $    (30,621)  $   (13,303)  $    1,672    $     (883)   $  (18,107)
Adjustments to reconcile Funds from
   Operations:
Real estate depreciation and
   amortization (2)....................        29,124          8,242        7,385         7,407         6,090
Amortization of costs for
   leases assumed (3)..................           836            266          250           157           163
Share of joint venture real estate
   depreciation and amortization.......         3,386            853          846           844           843
Loss on sale of operating property,
   net of minority interests ..........           773            (38)           -           684           127
Adjustment for discontinued operations:
   Real estate depreciation and
   amortization (4)....................         5,360            729          746         1,464         2,421
   (Gain) loss on sale (included in
   discontinued operations) (5)........         3,211           (498)        (103)        3,812             -
   Minority interests..................       (21,818)        (8,474)         322          (784)      (12,882)
Minority interests.....................        (8,895)        (2,467)        (967)       (1,876)       (3,585)
                                          -----------------------------------------------------------------------
Funds from operations (1)..............       (18,644)       (14,690)      10,151        10,825       (24,930)
Income allocated to preferred
   shareholders........................       (11,280)        (2,250)      (2,450)       (3,380)       (3,200)
                                          -----------------------------------------------------------------------
Funds from Operations available to
   common share/unit holders...........   $   (29,924)   $   (16,940) $     7,701    $    7,445    $  (28,130)
                                          =======================================================================

FFO available  to  common   share/unit
   holders  per  share/unit  of
   beneficial interest:
   Basic and Diluted...................   $     (1.12)   $     (0.63) $      0.29    $    0.28     $    (1.06)
                                          =======================================================================

Weighted average shares/units of
 beneficial interest:
     Common shares ....................        15,673        15,675        15,675        15,674        15,669
     Nonvested employee stock grants...            21            15            16            18            34
     Operating Partnership units.......        10,996        11,057        11,058        11,057        10,809
                                          -----------------------------------------------------------------------
       Basic                                   26,690        26,747        26,749        26,749        26,512
                                          =======================================================================
     Common shares ....................        15,673        15,675        15,675        15,674        15,669
     Nonvested employee stock grants...            21            15            16            18            34
     Employee stock options............             -             -             -             -             -
     Operating Partnership units.......        10,996        11,057        11,058        11,057        10,809
                                          -----------------------------------------------------------------------
       Diluted                                 26,690        26,747        26,749        26,749        26,512
                                          =======================================================================

Other data:
   Net cash provided by operating
     activities.........................       42,320         3,135        16,456        17,543         5,186
   Net cash (used in) provided by
     investing activities...............      (75,951)      (20,988)      (36,089)      (30,861)       11,987
   Net cash provided by (used in)
     financing activities...............       42,849        14,950        24,257        18,680       (15,038)

</TABLE>



<PAGE>



<TABLE>
<CAPTION>





                                                               Year ended December 31, 2001
                                          -----------------------------------------------------------------------
                                                           Fourth         Third        Second         First
                                              Total        Quarter       Quarter       Quarter       Quarter
                                          -----------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                                         <C>          <C>          <C>           <C>           <C>

Net income allocated to common
   shareholders........................    $   (4,498)   $    (8,690)  $   (1,572)  $     3,205    $    2,559
Adjustments to reconcile Funds from
   Operations:
Real estate depreciation and
   amortization (2)....................        28,278          7,295        6,920         7,394         6,669
Amortization of costs for
   leases assumed (3)..................           767            182          193           196           196
Share of joint venture real estate
   depreciation and amortization.......         3,351            842          838           836           835
Loss on sale of operating property,
   net of minority interests ..........            67              -        1,452        (1,133)         (252)
Adjustment for discontinued operations:
   Real estate depreciation and
   amortization (4)....................         9,011          1,772        2,612         2,339         2,288
   Minority interests..................         1,962          1,067          439           422            34
Minority interests.....................       (11,323)        (7,072)      (2,633)       (1,098)         (520)
                                          -----------------------------------------------------------------------
Funds from operations (1)..............        27,615         (4,604)       8,249        12,161        11,809
Income allocated to preferred
   shareholders........................       (12,150)        (3,041)      (3,036)       (3,037)       (3,036)
Cumulative effect of change in
   accounting principle................           321              -            -             -           321
                                          -----------------------------------------------------------------------
Funds from Operations available to
   common share/unit holders...........     $  15,786    $    (7,645)  $    5,213   $     9,124    $    9,094
                                          =======================================================================

FFO available  to  common   share/unit
   holders  per  share/unit  of
   beneficialinterest:
   Basic and Diluted                      $      0.60    $     (0.29)  $     0.20   $     0.34    $      0.34
                                          =======================================================================

Weighted average shares/units
  of beneficial interest:
     Common shares                             15,631        15,641        15,641        15,635        15,604
     Nonvested employee stock grants               59            62            62            62            51
     Operating Partnership units               10,723        10,713        10,713        10,719        10,746
                                          -----------------------------------------------------------------------
       Basic                                   26,413        26,416        26,416        26,416        26,401
                                          =======================================================================

     Common shares                             15,631        15,641        15,641        15,635        15,604
     Nonvested employee stock grants               59            62            62            62            51
     Employee stock options                        20             -             7            17            60
     Operating Partnership units               10,723        10,713        10,713        10,719        10,746
                                          -----------------------------------------------------------------------
       Diluted                                 26,433        26,416        26,423        26,433        26,461
                                          =======================================================================
Other data:
   Net cash provided by operating
     activities.........................       52,810        10,325        20,221        18,459         3,805
   Net cash used in investing activities     (144,744)      (28,392)      (45,859)      (29,820)      (40,673)
   Net cash provided by financing
     activities.........................       73,248         5,231        16,527        17,338        34,152


</TABLE>


(1)   Funds  from  Operations  is  a  non-GAAP  financial  measure.  Funds  from
      Operations ("FFO") is defined as net income (loss), computed in accordance
      with generally accepted  accounting  principles  ("GAAP") plus real estate
      depreciation and  amortization,  excluding gains (or losses) from sales of
      operating properties,  and after comparable adjustments for unconsolidated
      joint  ventures and  discontinued  operations.  FFO includes  results from
      discontinued operations,  including revenues, property operations expense,
      real estate taxes  expense,  provision for asset  impairment  and interest
      expense.  We compute FFO in accordance  with standards  established by the
      National  Association of Real Estate Investment Trusts  ("NAREIT"),  which
      may not be  comparable  to FFO  reported by other REITs that do not define
      the  term  in  accordance  with  the  current  NAREIT  definition  or that
      interpret the current NAREIT  definition  differently  than us. We utilize
      FFO  as a  performance  measure.  We  believe  that  FFO  provides  useful
      information  to  investors  regarding  our  performance  as  FFO  provides
      investors  with  additional  means of comparing our operating  performance
      with  the  operating   performance   of  our   competitors.   FFO  is  not
      representative  of cash flow from operations,  is not indicative that cash
      flows are adequate to fund all cash needs, and should not be considered as
      an  alternative  to cash flows as a measure of liquidity.  We believe that
      net income (loss) is the most directly  comparable GAAP financial  measure
      to FFO.


(2)  Depreciation and amortization  expense for the year ended December 31, 2003
     increased  $7.6 million  representing  an entire year of  depreciation  and
     amortization  related to Bank One Center,  which was placed into service as
     of November 1, 2002,  and a $0.4 million  write-off of  unamortized  tenant
     improvements  and leasing  commissions  associated  with the termination of
     Arthur Andersen's leases at two Chicago office properties.

(3)  For the year ended  December  31,  2003,  amortization  of costs for leases
     assumed increased $1.1 million,  primarily due to the Citadel lease at Bank
     One Center.

(4)  The real estate  depreciation and  amortization in discontinued  operations
     for the year ended  December 31, 2003  relates to the National  City Center
     property that was sold June 18, 2003.

(5)  The gain on sale of real estate of $1.2 million for the year ended December
     31, 2003 resulted from our sale of National City Center.

Certain Relationships and Related Transactions

     Transactions  with  Trustees and their  Affiliates.  On March 19, 2002,  we
entered into an agreement  appointing  Julien J. Studley,  Inc. as our exclusive
agent  to  lease  space  on our  behalf  related  to the  Citadel  Reimbursement
obligation.  Mr. Jacque M. Ducharme,  one of our Trustees,  is the Vice Chairman
Western Region and Director of Julien J. Studley,  Inc. Julien J. Studley,  Inc.
has earned commissions of $0.1 million and $0.2 million for services provided to
us in the years ended December 31, 2003 and 2002, respectively. The term of this
agreement expired on September 30, 2003, although certain commissions may become
due and payable subsequent thereto.

     As of December 31, 2003, we have a receivable of approximately $0.9 million
from Mr. Nardi,  and certain of his  affiliates  under a master lease  agreement
entered into with Mr. Nardi in connection with our 1051 Kirk Road property. This
represents  rent  receivables  due for the period from  October 2001 through the
lease expiration on March 31, 2003. Payments of rent per the agreement are to be
deducted from common unit  distributions  made to Mr. Nardi and his  affiliates.
Because there were no common unit  distributions for this year, no payments were
applied to the outstanding balance. We have recorded this rent as a reduction of
our basis in the property.

     On March 25, 2003,  we and The Prime Group,  Inc.  ("PGI") and one of PGI's
affiliates,  both  affiliates of Mr. Michael W. Reschke,  one of our Trustees at
that time,  entered  into an  amendment  to the  environmental  remediation  and
indemnity  agreement  previously entered into by PGI and us in November 1997 (as
so  amended,  the  "PGI  Environmental  Indemnity").  Pursuant  to the  existing
agreement,  PGI  has  agreed  to  indemnify  us  against  certain  environmental
liabilities  related to our Chicago,  Hammond and East Chicago Enterprise Center
industrial  parks. The existing  agreement also provides that PGI is entitled to
use the proceeds from certain  pending  litigation we have against third parties
relating to these  environmental  liabilities.  The  amendment to the  agreement
provides,  among other things, that all of the proceeds from the litigation will
not be funded to PGI or its  affiliate,  but instead  that if any  proceeds  are
recovered in connection with the litigation,  sufficient proceeds (if recovered)
will  instead  be  placed  in an  escrow  to be used to fund  the  environmental
remediation costs. We are aware of environmental contamination at certain of our
older industrial  properties  contributed to us as an equity contribution by PGI
during our initial public  offering.  Upon the closing of the admission of a new
70% joint  venture  partner  to our  subsidiary  that owns Bank One  Center,  we
retained $0.5 million of the $1.0 million of compensation  due PGI, as described
below,  which will be  utilized  towards  certain  environmental  costs at these
industrial   properties.   PGI's   responsibility   under  the   agreement   was
correspondingly reduced by $0.5 million. As of December 31, 2003 a total of $0.3
million of these costs have been paid. These environmental matters are set forth
in the section  entitled  "Business -  Government  Regulations  -  Environmental
Matters."

     In connection  with the admission of a new 70% joint venture partner to the
joint  venture  that  owns the  1,497,472  square  foot Bank One  Center  office
building  in  Chicago,   Illinois,  we  entered  into  certain  agreements  with
affiliates  of PGI,  providing  for a total of $1.0 million of  compensation  in
connection  with certain  advisory  services  performed in  connection  with the
transaction.  These agreements consisted of (i) a letter agreement providing for
a $0.3 million advisory fee relating to such  transaction,  (ii) an amendment to
the PGI  Environmental  Indemnity  providing  that we would pay the  first  $0.5
million of any costs incurred in connection with the environmental  clean-up and
related  litigation  and (iii) our  agreement  to pay $0.2  million to our joint
venture  affiliate owning the 77 West Wacker Drive property  representing  three
(3) months past-due rent owed by PGI for space it was leasing at the building at
the time.

     PGI leased 22,620  square feet of space at 77 West Wacker Drive,  an office
building owned by one of our unconsolidated  real estate joint ventures of which
we own a 50% common  ownership  interest.  PGI's lease was to expire October 31,
2007 with an option,  effective  April 30, 2002, to terminate the lease upon six
months written  notice.  As of July 31, 2003, PGI owed the  unconsolidated  real
estate  joint  venture  $0.4  million  representing  five (5) months of rent and
related operating expense reimbursements.  PGI was subsequently charged rent for
the months of August and  September.  In connection  with the past-due rent, the
parties  entered into an amendment to PGI's lease  pursuant to which rent ceased
to accrue as of October 1, 2003 and PGI (i) paid two months rent to the landlord
for August and  September  2003,  (ii)  conveyed its trade  fixtures and certain
office  furniture  to  the  landlord  in  satisfaction  of  its  remaining  rent
obligation,  and (iii)  agreed to vacate the  premises at any time in the future
upon 45 days  notice  from  landlord,  which  notice  has since  been  served by
landlord.  Three months of the  past-due  rent was paid in  connection  with the
advisory fee referenced above. PGI vacated the premises as of February 8, 2004.

     Agreements to Purchase Certain Properties.  We have an option to purchase a
parking  garage  located at 300 North  LaSalle  Street in Chicago from PGI. This
option has  approximately  four years  remaining on its term.  300 North LaSalle
Street  contains   approximately   58,000  square  feet  of  land  suitable  for
development.  We have an option to  purchase  the  property at 95.0% of its then
fair market value.

     We also have the right,  through November 17, 2012,  pursuant to a right of
first offer entered into at our initial  public  offering to develop (or develop
and acquire an ownership  interest in) all or any portion of  approximately  360
acres of undeveloped  office and industrial  land in Huntley,  Illinois owned at
that time by an affiliate of PGI. The right of first offer applies to the extent
that the owner of the land  determines  that a parcel will be  utilized  for the
construction of an office or industrial facility to be owned and leased to third
parties by the owner or held by the owner for sale to a third party. The site is
subject to a participation interest held by an unaffiliated  third-party lender.
The option and right of first offer may be  exercised  only with the approval of
our Independent Trustees.

     Tax Indemnification  Agreements. Our Operating Partnership entered into tax
indemnification agreements with certain principals affiliated with Mr. Edward S.
Hadesman  (the "IBD  Contributors"),  a former  executive  officer,  and certain
principals  affiliated with Mr. Nardi (the "NAC Contributors"),  who contributed
properties  to us  during  our  initial  public  offering.  We are  required  to
indemnify the IBD  Contributors  and NAC  Contributors  for, among other things,
certain income tax liabilities  based on income or gain the IBD Contributors and
NAC  Contributors  are  required to include in their gross income for federal or
state  income tax  purposes  upon the  refinancing  or  repayment by us of their
liabilities  or the  sale or  other  disposition  by us of the  properties  they
contributed.  These indemnities cover such income taxes,  interest and penalties
and are required to be made on a "grossed up" basis that effectively  results in
the IBD Contributors and NAC Contributors  receiving the indemnity payments on a
net, after-tax basis. The percentage of the tax liabilities that we are required
to  indemnify  is 50% for the  taxable  year ending on December  31,  2003,  and
declines  by 10% each  year  thereafter  until  December  31,  2007.  We are not
required to indemnify the IBD  Contributors  or NAC  Contributors  for income or
gain  realized  by them after the  taxable  year ended  December  31,  2007.  We
estimate our maximum possible  exposure at December 31, 2003 is $3.5 million for
the IBD Contributors and $9.8 million for the NAC Contributors.

     Other.  The Board term of Governor James R. Thompson,  a former Trustee who
decided not to stand for reelection,  expired on May 23, 2003. Governor Thompson
is  Chairman  of the law firm of  Winston &  Strawn,  which  has  provided,  and
continues to provide, legal services to us. Winston & Strawn earned fees of $1.1
million for legal services provided to us in 2003.

     In July 2003 and March 2004, our Board continued their formal review of the
membership  of the Board's  various  Committees  that was initiated at the Board
meeting  immediately  after the Company's  Annual Meeting of Shareholders on May
23, 2003. The members of the Committees as follows:  (i) the Audit Committee now
consists  of Messrs.  Crocker,  D'Ardenne  and  Lupiani;  (ii) the  Compensation
Committee,  the Corporate  Governance and Nominating Committee and the Committee
of Independent Trustees now consists of Messrs.  Crocker,  D'Ardenne,  Ducharme,
Lupiani and Nassetta and (iii) the Strategic Alternatives Committee now consists
of all of the  current  Board  members.  In March  2004,  Mr.  Crocker was named
Chairman of the Audit Committee and designated the Audit Committee's  "financial
expert" pursuant to the New York Stock Exchange's corporate governance rules.

Critical Accounting Policies

     General.  The previous  discussion and analysis of our financial  condition
and results of operations are based upon our consolidated  financial statements,
which have been  prepared in accordance  with  accounting  principles  generally
accepted in the United  States.  The  preparation  of our  financial  statements
requires  us to make  estimates  and  judgments  about the effects of matters or
future events that are inherently  uncertain.  These estimates and judgments may
affect the reported amounts of assets,  liabilities,  revenues and expenses, and
related  disclosure of contingent assets and liabilities.  On an on-going basis,
we evaluate our estimates, including contingencies and litigation. We base these
estimates on  historical  experience  and on various other  assumptions  that we
believe to be reasonable in the  circumstances.  These  estimates form the basis
for making  judgments about the carrying  values of assets and liabilities  that
are not readily  apparent  from other  sources.  Actual  results may differ from
these estimates under different assumptions or conditions.



<PAGE>


     To  assist  in  understanding  our  results  of  operations  and  financial
position, we have identified our critical accounting policies and discussed them
below.  These  accounting  policies are most  important to the  portrayal of our
results  and  financial  position,  either  because of the  significance  of the
financial  statement  items to which they  relate or because  they  require  our
management's most difficult, subjective or complex judgments.

     Allowance   for   Doubtful   Accounts.   We  monitor  the   liquidity   and
creditworthiness  of our tenants on an ongoing basis. We maintain allowances for
doubtful accounts using the specific  identification method for estimated losses
resulting from the inability of certain of our tenants to make payments required
by the terms of their respective leases. No general reserve is recorded.  If the
financial  condition of our tenants were to deteriorate,  additional  allowances
may be required.

     Deferred  Tax Asset.  We account for income  taxes  payable by our Services
Company in accordance  with SFAS No. 109,  "Accounting  for Income Taxes" ("SFAS
109"),  which  requires that deferred tax assets and  liabilities  be recognized
using enacted tax rates for the effect of temporary differences between the book
and tax bases of recorded  assets and  liabilities.  SFAS 109 also requires that
deferred  tax assets be reduced by a  valuation  allowance  if it is more likely
than  not  that  some  portion  or all of the  deferred  tax  asset  will not be
realized. At December 31, 2003, we had deferred tax assets in excess of deferred
tax  liabilities of $1.0 million  (included in other assets in our  consolidated
balance  sheet).  The deferred tax assets in excess of deferred tax  liabilities
decreased  approximately  $0.4 million during 2003 primarily due to $1.0 million
of pretax  income of the  Services  Company  generated  principally  from tenant
services and management fee income.

     We evaluate  quarterly  the  realizability  of our  deferred  tax assets by
assessing the valuation  allowance and by adjusting the amount of the allowance,
if necessary.  The factors used to assess the likelihood of realization  are our
forecast of future  taxable  income and available tax planning  strategies  that
could be implemented to realize the net deferred tax. We have used  tax-planning
strategies  to  realize or renew net  deferred  tax assets in order to avoid the
potential loss of future tax benefits.

     Approximately  $2.4 million of future taxable income earned by our Services
Company  is  ultimately  required  to  realize  the net  deferred  tax assets at
December  31,  2003.  This is based on the  recognition  in future  years by the
Services  Company of  taxable  income  anticipated  from  certain  build to suit
activities,  lease commissions and property  management fees. Failure to achieve
forecasted  taxable  income  might affect the  ultimate  realization  of the net
deferred  tax assets  described  above.  Factors  that may affect our ability to
achieve sufficient  forecasted  taxable income include,  but are not limited to,
unanticipated  decreases in the profitability of build to suit activities and/or
the sale of properties and subsequent loss of the related management contracts.

     Assumed  Lease  Liabilities.  As a result  of the  negotiation  of  certain
leases,  we assumed  the  liability  for the  tenants'  obligation  or agreed to
reimburse  the  tenants  for their  obligation  under  leases  with their  prior
landlords.  In  addition,  in  connection  with the sale of  certain  industrial
properties in 1999, we agreed to a master lease agreement for certain properties
for a defined  period.  Our policy is to record the estimated net  obligation we
may be subject to as a liability.  The net  obligation is derived by calculating
our total contractual  obligation and reducing the amount by existing  subleases
and an estimate of  subleases we  anticipate  signing in the future based on the
nature of the space, the property and market conditions.  We periodically review
these  estimates for  reasonableness  based on changes in market  conditions and
executed subleases. Failure to achieve forecasted results could lead to a future
increase in the liabilities  associated with these  transactions.  The liability
for leases  assumed at December 31, 2003 reflects  payments  under these leases,
net of an increase in the liability of $1.4 million due to assumption changes.

     Provisions  for  Impairment.  In  evaluating  our assets for  impairment in
accordance with SFAS 144, we record  impairment losses on long-lived assets used
in operations  when events and  circumstances  indicate that the assets might be
impaired.  Under SFAS 144, assets that display indicators of possible impairment
are  reviewed to see if their net book value will be  recovered  from  estimated
cash flows over an  anticipated  hold  period.  If these  cash  flows,  plus the
proceeds from a sale at the end of the  anticipated  hold period,  are less than
the net book value of our related  asset,  our policy is to record an impairment
reserve  related to the asset in the amount of the  difference  between  its net
book value and our estimate of its fair market  value,  less costs of sale.  For
assets held for sale,  impairment is measured as the difference between carrying
value and fair  value,  less cost to dispose.  Fair value is based on  estimated
cash flows  discounted at a  risk-adjusted  rate of interest.  Property held for
future  development  and  property  under  development  are also  evaluated  for
impairment.  Impairment is determined  for  development  costs  associated  with
property held for future  development and property under  development based upon
management's assessment that these costs have no future value.

     At December 31, 2003, we  determined  that a reserve in the amount of $43.4
million  related to our 33 West Monroe Street  property was  warranted.  We also
recorded a reserve of $0.9  million in the third  quarter of 2003 related to the
Bank One Center office property.  In evaluating our other long-lived assets used
in operations for impairment at December 31, 2003, we assumed  anticipated  hold
periods of three to five years for our operating  properties.  In evaluating our
property  held for  development,  we  concluded  that a  reserve  for one of our
projects was  warranted in the amount of $1.0 million,  as we  determined  costs
associated with the project no longer had value. For our other property held for
development,  we concluded that development expenditures,  including capitalized
interest, were recoverable and no reserves were warranted at this time. However,
as discussed under  "Liquidity and Capital  Resources",  if we determined that a
capital transaction is desired,  our anticipated hold periods for certain assets
would be shortened and  impairment  reserves  would be required.  These reserves
would have significant impacts on our operating results.

     Capitalization  of  Interest  and  Other  Costs  on  Development  Projects.
Development  costs,  which include land acquisition  costs, fees and other costs
incurred in developing new properties,  are  capitalized as incurred.  Interest,
financing  costs,  real estate  taxes,  other direct  costs and  indirect  costs
(including   certain  employee   compensation  costs  and  related  general  and
administrative  expenses) incurred during development periods are capitalized as
a component of the building costs.  These costs continue to be  capitalized,  to
the extent  they relate to vacant  space,  for one year  following  the date the
development  is placed in service.  During this one-year  period,  the amount of
capitalized  costs  could be  materially  affected  by the timing and changes in
occupancy  levels.  Subsequent  to the  one-year  period,  these costs are fully
expensed as incurred.

     During 2003,  we  capitalized  interest and other costs related to Bank One
Center  based upon the  proportion  of the vacant  space at the  property to the
total property.  This capitalization  ceased upon admittance of a partner to the
entity which owns Bank One Center. As none of our other development holdings are
undergoing development activities, we are no longer capitalizing these costs.

Impact of Recently Issued Accounting Standards

     In January 2003, the Financial  Accounting  Standards Board ("FASB") issued
Interpretation   No.  46,   "Consolidation   of  Variable   Interest   Entities"
("Interpretation  46"),  which  requires  the  consolidation  of an entity by an
enterprise  (i) if that  enterprise,  known as a  "primary  beneficiary",  has a
variable interest that will absorb a majority of the entity's expected losses if
they occur, receive a majority of the entity's expected residual returns if they
occur, or both and (ii) if the entity is a variable  interest entity, as defined
by Interpretation 46. We adopted Interpretation 46 in the fourth quarter of 2003
and do not  believe  that the  adoption  of this  interpretation  has a material
effect on our financial statements.

     In May 2003, the FASB issued  Statement of Financial  Accounting  Standards
No. 150 "Accounting for Certain Financial  Instruments with  Characteristics  of
both  Liabilities  and Equity" ("FAS 150").  FAS 150  established  standards for
classifying  and measuring as liabilities  certain  financial  instruments  that
embody  obligations of the issuer and have  characteristics  of both liabilities
and equity. FAS 150 generally  requires liability  classification of mandatorily
redeemable financial  instruments,  including minority interests in limited life
subsidiaries. The liability for the mandatorily redeemable financial instruments
should be recorded  at fair value.  Any  difference  between  fair value and the
redemption or settlement amount would be accreted through interest  expense.  In
October 2003, the FASB decided to  indefinitely  delay the effective date of the
provisions of FAS 150 related to finite life entities and also indicated that it
may  modify  other  guidance  in FAS  150.  In its  original  form,  we did  not
anticipate FAS 150 having any effect on our financial statements.  However, that
assessment may change if the FASB modifies the guidance in FAS 150.

Inflation

     Substantially  all of our office and industrial  leases require  tenants to
pay, as additional rent, a portion of real estate taxes and operating  expenses.
In  addition,  many of the  office  and  industrial  leases  provide  for  fixed
increases in base rent or indexed escalations (based on the Consumer Price Index
or other measures).  We believe that inflationary  increases in expenses will be
offset,  in part, by the expense  reimbursements  and contractual rent increases
described above.

     As of December 31, 2003,  approximately  $372.8 million of our  outstanding
indebtedness was subject to interest at floating rates.  Future indebtedness may
also be subject to floating  rate  interest.  The  floating  rate debt  includes
$338.3 million subject to various interest rate cap agreements.  Inflation,  and
its impact on  floating  interest  rates,  could  affect the amount of  interest
payments due on such indebtedness.


<PAGE>


ITEM 7A.  Quantitative and Qualitative Disclosures About
                    Market Risk

     The following  table provides  information  about our derivative  financial
instruments  and other  financial  instruments  that are sensitive to changes in
interest  rates.  For  our  mortgages  and  notes  payable,  bonds  payable  and
construction  financing,  the table  presents  principal  cash flows,  including
principal amortization,  and related weighted-average interest rates by expected
maturity  dates as of  December  31,  2003.  For the  interest  rate  protection
agreement, the table presents the notional amount entered into and the cap rate.

<TABLE>
<CAPTION>




                                                                   Interest Rate Sensitivity
                                                       Principal (Notional) Amount by Expected Maturity
                                                                     Average Interest Rate
                                      ------------------------------------------------------------------------------------
                                          2004        2005        2006        2007       2008     Thereafter    Total
                                      ------------------------------------------------------------------------------------
                                                                     (Dollars in Millions)
<S>                                    <C>             <C>        <C>         <C>        <C>       <C>

Liabilities
Mortgage notes payable:
Fixed rate amount..................    $   3.2     $    5.8    $    3.8      $  4.1      $ 45.1     $138.0       $200.0
Weighted-average interest rate (1).        7.44%        7.41%       7.45%       7.46%       7.20%      7.71%

Variable rate amount...............     $ 90.8      $  62.1      $195.0         -           -          -         $347.9
Weighted-average interest rate (1).        5.63%        2.82%       5.03%       -           -          -

Bonds payable:
Variable rate amount (2)...........        -            -           -        $ 24.9         -          -        $  24.9
Weighted-average interest rate (1).        -            -           -           3.54%       -          -

Interest rate cap agreements (1)(3):
Notional amount....................     $ 380.8         -        $195.0         -           -          -         $575.8
Cap rate...........................         7.13%       -           6.60%       -           -          -           -

</TABLE>


<PAGE>



(1)  Based upon the rates in effect at December 31, 2003,  the  weighted-average
     interest  rates on our mortgage  notes payable and bonds payable were 5.81%
     and  3.54%,  respectively.  If  interest  rates on our  variable  rate debt
     increased by one percentage point, our annual interest incurred  (including
     the effects of the interest  rate cap  agreements)  would  increase by $1.4
     million.

(2)  Our tax-exempt bonds payable of $24.9 million are collateralized by letters
     of credit of $25.2  million.  The scheduled  maturity date for the bonds is
     2022. The letters of credit mature on January 2, 2007.

(3)  On August 22, 2001, we entered into an interest rate cap agreement  related
     to our Bank One  Center  property  for the period  from  January  22,  2002
     through January 5, 2004. The interest rate under the terms of the agreement
     is capped at the LIBOR index rate of 4.25% increasing to 7.4% over the term
     of the cap  agreement.  The notional  amount of the cap increases  over the
     term  of the cap  agreement  to a  maximum  of  $230.0  million,  based  on
     increases  anticipated in the  construction  loan. As of December 31, 2003,
     the  notional  amount was $230.0  million with a capped LIBOR index rate of
     7.40%.  In March 2003,  we  obtained an interest  rate cap of LIBOR at 6.6%
     with a notional  amount of $195.0  million for the term of a new loan which
     refinanced   outstanding  debt  collateralized  by  our  IBM  Plaza  office
     property.  Included  above are two  interest  rate caps for loans  totaling
     $78.9  million at December 31, 2003 on our 33 West Monroe  Street  property
     where the notional  amounts exceed the debt  outstanding by a total of $7.5
     million.  The interest rate cap agreement  related to our 180 North LaSalle
     Street  property with a notional amount of $60.0 million expires on January
     15, 2004.


<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

     Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

(a)        Evaluation of Disclosure Controls and Procedures

     Based on  management's  evaluation of the  effectiveness  of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated
under the  Securities  Exchange  Act of 1934,  as  amended) as of the end of the
period covered by this annual report on Form 10-K,  which was conducted with the
participation of our Chairman of the Board (our principal executive officer) and
Chief Financial  Officer,  our Chairman of the Board and Chief Financial Officer
have concluded that our disclosure and controls and procedures were effective as
of the end of the period covered by this annual report on Form 10-K.

(b) Changes in internal control over financial reporting.

     There was no change in our internal  control over financial  reporting that
occurred  during  the  last  fiscal  quarter  covered  by this  report  that has
materially affected,  or is reasonably likely to materially affect, our internal
control over financial reporting.

                                    PART III

     Certain information  required by Part III is omitted from this Report as we
will file a  definitive  proxy  statement  within  120 days after the end of our
fiscal year pursuant to Regulation 14A for our Annual Meeting of Shareholders to
be held on June 4, 2004 (the "Proxy  Statement")  and the  information  included
therein is incorporated herein by reference.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information contained in the sections captioned "Election of Trustees,"
"Compensation  of   Executives--Executive   Officers,"   "Information  Regarding
Meetings    and    Committees    of   the    Board    of    Trustees",    "Other
Information--Compliance  with Section  16(a) of the  Securities  Exchange Act of
1934" and "Code of  Ethics" of the Proxy  Statement  is  incorporated  herein by
reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The information contained in the sections captioned "Election of Trustees -
Compensation  of Trustees",  "Report of  Compensation  Committee",  "Performance
Graph" and  "Compensation  of Executives" of the Proxy Statement is incorporated
herein by reference.


<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

Equity Compensation Plan Information

     The following table gives  information  about our common shares that may be
issued upon the  exercise of options,  warrants and rights under the Prime Group
Realty Trust 1997 Share Incentive Plan, as amended,  as of December 31, 2003. We
have no other compensation plans pursuant to which common shares may be issued.

<TABLE>
<CAPTION>




                                            (a)                 (b)                (c)                (d)
                                                                                 Number of
                                                                               common shares
                                                                                 remaining
                                          Number of                             available for
                                        common shares                          future issuance
                                        to be issued        Weighted-average    under equity
                                       upon exercise of     exercise price     compensation
                                         outstanding        of outstanding    plans (excluding   Total of common
                                           options,            options,        common shares     shares reflected
                                         warrants and        warrants and      reflected In        in Columns
                                           rights              rights          Column (a)         (a) and (c)
                                       ----------------- ------------------ ------------------ ------------------
<S>                                    <C>               <C>                <C>                <C>

Plan Category
Equity compensation plan
  previously approved by
  shareholders....................        1,156,233 (1)        $ 15.25          1,554,777 (2)     2,711,010 (2)
Equity compensation plans not
  previously approved by                                         Not
  shareholders....................           None             Applicable            None              None
                                        ----------------- ------------------ ------------------ ------------------
       TOTAL:                             1,156,233            $ 15.25          1,554,777         2,711,010 (2)
                                        ================= ================== ================== ==================

</TABLE>

------------
(1)  Issued  under the Prime Group Realty Trust 1997 Share  Incentive  Plan,  as
     amended.

(2)  We have  granted  the options to  purchase  common  shares set forth in the
     table  above  as  well as  restricted  common  shares  subject  to  vesting
     schedules and unrestricted common shares under the Plan. As of December 31,
     2003,  we had  granted  149,764  restricted  common  shares  and  1,156,233
     unrestricted  common shares under the Plan.  We are  authorized to issue an
     aggregate of  2,860,774  common  shares  under the Plan.  After taking into
     account  common shares  subject to  outstanding  options and restricted and
     unrestricted common share grants, 1,554,777 common shares of the authorized
     2,860,774  common shares remain  available  for future  issuance  under the
     Plan.

     The information  contained in the sections  captioned  "Principal  Security
Holders  of the  Company"  of the  Proxy  Statement  is  incorporated  herein by
reference.

     We have Series A-2  warrants  outstanding  to purchase up to 500,000 of our
common  shares at $7.50 per share,  Series B warrants  outstanding  to  purchase
250,000  of our  common  shares  at  $10.00  per  share  and  Series C  warrants
outstanding  to purchase up to 250,000 of our common shares at $12.50 per share.
The warrants contain antidilution  adjustment provisions and expire on the fifth
anniversary of their issuance,  July 16, 2007. We have granted the holder of the
warrants  certain  demand and incidental  registration  rights in respect of any
common shares they may receive upon the exercise of any of the warrants.



<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See  the  information  contained  in the  section  captioned  "Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations--Certain Relationships and Related Transactions" of this report.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

         The information contained in the section captioned "Audit and Non-Audit
Fees" of the Proxy Statement is incorporated herein by reference.



<PAGE>


                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                   ON FORM 8-K

(a) (1)  Consolidated Financial Statements

Report of Independent Auditors                                               F-2

Consolidated Balance Sheets as of December 31, 2003 and 2002                 F-3


Consolidated Statements of Operations for the years ended
  December 31, 2003, 2002 and 2001                                           F-4


Consolidated Statements of Changes in Shareholders' Equity
  for the years ended December 31, 2003, 2002 and 2001                       F-6

Consolidated Statements of Cash Flows for the years ended
  December 31, 2003, 2002 and 2001                                           F-7


Notes to Consolidated Financial Statements                                  F-10


     (2) Financial Statement Schedule

The following financial statement schedule is included in Item 145(d)

Schedule III - Real Estate and Accumulated Depreciation of Prime Group
  Realty Trust as of December 31, 2003                                      F-58


     All  other  schedules  for  which  provision  is  made  in  the  applicable
accounting  regulations  of the  Securities  and  Exchange  Commission  are  not
required under the related instructions or are inapplicable,  and therefore have
been omitted.



<PAGE>


(3) Exhibits

Exhibit
 No.                                                                 Description


3.1       Articles of Amendment and Restatement of Declaration of Trust of Prime
          Group Realty  Trust as filed as exhibit 3.1 to our 1997 Annual  Report
          on Form 10-K and incorporated herein by reference.

3.2       Articles Supplementary to the Articles of Amendment and Restatement of
          Declaration  of Trust of Prime Group  Realty Trust as filed as exhibit
          4.1 to our  Quarterly  Report on Form 10-Q for the quarter  ended June
          30, 1998 and incorporated herein by reference.

3.3       Articles Supplementary to the Articles of Amendment and Restatement of
          Declaration  of Trust of Prime Group Realty Trust dated as of December
          29,  1998 as filed as exhibit  3.3 to our 1998  Annual  Report on Form
          10-K and incorporated by reference.

3.4       Amended and  Restated  Bylaws of Prime Group  Realty Trust as filed as
          exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended
          September 30, 2000 and incorporated herein by reference.

3.5       Amended and Restated  Agreement of Limited  Partnership of Prime Group
          Realty,   L.P.  (the  "Amended  and  Restated   Agreement  of  Limited
          Partnership")  as filed as exhibit  3.3 to our 1997  Annual  Report on
          Form 10-K and incorporated herein by reference.

3.6       Amendment  No. 1 to the  Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of December  15, 1997 as filed as exhibit 3.5 to
          Amendment  No.  1 to our  Registration  Statement  on Form  S-11  (No.
          333-51599) and incorporated herein by reference.

3.7       Amendment  No. 2 to the  Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of December  15, 1997 as filed as exhibit 3.6 to
          Amendment  No.  1 to our  Registration  Statement  on Form  S-11  (No.
          333-51599) and incorporated herein by reference.

3.8       Amendment  No. 3 to the  Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of January  15,  1998 as filed as exhibit 3.7 to
          Amendment  No.  1 to our  Registration  Statement  on Form  S-11  (No.
          333-51599) and incorporated herein by reference.

3.9       Amendment  No. 4 to the  Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of February  13, 1998 as filed as exhibit 3.8 to
          Amendment  No.  1 to our  Registration  Statement  on Form  S-11  (No.
          333-51599) and incorporated herein by reference.

3.10      Amendment  No. 5 to the  Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of March  13,  1998 as filed as  exhibit  3.9 to
          Amendment  No.  1 to our  Registration  Statement  on Form  S-11  (No.
          333-51599) and incorporated herein by reference.


<PAGE>


 Exhibit
  No.                                                                Description

3.11      Amendment  No. 6 to the  Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of March 25,  1998 as filed as  exhibit  3.10 to
          Amendment  No.  1 to our  Registration  Statement  on Form  S-11  (No.
          333-51599) and incorporated herein by reference.

3.12      Amendment  No. 7 to the  Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of April 15,  1998 as filed as  exhibit  3.11 to
          Amendment  No.  1 to our  Registration  Statement  on Form  S-11  (No.
          333-51599) and incorporated herein by reference.

3.13      Amendment  No. 8 to the  Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of May 15,  1998 as filed as exhibit  3.2 to our
          Quarterly  Report on Form 10-Q for the quarter ended June 30, 1998 and
          incorporated herein by reference.

3.14      Amendment  No. 9 to the  Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of June 5, 1998 as filed as  exhibit  3.3 to our
          Quarterly  Report on Form 10-Q for the quarter ended June 30, 1998 and
          incorporated herein by reference.

3.15      Amendment  No. 10 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of June 15,  1998 as filed as exhibit 3.4 to our
          Quarterly  Report on Form 10-Q for the quarter ended June 30, 1998 and
          incorporated herein by reference.

3.16      Amendment  No. 11 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of July 15,  1998 as  filed as  exhibit  3.15 to
          Post-Effective  Amendment No. 1 to our Registration  Statement on Form
          S-11 (No. 333-51935) and incorporated herein by reference.

3.17      Amendment  No. 12 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of August 14,  1998 as filed as exhibit  3.16 to
          Post-Effective  Amendment No. 1 to our Registration  Statement on Form
          S-11 (No. 333-51935) and incorporated herein by reference.

3.18      Amendment  No. 13 to the Amended  and  Restated  Agreement  of Limited
          Partnership dated as of September 15, 1998 as filed as exhibit 3.17 to
          Amendment No. 1 to Post-Effective  Amendment No. 1 to our Registration
          Statement  on Form S-11 (No.  333-51935)  and  incorporated  herein by
          reference.

3.19      Amendment  No. 14 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of October 15, 1998 as filed as exhibit  3.18 to
          Amendment  No.  2 to our  Registration  Statement  on  Form  S-3  (No.
          333-64973) and incorporated herein by reference.



<PAGE>


Exhibit
No.                                                                  Description

3.20      Amendment  No. 15 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of November 16, 1998 as filed as exhibit 3.19 to
          Amendment  No.  1 to our  Registration  Statement  on  Form  S-3  (No.
          333-64973) and incorporated herein by reference.

3.21      Amendment  No. 16 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of December 15, 1998 as filed as exhibit 3.20 to
          Post-Effective  Amendment No. 3 to our Registration  Statement on Form
          S-3 (Registration No. 333-51935) and incorporated herein by reference.

3.22      Amendment  No. 17 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of January  15,  1999 as filed as exhibit 3.1 to
          our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
          and incorporated herein by reference.

3.23      Amendment  No. 18 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of February  15, 1999 as filed as exhibit 3.2 to
          our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
          and incorporated herein by reference.

3.24      Amendment  No. 19 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of March 15, 1999 as filed as exhibit 3.3 to our
          Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and
          incorporated herein by reference.

3.26      Amendment  No. 21 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of April 15,  1999 as filed as  exhibit  3.24 to
          Amendment  No.  1 to our  Registration  Statement  on  Form  S-3  (No.
          333-70369) and incorporated herein by reference.

3.27      Amendment  No. 22 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of April 22,  1999 as filed as  exhibit  3.25 to
          Amendment  No.  1 to our  Registration  Statement  on  Form  S-3  (No.
          333-70369) and incorporated herein by reference.

3.28      Amendment  No. 23 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated  as of May 17,  1999 as filed  as  exhibit  3.26 to
          Amendment  No.  1 to our  Registration  Statement  on  Form  S-3  (No.
          333-70369) and incorporated herein by reference.

3.29      Amendment  No. 24 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of June 15,  1999 as filed as exhibit 3.4 to our
          Quarterly  Report on Form 10-Q for the quarter ended June 30, 1999 and
          incorporated herein by reference.

3.30      Amendment  No. 25 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of July 14,  1999 as filed as exhibit 3.1 to our
          Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
          and incorporated herein by reference.


<PAGE>


Exhibit
No.                                                                  Description

3.31      Amendment  No. 26 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of July 15,  1999 as filed as exhibit 3.2 to our
          Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
          and incorporated herein by reference.

3.32      Amendment  No. 27 to the Amended  and  Restated  Agreement  of Limited
          Partnership dated as of August 16, 1999 as filed as exhibit 3.3 to our
          Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
          and incorporated herein by reference.

3.33      Amendment  No. 28 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of September 15, 1999 as filed as exhibit 3.4 to
          our Quarterly  Report on Form 10-Q for the quarter ended September 30,
          1999 and incorporated herein by reference.

3.34      Amendment  No. 29 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of October 15, 1999 as filed as exhibit  3.34 to
          our 1999  Annual  Report  on Form  10-K  and  incorporated  herein  by
          reference.

3.35      Amendment  No. 30 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of November 15, 1999 as filed as exhibit 3.35 to
          our 1999  Annual  Report  on Form  10-K  and  incorporated  herein  by
          reference.

3.36      Amendment  No. 31 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of December 15, 1999 as filed as exhibit 3.36 to
          our 1999  Annual  Report  on Form  10-K  and  incorporated  herein  by
          reference.

3.37      Amendment  No. 32 to the Amended  and  Restated  Agreement  of Limited
          Partnership  dated as of December 30, 1999 as filed as exhibit 3.37 to
          our 1999  Annual  Report  on Form  10-K  and  incorporated  herein  by
          reference.

3.38      Amendment  No. 33 to the Amended  and  Restated  Agreement  of Limited
          Partnership  of Prime Group Realty,  L.P. dated as of January 17, 2000
          as filed as exhibit 3.1 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2000 and incorporated herein by reference.

3.39      Amendment  No. 34 to the Amended  and  Restated  Agreement  of Limited
          Partnership of Prime Group Realty,  L.P. dated as of February 15, 2000
          as filed as exhibit 3.2 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2000 and incorporated herein by reference.

3.40      Amendment  No. 35 to the Amended  and  Restated  Agreement  of Limited
          Partnership of Prime Group Realty,  L.P. dated as of March 15, 2000 as
          filed as  exhibit  3.3 to our  Quarterly  Report  on Form 10-Q for the
          quarter ended March 31, 2000 and incorporated herein by reference.

3.41      Amendment  No. 36 to the Amended  and  Restated  Agreement  of Limited
          Partnership of Prime Group Realty,  L.P. dated as of March 15, 2000 as
          filed as  exhibit  3.4 to our  Quarterly  Report  on Form 10-Q for the
          quarter ended March 31, 2000 and incorporated herein by reference.


<PAGE>


Exhibit
No.                                                                 Description

3.42      Amendment  No. 37 to the Amended  and  Restated  Agreement  of Limited
          Partnership of Prime Group Realty,  L.P. dated as of March 24, 2000 as
          filed as  exhibit  3.5 to our  Quarterly  Report  on Form 10-Q for the
          quarter ended March 31, 2000 and incorporated herein by reference.

3.43      Amendment  No. 38 to the Amended  and  Restated  Agreement  of Limited
          Partnership of Prime Group Realty,  L.P. dated as of April 17, 2000 as
          filed as  exhibit  3.1 to our  Quarterly  Report  on Form 10-Q for the
          quarter ended June 30, 2000 and incorporated herein by reference.

3.44      Amendment  No. 39 to the Amended  and  Restated  Agreement  of Limited
          Partnership  of Prime Group Realty,  L.P.  dated as of May 15, 2000 as
          filed as  exhibit  3.2 to our  Quarterly  Report  on Form 10-Q for the
          quarter ended June 30, 2000 and incorporated herein by reference.

3.45      Amendment  No. 40 to the Amended  and  Restated  Agreement  of Limited
          Partnership  of Prime Group Realty,  L.P. dated as of June 15, 2000 as
          filed as  exhibit  3.3 to our  Quarterly  Report  on Form 10-Q for the
          quarter ended June 30, 2000 and incorporated herein by reference.

3.46      Amendment  No. 41 to the Amended  and  Restated  Agreement  of Limited
          Partnership  of Prime Group Realty,  L.P. dated as of March 7, 2002 as
          filed as  exhibit  3.46 to our 2001  Annual  Report  on Form  10-K and
          incorporated herein by reference.

3.47      Amendment  No.  42  to  Amended  and  Restated  Agreement  of  Limited
          Partnership  of Prime Group Realty,  L.P. dated as of January 10, 2003
          as filed as Exhibit 3.1 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2003 and incorporated herein by reference.

10.1      Credit  Agreement dated as of January 5, 2001 by and between  Dearborn
          Center,  L.L.C.  and  Bayerische  Hypo-Und  Vereinsbank  AG,  New York
          Branch,  as filed as exhibit 10.1 to our Quarterly Report on Form 10-Q
          for the  quarter  ended  March  31,  2001 and  incorporated  herein by
          reference.

10.2      Promissory Note dated as of January 5, 2001 by Dearborn Center, L.L.C.
          to the order of Bayerische  Hypo-Und  Vereinsbank AG, New York Branch,
          as filed as exhibit 10.2 to our Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2001 and incorporated herein by reference.

10.3      Guaranty of Completion and Indemnity  dated as of January 5, 2001 made
          by  Prime  Group  Realty,   L.P.  in  favor  of  Bayerische   Hypo-Und
          Vereinsbank  AG,  New York  Branch,  as filed as  exhibit  10.3 to our
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and
          incorporated herein by reference.


<PAGE>


Exhibit
No.                                                                  Description

10.4      Guaranty of Interest and  Operating  Costs and  Indemnity  dated as of
          January  5,  2001  made by  Prime  Group  Realty,  L.P.  in  favor  of
          Bayerische  Hypo-Und  Vereinsbank  AG,  New York  Branch,  as filed as
          exhibit  10.4 to our  Quarterly  Report on Form  10-Q for the  quarter
          ended March 31, 2001 and incorporated herein by reference.

10.5      Guaranty  of Loan  Payment and  Indemnity  dated as of January 5, 2001
          made by Prime  Group  Realty,  L.P.  in favor of  Bayerische  Hypo-Und
          Vereinsbank  AG,  New York  Branch,  as filed as  exhibit  10.5 to our
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and
          incorporated herein by reference.

10.6      Mezzanine  Construction  Loan Agreement dated as of January 5, 2001 by
          and among Prime/Beitler  Development Company, L.L.C. and Bankers Trust
          Company and other  lenders,  as filed as exhibit 10.6 to our Quarterly
          Report  on  Form  10-Q  for the  quarter  ended  March  31,  2001  and
          incorporated herein by reference.

10.7      Mezzanine  Note  dated  January 5, 2001 by  Prime/Beitler  Development
          Company,  L.L.C.  to the order of Bankers Trust  Company,  as filed as
          exhibit  10.7 to our  Quarterly  Report on Form  10-Q for the  quarter
          ended March 31, 2001 and incorporated herein by reference.

10.8      Mezzanine  Note  dated  January 5, 2001 by  Prime/Beitler  Development
          Company, L.L.C. to the order of MMBC Debt Holdings I, LLC, as filed as
          exhibit  10.8 to our  Quarterly  Report on Form  10-Q for the  quarter
          ended March 31, 2001 and incorporated herein by reference.

10.9      Mezzanine  Note  dated  January 5, 2001 by  Prime/Beitler  Development
          Company,  L.L.C. to the order of New York Life Insurance  Company,  as
          filed as  exhibit  10.9 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2001 and incorporated herein by reference.

10.10     Mezzanine  Note  dated  January 5, 2001 by  Prime/Beitler  Development
          Company,  L.L.C.  to the order of Vornado  Realty  Trust,  as filed as
          exhibit  10.10 to our  Quarterly  Report on Form 10-Q for the  quarter
          ended March 31, 2001 and incorporated herein by reference.

10.11     Guaranty of Completion and Indemnity  dated as of January 5, 2001 made
          by Prime Group  Realty,  L.P. in favor of Bankers  Trust  Company,  as
          filed as exhibit  10.11 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2001 and incorporated herein by reference.

10.12     Guaranty of Interest and  Operating  Costs dated as of January 5, 2001
          made by Prime Group Realty, L.P. in favor of Bankers Trust Company, as
          filed as exhibit  10.12 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2001 and incorporated herein by reference.



<PAGE>


 Exhibit
 No.                                                Description

10.13     Loan  Agreement  dated as of April 25,  2001 by and  between  BRE/City
          Center L.L.C.  and Corus Bank,  N.A., as filed as exhibit 10.13 to our
          Quarterly  Report on Form 10-Q for the quarter ended June 31, 2001 and
          incorporated herein by reference.

10.14     Promissory  Note dated as of April 25, 2001 by BRE/City  Center L.L.C.
          to the order of Corus  Bank,  N.A.,  as filed as exhibit  10.14 to our
          Quarterly  Report on Form 10-Q for the quarter ended June 31, 2001 and
          incorporated herein by reference.

10.15     Limited  Guaranty  dated  as of April  25,  2001  made by Prime  Group
          Realty,  L.P. in favor of Corus Bank,  N.A., as filed as exhibit 10.15
          to our  Quarterly  Report on Form 10-Q for the quarter  ended June 31,
          2001 and incorporated herein by reference.

10.16     Open-End Leasehold Mortgage,  Mortgage,  Assignment of Leases and Rent
          and Financing  Statement dated as of April 25, 2001 by BRE/City Center
          L.L.C in favor of Corus Bank,  N.A.,  as filed as exhibit 10.16 to our
          Quarterly  Report on Form 10-Q for the quarter ended June 31, 2001 and
          incorporated herein by reference.

10.17     Omnibus First  Modification to Senior Loan Documents dated as of March
          12, 2001 by and among Dearborn  Center,  L.L.C.,  Bayerische  Hypo-Und
          Vereinsbank AG, New York Branch and Prime Group Realty, L.P., as filed
          as exhibit 10.17 to our Quarterly  Report on Form 10-Q for the quarter
          ended June 31, 2001 and incorporated herein by reference.

10.18     Omnibus First  Modification  to Mezzanine Loan  Documents  dated as of
          March 12, 2001 by and among Prime/Beitler Development Company, L.L.C.,
          Bankers Trust  Company,  Vornado  Realty Trust,  MMBC Debt Holdings I,
          LLC, New York Life Insurance Company, and Prime Group Realty, L.P., as
          filed as exhibit  10.18 to our  Quarterly  Report on Form 10-Q for the
          quarter ended June 31, 2001 and incorporated herein by reference.

10.19     Reserve  Account  Agreement  dated as of March  12,  2001 by and among
          Dearborn Center, L.L.C.,  Bayerische Hypo-Und Vereinsbank AG, New York
          Branch,  Bankers Trust  Company,  Prime/Beitler  Development  Company,
          L.L.C.,  Prime Group Realty,  L.P.,  Penny Beitler L.L.C.  and J. Paul
          Beitler  Development  Company,  as  filed  as  exhibit  10.19  to  our
          Quarterly  Report on Form 10-Q for the quarter ended June 31, 2001 and
          incorporated herein by reference.

10.20     Support and  Standstill  Agreement  dated as of August 30, 2001 by and
          among Cadim inc., The Prime Group,  Inc., Prime Group Realty Trust and
          Prime Group Realty,  L.P., as filed on August 31, 2001 under  Schedule
          14D9 and incorporated herein by reference.



<PAGE>


Exhibit
No.                                                Description

10.21     Amended and  Restated  Support and  Standstill  Agreement  dated as of
          September  14, 2001 by and among Cadim inc.,  The Prime  Group,  Inc.,
          Prime Group Realty  Trust and Prime Group  Realty,  L.P.,  as filed on
          September 19, 2001 under Schedule  14D9-C and  incorporated  herein by
          reference.

10.22     Tax  Indemnity  Agreement  dated  November 17, 1997 by and among Prime
          Group Realty,  L.P., Roland E. Casati and Richard A. Heise as filed as
          exhibit 10.22 to our 2001 Annual Report on Form 10-K and  incorporated
          herein by reference.

10.23     Amendment to Omnibus First Modification to Senior Loan Documents dated
          as of January 2, 2002 by and among Dearborn Center, L.L.C., Bayerische
          Hypo-Und  Vereinsbank  AG, New York  Branch,  and Prime Group  Realty,
          L.P.,  as filed as exhibit 10.6 to our 2001 Annual Report on Form 10-K
          and incorporated herein by reference.

10.24     First Amendment to Series A Preferred  Securities  Purchase  Agreement
          dated as of February  22, 2002 among Prime Group Realty  Trust,  Prime
          Group   Realty,   L.P.,   and  Security   Capital   Preferred   Growth
          Incorporated,  as filed as exhibit 99.1 to our Current  Report on Form
          8-K (filed  February 28, 2002,  File No.  001-13589) and  incorporated
          herein by reference.

10.25     Omnibus Second Modification to Senior Loan Documents dated as of March
          27, 2002 by and among Dearborn  Center,  L.L.C.,  Bayerische  Hypo-Und
          Vereinsbank  AG, New York Branch,  and Prime Group  Realty,  L.P.,  as
          filed as  exhibit  10.2 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2002 and incorporated herein by reference.

10.26     Pledge,  Assignment and Security Agreement (Liquidity Covenant Waiver)
          dated as of March 27,  2002 by Prime  Group  Realty,  L.P. in favor of
          Bayerische Hypo-Und  Vereinsbank AG, New York Branch, and acknowledged
          and agreed by Dearborn Center, L.L.C., as filed as exhibit 10.3 to our
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 and
          incorporated herein by reference.

10.27     Omnibus Second  Modification  to Mezzanine Loan Documents  dated as of
          March 26, 2002 by and among Prime/Beitler Development Company, L.L.C.,
          Bankers Trust  Company,  Vornado  Realty Trust,  MMBC Debt Holdings I,
          LLC, New York Life Insurance  Company,  Dearborn  Center,  L.L.C.  and
          Prime Group  Realty,  L.P.,  as filed as exhibit 10.4 to our Quarterly
          Report  on  Form  10-Q  for the  quarter  ended  March  31,  2002  and
          incorporated herein by reference.

10.28*    Separation  Agreement  dated April 8, 2002 between  Prime Group Realty
          Trust,  Prime Group Realty,  L.P. and Michael W. Reschke,  as filed as
          exhibit 10.1 to our Current  Report on Form 8-K (filed April 10, 2002,
          File No. 001-13589) and incorporated herein by reference.


<PAGE>


Exhibit
No.                                                Description

10.29*    Separation  Agreement  dated April 8, 2002 by and between  Prime Group
          Realty Trust, Prime Group Realty,  L.P. and Richard S. Curto, as filed
          as exhibit  10.2 to our  Current  Report on Form 8-K (filed  April 10,
          2002, File No. 001-13589) and incorporated herein by reference.

10.30*    Bonus  Agreement  dated  as of May 20,  2002 by and  between  Louis G.
          Conforti,  Prime Group Realty Trust and Prime Group  Realty,  L.P., as
          filed as  exhibit  99.1 to our  Quarterly  Report on Form 10-Q for the
          quarter ended June 30, 2002 and incorporated herein by reference.

10.31*    Bonus  Agreement  dated as of May 20, 2002 by and  between  Jeffrey A.
          Patterson,  Prime Group Realty Trust and Prime Group  Realty,  L.P. as
          filed as  Exhibit  99.2 to our  Quarterly  Report on Form 10-Q for the
          quarter ended June 30, 2002 and incorporated herein by reference.

10.32*    Bonus  Agreement  dated  as of May 20,  2002 by and  between  James F.
          Hoffman,  Prime Group Realty Trust and Prime Group  Realty,  L.P.,  as
          filed as  Exhibit  99.3 to our  Quarterly  Report on Form 10-Q for the
          quarter ended June 30, 2002 and incorporated herein by reference.

10.33     Securities  Purchase and Exchange  Agreement dated as of June 13, 2002
          among Security  Capital  Preferred  Growth  Incorporated,  Prime Group
          Realty Trust and Prime Group Realty, L.P., as filed as Exhibit 99.1 to
          our  Current  Report  on Form  8-K  (filed  June  14,  2002,  File No.
          001-13589) and incorporated herein by reference.

10.34     Form of  Promissory  Note  from  Prime  Group  Realty,  L.P.  in favor
          Security  Capital 10.34  Preferred  Growth  Incorporated,  as filed as
          exhibit  99.2 to our Current  Report on Form 8-K (filed June 14, 2002,
          File No. 001-13589) and incorporated herein by reference.

10.35     Form of Exchangeable  Promissory Note from Prime Group Realty, L.P. in
          favor of Security Capital Preferred Growth, Incorporated,  as filed as
          exhibit  99.3 to our Current  Report on Form 8-K (filed June 14, 2002,
          File No. 001-13589) and incorporated herein by reference.

10.36     Form of  Promissory  Note from Prime  Group  Realty,  L.P. in favor of
          Security Capital  Preferred Growth  Incorporated,  as filed as Exhibit
          99.1 to our Current Report on Form 8-K (filed July 18, 2002,  File No.
          001-13589) and incorporated herein by reference.

10.37     Form of Exchangeable  Promissory Note from Prime Group Realty, L.P. in
          favor of Security Capital Preferred Growth  Incorporated,  as filed as
          Exhibit  99.2 to our Current  Report on Form 8-K (filed July 18, 2002,
          File No. 001-13589) and incorporated herein by reference.



<PAGE>


Exhibit
No.                                                Description

10.38     Amendment  No. 1 to the  Securities  Purchase and  Exchange  Agreement
          dated as of July 16,  2002 by and  among  Security  Capital  Preferred
          Growth Incorporated,  Prime Group Realty Trust and Prime Group Realty,
          L.P.,  as filed as  Exhibit  99.3 to our  Current  Report  on Form 8-K
          (filed July 18, 2002, File No.  001-13589) and incorporated  herein by
          reference.

10.39     Registration  Agreement dated as of July 16, 2002 by and between Prime
          Group Realty Trust and Security Capital Preferred Growth Incorporated,
          as filed as Exhibit 99.4 to our Current Report on Form 8-K (filed July
          18, 2002, File No. 001-13589) and incorporated herein by reference.

10.41     Series A-2 Share Purchase Warrant dated July 16, 2002 from Prime Group
          Realty Trust to Security  Capital  Preferred Growth  Incorporated,  as
          filed as Exhibit  99.6 to our  Current  Report on Form 8-K (filed July
          18, 2002, File No. 001-13589) and incorporated herein by reference.

10.42     Series B Share  Purchase  Warrant dated July 16, 2002 from Prime Group
          Realty Trust to Security  Capital  Preferred Growth  Incorporated,  as
          filed as Exhibit  99.7 to our  Current  Report on Form 8-K (filed July
          18, 2002, File No. 001-13589) and incorporated herein by reference.

10.43     Series C Share  Purchase  Warrant dated July 16, 2002 from Prime Group
          Realty Trust to Security  Capital  Preferred Growth  Incorporated,  as
          filed as Exhibit  99.8 to our  Current  Report on Form 8-K (filed July
          18, 2002, File No. 001-13589) and incorporated herein by reference.

10.44     Omnibus Third  Modification  to Senior Loan Documents dated as of July
          16,  2002  by  and  among  Dearborn  Center,   L.L.C.,   Prime/Beitler
          Development Company, L.L.C.,  Bayerische Hypo- Und Vereinsbank AG, New
          York Branch,  Prime Group Realty,  L.P.,  Penny Beitler L.L.C.  and J.
          Paul Beitler  Development  Company  Incorporated,  as filed as Exhibit
          99.9 to our Current Report on Form 8-K (filed July 18, 2002,  File No.
          001-13589) and incorporated herein by reference.

10.45     Omnibus Third  Modification  to Mezzanine Loan  Documents  dated as of
          July 16, 2002, by and among Prime/Beitler Development Company, L.L.C.,
          Deutsche Bank Trust Company Americas,  Vornado Realty Trust, MMBC Debt
          Holdings I, LLC, New York Life  Insurance  Company,  Dearborn  Center,
          L.L.C.,  Prime Group Realty,  L.P.,  Penny Beitler L.L.C.  and J. Paul
          Beitler Development  Company, as filed as Exhibit 99.10 to our Current
          Report on Form 8-K  (filed  July 18,  2002,  File No.  001-13589)  and
          incorporated herein by reference.

10.46     Pledge,  Assignment  and Security  Agreement  (Second  Senior  Citadel
          Reserve  Account)  dated as of July  16,  2002  given  by Prime  Group
          Realty, L.P. in favor of Bayerische Hypo- Und Vereinsbank AG, New York
          Branch,  as filed as Exhibit  99.11 to our Current  Report on Form 8-K
          (filed July 18, 2002, File No.  001-13589) and incorporated  herein by
          reference.



<PAGE>


Exhibit
No.                                                Description

10.47     First Amendment to Loan Agreement (BRE/City Center L.L.C.) dated as of
          June 27, 2002 by and between  BRE/City  Center L.L.C.  and Corus Bank,
          N.A.,  as filed as  Exhibit  99.12 to our  Current  Report on Form 8-K
          (filed July 18, 2002, File No.  001-13589) and incorporated  herein by
          reference.

10.48     Reaffirmation  and  Amendment  of Limited  Guaranty  (Loan to BRE/City
          Center  L.L.C.)  dated as of June 27, 2002 by and between  Prime Group
          Realty,  L.P.  and Corus Bank N.A.,  as filed as Exhibit  99.13 to our
          Current Report on Form 8-K (filed July 18, 2002,  File No.  001-13589)
          and incorporated herein by reference.

10.49     Loan Agreement dated as of March 10, 2003 between Lehman Brothers Bank
          FSB and 330 N. Wabash Avenue,  L.L.C., as filed as Exhibit 10.1 to our
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and
          incorporated herein by reference.

10.50     Promissory  Note dated as of March 10, 2003 from 330 N. Wabash Avenue,
          L.L.C.  in favor of Lehman Brothers Bank FSB, as filed as Exhibit 10.2
          to our  Quarterly  Report on Form 10-Q for the quarter ended March 31,
          2003 and incorporated herein by reference.

10.51     Guaranty  dated as of March 10, 2003 by Prime Group  Realty,  L.P. for
          the benefit of Lehman  Brothers  Bank FSB, as filed as Exhibit 10.3 to
          our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
          and incorporated herein by reference.

10.52     Guaranty  dated as of March 10, 2003 by Prime Group  Realty,  L.P. for
          the benefit of Lehman  Brothers  Bank FSB, as filed as Exhibit 10.4 to
          our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
          and incorporated herein by reference.

10.53     Guaranty  dated as of March 10, 2003 by Prime Group  Realty,  L.P. for
          the benefit of Lehman  Brothers  Bank FSB, as filed as Exhibit 10.5 to
          our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003
          and incorporated herein by reference.

10.54     Mezzanine  Loan  Agreement  dated as of March  19,  2003 by and  among
          Prime/Beitler  Development  Company,  L.L.C.  and LNR Eastern Lending,
          LLC, as filed as Exhibit 10.6 to our Quarterly Report on Form 10-Q for
          the quarter ended March 31, 2003 and incorporated herein by reference.

10.55     Omnibus First  Modification  to Mezzanine Loan  Documents  dated as of
          March 19, 2003 by and among Prime/Beitler Development Company, L.L.C.,
          LNR Eastern  Lending,  LLC and Prime Group  Realty,  L.P., as filed as
          Exhibit  10.7 to our  Quarterly  Report on Form  10-Q for the  quarter
          ended March 31, 2003 and incorporated herein by reference.



<PAGE>


Exhibit
No.                                                Description

10.56     Omnibus Second  Modification  to Mezzanine Loan Documents  dated as of
          March 19, 2003 by and among Prime/Beitler Development Company, L.L.C.,
          LNR Eastern  Lending,  LLC,  Dearborn  Center,  L.L.C. and Prime Group
          Realty, L.P., as filed as Exhibit 10.8 to our Quarterly Report on Form
          10-Q for the quarter ended March 31, 2003 and  incorporated  herein by
          reference.

10.57     Omnibus Third  Modification  to Mezzanine Loan  Documents  dated as of
          March 19, 2003 by and among Prime/Beitler Development Company, L.L.C.,
          LNR Eastern  Lending,  LLC,  Dearborn  Center,  L.L.C. and Prime Group
          Realty, L.P., as filed as Exhibit 10.9 to our Quarterly Report on Form
          10-Q for the quarter ended March 31, 2003 and  incorporated  herein by
          reference.

10.58     Mezzanine  Note  dated  as  of  March  19,  2003  from   Prime/Beitler
          Development Company,  L.L.C. in favor of LNR Eastern Lending,  LLC, as
          filed as Exhibit  10.10 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2003 and incorporated herein by reference.

10.59     Guaranty of  Completion  and  Indemnity  dated as of March 19, 2003 by
          Prime Group  Realty,  L.P. in favor of LNR  Eastern  Lending,  LLC, as
          filed as Exhibit  10.11 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2003 and incorporated herein by reference.

10.60     Guaranty of Interest and Operating Costs dated as of March 19, 2003 by
          Prime Group  Realty,  L.P. in favor of LNR  Eastern  Lending,  LLC, as
          filed as Exhibit  10.12 to our  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 2003 and incorporated herein by reference.

10.61     Reserve  Account  Agreement  dated as of March  19,  2003 by and among
          Dearborn Center, L.L.C., Bayerische Hypo- Und Vereinsbank AG, New York
          Branch, LNR Eastern Lending, LLC,  Prime/Beitler  Development Company,
          L.L.C. and Prime Group Realty,  L.P., as filed as Exhibit 10.13 to our
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and
          incorporated herein by reference.

10.62     Non-Recourse  Carveout  Agreement  dated as of March 19, 2003 by Prime
          Group Realty,  L.P. in favor of LNR Eastern Lending,  LLC, as filed as
          Exhibit  10.14 to our  Quarterly  Report on Form 10-Q for the  quarter
          ended March 31, 2003 and incorporated herein by reference.

10.63     Mezzanine  Loan  Agreement  dated as of May 28,  2003  between  Lehman
          Brothers Holdings Inc. and 330 N. Wabash  Mezzanine,  L.L.C., as filed
          as Exhibit 10.15 to our Quarterly  Report on Form 10-Q for the quarter
          ended June 30, 2003 and incorporated herein by reference.


<PAGE>


Exhibit
No.                                                Description

10.64     Promissory Note dated as of May 28, 2003 from 330 N. Wabash Mezzanine,
          L.L.C. in favor of Lehman Brothers  Holdings Inc., as filed as Exhibit
          10.16 to our Quarterly  Report on Form 10-Q for the quarter ended June
          30, 2003 and incorporated herein by reference.

10.65     Guaranty dated as of May 28, 2003 by Prime Group Realty,  L.P. for the
          benefit of Lehman Brothers Holdings Inc., as filed as Exhibit 10.17 to
          our Quarterly  Report on Form 10-Q for the quarter ended June 30, 2003
          and incorporated herein by reference.

10.66     Guaranty dated as of May 28, 2003 by Prime Group Realty,  L.P. for the
          benefit of Lehman Brothers Holdings Inc., as filed as Exhibit 10.18 to
          our Quarterly  Report on Form 10-Q for the quarter ended June 30, 2003
          and incorporated herein by reference.

10.67     Guaranty dated as of May 28, 2003 by Prime Group Realty,  L.P. for the
          benefit of Lehman Brothers Holdings Inc., as filed as Exhibit 10.19 to
          our Quarterly  Report on Form 10-Q for the quarter ended June 30, 2003
          and incorporated herein by reference.

10.68     Amendment  to Loan  Agreement  dated as of May 28, 2003 between 330 N.
          Wabash  Avenue,  L.L.C.  and  Lehman  Brothers  Bank FSB,  as filed as
          Exhibit  10.20 to our  Quarterly  Report on Form 10-Q for the  quarter
          ended June 30, 2003 and incorporated herein by reference.

10.69     Omnibus  Amendment to Loan Documents  dated as of May 28, 2003 between
          330 N. Wabash Avenue, L.L.C. and Lehman Brothers Bank FSB, as filed as
          Exhibit  10.21 to our  Quarterly  Report on Form 10-Q for the  quarter
          ended June 30, 2003 and incorporated herein by reference.

10.70     Amendment  to Guaranty  dated as of May 28, 2003  between  Prime Group
          Realty,  L.P. and Lehman  Brothers Bank FSB, as filed as Exhibit 10.22
          to our  Quarterly  Report on Form 10-Q for the quarter  ended June 30,
          2003 and incorporated herein by reference.

10.71     Termination of $4,000,000  Mortgage  Guaranty Note dated as of May 28,
          2003 between Prime Group Realty, L.P. and Lehman Brothers Bank FSB, as
          filed as Exhibit  10.23 to our  Quarterly  Report on Form 10-Q for the
          quarter ended June 30, 2003 and incorporated herein by reference.

10.72     Contribution  Agreement  dated  August 4,  2003  between  Prime  Group
          Realty,  L.P. and WELP Chicago,  L.C., as filed as Exhibit 99.2 to our
          Current  Report  on Form  8-K  (filed  September  5,  2003,  File  No.
          001-13589) and incorporated herein by reference.



<PAGE>


Exhibit
No.                                                Description

10.73     First Amendment to Contribution  Agreement dated as of August 18, 2003
          between Prime Group Realty,  L.P. and WELP Chicago,  L.C., as filed as
          Exhibit  99.3 to our Current  Report on Form 8-K (filed  September  5,
          2003, File No. 001-13589) and incorporated herein by reference.

10.74     Second Amendment to Contribution Agreement dated as of August 29, 2003
          between Prime Group Realty,  L.P. and WELP Chicago,  L.C., as filed as
          Exhibit  99.4 to our Current  Report on Form 8-K (filed  September  5,
          2003, File No. 001-13589) and incorporated herein by reference.

10.75     Employment  Agreement  dated October 29, 2003 among Prime Group Realty
          Trust, Prime Group Realty, L.P. and Richard M. FitzPatrick.

12.1      Computation  of ratios of  earnings  to  combined  fixed  charges  and
          preferred shares distributions.

21.1      Subsidiaries of the Registrant.

23.1      Consent of Independent Auditors.

31.1      Rule  13a-14(a)  Certification  of Stephen J.  Nardi,  Chairman of the
          Board of Registrant.

31.2      Rule  13a-14(a)   Certification  of  Richard  M.  FitzPatrick,   Chief
          Financial Officer of Registrant.

32.1      Certification  Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
          to Section 906 of the  Sarbanes-Oxley Act of 2002 of Stephen J. Nardi,
          Chairman of the Board of Registrant.

32.2      Certification  Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
          to  Section  906 of the  Sarbanes-Oxley  Act of  2002  of  Richard  M.
          FitzPatrick,  Executive Vice President and Chief Financial  Officer of
          Registrant.



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

*    Management  contract or  compensatory  plan or  arrangement  required to be
     filed as an exhibit to this  Report on Form 10-K  pursuant to Item 14(c) of
     the Report on Form 10-K.


<PAGE>



(b) Reports on Form 8-K

     We filed the  following  reports on Form 8-K  during the fourth  quarter of
2003:

     Form 8-K dated October 8, 2003 (filed October 10, 2003, File No. 001-13589)
relating to the press release announcing the closing of a transaction  admitting
a new 70% joint venture  partner to our subsidiary that owns the office building
known as Bank One Center.

     Form 8-K dated October 8, 2003 (filed October 23, 2003, File No. 001-13589)
relating  to the  closing of a  transaction  admitting  a new 70% joint  venture
partner  to our  subsidiary  that  owns the  office  building  known as Bank One
Center.

     Form  8-K  dated  October  10,  2003  (filed  October  14,  2003,  File No.
001-13589)  relating  to a  press  release  announcing  the  termination  of our
Co-President and Chief Financial Officer.

     Form  8-K  dated  October  29,  2003  (filed  October  30,  2003,  File No.
001-13589)  relating  to a  press  release  announcing  the  naming  of our  new
Executive Vice President and Chief Financial Officer.

     Form  8-K  dated  November  5,  2003  (filed  November  6,  2003,  File No.
001-13589)  relating  to  additional   financial  and  operational   information
concerning us and  properties  owned by us or  subsidiaries  as of September 30,
2003, in the form of a Supplemental Information Package and press release.



<PAGE>


                                   SIGNATURES

          Pursuant to the  requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 9, 2004.

                                    PRIME GROUP REALTY TRUST
                                      /s/ Stephen J. Nardi
Dated: March 9, 2004
                                        Stephen J. Nardi
                                      Chairman of the Board

                                   /s/ Richard M. FitzPatrick
                                     Richard M. FitzPatrick
                                  Executive Vice President and
Dated: March 9, 2004              Chief Financial Officer

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

<TABLE>
<CAPTION>


Name                               Title                                  Date

<S>                                <C>                                  <C>

/s/ Stephen J. Nardi
---------------------------------  Chairman of the Board and Trustee   March 9, 2004
Stephen J. Nardi



/s/ Richard M. FitzPatrick
---------------------------------  Executive Vice President and
Richard M. FitzPatrick               Chief Financial Officer           March 9, 2004


/s/ Roy P. Rendino
---------------------------------  Senior Vice President - Finance
Roy P. Rendino                       and Chief Accounting Officer      March 9, 2004



/s/ Douglas Crocker, II
---------------------------------  Trustee                             March 9, 2004
Douglas Crocker, II


/s/ Jacque M. Ducharme
---------------------------------  Trustee                             March 9, 2004
Jacque M. Ducharme


/s/ Ray H. D'Ardenne
---------------------------------  Trustee                             March 9, 2004
Ray H. D'Ardenne


/s/ Daniel A. Lupiani
---------------------------------  Trustee                             March 9, 2004
/s/ Daniel A. Lupiani


/s/ Christopher J. Nassetta
---------------------------------  Trustee                             March 10, 2004
Christopher J. Nassetta

</TABLE>

<PAGE>

 PRIME GROUP REALTY TRUST

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Financial Statements

Report of Independent Auditors..............................................F-2

Consolidated Balance Sheets as of December 31, 2003 and 2002................F-3

Consolidated Statements of Operations for the years ended
   December 31, 2003, 2002 and 2001.........................................F-4

Consolidated Statements of Changes in Shareholders' Equity for the
   years ended December 31, 2003, 2002 and 2001.............................F-6

Consolidated Statements of Cash Flows for the years ended
   December 31, 2003, 2002 and 2001.........................................F-7

Notes to Consolidated Financial Statements.................................F-10

Financial Statement Schedule

Schedule III - Real Estate and Accumulated Depreciation
   as of December 31, 2003.................................................F-59


<PAGE>






                         REPORT OF INDEPENDENT AUDITORS


Board of Trustees
Prime Group Realty Trust

      We have  audited the  accompanying  consolidated  balance  sheets of Prime
Group  Realty  Trust  as  of  December  31,  2003  and  2002,  and  the  related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the three years in the period  ended  December  31,  2003.  We have also
audited the related  financial  statement  schedule  listed in the Index at Item
15(a).  These financial  statements and schedule are the responsibility of Prime
Group Realty Trust's management.  Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.

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

      In our opinion, the financial statements referred to above present fairly,
in all material  respects,  the consolidated  financial  position of Prime Group
Realty Trust at December 31, 2003 and 2002, and the consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2003, in conformity with accounting  principles  generally accepted
in the United  States.  Also, in our opinion,  the related  financial  statement
schedule,  when  considered  in  relation  to the basic  consolidated  financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information set forth therein.

      As  discussed  in Note 1 to the  consolidated  financial  statements,  the
Company  changed its method of accounting for  discontinued  operations in 2002,
and changed its method of accounting for derivative instruments in 2001.

                              /s/Ernst & Young LLP


Chicago, Illinois
March 1, 2004


<PAGE>

<TABLE>
<CAPTION>



                            PRIME GROUP REALTY TRUST
                           CONSOLIDATED BALANCE SHEETS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


                                                                                December 31        December 31
                                                                                   2003                2002
                                                                            ----------------------------------------
<S>                                                                         <C>                   <C>

Assets
Real estate, at cost:
   Land..................................................................      $    146,805        $   183,891
   Building and improvements.............................................           624,745          1,032,669
   Tenant improvements...................................................            85,153            111,547
   Furniture, fixtures and equipment.....................................            10,318             10,218
                                                                            ----------------------------------------
                                                                                    867,021          1,338,325
   Accumulated depreciation..............................................          (129,381)          (110,387)
                                                                            ----------------------------------------
                                                                                    737,640          1,227,938
   Property held for development.........................................            18,955             20,158
                                                                            ----------------------------------------
                                                                                    756,595          1,248,096

Investments in unconsolidated entities...................................            42,778              1,440
Cash and cash equivalents................................................            32,608             15,800
Receivables,  net of  allowance  of $852 and $1,867 at
   December  31,  2003 and December 31, 2002, respectively:
     Tenant..............................................................             2,031              3,178
     Deferred rent.......................................................            19,758             22,351
     Other...............................................................               410              2,453
Restricted cash escrows..................................................            69,890             58,933
Deferred costs, net......................................................            21,079             53,943
Other....................................................................             3,632              3,987
                                                                            ----------------------------------------
Total assets.............................................................      $    948,781        $ 1,410,181
                                                                            ========================================

Liabilities and Shareholders' Equity
Mortgages and notes payable..............................................      $    547,920        $   671,340
Bonds payable............................................................            24,900             24,900
Construction financing...................................................                 -            208,198
Accrued interest payable.................................................             1,719             21,818
Accrued real estate taxes................................................            31,629             36,642
Accrued tenant improvement allowances....................................            10,973             33,172
Accounts payable and accrued expenses....................................            13,067             12,159
 Construction costs payable, including retention of $5,034...............                 -             12,896
Liabilities for leases assumed...........................................            13,792             21,692
Deficit investment in unconsolidated entity..............................             5,168              4,223
Other....................................................................            14,472             17,059
                                                                            ----------------------------------------
Total liabilities........................................................           663,640          1,064,099
Minority interests:
   Operating Partnership.................................................            21,803             98,643
   Other.................................................................                 -              2,000
Shareholders' equity:
   Preferred Shares, $0.01 par value; 30,000,000 shares authorized:
     Series B - Cumulative Redeemable Preferred Shares, 4,000,000
     shares designated, issued and outstanding...........................                40                 40
   Common Shares, $0.01 par value; 100,000,000 shares authorized;
     23,670,522 and 15,689,623 shares issued and outstanding at
     December 31, 2003 and December 31, 2002, respectively...............               236                157
   Additional paid-in capital............................................           381,273            330,327
   Accumulated other comprehensive loss..................................            (2,917)            (6,008)
   Distributions in excess of earnings...................................          (115,294)           (79,077)
                                                                            ----------------------------------------
Total shareholders' equity...............................................           263,338            245,439
                                                                            ----------------------------------------
Total liabilities and shareholders' equity...............................      $    948,781        $ 1,410,181
                                                                            ========================================

</TABLE>



                             See accompanying notes.


<PAGE>


                            PRIME GROUP REALTY TRUST
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                Year ended December 31
                                                             2003          2002       2001
                                                     ----------------------------------------------
<S>                                                   <C>              <C>          <C>
 Revenue:
 Rental............................................    $     99,149     $ 95,568    $  96,928
 Lease termination fees............................          32,123        2,313          416
 Tenant reimbursements.............................          58,252       57,002       56,036
 Other property revenues...........................           4,918        5,047        5,681
 Services Company revenue..........................           2,923        7,366        7,219
                                                     ----------------------------------------------
    Total revenue..................................         197,365      167,296      166,280

 Expenses:
 Property operations...............................          43,630       43,503       44,307
 Real estate taxes.................................          35,546       36,026       32,974
 Depreciation and amortization.....................          36,882       29,519       28,806
 General and administrative........................           9,681        9,794        9,085
 Services Company operations.......................           2,582        4,811        6,898
 Provision for asset impairment....................          45,353        7,952       20,337
 Severance costs...................................             701        2,525            -
 Strategic alternative costs.......................             485        1,561        3,289
 Loss on tax indemnification.......................               -          189        1,191
                                                     ----------------------------------------------
 Total expenses....................................         174,860      135,880      146,887
                                                     ----------------------------------------------

 Operating income..................................          22,505       31,416       19,393
  Other (expense) income...........................            (953)       2,190        4,587
  Interest:
    Expense........................................         (53,386)     (36,977)     (38,886)
    Amortization of deferred financing costs.......          (7,539)      (4,064)      (3,638)
                                                   ----------------------------------------------
 Loss from continuing operations before minority
    interests......................................         (39,373)      (7,435)     (18,544)
 Minority interests................................           1,054        8,895       11,323
                                                     ----------------------------------------------
 (Loss) income from continuing operations..........         (38,319)       1,460       (7,221)
 Discontinued operations, net of minority
    interests of $(1,113), $21,818 and $(1,962)
    in 2003, 2002 and 2001, respectively...........           2,748      (31,138)       2,870
                                                     ----------------------------------------------
 Loss before (loss) gain on sales of real estate
   and cumulative effect of change
   in accounting principle.........................         (35,571)     (29,678)      (4,351)
 (Loss)  gain on sales of real estate, net of
     minority interests of $84, $660 and $(118), in
     2003, 2002 and 2001, respectively.............            (646)        (943)         174
 Cumulative effect of change in accounting
    principle, net of minority interests of $218...               -            -         (321)
                                                     ----------------------------------------------
 Net loss..........................................         (36,217)     (30,621)      (4,498)
 Net income allocated to preferred shareholders....          (9,000)     (11,280)     (12,150)
                                                     ----------------------------------------------
 Net loss available to common shareholders.........    $    (45,217)    $(41,901)    $(16,648)
                                                     ==============================================

                             See accompanying notes.

</TABLE>




<PAGE>


                            PRIME GROUP REALTY TRUST
                CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>



                                                                             Year ended December 31
                                                                      2003            2002            2001
                                                                -------------------------------------------------
<S>                                                              <C>               <C>    <C>      <C>

Basic and diluted earnings available to common shares per
   weighted-average common share:
Loss from continuing operations...............................  $   (2.35)        $  (0.62)       $  (1.24)
Discontinued operations, net of minority interests............       0.13            (1.99)           0.18
(Loss) gain on sales of real estate, net of minority interests      (0.03)           (0.06)           0.01
Cumulative effect of change in accounting principles, net of
   minority interests.........................................          -                -           (0.02)
                                                                -------------------------------------------------
Net loss available per weighted-average common share of
   beneficial interest -basic and diluted.....................  $   (2.25)       $   (2.67)       $  (1.07)
                                                                =================================================

Comprehensive loss:
Net loss......................................................  $ (36,217)        $(30,621)       $ (4,498)
Other comprehensive loss - interest rate protection
   agreements
   Cumulative effect of change in accounting
     principle................................................          -                -          (3,227)
   Net unrealized (losses) gains arising during the
     year.....................................................        (63)           6,116          (4,521)
   Equity in unrealized gains (losses) arising
     during the year - unconsolidated entities................      2,542           (1,344)         (3,629)
   Losses reclassified into earnings from other
     comprehensive income - unconsolidated entities...........        612              275             322
                                                                -------------------------------------------------
Comprehensive loss............................................  $ (33,126)        $(25,574)       $(15,553)
                                                                -------------------------------------------------

</TABLE>



                             See accompanying notes.


<PAGE>

<TABLE>
<CAPTION>



                            PRIME GROUP REALTY TRUST

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

       (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE/UNIT AND PER SHARE AMOUNTS)

                                                                       Accumulated
                                    Preferred             Additional      Other       (Distributions
                                      Shares    Common     Paid-In    Comprehensive   in Excess of)
                                    -----------
                                     Series B   Shares     Capital        Loss      Retained Earnings    Total
                                    ------------------------------------------------------------------------------
<S>                                 <C>       <C>         <C>             <C>      <C>                  <C>

Balance at January 1, 2001.......   $    40   $    156     $  328,687  $       -   $     (6,970)     $   321,913
Amortization of restricted stock
   awards........................         -          1            705          -              -              706
Exercise of stock options........         -          -             22          -              -               22
Net loss.........................         -          -              -          -         (4,498)          (4,498)
Series B - preferred share
   dividends declared ($1.69 per
   share)........................         -          -              -          -         (6,750)          (6,750)
Series A - preferred share
   dividends declared ($1.13 per
   share)........................         -          -              -          -         (2,250)          (2,250)
Series A - preferred share
   amortized dividend............         -          -              -          -           (150)            (150)
Common share dividends declared
   ($1.01 per share).............         -          -              -          -        (15,808)         (15,808)
Conversion of 33,085 common
   units to common shares (one
   for one)......................         -          -            454          -              -              454
Repurchase of 33,085 common
   shares........................         -          -           (478)         -              -             (478)
Transition adjustment for change
   in accounting principle.......         -          -              -     (3,227)             -           (3,227)
Unrealized loss on derivative
   instruments...................         -          -              -     (8,150)             -           (8,150)
Losses reclassified into
   earnings--unconsolidated
   entities......................         -          -              -        322              -              322
                                    ------------------------------------------------------------------------------
Balance at December 31, 2001.....        40        157        329,390    (11,055)       (36,426)         282,106
Amortization of restricted stock
   awards........................         -          -            304          -              -              304
Net loss.........................         -          -              -          -        (30,621)         (30,621)
Series B - preferred share
   dividends declared ($2.25 per
   share)........................         -          -              -          -         (9,000)          (9,000)
Series A - preferred share
   dividends declared ($1.51 per
   share)........................         -          -              -          -         (3,030)          (3,030)
Net unrealized gain on
   derivative instruments........         -          -              -      5,047              -            5,047
Issuance of stock warrants.......         -          -            633          -              -              633
                                    ------------------------------------------------------------------------------
Balance at December 31, 2002.....        40        157        330,327     (6,008)       (79,077)         245,439
Conversion of 7,980,899 common
   units to common shares (one
   for one)......................         -         79         50,852          -              -           50,931
Amortization of restricted stock
   awards........................         -          -             94          -              -               94
Net loss.........................         -          -              -          -        (36,217)         (36,217)
Net unrealized gain on
   derivative instruments........         -          -              -      3,091              -            3,091
                                    ------------------------------------------------------------------------------
Balance at December 31, 2003.....   $    40   $    236   $    381,273  $  (2,917)  $   (115,294)     $   263,338
                                    ==============================================================================

</TABLE>




                             See accompanying notes.



<PAGE>


                            PRIME GROUP REALTY TRUST

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                            Year ended December 31
                                                                       2003          2002          2001
                                                                -------------------------------------------
<S>                                                            <C>              <C>            <C>
Operating activities
Net loss....................................................    $     (36,217)   $  (30,621)    $  (4,498)
Adjustments to reconcile net loss to net cash provided by
   operating activities:
     Amortization of discount on notes payable..............              343           290             -
     Amortization of costs for leases assumed (included in
       rental revenue)......................................            2,968           836           767
     (Gain) loss on sales of real estate ((gain) loss of
       $(1,266) and $3,211 in 2003 and 2002, respectively,
       included in discontinued operations).................             (496)        4,814          (292)
     Depreciation and amortization (including discontinued
       operations)..........................................           41,453        39,295        42,047
     Realized loss on derivatives...........................                -             -           230
     Provision for asset impairment (asset impairments of
       $56,573 and $1,500 in 2002 and 2001, respectively,
       included in discontinued operations).................           45,353        64,525        21,837
     Net equity in (income) loss of unconsolidated
       investments..........................................            2,249          (810)       (1,770)
     Minority interests (including discontinued operations).              (23)      (31,373)       (9,461)
     Cumulative effect of change in accounting principles...                -             -           539
     Changes in operating assets and liabilities:
       Increase in receivables..............................             (783)         (808)           (7)
       (Increase) decrease in other assets..................              (77)          582           (74)
       (Decrease) increase in accrued interest payable......          (20,038)        3,333         1,298
       Increase in accrued real estate taxes................            4,631         2,480         2,094
       (Decrease) increase in accounts payable and accrued
         expenses...........................................           (7,881)       (9,229)        2,583
       Decrease in other liabilities........................           (2,196)         (994)       (2,483)
                                                                -------------------------------------------
Net cash provided by operating activities...................           29,286        42,320        52,810

Investing activities
Expenditures for real estate and equipment..................          (76,883)     (124,054)     (146,423)
Proceeds from sales of real estate..........................          430,254        26,596        25,413
(Increase) decrease in restricted cash escrows..............          (13,483)       13,187       (14,496)
Leasing costs...............................................          (20,201)      (13,770)       (9,239)
Proceeds from assignment of joint venture interest..........                -        22,969             -
Net distributions from (contributions to) unconsolidated
   entities.................................................            4,634          (879)            1
                                                                -------------------------------------------
Net cash provided by (used in) investing activities.........          324,321       (75,951)     (144,744)

</TABLE>



<PAGE>




                            PRIME GROUP REALTY TRUST

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                             (DOLLARS IN THOUSANDS)

                             Year ended December 31

<TABLE>
<CAPTION>

                                                                     2003          2002          2001
                                                                -------------------------------------------
<S>                                                             <C>             <C>            <C>

Financing activities
Financing costs.............................................     $     (4,838)  $    (2,950) $     (4,714)
Proceeds from mortgages and notes payable...................          195,000        20,448       136,237
Repayment of mortgages and notes payable....................         (318,763)      (35,310)     (115,909)
Repayment of bonds payable..................................                -       (27,150)            -
Proceeds from construction financing........................           97,155       102,561       105,637
Repayment of construction financing.........................         (305,353)            -             -
Common share repurchase.....................................                -             -          (478)
Proceeds from exercise of stock options.....................                -             -            22
Distributions to minority interests - Operating Partnership.                -             -       (14,485)
Series A - preferred shares repurchase........................              -        (5,000)            -
Dividends paid to Series B - preferred shareholders...........              -        (9,000)       (9,000)
Dividends paid to Series A - preferred shareholder............              -          (750)       (3,000)
Dividends paid to common shareholders.........................              -             -       (21,062)
                                                                -------------------------------------------
Net cash (used in) provided by financing activities...........       (336,799)       42,849        73,248
                                                                -------------------------------------------
Net increase (decrease) in cash and cash equivalents..........         16,808         9,218       (18,686)
Cash and cash equivalents at beginning of year................         15,800         6,582        25,268
                                                                -------------------------------------------
Cash and cash equivalents at end of year......................   $     32,608   $    15,800  $      6,582
                                                                ===========================================

</TABLE>


                             See accompanying notes.



<PAGE>


                            PRIME GROUP REALTY TRUST

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                             (dollars in thousands)

      During the years  ended  December  31,  2003,  2002 and 2001,  we sold the
following net assets:

                             Year ended December 31

<TABLE>
<CAPTION>

                                                                        2003         2002          2001
                                                                 ------------------------------------------

<S>                                                              <C>             <C>         <C>
Real estate, net..............................................    $   435,784   $  145,948   $    23,843
Deferred rent receivable......................................          3,222        2,826           120
Deferred costs, net...........................................         40,085        2,706           225
Restricted escrows............................................          2,526        3,842          (307)
Mortgage notes payable assumed by buyer.......................              -     (113,085)            -
Bonds payable assumed by buyer................................              -       (5,100)            -
Accrued real estate taxes.....................................         (9,644)      (6,089)         (699)
Other liabilities and assets, net.............................          1,908          362         1,939
                                                                 ------------------------------------------
Net assets....................................................        473,881       31,410        25,121
Equity investment in unconsolidated entity retained(1)........        (44,123)           -             -
                                                                 ------------------------------------------
Net assets sold...............................................        429,758       31,410        25,121
Proceeds from sales of real estate............................        430,254       26,596        25,413
                                                                 ------------------------------------------
Gain (loss) on sales of real estate(2)........................    $       496   $   (4,814)  $       292
                                                                ==========================================

</TABLE>

(1)  Represents our 30%  subordinate  common equity in the Bank One Center joint
     venture.

(2)  $1.3 million of gain and $3.2 million of loss on sale of real estate during
     the years ended December 31, 2003 and 2002,  respectively,  are included in
     discontinued operations.

      The following  represents  supplemental  disclosure of significant noncash
activity for the years ended December 31, 2003, 2002, and 2001:

<TABLE>
<CAPTION>

                                                                            Year ended December 31
                                                                     2003          2002          2001
                                                                -------------------------------------------
<S>                                                              <C>          <C>            <C>

Real estate basis reduction due to the exchange of
  Operating  Partnership commonunits for common shares.......... $  (24,614)   $        -     $       -
Deferred  leasing cost  reduction  due to the exchange
   of Operating  Partnership common units for common shares.....     (1,272)            -             -
Real estate additions through the issuance of
   partnership units to minority interest.......................          -         3,210             -
Real estate additions through the increase in accrued
   interest payable on construction financing...................          -         8,162         4,700
Real estate additions through the increase in accrued
   tenant improvement allowances................................          -        23,577         2,144
Mortgage notes payable reduction through assumption of
   debt by buyer of sold properties.............................          -       113,085             -
Bonds payable reduction through assumption of debt by
   buyer of sold property.......................................          -         5,100             -
Repurchase of Series A preferred shares through the
   issuance of notes payable....................................          -        35,000             -
Dividends paid to Series A preferred shares through the
   issuance of notes payable....................................          -         2,280             -
Real estate additions through the increase in
   accounts payable and accrued expenses........................          -             -         7,694
Net asset additions through consolidation of the
   Services Company.............................................          -             -         2,524
                                                                -------------------------------------------
                                                                  $ (25,886)   $  190,414    $   17,062
                                                                ===========================================

</TABLE>

                             See accompanying notes.


<PAGE>


                            Prime Group Realty Trust

                   Notes to Consolidated Financial Statements


1.  Summary of Significant Accounting Policies

Formation and Organization of the Company

      We were  organized in Maryland on July 21, 1997 and intend to qualify as a
real estate  investment  trust ("REIT") under the Internal Revenue Code of 1986,
as amended, for Federal income tax purposes.  On November 17, 1997, we completed
our initial  public  offering  and  contributed  the net proceeds to Prime Group
Realty, L.P. (the "Operating  Partnership") in exchange for preferred and common
partnership interests.

      We are the sole general  partner of the Operating  Partnership and own all
of the  preferred  units  and  88.5% and  58.7% of the  common  units  issued at
December 31, 2003 and 2002,  respectively.  Each  preferred unit and common unit
entitles  us  to  receive   distributions   from  the   Operating   Partnership.
Distributions  declared or paid to holders of common shares and preferred shares
are based  upon such  distributions  we receive  with  respect to our common and
preferred units.

Basis of Presentation

      Our consolidated  financial  statements include the Operating  Partnership
and the other  entities  in which we have  control or from which we receive  all
economic benefits.  We have significant  controlling  financial interests in the
Continental Towers office building located at 1701 Golf Road in Rolling Meadows,
Illinois  through  our  ownership  of a second  mortgage  note  secured  by this
property and we consolidate this property.

      The  preparation  of financial  statements in conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

      Investments in  corporations  and  partnerships  in which we do not have a
controlling  financial  interest or a majority interest are accounted for on the
equity  method of  accounting.  To the extent that our recorded  share of losses
exceeds our  investment in an  unconsolidated  corporation  or  partnership,  we
reflect  a deficit  investment  as a  liability  in our  consolidated  financial
statements.

      Significant intercompany accounts and transactions have been eliminated in
consolidation.

      Certain amounts in the prior period consolidated financial statements have
been reclassified to conform to the current period presentation,  with no effect
on our consolidated financial position or results of operations.


Real Estate

      Depreciation is calculated on the straight-line  method over the estimated
useful lives of the related assets, which are as follows:

     Building and improvements                   40 years
     Tenant improvements                         Term of related leases
     Furniture and equipment                     3-7 years

      Development  costs,  which include land  acquisition  costs,  construction
costs,  fees  and  other  costs  incurred  in  developing  new  properties,  are
capitalized as incurred.  Interest,  financing costs,  real estate taxes,  other
direct costs and indirect costs (including  certain employee  compensation costs
and related general and  administrative  expenses)  incurred during  development
periods  are  capitalized  as a component  of the  building  costs.  These costs
continue to be capitalized,  to the extent they relate to vacant space,  for one
year following the date the development is placed in service.  Subsequent to the
one-year period, these costs are fully expensed as incurred.  Upon completion of
construction,  development  costs are included in buildings and improvements and
are  depreciated  over  the  useful  lives  of the  respective  properties  on a
straight-line basis.

<PAGE>

      Real estate is carried at  depreciated  cost.  Expenditures  for  ordinary
maintenance  and repairs are expensed to  operations  as  incurred.  Significant
renovations and improvements  which improve and/or extend the useful life of the
asset are  capitalized  and  depreciated  over their  estimated  useful life. In
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 144,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 144"), we record  impairment  losses on long-lived assets
used in operations when events and circumstances  indicate that the assets might
be impaired and the  undiscounted  cash flows estimated to be generated by those
assets  during the expected  hold period are less than the  carrying  amounts of
those assets.  Impairment losses are measured as the difference between carrying
value and fair value of assets. For assets held for sale, impairment is measured
as the difference  between carrying value and fair value, less costs to dispose.
Fair value is based on estimated cash flows  discounted at a risk-adjusted  rate
of interest. Property held for future development and property under development
are also  evaluated for  impairment.  Impairment is determined  for  development
costs  associated  with property held for future  development and property under
development based upon  management's  assessment that these costs have no future
value.

Sales of Real Estate

      In accordance with SFAS No. 66, "Accounting for Sales of Real Estate",  we
recognize  gains on sale of real estate using the full accrual method upon sale,
provided  the sales  price is  reasonably  assured and we are not  obligated  to
perform significant  activities after the sale. However, when we agree to assume
responsibility  for re-leasing  sold  properties for a period beyond the date of
sale and where we use  estimates  to  support  our  intent to  mitigate  our net
liability,  we defer  recognition  of the gain on sale of real estate until such
time as we can more  reasonably  determine  our actual  liability  with executed
subleases.

      In accordance with SFAS 144, effective for financial statements issued for
fiscal years  beginning  after  December 15, 2001, net income and gain (loss) on
sales of real estate for properties  sold or properties held for sale subsequent
to December 31, 2001 are reflected in our Consolidated  Statements of Operations
as "discontinued operations" for all years presented.

Cash Equivalents

      We consider highly liquid  investments  with a maturity of three months or
less when purchased to be cash equivalents.

<PAGE>
Deferred Costs


      Costs  incurred  in  connection  with  financings,  refinancings  or  debt
modifications  are capitalized as deferred  financing costs and are amortized on
the  straight-line   method  over  the  lives  of  the  related  loans.  Leasing
commissions,   lease   assumption   costs  and  other  leasing  costs   directly
attributable to tenant leases are capitalized as deferred  leasing costs and are
amortized  on the  straight-line  method  over the  terms of the  related  lease
agreements.  Upon the early extinguishment of debt, remaining deferred financing
costs associated with the extinguished debt are fully amortized.

Allowance for Doubtful Accounts

      We record an allowance for doubtful accounts on a  tenant-by-tenant  basis
using the specific identification method. No general reserve is recorded.

Leases Assumed

      In connection  with certain tenant  leases,  we have assumed the liability
for the  remaining  terms of the  tenants'  existing  leases  in their  previous
location.  We have  recorded a liability  for the  difference  between the total
remaining  costs for leases  assumed and the expected  benefits  from actual and
estimated  future  subleasing  of the  assumed  lease  obligations.  The related
incentive  to the lessee has been  capitalized  as a deferred  cost and is being
amortized  as a  reduction  of rental  revenue  over the life of the  respective
lease. The deferred cost and related  liability are adjusted  prospectively  for
changes in the estimated benefits from subleases.

Rental Revenue

      Rental revenue is recorded on the  straight-line  method over the terms of
the related lease  agreements for new leases and the remaining terms of existing
leases for acquired  properties.  Differences  between rental revenue earned and
amounts due per the  respective  lease  agreements  are credited or charged,  as
applicable, to deferred rent receivable. Rental payments received prior to their
recognition  as income  are  classified  as rent  received  in  advance  and are
included in other  liabilities.  Lease  termination  income  represents  amounts
received  from  tenants  in  connection  with  the  early  termination  of their
remaining  lease  obligation  reduced  by  any  outstanding  tenant  receivables
(including deferred rent receivable).  Unamortized tenant improvements, deferred
lease commissions and leasing costs related to terminated leases are recorded as
additional depreciation and amortization expense upon lease termination.

Interest Rate Protection Agreements

      In the normal course of business, we are exposed to the effect of interest
rate  changes.  We limit these risks by following  established  risk  management
policies and  procedures  including  the use of  derivatives.  For interest rate
exposures,  derivatives  are used  primarily  to align  rate  movements  between
interest rates  associated  with our leasing income and other  financial  assets
with  interest  rates on  related  debt,  and to  manage  the cost of  borrowing
obligations.  These are  principally  entered  into to comply with  requirements
under certain of our loan agreements.

<PAGE>

      We have a policy of only entering  into  derivative  contracts  with major
financial  institutions based upon their credit ratings and other factors.  When
viewed in  conjunction  with the  underlying  and  offsetting  exposure that the
derivatives  are designed to hedge,  we have not  sustained a material loss from
those  instruments  nor do we anticipate any material  adverse effect on our net
income or financial position in the future from the use of derivatives.

      We require that hedging  derivative  instruments  be effective in reducing
the  interest  rate risk  exposure  that  they are  designated  to  hedge.  This
effectiveness is essential for qualifying for hedge accounting.  Some derivative
instruments  are  associated  with the hedge of an anticipated  transaction.  In
those cases, hedge effectiveness  criteria also require that it be probable that
the underlying transaction occurs.  Instruments that meet these hedging criteria
are formally  designated as hedges at the inception of the derivative  contract.
When the terms of an underlying transaction are modified, or when the underlying
hedged item ceases to exist, all changes in the fair value of the instrument are
marked-to-market  with changes in value included in net income each period until
the  instrument  matures,  unless the instrument is  redesignated  as a hedge of
another  transaction.  Any derivative  instrument  used for risk management that
does not meet the hedging criteria is marked-to-market each period in earnings.

      To determine the fair values of derivative  instruments,  we use a variety
of  methods  and  assumptions  that are  based on  market  conditions  and risks
existing at each balance sheet date.  For the majority of financial  instruments
including most derivatives,  long-term  investments and long-term debt, standard
market conventions and techniques such as discounted cash flow analysis,  option
pricing models,  replacement  cost, and  termination  cost are used to determine
fair  value.   All  methods  of  assessing   fair  value  result  in  a  general
approximation of value, and such value may never actually be realized.

      Interest rate hedges that are  designated  as cash flow hedges,  hedge the
future cash outflows on debt. Interest rate swaps that convert variable payments
to fixed payments,  interest rate caps, floors,  collars,  and forwards are cash
flow hedges.  The unrealized  gains/losses in the fair value of these hedges are
reported  on  the  balance  sheet  with a  corresponding  adjustment  to  either
accumulated other comprehensive income or in earnings,  depending on the type of
hedging relationship.  If the hedging transaction is a cash flow hedge, then the
offsetting  gains and losses are  reported in  accumulated  other  comprehensive
income.  Over time,  the unrealized  gains and losses held in accumulated  other
comprehensive income will be reclassified to earnings.  This reclassification is
consistent  when the hedged items are also  recognized  in earnings.  Within the
next twelve  months,  we expect to  reclassify  to earnings  approximately  $2.6
million  of  amounts  held  in  accumulated  other  comprehensive  income.  If a
derivative  instrument  is terminated  or the hedging  transaction  is no longer
determined  to be effective,  amounts held in  accumulated  other  comprehensive
income are reclassified  into earnings over the term of the future cash outflows
on the related debt.


<PAGE>

      On January 1, 2001, we adopted Statement of Financial Accounting Standards
("SFAS")  No.  133,   "Accounting   for  Derivative   Instruments   and  Hedging
Activities,"  ("SFAS 133"), as amended by SFAS No. 138,  "Accounting for Certain
Derivative  Instruments and Certain Hedging  Activities" ("SFAS 138"). SFAS 133,
as amended,  established  accounting  and  reporting  standards  for  derivative
instruments.   Specifically  SFAS  133  requires  an  entity  to  recognize  all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and to measure those instruments at fair value. Additionally,  the fair
value  adjustments  will  affect  either  shareholders'  equity  or  net  income
depending  on  whether  the  derivative  instrument  qualifies  as a  hedge  for
accounting  purposes  and,  if so,  the  nature of the  hedging  activity.  Upon
adoption  of SFAS 138 and SFAS 133, we  recorded  as a  cumulative  effect of an
accounting change a net transition adjustment  (unrealized loss) of $0.5 million
in net income,  and a  transition  adjustment  of $3.2 million as an increase in
accumulated other comprehensive  loss. In August 2001, the Financial  Accounting
Standards  Board issued  final  guidance on the  accounting  for options used as
hedged under SFAS 133. This guidance is pursuant to  Derivatives  Implementation
Group ("DIG") Issue No. G20 ("G20").  Provided certain criteria are met, options
can be considered fully effective hedging vehicles, with gains and losses due to
changes in market value recorded in accumulated  other  comprehensive  income on
the balance  sheet.  On September 1, 2001,  we adopted G20 for our interest rate
hedge instruments.  Any subsequent  unrealized gains or losses due to changes in
market value of options,  such as interest rate caps,  have been recorded in the
accumulated other comprehensive income.

      On December 31, 2003 and 2002, we reported our  derivative  instruments at
their fair value as other assets of $0.2 million and $1.0  million,  an increase
in deficit investment in unconsolidated  entity of $2.6 million and $5.7 million
and  accumulated  other  comprehensive  loss of $2.9  million and $6.0  million,
respectively.  We  recorded a realized  loss of $0.2  million for the year ended
December  31,  2001.  We incurred a total  comprehensive  loss of $33.1  million
($1.65 per weighted  average share),  $25.6 million ($1.63 per weighted  average
share) and $15.6 million ($1.00 per weighted  average share) for the years ended
December 31, 2003, 2002 and 2001, respectively.

Earnings Per Share

      Basic  earnings  per share  ("EPS") is  calculated  by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding  during the period.  Diluted EPS includes the  potentially  dilutive
effect, if any, which would occur if outstanding:  (i) common share options were
exercised,  (ii) limited partner common units in the Operating  Partnership were
exchanged for common shares,  (iii) common share grants were  fully-vested,  and
(iv) convertible preferred shares were converted into common shares.

Stock Based Compensation

      We account for common share option grants using the intrinsic value method
in  accordance  with  Accounting   Principles  Board  ("APB")  Opinion  No.  25,
"Accounting  for  Stock  Issued  to  Employees"  ("APB  25").  Under  APB 25, no
compensation expense is to be recognized for the common share option grants when
the  exercise  price of the options  equals the market  price of the  underlying
shares at the date of grant.  Under our Share  Incentive Plan (the "Plan"),  the
measurement  date is the market price of the underlying  shares on the day prior
to the date of grant.  We have not  recorded  any  compensation  expense  as the
market price differential between the dates has been nominal.



<PAGE>

Income Taxes

      We have elected to be taxed as a REIT under the  Internal  Revenue Code of
1986 ("the Code"),  as amended.  As a REIT, we generally  will not be subject to
federal  income tax to the extent  that we  distribute  at least 90% of our REIT
taxable  income  to  our  shareholders.   REITs  are  subject  to  a  number  of
organizational and operational requirements.  If we fail to qualify as a REIT in
any  taxable  year,  we will be  subject to federal  income tax  (including  any
applicable  alternative  minimum tax) on our taxable income at regular corporate
tax rates.

      As of December 31, 2003,  for income tax  purposes,  our real estate had a
gross and net basis of $812.8 million and $693.6 million, respectively, mortgage
notes  receivable had a tax basis of $70.7 million,  investment in a real estate
mortgage investment conduit had a tax basis of $62.6 million, deferred costs had
a gross  and net  basis of $5.0  million  and $2.7  million,  respectively,  and
deferred rent receivable had no tax basis. Our investment in unconsolidated real
estate  joint  ventures,  for  income  tax  purposes,  had a net  basis of $18.9
million.

      We account for income taxes payable by the Services  Company in accordance
with SFAS No. 109 "Accounting for Income Taxes" ("SFAS 109").  SFAS 109 requires
that deferred tax assets and  liabilities be recognized  using enacted tax rates
for the  effect  of  temporary  differences  between  the book and tax  basis of
recorded assets and liabilities. SFAS 109 also requires that deferred tax assets
be reduced by a  valuation  allowance  if it is more  likely  than not that some
portion or all of the  deferred  tax asset  will not be  realized.  We  evaluate
quarterly  the  realizability  of our  deferred  tax  assets  by  assessing  the
valuation allowance and by adjusting the amount of the allowance,  if necessary.
The factors used to assess the  likelihood  of  realization  are our forecast of
future  taxable  income and  available  tax  planning  strategies  that could be
implemented  to  realize  the  net  deferred  tax.  We  have  used  tax-planning
strategies  to  realize or renew net  deferred  tax assets in order to avoid the
potential loss of future tax benefits.

      At December  31, 2003 and 2002,  the  Services  Company had  deferred  tax
assets in excess of deferred tax  liabilities  of $1.0 million and $1.4 million,
respectively  (included in other assets in the consolidated  balance sheet).  At
December 31, 2003 the Services  Company had a net  operating  loss carry forward
for federal tax purposes of  approximately  $2.3  million  which is available to
offset future taxable income, if any, through 2021.

2.  Asset Impairments

      During 2003, 2002 and 2001, we recorded the following provisions for asset
impairments  (See Note 17 - Segment  Reporting to these  Consolidated  Financial
Statements for disclosure of asset impairment by segment):

<TABLE>
<CAPTION>

                                                                    December 31
                                                          2003         2002         2001
                                                      ----------------------------------------
                                                              (dollars in thousands)

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

Operating properties (1).........................      $  44,305     $  1,749   $         -
Investment in unconsolidated entities (2)........              -          495        15,088
Property under development (3)...................          1,048        5,708         4,924
Property held for sale (4).......................              -            -           325
                                                      ----------------------------------------
                                                          45,353        7,952        20,337
Discontinued operations (5)......................              -       56,573         1,500
                                                      ----------------------------------------
                                                       $  45,353     $ 64,525     $  21,837
                                                      ========================================
</TABLE>

(1)      During the fourth  quarter of 2003, we recorded an asset  impairment of
         $43.4 million  related to our 33 West Monroe Street office  property as
         our anticipated hold period for the property was reduced based upon our
         decision to pursue a sale,  joint venture or other capital  transaction
         during 2004.

         During the third quarter of 2003, we entered into an agreement to admit
         a new 70% joint  venture  partner to the joint  venture  which owns the
         Bank One Center office building,  which subsequently  closed in October
         2003.  Also,  during the third  quarter of 2003,  we  recorded an asset
         impairment  of $0.9 million  representing  the  difference  between our
         equity  in  the  property  and  the  equity  value  determined  by  the
         acquisition  price  paid  by our  joint  venture  partner  for  the 70%
         interest, net of estimated transaction costs.

         Also during 2002, we recorded a $1.7 million asset  impairment  related
         to an asset  (included in other assets)  associated  with an industrial
         property as it was determined that the asset no longer had value.

(2)      On January 16, 2002,  we assigned our interest in a  development  joint
         venture to our joint venture partner. We recorded a $15.1 million asset
         impairment  in  2001  to  reflect  the  affect  of the  then  impending
         assignment   based  upon  our  decision  not  to   participate  in  the
         development.   The  $15.1  million  asset  impairment  represented  the
         difference  between the balance in our  investment in the joint venture
         and the cash consideration  received from our joint venture partner and
         is included in the  corporate/operating  partnership segment. On August
         23, 2002,  we  transferred  our  interest in a second joint  venture to
         another joint venture partner and recorded an asset  impairment of $0.5
         million related to our investment in that unconsolidated entity.

(3)      During  2003,  2002  and  2001,  we  abandoned  or  curtailed   various
         development  projects and recorded  asset  impairments of $1.0 million,
         $4.2 million and $4.7 million,  respectively.  We also  recorded  asset
         impairments  of  $1.0  million  and  $0.2  million  in 2002  and  2001,
         respectively,  related to certain costs for other development  projects
         that we determined  no longer had value to the project.  In addition in
         2002,  we placed  one of the  development  projects  on hold and,  as a
         result,  the remaining costs, other than those attributable to the fair
         value  of the  land,  were  determined  to have no value  resulting  in
         additional asset impairment of $0.5 million in 2002.

(4)      During  2001,  we entered into a letter of intent with a third party to
         sell  approximately 20 acres of land held for development.  We recorded
         an asset  impairment  during 2001 of $0.3 million  reflecting  the fair
         market value of the land, less costs to sell, based upon the contracted
         price.  The sale was  consummated  in February  2002 and resulted in an
         additional loss of $0.1 million in 2002.

(5)      Discontinued  operations for the years ended December 31, 2002 and 2001
         include  provisions for asset impairment related to properties held for
         sale  or  sold.  See  Note  9  -   Discontinued   Operations  to  these
         Consolidated  Financial  Statements  for a  description  of these asset
         impairments.

3.  Deferred Costs

      Deferred costs consist of the following:

                                                      December 31
                                                2003                2002
                                        ----------------------------------------
                                                 (dollars in thousands)

Financing costs.........................    $  17,690           $  23,136
Leasing costs...........................       24,547              62,615
                                        ----------------------------------------
                                               42,237              85,751
Less:  Accumulated amortization.........      (21,158)            (31,808)
                                        ----------------------------------------
                                            $  21,079           $  53,943
                                        ========================================

<PAGE>

4.  Mortgages and Notes Payable, Bonds Payable and Construction Financing


      Mortgages  and notes  payable,  bonds payable and  construction  financing
consisted of the following:

<TABLE>
<CAPTION>


                                                                                    December 31
                                                                               2003             2002
                                                                         -----------------------------------
                                                                               (dollars in thousands)

<S>                                                                      <C>                   <C>

Mortgage Notes Payable (1), (2):
   Mortgage notes payable to various financial  institutions,
   collateralized by various properties, interest at fixed
   rates ranging from 7.17% to 8.76% per annum,  with principal
   and interest  payable  monthly through dates ranging from
   2004 through 2013. The weighted average rate at
   December 31, 2003 was 7.57%.........................................   $   200,012        $   230,260

   Mortgage  notes  payable  to  various   financial
     institutions, collateralized  by various  properties,
     interest at variable rates ranging from LIBOR
     (1.12% at December 31, 2003) plus 150 basis points to
     LIBOR plus 700 basis points per annum,  with  principal
     and interest  payable  monthly through dates ranging
     from 2004 through 2006. The weighted  average rate at
     December 31, 2003 was 4.81%.......................................       347,908            384,143

                                                                         -----------------------------------
Total mortgage notes payable...........................................       547,920            614,403
Notes Payable (3):
   Notes payable to SCPG, an exchangeable  note, (the  "Exchangeable
     Note")  in  the   principal   amount  of  $37,280  and  (ii)  a
     non-exchangeable  note  (the  "$20M  Note")  in  the  principal
     amount of $20,000 less unamortized debt discount of $343.......                -             56,937

                                                                         -----------------------------------
Total mortgages and notes payable......................................   $   547,920        $   671,340
                                                                         ===================================
Bonds Payable: (2), (4):
   Variable  rate  tax-exempt  bonds  issued by  various  state and
     local government authorities..................................       $    24,900        $    24,900
                                                                         ===================================
Construction Financing: (5)
   Construction  mezzanine  facility to a financial  institution,
   interest at a fixed rate of 12% per annum with an additional
     accrual rate ranging from 9.5% to 13%.............................   $         -        $   60,820
   Construction loan facility to a financial  institution,  interest
     at a variable rate of LIBOR plus 265 basis points per annum.......             -           147,378
                                                                         -----------------------------------
Total construction financing...........................................   $         -        $  208,198
                                                                         ===================================

</TABLE>



<PAGE>


4.       Mortgages and Notes Payable,  Bonds Payable and Construction  Financing
         (continued)

(1)      The mortgages  and notes  payable are subject to various  operating and
         financial covenants.  In addition, we are required to periodically fund
         and  maintain  escrow  accounts,  to make  future  real  estate tax and
         insurance  payments,  as well as to fund certain tenant releasing costs
         and  capital  expenditures.  These  are  included  in  restricted  cash
         escrows.

(2)      All of our operating real estate assets and mortgage  notes  receivable
         have been pledged as collateral  for our  mortgages and notes  payable,
         and bonds payable.

(3)      On July 16, 2002, we and our Operating Partnership closed a transaction
         with Security Capital Preferred Growth ("SCPG"). See Note 8 - Preferred
         Shares to these Consolidated  Financial Statements for a description of
         this transaction and related issues. The initial total interest rate on
         the Exchangeable  Note was 11.50% per annum,  which increased to 12.00%
         per annum on August 6, 2002,  to 12.50% per annum on  November 4, 2002,
         and to 12.75%  per  annum on  February  2,  2003,  and were  compounded
         quarterly.  The  interest  rate on the $20M Note was  15.00% per annum.
         Interest only payments on the Exchangeable  Note and the $20M Note were
         paid on a  quarterly  basis  at a rate of  7.50%  per  annum,  with the
         balance of the total  interest  being due at maturity on July 15, 2003.
         Each of the notes also had a fee of 0.75% for any principal repayments,
         whether at maturity or earlier.

         The Exchangeable  Note and the $20M Note provided for extensions for up
         to two periods of six months each,  provided that,  among other things,
         the aggregate  outstanding principal amount of the notes at the time of
         the first  extension was not greater than $40.0 million and at the time
         of the second extension was not greater than $25.0 million.  In January
         2003,  we  repaid  $3.0  million  of the  Exchangeable  Note out of the
         proceeds of the November 2002 sale of our Centre Square I property.  In
         March 2003, we repaid an additional $8.5 million out of proceeds of the
         refinancing of our IBM Plaza property. We also used $7.6 million of the
         proceeds  from the sale of our  National  City Center  property in June
         2003,  plus $0.2 million of  additional  funds,  to pay down one of the
         SCPG loans  (including  accrued interest of $1.7 million) and to pay an
         extension  fee of $0.2 million to extend the maturity  dates of both of
         the SCPG loans until  January 12,  2004.  We repaid both the  remaining
         balance of the Exchangeable Note and the $20.0M Note on October 8, 2003
         utilizing  proceeds  from  the sale of a 70%  interest  in our Bank One
         Center property.

(4)      Under the terms of a $25.2  million  letter  of  credit  facility  that
         provides support for certain  industrial revenue bonds, we are required
         to  maintain,  on a quarterly  basis,  a cash  collateral  escrow in an
         amount equal to the  difference  between  $25.2  million and the Future
         Lease Value as defined in the loan documents,  calculated in accordance
         with the terms of the letter of credit  facility.  As of  December  31,
         2003, we had deposited $4.0 million into the cash collateral escrow. On
         August 4, 2003,  we amended the terms of the letter of credit  facility
         with  respect to the  calculation  of the Future Lease Value and agreed
         that the  amount of the cash  collateral  escrow  would be equal to the
         greater of (i) the  difference  between  $25.2  million  and the Future
         Lease Value,  or (ii) $4.0  million.  As of December 31, 2003, we had a
         total of $4.0 million on deposit in the cash collateral escrow.

         These  bonds  mature on June 1, 2022.  Under the terms of the bond loan
         agreements, we make interest-only payments monthly,  calculated using a
         floating rate  determined by the  remarketing  agent of the bonds.  The
         rates ranged from 0.78% to 1.56%  during  2003,  1.20% to 2.02% in 2002
         and 1.33% to 4.98%  during  2001.  The rate at  December  31,  2003 was
         1.22%.  The maximum annual  interest rate on the bonds is 13.0%.  Under
         certain conditions,  the interest rate on the bonds may be converted to
         a fixed rate at our request.

         The  bondholders  may  tender  bonds on any  business  day  during  the
         variable  interest rate period  discussed above and receive  principal,
         plus  accrued  interest,  through the tender  date.  Upon  tender,  the
         remarketing agent will immediately remarket the bonds. In the event the
         remarketing  agent fails to remarket  any bonds,  we are  obligated  to
         purchase those bonds. The remarketing agent receives a fee of 0.11% per
         annum of the outstanding bonds balance, payable quarterly in advance.

(5)      Simultaneous  with the  admittance of our joint venture  partner to the
         joint venture which owns Bank One Center, the joint venture closed on a
         new $270.0 million  mortgage loan with a new lender,  $247.5 million of
         which was funded at closing.  These funds,  together with proceeds from
         the  joint  venture  transaction,  were  used  to  repay  in  full  the
         outstanding  Bank One Center  construction  financing.  This included a
         repayment  to the  construction  lender  of $169.8  million  (including
         accrued  interest)  and a repayment of $80.7  million to the  mezzanine
         lender which included $75.0 million of principal,  a $2.7 million yield
         maintenance charge, $2.2 million of accrued interest and a $0.8 million
         exit fee.

      IBM Plaza  Refinancing.  On March 10, 2003,  we obtained a $195.0  million
loan secured by a first  mortgage  encumbering  this office  property.  The loan
retired both the existing senior and mezzanine  loans  encumbering the property.
The loan  does not  require  any  scheduled  repayments  of  principal  prior to
maturity.  The loan has an  interest  rate of 285 basis  points  over  one-month
LIBOR,  provided that the first $160.0  million of principal has a minimum LIBOR
rate of 2.0% and the  remaining  $35.0  million of principal has a minimum LIBOR
rate of 3.0%.  As required by the loan  documents,  we obtained an interest rate
cap of LIBOR at 6.6% for the term of the loan. At closing,  we paid the lender a
financing fee of 1.0% of the principal  amount of the loan.  The loan may not be
prepaid  during the first twelve months of its term, but may be prepaid in whole
or in part thereafter, without any prepayment penalty.

      We used  the net  proceeds  from  the  loan to (i)  repay  in full a $30.3
million mezzanine loan relating to the property which accrued interest at 11.75%
per year,  (ii) repay in full a $150.8 million first mortgage loan (including an
exit fee of $0.8 million) encumbering the property which accrued interest at 170
basis  points  over  one-month  LIBOR per year,  (iii)  fund  real  estate  tax,
insurance and capital  improvement escrows of $2.5 million as required under the
terms of the loan,  and (iv) pay $8.5  million in partial  repayment of the Bank
One Center  mezzanine note, plus $0.4 million of accrued  interest and a $60,000
exit fee, with the remainder available for general corporate purposes.

      The  parking  garage  for the  property  is located on land which we lease
under  a  ground  lease  with  a  third  party.   In  order  to  obtain  certain
modifications  to the ground lease that were required by the lender of the loan,
we agreed to increase  the rent under the ground lease from $10,278 per month to
$18,389 per month for its remaining  term which ends in April 2019.  One year of
this rent was required to be prepaid at closing.

     Pursuant to the terms of the loan,  we are required to make monthly  escrow
deposits  for real  estate  taxes,  insurance  and  ground  rent.  In  addition,
commencing in January 2004, the lesser of $450,000 or available cash flow of the
property  per  month  is  being  deposited  into  a  tenant  improvement/leasing
commission  reserve account (the "Account").  If there is available cash flow in
excess of  $450,000,  any  amounts  in excess of  $450,000  are  required  to be
deposited into the Account to the extent any prior  month(s)  deposits were less
than  $450,000.  If a  certain  leasing  benchmark  provided  by the loan is not
satisfied at the property by August 9, 2005, all net cash flow from the property
is required to be deposited into the Account until an aggregate of $15.0 million
has been deposited in the Account.  However,  in such event,  if an aggregate of
$9.0  million has not been  deposited  in the account by August 9, 2005,  we are
required to deposit any shortfall into the Account at that time. If an aggregate
of $15.0  million has not been  deposited by August 9, 2006,  we are required to
deposit any shortfall into the Account at that time. If the leasing benchmark is
satisfied  by August 9, 2005,  $6.0 million  must have been  deposited  into the
Account and, if not, we are required to deposit any  shortfall  into the Account
at that time.  Letters of credit may be provided in lieu of cash deposits to the
Account.

      Under the terms of the loan,  the lender had the  option of  dividing  the
loan  into a  mortgage  loan  and a  mezzanine  loan so  long  as the  aggregate
principal  amount,  weighted  average  interest rate, debt service  payments and
other terms and  conditions  of the two loans were the same as the loan.  On May
28, 2003, the lender  exercised this option by having an affiliate of the lender
(the  "Mezzanine  Lender")  extend a $64.8 million  mezzanine loan to one of our
subsidiaries (the "Mezzanine Borrower").  The Mezzanine Borrower is the owner of
all of the limited  liability  company  interests  of our  affiliate  owning the
property (the "IBM Plaza  Owner") and the mezzanine  loan is secured by a pledge
of these limited liability company interests. The proceeds of the mezzanine loan
were used to reduce the outstanding principal amount of the first mortgage loan.

      As with the first  mortgage  loan,  the mezzanine loan has a term of three
years  from  March  10,  2003.  The loan and the  mezzanine  loan  each have two
one-year  extension options  exercisable for a fee of 0.25% of the amount of the
respective  loan for each  extension.  The  mezzanine  loan does not require any
scheduled  repayments of principal prior to maturity.  The mezzanine loan has an
interest rate of 5.70% over  one-month  LIBOR with a minimum LIBOR rate of 2.0%.
The mezzanine  loan may not be prepaid until March 10, 2004,  but may be prepaid
in whole or in part thereafter, without any prepayment penalty.

      Simultaneous with the making of the mezzanine loan, the lender amended the
terms of the initial loan to, among other things,  reduce the  principal  amount
thereof to $130.2  million and modify the interest  rate  applicable  thereto to
1.43195% over one-month LIBOR with a minimum LIBOR rate of 2.2688%. This results
in a blended  minimum annual  interest rate equal to the 5.03% in effect for the
loan immediately prior to the creation of the separate loans. As required by the
loan  documents,  we have obtained an interest rate cap of LIBOR at 6.6% for the
term of the loan and the mezzanine loan.

<PAGE>

      The Operating  Partnership  has  guaranteed  $4.0 million of the principal
amount of the mezzanine loan. In connection with this $4.0 million guaranty, the
lender released the Operating  Partnership from its $4.0 million guaranty of the
first mortgage loan.

      Under both the first  mortgage loan and the mezzanine  loan, the Operating
Partnership,  the IBM Plaza  Owner and the  Mezzanine  Borrower  have  agreed to
guaranty the cost of any remediation of asbestos required in connection with the
leasing of the property up to a maximum amount of $6.0 million in the aggregate,
and place $3.0  million  in escrow  from the cash flow from the  property  in 24
equal  installments  of $125,000  which  commenced in January 2004 to secure the
cost of any necessary remediation in the future. The property currently contains
asbestos in the form of non-friable  spray-on  insulation located on the decking
and  beams  of  the  building.  We  have  been  informed  by  our  environmental
consultants  that the asbestos in the property is not friable and no remediation
of the asbestos is necessary.

      Bank  One  Center  Refinancing.  The Bank One  Center  mezzanine  loan was
secured by an assignment of  membership  interests in our affiliate  which owned
Bank One Center. The loan, combined with $1.5 million of our own funds,  retired
a previous  mezzanine  loan (the  "Retired  Loan")  secured by the  property and
related accrued interest.  Our guarantees and financial covenants under the loan
were  substantially  the same as those  contained in the Retired Loan. This loan
was  subsequently  repaid in connection  with the refinancing of the property as
described below.

      Simultaneous with the admittance of our joint venture partner to the joint
venture  which owns Bank One Center,  the joint  venture  closed on a new $270.0
million  mortgage loan with a new lender,  $247.5 million of which was funded at
closing. These funds, together with proceeds from the joint venture transaction,
were  used to  repay  in full  the  outstanding  Bank  One  Center  construction
financing.  This  included  a  repayment  to the  construction  lender of $169.8
million  (including  accrued  interest)  and a repayment of $80.7 million to the
mezzanine lender which included $75.0 million of principal, a $2.7 million yield
maintenance  charge,  $2.2  million of accrued  interest and a $0.8 million exit
fee. See Note 16 - Investments in Unconsolidated Joint Ventures for a discussion
of the terms of the new loan.

      Security Capital Preferred Growth Debt Retirement.  We retired outstanding
debt  totaling  $57.3  million  with SCPG from the  proceeds  of the sale of the
National City Center property ($5.9 million),  the sale of a 70% interest in the
Bank One Center joint venture ($40.0 million),  the refinancing of our IBM Plaza
property  ($8.5  million)  and the sale of the Centre  Square I  property  ($2.9
million) in late 2002.

      Other  Indebtedness  Transactions.  On January 16, 2003, a $157.5  million
interest  rate  collar  agreement  pertaining  to our 50% common  interest in an
unconsolidated  real estate joint venture which owns an office property  located
at 77 West Wacker Drive, Chicago, Illinois was assigned to a different financial
institution  for a fee of $0.1 million and modified  such that the joint venture
would need to make cash escrow  deposits  only to the extent that the  liability
that  results  from  changes in the  instrument's  market  value  exceeds  $20.0
million.  As a result,  previously  escrowed  funds  totaling  $6.9 million were
returned to the joint venture.

      On February 19, 2003,  we extended  the  maturity  dates of two  mezzanine
loans having a combined  principal amount of $32.5 million from the same lender.
The two loans consisted of a $20.0 million loan having a previous  maturity date
of June 30, 2003 and a $12.5  million  loan having a previous  maturity  date of
November 15, 2003.  Our  ownership  interests in the 208 South  LaSalle  Street,
National  City  Center and Jorie  Plaza  properties  secured  the $20.0  million
mezzanine  loan  while  the  $12.5  million  mezzanine  loan is  secured  by our
ownership  interest  in our 33 West Monroe  Street  property.  In June 2003,  we
repaid $8.1 million of the $20.0 million  mezzanine  loan utilizing a portion of
the proceeds from the sale of our National City Center property. These loans are
guaranteed  by our  Operating  Partnership.  The maturity  dates for both of the
loans were  extended  until  November  15, 2004 at interest  rates of LIBOR plus
7.00%.

<PAGE>

     In May 2003,  we made a  principal  payment  of $7.0  million  on our first
mortgage  loan secured by our 33 West Monroe Street  property.  This payment was
funded by an escrow  established  at the time of the Arthur  Andersen  LLP lease
termination  (see further  discussion of the termination  under "Arthur Andersen
Lease Termination"  below) and was pursuant to an agreement made with our lender
at the time of the termination.

      On August 4, 2003, we made a principal payment of $0.2 million on the $5.7
million  mortgage note payable secured by 100% of our ownership  interest in the
property at 1455 Sequoia Drive, Aurora, Illinois, and extended the maturity date
of the  principal  balance  of $5.6  million  until  May 31,  2004  for a fee of
$19,000. In order to obtain the extension,  we also funded an escrow account for
$0.6 million to secure the payment of future tenant improvements.

       On  October  31,  2003,   we  amended  a  $4.1  million   mortgage   loan
collateralized  by our property  located at 200 South Mitchell  Court,  Addison,
Illinois, and guaranteed by our Operating Partnership.  Under the amendment, the
maturity date of the loan was extended for two years  through  September 1, 2005
for a fee of $40,000.  In addition,  the financial covenant  requirements in the
guaranty were eliminated.

         Interest Rate Protection Agreements. We have entered into the following
interest rate cap agreements:

<TABLE>
<CAPTION>


                                              Notional Amount
                                                   as of
                                              December 31,     Capped LIBOR
        Loan Associated with                      2003            Rate         Effective Date  Expiration Date
--------------------------------------------- ---------------- -------------- --------------- ---------------
<S>                                           <C>              <C>             <C>            <C>


180 North LaSalle Street,
   REMIC Certificate A (1)                     $  60,000,000         7.25%          3/01/01         1/15/04
33 West Monroe Street
   First Mortgage Loan (2)                        67,000,000         6.50           1/31/03        10/31/04
Jorie Plaza & 208 South LaSalle Street
   Mezzanine Loan (3)                             11,900,000         7.50           7/01/03        11/15/04
33 West Monroe Street
   Mezzanine Loan                                 11,900,000         4.50          11/15/03        11/15/04
None (4)                                         230,000,000         7.40           1/22/02         1/05/04
IBM Office Plaza
   First Mortgage/Mezzanine Loans                195,000,000         6.60           2/21/03         3/15/06

</TABLE>



(1)  This expired on January 15, 2004,  concurrent  with the  refinancing of the
     underlying loan.

(2)  The original  notional  amount of this interest rate cap was $67.0 million.
     On May 27,  2003,  $7.0 million of the loan hedged by this  derivative  was
     repaid and a notional  amount of $7.0 million of the interest  rate cap was
     de-designated  as a cash flow  hedge and will be  marked-to-market  through
     earnings  each  period.  The  impact  of the  change  in value for 2003 was
     nominal.

(3)  In June 2003,  this  agreement  was  extended  to January  15, 2004 and the
     notional  amount  was  reduced  to $11.9  million  as $8.1  million  of the
     underlying  loan hedged by this  derivative  instrument  and secured by the
     National City Center property was repaid upon sale of the property.

(4)  The  interest  rate cap  agreement  related to the Bank One  Center  office
     property  expired  on  January  5,  2004.  As  previously  discussed,   the
     underlying  loan  was  refinanced  concurrent  with  the  October  8,  2003
     admittance  of our joint  venture  partner  to the  entity  which owns this
     property.

      No  amounts  were  received  under the terms of any of the  interest  rate
protection agreements in 2003, 2002 and 2001.

      Amortization  of  Principal.  During 2003 we made  payments  totaling $4.5
million for amortization of principal for loans on various properties.

     Other.  We  have  provided  guarantees  ranging  from  25% to  100%  of the
outstanding  principal  balances on certain mortgage and notes payable and bonds
payable. As of December 31, 2003, the guarantees related to unconsolidated joint
ventures  totaled $5.4  million.  In March 2001, we entered into an agreement to
amend a loan  collateralized,  in part,  by a pledge of the first  mortgage loan
that we held and which was secured by the  property  known as 180 North  LaSalle
Street in Chicago,  Illinois.  The original  commitment under the loan was $64.0
million  of which  $52.0  million  had been  disbursed.  Under  the terms of the
amendment,  the  maximum  loan  amount  was  reduced  to $60.0  million  and the
remaining $8.0 million of borrowing  availability  was funded.  Restricted  cash
escrows at December 31, 2003 and 2002  include  $3.5  million and $3.5  million,
respectively,  related  to this loan for  future  capital  expenditures,  tenant
improvements and lease commissions.

      As part of the agreement,  we agreed to allow the lender to securitize the
loan by  utilizing a Real  Estate  Mortgage  Investment  Conduit  ("REMIC"),  if
desirable. The REMIC closed on October 30, 2001 and matured on January 15, 2004.
The lender  transferred  the first  mortgage  loan to the REMIC.  The  principal
amount of the REMIC was $113.7  million and was  comprised  of three  classes of
certificate  holders.  Class "A"  certificates  represented  the original  first
mortgage holder owning a $60.0 million priority interest, Class "B" certificates
which were owned by us and represented a $53.7 million  interest  subordinate to
the  Class A  certificates,  and the  Class  "R"  certificates  represented  any
residual  amounts due to us upon any sale of the  property  should net  proceeds
exceed $113.7 million.  The interest rate on the Class "A" certificate was LIBOR
plus 3.75% and the interest note on the Class "B"  certificate  was equal to the
difference  between  (i) 16.22%  and (ii) the  product  of LIBOR  multiplied  by
1.1179.  Our Services  Company  acted as the loan  servicer for the REMIC and we
accounted for our ownership  interest on a  consolidated  basis.  On January 15,
2004,  we  refinanced  the REMIC with the proceeds of a first  mortgage loan and
concurrent  with the loan closing  acquired fee title ownership in the property.
See Note 18 - Subsequent Events to these Consolidated Financial Statements.

      Certain  mortgage  and  notes  payable,  bonds  payable  and  construction
financing  are subject to various  financial  covenants  including  minimum cash
balances and debt service  coverage ratios.  In addition,  certain loans contain
cross-default  provisions  whereby a default under the covenants  related to one
loan  agreement  would also result in a default  under the  provisions of one or
more  loans.  See  Note 5 -  Debt  Covenants  to  these  Consolidated  Financial
Statements for a description of our various debt covenants.

      The following  represents our future minimum principal payments due on our
mortgage and notes  payable and bonds payable  outstanding  at December 31, 2003
(dollars in thousands):

Year Ending December 31                                     Amount
-------------------------------------------------------------------------
2004.................................................    $    94,037
2005.................................................         67,915
2006.................................................        198,799
2007.................................................         28,994
2008.................................................         45,092
Thereafter...........................................        137,983
                                                      -------------------
                                                          $  572,820
                                                      ===================


      Certain mortgage notes payable and notes payable require loan exit fees be
paid upon  repayment of the debt  obligation.  As of December 31, 2003,  accrued
loan exit fees totaled $0.8 million.

      During the years ended  December  31,  2003,  2002 and 2001,  we wrote-off
unamortized  deferred  financing  costs of $3.2  million,  $0.8 million and $0.1
million,  respectively,  (included in amortization of deferred financing costs).
These  write-offs  resulted  from  mortgage  notes,  bonds payable and a line of
credit that were repaid or refinanced.

      Total  interest  paid on mortgage and notes  payable and bonds payable was
$78.5 million, $62.5 million, and $69.8 million for the years ended December 31,
2003,  2002 and 2001,  respectively.  During the years ended  December 31, 2003,
2002 and 2001, we incurred interest expense of $58.4 million,  $74.0 million and
$75.7  million,  respectively,  of which $3.7  million,  $29.9 million and $23.9
million, respectively, was capitalized related to development projects.

5.  Debt Covenants

      In order to obtain certain  covenant  modifications in 2002 related to our
original  construction  and mezzanine loans for Bank One Center,  we agreed with
the Bank One  Center  lenders  to  establish  an escrow  account  (the  "Citadel
Escrow") to secure the payment of certain costs  associated  with the subleasing
of the space leased by Citadel Investment Group, L.L.C. ("Citadel") at One North
Wacker Drive in Chicago,  Illinois,  which  obligation  was  undertaken by us in
connection  with Citadel's  lease of space in the Bank One Center  project.  See
Note 6 - Leases to these  Consolidated  Financial  Statements for description of
our Citadel lease obligation. We agreed, beginning January 2003, to make monthly
escrow  payments of $1.0 million per month to an account to be used to pay these
costs.

      We  pre-funded  $4.0  million of these  costs  into the escrow  which were
subsequently  applied  to the  monthly  payments  for  June,  July,  August  and
September  of  2003.  On March  19,  2003,  we  refinanced  the Bank One  Center
mezzanine  loan with the  proceeds of a $75.0  million  mezzanine  loan and $1.5
million of our funds. In conjunction  with this  refinancing,  the  construction
lender and new mezzanine  lender  restructured  our escrow  deposit  obligations
relating  to the Citadel  Reimbursement  Obligations  as  follows.  Prior to the
closing of the mezzanine  loan,  the  construction  lender held $12.6 million in
escrows  relating  to the Bank One  Center  project.  At the  closing of the new
mezzanine loan, all of these funds were deposited into a new account held by the
construction lender (the "New Citadel Escrow").  Additionally,  we were required
to make additional monthly deposits into the New Citadel Escrow in the amount of
$0.8 million per month beginning April 2003 and continuing through and including
January 2004.  Upon  Citadel's  occupancy at Bank One Center,  the  construction
lender  deposited a $0.5  million  leasing  commission  due and payable to us in
connection with the Citadel lease into the New Citadel Escrow. Upon satisfaction
of  certain  conditions   contained  in  the  construction  and  mezzanine  loan
documents,  funds in the New Citadel Escrow were to be used in the future to pay
for certain tenant  improvement and leasing commission costs associated with the
subleasing of the Citadel space at One North Wacker Drive and, after February 1,
2004, to pay for the Citadel  Reimbursement  Obligations.  Simultaneous with the
admittance of our joint venture partner to the joint venture which owns Bank One
Center,  the joint venture closed on a new $270.0  million  mortgage loan with a
new lender, $247.5 million of which was funded at closing.  Immediately prior to
closing  on  the  refinancing,  the  balance  in  the  New  Citadel  Escrow  was
approximately  $15.2  million.  Simultaneous  with closing,  $2.3 million of the
funds in the New  Citadel  Escrow  were  released  to us  leaving a  balance  of
approximately $12.9 million.

      On August 23, 2002,  we  transferred  our 10%  ownership  interest in Pine
Meadow, LLC to our joint venture partner. In consideration of this transfer,  we
were released  from our  obligations  under the joint venture  agreement and the
documents that evidenced and secured a $9.3 million  construction  mortgage loan
encumbering the property.

      Under the terms of an $11.8 million mezzanine note payable  collateralized
by our 33 West  Monroe  Street  property  and an $11.9  million  mezzanine  note
payable  collateralized  by three of our other  properties,  we are  required to
limit the amount of  distributions  that can be paid on our preferred and common
shares and units to a maximum of 90% of funds from operations (as defined in the
relevant  loan   documents)  for  each  calendar  year.  For  purposes  of  this
limitation,  distributions  on our Series B Shares are assumed to have  occurred
whether  or not they are  actually  paid.  In March  2004,  this  provision  was
modified such that provisions for asset impairment and writeoffs of


<PAGE>


5.  Debt Covenants (continued)

deferred  financing fees (other than due to regular  amortization)  are excluded
from the computation of funds from  operations  beginning with the quarter ended
December 31, 2003.

      The  financial  covenants  contained  in many of our loan  agreements  and
guarantee  agreements  with our lenders  include minimum ratios for debt service
coverage and liabilities as a percentage of total assets, as well as minimum net
worth levels,  limits as to recourse  indebtedness  and numerous other financial
covenants.  In some  past  quarters,  we have  failed to meet  certain  of these
covenants and, after  negotiations  with our lenders (and in certain  instances,
after agreeing to post additional cash collateral, provide other security and/or
otherwise  modify  the  terms  of the  relevant  loans),  we have  obtained  the
necessary loan modifications and/or waivers. We did not comply with these ratios
with  respect to two of our  mezzanine  loans and the letter of credit  facility
supporting our industrial revenues bonds for the quarter ended December 31, 2003
and do not  expect to comply  for the  quarter  ended  March 31,  2004.  We have
obtained  waivers or  modifications  of these  requirements  for these  periods.
Compliance with these covenants for the remainder of 2004 is highly dependent on
our financial results  (including but not limited to a failure of one or more of
our  significant  tenants to pay rent when due) and could be  impacted by future
capital  events such as asset sales,  debt  refinancings  and new debt or equity
transactions.  There can be no  assurances  that our  financial  results will be
sufficient to enable us to meet these  covenants in the future and, if we do not
meet a  covenant,  whether  appropriate  loan  modifications  or waivers  can be
obtained.

      Certain loans contain cross-default provisions whereby a default under the
covenants related to one loan agreement would also result in a default under the
provisions of one or more other loans.  Failure to meet a covenant  could result
in a  requirement  for a  principal  paydown,  accelerated  maturity,  increased
interest rate, additional collateral or other changes in terms.

6.  Leases

      We have  entered  into lease  agreements  with  tenants  with lease  terms
ranging month-to-month to twenty years at lease inception.  The leases generally
provide for tenants to share in increases in operating  expenses and real estate
taxes in excess of specified  base  amounts.  Approximately  20%, 30% and 27% of
rental  revenue  for  the  years  ended  December  31,  2003,   2002  and  2001,
respectively, was received from five tenants.

      The  total  future  minimum  rentals  to  be  received  by us  under  such
noncancelable  operating  leases in effect at December  31,  2003,  exclusive of
tenant  reimbursements  and  contingent  rentals,  are as  follows  (dollars  in
thousands):

Year Ending December 31                                     Amount
-------------------------------------------------------------------------

2004.................................................     $   79,070
2005.................................................         76,125
2006.................................................         64,996
2007.................................................         52,569
2008.................................................         47,321
Thereafter...........................................        128,376
                                                      -------------------
                                                           $ 448,457
                                                      ===================


      As a part of lease  agreements  entered  into  with  certain  tenants,  we
assumed these  tenants'  leases at their  previous  locations  and  subsequently
executed  subleases for certain of the assumed lease space.  One of these leases
is a lease the Bank One Center joint venture has with Citadel  Investment  Group
L.L.C.  ("Citadel").  We have  agreed to  reimburse  the joint  venture  for its
obligation to


<PAGE>


6.  Leases (continued)

reimburse Citadel for the financial obligations, consisting of base rent and the
pro rata share of operating  expenses  and real estate  taxes,  under  Citadel's
preexisting  lease (the "Citadel  Reimbursement  Obligation") for 161,488 square
feet of space at the One North Wacker Drive office building in downtown Chicago,
Illinois.  The Citadel  Reimbursement  Obligation  includes an estimated nominal
gross rental obligation of $84.0 million over the term of the lease. Although we
have sold 70% of our  investment in Bank One Center to a joint venture  partner,
we have retained 100% of this liability.  The landlord at One North Wacker Drive
is obligated  to provide us with $47.50 per square foot in a tenant  improvement
allowance for any subleases we consummate.

      Through  February  2004,  we have  executed  subleases at One North Wacker
Drive totaling 161,245 square feet of space to partially mitigate our obligation
under the Citadel  Reimbursement  Obligation.  As a requirement under one of the
subleases  for 27,826  square feet, we escrowed a total of $1.1 million with the
owner of One North Wacker  Drive as security  for the payment of the  difference
between the rental amount  payable  under the Citadel  lease and this  sublease.
This escrow is being returned to us pro-rata over the life of this sublease,  of
which $0.1 million has been received through December 31, 2003.  Liabilities for
leases assumed at December 31, 2003 includes $8.7 million related to the Citadel
Reimbursement Obligations,  which represents our estimate of a net obligation of
$20.9 million after actual and estimated future  subleasing,  net of payments we
made through December 31, 2003 on these obligations of $12.2 million.

      In connection with another sublease for 55,494 square feet, we assumed two
lease obligations,  at two Chicago office buildings owned by third parties, with
gross rental obligations of approximately $2.9 million.  In July 2003, we paid a
lease  termination fee of $0.3 million on one of the two leases and subsequently
made payments of $0.6 million  which reduced our gross rental  obligation on the
remaining  lease to $2.0 million at December  31, 2003.  We intend to attempt to
partially  mitigate  our  financial  obligations  under the  remaining  lease by
subleasing the space.

      On  November  26,  2001,  we  finalized a lease with a tenant for space in
Continental  Towers, our office buildings located in Rolling Meadows,  Illinois.
We  have  agreed  to  reimburse  the  tenant  for a  portion  of  the  financial
obligations consisting of base rent and the pro rata share of operating expenses
and real estate taxes,  under the tenant's  lease for  occupancy  executed at an
office building located in downtown Chicago,  Illinois. As of December 31, 2003,
this lease has a remaining  estimated gross rental  obligation of  approximately
$3.4 million. On February 14, 2003, we leased the space for the remainder of the
lease term subject to the tenant's option to terminate the lease effective as of
any date after  February 29, 2004, by providing us with six months prior written
notice. We have  approximately $2.1 million in liabilities for leases assumed at
December 31, 2003, representing an estimate of our net liability related to this
obligation.

      During 1999, we sold ten properties in a single transaction resulting in a
deferred gain of $3.1  million.  As a condition of the sale, we agreed to assume
responsibility  for  re-leasing two of the properties for a period of five years
after the expiration in 2000 and 2001 of the then existing  tenant  leases.  Our
remaining  nominal gross lease  obligation at December 31, 2003 is approximately
$7.9  million.  During 2002, we released one of the  properties  and revised our
leasing  assumptions  related  to  the  second  property.  Correspondingly,  the
remaining deferred gain was reduced to zero at December 31, 2002 and we recorded
a loss on the sale of real  estate of $1.3  million in 2002.  In 2003 we further
revised our leasing  assumptions  and recorded an additional loss on the sale of
real  estate of $0.6  million.  At  December  31,  2003 and 2002,  we have a net
liability of  approximately  $3.0  million and $3.5  million,  respectively,  in
liabilities for leases assumed,  representing  our estimate of the remaining net
liability anticipated related to this obligation.



<PAGE>


6.  Leases (continued)

      Future minimum rental payments (exclusive of tenant  reimbursements) to be
paid by us under leases assumed,  net of subleases executed through December 31,
2003, are as follows:

<TABLE>
<CAPTION>


                                   Gross            Executed            Net
Year Ending December 31            Amount          Subleases          Amount
-----------------------------------------------------------------------------------
                                            (dollars in thousands)

<S>                            <C>                <C>               <C>
2004........................    $   8,146         $   4,909         $   3,237
2005........................        7,912             5,473             2,439
2006........................        6,863             5,509             1,354
2007........................        5,220             4,400               820
2008........................        5,310             4,479               831
Thereafter..................       19,311            14,958             4,353
                             ---------------------------------------------------
                                 $ 52,762          $ 39,728          $ 13,034
                             ===================================================

</TABLE>




      We have an operating  lease with the joint  venture which owns the 77 West
Wacker  Drive  property  for our  corporate  office  space as well as  equipment
leases,  including  overhead  crane  equipment  for  certain  of our  industrial
properties.  Future minimum lease  payments to be paid by us on these  operating
lease obligations in effect at December 31, 2003 are as follows:


               Year Ending December 31                      Amount
-------------------------------------------------------------------------
                (dollars in thousands)
2004.................................................     $  2,604
2005.................................................        1,971
2006.................................................        1,931
2007.................................................        1,714
2008.................................................          636
Thereafter...........................................        1,787
                                                      -------------------
                                                          $ 10,643
                                                      ===================


      In February 2003, we entered into lease termination agreements with Arthur
Andersen LLP ("Arthur  Andersen")  whereby Arthur Andersen was released from its
remaining lease obligations at two of our properties  subsequent to December 31,
2002 in exchange for total termination  payments consisting of $32.4 million for
the 33 West  Monroe  Street  property  lease and $1.1  million for the IBM Plaza
property  lease.  The agreements  also provided we could retain  previously paid
rent for the month of January  2003 which was  recorded  as rental  revenue.  In
addition,  in May and June 2003,  we received  real estate tax refunds for prior
years taxes on the 33 West Monroe Street property, of which $1.5 million related
to the Arthur Andersen space. As part of the lease termination agreement, Arthur
Andersen  relinquished  its right to these funds.  As required by the lender for
the 33 West Monroe Street property,  the $32.4 million  termination  payment was
deposited into an escrow that may be utilized as follows: (i) up to a maximum of
$8.1 million to be utilized to fund debt service and  operating  deficits at the
33 West Monroe  Street  property;  (ii) $7.0  million is to be utilized to repay
principal on the loan  collateralized by the property  ninety-one days following
the receipt of the proceeds;  and (iii) the remainder  (including  any remaining
portion of the $8.1  million  discussed  under (i)) is  available to fund future
tenant improvements and other re-leasing costs at the property. On May 27, 2003,
in accordance  with (ii) above,  $7.0 million was utilized to repay a portion of
the  principal on the first  mortgage  loan secured by the 33 West Monroe Street
property.  In  addition,  the $8.1  million in (i) above has been fully drawn to
fund debt service and operating deficits at this property during 2003.

      In connection with these  terminations,  we recorded lease termination fee
income of $29.7  million in 2003,  which  represents  the  termination  payments
described  above  less   outstanding   receivables   (including   deferred  rent
receivable) related to these leases.

7.  Minority Interests

      Primestone  Investment Partners L.P.  ("Primestone"),  an affiliate of The
Prime Group,  Inc.  ("PGI"),  previously owned 7,944,893  limited partner common
units (the "Primestone Units") of the Operating Partnership.  PGI is a privately
held company  controlled by Mr. Michael W. Reschke,  the former  Chairman of our
Board.  Mr. Reschke  resigned as Chairman on April 8, 2002 and resigned from our
Board on April 17, 2003. On April 30, 2002, Vornado PS, L.L.C. ("Vornado PS"), a
lender to Primestone who had a lien on the Primestone  Units, held a foreclosure
auction  of the  Primestone  Units and  acquired  all of the units for $8.35 per
common unit.  Vornado PS subsequently  assigned 3,972,446 (the "Cadim Units") of
the  Primestone  Units to  Cadim  Acquisition,  LLC  ("Cadim  Acquisition")  and
retained the remaining 3,972,447 units (the "Vornado Units").

      On June 11,  2003,  we issued to Vornado PS,  L.L.C.  ("Vornado  PS"),  in
connection with the exercise by Vornado PS of certain exchange rights, 3,972,447
of our common  shares.  Simultaneous  with the issuance of the common  shares to
Vornado PS, we cancelled the 3,972,447 common units in our Operating Partnership
held by Vornado PS which were exchanged for the common shares.

      On  June  13,  2003,   we  issued  to  Cadim   Acquisition,   LLC  ("Cadim
Acquisition"),  in connection with the exercise by Cadim  Acquisition of certain
exchange rights, 3,972,446 of our common shares.  Simultaneous with the issuance
of the common shares to Cadim  Acquisition,  we cancelled  the 3,972,446  common
units  in our  Operating  Partnership  held  by  Cadim  Acquisition  which  were
exchanged for the common shares.

      The Vornado PS and Cadim Acquisition  exchanges of common units for common
shares resulted in an increase in our ownership of our Operating  Partnership by
29.8%.  The  transaction  price recorded for the units  purchased was our common
share price on the date of notices  from Vornado PS and Cadim  Acquisition  (May
23,  2003 - $6.37 per  share) of the  exercising  of their  respective  exchange
rights. The difference between the transaction price and the book value of these
equity  accounts  at the  Operating  Partnership  level has been  recorded  as a
reduction of the carrying  value of our real estate and other assets as follows:
a reduction in minority interest reflected in our consolidated  balance sheet of
$76.5 million,  an increase in our  shareholder's  equity of $50.6 million and a
reduction in real estate and other assets of $25.9 million. The determination of
the  allocation  of this  reduction was based on our estimate of the fair market
value of each asset.

8.  Preferred Shares

      We are authorized to issue up to 30,000,000 of non-voting preferred shares
of beneficial interest in one or more series. Concurrent with our initial public
offering of November 17, 1997, we completed a private placement with SPCG of our
2,000,000  Series  A-Cumulative   Convertible  Preferred  Shares  of  beneficial
interest  ("Series  A  Shares")  with a $0.01 par  value.  On June 5,  1998,  we
completed the sale of 4,000,000 Series B-Cumulative  Redeemable Preferred Shares
of beneficial interest ("Series B Shares") with a $0.01 par value.

      On January 31, 2002,  we paid  distributions  of $0.375 per Series A Share
and $0.5625 per Series B Share to shareholders of record on January 18, 2002.

      On February 22, 2002, we amended the dividend rate on our Series A Shares,
and agreed to pay a deferral payment,  as defined,  of 3.5% of the $40.0 million
aggregate  liquidation  value of the outstanding  Series A Shares.  The deferral
payment  increased by 0.50% on May 8, 2002 and  compounded  quarterly  beginning
March 31, 2002.


<PAGE>


8.  Preferred Shares (continued)

      On July 16, 2002,  we and our Operating  Partnership  closed a transaction
with  SCPG.  Prior to the  closing,  SCPG was the sole  holder  of our  Series A
Shares. At the closing, our Operating  Partnership purchased all of the Series A
Shares for a total redemption price of $42.3 million through the issuance of two
notes payable  described below (which  represents the $40.0 million  liquidation
preference  of the Series A Shares plus  accrued  distributions,  including  the
accrued deferred payment amount, to the date of redemption).

      Our Operating  Partnership  issued to SCPG (i) an  exchangeable  note (the
"Exchangeable  Note")  in the  principal  amount  of  $37.3  million  and (ii) a
nonexchangeable note (the "$20M Note") in the principal amount of $20.0 million.
Our  Operating  Partnership  purchased  the  Series  A  Shares  by  issuing  the
Exchangeable  Note to SCPG and paying SCPG $5.0 million of the proceeds from the
$20M Note. The principal amount of the Exchangeable Note was exchangeable by its
terms for our common shares at an exchange price of $20.00 per share, subject to
anti-dilution  adjustments.  Approximately $6.8 million of the proceeds from the
$20M Note were used to fund the payment of  distributions on our Series B Shares
for the  first,  second  and third  quarters  of 2002.  The  balance of the loan
proceeds was used to fund certain escrow accounts  described below, pay expenses
related to the transactions and for general corporate purposes.

      As part of the  foregoing  transactions,  we  issued  to SCPG  Series  A-1
warrants to purchase up to 500,000  common  shares at $9.00 per share and Series
A-2  warrants to purchase up to 500,000  common  shares at $7.50 per share.  The
Series A-1 warrants  expired  April 1, 2003. We also issued to SCPG Series B and
Series C warrants.  The Series B warrants allow SCPG to purchase  250,000 common
shares at $10.00 per share and the Series C warrants  allow SCPG to  purchase up
to 250,000 common shares at $12.50 per share. The warrants contain  antidilution
adjustment provisions and expire on July 16, 2007, except as specified above. We
recorded  the fair market value of the warrants of $0.6 million as a discount to
the $20M Note and as an increase to additional paid-in capital. The discount was
amortized as interest  expense over a  twelve-month  period which ended July 16,
2003, the initial  maturity date of the related  notes.  We have also granted to
SCPG certain demand and incidental  registration rights in respect of any common
shares SCPG may receive upon the exercise of any of the warrants.

      In order to permit the  purchase of the Series A Shares under our charter,
our Board  conditionally  declared  distributions on our Series B Shares for the
first,  second and third  quarters of 2002, at the quarterly rate of $0.5625 per
share.

      Dividends  on our Series B Shares are  payable  quarterly  on or about the
last day of January,  April,  July and  October of each year,  at the rate of 9%
(equivalent  to $2.25 per annum per Series B Share).  Our  Series B Shares  rank
senior  to our  common  shares  as to the  payment  of  dividends  and as to the
distribution of assets upon liquidation.  Our Series B Shares may be redeemed at
our option at a  redemption  price of $25.00 per share plus  accrued  and unpaid
distributions.  The redemption  price is payable solely out of the proceeds from
the sale of other capital shares of beneficial interest of ours.

      We have not paid  distributions  on our  Series B Shares for the last five
quarters.  Distributions on our Series B Shares are cumulative and will continue
to accrue to the extent they are not declared and paid currently. The holders of
our Series B Shares have the right to elect two additional  members to our Board
if six consecutive quarterly  distributions on the Series B Shares are not made.
The term of any  Trustee  elected  by the  Series  B  Shareholders  will  expire
whenever the total  dividend  arrearage in the Series B Shares has been paid and
current dividends declared and set apart for payment.  Any future  distributions
in respect of our common  shares may not be paid  unless all  accrued but unpaid
preferred share distributions have been or are concurrently satisfied.



<PAGE>


9.  Discontinued Operations

      The components of  discontinued  operations for properties sold during the
years ended December 31, 2003 and 2002, and a full year of their  operations for
the year ended December 31, 2001, are shown below:

<TABLE>
<CAPTION>


                                                         Year Ended December 31
                                                    2003            2002          2001
                                            ------------------------------------------------
                                                     (dollars in thousands)
<S>                                           <C>              <C>            <C>

Rental revenue............................     $    5,707       $   22,948     $   32,490
Tenant reimbursements.....................            934            7,316         14,289
Other property income.....................            718            1,736          1,892
                                            -------------------------------------------------
   Total revenue..........................          7,359           32,000         48,671
Property operations.......................          1,848            7,663         11,217
Real estate taxes.........................          1,033            4,683          8,553
Depreciation and amortization.............            555            5,360          9,011
Interest:
   Expense................................          1,288            7,114         13,090
   Amortization of deferred
     financing costs......................              -              352            468
                                            -------------------------------------------------
   Total expenses.........................          4,724           25,172         42,339
                                            -------------------------------------------------
Income before provisions for asset
   impairment, net gain (loss) on sale
   of real estate and minority interests..          2,635            6,828          6,332
Provisions for asset impairment(1)........              -          (56,573)        (1,500)
Net gain (loss) on sales of real estate(2)          1,226           (3,211)             -
Minority interests........................         (1,113)          21,818         (1,962)
                                            -------------------------------------------------
Discontinued operations...................     $    2,748      $   (31,138)    $    2,870
                                            =================================================
</TABLE>




(1)  During 2002, we recorded an asset impairment of $22.1 million related to an
     office  property  sold in June  2003  based  upon  our  decision  to exit a
     non-core  market,  which  shortened  our  anticipated  hold  period for the
     property.  The impairment charge reduced the net book value of the building
     and  improvements,  deferred rent  receivables  and deferred costs by $19.4
     million,  $0.8 million and $1.9 million,  respectively,  to our estimate of
     fair value based upon market conditions and discussions we have held with a
     tenant regarding a potential sale. In addition,  we recorded provisions for
     impairment  of $33.6  million  based  upon  our  decision  to sell  certain
     non-core  suburban office  properties and $0.8 million related to an office
     property  based upon our decision to actively  market the property and exit
     the Tennessee  market (an impairment  loss of $1.5 million  related to this
     office property was recognized  during 2001). We entered into a contract to
     sell our non-core  suburban  office  properties in April 2002. The purchase
     price  less  costs  of sale  was used to  determine  the fair  value of the
     properties and related  assets.  We determined the fair market value of the
     Tennessee  office property based upon the purchase price less costs of sale
     of a  contract  with a  third  party  purchaser  and our  knowledge  of the
     Tennessee marketplace.

(2)  See Note 15 - Property Acquisitions,  Placed in Service and Dispositions to
     these Consolidated Financial Statements for a description of these sales.



<PAGE>


10.  Earnings Per Share

      The following  table sets forth the  computation  of our basic and diluted
net income available per  weighted-average  common share of beneficial  interest
for the years ended  December 31,  2003,  2002 and 2001  (dollars in  thousands,
except per share amounts):


<TABLE>
<CAPTION>


                                                                          Year ended December 31
                                                                       2003          2002          2001
                                                                -------------------------------------------
<S>                                                             <C>             <C>           <C>

Numerator:
   Loss from continuing operations before minority interests    $     (39,373)   $   (7,435)   $  (18,544)
   Minority interests.........................................          1,054         8,895        11,323
   Net income allocated to preferred shareholders.............         (9,000)      (11,280)      (12,150)
                                                                -------------------------------------------
   Loss  before  (loss)  gain on sales of real  estate,
     discontinued  items and cumulative effect of change
     in accounting principles.................................        (47,319)       (9,820)      (19,371)
   Discontinued operations, net of minority interests.........          2,748       (31,138)        2,870
   (Loss) gain on sales of real estate, net of minority
     interests................................................           (646)         (943)          174
   Cumulative effect of change in accounting
     principles, net of minority interests....................              -             -          (321)
                                                                -------------------------------------------
Numerator for earnings per share - loss available to common
     shares...................................................   $    (45,217)   $  (41,901)   $  (16,648)
                                                                ===========================================

Denominator:
   Denominator for basic earnings per share - weighted
     average common shares...............................          20,105,183    15,673,544    15,630,586
Effect of dilutive securities:
   Employee stock options.....................................              -             -             -
   Employee stock grants......................................              -             -             -
                                                                -------------------------------------------
Denominator for diluted earnings per share - adjusted
   weighted average common shares and assumed
   conversions........................................             20,105,183    15,673,544    15,630,586
                                                                ===========================================


BASIC AND DILUTED EARNINGS AVAILABLE TO COMMON SHARES PER
   WEIGHTED-AVERAGE COMMON SHARE:
Loss from continuing operations...............................  $      (2.35)   $     (0.62) $      (1.24)

Discontinued operations, net of minority interests............          0.13          (1.99)         0.18
(Loss) gain on sales of real estate, net of minority
   interests..................................................         (0.03)         (0.06)         0.01
Cumulative effect of change in accounting principles,
   net of minority interests..................................             -              -         (0.02)
                                                                -------------------------------------------
Net loss available per weighted-average common share
   of beneficial interest - basic and diluted.................  $      (2.25)   $     (2.67) $      (1.07)
                                                                ===========================================

</TABLE>



      For the 2003  earnings  per share  computation,  1,948,921  of our options
during the first quarter of 2003, 1,449,210 options during the second quarter of
2003,  1,319,390 options during the third quarter of 2003, and 1,309,827 options
during  the fourth  quarter  of 2003 were not  included  in the  computation  of
diluted  earnings  per  share for  periods  after  their  issuance  because  the
conversion would have been antidilutive.

      On July 16, 2002,  we issued Series A-2 warrants to purchase up to 500,000
common  shares at $7.50 per share,  Series B warrants  to purchase up to 250,000
common  shares at $10.00  per share and  Series C  warrants  to  purchase  up to
250,000  common shares at $12.50 per share.  These warrants were not included in
the  computation of diluted  earnings per share for periods after their issuance
because the conversion would have been antidilutive.



<PAGE>


10.  Earnings Per Share (continued)

      For the 2002  earnings  per share  computation,  2,293,591  of our options
during the first quarter of 2002, 2,115,755 options during the second quarter of
2002,  2,029,926  options during the third quarter of 2002 and 2,008,191 options
during  the fourth  quarter  of 2002 were not  included  in the  computation  of
diluted earnings per share because the conversion would have been antidilutive.

      For the 2001  earnings  per share  computation,  2,574,754  of our options
during the first quarter of 2001, 2,550,642 options during the second quarter of
2001,  2,304,741 options during the third quarter of 2001, and 2,295,364 options
during  the fourth  quarter  of 2001 were not  included  in the  computation  of
diluted earnings per share because the conversion would have been antidilutive.

      We  had  nonvested  stock  grants  of  5,898,  14,144  and  58,980  shares
outstanding   during  the  years  ended  December  31,  2003,   2002  and  2001,
respectively, which were not included in the computation of diluted earnings per
share because the effect would have been antidilutive.

      The  minority  interest  in  the  Operating   Partnership  had  6,604,391,
10,996,166  and  10,722,853   weighted  average  limited  partner  common  units
outstanding   during  the  years  ended  December  31,  2003,   2002  and  2001,
respectively, of which 6,604,391, 7,023,720 and 10,661,808, respectively, may be
exchanged  for  common  shares  on a  one-for-one  basis,  subject  to our  9.9%
ownership  limitation  contained  in  our  charter,  or,  at  our  option,  cash
equivalent  to the fair market  value of a common share at the time of exchange.
The limited partner common units were not included in the computation of diluted
earnings per share because the conversion would have been antidilutive.

      We had  2,000,000  Series  A Shares  outstanding  during  the  year  ended
December 31, 2001 which were not included in the computation of diluted earnings
per share because their  conversion  would have been  antidilutive.  On July 16,
2002, the Series A shares were purchased by our Operating  Partnership (See Note
8 - Preferred Shares to these Consolidated Financial Statements).

11.  Employee Benefit Plans

      Our 1997 Share  Incentive  Plan (the  "Plan")  permits  the grant of share
options,  share appreciation  rights,  restricted  shares,  restricted units and
performance  units to  officers  and other key  employees  and to  officers  and
employees of subsidiaries,  the Operating Partnership,  the Services Company and
other owned  partnerships.  The Plan also permits the grant of share  options to
non-employee Trustees.

      Under the Plan,  up to  2,860,774  of our  common  shares may be issued or
transferred to participants.  The maximum  aggregate number of common shares and
share equivalent units that may be subject to awards granted during any calendar
year to any one participant under the Plan, regardless of the type of awards, is
200,000.  This limit applies  regardless of whether such compensation is paid in
common shares or share equivalent units.

      The  Compensation  Committee of our Board of Trustees  (the  "Compensation
Committee") administers the Plan and has the authority to determine, among other
things,  subject to the terms and conditions of the Plan, the  individuals to be
granted options, the exercise price at which shares may be acquired,  the number
of shares subject to options,  the vesting  requirements and the exercise period
of each option.  The Compensation  Committee is granted  discretion to determine
the term of each option  granted  under the Plan to  employees,  executives  and
Trustees,  but in no event  will the term  exceed ten years and one day from the
date of the grant.



<PAGE>


11.  Employee Benefit Plans (continued)

      The Board also  granted  certain  executives  25,380  shares of our common
shares and certain  executives and employees  options to purchase 364,200 of our
common shares,  at an exercise price of $13.19 per share, as part of a long-term
incentive  program.  These common share grants and options vested at the rate of
25.0% per year in four annual installments commencing on January 15, 2000.

      As part of an annual  incentive  award  program,  on January 23, 2001, the
Board granted certain executives 15,482 shares of our common shares, and options
to  purchase  33,400 of our  common  shares at an  exercise  price of $14.31 per
share. The common share grants vested 50% on January 23, 2001 and 50% on January
15, 2002 and the  options  vested on January 23,  2001.  The Board also  granted
certain  executives  57,190 shares of our common  shares and certain  executives
options to purchase 33,400 of our common shares,  at an exercise price of $14.31
per share, as part of a long-term  incentive program.  These common share grants
and  options  vest at the rate of 25.0%  per  year in four  annual  installments
commencing on January 23, 2001.

     In 2001, we also  repurchased  15,625 options from a former executive for a
nominal  payment  equal to the net value of the options and recorded the payment
as compensation expense.

     During  2000 and 1999,  the Board  granted  options to  purchase a total of
7,500 and 107,500,  respectively,  (exclusive of options described above as part
of our annual incentive award program) of our common shares to various employees
and executives of the Company hired in 2000 and 1999 at exercise prices equal to
the closing  price on the trading day before the grant of the  options.  Options
for these shares  granted under the Plan to executives and employees have a term
of 10 years and became  exercisable and vested in  installments as follows:  (i)
33.3% of the number of shares commenced in the first  anniversary of the date of
grant;  (ii)  an  additional  33.3%  for  the  shares  commenced  on the  second
anniversary  of the date of the  grant;  and (iii) the  remainder  of the shares
commenced on the third anniversary of the date of grant.

       In January 2003,  the  Compensation  Committee  awarded Mr. Nardi 100,000
stock  options at $5.02 per share (the  closing  price on the last  trading  day
immediately  prior  to the  award).  These  options  vest  over  three  years in
one-third increments on each anniversary of the award.

      During  2003,  2002 and 2001,  1,047,313,  286,320  and  289,647  options,
respectively,   expired  or  were  voluntarily  terminated  in  connection  with
employees or executives, who held options, resigning from the Company.

      The unaudited pro-forma  information regarding net income and earnings per
share is required by SFAS No. 123,  "Accounting for  Stock-Based  Compensation,"
("SFAS  123") and has been  determined  as if we had  accounted  for our options
under the fair value  method of that  statement.  The fair value for the options
was estimated at the date of grant using a  Black-Scholes  option  pricing model
with the following weighted average assumptions for 2003 and 2001, respectively:
risk-free interest rate of 2.21% and 5.22%; expected dividend yield of 0.00% and
9.43%; volatility factor of the expected market price common shares of 0.310 and
0.294;  and a  weighted-average  expected life of the options of three years for
2003 and seven years for 2001. There were no options granted in 2002.



<PAGE>


11.  Employee Benefit Plans (continued)

      Under the fair  value  method of SFAS 123,  $45,000  ($0.00  per basic and
diluted  share),  $158,000  ($0.01  per basic and  diluted  common  share),  and
$175,000 ($0.01 per basic and diluted common share),  would have been recognized
as additional  compensation  expense for the years ended December 31, 2003, 2002
and 2001, respectively.  For purposes of the following pro-forma disclosure, the
estimated  fair value of the options is  amortized  to expense  over the vesting
period of the options. On this basis, the pro-forma net loss available to common
shares was $45.3  million  ($2.25 per basic and  diluted  common  share),  $42.1
million ($2.68 per basic and diluted common share), and $16.8 million ($1.08 per
basic and diluted common share) for the years ended December 31, 2003,  2002 and
2001, respectively.  We did not recognize any compensation expense in 2003, 2002
and 2001 related to options granted under APB 25.

      The effects on unaudited  pro-forma net income and pro-forma  earnings per
common share for the years ended December 31, 2003,  2002 and 2001 of amortizing
to  expense  the  estimated  fair  value of share  options  are not  necessarily
representative  of the effects on net income to be reported in future  years due
to the vesting  period of the share  options,  and the potential for issuance of
additional share options in future years. For purposes of pro-forma disclosures,
the  estimated  fair value of the  options  is  amortized  to  expense  over the
options' vesting periods.

      The  Black-Scholes  options  valuation  model  was  developed  for  use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because changes in the subjective input  assumptions can materially
affect the fair value estimate,  in the opinion of our management,  the existing
models do not necessarily provide a reliable single measure of the fair value of
the options granted under the Plan.

      In February 2002,  our  Compensation  Committee  approved 2001 bonuses and
2002 stay  bonuses  totaling  $0.4  million  for  certain  members of our senior
management.  None of the  participants in the bonus program was a Trustee of the
Company.  One-half of the bonus pool was  designated as bonuses for 2001 and the
other  one-half as stay bonuses  that vested in two  increments,  two-thirds  on
April 1, 2002 and one-third on June 1, 2002.  Any vested or earned  amounts were
payable  at our option at any time on or before  August 8, 2002 in (i) cash,  or
(ii) restricted shares of the Company under the Plan, having an equivalent value
based on the average of the high and low trading  price of the common  shares on
the day before  notification of such election is given to the relevant employee.
In addition, the participants could have elected to receive any vested or earned
bonus amounts in restricted shares.  These amounts were paid entirely in cash in
August 2002.

      On May 20, 2002, we entered into  retention  agreements  with Mr. Louis G.
Conforti and Mr. Jeffrey A. Patterson,  our two  Co-Presidents at that time, and
Mr.  James F.  Hoffman,  our  Executive  Vice  President,  General  Counsel  and
Secretary.  The  agreements  provided for a retention  payment for calendar year
2002 of $250,000 for each of Mr. Conforti and Mr. Patterson and $100,000 for Mr.
Hoffman. The retention payments vested on a per diem basis from the beginning of
calendar  year 2002 so long as the  participant  remained  employed by us or our
affiliates.  Any unvested portions of the bonus would have been forfeited in the
event the participant voluntarily terminated his employment.  Vested portions of
the retention  payments were payable upon the earlier of December 31, 2002 or at
the  discretion  of the  Compensation  Committee of our Board of Trustees in the
event of the  consummation of various capital  events.  The foregoing  retention
payments were considered a 2002 performance  bonus  distribution for the purpose
of  calculating  any  termination   compensation  due  under  the  participants'
previously existing employment or severance  agreements with us. These retention
payments were paid by us in January 2003.


<PAGE>


11.  Employee Benefit Plans (continued)

      The  following  is a summary of our share  option  activity,  and  related
information  for the years ended  December 31, 2003,  2002 and 2001  (dollars in
thousands, except per share amounts):


<TABLE>
<CAPTION>




                                                 Shares       Weighted Average
                                               Subject to        Exercise
                                                 Option       Price Per Share
                                           ------------------------------------
<S>                                        <C>                <C>

Balance at January 1, 2001................     2,563,363           $16.35
Additional options granted................        33,400            14.31
Options exercised.........................        (1,625)           13.88
Options canceled or repurchased...........      (305,272)           15.89
                                           ------------------------------------
Balance at December 31, 2001..............     2,289,866            16.38
Options canceled or repurchased...........      (286,320)           18.41
                                           ------------------------------------
Balance at December 31, 2002..............     2,003,546            16.09
Additional options granted................       100,000             5.02
Options canceled..........................      (947,313)           15.94
                                           ------------------------------------
Balance at December 31, 2003..............     1,156,233           $15.25
                                           ====================================

</TABLE>



      At December 31, 2003, options with respect to 1,054,171 common shares were
exercisable  with exercise  prices ranging from $13.19 to $21.00 per share and a
weighted   average   exercise   price  of  $16.22  per  share.   The   remaining
weighted-average   contractual  life  of  these  options  was  5.04  years.  The
weighted-average  grant date fair value of all options  granted during the years
ended December 31, 2003 and 2001 was $1.20 and $1.39, respectively.

12.  Related Party Transactions

     On March 19,  2002,  we  entered  into an  agreement  appointing  Julien J.
Studley, Inc. as our exclusive agent to lease space on our behalf related to the
Citadel Reimbursement  Obligation.  Mr. Jacque M. Ducharme, one of our Trustees,
is the Vice  Chairman  Western  Region and Director of Julien J.  Studley,  Inc.
Julien J. Studley,  Inc. has earned commissions of $0.1 million and $0.2 million
for  services  provided  to us for the years ended  December  31, 2003 and 2002,
respectively. The term of this agreement expired on September 30, 2003, although
certain  commissions  have and may become due and  payable  subsequent  thereto.
Julien J. Studley may also receive commissions from us in the future should they
represent any tenant in a leasing transaction with us.

      For the year ended December 31, 2003, we recorded  severance costs of $0.7
million  resulting  from the  termination  of Mr. Louis G. Conforti as our Chief
Financial  Officer  and for the  year  ended  December  31,  2002,  we  recorded
severance costs of $2.5 million  resulting from the  resignations of Mr. Michael
W. Reschke and Mr.  Richard S. Curto and the  reduction of corporate  management
and support staff.

      As of December  31,  2003,  we have a  receivable  of  approximately  $0.9
million  from Mr.  Nardi and  certain  of his  affiliates  under a master  lease
agreement  entered  into with Mr.  Nardi in  connection  with our 1051 Kirk Road
property.  This represents rent receivables due for the period from October 2001
through  the  lease  expiration  on March  31,  2003.  Payments  of rent per the
agreement  are to be deducted from common unit  distributions  made to Mr. Nardi
and his  affiliates.  Because there were no common unit  distributions  for this
period,  no payments were applied to the outstanding  balance.  We have recorded
this rent as a reduction of our basis in the property.



<PAGE>


12.  Related Party Transactions (continued)

      On March 25, 2003, we and The Prime Group,  Inc.  ("PGI") and one of PGI's
affiliates,  both affiliates of Mr.  Reschke,  one of our Trustees at that time,
entered  into  an  amendment  to the  environmental  remediation  and  indemnity
agreement previously entered into by PGI and us in November 1997 (as so amended,
the "PGI Environmental Indemnity").  Pursuant to the existing agreement, PGI has
agreed to indemnify us against certain environmental  liabilities related to our
Chicago,  Hammond and East Chicago  Enterprise  industrial  parks.  The existing
agreement  also  provides  that PGI is entitled to use the proceeds from certain
pending litigation we have against third parties relating to these environmental
liabilities.  The amendment to the agreement provides,  among other things, that
all of the  proceeds  from  the  litigation  will  not be  funded  to PGI or its
affiliate, but instead that if any proceeds are recovered in connection with the
litigation, sufficient proceeds (if recovered) will be placed in an escrow to be
used to fund the environmental  remediation costs. We are aware of environmental
contamination at certain of our older industrial properties contributed to us as
an equity  contribution  by PGI during our  initial  public  offering.  Upon the
closing of the  admission of a new 70% joint venture  partner to our  subsidiary
that owns Bank One  Center,  we  retained  $0.5  million of the $1.0  million of
compensation  due PGI as described below which will be utilized  towards certain
environmental costs at these industrial  properties.  PGI's responsibility under
the agreement was  correspondingly  reduced by $0.5 million.  As of December 31,
2003 a total of $0.3 million of these costs have been paid. These  environmental
matters are further  discussed in Note 14 - Commitments and Contingencies to our
Consolidated Financial Statements.

      In connection with the admission of a new 70% joint venture partner to the
joint  venture  that  owns the  1,497,472  square  foot Bank One  Center  office
building  in  Chicago,   Illinois,  we  entered  into  certain  agreements  with
affiliates  of PGI,  providing  for a total of $1.0 million of  compensation  in
connection  with certain  advisory  services  performed in  connection  with the
transaction.  These agreements consisted of (i) a letter agreement providing for
a $0.3 million advisory fee relating to such  transaction,  (ii) an amendment to
the PGI  Environmental  Indemnity  providing  that we would pay the  first  $0.5
million of any costs incurred in connection with the environmental  clean-up and
related  litigation  and (iii) our  agreement  to pay $0.2  million to our joint
venture  affiliate owning the 77 West Wacker Drive property  representing  three
(3) months past-due rent owed by PGI for space it was leasing at the building at
the time.

      PGI leased 22,620 square feet of space at 77 West Wacker Drive,  an office
building owned by one of our  unconsolidated  real estate joint ventures that we
own a 50% common ownership interest in and for which we account using the equity
method.  PGI's lease was to expire  October  31, 2007 with an option,  effective
April 30, 2002, to terminate  the lease upon six months  written  notice.  As of
July 31,  2003,  PGI owed the  unconsolidated  real estate  joint  venture  $0.4
million   representing  five  months  of  rent  and  related  operating  expense
reimbursements.  PGI was subsequently  charged rent for the months of August and
September.  In connection  with the past-due rent,  the parties  entered into an
amendment  to PGI's lease  pursuant to which rent ceased to accrue as of October
1,  2003  and PGI (i)  paid two  months  rent to the  landlord  for  August  and
September 2003, (ii) conveyed its trade fixtures and certain office furniture to
the landlord in satisfaction of its remaining rent obligation,  and (iii) agreed
to vacate  the  premises  at any time in the  future  upon 45 days  notice  from
landlord,  which notice has since been served by landlord.  An additional  three
(3) months of rent was paid as described in "Bank One Center  Agreements" below.
PGI vacated the premises as of February 8, 2004.

      We own a 50% common  ownership  interest in 77 West Wacker Drive, LLC ("77
LLC"), an unconsolidated  joint venture that owns the office property at 77 West
Wacker Drive in Chicago,  Illinois.  In  connection  with our  management of the
property,  we are  entitled  to  receive  property  management  fees  and  lease
commissions for services  performed and  reimbursement of costs we pay on behalf
of 77 LLC. Such amounts for the years ended December 31, 2003, 2002 and 2001 are
summarized as follows:


<PAGE>


12.  Related Party Transactions (continued)

<TABLE>
<CAPTION>


                                                  2003        2002      2001
                                            ------------------------------------
                                                     (dollars in thousands)
<S>                                             <C>           <C>       <C>

Management fees (1).....................     $  1,092      $  1,053  $  1,013
Payroll, leasing costs
  and other operating costs.............        1,998         2,088     1,898

</TABLE>



(1)  We earn a  monthly  management  fee  equal to 2.5% of gross  rental  income
     calculated on a cash basis. For financial reporting  purposes,  50% of this
     amount, representing our share of earnings from the joint venture, has been
     eliminated against our equity in earnings from this joint venture (included
     in other income).

      We own a 30% subordinated  common  ownership  interest in Dearborn Center,
LLC  ("Dearborn  LLC"),  an  unconsolidated  joint  venture that owns the office
property  known as Bank One  Center  located  at 131  South  Dearborn  Street in
Chicago,  Illinois.  In connection  with our management of the property,  we are
entitled to receive property  management fees and lease commissions for services
performed  and  reimbursement  of costs we pay on behalf of Dearborn  LLC.  Such
amounts for the period from  October 8, 2003  (admittance  of our joint  venture
partner)  through  December  31, 2003,  are  summarized  as follows  (dollars in
thousands):


Management fees (1).....................                            $  148
Payroll, leasing costs and other operating costs......                 299


 (1) We earn a  monthly  management  fee  equal to 2.0% of gross  rental  income
     calculated on a cash basis. For financial reporting purposes, this has been
     eliminated against our equity in the loss from this joint venture.  Payment
     of this  fee for 2003 and 2004 on a  current  basis is  subordinate  to our
     partner's annual  non-cumulative  10% return. To the extent this fee is not
     paid for  these  years it is to be paid  from the  proceeds  of any  future
     capital transaction and is senior to the return of our partner's capital.

     On March 7, 2002,  the  Operating  Partnership  acquired 24.9 acres of land
from Mr.  Nardi  for a total  purchase  price of $3.3  million  paid in  344,331
limited   partner  common  units.   This  purchase   fulfilled  our  contractual
requirements to acquire land from Mr. Nardi.

      Governor  James R.  Thompson,  a former  Trustee  whose  term as a trustee
expired in May 2003,  is the  Chairman  of a law firm which has  provided  legal
services  to us during  2003,  2002 and 2001.  The law firm  earned fees of $1.1
million,  $1.7  million and $2.8  million for legal  services  provided to us in
2003, 2002 and 2001, respectively.

      During  2002 and 2001,  we  incurred  rent  expense  of  $35,600  and $0.2
million,  respectively,  under the terms of a month-to-month  sublease with PGI.
This sublease was terminated on February 28, 2002.

      On April 25, 2001, our Operating Partnership acquired 33,085 of our common
shares of beneficial interest, $0.01 par value per share, from a former employee
for a price of $0.5 million.  In  connection  with the  acquisition,  the former
employee agreed to cancel all of his options granted  pursuant to our 1997 Share
Incentive Plan and an award agreement dated December 17, 1998 between us and the
former  employee in exchange for a payment equal to the net value of the options
and we recorded the payment as compensation expense.



<PAGE>


13.  Fair Values of Financial Instruments

SFAS No. 107,  "Disclosures  About Fair Value of Financial  Instruments"  ("SFAS
107") and SFAS No. 119, "Disclosure about Derivative  Financial  Instruments and
Fair Value of Financial  Instruments"  require  disclosure  of the fair value of
certain  on-and  off-balance  sheet  financial   instruments  for  which  it  is
practicable to estimate.  Fair value is defined by SFAS No. 107 as the amount at
which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale.

      We used the following methods and assumptions in estimating the fair value
disclosures for financial instruments.

Cash and Cash Equivalents and Restricted Cash Escrows

      The  carrying  amount of cash and cash  equivalents  and  restricted  cash
escrows  reported in the  consolidated  balance sheets  approximates  their fair
value.

      We maintain our cash and cash  equivalents  and restricted cash escrows at
various   financial   institutions.   The  combined  account  balances  at  each
institution  periodically exceed FDIC insurance coverage, and as a result, there
is a  concentration  of credit  risk  related to amounts on deposit in excess of
FDIC insurance coverage. We believe that the risk is not significant.

Mortgage and Notes Payable and Bonds Payable

      The carrying amount of our variable and fixed rate debt (including accrued
interest)  approximates  fair  value  based on the  current  borrowing  rate for
similar types of debt.

      At December  31,  2003,  the fair value of our  interest  rate  protection
agreements is a net asset of $0.2 million.

14.  Commitments and Contingencies

      We disclosed in our 2002 consolidated  financial statements and in each of
our 2003  quarterly  consolidated  financial  statements  that we had  liquidity
issues  that raised  some  uncertainty  as to our ability to continue as a going
concern.  During 2003, we completed certain transactions,  primarily the sale of
certain  assets and the repayment of high  interest rate debt,  which we believe
have resolved these liquidity issues.

      On August 29, 2002, 180 Acquisition Company, LLC ("180 Acquisition") filed
a  complaint  (the  "Complaint")  against  us, our  Operating  Partnership,  our
Services Company, one of our subsidiaries holding our interests in the 180 North
LaSalle Street property in Chicago, Illinois (the "180 Interests"),  and Jeffrey
A.  Patterson,  our President and Chief  Investment  Officer.  The Complaint was
filed in the  County  Department,  Law  Division  of the  Circuit  Court of Cook
County, Illinois.

      In the  Complaint,  180  Acquisition  alleges that the  defendants  orally
promised to sell the 180 Interests to them, and that 180  Acquisition  relied on
these alleged  promises,  notwithstanding  the facts that (i) a written contract
was not entered into among the parties and (ii) we  terminated  negotiations  to
sell the 180  Interests to 180  Acquisition  in July 2002.  180  Acquisition  is
asking the Court to award it $1.7 million in direct  damages,  $15.7  million in
lost profits and $34.9 million in punitive  damages.  We vigorously  dispute the
allegations contained in the Complaint,  deny making the promises alleged by the
plaintiff and believe that we have valid defenses in this case. However,


<PAGE>


14.  Commitments and Contingencies (continued)

there can be no  assurances  that the outcome of this case will be  favorable to
us. We have not  recorded  any  liability  related to this matter other than for
legal fees we have incurred.

      We are a  defendant  in legal  actions  arising  in the  normal  course of
business.  We  believe  that the  ultimate  outcome  of those  actions  will not
materially affect our consolidated financial position or results of operations.

      All of our  properties  were  subject to Phase I or similar  environmental
assessments  by  independent  environmental  consultants  which were intended to
discover information regarding,  and to evaluate the environmental condition of,
the surveyed property and surrounding properties.  We are aware of contamination
at  certain  of our  industrial  properties  which are  already  in  remediation
programs  sponsored by the states in which they are located.  Our  environmental
consultants  estimate  that  remedial  action plans will have a probable cost of
approximately  $3.2  million.  During  1997,  a  liability  of $3.2  million was
recorded  (included in other  liabilities  at December 31, 2003 and December 31,
2002).  During 1997,  PGI, the former  owner of the above  mentioned  industrial
properties,  initiated lawsuits against a former environmental consultant of one
of these  properties for damages to cover the cost of the remedial action plans.
PGI has contractually  agreed to indemnify us for any environmental  liabilities
we may incur for known  contamination  in connection with our Chicago,  Hammond,
and East Chicago  Enterprise  industrial parks. In 1998, PGI sued a then current
(and now former) tenant of one of the properties in order to force the tenant to
submit a hazardous waste closure plan to the Illinois  Environmental  Protection
Agency. In January 2004 the court ruled that the tenant did not have to submit a
hazardous  waste  closure  plan under  applicable  regulations.  The  litigation
against the environmental consultant continues.

      We are also aware of contamination at two other properties.  At one of the
properties,  the tenant has provided us with an  indemnity  for all of the costs
associated with the  environmental  remediation and the tenant has purchased the
property. The second property was placed in the remediation program sponsored by
the  state in which it is  located  and the  previous  owner has  obtained  a no
further  remediation  letter from the Illinois  Environmental  Protection Agency
approving  the  completion  of  the  remediation  work.  Accordingly,  we do not
anticipate any material liability related to these environmental matters.

      In  November  2001,  at the request of the  Department  of the Army of the
United  States of America (the  "DOA"),  we granted the DOA a right of entry for
environmental  assessment and response in connection  with our property known as
the Atrium at 280 Shuman Boulevard in Naperville,  Illinois (the "Atrium").  The
DOA  informed us that the  property  was located  north of a former Nike Missile
Base and that the DOA was investigating  whether certain regional  contamination
of the groundwater by  trichloethene  ("TCE") emanated from the base and whether
the DOA would be required to restore the  environmental  integrity of the region
under the Defense  Environmental  Restoration  Program for Formerly Used Defense
Sites. In December 2001, the results from the tests of the groundwater  from the
site indicated  elevated levels of TCE. It is currently our understanding  based
on information provided by the DOA and an analysis prepared by its environmental
consultants that (i) the source of the TCE contamination did not result from the
past or current activities on the Atrium property, (ii) the TCE contamination is
a regional problem that is not confined to the Atrium, and (iii) the DOA has not
yet  identified  the  source of the TCE in the  groundwater.  Our  environmental
consultants  have  advised us that the United  States  Environmental  Protection
Agency (the "EPA") has issued a Statement of Policy  towards  owners of property
containing  contaminated  acquifers.  According to this policy,  it is the EPA's
position that where  hazardous  substances have come to be located on a property
solely as a result of subsurface migration in an aquifer from an offsite source,
the EPA will not take enforcement actions against the owner of the property. The
groundwater  underneath  this  property is  relatively  deep,  and the  property
obtains its potable  water  supply  from the City of  Naperville  and not from a
groundwater well. Accordingly, we do not anticipate any material liability to it
because of this TCE contamination.



<PAGE>


14.  Commitments and Contingencies (continued)

      The Operating Partnership entered into tax indemnification agreements with
certain  principals  affiliated with Mr. Nardi ("NAC  Contributors") and certain
principals   affiliated  with  one  of  our  former  executive   officers  ("IBD
Contributors"),  both of which  contributed  properties to us during our initial
public offering.  Under these agreements,  the Operating Partnership is required
to indemnify the NAC  Contributors  and the IBD  Contributors  for,  among other
things, the income tax liability that would result from the income or gain which
they recognize upon the refinancing or repayment by the Operating Partnership of
its liabilities or the sale or other disposition by the Operating Partnership of
the properties they contributed. Under the terms of the agreement, the Operating
Partnership  will indemnify the NAC  Contributors  and the IBD  Contributors for
certain  income  tax  liabilities   based  on  income  or  gain  which  the  NAC
Contributors  and/or the IBD Contributors are required to include in their gross
income for  federal or state  income tax  purposes as a result of such an event.
This indemnity covers these income taxes, interest and penalties and is required
to be  made  on a  "grossed  up"  basis  that  effectively  results  in the  NAC
Contributors and the IBD Contributors  receiving the indemnity payment on a net,
after-tax basis.

      The percentage of the tax liabilities  which the Operating  Partnership is
required to  indemnify  is 50% for the taxable year ending on December 31, 2003,
and declines by 10% each year thereafter  until December 31, 2007. The Operating
Partnership  is not  required  to  indemnify  the NAC  Contributors  and the IBD
Contributors  for income or gain  realized by them after the taxable  year ended
December 31, 2007.  We have not recorded any  liability and estimate our maximum
possible  exposure  under the  indemnities to the NAC  Contributors  and the IBD
Contributors  is $9.8 million and $3.5  million,  respectively,  at December 31,
2003.

      PGI has entered into an agreement with the Operating  Partnership pursuant
to which PGI has agreed to indemnify the Operating  Partnership  for any amounts
paid  by the  Operating  Partnership  to the  NAC  Contributors  and/or  the IBD
Contributors  pursuant to such  agreement;  provided,  that PGI is liable to the
Operating  Partnership  for such amounts  only to the extent that the  Operating
Partnership  uses  its best  efforts  to avoid  such  tax  liability  (including
exploring the opportunity for a tax-free exchange under Section 1031 of the Code
for the transaction that gave rise to the obligation under such agreement).

      On  December  12,  1997,  we  purchased  and  amended  the  mortgage  note
encumbering the property known as Continental Towers located in Rolling Meadows,
Illinois (we  currently  receive all of the economic  benefits from the property
and have consolidated the operations). As part of this transaction, we agreed to
indemnify the two limited partners (the "Principals") of the limited partnership
which owns the property  for,  among other  things,  the federal and  applicable
state  income tax  liabilities  that  result  from the income or gain which they
recognize upon refinancing,  sale,  foreclosure or other action taken by us with
respect to the property or the mortgage note (a "Tax Event"). Under the terms of
the agreement, if an Indemnification Event, as defined,  results in a Tax Event,
we are required to immediately pay to the Principals the amount of any resulting
federal or state tax, including any interest and penalties,  as well as a "gross
up" amount that effectively  results in the Principals  receiving this indemnity
payment on a net, after tax basis.  However, if a legal opinion is obtained from
independent  tax counsel that the  Indemnification  Event "should" not trigger a
Tax Event  resulting in taxable income or gain to the  Principals,  no indemnity
payment is immediately  required. If the legal opinion obtained from independent
tax counsel states that the Principals  have a "reasonable  basis" for reporting
the  Indemnification  Event  without  including  any taxable  income or gain, no
indemnity payment is immediately required. In either case, the indemnity payment
would be required if a Tax Event  occurred.  However,  if a  "reasonable  basis"
opinion is received regarding an Indemnification  Event and if the equity market
capitalization  of the  Company  is less than $400  million  (but more than $200
million),  we are required to deposit 50% of the total indemnity  amount into an
escrow in cash or in the form of a  letter-of-credit.  If (i) an Indemnification
Event occurs and our equity market  capitalization  falls below $200 million for
more than 30 consecutive

<PAGE>


      14.  Commitments and Contingencies (continued)

trading  days,  or (ii)  immediately  after we sell or otherwise  dispose of the
lesser of $100 million or 33% of our gross assets within a  twelve-month  period
("a Trigger  Disposition"),  we desire to cause an Indemnification Event and our
equity market capitalization is less than $200 million, then we will be required
to deposit 100% of the total indemnity amount into the escrow.  In addition,  in
the case of a Trigger  Disposition  and our equity market  capitalization  falls
below $200 million,  the Principals may acquire the general partnership interest
in the limited  partnership which owns the property for a nominal amount and may
be able to prevent an  Indemnification  Event from occurring.  The tax indemnity
obligation  expires  January 5, 2013.  We have not  recorded any  liability  and
estimate its maximum possible exposure at December 31, 2003 is $57.1 million.

      We have a 50% common  interest  in an  unconsolidated  real  estate  joint
venture  which owns an office tower  located at 77 West Wacker  Drive,  Chicago,
Illinois.  On November 10, 1999, the joint venture entered into an interest rate
collar agreement for the period from October 1, 2002 through  September 30, 2004
with a financial  institution for an original notional amount of $157.5 million.
The interest  rate ceiling under the agreement is based on a LIBOR index rate of
7.75% and the interest floor is based on a LIBOR index rate of 6.10%. The $157.5
million collar agreement requires the joint venture to make cash escrow deposits
to the extent that the instrument's  valuation decreases more than $5.0 million.
On March  12,  2001,  we were  replaced  by its  joint  venture  partner  as the
guarantor to the counterparties related to these collar agreements. If our joint
venture partner, as guarantor, were required to pay either of the counterparties
under the terms of the interest  rate collar  agreements,  we would be liable to
reimburse the joint venture  partner its fifty percent share of any amount paid.
On January 6, 2003,  the $157.5  million  collar  agreement  was  assigned  to a
different financial institution for a fee of $0.1 million and modified such that
the joint  venture  would need to make cash escrow  deposits  only to the extent
that the instrument's  valuation decreases more than $20.0 million. As a result,
funds previously escrowed were returned to the joint venture.

      As  discussed  in  Note  6  -  Leases,  we  have  assumed  tenants'  lease
obligations  for  certain  tenants  as an  inducement  to  lease  space  in  our
properties.  In addition, as an inducement to lease space in Bank One Center, we
agreed  to  reimburse   Citadel  for  the  Citadel   Reimbursement   Obligation.
Liabilities  for leases assumed  includes $8.7 million,  representing  our gross
obligation,   net  of  executed  and  anticipated   subleases  related  to  this
obligation.

      As also  discussed  in Note 6 - Leases,  as a condition of the sale of ten
properties in 1999, we agreed to assume responsibility for re-leasing two of the
properties  for a period of five years after the  expiration in 2000 and 2001 of
the then existing tenant leases. Our remaining nominal gross lease obligation at
December 31, 2003 is approximately $7.9 million.  At December 31, 2003 and 2002,
we  have a net  liability  of  approximately  $3.0  million  and  $3.5  million,
respectively,   in  liabilities  for  leases  assumed,  representing  our  gross
obligation related to this obligation, net of executed and anticipated subleases
related to this obligation.

      Under the terms of a $25.2 million letter of credit facility that provides
support for certain industrial revenue bonds, we are required to maintain,  on a
quarterly  basis, a cash collateral  escrow in an amount equal to the difference
between  $25.2  million  and the  Future  Lease  Value  as  defined  in the loan
documents,  calculated  in  accordance  with the  terms of the  letter of credit
facility.  On August  4,  2003,  we  amended  the terms of the  letter of credit
facility  with respect to the  calculation  of the Future Lease Value and agreed
that the amount of the cash  collateral  escrow would be equal to the greater of
(i) the  difference  between $25.2  million and the Future Lease Value,  or (ii)
$4.0  million.  As of December 31, 2003 and 2002, we had a total of $4.0 million
and $1.8 million, respectively, on deposit in the cash collateral escrow.



<PAGE>


14.  Commitments and Contingencies (continued)

     Our East Chicago  Enterprise Center,  Chicago Enterprise Center,  Arlington
Heights  Enterprise Center and Hammond  Enterprise Center  properties,  serve as
collateral for our bonds payable.  The Future Lease Value  calculation under the
letter of credit facility is defined as the annualized Net Operating  Income, as
defined in the loan  documents,  as of the  determination  date,  reduced by the
greater of (i) 70% of the annualized base rent as of the determination  date for
each lease  scheduled to terminate  any time on or before  January 2, 2007;  or,
(ii) 70% of the annualized base rent as of the determination date for each lease
scheduled to terminate within 36 months from the determination  date; divided by
the Amortization  Constant, as defined.  Consequently,  if leases expire and are
not  renewed  or in the event that other  tenants  in these  properties  were to
default under their leases or have their leases  restructured  in a way which is
not advantageous to us, we may have to fund additional  escrow  deposits,  which
amounts may be material.

      Dividends  on our Series B Shares  are  cumulative  and  payable at a 9.0%
annual rate each quarter that the Series B Shares remain outstanding. The Series
B Shares rank senior to the common  shares as to the  payment of  dividends.  No
dividend has been declared or paid for the fourth quarter of 2002 or for 2003 on
the  Series B Shares.  The total  arrearage  in payment  of  dividends  is $11.3
million. The Series B Shares may be redeemed at our option at a redemption price
of $25.00 per share plus accrued and unpaid  dividends.  The redemption price is
payable  solely out of the  proceeds  from our sale of other  capital  shares of
beneficial interest.

      The Internal  Revenue Service (the "Service") has conducted an examination
of the federal  income tax returns filed by certain of our  affiliated  entities
for  the  taxable  years  ended  December  31,  2000  and  1999.  The  Service's
examination   included  the  review  of  certain   transactions   involving  our
acquisition  of our IBM Plaza  property,  which  was  reported  on the  examined
returns  as  acquired  in  connection  with a  non-taxable,  like-kind  exchange
involving  an interest in the 77 West Wacker Drive  office  property  located in
Chicago,  Illinois  (the "1999  Transaction").  On March 13,  2003,  the Service
issued preliminary  reports proposing that the 1999 Transaction  constituted the
taxable sale of an interest in 77 West Wacker  Drive.  According to the Service,
the nature of the 1999 Transaction  required  recognition of a long-term capital
gain in the approximate amount of $94.6 million,  of which  approximately  $12.1
million  would be allocated to us, and the remainder of which would be allocated
to the other parties who were partners in our Operating  Partnership  during the
taxable year ended  December 31, 1999.  The Service's  preliminary  reports also
proposed  the  imposition  of an  accuracy-related  penalty  equal to 20% of the
additional tax due in this matter.

     The 1999  Transaction  was  structured  in a  conventional  manner with the
advice of our legal and accounting tax advisors.  We believe,  based upon advice
from our  outside  counsel  and tax  advisors,  that the  Service's  position is
without merit and is based on a  misinterpretation  of the law. We disagree with
the proposed  adjustments  set forth in the  Service's  preliminary  reports and
intend  to  seek  administrative   relief  by  appealing  the  findings  of  the
preliminary  reports (or any final examination reports issued in this matter) to
the  Appeals  Office  of the  Service.  We intend to  vigorously  challenge  any
proposed  adjustments that cannot be resolved.  At this time, we are not able to
determine or to predict with any degree of certainty  whether the issues will be
agreed and  resolved.  It is  possible  that the issues will be the subject of a
final administrative notice asserting liability, which would likely result in us
filing a petition or complaint for relief in either the United States Tax Court,
the United States Court of Federal Claims, or a United States District Court. We
have not recorded a liability related to this matter.

      On June 19,  2003,  the Service  issued a "60-day  letter" to us regarding
this issue for the year ended December 31, 1999 which stated that we had 60 days
to file a protest of the  Service's  position.  We then issued  protest  letters
protesting the proposed  adjustments  and  requesting a conference  with the IRS
Chicago  Office of Appeals.  On July 25, 2003,  the Service  issued  preliminary
reports


<PAGE>


14.  Commitments and Contingencies (continued)

proposing  adjustments  for the years ended December 31, 2000 and 2001 resulting
from the 1999  Transaction.  On January  5, 2004,  the  Service  issued  "60-day
letters" to us regarding the proposed  adjustments  for the years ended December
31,  2000 and 2001,  which  stated  that we had 60 days to file a protest of the
Service's  position.  We plan to issue protest  letters  protesting the proposed
adjustments.



<PAGE>

15.  Property Acquisitions, Placed in Service and Dispositions

      The following properties were acquired, placed in service or sold in 2003,
2002 and 2001.  The results of their  operations are included or excluded in our
consolidated statements of operations from their respective transaction dates.

<TABLE>
<CAPTION>

                                                                        Acquisition           Month
                                                                      Cost/Construction      Acquired/
     Property                                    Location              Costs/Sales Price     Sold
-----------------------------------------------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                                              <C>                  <C>                   <C>

2003 Acquisitions
Land:
   Aurora Land (1)                               Aurora, IL               $    2,400            June
                                                                       ==================
2003 Sales
Land:
   Aurora Land (2)                               Aurora, IL               $    2,800         December
                                                                       ==================
Office:
   National City Center (3)                      Cleveland, OH            $   80,000           June
                                                                       ==================
   70% of Common Interest:
     Bank One Center (4)                         Chicago, IL              $  105,000           October
                                                                       ==================
2002 Acquisitions
Land:
   Aurora Land (5)                               Aurora, IL               $    2,700         February
   Batavia Land (6)                              Batavia, IL                   2,400          March
   Carol Stream Land (6)                         Carol Stream, IL                800          March
                                                                       ------------------
                                                                          $    5,900
                                                                       ==================
2002 Sales
Land:
   Aurora Land (5)                               Aurora, IL               $    7,000         February
   Aurora Land (7)                               Aurora, IL                    3,400         February
                                                                       ------------------
                                                                          $   10,400
                                                                       ==================
Office:
   2000 York Road
     (Oak Brook Business Center) (8)             Oak Brook, IL
   2100 Swift Drive (8)                          Oak Brook, IL
   6400 Shafer Court (8)                         Rosemont, IL
   1699 E. Woodfield Road
     (Citibank Plaza) (8)                        Schaumburg, IL
   3800 and 3850 North Wilke Road and 3930
     Ventura Drive (Commerce Point) (8)          Arlington Heights, IL
   2205-2255 Enterprise Drive (Enterprise
     Office Center) (8)                          Westchester, IL
   1900 Algonquin Road/2000-2060
     Algonquin Road
       (Salt Creek Office Center/Sun Annex) (8)  Schaumburg, IL
   1700 East Golf Road
       (Two Century Centre) (8) Schaumburg, IL
        850, 860, 870 and 1000 Technology Way
       (Pine  Meadows Corporate Center) (8)      Libertyville, IL

                                                                       ------------------
                                                                          $  131,156            June
   Centre Square I (9)                           Knoxville, TN                 5,100          November
                                                                       ------------------
                                                                          $  136,256
                                                                       ==================
Industrial:
   4430 Railroad Avenue (10)                     East Chicago, IN         $      600          December
                                                                       ==================
Joint Venture:
   300 West Monroe Street and 25 & 27
     South Wacker Drive (11)                     Chicago, IL              $   22,900          January
   Pine Meadows Corporate Center
      (Building E) (12)                          Libertyville, IL                  -           August
                                                                       ------------------
                                                                          $   22,900
                                                                       ==================
2002 Developments Placed In Service
Office:
   Bank One Center (13)                          Chicago, IL              $  325,207          November

</TABLE>

<PAGE>

15.  Property Acquisitions, Placed in Service and Dispositions (continued)

<TABLE>
<CAPTION>



                                                                          Acquisition         Month
                                                                      Cost/Construction      Acquired/
                    Property                       Location           Costs/Sales Price       Sold
-----------------------------------------------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                                                <C>                <C>                    <C>

2001 Acquisitions
Land:
   Aurora Land                                    Aurora, IL               $    2,600         March
                                                                       ==================

Industrial:
   200 South Mitchell Court                       Addison, IL              $    6,100         August
                                                                       ==================

2001 Sales
Land:
   Jorie Plaza (17)                               Oak Brook, IL            $    1,600         March
                                                                       ==================

Office:
   2675 N. Mayfair (14)                           Wauwatosa, WI            $    8,800         April
                                                                       ==================

Industrial:
   6700 Touhy (15)                                Niles, IL                $    5,700         March
   43-47 Hintz Road (16)                          Wheeling, IL                 11,700          May
                                                                       ------------------
                                                                            $  17,400
                                                                       ==================

</TABLE>



(1)  We  purchased  this land  pursuant to a purchase  contract  entered into in
     February 1998 by our Operating Partnership.  The 2003 purchase fulfills our
     obligation under this contract.

(2)  We sold this land  comprised of 15.0 acres for $2.8 million  resulting in a
     gain of $0.2 million.

(3)  We sold this  property to an affiliate of our major tenant at the property,
     National City Corporation. The gross contract price for the sale, including
     a lease  termination  fee from an  affiliate  of the  purchaser,  was $80.0
     million. During the fourth quarter of 2002, we recorded an asset impairment
     of  $22.1  million   related  to  this  property   (which  is  included  in
     discontinued operations).  After reflecting this impairment, our subsequent
     sale of this  property  resulted  in a gain of $1.2  million  and has  been
     recorded in discontinued operations.

(4)  On October 8, 2003,  we closed on a  transaction  admitting a new 70% joint
     venture  partner to our former  subsidiary  (the  "Venture") that owns this
     office building (the "Property"). Commencing with the transaction, we began
     accounting for our investment in this joint venture under the equity method
     of  accounting.  The new joint venture  partner is an affiliate of Estein &
     Associates USA, Ltd. of Orlando, Florida (together with its affiliates, the
     "JV Partner").

     Our affiliate  manages and leases the Property pursuant to a management and
     leasing  agreement that was entered into at the closing of the transaction.
     Our  affiliate  earns  management  fees in an amount equal to 2% of monthly
     Gross  Revenues,  as  defined,  until the  Property  achieves  a 90% leased
     threshold  at which time the  management  fees earned will  increase to and
     remain at 2.5%.  Our JV Partner has the right to replace our  affiliate  as
     the leasing  agent upon thirty days  written  notice if the office space of
     the property is not 80% leased, as defined, by October 8, 2005.



<PAGE>


15.  Property Acquisitions, Placed in Service and Dispositions (continued)

     At the closing,  the JV Partner made a cash  contribution to the Venture of
     $106.4  million  (which  includes  $1.4 million  retained by the Venture as
     working  capital) in exchange  for 70% of the  membership  interests in the
     Venture. Upon closing, the Venture, in turn,  distributed $105.0 million to
     us.

     Under  the  terms of the  contribution  agreement,  an  additional  capital
     contribution  in the amount of $9.8 million is to be made by the JV Partner
     and  distributed to us when the Venture leases an additional  40,000 square
     feet of space in the Property over and above the square  footage  leased in
     the  Property  as of August 4, 2003 (the  "Leasing  Earnout").  In December
     2003,  the Venture  entered into a lease with a law firm for 55,074  square
     feet of office space in the Property. We and the JV Partner mutually agreed
     that for various reasons,  including that the terms of the transaction were
     affected  by the fact that the leased  space is  subject to a tenant's  ten
     year  expansion  option,  the lease would not be applied  toward the 40,000
     square feet of  additional  space  required to be leased in order for us to
     receive the Leasing Earnout.

     After closing  prorations and funding certain  required closing escrows and
     costs,  we received  approximately  $323.0 million in net proceeds from the
     transaction,  of  which  $293.2  million  was  used to  retire  outstanding
     construction and mezzanine  indebtedness  secured by the property of $169.8
     million and $80.7 million, respectively, and $42.7 million of which we used
     to repay in full our outstanding  indebtedness to SCPG,  including  accrued
     interest, and the remainder of which we have retained for working capital.

     The JV Partner is the  administrative  member of the  Venture,  and we have
     approval rights over major decisions.  At closing,  we received a credit to
     our invested  capital account in the Venture in the amount of $45.6 million
     (which  includes a $0.6  million cash  contribution  we made which has been
     retained by the Venture as working capital),  representing 30% of the total
     invested  capital  of the  Venture.  We will  also  receive a credit to our
     invested capital account,  upon the satisfaction of the Leasing Earnout, of
     an additional $4.2 million.  We recorded our equity  investment at the date
     of the transaction at our carryover basis of $43.4 million.

     The JV Partner is entitled to receive out of available  annual cash flow, a
     10%  non-cumulative,   non-compounded  preferred  return  on  its  invested
     capital,  after which we will receive a 10% non-cumulative,  non-compounded
     return on our capital.  Any remaining  annual cash flow will be paid 50% to
     us and 50% to the JV  Partner.  The JV  Partner  also  receives  a  monthly
     administrative fee of $50,000.

     Our equity in the  earnings  (loss) from this joint  venture is  determined
     based upon the  distribution  of  available  cash flow.  To the extent that
     joint  venture  earnings  exceed the return to our partner in any year,  we
     will record 100% of the excess up to 10% return on our capital. Thereafter,
     earnings will be allocated 50% to us and 50% to our partner.  To the extent
     earnings of the joint venture are less than the amount distributable to our
     JV  Partner,  we will  record a  corresponding  loss to the  extent  of any
     difference.

     In the  event of any sale or future  refinancing  of the  Property,  our JV
     Partner will receive a 10% non-cumulative,  non-compounded preferred return
     on its  invested  capital  for the  year in which  the sale or  refinancing
     occurs and the return of its invested capital prior to the payment to us of
     our 10% return for that year and our  capital.  Any  remaining  net sale or
     refinancing  proceeds will be paid 50% to us and 50% to our JV Partner. The
     payment  of our  management  fees  is to be  deferred  to the  extent  that
     available  cash flow is  insufficient  to pay our JV Partner its annual 10%
     preferred return at any time during a subordination  period between October
     8, 2003 and  December  31,  2004.  Any  deferred  management  fees from the
     subordination  period  remaining after December 31, 2004 will be payable to
     us solely from available  sale or refinancing  proceeds prior to the return
     of invested capital to either party.

     We have an option to purchase the JV  Partner's  interest in the Venture on
     the  date  that is 90 days  prior to the  maturity  of the  first  mortgage
     secured by the property. The purchase price for the JV Partner's membership
     interest  will be equal to the greater of (a) the value of the JV Partner's
     interest in the Venture determined based upon a deemed sale of the Property
     at a value (the "Deemed Property Value") calculated using the pro forma net
     operating  income of the Property  for a twelve  month period  divided by a
     capitalization  rate of 8.5%,  less the actual  amount of all unpaid tenant
     improvement  allowances  and  rental  allowances  for  any  leases  of  the
     Property,  or (b) an amount  that must be  received  by the JV  Partner  to
     return  to the JV  Partner  its  invested  capital,  plus a return of 12.5%
     compounded annually, taking into account all prior distributions.

     In the event we do not  exercise our  purchase  option,  the JV Partner may
     elect to purchase  our  interest in the Venture on the date that is 60 days
     prior to the maturity of the first  mortgage.  The  purchase  price for our
     interest  shall be equal to the value of our interest in the Venture  based
     upon a deemed sale of the Property at the Deemed Property Value.

<PAGE>


(5)  We sold this land  comprised of 52.5 acres for $7.0 million  resulting in a
     loss of $0.2  million.  Approximately  33  acres  of the  52.5  acres  were
     acquired by us concurrently for a purchase price of $2.7 million.

(6)  These parcels were acquired by our Operating Partnership from affiliates of
     Mr. Nardi in exchange  for 344,331  limited  partner  common  units.  These
     acquisitions  completed our obligation  under a contract  entered into with
     affiliates of Mr. Nardi as part of our initial public offering.

(7)  Our sale of this land  resulted  in a loss of $0.1  million.  Our  Services
     Company agreed to act as the developer in connection with the  construction
     of  a  350,000  square  foot  industrial  build-to-suit  building  on  this
     property.  In connection  with this sale,  our Services  Company  agreed to
     acquire a 222,840  square  foot  industrial  building  located  in  Aurora,
     Illinois for $10.4 million.  Our Services Company  subsequently  contracted
     with a third  party to sell this  property  for a  purchase  price of $10.4
     million. We purchased and sold the property in October 2002. As part of the
     sale,  the Services  Company was required to master  lease  certain  vacant
     space in the building for a total annual rent of approximately $0.3 million
     for up to two years or until the space was  leased to  another  tenant.  In
     October 2002,  our obligation to master lease this space was mitigated upon
     the leasing of the space to another tenant.  During the year ended December
     31, 2002, our Services Company  recognized $1.7 million of net income after
     applicable income taxes, as the construction manager in connection with the
     construction of the industrial build-to-suit building.

(8)  On June 26, 2002, we completed the sale of nine suburban office  properties
     to an affiliate of Blackstone  Real Estate  Advisors,  L.P. for an adjusted
     sales price of $131.2  million,  excluding the assumption of $113.1 million
     of debt related to the properties (the  "Blackstone  Sale").  We recorded a
     $33.6 million  provision for asset impairment  during 2002 related to these
     properties based upon our revised holding period and subsequently  recorded
     an additional  $3.7 million loss on sale in 2002 relating  primarily to the
     write-off of certain deferred assets associated with these properties.

(9)  We sold this  office  building  located  at 620 Market  Street,  Knoxville,
     Tennessee  for a gross sales price of $5.1  million and  recorded a gain of
     $0.1 million in discontinued  operations.  In connection with this sale, we
     redeemed  approximately  $3.9  million  of the $9.0  million  of bonds that
     encumbered  the  property.  The  purchaser  assumed  the  remainder  of the
     outstanding bonds.

     The facility that provided credit  enhancement for the bonds was terminated
     in connection with this sale.

(10) Our  sale of this  property  resulted  in a gain  of  $0.4  million  and is
     reflected in discontinued  operations.  Net proceeds from this sale of $0.6
     million were  deposited  into escrow with the lender that  provides  credit
     enhancement on the bonds relating to this and other properties.

(11) On January 16, 2002, we assigned our interest in a joint  venture  relating
     to certain  property  located at the  northeast  corner of Wacker Drive and
     Monroe Street in Chicago,  Illinois, to our joint venture partner for $22.9
     million and used a portion of the  proceeds  to repay the $16.5  million we
     borrowed from the joint venture partner in 2001. We also received an option
     which expired,  unexercised, on June 28, 2002 to repurchase our interest in
     the joint venture for $22.9 million plus a 10% compounded return.

(12) On August 23,  2002,  we  transferred  our 10%  ownership  interest in Pine
     Meadow,  LLC to  our  joint  venture  partner.  In  consideration  of  this
     transfer,  we were  released  of our  obligations  under the joint  venture
     agreement  and the  documents  that  evidenced  and secured a $9.3  million
     construction  mortgage loan  encumbering  the property.  We recorded a $0.5
     million  provision  for  asset  impairment  during  2002  related  to  this
     ownership interest.

<PAGE>


(13) On August 1,  2002,  we and the City of  Chicago  ("City")  closed  the tax
     increment  financing  assistance for Bank One Center  pursuant to which the
     owner of the property  may be entitled to receive from the City,  depending
     on the  satisfaction  of certain  requirements,  up to $10.0 million in tax
     increment assistance.  As disclosed above, we have a 30% common interest in
     a joint venture  which owns this  property.  The  obligation of the City is
     evidenced by a  promissory  note in the maximum  principal  amount of $10.0
     million  (which is subject to  reduction  if certain  requirements  are not
     satisfied).  Interest  on the note  accrues  at the rate of 9.5% per  year.
     Payments  of the tax  increment  assistance  are to be made each  January 1
     after  the  project  is  completed,  and  are to be  made  from  50% of the
     incremental  real  estate  taxes  attributable  to  Bank  One  Center.  The
     promissory  note  matures on  December  31,  2008,  and,  to the extent any
     portion of the note remains  unpaid as of the maturity date, the Venture is
     required to forego such amounts.  On November 1, 2002, upon satisfaction of
     the majority of the City's  significant  requirements,  a  promissory  note
     receivable in the amount of $9.4 million and related  accrued  interest was
     recorded for financial reporting  purposes.  This  correspondingly  reduced
     development costs related to Bank One Center.

(14) Our sale of this  property  resulted in a gain of $0.3  million,  with $8.0
     million of the proceeds from this  transaction  deposited into an escrow as
     additional collateral for the letters of credit that enhance the industrial
     revenue bonds.

(15) Our sale of this property resulted in a gain of $0.5 million.  The proceeds
     of this sale were deposited into a tax deferred  exchange trust and used to
     acquire 200 South Mitchell Court.

(16) Our sale of this property resulted in a gain of $1.6 million.  The proceeds
     of this sale were initially  deposited into a tax deferred  exchange trust.
     In  November,  2001,  we  elected  not to use these  proceeds  to acquire a
     replacement  property but rather  elected to use these proceeds for general
     corporate  purposes.  A portion of the gain on this property was covered by
     tax indemnity agreements with two partners in the Operating Partnership. As
     a result, we were liable to the partners for approximately  $1.2 million of
     tax indemnity payments under these agreements.

(17) The sale of this parcel of land  adjacent  to one of our office  properties
     resulted in a gain of $0.4 million.

      On December  16,  1997,  we acquired for  approximately  $51.2  million in
common units,  the first mortgage note  encumbering the office property known as
180 North LaSalle  Street.  Included in the purchase of the first mortgage was a
non-refundable  option to acquire the existing $85.0 million second  mortgage on
the property for $4.4 million in common units of the Operating  Partnership.  On
August 1, 2000,  we  acquired  the  second  mortgage,  which had an  outstanding
principal  balance  of $90.6  million,  under the terms of the  option  for $1.3
million of cash.  On that date,  we also  redeemed and canceled  $0.7 million of
common units (45,287 common units), which were previously issued pursuant to the
option.  We consolidated  the operations of the property in 2003, 2002 and 2001,
as  economically  we had all of the risks and rewards of  ownership  through our
interest  in the  second  mortgage.  We had an option  to  purchase  the  equity
ownership  of the  property  during the period from January 15, 2004 to February
15,  2004 for a price  equal to the  greater  of the  fair  market  value of the
interest or $2.0  million.  On January  15,  2004 we  acquired  fee title to the
property in exchange for a payment of $0.1 million.

<PAGE>

16.  Investments in Unconsolidated Joint Ventures

      We have investments in three joint ventures which we account for using the
equity  method.  The following is a summary of the  investments  and the amounts
reflected in our consolidated financial statements related to these investments.

       77 West Wacker Drive.  We own a 50% common interest in 77 LLC, which owns
a 944,556 square foot office building located in Chicago, Illinois. Our interest
at December  31, 2003 and  December  31, 2002 was a deficit  investment  of $5.2
million and $4.2  million  (included  in deficit  investment  in  unconsolidated
entity), respectively.

      The following table summarizes our share of various items:

                                                   Year ended December 31,
                                              2003          2002          2001
                                         ---------------------------------------
                                                    (dollars in thousands)

Operations (included in other
    income) (1)(2).......................  $   317    $    1,005     $   1,484
Contributions made.......................        -         2,000             -
Distributions received...................    4,415           900         1,535
Unrealized gains (losses) (included in
  other comprehensive income)............    2,511        (1,332)       (5,002)
Losses reclassified into earnings from
  comprehensive income...................      643           264           322


     (1) Includes lease  termination  fee income earned in April 2003, our share
         of which was $1.6 million and  excludes  50% of expense  related to the
         management fee we earned on the property of $545.

     (2) Includes  $0.7  million of income in each of the years  2003,  2002 and
         2001,  related to  accretion  of our  investment  account  from zero at
         formation  of  this  joint  venture  to  $22.0  million  at  end of the
         estimated  useful life of the  property.  The $22.0 million is based on
         our joint venture partners  contribution of cash at formation for their
         50% common interest in the joint venture.

      On October 24, 2003,  the joint  venture  refinanced  its existing  $152.5
million  first  mortgage loan payable on the property with the proceeds of a new
$166.0  million first mortgage loan. The new loan bears interest at a fixed rate
of 5.70% and matures on November 1, 2013. The loan requires  monthly payments of
interest  only for the first two  years of the loan  term and  requires  monthly
payments of principal and interest  thereafter  based on a 30 year  amortization
schedule.

       The new loan  required  $0.3  million at closing and an  additional  $0.2
million per year to be deposited into an escrow for  maintenance  and repairs at
the  property.  In  addition,  the loan created a rollover  reserve  account for
future leasing costs which the joint venture  deposited $8.65 million at closing
and is  required to deposit an  additional  $0.1  million per month  thereafter,
provided,  however,  in no event  will the  amount in the  rollover  reserve  be
required to exceed  $19.7  million.  In the event  certain  tenants do not renew
their leases by certain dates or the relevant space is not released,  additional
escrow  deposits will be required.  After the joint venture paid its outstanding
preferred  return  to our  partner,  we and our  partner  each  received  a cash
distribution of $2.4 million from the joint venture out of loan proceeds.

      As  discussed  in  Note  14  -  Commitments  and  Contingencies  to  these
Consolidated Financial Statements,  on November 10, 1999, the joint venture is a
party to an interest rate collar  agreement with a financial  institution for an
original  notional amount of $157.5 million which expires September 30, 2004. If
our joint  venture  partner,  as  guarantor,  were required to pay either of the
counterparties  under the terms of the interest rate collar agreement,  we would
be liable to reimburse our joint venture partner for our 50% share of any amount
paid. As a result of the debt  refinancing  discussed  above,  the interest rate
collar  agreement was  de-designated  as a hedging  instrument  and is no longer
accounted  for by the joint  venture as a hedge of the  entities  interest  rate
risk.

<PAGE>

      Bank One Center.  On March 19, 2003,  we also  purchased  all of our prior
joint  venture  partner's  ownership  interest  in the entity that owns Bank One
Center which made us the sole owner of the  property at that time.  We paid $9.2
million for the  interest,  of which $0.5 million was  deposited  into an escrow
account  that  was  to be  released  to  the  joint  venture  partner  upon  the
satisfaction  of certain  post-closing  obligations of the joint venture partner
(and in all events on the first  anniversary  of the  closing  date).  The joint
venture partner had continued to provide certain  development  services  through
November 3, 2003 for a monthly fee. As of December  31,  2003,  the $0.5 million
escrow has been released to the joint venture  partner.  Simultaneous  with this
transaction,  the joint venture partner repaid us in full a loan previously made
by us to them of $1.0 million, plus accrued interest of $0.2 million.

      On October 8, 2003, we closed on a  transaction  admitting a new 70% joint
venture partner to our former  subsidiary,  Dearborn Center,  LLC, that owns the
Bank One Center a 1,497,472  square foot  office  building  located at 131 South
Dearborn  Street,  Chicago,  Illinois.  At the closing,  our partner made a cash
contribution  to the venture of $106.4  million  (which  includes  $1.4  million
retained  by  the  venture  as  working  capital)  in  exchange  for  70% of the
membership  interests  in the  venture.  We retained a 30%  subordinated  common
interest in the joint venture.  Upon closing, the venture, in turn,  distributed
$105.0  million  to us.  Under  the  terms  of the  contribution  agreement,  an
additional  capital  contribution in the amount of $9.8 million is to be made by
our partner and  distributed  to us when the joint venture  leases an additional
40,000  square feet of space in the property  over and above the square  footage
leased in the property as of August 4, 2003.

     Our  interest  in the joint  venture  at  December  31,  2003 was an equity
investment of $41.6 million (included in investment in unconsolidated entities).

      The following  table  summarizes our share of various items for the period
October 8, 2003  (admittance of our joint venture  partner) through December 31,
2003 (dollars in thousands):



Operations (included in other
    income) (1) (2)......................$      (2,571)
Contributions made (3)...................          600


(1)   During  the  period,  distributions  to our  partner  exceeded  the  joint
      venture's net income.  As a result,  income equal to the  distribution was
      allocated  to our  partner  and we  recorded  a loss in the  amount of the
      difference  between this allocation and the actual net income of the joint
      venture.

(2)   Excludes  the  expense  related  to the  management  fee we earned on this
      property.

(3)   Per the terms of the joint  venture  agreement,  we and our  partner  made
      working capital contributions at closing.

      Simultaneous with the admittance of our joint venture partner to the joint
venture,  the joint venture closed on a $270.0  million  mortgage loan. The loan
bears  interest at a fixed rate of 5.47% per year,  except that $22.5 million of
the loan  commitment,  related to future  tenant  improvement  and other leasing
costs at the  property,  will bear  interest at a floating  rate of one or three
month LIBOR plus 1.2% when and as funded.  The joint venture will have the right
to fix the interest  rate on this future  funding in $5.0 million  increments as
funded,  at an interest  rate equal to the lender's  then-current  cost of funds
plus 1.2%.

      The  loan,  having a term of 7 years,  requires  quarterly  interest  only
payments  payable in  arrears  for the first two years of the loan term and then
payments of principal and interest pursuant to a 30-year amortization  schedule.
The venture paid the lender a 0.5%  arrangement fee on the entire loan amount at
closing, and is obligated to pay a $50,000 agency fee each year.

      The loan documents  provide that if the debt service coverage ratio of the
property (as defined in the loan documents and tested on June 30 and December 31
of each year)  falls  below 1.1, it is a default  under the loan.  In  addition,
beginning on June 30, 2006, in the event the debt service  coverage ratio of the
property falls below 1.30,  then the excess net cash flow from the property will
be deposited  into an interest  bearing escrow account with the lender until the
debt service coverage ratio test of 1.30 is met.

       Thistle Landing. We own a 23.1% common interest in Plumcor Thistle,  LLC,
which owns a 385,274 square foot office  building  located in Phoenix,  Arizona,
that opened in late 1999.  Our  interest  at  December  31, 2003 and 2002 was an
equity  investment  of $1.2 million and $1.4 million  (included in investment in
unconsolidated  entities),   respectively,   and  our  share  of  the  venture's
operations  were $0.0 million,  $(0.2) million and $(0.3) million in 2003,  2002
and 2001, respectively, which is included in other income (expense). We received
distributions  of $0.2 million,  $0.2 million and $2.2 million in 2003, 2002 and
2001, respectively.

      In  January  2003,  the  Financial   Accounting   Standards  Board  issued
Interpretation   No.  46,   "Consolidation   of  Variable   Interest   Entities"
("Interpretation  46"),  which  requires  the  consolidation  of an entity by an
enterprise  (i) if that  enterprise,  known as a  "primary  beneficiary",  has a
variable interest that will absorb a majority of the entity's expected losses if
they occur, receive a majority of the entity's expected residual returns if they
occur, or both and (ii) if the entity is a variable  interest entity, as defined
by Interpretation 46. We adopted Interpretation 46 in the fourth quarter of 2003
and it did not have a material effect on our financial statements.

<PAGE>

17.  Segment Reporting

      Operating  segments are defined as components of an enterprise about which
separate financial  information is available that is evaluated  regularly by the
chief  operating  decision  maker,  or decision making group, in deciding how to
allocate  resources and in assessing  performance.  Our chief operating decision
makers manage the operating  segments  separately because each operating segment
represents  a  strategic  business  unit  that has  different  issues  and serve
different markets. Our reportable operating segments include our office division
and industrial  division,  with  properties  principally  located in the Chicago
metropolitan  area. We evaluate our office and industrial  divisions  operations
principally  on  their  contribution  to  overall  net  income  and  funds  from
operations.


<PAGE>


17.  Segment Reporting (continued)

      The following  summarizes our historical segment operating results for the
years ended December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>


                                                                       Year Ended December 31, 2003
                                                       ----------------------------------------------------------

                                                            Office      Industrial     Corporate        Total
                                                       ----------------------------------------------------------
                                                                         (dollars in thousands)
<S>                                                      <C>          <C>         <C>              <C>

Revenue:
   Rental............................................    $   87,544    $   11,605  $          -     $   99,149
   Lease termination fees............................        31,767           356             -         32,123
   Tenant reimbursements.............................        53,180         5,072             -         58,252
   Other property revenues...........................         4,377           541             -          4,918
   Services Company revenue..........................             -             -         2,923          2,923
                                                       ----------------------------------------------------------
Total revenue........................................       176,868        17,574         2,923        197,365
Expenses:
   Property operations...............................        39,455         4,175             -         43,630
   Real estate taxes.................................        31,343         4,005           198         35,546
   Depreciation and amortization.....................        29,831         5,524         1,527         36,882
   General and administrative........................             -             -         9,681          9,681
   Services Company expenses.........................             -             -         2,582          2,582
   Provision for asset impairment....................        44,305             -         1,048         45,353
   Severance costs...................................             -             -           701            701
   Strategic alternative costs.......................             -             -           485            485
                                                       ----------------------------------------------------------
Total expenses.......................................       144,934        13,704        16,222        174,860
                                                       ----------------------------------------------------------

Operating income (loss)..............................        31,934         3,870       (13,299)        22,505
Other income (expense)...............................           237             1        (1,191)          (953)
Interest:
   Expense...........................................       (38,397)       (1,613)      (13,376)       (53,386)
   Amortization of deferred financing costs..........        (5,268)         (105)       (2,166)        (7,539)
                                                       ----------------------------------------------------------
Income (loss) from continuing operations
   before minority interests.........................       (11,494)        2,153       (30,032)       (39,373)
Minority interests...................................        (6,979)         (505)        8,538          1,054
                                                       ----------------------------------------------------------
Income (loss) from continuing operations.............       (18,473)        1,648       (21,494)       (38,319)
Discontinued operations, net of minority interests of
   $(1,113)..........................................         2,748             -             -          2,748
Loss on sales of real estate, net of minority
   interests of $84..................................          (281)            -          (365)          (646)
                                                       ----------------------------------------------------------
Net income (loss)....................................       (16,006)        1,648       (21,859)       (36,217)
Funds From Operations ("FFO") (unaudited)
  adjustments (1):
   Real estate depreciation and amortization.........        29,736         5,521           251         35,508
   Amortization of costs for leases assumed..........         1,912             -             -          1,912
   Joint venture adjustments.........................         7,324             -             -          7,324
   Adjustment for discontinued operations
     Real estate depreciation and amortization.......           555             -             -            555
     Gain on sale....................................        (1,226)            -             -         (1,226)
     Minority interests..............................         1,113             -             -          1,113
Minority interests...................................         6,979           505        (8,538)        (1,054)
                                                       ----------------------------------------------------------
FFO(1)...............................................        30,387         7,674       (30,146)         7,915
Income allocated to preferred shareholders...........             -             -        (9,000)        (9,000)
                                                       ----------------------------------------------------------
FFO available to common share/unit holders...........    $   30,387    $    7,674    $  (39,146)   $    (1,085)
                                                       ==========================================================

</TABLE>



<PAGE>



                                      F-57


17.  Segment Reporting (continued)


<TABLE>
<CAPTION>

                                                                       Year Ended December 31, 2002
                                                     ---------------------------------------------------------

                                                         Office      Industrial    Corporate       Total
                                                     ---------------------------------------------------------
                                                                        (dollars in thousands)
<S>                                                    <C>           <C>        <C>             <C>

Revenue:
   Rental..........................................     $  81,971     $  13,597    $        -    $   95,568
   Lease termination fees..........................         2,313             -             -         2,313
   Tenant reimbursements...........................        51,732         5,270             -        57,002
   Other property revenues.........................         4,622           425             -         5,047
   Services Company revenue........................             -             -         7,366         7,366
                                                     ---------------------------------------------------------
Total revenue......................................       140,638        19,292         7,366       167,296
Expenses:
   Property operations.............................        38,852         4,651             -        43,503
   Real estate taxes...............................        31,843         4,183             -        36,026
   Depreciation and amortization...................        23,390         5,512           617        29,519
   General and administrative......................             -             -         9,794         9,794
   Services Company expenses.......................             -             -         4,811         4,811
   Provision for asset impairment..................             -         1,749         6,203         7,952
   Severance costs.................................           483             -         2,042         2,525
   Strategic alternative costs.....................             -             -         1,561         1,561
Other expense......................................             -             -           189           189
                                                     ---------------------------------------------------------
Total expenses.....................................        94,568        16,095        25,217       135,880
                                                     ---------------------------------------------------------

Operating income (loss)............................        46,070         3,197       (17,851)       31,416
Other income.......................................           327             2         1,861         2,190
Interest:
   Expense.........................................       (31,230)       (1,726)       (4,021)      (36,977)
   Amortization of deferred financing costs........        (1,607)       (1,019)       (1,438)       (4,064)
                                                     ---------------------------------------------------------
Income (loss) from continuing operations
   before minority interests.......................        13,560           454       (21,449)       (7,435)
Minority interests.................................        (4,068)         (848)       13,811         8,895
                                                     ---------------------------------------------------------
Income (loss) from continuing operations...........         9,492          (394)       (7,638)        1,460
Discontinued operations, net of minority interests
   of $21,818......................................       (31,479)          341             -       (31,138)
Loss on sales of real estate, net of minority
   interests of $660...............................             -          (943)            -          (943)
                                                     ---------------------------------------------------------
Net loss...........................................       (21,987)         (996)       (7,638)      (30,621)
Funds From Operations ("FFO") (unaudited)
  adjustments (1):
   Real estate depreciation and amortization.......        23,297         5,505           322        29,124
   Amortization of costs for leases assumed........           836             -             -           836
   Joint venture adjustments.......................         3,386             -             -         3,386
   Adjustments for sales of operating properties,
     net of minority interests.....................             -           773             -           773
   Adjustment for discontinued operations                                                   -
     Real estate depreciation and amortization.....         5,327            33             -         5,360
     (Gain) loss on sale...........................         3,644          (433)            -         3,211
     Minority interests............................       (22,057)          239             -       (21,818)
Minority interests.................................         4,068           848       (13,811)       (8,895)
                                                     ---------------------------------------------------------
FFO(1)                                                     (3,486)        5,969       (21,127)      (18,684)
Income allocated to preferred shareholders.........             -             -       (11,280)      (11,280)
                                                     ---------------------------------------------------------
FFO available to common share/
   unit holders (2)................................    $   (3,486)  $     5,969    $  (32,407)   $  (29,924)
                                                     =========================================================

</TABLE>




<PAGE>



17.  Segment Reporting (continued)

<TABLE>
<CAPTION>


                                                                    Year Ended December 31, 2001
                                                     ---------------------------------------------------------

                                                         Office      Industrial    Corporate       Total
                                                     ---------------------------------------------------------
                                                                       (dollars in thousands)
<S>                                                   <C>           <C>         <C>              <C>

Revenue:
   Rental..........................................   $    85,678   $    11,250    $        -    $   96,928
   Lease termination fees..........................           416             -             -           416
   Tenant reimbursements...........................        50,796         5,240             -        56,036
   Other property revenues.........................         5,086           595             -         5,681
   Services Company revenue........................             -             -         7,219         7,219
                                                     ---------------------------------------------------------
Total revenue......................................       141,976        17,085         7,219       166,280
Expenses:
   Property operations.............................        39,621         4,686             -        44,307
   Real estate taxes...............................        29,747         3,227             -        32,974
   Depreciation and amortization...................        22,092         6,000           714        28,806
   General and administrative......................             -             -         9,085         9,085
   Services Company expenses.......................             -             -         6,898         6,898
   Provision for asset impairment..................         4,574           325        15,438        20,337
   Strategic alternative costs.....................             -             -         3,289         3,289
Other expense......................................             -             -         1,191         1,191
                                                     ---------------------------------------------------------
Total expenses.....................................        96,034        14,238        36,615       146,887
                                                     ---------------------------------------------------------
Operating income (loss)............................        45,942         2,847       (29,396)       19,393
Other income.......................................           794             2         3,791         4,587
Interest:
   Expense.........................................       (33,867)       (3,759)       (1,260)      (38,886)
   Amortization of deferred financing costs........        (1,563)         (446)       (1,629)       (3,638)
                                                     ---------------------------------------------------------
Income (loss) from continuing operations
   before minority interests.......................        11,306        (1,356)      (28,494)      (18,544)
Minority interests.................................        (4,364)         (471)       16,158        11,323
                                                     ---------------------------------------------------------
Income (loss) from continuing operations...........         6,942        (1,827)      (12,336)       (7,221)
Discontinued operations, net of minority interests
   of $(1,962).....................................         2,791            79             -         2,870
Gain on sales of real estate, net of minority
   interests of $(118).............................           564          (390)            -           174
Cumulative effect of change in accounting principle,
   net of minority interests of $218...............             -             -          (321)         (321)
                                                     ---------------------------------------------------------
Net income (loss)..................................        10,297        (2,138)      (12,657)       (4,498)
Funds From Operations ("FFO") (unaudited)
   adjustments (1):
   Real estate depreciation and amortization.......        22,017         5,991           270        28,278
   Amortization of costs for leases assumed........           767             -             -           767
   Joint venture adjustments.......................         3,351             -             -         3,351
   Adjustment for sale of operating property,
     net of minority interests.....................          (231)          298             -            67
   Adjustment for discontinued operations
     Real estate depreciation and amortization.....         8,970            41             -         9,011
     Minority interests............................         1,908            54             -         1,962
   Minority interests..............................         4,364           471       (16,158)      (11,323)
   Cumulative effect of change in accounting
     principle.....................................             -             -           321           321
                                                     ---------------------------------------------------------
FFO(1)                                                     51,443         4,717       (28,224)       27,936
Income allocated to preferred shareholders.........             -             -       (12,150)      (12,150)
                                                     ---------------------------------------------------------
FFO available to common share/unit holders.........    $   51,443   $     4,717    $  (40,374)   $   15,786
                                                     =========================================================

</TABLE>







<PAGE>



17.  Segment Reporting (continued)

(1)   Funds from  Operations  ("FFO") is a non-GAAP  financial  measure.  FFO is
      defined  as net income  (loss),  computed  in  accordance  with  generally
      accepted accounting  principles ("GAAP") plus real estate depreciation and
      amortization,   excluding  gains  (or  losses)  from  sales  of  operating
      properties,  and after  comparable  adjustments for  unconsolidated  joint
      ventures  and   discontinued   operations.   FFO  includes   results  from
      discontinued   operations,   including  the  related  revenues,   property
      operations  expense,  real  estate  taxes  expense,  provision  for  asset
      impairment  and  interest  expense.  We  compute  FFO in  accordance  with
      standards   established  by  the  National   Association  of  Real  Estate
      Investment Trusts ("NAREIT"),  which may not be comparable to FFO reported
      by other REITs that do not define the term in accordance  with the current
      NAREIT   definition  or  that  interpret  the  current  NAREIT  definition
      differently than us. We utilize FFO as a performance  measure.  We believe
      that  FFO  provides   useful   information  to  investors   regarding  our
      performance as FFO provides  investors with additional  means of comparing
      our  operating   performance   with  the  operating   performance  of  our
      competitors.  FFO is not  representative of cash flow from operations,  is
      not  indicative  that cash flows are adequate to fund all cash needs,  and
      should not be considered as an  alternative  to cash flows as a measure of
      liquidity.  We  believe  that  net  income  (loss)  is the  most  directly
      comparable GAAP financial measure to FFO.

(2)   FFO and FFO  available  to common  share/unit  holders  for the year ended
      December  31, 2002 has been  restated to include the  provision  for asset
      impairment  of  $56.6  million   (included  in  discontinued   operations)
      previously  excluded  from the  computation  of FFO and FFO  available  to
      common share/unit holders.

      The following  summarizes  our segment  assets as of December 31, 2003 and
2002,  and  expenditures  for real estate for the years ended December 31, 2003,
2002 and 2001.

                                                    December 31
                                               2003             2002
                                        ------------------------------------
                                              (dollars in thousands)
Segment assets:
   Office..............................     $  739,091        $1,244,481
   Industrial..........................        112,593           115,024
   Corporate/operating partnership.....         97,097            50,676
                                        ------------------------------------
Total consolidated assets..............     $  948,781        $1,410,181
                                        ====================================


<TABLE>
<CAPTION>


                                                                    Year ended December 31
                                                            2003             2002              2001
                                                     ------------------------------------------------------
                                                                    (dollars in thousands)
<S>                                                  <C>              <C>                  <C>

Expenditures for real estate:
   Office (1)....................................         $  74,698      $ 117,515       $   16,415
   Industrial....................................             1,449          5,714            7,462
   Corporate/operating partnership (includes
     property under development) (1).............               736            825          122,546
                                                     ------------------------------------------------------
Total expenditures for real estate...............         $  76,883      $ 124,054       $  146,423
                                                     ======================================================

</TABLE>


(1) 2002 office  expenditures  include $108,660 relating to the transfer of Bank
One Center from property held for or under  development  to an operating  office
property.


<PAGE>


18.  Subsequent Events

      On January 15,  2004,  we acquired  fee title  ownership  to the 180 North
LaSalle  office  building  for  a  $0.1  million  payment.   We  had  previously
consolidated the operations of this property in 2003, 2002 and 2001 since we had
the economic  risks and rewards of ownership  through our interest in the second
mortgage  encumbering this property.  We also held subordinate  interests in the
first mortgage  interest in the property.  Simultaneous  with our acquisition of
fee title ownership in 180 North LaSalle Street, we refinanced the property with
the proceeds of a first mortgage loan from Greenwich Capital Financial Products,
Inc.  in the  original  principal  amount  of $67.0  million.  The loan  accrues
interest at a fixed interest rate of 5.43% per year and matures in seven years.

      At closing, we funded leasing reserves of $4.9 million from proceeds and a
$2.7 million  leasing escrow was released at closing.  We also agreed to fund an
additional  $0.1  million  per  month for 36 months  into the  leasing  reserves
escrow.  The  amounts  in the  reserves  can be drawn by us to pay for  approved
leasing expenditures  relating to the property.  The loan documents also require
us to fund approximately $13,000 per month into a capital replacement reserve to
be used for approved capital expenditures at the property.  We used a portion of
the proceeds of the loan to repay the pre-existing  third-party debt encumbering
the property of $60.0 million,  and after the repayment of that debt, funding of
the reserve escrows and payment of closing costs, we received approximately $4.2
million of net proceeds.

         The loan  documents for the 180 North LaSalle  Street loan also provide
that in the event the "debt  service  coverage  ratio"  (as  defined in the loan
documents) for the property over a 12 month period, and tested quarterly,  falls
below 1.20:1, then all cash flow from the property will be deposited into a debt
reserve sub-account until the minimum debt service coverage ratio is met for two
consecutive quarters.



<PAGE>

<TABLE>
<CAPTION>


                            PRIME GROUP REALTY TRUST

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                             AS OF DECEMBER 31, 2003
                             (DOLLARS IN THOUSANDS)



                                                                               Cost                    Gross Amount Carried at
                                                                       Capitalized Subsequent            Close of Period
                               Encumbrances(1)        Initial Cost          to Acquisition                   12/31/03
                               ---------------- ---------------------- ----------------------- ----------------------------------
                                                                                                                           Date of
                                                                                                                          Acquisi-
                                                                                                                           tion (A)
                                                                      Building            Building          Accumulated   Contribu-
                                                     Buildings           and               and             Depreciation     tion(C)
                               December 31             and             Improve-           Improve-         at December 31 Placed in
                                  2003      Land   Improvements Land    ments   Land       ments     Total    2003(2)     Service(P)
                               --------------------------------------------------------  ------------------------------------------
<S>                           <C>         <C>      <C>        <C>   <C>      <C>       <C>        <C>      <C>          <C>

Office
280 Shuman Blvd (3) .......... $       -  $  1,261  $  5,056  $   -  $    263 $ 1,261   $  5,319   $ 6,580  $  1,039   Nov. 1997 (A)
4343 Commerce Court(4).......     12,329     5,370    21,394    192     3,101   5,562     24,495    30,057     6,514   Nov. 1997 (A)
1600-1700 167th St............     2,663     1,073     4,291    167       611   1,240      4,902     6,142     1,179   Nov. 1997 (A)
1301 E. Tower Road(5).........     3,920     1,005     4,020     60     1,725   1,065      5,745     6,810       859   Nov. 1997 (A)
Continental Towers ...........    67,649    21,780    87,324    136    16,602  21,916    103,926   125,842    20,407   Dec. 1997 (A)
208 South LaSalle Street (7)..    49,785    12,310    49,042     20     9,574  12,330     58,616    70,946    11,068   Mar. 1998 (A)
33 West Monroe Street (8).....    71,425     5,619    95,850      1   (41,321)  5,620     54,529    60,149    12,096   Jan. 1999 (A)
800-810 Jorie Blvd  (7).......    27,588     5,619    24,089      -     1,287   5,619     25,376    30,995     2,786   Aug. 1999 (A)
IBM Plaza (9).................   195,000    39,664   208,898      -     6,502  39,664    215,400   255,064    23,573   Dec. 1999 (A)
Brush Hill Office Court.......     7,980     2,617    10,469      -       481   2,617     10,950    13,567     1,269   Dec. 1999 (A)
Enterprise Center II..........     5,858     1,783     7,376      -     (421)   1,783      6,955     8,738       731   Jan. 2000 (A)
7100 Madison Avenue...........     3,806     1,360     4,000      -       125   1,360      4,125     5,485       369   Apr. 2000 (A)
180 North LaSalle Street......    60,000    29,409    73,276    107    12,766  29,516     86,042   115,558    12,186   Aug. 2000 (A)
                               -------------------------------------------------------------------------------------
Total Office.................. $ 508,003  $128,870 $ 595,085 $  683  $ 11,295 $129,553  $ 606,380 $735,933 $  94,076
                               -------------------------------------------------------------------------------------

</TABLE>

<PAGE>


<TABLE>
<CAPTION>





                            PRIME GROUP REALTY TRUST

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                             AS OF DECEMBER 31, 2003
                             (DOLLARS IN THOUSANDS)



                                                                               Cost                    Gross Amount Carried at
                                                                       Capitalized Subsequent            Close of Period
                               Encumbrances(1)        Initial Cost          to Acquisition                   12/31/03
                               ---------------- ---------------------- ----------------------- ----------------------------------
                                                                                                                           Date of
                                                                                                                          Acquisi-
                                                                                                                           tion (A)
                                                                        Building            Building          Accumulated Contribu-
                                                       Buildings           and               and             Depreciation  tion(C)
                               December 31               and             Improve-           Improve-       at December 31 Placed in
                                  2003        Land   Improvements Land    ments     Land     ments     Total    2003(2)   Service(P)
                               --------------------------------------------------  ------------------------------------------------
<S>                           <C>         <C>      <C>        <C>   <C>      <C>       <C>        <C>      <C>          <C>

Industrial
East Chicago Enterprise
           Center (3)......... $      -   $     7  $     139   $      -  $      2   $     7 $    141 $    148  $    69 Nov. 1997 (C)
EC I (3)......................    2,900       595          -         62         -       657        -      657      199 Nov. 1997 (C)
EC II (3).....................    5,000        18      2,360          4     2,634        22    4,994    5,016    2,371 Nov. 1997 (C)
EC III (3)....................    4,500        20      7,038          6       691        26    7,729    7,755    2,895 Nov. 1997 (C)
EC IV (3).....................    2,600        11      1,217          2       539        13    1,756    1,769      802 Nov. 1997 (C)
Hammond Enterprise
  Center (3)..................        -        26        614          -      (63)        26      551      577      383 Nov. 1997 (C)
EC V (3)......................    5,000        81      2,883          -       336        81    3,219    3,300    1,674 Nov. 1997 (C)
EC VI (3).....................    4,900       101      2,936          -     1,459       101    4,395    4,496    1,953 Nov. 1997 (C)
Chicago Enterprise
   Center (3).................        -       748        975         27        24       775      999    1,774      666 Nov. 1997 (C)
EC VII (3)....................        -       517      4,968         65     6,920       582   11,888   12,470    3,405 Nov. 1997 (C)
EC VIII (3)...................        -       124      2,493         45     2,575       169    5,068    5,237    2,897 Nov. 1997 (C)
EC IX (3) ....................        -       269      1,127         12       279       281    1,406    1,687      436 Nov. 1997 (C)
EC X (3) .....................        -       248      2,836         40       499       288    3,335    3,623    1,619 Nov. 1997 (C)
Arlington Heights I (3).......        -       617      2,638          -       382       617    3,020    3,637      920 Nov. 1997 (C)
Arlington Heights II(3).......        -       456      2,062          -       300       456    2,362    2,818      706 Nov. 1997 (C)
Arlington Heights III(3)......        -       452      1,938          -       286       452    2,224    2,676      663 Nov. 1997 (C)
1051 N. Kirk Road(4)..........    3,210       911      3,325          -   (1,580)       911    1,745    2,656      369 Nov. 1997 (A)
4211 Madison Street(6)........    2,347       690      2,745          -       209       690    2,954    3,644      430 Nov. 1997 (A)
200 E. Fullerton(6)...........    1,816       525      2,100          -       433       525    2,533    3,058      507 Nov. 1997 (A)
350 Randy Road(6).............      730       267      1,063          -       253       267    1,316    1,583      198 Nov. 1997 (A)
4300,4248,4250 Madison
   Street(5)..................    3,823     1,147      4,588         15        40     1,162    4,628    5,790      811 Nov. 1997 (A)
370 Carol Lane(6).............    1,839       527      2,107          9       133       536    2,240    2,776      330 Nov. 1997 (A)
388 Carol Lane(5).............    1,268       332      1,329          -       340       332    1,669    2,001      252 Nov. 1997 (A)
342-346 Carol Lane(5).........    2,199       600      2,398         46       251       646    2,649    3,295      392 Nov. 1997 (A)
343 Carol Lane(5).............    1,304       350      1,398          6        49       356    1,447    1,803      246 Nov. 1997 (A)
11039 Gage Avenue(6)..........      628       191        767          -       209       191      976    1,167      129 Nov. 1997 (A)
11045 Gage Avenue(6)..........    3,820     1,274      5,092          -       197     1,274    5,289    6,563      839 Nov. 1997 (A)
1401 S. Jefferson(6)..........      446       171        685          -        63       171      748      919      127 Nov. 1997 (A)
4160-4190 W  Madison
  Street(6)...................    2,427       931      3,708        132       388     1,063    4,096    5,159      627 Nov. 1997 (A)
550 Kehoe Blvd.(5)............    2,130       686      2,743         13     (105)       699    2,638    3,337      427 Nov. 1997 (A)
555 Kirk Road ................    1,525       520      2,108          -       176       520    2,284    2,804      198 Apr. 2000 (A)
1543 Abbott Drive.............      822       280      1,148          -        12       280    1,160    1,440      105 Apr. 2000 (A)
1455 Sequoia Drive (10).......    5,558     1,474      7,686          6     (184)     1,480    7,502    8,982      795 Aug. 2000 (P)
200 S. Mitchell...............    4,025     1,596      4,488          -        85     1,596    4,573    6,169      265 Aug. 2001 (A)
                              ----------------------------------------------------------------------------------------
Total Industrial..............   64,817    16,762     85,702        490    17,832    17,252  103,534  120,786   28,705
                              ----------------------------------------------------------------------------------------
Other Corporate Assets........        -         -        476          -     9,826         -   10,302   10,302    6,600
                              ----------------------------------------------------------------------------------------
Total.........................$ 572,820 $ 145,632 $   681,263 $   1,173  $ 38,953 $ 146,805 $720,216 $867,021 $129,381
                              ========================================================================================

</TABLE>


<PAGE>



                            PRIME GROUP REALTY TRUST
             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF DECEMBER 31, 2003

(1)  See Note 4 -  Mortgages  and  Notes  Payable  and  Bonds  Payable  to these
     Consolidated  Financial  Statements for a description of our mortgage notes
     payable and bonds payable.
(2)  Depreciation is calculated on the  straight-line  method over the estimated
     useful lives of assets, which are as follows:

                Building and improvements              40 years
                Tenant improvements                    Term of related leases
                Furniture and equipment                3-7 years

(3)  These properties cross-collateralize the letters-of-credit that enhance the
     industrial revenue bonds.
(4)  These properties collateralize a mortgage note payable of $15.5 million.
(5)  These properties collateralize a mortgage note payable of $14.6 million.
(6)  These properties collateralize a mortgage note payable of $14.0 million.
(7)  A pledge of certain  ownership  interests in the  entities  which own these
     properties are collateral for a $11.9 million mortgage note payable.
(8)  A $43.4 million  provision for asset  impairment was recognized in 2003 for
     this property.
(9)  A pledge of 100% of the  ownership  interest in the entity  which owns this
     property is  collateral  for two mortgage  notes  payable  totaling  $195.0
     million with the same lender.
(10) A pledge of 100% of the  ownership  interest in the entity  which owns this
     property is collateral for a $5.6 million mortgage note payable.

      The aggregate  gross cost of the properties  included  above,  for federal
income tax  purposes,  approximated  $946.1  million as of December 31, 2003. We
have $19.0 million in property held or under  development  at December 31, 2003,
for which the basis for federal income tax purposes  approximated  $10.7 million
at December 31, 2003. The net tax basis of our investment in unconsolidated real
estate  joint  ventures for federal  income tax  purposes  was $18.9  million at
December 31, 2003.

      The following table reconciles the Company's historical cost for the years
ended December 31, 2003, 2002 and 2001 (dollars in thousands):

<TABLE>
<CAPTION>



                                                                     Year ended December 31
                                                              2003             2002             2001
                                                       ----------------------------------------------------
<S>                                                       <C>                <C>               <C>

Balance, beginning of period.......................         $1,338,325        $1,206,516       $1,180,206
Additions during period............................             34,424           341,664           28,763
Property reclassified as held for sale.............                  -                 -                -
Disposals during the period........................           (436,809)         (190,467)            (953)
Conversion of common units to common shares........            (24,614)                -                -
Property impairments recorded during period........            (44,305)          (19,388)          (1,500)
                                                       ----------------------------------------------------
Balance, close of period...........................        $   867,021        $1,338,325       $1,206,516
                                                       ====================================================

</TABLE>


       The following table reconciles the accumulated depreciation for the years
     ended December 31, 2003, 2002 and 2001 (dollars in thousands):

<TABLE>
<CAPTION>



                                                                    Year ended December 31
                                                            2003             2002              2001
                                                     ------------------------------------------------------
<S>                                                  <C>                 <C>              <C>

Balance at beginning of period.....................     $    110,387      $     97,495     $     61,855
Depreciation and amortization for the period.......           34,450            33,428           35,665
Property reclassified as held for sale.............                -                 -                -
Disposals during the period........................          (15,456)          (20,536)             (25)
                                                     ------------------------------------------------------
Balance, close of period...........................     $    129,381      $    110,387     $     97,495
                                                     ======================================================
</TABLE>


<PAGE>



                                  EXHIBIT 12.1

                            PRIME GROUP REALTY TRUST

             STATEMENTS REGARDING COMPUTATION OF RATIOS OF EARNINGS
           TO COMBINED FIXED CHARGES AND PREFERRED SHARE DISTRIBUTIONS

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                 Year Ended December 31
                                    ------------------------------------------------------------------
                                        2003         2002         2001         2000         1999
                                    ------------------------------------------------------------------
<S>                                 <C>         <C>           <C>           <C>           <C>

Earnings (1) (2):
  (Loss) income from
   continuing operations
   before minority interest
   per  the consolidated
   financial statements .........   $  (39,373)  $   (7,435)  $  (18,544)   $  13,618    $  19,160
  Interest expense...............       53,386       36,977       38,886       42,897       32,547
  Amortization of debt issuance
   costs.........................        7,539        4,064        3,638        6,153        2,318
                                    ------------------------------------------------------------------
Earnings.........................   $   21,552   $   33,606   $   23,980    $  62,668    $  54,025
                                    ==================================================================

Fixed Charges (1) (2):
  Interest expense...............   $   53,386   $   36,977   $   38,886   $   42,897    $  32,547
  Capitalization of interest
   expense.......................        3,715       29,946       23,874       14,232        7,986
  Amortization of debt issuance
   costs.........................        7,539        4,064        3,638        6,153        2,318
  Preferred share distributions..        9,000       11,280       12,150       12,147       12,103
                                    ------------------------------------------------------------------
Total fixed charges..............   $   73,640   $   82,267   $   78,548   $   75,429    $  54,954
                                    ==================================================================
  Ratio of earnings to combined
   fixed charges and preferred
   share distributions..........           -            -            -            -            -
                                    ==================================================================
  Deficit of earnings to
   combined fixed charges and
   preferred share distributions    $  (52,088)  $  (48,661)  $  (54,568)  $  (12,761)  $     (929)
                                    ==================================================================
Funds from Operations (1) (2):
  Funds from operations..........   $   (1,085)  $  (29,924)  $   15,786   $   40,462   $   52,295
  Interest expense...............       53,386       36,977       38,886       42,897       32,547
  Amortization of debt issuance
   costs.........................        7,539        4,064        3,638        6,153        2,318
  Preferred share distributions..        9,000       11,280       12,150       12,147       12,103
                                    ------------------------------------------------------------------
Adjusted funds from operations...   $   68,840   $   22,397   $   70,460   $  101,659   $   99,263
                                    ==================================================================
Fixed Charges (1) (2):
  Interest expense...............   $   53,386   $   36,977   $   38,886   $   42,897   $   32,547
  Capitalization of interest
   expense.......................        3,715       29,946       23,874       14,232        7,986
  Amortization of debt issuance
   costs.........................        7,539        4,064        3,638        6,153        2,318
  Preferred share distributions..        9,000       11,280       12,150       12,147       12,103
                                    ------------------------------------------------------------------
Total fixed charges..............   $   73,640   $   82,267   $   78,548   $   75,429   $   54,954
                                    ==================================================================
  Ratio of funds from
   operations to combined
   fixed charges and preferred
   share distributions.........              -            -            -         1.35         1.81
                                    ==================================================================
  Excess (deficit)  of funds
   from operations to combined
   fixed charges and preferred
   share distributions..........    $   (4,800)  $  (59,870)  $   (8,088)  $   26,230   $   44,309
                                    ==================================================================

</TABLE>

(1)  Information  for the years ended December 31, 2001, 2000 and 1999 have been
     restated for the effect of adopting  SFAS 144 for the  reclassification  of
     the  operations  of  properties  sold during 2003 and 2002 from  continuing
     operations to discontinued operations.

(2)  Amortization  of debt issuance costs for the years ended December 31, 2001,
     2000 and 1999 have been  restated  for the effects of adopting  SFAS 145 by
     $0.2  million,  $3.5  million  and  $1.8  million,  respectively,  for  the
     reclassification of extinguishment of debt from extraordinary to continuing
     operations.


<PAGE>




                                  EXHIBIT 21.1

                            PRIME GROUP REALTY TRUST

                         SUBSIDIARIES OF THE REGISTRANT

                                DECEMBER 31, 2003


      The following  represents the Prime Group Realty  Trust's (the  "Company")
and  Prime  Group  Realty,  L.P.'s  (the  "Operating   Partnership")   operating
subsidiaries (the Company and the Operating Partnership have a majority interest
or control,  except in the case of 77 West Wacker  Drive,  L.L.C.  and  Dearborn
Center,  L.L.C.  the  ownership of which are further  described in the footnotes
below) and related properties as of December 31, 2003:

<TABLE>
<CAPTION>



           Entity                                                 Property
------------------------------------------------------------------------------------------------------
<S>                                                       <C>

33 W. Monroe, L.L.C. (3), (6)                            33 W. Monroe Street
33 W. Monroe - I, L.L.C. (6)                             Member of 33 W. Monroe, L.L.C.
77 West Wacker Drive, L.L.C. (6)(11)                     77 West Wacker Drive
77 West Wacker Limited Partnership (1), (3), (7)         IBM Plaza, Brush Hill Office Center
180 N. LaSalle, L.L.C. (3), (6)                          Member of 180 N. LaSalle II, L.L.C.
180 N. LaSalle II, L.L.C.                                180 N. LaSalle
200 E. Fullerton, L.L.C. (3), (6)                        200 E. Fullerton
200 S. Mitchell Court, L.L.C. (6)                        200 S. Mitchell Court
280 Shuman Blvd., L.L.C. (6)                             280 Shuman Blvd. (Atrium)
330 N. Wabash Avenue, L.L.C. (6)                         IBM Plaza
330 N. Wabash Mezzanine, L.L.C. (6)                      Member of 330 N. Wabash Avenue, L.L.C.
342 Carol Lane, L.L.C. (3), (6)                          342-346 Carol Lane
343 Carol Lane, L.L.C. (3), (6)                          343 Carol Lane
350 Randy Road, L.L.C. (3),(6)                           350 Randy Road
370 Carol Lane, L.L.C. (3),(6)                           370 Carol Lane
388 Carol Lane, L.L.C. (3),(6)                           388 Carol Lane
550 Kehoe Blvd., L.L.C. (3), (6)                         550 Kehoe Blvd.
555 Kirk Road, L.L.C. (6)                                555 Kirk Road
800 Jorie Blvd., L.L.C. (3), (6)                         800-810 Jorie Blvd.
800 Jorie Blvd. Mezzanine, L.L.C. (6)                    Member of 800 Jorie Blvd., L.L.C.
1051 N. Kirk Road, L.L.C. (3), (6)                       1051 N. Kirk Road

</TABLE>

<PAGE>





<TABLE>
<CAPTION>



             Entity                                                 Property
------------------------------------------------------------------------------------------------------
<S>                                                      <C>

1301 E. Tower Road, L.L.C. (3), (6)                      1301 E. Tower Road (Narco Tower)
1401 S. Jefferson, L.L.C. (3), (6)                       1401 S. Jefferson
1455 Sequoia Drive, L.L.C. (6)                           1455 Sequoia Drive
1543 Abbott Drive, L.L.C. (6)                            1543-1547 Abbott Drive
1600 167th Street, L.L.C. (3), (6)                       1600-1700 167th Street (Narco River Business Center)
2305 Enterprise Drive, L.L.C. (6)                        2305 Enterprise Drive
4160 Madison Street, L.L.C. (3), (6)                     4160-4190 West Madison Street
4211 Madison Street, L.L.C. (3), (6)                     4211 Madison Street
4300 Madison Street, L.L.C. (3),(6)                      4300, 4248, 4250 Madison Street
4343 Commerce Court, L.L.C. (3), (6)                     4343 Commerce Court (The Olympian Office Center)
7100 Madison, L.L.C. (6)                                 7100 Madison
11039 Gage Avenue, L.L.C. (3), (6)                       11039 Gage Avenue
11045 Gage Avenue, L.L.C. (3), (6)                       11045 Gage Avenue
Arlington Heights I, L.P. (1), (7)                       425 E. Algonquin Road
Arlington Heights II, L.P. (1), (7)                      425 E. Algonquin Road
Arlington Heights III, L.P. (1), (7)                     425 E. Algonquin Road
Brush Hill Office Center, L.L.C. (6)                     Brush Hill Office Court
Dearborn Center, L.L.C. (4), (6)(12)                     Bank One Center
DeKalb Business Park, L.L.C. (4), (6)                    Property held for development
East Chicago Enterprise Center Limited Partnership       4440 and 4635 Railroad Avenue
   (1), (2), (7)
Enterprise Center I, L.P. (1), (4), (7)                  4407 Railroad Avenue
Enterprise Center II, L.P. (1), (7)                      4407 Railroad Avenue (Bldg 2)
Enterprise Center III, L.P. (1), (7)                     4407 Railroad Avenue (Bldg 3)
Enterprise Center IV, L.P. (1), (7)                      4407 Railroad Avenue (Bldg 4)
Enterprise Center V, L.P. (1), (7)                       4531 Columbia Avenue
Enterprise Center VI, L.P. (1), (7)                      4527 and 4531 Columbia Avenue
Enterprise Center VII, L.P. (1), (7)                     13535 - B South Torrence Avenue
Enterprise Center VIII, L.P. (1), (7)                    13535 - A and D South Torrence Avenue
Enterprise Center IX, L.P. (1), (7)                      13535 - E, F and G South Torrence Avenue
Enterprise Center X, L.P. (1), (7)                       13535 - C and H South Torrence Avenue
Hammond Enterprise Center Limited Partnership (1),       4507 and 4527 Columbia Avenue
   (2), (7)
Kemper/Prime Industrial Partners (1), (2), (4),          13535 South Torrence Avenue
   (9)
LaSalle-Adams, L.L.C. (3), (6)                           208 South LaSalle Street
Libertyville Corporate Office Park II, L.L.C. (6)        Owner of Vacant Land adjacent to 80 Pine Meadow
                                                            Corporate Office Park
Libertyville Industrial, L.L.C. (6)                      Libertyville Business Park
PGR Finance II, Inc. (10)                                Member of LaSalle-Adams, L.L.C.
PGR Finance III, Inc. (10)                               Member of Eight of the L.L.C's described above
PGR Finance IV, Inc. (10)                                Member of 371 N. Gary Avenue, L.L.C. former owner
                                                            of 371-385 N. Gary Avenue and Member of 1600
                                                            167th Street., L.L.C.
PGR Finance VII, Inc. (10)                               Member of 6400 Shafer Court, L.L.C.


</TABLE>

<PAGE>

<TABLE>
<CAPTION>



             Entity                                                 Property
------------------------------------------------------------------------------------------------------
<S>                                                      <C>
PGR Finance VIII, Inc. (10)                              Limited Partner of 77 West Wacker Limited
                                                            Partnership
PGR Finance IX, Inc. (10)                                Member of 2000 York Road, L.L.C.
PGR Finance X, Inc. (10)                                 Member of Two Century Center, L.L.C.
PGR Finance XI, Inc. (10)                                Member of 180 N. LaSalle, L.L.C.
PGR Finance XII, Inc. (10)                               Member of 33 W. Monroe, L.L.C.
PGR Finance XIII, Inc. (10)                              Member of Six of the L.L.C.'s described above
PGR Finance XIV, Inc. (10)                               Member in 1051 N. Kirk Road, L.L.C. of 4343
                                                            Commerce Court, L.L.C.
PGR Finance XV, L.L.C. (6)                               Member of Brush Hill Office Center, L.L.C.
PGR Finance XVI, Inc. (10)                               None
PGR Finance XVII, Inc. (10)                              Member of 800 Jorie Blvd., L.L.C.
PGR Finance XXI, L.L.C. (6)                              Member of 2305 Enterprise, L.L.C.
PGR Finance VI, Inc. (10)                                Member of 2100 Swift Drive, L.L.C.
Phoenix Office, L.L.C. (6)                               Investment in Plumcor/Thistle, L.L.C., owner of
                                                            Thistle Landing in Phoenix, Arizona
Prime Aurora, L.L.C. (4), (6)                            Property under development
Prime/Beitler Development Company, L.L.C. (4),           Sole member of Dearborn Center, L.L.C.
   (5), (6)
Prime Group Management, L.L.C. (6)                       Manager of Continental Towers
Prime Rolling Meadows, L.L.C. (4), (6)                   Property held for development
Two Century Centre, L.L.C. (3), (6)                      1700 East Golf Road (Two Century Centre)
Wilke - Venture, L.L.C. (3), (6)                         3800 and 3850 North Wilke Road and 3930 Ventura
                                                            Drive (Commerce Point)

</TABLE>


(1)  Represents  entities  and  properties  previously  owned  by the  Company's
     predecessor   and  whose   operations   were   included  in  the  Company's
     predecessor's combined financial statements.
(2)  These entities have divided the ownership of the related properties.
(3)  We have an indirect  ownership  interest in these  entities  through wholly
     owned subsidiaries (PGR Finance I-XIV and XVI-XVII, Inc.).
(4)  These  entities  own parcels of land that are  currently  held for or under
     development.
(5)  We own approximately 90% of the entity and the remaining ownership interest
     has been reflected as minority interest- other at December 31, 1999.
(6)  Delaware Limited  liability  Company (7) Illinois  Limited  Partnership (8)
     Florida Limited  Partnership (9) Illinois General Partnership (10) Delaware
     Corporation
(11) The  Operating  Partnership  owns a 50% common  interest  and  manages  the
     property.
(12) The  Operating  Partnership  owns a 30%  subordinated  common  interest and
     manages the property.



<PAGE>



                                  EXHIBIT 23.1







                         CONSENT OF INDEPENDENT AUDITORS

     We consent to the incorporation by reference in the Registration  Statement
(Form  S-8  No.333-67940)  pertaining  to the Prime  Group  Realty  Trust  Share
Incentive  Plan  of  our  report  dated  March  1,  2004,  with  respect  to the
consolidated  financial  statements  and  schedule of Prime Group  Realty  Trust
included in the Annual Report (Form 10-K) for the year ended December 31, 2003.



                                                 /s/ Ernst & Young LLP
                                                 ---------------------

Chicago, Illinois
March 9, 2004